Saturday, March 10, 2007

A Cure Worse Than the Disease

In today's WSJ there is a good article "A Penny Not Saved" about IPLs.

Some states like Michigan have an "Item Pricing Law" (IPL) that requires each item in a retail store to have its own individual price sticker, instead of simply having a price tag on the shelf like in most states. The argument for IPLs is that they are supposed to protect consumers from pricing errors, which occur about 1% of the time. However, since the average cost of overpricing is less than one cent per item, the potential benefits of IPLs are less than one cent per item!

The IPLs also have costs, because it is expensive and time consuming to put labels on each item. And it also makes changing prices more expensive -- meaning that stores are less likely to have sales of covered items. In a competitive industry like grocery retailing, any cost increase will translate into a price increase, and we would therefore expect IPLs to lead to higher prices.

How much higher? Research by the author suggests that groceries are 10% higher in IPL stores. Food represents about 14% of the average family's budget, so IPLs reduce the real incomes of families by more than 1%.

Question: How many other laws and regulations intended to be "pro-consumer" actually make consumers much worse off? Probably a lot!

The Book That Changed the World

Adam Smith's book "An Inquiry into the Nature and Causes of the The Weath of Nations" was published 231 years ago yesterday (March 9, 1776). What were its main contributions? A good summary is presented by the Adam Smith Insititue blog:

1. It pinpointed specialization and trade as the basis of economic efficiency and growth.

2. It explained the importance of capital accumulation for future income – and the need to conserve and manage capital, and to secure it from the ravages of prodigals, thieves and governments.

3. It showed how competition provided the best deal for customers by keeping prices down and quality up.

4. It demonstrated how the price system automatically pulled resources to their best use.

5. It railed against high and arbitrary taxation.

6. It exposed the counterproductive nature of government interventions in markets and trade.

Bottom Line: "It not only changed our thinking. It changed the world."

Friday, March 09, 2007

Jobless Rates: Canada vs. USA

Why the persistent 2 point gap between U.S. and Canada unemployment rates?

Possible reasons: Canada has: a ) more generous unemployment benefits than the U.S., b) a much higher degree of unionization (32.2%) than the U.S. (14.8%), and c) a higher minimum wage, which could all create higher levels of unemployment.

Michigan Only State to Lose Jobs in 2006

From the Bureau of Labor Statistics.

Thursday, March 08, 2007

EU 20 Years Behind US in Econ Development

As reported in today's IBD, a new study by Eurochambres (the European Chambers of Commerce) concludes that the European Union is 20 years behind the U.S. in economic development. Consider that:

1. The U.S. reached Europe's current level of economic development (measured by GDP per person) in 1985, 22 years ago.

2. The U.S. reached Europe's current level of productivity (expressed in GDP per worker) in 1989, 18 years ago.

3. The U.S. reached Europe's current employment rate and level of investment in R&D in 1978, 29 years ago.

4. The U.S. reached Europe's current level of Internet use 4 years ago.

What would it take for Europe to catch up to the U.S.?

5. If income (GDP per capita) grew in the US at 2% per year and in the EU at 3% per year, (a 1% higher growth of the EU), it would take the EU 38 years to catch up with the US, in 2045.

Why the difference? According to IBD, "the U.S. has smaller government, less regulation and much higher productivity. It also has what Nobel Prize-winning economist Edmund Phelps recently called "dynamism" — a culture of entrepreneurialism that doesn't exist in Europe."

Household Net Worth Hits Record High in 2006

WASHINGTON (Dow Jones News) --U.S. households' total net worth rose 2.5% to a record $55.63 trillion in the fourth quarter of 2006 (see chart above), mainly reflecting gains in their corporate equities holdings, the Federal Reserve said Thursday. Key points:

1. Household net worth grew for the 17th consecutive quarter.

2. The record $55.63 trillion posted in the most recent quarter was up from the third quarter's $54.25 trillion, the previous record high.

3. The 2.5% growth in the fourth quarter was faster than the third quarter's 1.6%.

4. Household net worth in the fourth quarter rose to about 5.75 times disposable personal income, from a third-quarter level of about 5.67 times income.

5. From 2005 to 2006, household net worth increased by $3.83 trillion, or about $13,000 per person annual increase in net wealth, or almost $52,000 per household of 4!

