Tuesday, February 20, 2007

Forbes Magazine's Best Cities for Jobs

Here's the ranking of the largest 100 metro areas in the U.S. for "best cities for jobs," from Forbes Magazine in its annual survey, and here is the full article. Forbes uses 5 variables: Unemployment rate, job growth, income growth, median household income, and cost of living. It measured the largest 100 metropolitan areas, as defined by the U.S. Census Bureau, and obtained the data from Moody's economy.com.

Top 5 cities for jobs are:
1. Raleigh
2. Phoenix
3. Jacksonville
4. Orlando
5. Wash DC

At the bottom, New Orleans ranks #99 and Detroit ranks #100.

Thanks to Kristin Reardon.

Politics is Priceless

The great allure of government programs in general for many people is that these programs allow decisions to be made without having to worry about the constraints of prices, which confront people at every turn in a free market.

They see prices as just obstacles or nuisances, instead of seeing them as messages conveying underlying realities that are there, whether or not prices are allowed to function. What prices are telling San Francisco is that municipal golf courses cost more than they are worth -- not in my opinion, but in the actions of people who are spending their own hard-earned money. But what politician wants to hear that? Politics is priceless.

~Thomas Sowell,
writing about San Francisco's 6 municipal golf courses, which are all losing money, and the hand-wringing over what to do about it.

Monday, February 19, 2007

Cash of the Future? Your Cell Phone

Mobile phones are becoming an increasingly popular way to make all sorts of payments. In America fans of the Atlanta Hawks have been testing specially adapted Nokia handsets linked to their Visa cards to enter their local stadium and to buy refreshments. Elsewhere schemes are more advanced. You can already pass the day in Austria without carrying cash, credit or debit cards by paying for everything, including consumer goods, with a mobile phone. Worldwide payments using mobile phones will climb from just $3.2 billion in 2003 to more than $37 billion by 2008.

Mobiles are used to buy lots of things in Asia. Earlier this month Visa and SK Telecom, South Korea's leading mobile company, announced the commercial launch of a phone-payments system aimed initially at 30,000 subscribers. In Japan hundreds of thousands of transactions, from buying railway tickets to picking up groceries, already take place every day with customers passing their handsets across a device like that pictured above. Payments are confirmed with a sound like the bell of an old cash register.

From the current issue of The Economist, "A Cash Call: Mobile phones are quickly emerging as ways to pay with electronic cash."

How To Fire An Incompetent Teacher? Not Easy

The series of steps a principal must take to dismiss a public school teach is Byzantine. "It's almost impossible," Klein complains.

The regulations are so onerous that principals rarely even try to fire a teacher. Most just put the bad ones in pretend-work jobs, or sucker another school into taking them. (They call that the "dance of the lemons.") The city payrolls include hundreds of teachers who have been deemed incompetent, violent, or guilty of sexual misconduct. Since the schools are afraid to let them teach, they put them in so-called "rubber rooms" instead. There they read magazines, play cards, and chat, at a cost to New York taxpayers of $20 million a year.

Click on the link here to see a file that shows the dozens and dozens of steps involved to remove an incompetent unionized public shool teacher in NYC. You'll see why principals rarely even try to fire a bad teacher.

Is It Any Wonder the Big 3 Are in Trouble?

1. The number of vehicles per workers are as follows:
Toyota 28 vehicles/worker
GM 25
Ford 22
VW 15
Chrysler 12.5

2. Toyota produces about the same number of cars as GM with 15% fewer workers.

3. Toyota produces roughly twice as many cars per worker as Ford or Chrysler.

Sunday, February 18, 2007

The Sugar Swindle

Americans pay about double the world market price for sugar, a hidden tax that hurts everyone with a sweet tooth. Many beverage and food makers catering to that sweet tooth have long used corn syrup instead of sugar because it's cheaper, but the price of corn syrup is beginning to rise. So now would be a good time for the U.S. government to revisit its destructive farm policies.

This is a classic case of a narrow, vocal lobby — sugar growers — benefiting at the expense of the larger economy. The latest victim of high-priced sweeteners is Atlanta-based Coca-Cola Enterprises Inc., the largest bottler of Coca-Cola products, which announced last week that it would cut 3,500 jobs because of a $1.1-billion loss in 2006. Other soft-drink makers, confectioners and food companies also pay a steep price for the complex system of price supports and import quotas aimed at protecting U.S. sugar growers by insulating them from global market realities.

From today's
LA Times, thanks to Club for Growth.

MP: The current world price of sugar is about 11 cents per pound, and the U.S. price is about 21 cents per pound, because of protectionist U.S. trade policy that protects inefficient domestic sugar beet farmers from more efficient sugar cane farmers in other countries.

Steve Jobs Blasts Teacher Unions

Apple Inc. CEO Steve Jobs lambasted teacher unions today, claiming no amount of technology in the classroom would improve public schools until principals could fire bad teachers.

From the
Houston Chronicle, via Club for Growth.

Realtor Shakeout

The long-awaited shakeout among real-estate agents is finally happening -- much to the relief of those who are sticking with the business and prefer a bit less competition.

When David Lereah, chief economist of the National Association of Realtors, addressed the group's convention in New Orleans in November, he got one of the biggest bursts of applause by predicting there would be fewer Realtors around in a year. Mr. Lereah said in an interview that he expects membership in the trade group to decrease by about 6% to 8% from the record of nearly 1.4 million reached in 2006.

The culling of agent ranks is a reaction to the downturn in housing that started around mid-2005. Sales of previously occupied homes last year declined 8% to 5.7 million, even as the number of agents continued to increase for the year as a whole.

