Saturday, March 03, 2007

Quote of the Day

Entrepreneurial activity in our economy is the mainspring of economic growth and gains in employment. These entrepreneurs also need help. A report released this week by the Kauffman Foundation found that entrepreneurs are impeded by four major obstacles — regulatory red tape, high costs of health care, burdensome litigation, and lack of skilled labor.

The first 100 hours of the new Congress are over, but Congress has yet to deal with major issues affecting economic growth and investor confidence. It is time to act — before investors face an even more serious decline in our stock markets.


~Economist
Diana Furchtgott-Roth in the NY Sun "Markets' Problem is Politics"

Political Nitwitery

Senator Hillary Clinton called for action to address the "growing vulnerability to the US economy" from our increasing foreign-held debt, citing that foreign nations now hold nearly half or more than $2.2 trillion of all public debt with China and Japan holding nearly $1 trillion. In remarks on the floor of the Senate and in a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, Senator Clinton underscored that recent stock market losses, the biggest point loss since September 11th, 2001, should be a wake-up call of the risk to our economy of the "continuing erosion of our economic sovereignty."

As Larry Kudlow points out:

1. Foreign-owned Treasury bonds are only 16½% of GDP. Who cares?

2. Foreigners own $2.2 trillion of our bonds, compared to $54 trillion of U.S. household wealth. So what?

3. OPEC and China's share of total foreign ownership is only 20% ($450 billion). Britain, Japan, and other clear U.S. allies own the other 80% ($1.8 trillion). So where’s the great threat?

MP: In a credit arrangement, isn't it usually the creditor/lender who is at the most risk, and most vulnerable, and not the borrower/debtor? Think about it: If you have a $100,000 mortgage, who is more vulnerable and exposed to more risk: you or the bank/mortgage holder? As long as you make the payments, you have NO risk.

USA Isn't the Only Place Wal-Mart is Unpopular

NEW DELHI: Nearly 100 communist protesters demonstrated against the visit to India of a top Wal- Mart executive looking to open stores across the country in partnership with an Indian conglomerate.

India's retail market remains dominated by small mom-and-pop shops, and major Western retailers are eager to move in before Indian companies build their own chains.

But Indian law bans foreign multi-brand retailers like Wal-Mart Stores from setting up shop on their own.

So Wal-Mart, the world largest retailer, has formed an alliance with Bharti Enterprises — an Indian conglomerate that operates the country's largest mobile phone company — and the two plan to use a loophole in Indian law to open their chain.

Read more here.

Shoveling Out in Minnesota



Interesting Fact of the Day

China has 160 cities with population of 1 million people or more!

As Thomas Friedman said, in China if you're "one in a million," there are more than a thousand others just like you!

Friday, March 02, 2007

BMW 3-Series in India

On a previous post, I mentioned that U.S. exports to Inida have about quadrupled in the last 3 years as a result of the booming Indian economy, which is growing at 8-9% per year. As another indication of India's growing buying power, BMW will start selling its 3-series model cars here later this month, produced in a new BMW plant in Chennai. In May, the BMW 5-series will be produced in Chennai as well.

Read the
story here.

Carpe Diem Stats

1. According to the most recent monthly Gongol.com traffic rankings for major business and economics websites and blogs, Carpe Diem ranks #64 by average daily visits (141) and #66 for average daily pageviews (207).

2. Total cumulative visits to Carpe Diem since its start last September just went over 20,000 today, see the Sitemeter, just below the Archives on the right hand side.

3. Daily visits today to Carpe Diem was high (226 through 10 p.m.) due to links to my blog from the Adam Smith Institute blog, and the Club for Growth blog.

Carpe Diem from Bangalore!

Age and Sex Tax Discrimination in India

Personal income tax rates in Inida ranges from 10% to 30% with the following interesting personal exemptions, by sex and age:

Men 110,000 rupees (about $2,500)

Women 145,000 rupees (about $3,300)

Senior Citizens 195,000 rupees (about $4,300)

Like being able to use the women's tees for golf, I guess there would also be a tax advantage for a man having a sex change operation in India! Carpe Diem from Bangalore!

Thursday, March 01, 2007

Good News, Bad News for U.S. Housing Market

There was good news and bad news for the housing market in January. Sales of existing homes rose to an annual rate of 6.46 million in January, the highest level for seven months. But after increasing in December, the median price of an existing home fell by nearly 5%, to $210,600.