6. The $56.3 trillion in total net worth works out to about $188,000 per person, or $752,000 for a household of 4.

XM and Sirius Radio: Let the Market Decide

George Mason economist Russ Robberts has an excellent post today on Cafe Hayek about the proposed merger between XM and Sirius satellite radio stations, and the possible, but unwarranted resistance from the FCC to the merger. Here is an excerpt:

"I have no idea if there's room for two satellite radio companies or whether there's room for 50. What I do know is that there is no meaning to the idea of satellite radio market share. After this merger, the new company will have a complete and total monopoly of the satellite radio market. But that is meaningless. Satellite radio has to compete with my regular radio, internet radio, my CD collection and my iPod. Oh, and my TV and talking on my cell phone with friends and a thousand other ways to pass the time.

Five years ago there was no satellite radio. When one company came along, should the FCC have shut them down for daring to monopolize the market? So why is it now that there's two going back to one we have a potential calamity that the government has to worry about?"

Bottom Line: Existing market competition, both direct and indirect, and the potential threat of new competition, is by far the best regulator, and will do more to discipline a merged XM and Sirius than anything the FCC can do.

Iceland's Laffer Curve

From today's WSJ:

"The benefits of low taxes are on full display in Iceland, which provides an almost perfect demonstration of the Laffer Curve. From 1991 to 2001, as the corporate-tax rate fell gradually to 18% from 45%, tax revenues tripled to 9.1 billion kronas ($134 million in today's exchange rate) from just above 3 billion kronas. Since 2001, revenues more than tripled again to an estimated 33 billion kronas last year. Personal income-tax rates were cut gradually as well, to a flat rate of 22.75% this year from 33% in 1995. Meanwhile, the economy averaged annual growth rates of about 4% over the past decade."

my previous post on Iceland's tax cuts.

Wednesday, March 07, 2007

Interesting Fact of the Day

The "Tax Hike" of 2003

The Congressional Budget Office reported yesterday that through the first five months of the fiscal year (Oct 2006 - Feb 2007), total tax revenues collected increased by $81 billion compared to the same period last year, a 9.3% increase. As the table above shows, individual income tax receipts increased by $50B (+12.8%) and corporate taxes increased by $20B (+21%), 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 increase" 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.

Celsius to Fahrenheit

Easy Conversion:

16C = 61F

28C = 82F.

For those 2 temperatures 16C and 28C, you can just switch the numbers to convert to F.

The Invisible Hand of Wal-Mart

In the NY Times last fall, columnist John Tierney wrote that "Wal-Mart has been one of the most successful antipoverty programs in America," and posed the question, "Has any organization in the world lifted more people out of poverty than Wal-Mart?" So far, nobody has provided any convincing alternative to Wal-Mart as the #1 global organization for bringing people out of poverty. You could argue that Wal-Mart has done more for world poverty than the World Bank, the IMF, the United Nations, United Way and Red Cross combined.

From the WSJ yesterday, an article about Wal-Mart's huge success in countries like Mexico:

"Like Wal-Mart fans in less affluent parts of America, most shoppers in developing countries are much more concerned about the cost of medicine and microwaves than the cultural incursions of a multinational corporation. That fact is making Wal-Mart a dominant force in Latin America."
Translation: Low prices at Wal-Mart make consumers in Mexico and Latin America better off and significantly raise their standard of living.

"Wal-Mart de México SAB, a publicly traded subsidiary, is the biggest private employer in Mexico. Wal-Mart's jobs pay well by Mexican standards and serve as a gateway to the state health and pension systems. Full-time jobs with regular salaries are scarce."
Translation: Wal-Mart provides thousands and thousands of jobs to help bring people out of poverty in Mexico and Latin America.

"In Mexico, Wal-Mart has been a counterweight to the powers that control commerce. One of the most closed economies in the world until the late 1980s, Mexico was dominated for decades by a handful of big grocers and retailers. All were members of a national retailing association called ANTAD, and cutthroat competition was taboo."
Translation: Wal-Mart broke Mexico's former grocery and retail cartels, and replaced high prices, limited selection and restricted competition with competitive low prices and lots of choice.

"In recent months, as rising prices for U.S. corn pushed up the price of Mexico's corn tortilla, a staple for millions of poor, Wal-Mart could keep tortilla prices largely steady because of its long-term contracts with corn-flour suppliers. The crisis turned into free advertising for Wal-Mart, as new shoppers lined up for the cheaper tortillas."
Translation: Wal-Mart's size helps to stabilize prices for staples, much more so than small retailers can. Also, Wal-Mart's distribution system and computerized logistics allows it to sell products like microwaves for the same price around Mexico, and smaller, more remote towns no longer pay premiums.