The industry probably has 20-25% more agents than it needs, says Ronald Peltier, CEO of HomeServices of America Inc., a Minneapolis chain that owns brokerages in 19 states.

From the
WSJ article "Amid Slump, Real-Estate AgentsHang Up Their Blazers."

Saturday, February 17, 2007

What's Your House Worth?

This is what usually happens the first time you visit Zillow.com: You type in your address to check out the Zestimate, an approximation of your home's market value. It appears in a little pop-up superimposed on a photographic map of your neighborhood. The number might make you smile; it could make you angry.

From the current issue of
Fortune Magazine.

Get a "
zestimate" here of your house, or your neighbor's house, or your boss's house.

Forget the World Bank, Try Wal-Mart

Between 1990 and 2002 more than 174 million people escaped poverty in China, about 1.2 million per month. With an estimated $23 billion in Chinese exports in 2005 (out of a total of $713 billion in manufacturing exports), Wal-Mart might well be single-handedly responsible for bringing about 38,000 people out of poverty in China each month, about 460,000 per year.

Act locally, think globally: Shop Wal-Mart.

Michael Strong, CEO and co-founder of FLOW.

Watch a
5-minute interview of Michael Strong on Bloomberg's Money and Politics, via Cafe Hayek.

The Sad Irony of Unions

Unions help those they represent by trying to raise wages above what they would otherwise be. To the extent they succeed, they reduce the demand for labor in unionized shops. That means more workers have to find employment in non-unionized shops, pushing down wages there. That's especially tough on workers with limited skills and education. The sad irony of unions is that they can only improve the lot of their members at the expense of other workers.

~George Mason economist Russ Roberts in today's LA Times

MP: Empirical evidence shows that industries with the largest union wage premiums are precisely the industries with the largest declines in the employment of unionized workers. The tradeoff then is short-run gains of above-market wages for long-run losses of employment for unionized workers. And the other sad irony is the more successful unions are in the short-run, the worse off they and their industry will be in the long-run. Exhibit A: UAW and GM, Ford and Chrysler.

Quote of the Day

"I'm proud to be paying taxes in the United States. The only thing is...I could be just as proud for half the the money."

~Arthur Godfrey

Friday, February 16, 2007

Incentives Matter: Bowling vs. Income Taxes

Under the rules of bowling, you get rewarded, not penalized, for success. If you get a spare, the scoring system rewards you by adding in the pins from the next ball into the current frame, and if you get a strike the scoring system rewards you by adding the pins from your next two balls into the current frame.

Under a progressive income tax system, you get penalized, not rewarded, for being successful, because the more income you earn, the higher the tax rate you pay, currently up to 35%, and it's been as high as 91% in the 1950s and 1960s, and 70% in the 1970s.

If we kept score in bowling the way we tax income, we would subtract points for a spare or strike.

If we taxed income the way we scored bowling, we would have a regressive tax system and would reduce the tax burden for the most successful workers, not increase it.

More on Income Inequality

If there is inequality in America — and no one can accurately measure it — it is not the product of a dysfunctional inheritance system that preserves the oligarchy of one generation for the next. Rather, income and wealth inequality in America is almost entirely the result of an economic system that rewards skills and hard work, and rewards unusually savvy people extraordinarily well. This is not new to the 21st century; it has always been this way in America.

The American dream is not broken. Our economic system, however flawed with perceptions of inequality, attracts people of all abilities from around the world. People who aspire to be computer programmers, financiers, gardeners, and taxicab drivers all gravitate toward America. Parents who hope that their children may have a chance to do well and amass a small fortune come to America.

They come not because they worry about income inequality; they come precisely because they do not.

From economist Diana Furchtgott-Roth in
today's NY Sun.

Women Are Chokers?

Among the highest paid corporate executives, only 2.5% are women. Among the most elite scientists (those who have been elected to the National Academy of Sciences), fully 9% are women. Depending on your biases, you can read that as evidence that women are better at science than business, that corporations discriminate against women, or (if you believe that profit-maximizing corporations get everything just right) that the National Academy discriminates against men.

If you have access to the World Wide Web, you'll have no problem finding theories, evidence, counter evidence, and polemics galore on this subject. Here I just want to talk about one bit of evidence regarding one of the many factors that might be in play: Women—especially high-achieving women—choke under pressure.

Read more here from "Armchair Economics: Economics and Everyday Life" author Steven E. Landsburg's
latest Slate column.

Quote of the Day II

Today the Internet has become an efficient way to transmit libertarian ideas and show their practical application. With its decentralized, free-wheeling ethos, the Internet is itself libertarian without even trying to be. Jimmy Wales, the man who started the interactive online encyclopedia Wikipedia, believes that "facts can help set the world free." The largest retail market in the world is eBay, which allows anyone to buy and sell without a government license.

~John Fund in
yesterday's WSJ

Capitalist-Friendly Harvard University

It’s no surprise that Ec 10 tops this spring’s enrollment figures, but a historical studies Core on capitalism has ballooned to more than four times its previous size. Ec 10, the popular name for Social Analysis 10, “Principles of Economics,” packs Sanders Theatre this semester with 736 undergraduates, despite a drop-off of more than 200 students from first semester. The course still has more than two times the number of undergraduates registered for the next largest course, Historical Study B-49, “History of American Capitalism.”

From the
Harvard Crimson newspaper, via Greg Mankiw's blog.

