Professor Mark J. Perry's Blog for Economics and Finance
Saturday, March 24, 2007
Pay No Attention to the Crazy Man on TV
I have made several previous posts about Jim Cramer, check here and here, and have suggested people should watch Jim Cramer for entertainment purposes, not for serious investment advice. Slate Magazine's Henry Blodget has a new article about Cramer, where he suggests that Jim Cramer "has committed professional suicide," by admitting that he engaged in trading practices that are questionable at best, possibly illegal?
Aside from those potentially serious ethical and legal issues, an even more important question might be: How well did the performance of a portfolio of Mr. Cramer's stock picks in 2006 stack up against a portfolio of passive index funds? Unfortunately for Cramer's followers, not very well.
According to Mad Money Machine, the return in 2006 for a portfolio of mostly Vanguard Index funds was +20.6%, compared to a -0.20% loss for a portfolio of "Select Jim Cramer Featured Stocks." A $100,000 investment at the beginning of the year would have grown to $120,612 by the end of 2006, compared to only $99,805 for Cramer's picks (see chart above, click to enlarge).
Bottom Line: Watch Cramer for entertainment purposes only, call Vanguard or Fidelity for investment advice on index funds. Or read "Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing," by economist Burton Malkiel, who is a strong advocate of index funds.
Friday, March 23, 2007
As Simple As Possible
History of the U.S. Tax Code, Highest Marginal Rate
Getting ready to pay/file your taxes? If you're in a high income tax bracket, it could be a lot worse, you could be paying 91% like during the 1950s or 70% during the 1960s. The average highest marginal tax rate since 1913 is 60.3%.
Is is any wonder that the economic conditions in the 1930s turned from bad to worse, when the highest income tax rate was raised from 25% to 79% during that decade?
From Hourly Associate to Senior VP at Wal-Mart: Wal-Mart is More Selective Than Harvard University
"Jobs at Wal-Mart are a dead-end cycle that keeps people in poverty," according to Wal-Mart critics like Wendell Chin in this SF Chronicle article. Why is it then that so many people want to work at Wal-Mart? Most new Wal-Mart stores employ 350 employees, and it typically gets 11,000 to 25,000 applications, or about 25 to 75 applications for EVERY AVAILABLE JOB! Even Harvard University gets only about 10 applications for every available position. Think about it, Harvard's acceptance rate is 9.3%, and Wal-Mart's acceptance rate is only 1-3%!
One reason so many people want to work at Wal-Mart is the opportunity for advancement - more than 75% of current store managers started at Wal-Mart as hourly associates.
For example, consider the case of 42-year old Patricia Curran, Wal-Mart's Executive Vice President of Store Operations, and listed by Fortune Magazine as one of the 50 most powerful women in the U.S., along with two other senior Wal-Mart executives. She is also listed here as one of the Wall Street Journal's top 50 Women to Watch for 2006.
At age 20, Ms. Curran started her career at Wal-Mart as an hourly associate in the pets department, and was subsequently promoted to Department Manager, Assistant Manager, Co-Manager, Store Manager, Regional Personnel Manager, District Manager, Operations Coordinator, Regional Vice President, and Divisional Merchandise Manager, and in 2003 to Senior Vice President of Wal-Mart store operations.
I don't think Patricia Curran is living in poverty, and I don't think she would consider her career at Wal-Mart as a dead-end cycle.
To paraphrase Thomas Sowell, Wal-Mart does not pay its associates as much as third-party observers like Wendell Chin would like to see them paid. But how much are third parties like Wendell Chin, who wax indignant, paying them, and how many jobs are they providing? None.
Who Knew? Monopoly's Surprising History
Most people think Monopoly was an overnight success for Parker Brothers, which introduced it in 1935. But the game began 30 years earlier, when a woman named Elizabeth Magie Phillips designed a new way to teach economics.
A proponent of a “single tax” on property (rather than on income and consumption), she designed what she called the “Landlord’s Game” to instruct people about the justice of her economic scheme.
Fans of the game made copies by hand, improving the play as they went. By the time Charles Darrow, generally credited with “inventing” Monopoly, obtained a patent and sold it to Parker Brothers, the game had already been through three decades of beta-testing.
Read more here.
P.S. Doesn't Parker Brothers have a monopoly on "Monopoly?"
Thursday, March 22, 2007
Economists Can Earn Investment Bankers' Incomes
The average 9-month salary for economics professors at the University of Michgian-Ann Arbor is $155,000, there are 9 professor who make more than $200,000, and the highest paid professor in economics makes $245,000. But high-profile economists like the Professor David Teece at University of California-Berkeley who provide expert testimony can earn $2 million or more a year, according to this front page article in yesterday's WSJ, "An Economist's Courtroom Bonanza."
"We've given economists the chance to earn investment bankers' incomes," Prof. Teece says. "If you're successful with us, it isn't hard to make half a million dollars a year." He estimates that 60 of his associates earned more than $500,000 last year.
Professor Teece's hourly fee? $850.