Separate data for the smaller market in new homes showed that sales plunged in January by 16.6%, to an annual rate of 937,000—the biggest drop in 13 years.

From The Economist.

What Does Economic Freedom Look Like at Night?

What does economic freedom look like at night from a NASA satellite?

See the fascinating NASA Earth night photograph from Aug 27, 2001 (click to enlarge). In Europe, it's easy to spot London, Paris, Stockholm, Madrid and Vienna. Check out Israel compared to the rest of the Arab countries. Note the Nile River and the rest of the "Dark Continent." After the Nile, the lights don't come on again until Johannesburg. From Strange Cosmos, via Tom McMahon.

According to the 2007 Heritage Foundation's Economic Freedom of the World in Five Regions, the economic freedom of Sub-Saharan Africa is the lowest in the world, and the economic freedom of Europe is the second highest in the world, just slightly behind the Americas.

It's All Relative

Michigan has the second highest unemployment in the U.S. at 7.1%, ahead of only Mississippi at 7.5%. However, it could be worse - there are 100 countries with unemployment rates at 10% or higher, about ten countries at 50% or higher, and 125 countries with a higher unemployment rate than Michigan. See the full ranked list here.

(Note: Michigan's jobless rate is for December 2006, and the country rankings are for 2005).

"In regione caecorum rex est luscus." (In the land of the blind, the one-eyed man is king.)

Iceland Joins Flat Tax Club


Iceland recently passed a flat tax rate of 22.75% for personal income at the federal level and 13% at the local level, for a combined flat tax rate of 36%, higher than flat tax rates in other countries (see chart above), but much lower than the previous marginal tax rate of almost 50% for high income earners. At the same time, corporate income tax rates were lowered in Iceland to a flat rate of 18%, down from rates as high as 50% in the late 1980s. As the Laffer Curve predicts, the lower corporate tax rates actually significantly raised corporate tax revenues collected by a factor of almost 2X, as a percentage of GDP (see graph above).

The move to a flat tax in Iceland is significant because it is the first advanced, Western economy to adopt a flat tax.

Iceland also now has the world's lowest unemployment rate for advanced economies at 2.1%.

Read more here from Cato Institute economist Dan Mitchell.

Wednesday, February 28, 2007

Indian Equivalent of Bum Fights? Slum Tours

For anyone weary of typical tourist sights like the Taj Mahal and other palaces, a new tourist attraction is available for visitors to India: a tour of Indian slums in New Delhi or Bombay.

Here is info on
one company, including a price list, less than $7 for a 2.5 hour tour and about $15 for a 4.5 hour tour.

Here is a newspaper article about slum tours in New Delhi.

Interesting Fact of the Day III

The Indian economy grew in 2006 by about 8.5% and is predicted to grow by more than 9% this year. At that rate, the Indian economy will double in size of the next 8 years, and will grow from its current size of about $1 trillion in GDP to $2 trillion.

Carpe Diem from Bangalore!

Interesting Fact of the Day II

In 1990, U.S. exports of goods and services to Inida were only $2.5 billion. By 2003, thirteen years later, U.S. exports to India had doubled to $5 billion.

Between 2003 to 2005, in a period of only two years, U.S. exports to Inida tripled from $5 billion to $15 billion, and in 2006, it is estimated that exports to Inida will exceed $19 billion!

We hear a lot about outsoucring TO India, but hear as much about our exploding exports of U.S. merchandise and services TO India.

For example, in "The World is Flat," Thomas Friedman describes the "24/7 Call Center," a typical call center in Banglaore (where I am currently visiting):

"All the computers are running Microsoft Windows, with chips designed by Intel. The phones are from Lucent (now Alcatel-Lucent). The air-conditioning is by Carrier, and even the bottled water is by Coke. In addition, 90% of the shares in 24/7 are owned by U.S. investors. So even with the outsourcing of some service jobs from the U.S. to Inida, India's growing economy is creating a huge demand for many more Amercian goods and services."

Interesting Fact of the Day

"According to the information technology office of the Indian state of Karnataka (where the city of Bangalore is located, and where I am currently visiting), Indian units of Cisco, Intel, IBM, Texas Instruments and GE have already filed more than a thousand patent applications with the U.S. Patent Office. Texas Instruments alone had 225 patents awarded to its Indian operation."