Quote of the Day

"Protectionism is seductive, but countries that succumb to its allure will soon have their economic hearts broken. Conversely, countries that commit to competitive borders will ensure a brighter economic future for their citizens. This lesson should not be lost on the U.S., the paragon of competitive growth, where politicians and policy makers are contemplating whether to construct more protective barriers. It is openness that gives people the opportunity to use their entrepreneurial talents to create social surplus, rather than using those talents to protect what they already have (or to protect rents, as economists like to say). Social surplus begets a rising standard of living, which begets growth, which begets social surplus, and so on. Rent protection stops growth cold and keeps people poor."

~Nobel economist Edward Prescott in
yesterday's WSJ.

Thursday, February 15, 2007

Informal Economy in Latin America: 50% Workforce

On average, setting up a business takes 5 days in the U.S., 19 days in Panama -- the fastest in Latin America -- 27 days in Mexico, 72 days in Peru and 152 days in Brazil, according to the World Bank.

Is it any surprise that of the 13 million Peruvians of working age, 2.3 million work in the private sector formal economy, 1 million work in the public sector formal economy, and nearly 10 million work in the informal economy?

Read more here in
today's Miami Herald, "Informal economy proves hard to control: About half of Latin America's urban workforce toils in the informal economy despite efforts to bring them under greater government oversight."

Quotes of the Day

"I don't believe in nothing no more, man. I'm going to law school."

"I didn't do it, nobody saw me do it, you can't prove anything."

~Bart Simpson

Why is U.S. Health Care So Expensive?

Business writer Steven Pearlstein had an excellent article in yesterday's Wash Post about U.S. health care costs:

The reason the system has been so resistant to change is that lots of powerful interests do very nicely with things just the way they are.

Although doctors, hospitals, insurers and drug companies say they, too, want things to change, any comprehensive reform would reduce their incomes and their profits.

For example, the American Medical Association hopes no one will notice that American doctors make a lot more money than doctors elsewhere -- roughly twice as much. The average incomes of $274,000 for specialists and $173,000 for general practitioners are, respectively, 6.6 and 4.2 times those of the average patient. The rate in the other countries is 4 and 3.2.

MP: In "Capitalism and Freedom," Milton Friedman describes the American Medical Association as the "strongest trade union in the United States" and documents the ways in which the AMA vigorously restricts competition to achieve above-market income.

Pearlstein cites a recent
study by McKinsey Global Institue that shows that "the U.S. spends approximately $480 billion ($1,600 per capita) more on health care than other OECD countries and that additional spending is not explained by a higher disease burden.

Instead, MGI found that the overriding cause of high U.S. health care costs is the failure of the intermediation system — payers, employers, and government — to provide sufficient incentives to patients and consumers to be value–conscious in their demand decisions, and to regulate the necessary incentives to promote rational use by providers and suppliers."

MP: Consumers of health care pay only 14% of health care costs out-of-pocket, and being insulated from the full burden of costs, there is no incentive to be cost conscious. If consumers aren't cost conscious, the providers of health care are much less likely to be cost conscious.

Recipe for Low Unemployment Not Complicated

From today's WSJ:

Europe just got its best jobless report in a very long time. The bad news: In a decade when record numbers of people found work in the rich world, Europe's best is an unemployment rate of 7.5%, significantly higher than America's 4.6% or that of any other developed economy.

The Old World offers a useful model of what not to do. Its largest economies -- Germany, France and Italy -- have shunned a policy mix that has enabled English-speaking and Nordic countries to reduce their jobless rolls.

Rigid job protection laws have the perverse effect of keeping people out of work. Germany and France are generous with benefits, lax about getting the unemployed off the dole and inflexible on hiring and firing. Such laws discourage companies from hiring and they discriminate against the jobless by raising the bar to enter the workforce; women and minorities are disproportionately hit.

The recipe isn't complicated: Reduce taxes to reduce wage costs, tighten rules on government benefits, loosen up employment protection laws.

MP: In Europe, a 7.5% unemployment is celebrated as the best unemployment rate in a decade. In the U.S. a 6% unemployment in 2002-2003 was dismissed by the media as a "jobless recovery." With an jobless rate of Michigan's just slightly above 7%, it's called a "single state recession."

Dollar Coins Make Debut Today

The new dollar coin makes it debut today, from the NY Times:

The American dollar is now one of the smallest-value banknotes remaining in circulation in the world. Thirteen European nations use one- and two-euro coins, worth $1.32 and $2.64 respectively, and the smallest bill there is five euros, or $6.60.

Japan circulates a 500-yen coin, worth $4.14, with the smallest bill worth 1,000 yen, or $8.28. Most other Western nations have similar value levels for their largest coins and smallest bills. The most widely used coin in the United States, of course, is just 25 cents.

Paradoxically, Sacagawea coins are popular in countries like Ecuador that use American currency.

Dollar coins cost about 20 cents each to make, but last for up to 30 years; bills cost only about 4 cents each, but must be replaced every 18 to 22 months.

Maybe it work this time, the Fed has ordered 300 million dollar coins to be minted.

Wednesday, February 14, 2007

WSJ: Walk-in Retail Health Clinics

WSJ article on walk-in health clinics:

For people who aren't insured or have high-deductible policies, the retail health clinics -- run by companies such as MinuteClinic, Take Care Health Systems and RediClinic -- can offer significant savings. Many minor ailments are treated for $49 to $59, significantly less than at many doctors' offices.

MinuteClinic, the biggest chain, has 160 clinics and plans to open another 300 this year. Take Care Health, the next largest chain, has 36 clinics and plans to open another 250 this year.

One appeal of the clinics is that they post prices for services, such as treating bronchitis or giving a flu shot. Such information is rarely seen in physicians' offices or hospital emergency rooms, and consumer advocates have been pressing for more price transparency.