Drug War Casualties: Prisoner Rape Victims
It is widely accepted that the U.S. “war on drugs” has been both costly and ineffective. Less known is the devastating link between current U.S. drug policies, prison overcrowding, and rape behind bars. In "Stories from Inside: Prisoner Rape and the War on Drugs," a report released today, Stop Prisoner Rape makes clear for the first time how the war on drugs has contributed to the sexual violence that plagues prisons and jails across the country, derailing justice and shattering human dignity.
"Stories from Inside" offers first-hand accounts by 24 prisoner rape survivors, all of whom were sexually assaulted while serving time for a non-violent drug-related offense. The report also offers an overview and analysis of the war on drugs, highlighting how it affects the sentences and prison experiences of hundreds of thousands of Americans and making policy recommendations. Anyone can become a victim of prisoner rape, but non-violent drug offenders who are unschooled in the ways of prison life tend to be targeted, especially when they are housed in cramped cells or in poorly monitored dormitories that were never meant to hold inmates in the first place.
Read more of the SPR press release here, via Jacob Sullum at Reason Magazine.
If there was a single issue that made turned me into a libertarian, the War on Drugs was near the top of the list. If these testimonials of non-violent drug offenders getting raped in prison (3 are from Michigan) don't convince you that the War on Drugs is misguided, senseless and immoral, nothing will.
More on Women in Global Management
According to the 2007 Grant Thorton International Business Report, the percentage of women in senior managerial positions globally has grown slightly from 19% to 22% since 2004. The Philippines comes out top with 50% of managerial positions being held by females, ahead of Brazil (42%) and two other Asian countries - Thailand (39%) and Hong Kong (35%). Lowest in the table is Japan with just 7%, below three European countries Luxembourg, Germany and the Netherlands at 10%, 12% and 13% respectively (see chart above, click to enlarge).
The EU's proportion of women in senior management has remained static at 17%, while NAFTA's figure has increased from 20% to 23%.
Note that the graph in my previous posting based on the The Economist is slightly inaccurate, because it shows the U.S. about 4 percentage points below the global average, when it is actually 1% above the global average of 22%.
Trying to Define American Car Will Drive You Crazy
From USA Today, an interesting article How do you tell which car is more American?:
"Many consumers are increasingly confused. The world is no longer as simple as us vs. them, Detroit against the Asians and Europeans. It's a global industry now, in which all manufacturers are touching their automaking toes on the shores of just about every industrialized nation.
Honda's Ohio-built Accord is 70% domestic parts. Toyota's Corolla is made in a California plant alongside General Motors models.
Ford's hit Fusion sedan is made in Mexico; only half its parts are from the USA or Canada. GM pitches its small HHR sport utility and giant Suburban straight at the American market, but they, too, are built in Mexico. HHR has only 41% American and Canadian parts.
More than three-quarters of the parts in Dodge's new Nitro SUV, which is assembled in Toledo, Ohio, are American or Canadian. But the profits go to Germany because Dodge is part of DaimlerChrysler. Chrysler Group, meanwhile, just became the first major automaker to announce it's going to make small cars for the U.S. market in China."
To see a chart that provides the domestic content of 2006, 2007 and 2008 model vehicles, go here. Notice however that "domestic content" actually includes parts from U.S. AND Canada, because the U.S. government requires that automakers disclose "what percentage of a new vehicles' components are U.S. or Canadian and where the vehicle was assembled." Isn't Canada a foreign country?
To read my article on this topic "Trying to Define a Foreign Car Will Drive You Crazy" go here.
To read another article I wrote on this topic "Vehicle Profiling Has No Place in a Global Economy," which appeared in the Detroit News, go here.
Chinese Stocks Rebound, Close at New Record High
Remember the plunge a few weeks ago that triggered a global sell-off? In Shanghai it was a buying opportunity.
From today's NY Times World Business section, "After a huge sell-off here just a few weeks ago that helped set off a drop in global financial markets, China’s stock market has rebounded and the Shanghai Index rose to a new record Wednesday of 3057.38." (see chart above).
When the Shanghai composite index plunged 8.8% on February 27, it was simply a temporary setback in a galloping bull market. After all, an 8.8% drop is like having a sale on all stock at an 8.8% discount. When Macy's has a sale, it attracts more customers, so why shouldn't a "stock sale" attract more buyers?
BTW, China had the world’s best-performing stock market in 2006 - the Shanghai Composite Index was up 130%. Share prices are already up 14% in Shanghai so far this year.
Wednesday, March 21, 2007
Global Glass Ceiling
From The Economist: The highest percentage of women in senior management can be found in the Philippines, according to a report by Grant Thornton International, a consultancy. This reflects a tradition of wide participation in society there. Similarly, the egalitarian legacy of communism could explain the high proportion of women near the top of companies in China and Russia.
Quote of the Day II
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."
A few examples come to mind: unionized public school teachers and school choice/vouchers, UAW workers and globalization, protectionist U.S. sugar beet farmers and the proven benefits of free trade, existing banks and Wal-Mart's pro-consumer attempt to enter banking, etc. Any other suggestions?
Quote of the Day
"The average Wal-Mart customer earns $35,000 a year, compared with $50,000 at Target and $74,000 at Costco.
