Saturday, February 03, 2007

Exxon Mobil: $3.4M Every Hour in Taxes!

The Associated Press reported this week that "Oil giant Exxon Mobil topped its own record for the biggest annual profit by a U.S. company last year, racking up earnings ($39.5 billion) that amounted to $4.5 million an hour for the world's largest publicly traded oil company."

MP: What hasn't been reported is the fact that Exxon will probably also set another notable record: the highest amount of taxes ever paid by a U.S. company, estimated to be about $30 billion for 2006. That works out to about $3.4 million in taxes paid every hour by Exxon in 2006!

Larry Kudlow says "Congratuations to Exxon. Profits are the core of capitalism and the wellspring of abundance in this great country. They are the mother’s milk of stocks and the economy. Expanding profits provide businesses the resources to enlarge production operations and hire additional workers. And that in turn is how incomes are created for family spending."

$3.5T Increase in Household Net Worth

It was announced this week by the Associated Press that "People are saving at the lowest level since the Great Depression, and that could be a problem for the millions of baby boomers getting ready to retire." This is based on the Commerce Department's report on Thursday that the "savings rate" for 2006 was -1%.

This is pure nonsense, as the WSJ points out today in an

"As a statistic, however, the official "savings rate" is nearly as useless a guide to prosperity as the trade deficit. In the government accounts, what is called the savings rate is literally income less consumption. But the government defines income too narrowly and consumption broadly. For example, "income" doesn't measure capital gains (whether realized or not), the rising value of your home, or even increases in your retirement accounts.

Think about how you calculate your own personal "savings rate." Do you merely add up what you make in salary in a year minus what you spend? Or do you sneak a peak at whether your IRA increased in value, or check the sale price your neighbor got on his home to figure out what you might be able to get for yours? By any normal definition, "savings" should include your increase in total assets -- in other words, your gains in overall wealth."

MP: As the WSJ points out, we should focus more on "household net worth" as reported by the Federal Reserve than the "savings rate" reported by the Commerce Department
. From the most recent release by the Fed for 3rd quarter 2006:

1. Between 3rd quarter 2005 and 3rd quarter 2006, household net worth increased by $3.5 trillion to $54 trillion, a 7% annual increase. The $3.5 trillion increase works out to about a $12,000 per person annual increase in net wealth, or almost $50,000 per household of 4! The $54 trillion total net worth works out to $180,000 per person, or $720,000 for a household of 4!

2. During that period, household real estate and other tangible assets increased in value by more than $2 trillion, and financial assets like mutual funds held by households increased in value by $2.6 trillion. Liabilities increased by $1.1 trillion, resulting in the $3.5 trillion increase in net worth.

3. As the related graph above from the
American Shareholders Association shows, the combined assets of mutual funds and exchange traded funds (ETFs) increased $1.63 trillion in 2006, an increase of 17.7% compared to 2005. Total mutual fund and ETF assets ended 2006 at almost $11 trillion.

Bottom Line: When you have an annual increase in U.S. household net worth of $3.5 trillion and the stock market is booming and keeps setting record highs: a) any comparison the Great Depression is a real strech, b) baby boomers have nothing to worry about, and c) a negative savings rate is meaningless.

Friday, February 02, 2007

Economic Week in Review

Summary: As expected, the Federal Open Market Committee decided on Wednesday to hold the Federal Funds rate steady at 5.25%, where it's been since June of 2006. In other reports, 4th quarter 2006 GDP grew at 3.5% and employment costs held steady. Consumer confidence remains high despite the continuing slump in housing. The Dow Jones Average set a record-high on Thursday of 12,674 before falling 21 points today to 12,653. The 30-year mortgage rate remained steady for the week at 5.85%.

Read the full report here.

Detroit Teachers Highest Paid in US

From "Is $34.06 Per Hour 'Underpaid'?" in today's WSJ:

1. According to the Bureau of Labor Statistics, public school teachers earned $34.06 per hour in 2005, 36% more than the hourly wage of the average white-collar worker and 11% more than the average professional specialty or technical worker.