~From "The World is Flat" by Thomas Friedman

Tuesday, February 27, 2007

Philanthropy Hits New Record High

Facts about charitable donations in 2006:

1. The number of individual donations of $100 million or more hit a record in 2006.

2. In 2006, there were 21 donations of $100 million or more by individuals to universities, hospitals and charities, compared to 11 in 2005.

3. The philanthropy of the country's 60 most generous givers hit a record $7 billion in 2006, up from $4.3 billion the year before.

Read more here in USA Today.

Gore's Inconvenient Truth: He's an Energy Glutton

The average U.S. household consumes 10,600 kilowatt-hours (kWh) of energy per year. In 2006, Al Gore devoured 221,000 kWh — more than 20 times the U.S. average. In other words, Gore consumes more energy in a single year than the average household uses in two decades! Or Gore uses more in 4 years than the average American uses in their entire lifetime!

Last August alone, Gore burned through 22,600 kWh—guzzling more than twice the electricity in one month than an average American family uses in an entire year. As a result of his energy consumption, Gore’s average monthly electric bill topped $1,359.

Since the release of An Inconvenient Truth, Gore’s energy consumption has increased from an average of 16,200 kWh per month in 2005, to 18,400 kWh per month in 2006.

Gore’s extravagant energy use does not stop at his electric bill. Natural gas bills for Gore’s mansion and guest house averaged $1,080 per month last year. In total, Gore paid $30,000 in combined electricity and natural gas bills for his Nashville home in 2006.


Read
more here from the Tennessee Center for Policy Research.

Monday, February 26, 2007

Impressions of Madrid After 4 Days

1. Lots of fur coats.
2. Lots of smokers, they are everywhere, this is a smoker's paradise.
3. Lots of olives, they are everywhere, and they are far higher quality than what we get in the U.S.
4. Free olives at almost every bar, and free tapas at every bar - olives, potato chips, spanish omelette (tortilla), small sandwiches, nut mixes, etc., included in the price of drinks.
5. Lots of facial piercings.
6. Not very many Internet cafes, I haven't seen one!
7. Very efficient subway system, and cheap (1 euro).
8. Accordions everywhere, on the subways, in the subway stations, all around downtown.
9. Excellent beer, wine and cheese, and of course olives.
10. Lots of books and lots of reading, more than the U.S. I think. Homes and apartments have lots more books than in the U.S., and there are lots of people reading books on the subway. In the U.S., it seems more common that people are reading newspapers on subways and trains.

Sunday, February 25, 2007

Why Should We Complain About Overvalued Dollar?

George Mason economist Don Bodreaux makes a good point that Americans are beneficiaries of an overvalued dollar vs. the yen or yuan, so why should we complain about bargain prices for Chinese and Japanese goods?

There's an even deeper reason why Americans should not tolerate Uncle Sam accusing foreign governments (like China and Japan) of undervaluing their currencies. Such undervaluing -- if, indeed, it occurs -- benefits Americans.

Keeping in mind that it is difficult to determine whether or not a government truly is keeping the value of its currency too low relative to the dollar, let's assume (for argument's sake) that the Chinese government really is doing so.

How does it achieve this outcome? Answer: The Chinese government must buy up dollars and keep them out of circulation. By reducing the supply of dollars on foreign-exchange markets, the value of the dollar rises relative to other currencies, including that of the Chinese yuan.

In other words, the value of the yuan falls against the dollar.

Now ask: How does the Chinese government buy these dollars? It can do so only by taxing its citizens, either directly (such as by raising their income taxes) or indirectly through inflation -- simply printing new yuan -- or deficit financing. Each of these policies transfers money from the pockets of Chinese citizens to the coffers of the Chinese government. This government then uses these yuan to buy up dollars.

The ultimate result is that the Chinese government forces Chinese citizens to subsidize the consumption of Americans and other peoples who import goods from China. The Chinese people either pay higher taxes or suffer inflation so that Chinese exporters can sell goods to foreigners at artificially low prices.

Why should Americans complain? The real victims of such currency manipulation are the Chinese people. Americans are beneficiaries.


Stepping on the Scale Exposes Union Flab

Labor unions, like the government, can change prices — in this case, the price of labor — but without changing the underlying reality that prices convey. Neither unions nor minimum wage laws change the productivity of workers. All they can do is forbid the employer from paying less than what the government or the unions want the employer to pay.