Wal-Mart's "every day low prices" make the biggest difference to the poor, since they spend a higher proportion of income on food and other basics. As a force for poverty relief, Wal-Mart's $200 billion-plus assistance to consumers may rival many federal programs. Those programs are better targeted at the needy, but they are dramatically smaller. Food stamps were worth $33 billion in 2005, and the earned-income tax credit was worth $40 billion."
~Sebastian Mallaby, Washington Post columnist
People's Republic of Minnesota?
What's going in my home state of Minnesota? First the Minnesota House passes legislation to ban "foreign-made American flags" from Minnesota store shelves. That's pretty well... mercantilist, xenophobic, jingoistic, scary are the words that come to mind.
Now both the House and Senate in Minnesota have introduced bills to control college textbook costs, supposedly to prevent "textbook gouging," and change the way publishers market textbooks.
The bills would require textbook publishers to sell individual books usually marketed in bundles and require them to disclose when they plan to release new editions of textbooks. The bill would also require colleges to publish textbook lists before students register for classes so they can shop around for the best prices (MP: students would select classes, maybe majors, based on the lowest textbook prices??). Bookstores would be required to adopt policies to make affordable texts available to students.
"Three other states - Connecticut, Washington and Virginia - have passed similar laws, and California is considering it," according to the Michigan Daily.
I sense some "price confusion" - Minnesota legislators apparently don't like low flag prices and want to prevent Minnesotans from buying cheap foreign-made flags, but they also don't like high textbook prices, and want to legislate textbook pricing?
Tuesday, March 20, 2007
Houses Cheaper Than Cars in Detroit
"At least 16 Detroit houses up for sale on Sunday sold for less than the $29,000 it costs to buy the average new car." Read more here.
Record Profits or Losses? Doesn't Matter, It's Bad
From 4-Block World.
Tax Cuts Make Tax Code More Progressive
From today's WSJ editorial, "The latest IRS data also show that the wealthiest Americans continue to carry a record share of the income tax load. As the chart above shows, the richest 1% paid 35.6% of all income taxes in 2004, the most recent year in which data are available. The top 10% pay a remarkable two-thirds of all income taxes. The irony is that the Bush tax cuts have made the U.S. income tax code more progressive. But according to John Edwards and other class warriors, that's not enough."
The Tyranny of the Status Quo, Iron Triangle Wins
More on Wal-Mart's announcement that it would withdraw its application, filed with the Federal Deposit Insurance Corporation, to establish an industrial loan company (ILC) in Utah, from American.com:
"For all the supposed sympathy on Capitol Hill for American consumers—and especially “working families”—they don’t count for much when an organized pressure group like the banking industry comes calling. Then, our representatives in Congress become very concerned about such fallacious and unintelligible principles as “the separation of banking and commerce” and are perfectly happy to leave working families behind. From its inception, the “separation of banking and commerce” has been nothing more than a means for banks to protect themselves from competition, and it was invoked again, by people who should (and probably do) know better, to oppose the Wal-Mart application to acquire an ILC. The withdrawal of that application means America’s working families, who are Wal-Mart’s principal customers, will have to pay more for what they buy at Wal-Mart, and should thank their representatives in Congress for this privilege."
In his book "The Tyranny of the Status Quo," Milton Friedman described the "Iron Triangle" as a) special interest groups, e.g. the banking industry, b) regulators, e.g. FDIC, and c) politicians. When consumers and pro-consumer companies, e.g. Wal-Mart, go up against the Iron Triangle, it's often a lot like "three foxes and a chicken taking a vote on what to eat for lunch," (paraphrased from H.L. Mencken).
Why We Need More Immigrants
What do Intel (NASDAQ: INTC), Google (NASDAQ: GOOG), Sun Microsystems (NASDAQ: SUNW), ebay (NASDAQ: EBAY), and Yahoo! (NASDQ: YHOO) have in common? They were all founded by immigrants, from Hungary, Russia, Germany & India, France, and Taiwan respectively. Those five companies together employ about 160,000 people, mostly in the U.S., and illustrate why we need more immigrants, not fewer.
From the study American Made: The Impact of Immigrant Entrepreneurs and Professionals on U.S. Competitiveness:
"This study illustrates the significant contribution to the U.S. economy made by immigrant entrepreneurs and foreign-born professionals, scientists, and engineers. This research, the first of its kind to examine entrepreneurship in cutting edge venture-backed companies, reveals that since 1990, immigrants have started 1 in 4 (25%) U.S. venture-backed public companies. This impressive proportion helps demonstrate the significant advantage the United States gains in maintaining an open legal immigration system.
Intel, the largest immigrant-founded company, employs nearly 100,000 workers worldwide, with more than half of its employees located in the United States. Hungarian-born entrepreneur Andy Grove co-founded Intel along with two American-born co-founders, Robert Noyce and Gordon Moore. Other large companies founded or co-founded by immigrants include Solectron (Winston Chen from Taiwan), Sanmina-SCI (Jure Sola of Bosnia and Milan Mandaric from Croatia), Sun Microsystems (Andreas Bechtolsheim from Germany and Vinod Khosla from India), eBay (Pierre Omidyar from France), Yahoo! (Jerry Yang from Taiwan), and Google (Sergey Brin from Russia). It is worth noting that the immigrant founders of eBay and Google came to America as children, and Jerry Yang, the co-founder of Yahoo!, came to America as a teenager.