2. The urban areas with the highest teacher pay are famous for their abysmal outcomes. Metro Detroit leads the nation, paying its public school teachers, on average, $47.28 per hour. That's 61% more than the average white-collar worker in the Detroit area and 36% more than the average professional worker. In metro New York, public school teachers make $45.79 per hour, 20% more than the average professional worker in that area. And in Los Angeles teachers earn $44.03 per hour, 23% higher than other professionals in the area.

3. Evidence suggests that the way we pay teachers is more important than simply what they take home. Currently salaries are determined almost entirely by seniority -- the number of years in the classroom -- and the number of advanced degrees accumulated. Neither has much to do with student improvement.

Teenage Unemployment

From today's BLS employment report:

1. Overall unemployment rate for January: 4.6% (up from 4.5% in December)

2. Unemployment rate for teenagers: 15%

3. Unemployment rate for black teenagers: 29.1% (240,000 unemployed)

4. Unemployment rate for white teenagers: 13.2% (793,000 unemployed)

Bottom Line: There are currently more than 1 million unemployed teenagers who are actively looking for employment and are unable to find jobs.

Question: Will a 40% increase in the minimum wage make it EASIER or HARDER for these 1 million unemployed teenagers to find jobs? See the cartoon above for the answer.

The New Big 3: GM, Toyota, Chrysler

From today's Detroit News:

"For the first time in recent memory, Ford Motor Co. fell to No. 4 in U.S. auto sales behind General Motors Corp., Toyota Motor Corp., and DaimlerChrysler AG's Chrysler Group, demonstrating just how far the automaker has fallen as it battles to stop a decade-long decline in market share.

At the same time, the Detroit automakers' share of the American auto market fell to just 50.6%in January as they narrowly avoided selling fewer cars and trucks than foreign makers in a month for the first time ever."

MP: 1.09 million vehicles were sold in January, and 16.55 million vehicles were sold in 2006. At an average price per car of $20,000, U.S. vehicle sales in 2006 were about $330 billion. To put the size of that market in perspective, if the U.S. vehicle market were to be considered as a separate economy, it would be the 21st largest economy in the world, after #20 Sweden (GDP of $354B), and ahead of Saudi Arabia ($310B), Austria ($305B), Poland ($300B), Indonesia ($287B) and Norway ($283B).

Thursday, February 01, 2007

Interesting Research

From an article in the Chronicle for Higher Education:

"More than a quarter of the black students enrolled at selective American colleges and universities are immigrants or the children of immigrants, according to a new paper by sociologists at Princeton University and the University of Pennsylvania.

The finding suggests that native-born African-American students are even more underrepresented at selective colleges than is commonly understood. The paper is likely to add fuel to a long-standing debate about the meaning and purpose of affirmative-action programs.

Selective colleges have expanded their enrollments of black students by "increasing the number of immigrant and multiracial black students," said Camille Z. Charles, an associate professor of sociology at Penn who is one of the study's authors.

"If you're a purist" -- that is, if you view affirmative action as restitution for the harm done by American slavery and segregation -- "then you'll think that this is not in the spirit of affirmative action," Ms. Charles continued. "But if you're a diversity purist, and your idea is to expose everybody to as many different kinds of people as possible, then you'll think this is great."

Euphoric India Becomes a World Power

From the IHT article "Corus takeover turns India euphoric"

"India, a former British colony, is discovering that it is far better to take over than be taken over.

India erupted with serves-them-right jubilation this week when Tata Group, an Indian conglomerate, won a bid for the Corus Group — the Anglo-Dutch descendant of British Steel — for more than $12 billion, the largest acquisition ever by an Indian firm. Headlines spoke of empires striking back, while pundits and industrialists said India had at last arrived as a world power.

The takeover of Western companies by Indians has struck many here as evidence of a delicious reversal of fortune: a once-proud civilization, having fallen to the humiliations of colonization, is now buying out the hallowed corporations of the West."

Global Cooling, Global Warming

Borat Banned in Russia

People in Russia won't be able to see the movie Borat, not legally anyway. The BBC reports that the Russian Culture Ministry has refused to give the film a distribution license because it could humiliate members of some ethnic groups and religions.