For many consumers, convenience is the main appeal of the clinics; for example, on a stop in for a strep test, a customer was diagnosed, given a prescription for an antibiotic and had it filled at the pharmacy -- all in 20 minutes.

See my article "
Deregulate Health Care, Bring Back House Calls."

Ethanol = Corn + Tax Dollars

A Portrait of the Economy

Last year, U.S. exports, industrial production, real hourly compensation, corporate profits, federal tax revenues, retail sales, GDP, productivity, the number of people with jobs, the number of students in college, airline passenger traffic and the Dow Jones Industrial Average all hit record levels. For the third consecutive year, global growth was strong, continuing to lift (and hold) millions of people out of poverty. From 30,000 feet, heck from 1,000 feet, it sure looks like the best of times.

The economy is still riding a wave of productivity growth, built on the winds of technological change. Computer chips are still getting faster, cheaper and more efficient. Software is becoming more powerful and telecommunication advances are moving at warp speed.

Free-market capitalism is not perfect. But it remains the single most efficient and powerful system for creating wealth, reducing poverty and developing less wasteful ways of organizing output and consuming resources.

From "
A Portrait of the Economy," by BRIAN S. WESBURY in today's WSJ.

Who Sells Gas, And For What?

Myth: Most consumers believe that major oil companies own and operate the majority of fueling stations in the United States.

Fact: In reality, fewer than 3% of the more than 112,000 convenience stores selling gasoline are owned and operated by major oil companies. Convenience stores sell an estimated 80% of the gasoline purchased in the United States, and roughly 60% of these stores are one-store operations, owned by independent entrepreneurs.

Myth: One in 11 consumers (9%) say that gasoline retailers make more than $1 per gallon in profit, 30% of consumers age 18 to 49 believe that gas stations make 50 cents or more in retail profits per gallon of gasoline, and 2/3 of that group believe that gas stations make 10 cents or more per gallon in profits.

Fact: After factoring in all expenses, including credit card fees, the real average profit per gallon is closer to 1 cent.

From a
press release from the National Association of Convenience Stores.

Collective Wisdom of Markets

From today's NYTimes, "Odds Are, They’ll Know 2008 Winner":

It is the latest iteration of one of the most important economic developments of modern times - trading on the future.

Over the last few years,
Intrade — with headquarters in Dublin, where the gambling laws are loose — has become the biggest success story among a new crop of prediction markets.

It has also been remarkably clairvoyant. Heading into the 2004 presidential election, Intrade’s odds correctly forecast the outcome in all 50 states.

Current odds for the U.S. 2008 presidential election on Intrade:

Democratic Nomination for President
Hillary Clinton 49%
Obama 21%
Edwards 13%

Republic Nomination for President
McCain 36%
Giuliani 23%
Romney 18%

President 2008
Clinton 26%
McCain 16%
Giulian 14%
Obama 11%

President 2008 by Party
Democrat 57%
Republican 42%

Odds that U.S. economy will go into a recession in 2007: 20%

Wanna bet? Open an account on Intrade.

Tuesday, February 13, 2007

Why Lawrence Summers Was Fired from Harvard

In a 2005 speech economist Lawrence Summers suggested three possible reasons, including discrimination, for why women are underrepresented in science and engineering at top universities.

One possible reason is the greater variablity theory, i.e. women and men are equally intelligent on average, but male intelligence has greater variability than female intelligence (see graph above), and therefore there are more male geniuses AND male idiots. To be sucessful at MIT in engineering and science, you have to be in the extreme right-hand tail of the distribution for intelligence, i.e. 3-4 standard deviations above average; and in the range of 3-4 standard deviations above the mean, women are underrepresented and men are overrepresented. In that case, women would be underrepresented in super-competitive science and engineering departments.

NOTE: This was one of two reasons given by Summers, in addition to discrimination. Here is what Summers said:

It does appear that on many, many different human attributes-height, weight, propensity for criminality, overall IQ, mathematical ability, scientific ability-there is relatively clear evidence that whatever the difference in means-which can be debated-there is a difference in the standard deviation, and variability of a male and a female population.

If one supposes, as I think is reasonable, that if one is talking about physicists at a top twenty-five research university, one is not talking about people who are two standard deviations above the mean. And perhaps it's not even talking about somebody who is three standard deviations above the mean. But it's talking about people who are three and a half, four standard deviations above the mean in the one in 5,000, one in 10,000 class.

Quote of the Day

To take a set of diverse examples, the data will, I am confident, reveal that Catholics are substantially underrepresented in investment banking, which is an enormously high-paying profession in our society; that white men are very substantially underrepresented in the National Basketball Association; and that Jews are very substantially underrepresented in farming and in agriculture. These are all phenomena in which one observes underrepresentation, and I think it’s important to try to think systematically and clinically about the reasons for underrepresentation.

~Economist Lawrence Summers, ex-President of Harvard University

Trade for 2006

The BEA released its report today for U.S. International Trade in Goods and Services through December 2006. Here are some key points:

1. U.S. exports of goods increased by 14.42% in 2006 from $894 billion to $1,023 billion, thanks in part to the weak dollar and strong demand for our capital goods, industrial supplies and consumer goods.

2. U.S. imports of goods increased by 10.85% in 2006 from $1677 to $1859 billion.

3. U.S. exports of services increased by 8.8% (from $380b to $414b) vs. an 8.5% increase in service imports ($314b to $341b).

Despite the greater percentage change in exports vs. imports for both goods and services in 2006, the overall trade deficit increased by 6.7% to $764 billion in 2006, because the starting level of imported goods in 2005 ($1677 billion) was so much greater than the starting value for exported goods ($894 billion).