India, with 32 companies (22%), ranks first as the country of origin for immigrant-founded venture-backed public companies, followed by Israel with 17 companies (12%), and Taiwan with 16 companies (11%). Canada, France, the United Kingdom, Germany, Australia, China, Iran, and two dozen other countries are also represented."
Bottom Line: The study’s findings reflect the benefits of an open policy toward legal immigration, and it also reveals that current restrictions on skilled immigrants are likely to result in less job creation and innovation for America.
Monday, March 19, 2007
What About Government Greed?
Amid all the media hysteria over the price of gasoline and the profits of "Big Oil," one simple fact has been repeatedly overlooked: The oil companies' earnings are just under 10 percent of the price of a gallon of gas, while taxes take 17 percent. Yet who ever accuses the government of "greed"?
Interesting Fact of Day
The combined market value (market cap) of Federated ($23 billion) and Sears ($27 billion) is about $50 billion, and together they hold about $15 billion of inventory. Compare that to the market value of Ebay (NASDAQ:EBAY), which is currently about $43 billion, just slightly lower that FD and SHLD together, and Ebay has NO stores and no inventory.
Hurray for High Prices?!
From today's WSJ:
"Wal-Mart sought a banking charter mainly to reduce the 2% interchange fee that banks charge retailers to process credit card transactions. Wal-Mart believed it could pass the savings along in the form of lower prices at the cash register. One of the more outspoken critics of Wal-Mart's banking plans was House Financial Services Chairman Barney Frank, who has also been moaning about the high cost that banks charge on credit card transaction fees. Go figure.
Wal-Mart already performs many bank-like functions popular in low-income neighborhoods -- including wire transfers, money orders, paycheck cashing and express bill payment. A Wal-Mart bank inside its stores might have been able to provide lower-cost loans to minorities and the poor -- the same clientele that commercial banks are often criticized for ignoring or sticking with "predatory" interest rates.
Unfortunately, Wal-Mart abandoned its plans to seek a banking license last week, and all of Washington seemed overjoyed at the news. What a weird notion of victory."
Bottom Line: Higher prices and fewer banking options for Wal-Mart shoppers and poor people.
Exploitation of the Successful Entrepreneurs?
From today's WSJ, Syracuse Professor Arthur Brooks' op-ed "What's Wrong With Billionaires?":
"What people hunger for is not money per se, but success at creating value. Money just tends to come along for the ride.
As long as a fortune is earned (as opposed to stolen, squeezed from governments or otherwise extorted from citizens), pecuniary acquisitiveness is directly related to the comfort of others. Oracle's founder Larry Ellison has created tens of thousands of jobs, introduced technology that has benefited all parts of the economy and paid billions in taxes. When Mr. Ellison measures his success with money, he spills opportunity and economic abundance onto all of us, directly or indirectly."
One could even argue convincingly I think that the personal wealth of a Bill Gates ($50 billion) or a Larry Ellison ($16 billion) is actually significantly less than the overall value they have created for society. That is, Bill Gates has probably increased the overall well-being and social welfare of people around the world now, in the past, and in the future, by MORE than $50 billion, considering his scientific and business contributions, jobs created, productivity increases as a result of software, etc. In other words, we as a society are actually exploiting successful the entrepreneurs like Bill Gates and Larry Ellison?
Here is the Forbes list of billionaires.
Union Membership Down, Real Compensation Up
From today's Washington Post, "Union membership continues to decline nationwide, with 12% percent of wage and salary workers belonging to a union in 2006, compared to 12.5% in 2005."
And how are U.S. workers getting along with declining union represtation? Very well, thank you, see the chart above. According to BLS data, real compensation (wages and fringe benefits adjusted for inflation) is at an all-time and continues to increase despite declining union membership.
By request, data sources are as follows:
BLS data for union membership 1983-2004 available here.
BLS data for union membership for 2005-2006 available here.
BLS data for real hourly compensation are available here.
Sunday, March 18, 2007
Save The Elephants: Buy Ivory and Trophy Licenses
Over the last thirty years, there have been two approaches to saving elephants in Africa: a) ban commercial use of elephants and elephant products like ivory, and ban private ownership of elephants; or b) allow commercial use of elephants like trophy hunting licenses and the sale of ivory, and promote private property rights for elephants.
After a quarter century of both approaches operating in different African countries, the evidence is clear: elephant herds are decreasing significantly in countries like Kenya that ban private ownership and commercial use, and elephant herds are increasing significantly in countries like Zimbabwe and Botswana where elephants can be owned and where commercial uses like hunting and ivory sales are allowed (see graph above).
In the late 1970s, Kenya had almost 3 times as many elephants as Zimbabwe and Kenya combined, and now both Zimbabwe and Botswana each have more than 4 times as many elephants as Kenya.
From an article by Karol Boudreaux, via Cafe Hayek, "Kenyans are debating whether the Government should lift its 30-year ban on trophy hunting. While the talk continues, the elephant population in Kenya continues to drop.