What would Ali G say? Me thinks that's racialist, innit?

Interesting Starbucks Facts: 8 New Stores Per Day

1. A record 728 Starbucks stores opened during the most recent quarter -- an average of 8 stores per day! It has 13,168 stores worldwide.

2. The company's goal remains to have 20,000 stores outside the U.S. It now has 3,767.

3. Starbucks opened a record 223 stores overseas during the quarter (average of 2.5 per day), including the first Starbucks in Brazil and Egypt. Stores in Russia and India will open in 2007.

Read more here.

Getting Paid NOT To Farm = $1.3 Billion

"The Bush administration yesterday proposed ending farm subsidies for an estimated 80,000 wealthy individuals as part of a broad plan that would close loopholes and cut traditional farm programs by $4.5 billion over the next 10 years.

The plan would close a major loophole highlighted by The Post that in 2005 allowed corn farmers to receive $3.8 billion more than needed to ensure they got the government-guaranteed price.

The plan also proposes changes in a program that since 2000 has enabled some landowners who do not farm to still collect $1.3 billion in farm payments."

From today's article "
USDA Outlines a Plan To Cut Farm Subsidies" in the Wash Post, as part of its "Harvesting Cash: Working a Farm Subsidy" series.

I'll put this in my "It's About Time" file.

Superbowl Tickets on Ebay

Looking at completed listings on Ebay like this one, and this one, it looks like the market value for 2007 Superbowl tickets is between $3000-$3500.

Govt Loses $40m Minting Pennies and Nickels

"How dumb do you have to be to mint money at a loss? In the latest only-in-Washington episode, we find that the government may have lost as much as $40 million coining pennies and nickels last year.

The metal in them — the zinc, copper and nickel — has soared in value in the last few years (see graph above - zinc prices have risen 4.5X in the last few years), making the coins more valuable as raw materials than they are as currency. The government reaction has been to ban the melting of the coins to get the metal."

Read more here in today's NY Times.

What Slowdown? The Dangerfield Economy Rocks

Some key points from today's staff editorial in the WSJ, titled "What Slowdown?"

1. Consumer spending registered a strong 4.4% growth rate in the fourth quarter 2006.

2. Without housing and autos, real GDP rose 5.8% in the fourth quarter (it was 3.5% overall).

3. U.S. exports are booming, rising 10% in the fourth quarter and 9.2% for the year, adding 1.64 percentage points to GDP growth.

4. Exports to China rose by more than 30% in the first 11 months of last year, even without a major change in China's policy to peg the yuan closely to the U.S. dollar.

Bleeding Hearts Ruin the Carpet

From George Will's latest column:

In Arizona, some amazingly persistent and mostly liberal people are demonstrating the tenacity with which some interests fight to prevent parents of modest means from having education choices like those available to most Americans.

Fifty-seven years later, the Sumner Elementary School in Topeka is back in the news (Brown v. the Board of Education of Topeka involved Sumner in 1950). Two educators wanted to use Sumner for a charter school, a public school entitled to operate outside the confinements of dictated curricula and free from many work rules written by teachers unions. Their school would have been a back-to-basics academy for grades K through five, designed to attack Topeka's 23-point gap between the reading proficiency of black and Hispanic third-graders and that of whites.

When the school board rejected the application of the two educators -- African-American women -- but praised their dedication to children, one of the women was not mollified: "A bleeding heart does nothing but ruin the carpet.''

Cartels Aren't Forever: Update

From Wired Magazine's "Lab-Grown Diamonds Make the Cut":

Since 2003, synthetic diamond production has taken off, driven by consumer demand for merchandise that’s environmentally friendly (no open-pit mines), sociopolitically neutral (no blood diamonds), and monopoly-free (not controlled by De Beers). As a result, Gemesis, the leading manufacturer of gem-quality diamonds has expanded operations rapidly.

Three years ago, the company had 24 diamond-producing machines; now it has hundreds - matching the cash-value output of a small mine - and is turning on a new one every other day. “At this point, we operate like any other mine,” says Clark McEwen, COO of Gemesis. “We produce rough diamonds in our machines and sell to distributors who do the cutting and polishing.”