From Adam Smith, paraphrased: "By pursuing profits, Wal-Mart intends only its own gain, and yet it is led by an invisible hand to bring people out of poverty, which is not even part of its self-interested intention. But by pursuing its own self-interest, Wal-Mart as an organization promotes the general interests of society, does more to help lift people out of poverty, and does this more effectually than if it were to intentionally try to promote the public interest and address world poverty through an organization like the United Way, United Nations, World Bank or IMF."

Tuesday, March 06, 2007

Impressions of India

As requested in one of the comments to my recent posting about Bangalore, I am providing a list of my impressions of India, from a longer trip to Bangalore 2 years ago during my sabbatical: "25 Strange and Unusual Practices, Customs and Sights in India."

Why Should We Complain About Strong Dollar II?

A previous post featured a quote from GMU economist Don Boudreaux "Why should Americans complain about an overvalued dollar? The real victims of such currency manipulation are the Chinese people. Americans are beneficiaries."

A recent article in the International Herald Tribune provides evidence to support the position that Americans are beneficiaries of a strong dollar, and Chinese people are victims:

1. Most central banks like China have invested heavily in U.S. securities, mostly Treasury bonds, but sometimes mortgage-backed securities as well. In recent years, these giant purchases by China and other countries have helped hold down interest rates that American home buyers pay for mortgages and the U.S. government pays to finance its budget deficits.

2. China's central bank has bought vast sums of dollars from its country's exporters, giving local currency in exchange. (Translation: print yuan to buy dollars.)

3. China's central bank has had to borrow yuan by issuing bonds to buy the dollars from exporters. (Translation: Chinese people can expect higher taxes in the future.)

Bottom Line: Americans benefit by having lower interest rates in the U.S. because of China's purchases of T-bonds and mortgage securities, and American consumers and businesses get a huge discount on all Chinese products because of a strong dollar and weak Yuan.

Chinese people suffer several ways: a) Purchases of dollars with Yuan creates inflationary pressures that devalue the value of currency holdings of the Chinese people, and b) taxes have to be higher to provide funds to purchase dollars, and c) government debt to purchase dollars means higher future taxes.

Caporale's Law

Easy way to tell if the economic policies of a country are working for the average person: observe the actitivities of the border guards of that country.

1. If the border guards are patrolling the border to keep peeople IN the country from LEAVING, it's a sure sign that the economic policies are NOT working well for the average person, e.g. Cuba, former East Germany, the former Soviet Union, North Korea, former communist China, etc.

2. If the border guards are partolling the border to keep from OUTSIDE the country from ENTERING the country, it's a sure sign that the economic policies are working VERY WELL for the average person, e.g. the United States border with Mexico.

I first heard this in graduate school from fellow George Mason grad student Tony Caporale.

Chance of U.S. Recession in 2007 Increases

Based on actual trading at, the recent volatility in stock markets here and abroad has increased the chance of U.S. recession in 2007 from about 16.5% a week ago to almost 23% in the last few days of trading.

Trade Data: US Exports Growing Faster Than Imports

I wrote in a previous post about the phenomenal growth in exports to India. Here's some additional data on U.S. exports:

"U.S. export growth was phenomenal in 2006, increasing by 14.5% (as compared to 10.8 percent for imports). Exports to Europe increased by 15.2 percent and to China by nearly 32 percent. The growth in exports to Japan was a slower 7.5 percent, but it grew. Since 2001 U.S. exports have increased by more than 42 percent, and that growth reflects, more than any discernible trade policy measure, the fact that the world economy has been growing handsomely during that period. As foreign demand rises, foreigners are demanding more American-made products.

What's so desirable about balanced trade or a trade surplus? Japan has run a large trade surplus since time immemorial. Yet, its economy was moribund for 13 years, growing at barely over 1% per year between 1991 and 2004.

Likewise, Germany has run a large trade surplus for many years, but until less than one year ago, it remained afflicted with a double-digit unemployment rate. (Today it is just under 10% percent). Which is better: a trade surplus or real economic growth and opportunity?"

From Cato's Daniel J. Ikenson

Who Knew? Absolut Vodka is Goverment-Owned

With a new center-right government that is determined to get the state out of businesses like banking, telephones and Absolut vodka, it can seem as if the only things missing in Sweden these days are "For Sale" signs at major border crossings.

About $21 billion worth of state-owned assets is going on the block in the coming three years after the presentation of an enabling law last week in Parliament. And even more sell-offs are likely in what is probably the biggest process of privatization in Swedish history.