Meanwhile, elephant populations in countries such as Namibia and South Africa are increasing, a resurgence that is due surprisingly, in part, to trophy hunting. More importantly, our research in Namibia has found that as elephant populations rebound, so do the fortunes of the people."
The evidence strongly suggests that Kenya's conservation policies have failed, and an end to the ban on commercial use of elephants could help stop the decline of elephants there.
Paris By Night
Monetary Instability in Venezuela
From today's NY Times, an article about monetary instability in Venezuela, rising inflation (see graph above) and the resulting price controls, and the introduction of a new currency:
Inflation has been climbing rapidly since January when a sharp decline in the black-market value of the bolívar pushed up prices of imported goods. Since Mr. Chávez moved to nationalize major telephone and electricity companies in January, Venezuelans have rushed to take money out of the country, currency traders say. That exodus has caused the bolívar to weaken by about 20 percent to a level of 4,000 to the dollar on the black market, placing it among the world’s worst performing currencies this year.
First, the authorities will remove three zeroes from the denomination of the currency, the bolívar. Then he said the new bolívar, worth 1,000 old bolívars, would be renamed the “bolívar fuerte,” or strong bolívar. Finally, the central bank said this week that it would reintroduce a 12.5-cent coin, a symbol of Venezuela’s prosperity in the 1960s and 1970s before freewheeling oil booms ended in abrupt devaluations, after three decades out of circulation.
Saturday, March 17, 2007
More Tax Analysis
Using the same IRS data for my recent postings on taxes, I have produced the two charts above showing the adjusted gross income (AGI) floors for the top 50% of taxpayers (top chart), and for the top 1% (the IRS also has data on the top 5%, top 10% and top 25%, those are not displayed here).
Note that these are in constant dollars, adjusted for inflation. Further, because the IRS calculates annually the threshold level of income for the top 50% of taxpayers, those threshold values are actually the median levels of income (AGI), since 50% of taxpayers have higher income than the threshold, and 50% of taxpayers have lower incomes. Therefore, although it is not the direct intention of the IRS, its tax data produce a measure of real median income using actual tax return data.
1. Real median income, measured by AGI from tax returns, has remained relatively constant over the last 19 years at just under $16,000.
2. The real income of the richest 1% has increased significantly between 1986-2004, and the threshold level to be in the top 1% has increased from $108,000 to $174,000, a 60% increase.
3. The richest 1% have gotten richer over the last year 19 years, but the income of the average, or median taxpayer has remained relatively constant and stable, in real dollars. The middle class has not disappeared, and the median AGI over time has not changed much. There are more high-income taxpayers in the extreme right-hand tail of the AGI distribution, but that has not come at the expense of the median taxpayer. That is, the median income taxpayer has NOT been affected by the top 1% of taxpayers getting richer.
4. I wouldn't pay a lot of attention to the likes of Paul Krugman and his constant opining about this topic, like this recent talk "A History of America's Disappearing Middle Class." If there really was a disappearing middle class, the real median AGI should be declining, when it has actually been increasing slightly since the mid-1990s.
5. Note that the taxpayers in income groups like the top 1% or bottom 50% are not the same taxpayers from year to year, there is actually significant income mobility over a lifetime. "The rich" is not a club closed to new members. Many of the taxpayers in the top 1% in 1998 might now be retired and in the bottom 50%, and many taxpayers in the bottom 50% in 1998 (medical students, law students, business students, etc.), might now be in the top 1%.
What I've Been Listening To, Recommended
1. Big Al Anderson, legendary NRBQ guitarist's CD "After Hours," check out "Let's Get Away for the Weekend."
2. "Beverly Crawford Live: Family and Friends," some rockin' gospel, you can "get your praise on" with this CD.
3. Smooth jazz artist Eric Darius, plays sax and composes many of his songs on his new CD "Just Getting Started," check out "If I Ain't Got You. "
4. Some rockin' gospel with excellent horn arrangements on The Mighty Clouds of Joy's 2005 CD "In the House of the Lord: Live in Houston." Get your praise on some more.
American Idol Odds
1. Most likely to get sent home this week: Haley Scarnato (31%)
2. Least likely candidates to get sent home this week: Lakisha, Melinda and Stephanie (all 6%)
3. Most likely to win American Idol: Melinda Doolittle (43%) and Lakisha Jones (picture above) from Flint MI (33%)
4. American Idol winner to be female: 85%
BTW, I tried to set up an account this week on Intrade and everything went OK until I tried to deposit $100 in my account using a credit card. Thanks to the U.S. Congress, we are not allowed to use our credit cards to make deposits in foreign "gambling" companies (Intrade is based in Ireland). Unfortunately, I had to mail a check to Ireland, and it will take several weeks to activate my account. I am ready to spend $100 in tuition to learn how Intrade works, and will make postings later about my experience.