When that is more than the labor in question produces, some workers who are perfectly capable become "unemployable" only because of wages set above the level of their productivity. In the short run — which is what matters to politicians and to union leaders, who both get elected in the short run — workers who are already on the payroll may get a windfall gain before the market adjusts.

But, sooner or later, the chickens come home to roost. They have been coming home to roost big time in the automobile industry, where hundreds of thousands of jobs have been lost over the years. It is not that people don't want automobiles. Toyota is selling plenty of cars made in its American factories with non-union labor.

From economist Thomas Sowell´s recent column
Priceless Politics III.

MP: Like stepping on the bathroom scale, the ruthless forces of the market alway eventually expose economic flab and inefficiency. And although you can maybe avoid stepping on the scale in the short run, you cannot avoid the scale in the long run.

The market forces of supply and demand, along with a strong dose of globalization, finally forced the UAW to step on the scale, and guess what? Union wages and compensation are way too high, and union productivity is way too low, according to the scale. And like the bathroom scale, the market doesn´t lie, it always provides accurate and truthful information, as painful as it might be.

Bottom Line: The UAW is probably the most successful union in U.S. history, at achieving both higher-than-market wages and below-market productivity for its members, at least in the short run. But that very union success created the seeds of a powerful destruction that we are witnessing today, and in the long run that very union success is destroying thousands and thousands, and maybe millions of union jobs, and is destroying many of the very companies that employs its members (GM, Ford and Chrysler). As Sowell points out, the chickens have come home to roost, or the UAW finally had to step on the scale.

Top Oscar Picks from Actual Betting on Intrade

From Intrade, the top picks for Ocscars and odds:

Best Director: Martin Scorsese 90%
Best Supporting Actor: Eddie Murphy 60%
Best Supporting Actress: Jennifer Hudson 81%
Best Actress: Helen Mirren 94%
Bestor Actor: Forest Whitaker 82%
Best Picture: The Departed 47%

Other contracts:
Hillary Clinton to be Democratic nominee, about 50%
Hillary Clinton to be President, 2008: about 28%

Chance of U.S. economy in recession 2007: 16.5%

Saturday, February 24, 2007

Quote of the Day

Economists have long been saying that there is no free lunch but politicians get elected by promising free lunches. Controlling prices creates the illusion of free lunches. ¨

Thomas Sowell, in his recent column
Priceless Politics II.

Friday, February 23, 2007

Clinton: Windfall Profits on the Lecture Circuit

From the Washington Post, Bill Clinton has made close to $40 million in speaking fees since leaving office. On one particularly good day in Canada, Clinton made $475,000 for two speeches, more than double his annual salary as president.

See a list of his speeches and fees here, minimum Clinton fee is $100,000, maximum is $400,000 and average is probably about $150,000 to $175,000.

His income in 2005 was about $8 million from speeches. And you thought CEOs were overpaid!

Thursday, February 22, 2007

Problems with the Govt. Savings Rate

A basic problem with the often quoted personal saving rate is that it mixes together current workers with retirees who should be expected to spend much more than they earn. One academic economist has calculated that excluding retirees from the figures would add about 4 percentage points to the saving rate. Moreover, this error should grow over time as the US ages and healthcare costs (a major purchase for retirees) continue to grow.

Another problem with the saving rate is that when consumers buy durables - think cars, furniture and appliances - the spending is counted right away even though payments will be made over time. Amortizing these purchases would push up the saving rate another 2 percentage points.

From economists
Brian Wesbury and Robert Stein at First Trust Portfolios.

People Trade, Not Countries

It might be a convenient expression to say that the U.S. trades with Japan, but is it literally true? Is it the U.S. Congress and President George Bush who trade with the National Diet of Japan, the Japanese legislature and Prime Minister Shinzo Abe? Or, is it U.S. and Japanese private parties, as individuals and corporations, who trade with one another? When I purchased my Lexus, did I deal with the U.S. Congress, the Japanese Diet, George Bush and Shinzo Abe, or did I deal with Toyota and its intermediaries?

From George Mason economist Walter Williams'
most recent column.