Patron Saint of Blogging: Milton Friedman

Excerpts from Milton Friedman: Rightful Patron Saint of Blogging:

The beauty of blogging is self regulation at its very best.

The “blogosphere” is like a little experimental universe validating consumer choice vs. regulation—and consumer choice has won a colossal victory.

Left to the free market of ideas and instant reader feedback, good writing, quality and reliability in blogging secures a readership and reputation solely on merit.

Friedman should be the patron saint of the Age of Blogging: people with brains, networks, and powers of self-expression don't wait for journalism degrees anymore to have an impact.

Mad Money: How to Lose Your Money

From Slate Magazine "How to Lose Your Money Fast":

I am not arguing that Cramer is usually wrong. I am arguing that his overall investment advice—try to out-trade the pros—is lousy. A far more intelligent strategy, one that will beat most pros, is to buy and hold a diversified portfolio of low-cost index funds. In the vast majority of cases, this will yield higher returns with less risk, time, effort, and stress than short-term speculation. The good news is, even if you pursue the smarter strategy, you can still watch Cramer's show. Just don't fool yourself into thinking that it will give you a good chance of winning the speculation game.

Remember, your competition—all other traders—are primarily full-time professionals who do nothing but research and trade all day long. Unless you have a multimillion-dollar research budget, a platoon of brilliant analysts, relationships with salespeople at all major brokerage firms, relationships with senior managers at every company, a Rolodex full of industry contacts, and a decade or two of trading experience, you will be at a serious disadvantage no matter how much research you do. Remember, too, that the vast majority of professionals, even those who possess all of the above advantages, lose the speculation game (because it is really hard to win). Then ask yourself again why, by watching a TV show and doing some part-time research, you should reasonably expect to win.

How do you think the managers of 15,000 U.S. hedge funds and mutual funds feel about competing against millions of part-time amateurs who think that watching Mad Money gives them an edge? Answer? Stoked. Finally, some easy money.

Bottom Line: Buy and hold indexed funds from Vanguard or Fidelity, and watch Mad Money for entertainment purposes only. After taxes and expenses, you'll beat 97% of all actively traded funds.... not bad.

Quote of the Day

While many people think the Federal Reserve controls interest rates, and some even think the Fed controls the entire economy, in reality, the Fed only controls one policy tool - the amount of money circulating in the economy.

By adding money to, or subtracting money from, the US banking system, the Fed can impact the economy in the short-term, and influence the level of interest rates. But printing money creates no lasting wealth. If it did, counterfeiting would be legal and no nation on earth would experience poverty.

From "Monday Morning Outlook" by Brian S Wesbury; Chief Economist, First Trust Portfolios

Monday, February 12, 2007

Consumer Sovereignty, UK Style

Excellent editorial in the UK Telegraph "Why Snow Closes Schools But Not Shops"

Last Thursday, the day of the Great Snow, neither our scheduled rubbish collection nor any postal delivery took place, but our newsagent managed to struggle through the arctic conditions – well, the four inches of crunchy white stuff on the ground – to deliver our papers at 7am. The schools in our area were all closed, but every single shop and supermarket was open for business at the normal time.

There is a certain common theme in the way that government-run public services treat you, as opposed to the ones that have to compete for your business (and whose survival depends on pleasing the consumer).

Thanks to Bob Houbeck for the tip.

Significant Income Mobility

The table above (click to enlarge) is from the paper "Family Income Mobility - How Much is There and Has It Changed," and shows significant income mobility over a 23-year period by tracking the exact same households from 1968 to 1991.

The bottom row tracks those in the lowest-income quintile in 1968, and shows that only 41.6% of that group stayed there for two decades, and almost 60% had moved up to a higher quintile, and more than 34% had moved to one of the three highest quintiles.

Among those in the next-to-lowest income quintile in 1968, almost 75% had moved up by one or more income group between 1968 and 1991.

The top row tracks those in the highest-income quintile in 1968, and shows that only about 47% of those individuals were in that same top quintile 23 years later, and 53% had moved down by one or more quintiles; 7% to the lowest quintile.

Bottom Line: There is significant movement up and down the income categories over time. The "top 5%" or "top 10%" or "the rich" are not closed groups, like a country club that is not accepting new members. Most workers start in one of the low income quintiles when they are young, make it into one of the top quintiles at the peak of their career, and move back to a lower income quintile in retirement.

Why Europe Lags Behind the U.S.: Dynamism

The level of economic dynamism is a matter of how fertile a country is in coming up with innovative ideas having prospects of profitability, how adept it is at identifying and nourishing the ideas with the best prospects, and how prepared it is in evaluating and trying out the new products and methods that are launched onto the market.

Europe's root problem is a dearth of such economic dynamism. Germany, Italy and France possess less dynamism than do the U.S. Far fewer firms break into the top ranks in the former, and fewer employees are reported to have jobs with extensive freedom in decision-making -- which is essential at companies engaged in novel, and thus creative, activity.

From 2006 Nobel economist Edmund Phelps in today's WSJ,
Entrepreneurial Culture.

Global Trade and U.S. Economy Both Grow

1. U.S. exports grew by 13.1% in the 12-month period through November 2006, totaling $1.3 trillion. To put this number into perspective, Germany's entire GDP was $2.79 trillion and India's GDP was $772 billion.

2. U.S. exports shot up to 11.2% of U.S. GDP in the third quarter alone, the highest level in dollar terms ever.

3. Since the 2001 recession, the U.S. economy has created 9.3 million new jobs, compared with 360,000 new jobs in Japan during the same period and 1.1 million new jobs in the euro zone. This despite our trade deficits and their trade surpluses.