You Can't Tax Your Way to Prosperity
"With the recent announcement of Comerica's relocation to Texas, the hemorrhaging of Michigan businesses continues. Astonishingly, instead of taking bold steps to make Michigan more competitive and attract investment, Gov. Jennifer Granholm's plan to end the mass exodus of employers is to raise taxes on them. Michigan is indeed in a debilitating economic crisis, but no state has ever taxed its way into prosperity."
From a commentary in yesterday's Detroit News titled "Michigan can't tax its way to prosperity," by Jonathan Williams, a Michigan native and economist at the Tax Foundation in Washington, D.C.
Michigan currently ranks #51 for state unemployment rates, at 6.9% in January, a full 1/2 percentage point above #50 (S. Carolina and Alaska are tied at 6.4%).
Tim Worstall is an English writer and blogger living in Portugal, and he has the #13th most popular business/economic blog (according to Gongol's most recent monthly rankings by daily visits). Tim has kindly nominated me for a "Thogger," which is a "Thinking Blogger Award," see his posting here.
The Thogger rules state that I am now supposed to nominate five other bloggers who make me think. Let me think about that...........
CD Hits a Nerve!
Wow, Carpe Diem hit a real nerve with the recent posting on taxes, "Rich Pay More, Poor Pay Less Taxes," as daily traffic spiked up to about 1,500 visits yesterday (see the chart above), which I think is a CD record, and about 10X the daily visit count, and that post also generated 22 comments, also a new CD record I think. The posting was linked to a number of other websites and blogs, and brought a lot of new traffic to CD.
I'll try to make some more postings on the topic of taxes, and the distribution of taxes, etc., that is obviously a popular topic. Thanks for all of the interest - I even had visits for that posting from the domain "eop.gov," which is the "Executive Office of the President."
Great Global Warming Swindle
From Thomas Sowell's latest column Global Warming Swindle:
Britain's Channel 4 has produced a devastating documentary titled "The Great Global Warming Swindle." It has apparently not been broadcast by any of the networks in the United States. But, fortunately, it is available on the Internet.
The British documentary goes into some of the many factors that have caused the earth to warm and cool for centuries, including changes in activities on the sun, 93 million miles away and wholly beyond the jurisdiction of the Kyoto treaty. According to these climate scientists, human activities have very little effect on the climate, compared to many other factors, from volcanoes to clouds.
These climate scientists likewise debunk the mathematical models that have been used to hype global warming hysteria, even though hard evidence stretching back over centuries contradicts these models.
To watch the 75-minute documentary on YouTube, go here.
"Foreign-made American flags could soon be barred from Minnesota store shelves. The Minnesota House has passed a made-in-the-U-S-A requirement for flags sold in the state."
Read the full story from Minnesota Public Radio here, via Cafe Hayek.
The Civil Rights Act of 1964 outlawed discrimination based on race, color, religion, sex, or national origin, so wouldn't discrimination against flags made by people of foreign origin be against the law?
Secret to Success of Dollar Coin: Stop Printing Bills
Friday, March 16, 2007
A few blocks away from the U.S. Capitol at about 10 p.m. last night, a masked man jumped out from behind some bushes and says to an approaching gentleman "Stick 'em up and give me all of your money." The startled gentleman says "Well, how dare you attempt to rob me, sir, don't you realize that I am a distinguished member of the U.S. Congress?" The robber then says, "OK, in that case, stick 'em up and give me my money!"
Hugo Chavez on 20/20 Tonight
Tonight (Friday, 3/16/07) on ABC's "20/20" program Barbara Walters interviews Venezuelan President Hugo Chavez, the first interview of the socialist leader by an American television journalist since he was re-elected president in December, and since his visit to the U.S. last fall, when he called President Bush "the devil." He tells Walters, "Yes, I call him a devil in the United Nations. … That's true. Another time, I said that he was a donkey." Chavez also tells Walters that he would support Iran against any attack from the U.S.
In addition to the interview, Barbara Walters will include a snapshot of life in Caracas, spending time with both wealthy and poor families.
Irish Miracle: Cut Taxes, Watch the Growth
From the Cato Institute, Chris Edward's article about the Irish economy "It's Not Luck:"
"Ireland has boomed in recent years, and it now boasts the fourth highest gross domestic product per capita in the world. In the mid-1980s, Ireland was a backwater with an average income level 30 percent below that of the European Union (MP: And a 16.5% jobless rate that was more than 6.5% above the EU average, see my graph above!). Today, Irish incomes are 40 percent above the EU average."
How did that happen?
"The key to Ireland's success has been its excellent tax climate for business. In 1980, Ireland established a corporate tax rate for manufacturing of just 10 percent. That low rate was subsequently extended to high-technology, financial services, and other industries. More recently, Ireland established a flat 12.5 percent tax rate on all corporations -- one of the lowest rates in the world, and just one-third of the U.S. rate."
Happy St. Patrick's Day!!
What Are The Odds Gonzales Will Resign?
Current odds, based on actual trading on Intrade, that Attorney General Alberto Gonzales will announce his resignation:
By March 31, 2007: 55%
By June 30, 2007: 63%
By September 30: 90%
Economic Stagnation in Europe
What does economic stagnation in Europe look like graphically? See the graph above showing a persistent 4% gap between the jobless rate in Europe vs. the USA.