MP: Walter Williams makes an obvious, but often overlooked point, that individual American consumers and individual U.S. companies buy imported foreign products, and private U.S. firms sell and export products and services to private foreign consumers and private foreign companies. When we hear all of the media hysteria about the "U.S. trade deficit" with the rest of the world, or with individual countries like China or Japan, we lose sight of the fact that it was voluntary, individual decisions on a daily basis in the marketplace by U.S. consumers and firms that led to the trade deficit.

Look at the tags and labels on your clothing, and you'll find that you voluntarily purchased clothing produced by workers and private firms in China, Mexico, India, Brazil or Bangladesh, etc., which contributed to the "trade deficit" with those countries, but obviously made you better off. Or if you took a vacation to Canada, Mexico or Europe, that contributed to the "trade deficit" with those countries, but made you better off.

Bottom Lines: 1) People trade, not countries and 2) Restrictions on trade are restrictions on people.

Corporate Social Responsibility: Indian IT Industry

Nobel economist Amartya Sen made a JFK-esque speech asking the IT industry what it had done for India. His point was not that the IT industry isn’t doing anything for the economy at large, but that it should do ‘much more’. Indeed, Sen argues, given that it has benefited from the country’s contributions to its development, the industry should have a ’sense of obligation’ to do much more.

The IT industry’s primary obligation is to its shareholders and customers. It will be doing its bit for the country as long as it does this with efficiency and excellence. Of course, corporations, like citizens may want to do good for the society they are a part of. But they have no moral or legal obligation to do so. In a country where a communal socialist government is not only unwilling to unshackle restrictive labour laws that hurt both employers and employees but is also attempting to impose community-based quotas on private companies, the use of the word obligation must be treated with extraordinary care.

From
The India Economy Blog.

Let Sirius and XM Merge

John Tamny, senior fellow at the Manhattan Institute explains why market competition is often a better and more effective regulator of businesses than government: "Dominant companies in the U.S. like Standard Oil and GM have regularly been knocked from their perches by seemingly insignificant competitors. Former anti-trust target IBM's failure to see the potential of the personal computer led to Microsoft's ascendance with Windows, and much like IBM, Microsoft (targeted by anti-trust forces in the late '90s) failed to see the transformative nature of the Internet in time to stop Yahoo and Google among others."

Read more of the article "No Ear Ache: Let Sirius and XM Merge"
here.

20th Century's Most Influential Libertarian

Milton Friedman’s relentless belief in the power of a free people and the justice of a free society had vivid real-world effects. Thanks to Friedman, we are no longer forced into the armed services. Thanks to Friedman’s monetary ideas, the cash in our pockets is worth something close to what it was a year ago. Thanks to Friedman, many more people appreciate the arguments against government policies that are no longer considered as untouchable and unquestionably right as they were before he came along.

Milton Friedman was never a politician. He could never make things happen. He could only attempt to persuade his fellow citizens and their leaders, making himself an exemplar of the virtues of the truly liberal intellectual. Because of him, the world is a freer and better place.

From "The Life and Times of Milton Friedman: Remembering the 20th century's most influential libertarian," in the
March edition of Reason Magazine.

Wednesday, February 21, 2007

Crossing the Border for a Super-Cheap Dentist

Want a cheap dentist? Go to Mexico, read about it here in Slate.

Indian Newspapers Are Booming

Newspaper circulation in the U.S. continues to decline, but in India daily newspapers are booming. Read about it here in The Economist's article "Indian newspapers: Let 1,000 titles bloom."

"India has some 300 big newspapers, with a combined circulation of 157m last year—a rise of 12.9% on 2005."

Quote of the Day

History shows us that freedom works. During 1,000 years of absolute monarchy, feudalism, and slavery, mankind’s average income increased by about 50%. In the 180 years since 1820, mankind’s average income has increased by almost 1,000%. During the last 100 years, we have created more wealth, reduced poverty more, and increased life expectancy more than in the previous 100,000 years. And that happened because of the entrepreneurs, thinkers, creators, innovator who had new ideas, who traveled geographical distances and, more important, mental distances to create new things and who saw to it that old traditions, which would have stopped new creations, would not stop them for long.

Entrepreneurs are the heroes of our world. Despite the risks, the hard work, the hostility from society, the envy from neighbors, and state regulations, they keep on creating, they keep on producing and trading. Without them, nothing would be there.


~Johan Norberg, "Entrepreneurs Are the Heroes of the World," from
Cato's Letter.

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.

From
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.