From "As Global Trade Grows, So Will U.S. Economy," by Donald Lambro.

Sunday, February 11, 2007

1281% Annual Inflation in Zimbabwe

NY Times article "As Inflation Soars, Zimbabwe Economy Plunges"

The trigger of the country's crisis — hyperinflation — reached an annual rate of 1,281% this month, and has been near or over 1,000% since last April (see graph above). Hyperinflation has bankrupted the government, left 8 in 10 citizens destitute and decimated the country’s factories and farms.

The central bank’s latest response to these problems, announced this week, was to declare inflation illegal. From March 1 to June 30, anyone who raises prices or wages will be arrested and punished.

MP: Perhaps instead of "declaring inflation illegal" (isn't that like declaring high temperatures in August "illegal"), Zimbabwe should follow New Zealand's approach to monetary policy:

"The Reserve Bank of New Zealand Act sets out an ambitious framework for setting monetary policy goals and holding the Governor to account for the conduct of monetary policy. The framework is built around the provisions that make the Governor the single decision maker, and allow the Governor to be dismissed for inadequate performance."

Sucking Sound of Jobs Leaving Bangalore?

You’ve probably never heard of Kannada, the native language of Karnataka. You’ve probably never heard of Karnataka either. But there’s a good chance you’ll chat with a Karnatakan if your iPod ever locks up or you have trouble installing the new Windows Vista operating system.

That’s because Karnataka is the Indian state whose capital city, Bangalore, is "the back office to the world." Bangalore is awash in call centers for Western companies such as Apple and Microsoft, boasts over 200 high tech companies of its own, and enjoys the highest number of engineering colleges of any city on Earth.

But if an Indian court doesn’t step in soon, the out-sourcing capital of the world may put itself out of work.

If the crackdown on these schools succeeds, the English-fluent high-tech labor pool will gradually drain away and the sucking sound of jobs leaving Bangalore will be audible all the way to North America.

From the Cato Institute article "
Only in Kannada, Eh?"

Want To Buy An Auto Rickshaw?

You can buy a brand new 3-wheel auto rickshaw for $6,800 from Columbia Scooters in Portland, Oregon.

More on Congestion Pricing

The only effective way to reduce traffic congestion is to use pricing. The potential benefits to Americans in time and fuel savings are enormous. State and local governments have an obligation to use this new tool to enable traffic to flow freely.

Americans rely on prices for a stable supply of food, clothes, water, energy, and telecommunications. Why should roads be an exception? Pricing can improve the usefulness of existing roads and attract funds for improvement.

From the New York Sun, an article by Diana Furchtgott-Roth "Traffic Congestion Solutions."

GW Moves From $1 Bill to $1 Coin

Maybe it will work this time? US gov't to release new $1 coins.

Economics 101: The Law of Demand Really Works

News Headline: "New Wage Boost Puts Squeeze on Teenage Workers Across Arizona: Employers Are Cutting Back hours, Laying Off Young Staffers."

Some Arizona employers, especially those in the food industry, say payroll budgets have risen so much (because of the recent 31% minimum wage hike from $5.15 to $6.75 per hour) that they're cutting hours, instituting hiring freezes and laying off employees.

Mark Messner, owner of Pepi's Pizza in Phoenix, says he plans to lay off three teenage workers and decrease hours worked by others.

"I've had to go to some of my kids and say, Look, my payroll just increased 13 percent. Sorry, I don't have any hours for you."

Interesting Fact of the Day

"Income inequality" gets a lot of attention. Consider this:

There is significant income inequality of siblings with the exact same family background. One researcher found that the average annual earnings differential between brothers was about $28,000, compared with an earnings differential of $30,600 for men paired randomly.

That is, after controlling for sex, socio-economic status, religion, education opportunities, race, parental status, etc. (assuming those factors are usually the same for 2 brothers in the same family), there is significant income inequality of $28,000 between siblings within families, which is almost as much as the income inequality in the general population of males ($30,600).

And as
Robin Hanson points out, there is also significant non-financial inequality, such as of popularity, respect, beauty, talent, ability, etc., and significant income inequality between the nations of a world, etc. that get very little attention, compared to the attention paid to income inequality among households in the U.S.

Congestion Pricing

Proposition 1. Any time you have congestion, it almost certain that market pricing is absent.

Proposition 2. Market pricing will almost always reduce or eliminate congestion.

From today's
NY Times:

Congestion pricing — the concept of charging higher fees to consumers for a good or a service at times of heavy use — is well established in businesses like hotels, long-distance phone service and air travel. And while London and Stockholm have successfully enacted plans that levy fees on drivers who want to enter traffic-clogged city streets, the United States has been slow to apply the concept on the roads (see graph above for an example of congestion pricing in California).

By making people take into account the true cost of driving — beyond gasoline, insurance and lease payments — congestion pricing in theory encourages people to car-pool, or to drive at different times of the day, or to take the train or bus.


Computer Animated Music

Check out this clip on YouTube of computer animated music "Pipedream," from the first Animusic DVD.

Pipe Dream has been voted one of the 50 greatest animation projects ever (by 3D World magazine). A group of percussion instruments perform music by way of metal balls that fly out from pipes, reminiscent of "Blue Man Group."

Thanks to Club for Growth for the tip.

UFO Sightings: What Happened?

Saturday, February 10, 2007

World's Best Performing Market: 787% in Kenya

Kenya has gone share crazy. The incredible performance of the Nairobi Stock Exchange (NSE) - which is next to the public auditorium and provides the live share-price feed - is the talk of the country. From 2002 to 2007, the main NSE index rose 787% in dollar terms (see graph above), according to Standard & Poor's, the investment research firm, making it one of the world's best-performing markets.