"If the European Union were a state in the USA it would belong to the poorest group of states. France, Italy, Great Britain and Germany have lower GDP per capita than all but four of the states in the United States. In fact, GDP per capita is lower in the vast majority of the EU-countries (EU 15) than in most of the individual American states. This puts Europeans at a level of prosperity on par with states such as Arkansas, Mississippi and West Virginia."
Quote is from the report "EU vs. USA" by the Swedish think-tank Timbro.
Exception: Ireland is booming, see posting above.
Thursday, March 15, 2007
Rich Pay More, Poor Pay Less Taxes
Measured by the share of federal income taxes paid, the 2003 tax reform was a "tax cut for the poor" and a "tax hike for the rich."
BTW, the Democrats on the Senate Budget Committee just muscled through a budget bill on a party-line 12-11 vote this afternoon that would pretty much guarantee the demise of Bush's tax cuts, which expire at the end of 2010.
Economic Freedom of the World
Market Prices Reflect Relative Demand
Quotes from U-Haul, for a one-way truck rental (26 foot) in April:
From Flint, Michigan to Austin, Texas: $3,201
From Austin, Texas to Flint, Michigan: $540
Guess the demand is about 6X higher for one-way truck rentals TO Texas vs. TO Michigan?
Texas gained about 244,000 jobs over the last year, and Michigan lost about 67,000 jobs.
Milestone: You are reading the 700th post on Carpe Diem since it started 171 days ago in September 2006, which is an average of more than 4 posts per day! Carpe Diem!!
Wednesday, March 14, 2007
Fact of the Day
Before 1995, UPS tracked and traced all packages through a call center, and it would get as many as 600,000 calls on peak days, at a cost to UPS of about $2.10 per call. Now that customers use the Internet to track packages, it costs UPS about 5-10 cents per inquiry.
~From "The World is Flat" by Thomas Friedman
More Than 1 Billion People Now Online
Tuesday, March 13, 2007
Quote of the Day: Socialism vs. Capitalism
"Socialism is an ideology. Capitalism is a natural phenomenon.
Socialism collapsed because it is a policy of unrestrained intervention. It tries to fix what is 'wrong' with the spontaneous, self-organizing phenomenon called capitalism. But, of course, a natural process cannot be 'fixed.' ..."
~Michael Rothschild, author of "Bionomics: The Economy as an Ecosystem" or "Bionomics: The Inevitability of Capitalism"
Post Office Fixes Long Waits By Removing Clocks
37,000 post offices around the country have removed clocks from retail areas as part of a "retail standardization program" to give the public-service areas a more "uniform appearance." "We want people to focus on postal service and not the clock," said a Dallas spokesman for the U.S. Postal Service, according to this article.
If a government monopoly responds to slow service by removing the clocks to "improve" the service, how does the profit-seeking private sector respond? One example is Papa John's Pizza, which offers the "10 Minute Carry-out Customer Guarantee" - if your pizza isn't ready in 10 minutes, it's free. Maybe the Post Office should give free stamps after 10 minutes, instead of removing the clocks?
Reminds me of this story:
Q: Do you know how many people work at the U.S. Post Office?
A: About half.
The "Tax Hike for the Rich" of 2003
The IRS just released data for tax year 2004 that includes the tax shares paid by different income groups. As the charts above show (click to enlarge), the top 1% of taxpayers paid almost 37% of all federal income taxes in 2004, an increase from 34.27% in 2003. The top 5% paid more than 57% of all taxes in 2004, up from 54.36% in 2003; and the top 10% paid 68.19% in 2004 compared to 65.84% in 2003.
1. What were largely denounced as "tax cuts for the rich" in 2003, actually turned out to be "tax hikes for the rich," since their share of total taxes paid increased significantly from 2003 to 2004 in the wake of the changes in tax rates.
2. U.S. income taxes are highly progressive, and actually become more progressive after the tax reform of 2003 - "the rich" now pay even more as a share of total taxes than at almost any time during U.S. history. The share of income for the top 1% was 19% in 2004, but they pay almost 37% of all taxes.
3. For the top 5%, their share of total taxes paid is at an all-time historical high of 57.13% in 2004.
4. The top 1% paid an average of 32.75% of all taxes during the Clinton years (1993-2000), and have since paid an average of 34.69% during the Bush years (2001-2004). Therefore, the "tax burden on the rich" has been higher under Bush than Clinton.
Quote of the Day
“The smallest minority on earth is the individual. Those who deny individual rights cannot claim to be defenders of minorities.”
Monday, March 12, 2007
Interesting Cell Phone Pricing
1. Cost of a replacement battery for a 2-year old cell phone with no camera: $40
2. Cost a new Nokia cell phone with battery and camera: $29.95
3. Cost of an automotive charging cord for the new cell phone: $25
If options #1 and #3 seem overpriced and #2 seems underpriced, it's because demand is very inelastic for #1 and #3 (no substitutes), and very elastic for #2 (lots of substitutes).