Wednesday, January 31, 2007

The Secret of Viable Ethanol: Brazil's Sugar Cane?

America’s subsidy-dependent ethanol farmers may not like it, but a recent U.S. pact with Brazil could pave the way to an efficient global market in biofuels—and that could change the game.

The only obstacle to our getting Brazilian ethanol is a 54 cent per gallon tax on imported ethanol, designed to protect a U.S. industry which is in no position to provision our own market (and probably will not be for some years to come, if ever).

The Secret of Viable Ethanol.

Trade = New Technology to Increase Productivity

Beyond myth and emotion, here’s the truth about our trade deficit. It’s big, but it’s not necessarily bad. In fact, it may be helping us live better, now and in the future. Rutgers University economists Chad Bown and Rachel McCulloch explain in "Question & Answer: The Trade Deficit."

Here is an excerpt:

"It’s helpful to think of trade as representing a kind of new technology that allows us to get more or bet­ter output from the same available inputs—which is the definition of increased productivity. There is a clear overall benefit, but trade, like improved technology, does hurt some people in the process. Over time, how­ever, our rising standard of living depends on higher productivity—whether achieved through improved technology or gains from trade."

Prices: What They Say

Interesting blog, "4-Block World," check it out here.

Wanna Bet?

The website takes bets on predictions that are "societally or scientifically important."

Here is
a list of predictions and bets on record.

Here is an
example of a bet that "By 2030, commercial passengers will routinely fly in pilotless planes."

The Goldilocks Economy Plus

From today's WSJ: "The U.S. economy resurged at the end of 2006, overcoming a slump in housing as consumers sustained by lower energy prices freely spent money.

GDP climbed at a 3.5% annual rate October through December, the Commerce Department reported today. The 3.5%, fourth-quarter increase not only defied original expectations but also was much better than Wall Street generally thought in predictions made this week. The median estimate of 22 economists surveyed Monday by Dow Jones Newswires was 3.0% growth.

For the year, GDP, advanced 3.4%, compared to a 3.2% increase in 2005 and 3.9% growth in 2004." (see graph above)


"You know, for all this talk about recession, (with some pundits calling for a recession just about every year—Paul Krugman comes to mind), the reality is that economic growth has been steady and strong following the 2001-2002 recession. Think lower marginal tax rates, implemented in 2003 to strengthen work incentives, and significantly increase after-tax investment rewards."

~Larry Kudlow in
Kudlow's Money Politic$

Do Not Take Jim Cramer Seriously

"When you own a diversified portfolio of stocks, it is rarely the stock selections that make you money but the performance of the stock market overall—which, thankfully, usually goes up. What a truly talented stock-picker will do is select stocks that beat the market, after costs, without exposing you to more risk than the market. Because the vast majority of stock-pickers can't do this, you are almost always better off in a diversified portfolio of low-cost index funds. Properly constructed, such a portfolio will, over decades, make you more money, with less risk, than even an above-average stock-picker (let alone a chair-throwing, self-aggrandizing clown)."

From "Pay No Attention to That Crazy Man on TV," from

My advice: Watch Jim Kramer for entertainment purposes only, and buy and hold the Fidelity S&P 500 Index Fund as a major part of your investment portfolio - the expense ratio on that fund is only 1/10 of 1% ($100 annually on a $100,000 investment - you can't invest more cost effectively on your own, and no broker will manage your investments for 1/10 of 1%) and you'll beat 97% of actively managed mutual funds in the long run, after expenses and taxes.

Tuesday, January 30, 2007

It's All About Math: Everything Can Be Graphed

Interesting blog "Indexed," all graphs.

In Defense of Price Gouging

Recently, CNN's Anderson Cooper condemned price gouging in New Orleans as if he was reporting an inherently unjust practice that no reasonable person would accept. So perhaps we need to consider why price gouging is not only not bad, but why it is essential to the welfare of everyone involved. Without "price gouging" after natual disasters, people often don't get the essential goods they need. Free markets after hurricanes or earthquakes are both humane and necessary.

Read more here, "
Price Gouging is Essential and Humane."