Monday, March 05, 2007

Price System Works: Higher Prices Stimulate Supply

Within the last decade, technology advances have made it possible to unlock more oil from old fields, and, at the same time, higher oil prices have made it economical for companies to go after reserves that are harder to reach. With plenty of oil still left in familiar locations, forecasts that the world’s reserves are drying out have given way to predictions that more oil can be found than ever before.

In a wide-ranging study published in 2000, the U.S. Geological Survey estimated that ultimately recoverable resources of conventional oil totaled about 3.3 trillion barrels, of which a third has already been produced. More recently, Cambridge Energy Research Associates, an energy consultant, estimated that the total base of recoverable oil was 4.8 trillion barrels. That higher estimate — which Cambridge Energy says is likely to grow — reflects how new technology can tap into more resources.

From the NY Times article Oil Innovations Pump New Life Into Old Wells, via a link at FEE, which asks the question: "You mean the price system works? No way!"

Impressions of My 4th Visit to Bangalore

1. Strangest sight this visit: A pack of camels marching down a busy street in Bangalore! Cows are a very common sight on Bangalore streets and traffic, along with many stray dogs, chickens, sheep, goats, etc. but I have never seen camels before in Bangalore traffic. Camels are actually quite common in several northern Indian states, where there are deserts, and where they are used for farming, meat and milk. If you haven't already seen this from a previous post, watch this incredible footage of Indian traffic, and imagine cows and camels in the chaotic mix.

2. Most interesting phrase this visit, heard from a student: "I was the topper of my batch in 12th standard." American translation: I graduated at the top of my high school class.

3. Something I didn't notice before on my previous 3 visits: Almost all of the utility poles in Bangalore are made of cement, because of the shortage of wood.

4. Something I had never heard before: India still struggles with polio, especially in the northern state of Uttar Pradesh, where they had 1,500 cases a few years ago. Polio in the U.S. has essentially been wiped for more than a half century - by 1964 there were only about 100 cases of polio in the U.S.

5. Best part of living in Bangalore: having a "butler" as part of the accommodations provided by my host there, Alliance Business School. Lewis stayed with me in a beautiful apartment and did all of the cooking, cleaning, laundry, errands, shopping, shoe shining, arranging for vehicles, making appointments, etc.

6. Worst part of traveling to Bangalore: the grueling 24-hour travel to get there and back, and having to connect in Paris' Charles DeGaulle (CDG) airport, arguable the worst airport in the world. Anybody who used to complain about the old DTW airport in Detroit, should try connecting in Paris sometime, and see what real travel frustration is all about. CDG has 6 separate terminals, connected by bus ONLY - you cannot walk from one to the other. And even if you arrive in a terminal, and leave on a connecting flight from that SAME terminal, you can often count on a one-hour connection time (it took me more than one hour, and I almost missed my flight), because you have to go through security again, and the lines can be LONG. Compare that to connecting in a real airport like DTW or MSP, or even Frankfurt or Amsterdam or Bangalore.

Sunday, March 04, 2007

Quote of the Day III: Econ 101 Has Not Changed

Free trade is one of the cornerstones of our economic success as a nation. We must redouble our efforts to demonstrate the benefits of trade to our standard of living – and make clear that retreating to economic isolationism would mean fewer jobs, lower incomes, and lower standards of living in the United States and for hundreds of millions of people around the world.

Trade and openness to competition have produced and will continue to produce benefits for our economy, our businesses, our workers, and our consumers – benefits that greatly outweigh the costs. Proven economic principles have not changed.

The global economy is here to stay. To keep growing and leading the world in innovation and opportunity, we must trade freely, openly, and according to the principles of the global marketplace.

Remarks by Treasury Secretary Henry M. Paulson to the Economic Club of Washington.

Quote of the Day II

To Hillary Clinton:

In fact, foreign-government holdings of U.S. debt arguably make these governments "hostage to the economic decisions being made in Washington." The Fed, after all, could monetize this debt, inflating away its value. Or Uncle Sam could repudiate this debt, or unilaterally change its terms in ways unfavorable to holders. Or you and your colleagues could implement economically disastrous policies that drive up long-term interest rates and, hence, drive down the value of outstanding treasuries.

And if foreign holders of U.S. government debt dumped their holdings of U.S. treasuries for economic reasons -- worried that the value of this debt will soon fall -- then there's every reason to suppose that the very same dumping of this debt would occur if every cent of the debt were held by Americans.

~GMU economist Don Boudreaux's Letter to Senator Clinton

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.

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 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.

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.

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"

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

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 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.