The NSE chairman, said: "We have several stock market billionaires. We've stopped counting the multimillionaires."

Read more here from the article "Share crazy: how Kenyans fell in love with their stock market," from the Guardian.

The First "Economic Freedom" Stock Fund

There is now an "investable" index of economic freedom - First Trust announced the creation of the Index of Economic Freedom Portfolio.

The portfolio (IEFP) is made up of country funds or large foreign stocks from the top 20 countries labeled "free" by the annual Heritage/Wall Street Journal Index of Economic Freedom.

Read more about it here.

Thanks to
Club for Growth for the tip.

Friday, February 09, 2007

Overheating in India?

With breakneck growth, an outsourcing industry that leads the world and hundreds of millions of consumers demanding more class and comfort, India has an economy many countries would envy.

But now, after three years of near double-digit growth, signs of a potentially dangerous inflationary spiral are beginning to emerge. Prime Minister Manmohan Singh and his closest economic advisors gathered just last weekend over fears that India’s extraordinary economic expansion was starting to overheat, an issue they labeled as a “key short-term priority.”

From India Finds Its Economy on the Verge of Overheating in today's NYTimes.

ETFs vs. Classic Index Mututal Funds

Fund managers love the ETF (exchange-traded funds). But what's in it for the investor? Vanguard founder John Bogle expresses his skepticism of ETFs in today's WSJ:

So long as the truism that "the more financial intermediaries take, the less their clients make" remains in effect, serious and intelligent investors ought to beware of moving their investments out of classic index funds focused on low costs, broad diversification and long-term, buy-and-hold strategies into index funds nouveau (ETFs), with their overlay of costs, limited diversification and short-term trading strategies. Industry participants, too, should be concerned. For in the long run, any business that puts the interest of service to self before service to clients will ultimately pay for this contradiction.

The Best Trade-off in History

Public policy is all about trade-offs. Economists understand this better than politicians because voters want to have their cake and eat it too, and politicians think whatever is popular must also be true.

In the history of trade-offs, never has there been a better one than trading a tiny amount of global warming for a massive amount of global prosperity. Earth got about 0.7 degrees Celsius warmer in the 20th century while it increased its GDP by 1,800%, by one estimate. How much of that 0.7 degrees can be laid at the feet of that 1,800% is unknowable, but let's stipulate that all of the warming was the result of our prosperity and that this warming is in fact indisputably bad (which is hardly obvious). That's still an amazing bargain. Life expectancies in the United States increased from about 47 years to about 77 years. Literacy, medicine, leisure and even, in many respects, the environment have improved mightily over the course of the 20th century, at least in the prosperous West.

Given the option of getting another 1,800% richer in exchange for another 0.7 degrees warmer, I'd take the heat in a heartbeat.

Global Cooling Costs Too Much by Jonah Goldberg.

As Thomas Sowell said, "The first lesson of economics is that we live in a world of scarcity and there are trade-offs. The first lesson of politics is to ignore the first lesson of economics."

Thursday, February 08, 2007

Tenure Quotas at Yale to End

"Yale now is alone among American colleges and universities in failing to provide, at the initial appointment, resources for a potential tenured appointment, should the faculty member eventually qualify.

Current nontenured faculty members at Yale must wait for a colleague to retire, to leave, or to die -- or hope that good fortune allows for an additional tenured position to open up in their department. Even then, they may have to compete with more-seasoned scholars in an open search that gives them little to no advantage."

From The Chronicle for Higher Education article "
Yale Plans Overhaul of Tenure Process."

Price Controls = Empty Shelves in Venezuela

"Meat cuts vanished from Venezuelan supermarkets this week, leaving only unsavory bits like chicken feet, and many staples sell far above government-fixed prices.

President Hugo Chavez's administration blames the food supply problems on unscrupulous speculators, but industry officials say government price controls that strangle profits are responsible. Authorities on Wednesday raided a warehouse in Caracas and seized seven tons of sugar hoarded by vendors unwilling to market the inventory at the official price.

Chavez began regulating prices in 2003 for 400 basic products as a way to counter inflation. Government officials dismiss any problems with price controls, while state TV has begun running tickers urging the public to "denounce the hoarders and speculators" through a toll-free phone number."

more here; thanks to Cafe Hayek.

MP: Didn't Venezuela learn anything about the painful lessons of price controls in the Soviet Union for decade after decade, and the resulting shortages those price controls caused?

Wikipedia, Encyclopedia of the Information Age

Within hours of her death, Anna Nicole Smith's listing in Wikipedia was already updated to reflect this information. There is some controversy about vandalism on her Wikipedia entry, and there might be some temporary restrictions on editing.

Bottom Line: What now happens in minutes or hours (updating information in online encyclopedias like Wikipedia) used to take years (annual or bi-annual updates of the Encyclopedia Britanica).

10 Most Economically Literate Members of Congress

From the American Enterprise Institute:

"To compile our list of the most economically literate members of Congress, we interviewed 22 Capitol Hill aides, think tank experts, senior business lobbyists, and lawmakers. We made no litmus test of ideological views or party affiliation. Whatever you may think of their politics, our experts said, these ten lawmakers do have a strong grasp of the economic fundamentals that guide their work. Many of them hail from a business background. But our selections focus on the legislators’ public records rather than their personal histories."

Whatever you may think of their politics, these ten lawmakers have a strong grasp of the economic fundamentals that guide their work. Many of them hail from a business background."

Read more here. (Note: 6 Republicans, 4 Democrats)

Sometimes Average is Good

From Indexed.