In Memory of Milton Friedman

Milton Friedman in his 1967 presidential address to the American Economic Association:

"Every major contraction in this country has been either produced by monetary disorder or greatly exacerbated by monetary disorder. Every major inflation has been produced by monetary expansion."

Exhibit A: There was no inflation in the U.S. until after the creation of the Federal Reserve.

Private Efficiency vs. Public Inefficiency

From the front page of last Saturday's WSJ:

In August 2005, Hurricane Katrina flattened two bridges, one for cars, one for trains. Sixteen months later, the automobile bridge remains little more than pilings. The railroad bridge is busy with trains.

The difference: The still-wrecked bridge is owned by the U.S. government. The other bridge is owned by railroad giant CSX Corporation. Within weeks of Katrina's landfall, CSX dispatched construction crews to fix the freight line; six months later, the bridge reopened. Even a partial reopening of the road bridge, part of U.S. Highway 90, is at least five months away.

"It shows the difference between the private sector and the public sector," says a government bureaucrat. "By the time CSX was done with its bridge, we were just getting around to letting the contract on ours."

MP: The main difference between capitalism and socialism? Capitalism works.

Interesting Fact of the Day

From today's Washington Times: "The 100 largest corporations have replaced 56 CEOs in the last five years."

We hear a lot about "excessive CEO pay," but don't hear very much about the high, or "excessive" CEO turnover?

The Smell of Profits, Here Comes Google

From today's International Herald Tribune: "The Internet search provider Google, moving to broaden its revenue beyond advertising, is poised to shake up the business software market.

Google is bundling the Web-based software programs that it offers free to consumers into a premium package, and, in a challenge to Microsoft, it will be selling a paid version to businesses.

Google's enterprise product, which will include e-mail, calendar, word processing, spreadsheet, instant messaging and voice-over-Internet programs, will be released soon. The move comes as Microsoft prepares to bring out Office 2007, the new version of its best-selling productivity software suite, as well as Vista, the latest upgrade of its ubiquitous operating system."

MP: Competition breeds competence; the smell of profits has a strong, attractive odor; vigorous competition is the best regulator; and who needs the Department of Justice when you have vigorous competition from Linux and Google?

Inequality of Home Prices: Miami is #1

Business Week has a story on "The Inequality of Home Prices," where it has quantified the inequality of house prices for more than 100 metro areas by comparing the size of the gap between the 99th percentile home price to the median home price. #1 is Miami:

1. Miami-Miami Beach-Kendall, Florida
Median Home Price: $346,000
99th Percentile Home Price: $2,239,808
Inequality Index: 6.5 (99th percentile price / median price)

A History of Microsoft Windows

Tour the 23-year history of the Windows operating system at this link from Wired Magazine, starting with Windows 1.o (above), which was released in November 1985 ("It's not surprising it was a flop. Windows 1.0 was more an extension of MS-DOS than its own operating system, but it did allow limited multitasking and mouse support.")

Click on "Previous" to go through all the versions of Windows.

It's All Relative

Current unemployment rates in selected OECD countries:

France 8.6% (lowest rate in 6 years)
Germany 8.0% (lowest rate in 5 years)
Belgium 8.2% (lowest rate in 2.5 years)
OECD Europe 7.6% (the lowest rate in this series' history, which goes back to 1987).

Mississippi 7.5% (highest in the U.S.)

Bottom Line: Even though OECD's Europe's unemployment rate is at all-time low, it would rank #51 as a U.S. state, behind Mississippi's jobless rate of 7.5%. Even in its worst recession, or even in its worst state, the U.S. economy outperforms most other economies in their best years.

Trade Works Both Ways

From an article in today's Washington Post, U.S. Exporters Feel Favorable Trade Winds: Companies Lifted by Rising Tide of Foreign Sales, Particularly in China:

"On Capitol Hill, some lawmakers portray Chinese imports as a threat to national prosperity, and Democratic leaders argue that free-trade pacts have sold out American workers; a hearing is scheduled in the House for today. Last year's election reflected anxiety about the strength of American companies in a global economy.