BTW, GMU economist and super-blogger Tyler Cowen (www.marginalrevolution.com) explains in this EconTalk podcast with GMU economist Russ Roberts why the subject of economics, compared to other disciplines, is so well-suited to blogs - because there are so many daily examples to apply economic thinking that have appeal to the general public (like cell phone pricing). Russ Roberts calls this the "Golden Era of Economic Education" because of blogs. Tyler predicts that more students will go to graduate school for economics because of blogs.
Economic Freedom of the World
Trade Hobgoblins: Japan, Mexico and Now China
"The whole aim of practical politics is to keep the populace alarmed -- and hence clamorous to be led to safety -- by menacing it with an endless series of hobgoblins, all of them imaginary."~H.L. Mencken
When it comes to trade, politicians certainly need an endless series of imaginary hobgoblins to keep us alarmed. In the 1980s, the trade hobgoblin was Japan, which was going to: a) destroy our manufacturing sector, b) take away all of our jobs, and c) then buy up American assets, TBonds and real estate with the dollars flowing to Japan to buy its cars. In the 1990s, the trade hobgoblin was Mexico and NAFTA, and the nitwitery of a "giant sucking sound" of U.S. jobs to Mexico that never materialized.
The current trade hobgoblin of course is China, writes GMU economist Russell Roberts in today's WSJ article "Protectionists Never Learn." After tracing the history of previous trade hobgoblins Japan and Mexico, Roberts asks the question:
"So why can politicians still make China scary? Why didn't Americans learn from the previous sky-is-falling episodes? The simple answer is that if you don't understand economics, you might be convinced by a politician who says that trade with China is bad for America.
The next time you find yourself losing sleep over China, remember that you were worried about Japan and Mexico and everything turned out OK."
Self-Correcting Mechanisms Create Uncertainty
From 1910-1959, the U.S. economy was in recession about 33% of the time. From 1960-1982, the economy was in recession only about 23% of the time, and from 1983-2007 the percentage of time the U.S. economy was in recession fell to 6% (see chart above).
Bottom Line: Economic instability has decreased significantly over time, but columnist Robert Samuelson writes in the Washington Post that "It's curious that people seem to feel more economically insecure even though the economy has become more stable."
"Since 1982, there have been only two recessions, lasting 16 months. In the past 10 years, unemployment has averaged 4.9%; in the 1970s, the average was 6.2%. Yet in 2006, only about half of workers were satisfied with their job security, reports a poll from the Conference Board. In 1987, when unemployment was higher, about 60% were satisfied.
One explanation of the paradox is that the uncertainties and insecurities that assault workers, investors and firms actually foster overall economic stability. There are constant upsets -- business expansions and closures; greater competition from emerging technologies and foreign economies; shifting prices for stocks and bonds. These put people on edge. But many small adjustments may smooth out the business cycle, and they may minimize deep recessions, stock crashes and panics."
Bottom Line: A market economy has effective self-correcting mechanisms that result in a continual series of small minor adjustments that prevent major problems like recessions. The continual adjustments create uncertainty for some groups, but act as shock-absorbers to prevent greater problems.
Sunday, March 11, 2007
Redistribution of Leisure?
Economist Steven E. Landsburg has a new Slate column titled "The Theory of the Leisure Class." Landsburg writes:
In 1965, leisure was pretty much equally distributed across classes. People of the same age, sex, and family size tended to have about the same amount of leisure, regardless of their socioeconomic status. But since then, two things have happened. First, leisure (like income) has increased dramatically across the board. Second, though everyone's a winner, the biggest winners are at the bottom of the socioeconomic ladder.
Research shows that the biggest leisure gains have gone precisely to those with the most stagnant incomes—that is, the least skilled and the least educated. And conversely, the smallest leisure gains have been concentrated among the most educated, the same group that's had the biggest gains in income.
A certain class of pundits and politicians are quick to see any increase in income inequality as a problem that needs fixing—usually through some form of redistributive taxation. Applying the same philosophy to leisure, you could conclude that something must be done to reverse the trends of the past 40 years—say, by rounding up all those folks with extra time on their hands and putting them to (unpaid) work in the kitchens of their "less fortunate" neighbors.
Bottom Line: If you think it's OK to redistribute income but repellent to redistribute leisure, Landsburg says that you might want to ask yourself what—if anything—is the fundamental difference?
From IBD's editorial "Brain Barrier,"
As Bill Gates implied last week, America has it all backward. Our country's doors are open to the low-skilled while we keep out the talent that's crucial to our competitiveness.
In the near term, there's a talent gap that can be filled only by relaxing restrictions on foreign computer scientists, software engineers and other highly trained workers who want jobs in the U.S. So Gates also called for an end to limits on the number of workers, now 65,000, admitted annually on H-1B visas.
Even a cap of 115,000 would leave U.S. technology industries short of talent. Gates told the senators that applications for H-1B visas hit the 65,000 limit just eight weeks into the current federal fiscal year (which started Oct. 1). He said demand would be even greater next year.
Further from Cox News Service, "Bill Gates told Congress that the U.S. should welcome an ''infinite'' number of high-skilled foreign workers to fill engineering, computer programming and other jobs that otherwise would go vacant."
Note: The H1-B visa limit was as high as 195,000, but was reduced to 65,000 after 9-11.