Michael Jordan: Baseball, BB

From 4-Block World.

Alternative Currencies in Germany

Interesting article from the IHT "In lands of the euro, a growing number of local currencies," about alternative currencies being used in Germany (like the chiemgauer note above):

"While more than 300 million people in Europe use the euro to buy life's essentials, a small but growing number — concentrated in the German-speaking world — use a proliferating species of currencies with names like chiemgauer, urstromtaler, landmark, kirschblüte and kann was.

Issued by private organizations, these currencies are probably better understood as vouchers — pieces of paper that can be redeemed for goods and services at specific regional businesses that have agreed to accept them.

By having charitable organizations sell them at a profit for euros, the organizations create an incentive for people to obtain them in the first place — on top of harnessing an altruistic desire to buy locally in an era of globalization — and businesses that accept can tap into a new vein of customers."

Indian Business Model is "Commoditized"

Unless Indian companies urgently adapt and innovate, the country's dominant position as an outsourcing center could be endangered by competition from cheaper locations, a shortage of qualified talent and rising wages, according to executives attending an industry conference here.

"The business model has very obviously been commoditized."

From the article "Indian CEOs warn of competition for outsourcing crown" in today's IHT.

New Orleans: Then and Now

Greater New Orleans White Pages, pre-Katrina 2004 (left) and post-Katrina 2007 (right). Via Inida Uncut.

Revenues At All-Time High, What About Spending?

The Congressional Budget Office reported this week that through the first four months of the fiscal year (Oct 2006 - Jan 2007), total tax revenues collected increased by $74 billion compared to the same period last year, almost a 10% increase. For the month of January there was a $40 billion surplus, more than twice the surplus in January 2006.

As the table above shows, individual income tax receipts increased by $45B (+12.6%) and corporate taxes increased by $20B (+22%), compared to the same period a year ago. We keep hearing about the "tax cuts of 2003" (rates were decreased) when it was actually a "tax hike" if we look at what happened to revenues.

In 2006, tax revenues were at all-time historical high of $2.4 trillion. At the current pace, tax revenues collected this will be $2.64 trillion, and will set another record. Now, if they could just get that spending part under control (see cartoon above).

Why Didn't Prince Get Electrocuted @ Superbowl?

Slate Magazine explains why here in "When Doves Fry."

Wednesday, February 07, 2007

Music Lovers, Listen Up

The Music Genome Project's Pandora Internet Radio website is one of the most amazing websites I have visited in a long time. Here is the deal:

"When was the last time you fell in love with a new artist or song?

At Pandora, we have a single mission: To help you discover new music you'll love.

For almost 7 years now, we have been hard at work on the Music Genome Project. It's the most comprehensive analysis of music ever undertaken. Together our team of 50 musician-analysts have been listening to music, one song at a time, studying and collecting literally hundreds of musical details on every song. It takes 20-30 minutes per song to capture all of the little details that give each recording its magical sound - melody, harmony, instrumentation, rhythm, vocals, lyrics ... and more - close to 400 attributes! We continue this work every day to keep up with the incredible flow of great new music coming from studios, stadiums and garages around the country.

We've now created an interface to make this available to music lovers so they could use this musical 'connective-tissue' to discover new music based on songs or artists they already know.

Pandora is the doorway to this vast trove of musical information. With Pandora you can explore to your heart's content. Just drop the name of one of your favorite songs or artists into Pandora and let the Genome Project go. It will quickly scan its entire world of analyzed music, almost a century of popular recordings - new and old, well known and completely obscure - to find songs with interesting musical similarities to your choice. Then sit back and enjoy as it creates a listening experience full of current and soon-to-be favorite songs for you."

MP: Pretty amazing, I typed in a favorite artist "Charles Brown" and it selected and played music by Charles Brown and then selections by Dr. John, Professor Longhair, Bobby "Blue" Bland, and Duke Robillard as similar artists, which I think is pretty accurate. Check it out, sound quality is excellent.

Thanks to Marcella.

Quote of the Day: Economic Models

“The construction of an economic model, or of any model or theory for that matter (or the writing of a novel, a short story, or a play) consists of snatching from the enormous and complex mass of facts called reality, a few simple, easily-managed key points which, when put together in some cunning way, become for certain purposes a substitute for reality itself.”

~Evsey Domar, Essays in the Theory of Economic Growth

Bernanke on Protectionism

Federal Reserve Chairman Ben Bernanke issued a fresh warning for the United States to steer away from policies that seek to erect protectionist barriers to trade and investment opportunities or to stifle the economy's flexibility. Such a course, he cautioned, "would do far more harm than good."

Commercial Real Estate is HOT

The Vanguard REIT (real estate) Index Fund has gone up by 36.32% over the last year (vs. 14.5% for the S&P 500), and almost 11% just so far this year (vs. 2.2% for the S&P 500). Intererst rates are low and stable, construction has slowed, vacancy rates are the lowest since 2001 and falling, commerical rents are rising (5.2% increase expected in 2007), which all makes commercial real estate one of the hottest markets right now.

Equity Office Properties (EOP) holds the nation's largest portfolio of office properties (500 buildings), and is the subject of a heated bidding war between the Blackstone Group and Vornado Realty Trust in a deal valued at more than $38 billion. EOP's share price has almost doubled over the last year from $30 to almost $60.

Bottom Line: A $10,000 investment 10 years ago would have grown to $20,000 today invested in the S&P 500 Index, and to almost $40,000 invested in the Vanguard REIT Index Fund. The residential real estate market might be soft, but the commercial real estate market is HOT! (Note: You can invest in the Vanguard REIT Index fund with a minimum of $3000).

Ford = Fourth