But the nation's shop floors present an alternate view: The United States is in the midst of an export boom, with foreign sales chipping away at the country's enormous trade deficit while providing a modest cushion against the declining housing market.

In the first 11 months of 2006, U.S. exports reached $1.31 trillion, a jump of 13.1% over the corresponding period in 2005, the Commerce Department said. That was an improvement over the 10.7% gain of the year before. Recent monthly figures show exports growing nearly three times as fast as imports. Economists say exports are being propelled by a falling dollar, which has lost nearly 10% of its value compared with other currencies since 2002, making U.S. goods cheaper on world markets.

Exports to China -- whose dominance on American store shelves stokes worry -- increased by 33% in the first 11 months of 2006. Combined with Hong Kong, China now stands as the United States' third-largest export market, behind only Canada and Mexico."

Monday, January 29, 2007

Milton Friedman Day: January 29

Some press coverage of Milton Friedman Day, and the PBS documentary on Friedman:

Chicago Sun-Times: "Late economist Friedman left mark on history"

The NY Sun: The Power of Milton Friedman

NY Times: "A Free-Market Economist, Up by His Bootstraps"

Newsday: "A genius who trusted the marketplace"

Outsourcing to Brazil: India of the Americas?

"Outsourcing seems to be working out well for Brazil, South America's most populous nation. With a spate of information-technology deals, Brazil appears poised to be Latin America's big winner in the global outsourcing boom.

With time zones and a culture closer to those of the U.S. than Bangalore or Beijing, small operators and multinationals including Accenture and IBM are betting that Brazil could quickly become Latin America's major hub for inexpensive corporate support work, and a top-five location world-wide. Brazil's major selling point is that its big cities are just one to three hours ahead of New York, depending on the time of year. That compares with 11 or 12 hours for India."

today's WSJ.

Life Expectancy on the Rise: Good News, Bad News

In 1900, an American alive at age 50 could expect to live another 21.3 years to 71.3 years.

In 1950, a 50-year old American could expect to live another 24.4 years to 74.4 years.

In 2003, a 50-year old American can expect to live another 30.6 years to 80.6 years (78.5 years for men and 82.4 years for women).

Good news: We have gained more than 9 years of life expectancy since 1900 for 50-year olds, a 44% increase, and we have gained more than 6 years of life expectancy since 1950, a 25% increase.

Bad news: Social Security is financially insolvent and headed for a meltdown, largely because it was designed in the 1930s, before the significant increase in life expectancy.

Why is Health Care Expensive? WWII Wage Controls

Health care costs are out-of-control because consumers pay only 14% of health care costs out-of-pocket. Why do consumers pay so little? Because price and wage controls during WWII led to employer-paid health care as a way to circumvent the wage ceilings, and we've been paying a huge price for the last 60 years because of the significant distortions in health care market resulting directly from the price/wage controls.

Jeff Jacoby summarizes the situation extremely well in today's Boston Globe, here are some exerpts from his column "The Tax-code Quirk and the Health Care Mess:"

"Why is it that in every other field where enormous technological strides have been made, total costs have fallen over time, but in health care they have increased?

The answer is simple: Health care costs so much because most of us pay so little for it. And we pay so little -- out-of-pocket expenses amount to just 14 cents of every health dollar spent in this country -- because a third party nearly always picks up the tab. For most working Americans, that third party is an insurance company paid by their employers.

All of this is due to a quirk in tax policy dating to World War II, when employers looking for a way to enhance workers' salaries without running afoul of federal wage controls hit on the idea of providing medical benefits. When the IRS agreed not to treat such benefits as taxable income, it triggered a far-reaching change in the way Americans paid for health care.

What had been a relatively free market in medical services, with patients transacting directly with doctors and hospitals, gave way to a third-party system, in which employers paid the insurance companies, and insurance companies paid the bills. Americans increasingly used insurance to cover routine medical expenses, not just major unexpected costs like hospitalization or surgery. Imagine what automobile insurance would cost if people insisted on plans that had low deductibles . . . or policies that included not just major body work, but also oil changes and gas."

Final 2006 Partisan Rankings for Columnists

Partisan: "a firm adherent to a party, faction, cause, or person; especially: one exhibiting blind, prejudiced, and unreasoning allegiance."

Lying in Ponds analyzes, tracks and measures Democratic and Republican bias and partisanship of a selection of regular political columnists from various sources, including the New York Times, the Wall Street Journal’s OpinionJournal, and the Washington Post. Here is the methodology used.

For the second year in a row Paul Krugman and Molly Ivins were the most partisan columnists in the U.S., they switched places in 2006 - Molly Ivins went from #2 in 2005 to #1 in 2006, and Krugman went from #1 in 2005 to #2 in 2006. The top four most partisan columnists are:

1. Molly Ivans (Democratic bias) - Creators Syndicate
2. Paul Krugman (Democratic bias) - NY Times and
Joe Conason, tie (Democratic bias) - NY Observer
3. Ann Coulter (Republican bias) - Universal Press Syndicate

See the
top 20 here. Note that David Brooks (NY Times), Charles Krauthammer (Wash Post) and George Will (Wash Post) are the most non-partisan unbiased columnists, and they criticize/praise Dems/Reps with almost equal frequency.

How Do You Compete Against Starbucks? Sexpresso

To stand apart from the hordes of drive-through espresso stands that clutter the Northwest's roadsides, some Seattle-area commuter coffee stops such are adding bodacious baristas, flirty service and ever more-revealing outfits to the menu. Read more here in the Seattle Times.

500th Posting on Carpe Diem

From today's WSJ, an editorial about the $133 billion forecast error for federal tax revenues that I previously reported in Carpe Diem.

"Data released last week from the Congressional Budget Office confirm that the tax cuts of 2003 keep soaking the rich, especially on their capital gains. CBO originally estimated that reducing the capital gains rate to 15% from 20% would cost the Treasury $5.4 billion from 2003-2006.

Whoops. Actual revenues exceeded expectations by 68%,creating a $133 billion revenue bonanza for the feds. CBO's original forecast for 2006 was for $57 billion in capital gains revenues, but actual receipts were $110 billion. This surprise windfall is one reason the budget deficit is also far lower than CBO predicted.

The lower capital gains tax has raised stock values by raising the after-tax return on capital investment. It has also given stock owners a greater incentive to sell their shares, and then reinvest the proceeds, because the tax penalty on these transactions is lower. Class warriors like Senator James Webb (D-Va) often forget that the capital gains tax is voluntary. Investors can defer paying the tax for years by holding on to their stock. This creates what is called the "lock-in effect" that deters an efficient allocation of investment capital."

P.S. As the headline mentions, this is the 500th posting on Carpe Diem since its inception on September 20, 2006, which is 131 days ago. That's an average of 3.82 postings per day!

Sunday, January 28, 2007

Market Capitalism Goes Global

"The U.S. is losing market share in the global economy, and that is not necessarily a bad thing," according to Dan Grossman in today's NY Times.

"The U.S. share of global GDP fell to 27.7% in 2006 from 31% in 2000. In the same period, the share of Brazil, Russia, India and China — the rapidly growing emerging markets referred to as the BRICs — rose to 11% from 7.8%. China alone accounts for 5.4%.

The fact that economies that were closed to outside investment a generation ago are now creating systems of market capitalism should be seen as a victory for the U.S., not a defeat. “Many of the countries that are doing well are mimicking the best of what the U.S. has stood for — globalization and the export of the American capital markets culture,” said Mr. O’Neill at Goldman Sachs."

Ben Stein on Capitalism

"Capitalism values people as individuals according to contract, as we lawyers and economists learn, not according to the status of our birth. This in itself is a miracle.

This miracle has been vibrant in the lives of hundreds of millions of Americans who have gone from nothing to something, thanks to the dynamics of capitalism. They have seen their pay rise and they have been able to convert their sweat and toil and creativity into capital by saving and investing in the stock market and becoming capitalists themselves — myself.

The system of capitalism is wide open. If you have an idea, you can turn it into capital."

From today's
NY Times Business section.

Not Too Likely

See this related article in today's NY Times: "The Long Road to Energy Independence."