Tuesday, April 17, 2007

Trade Works Both Ways, Part II

In a previous post, I wrote about the growing demand in China for luxury cars, including Cadillacs and Buicks, because of the growing wealth, income and prosperity there.

From today's IHT comes an article about GM's plans to ramp up production and sales in India, one of the world's fastest-growing vehicle markets.

"India's rapid economic growth over the past decade has boosted middle-class incomes and driven demand for cars, increasingly drawing the attention of global auto makers."

The Chevy Spark (pictured above) will sell for $7,300 in India (Rs. 309,000) and is a big part of GM's growth strategy in India.

GM will build a new plant in western India to more than double its production to 225,000 vehicles annually, making it GM's third biggest production hub in Asia, after China (850,000 vehicles) and South Korea (700,000 vehicles).

Bottom Line: GM produces, buys, sells and operates globally, and so should its workers and other Americans. Further, GM's significant expansion overseas in China and India suggests that there is no reason for Americans to buy GM and Ford products, over Toyota and Honda vehicles, so that "the profits stay in the country." The profits from GM's U.S. operations are just as likely to be taken out of the country for investment in China and India, as it is likely that Toyota's profits from U.S. sales will stay in the country for investments like the Toyota Tundra truck factory in Texas.

UK Pound Rallies: What A Difference 20 Yrs. Makes

From $1.05/British Pound in February 1985 to $2/BP today, see graph above (click to enlarge) and read about it here.

Wikipedia: Information Age Encyclopedia

Check out the "Virgiana Tech Massacre" listing on Wikipedia. Within 24 hours, there was already an extensive listing including a description of events, a detailed timeline, 100+ references, etc.

Thoughts on Tax Day


1. Why is the IRS called a "service?" Couldn't it have been named a department like Labor, a bureau like the BLS or FBI, a commission like the FTC, an administration like FDA, an agency like EPA, etc.

2. From a previous post: Under the scoring rules of bowling, you get rewarded, not penalized, for being successful. If you get a spare, the scoring system rewards you by adding the pins from the next ball into the current frame, and if you get a strike you get rewarded by adding your next 2 balls into the current frame.

Under our progressive income tax system with 6 tax rates increasing from 10% to 35%, you get penalized, not rewarded, for being successful, productive and entrepreneurial, because the more you earn, the higher the tax rate you pay. The top marginal income tax rate has been as high as 91% in the 1950s and 1960s, and 70% in the 1970s.

If we scored bowling the way we tax income, we would subtract, not add pins for a spare or strike, i.e. penalize successful bowling.

If we taxed income the way we score bowling, we would reward success by reducing the tax burden for the most productive workers, not increasing it.

3. From an editorial by David Strom, president of the Taxpayers League of Minnesota, "The further a person climbs up the economic ladder, the harder the tax code hits them. By taxing higher incomes, the government discourages the most productive members of society from doing what they do best: producing.

Progressive income taxes serve to put a higher and higher burden on those people climbing the economic ladder, and serve to entrench the wealthy at the top. Because as lower- and middle- class workers climb that ladder, bigger barriers are placed in their way. The rich stay rich, while the rest of us work ourselves to the bone to get ahead."


4. A good collection of tax quotes and observations here from American.com.

5. Q: What's the difference between tax avoidance and tax evasion?
A: About 5 years in a federal prison.


Monday, April 16, 2007

Illusion



Greedy Capitalist Exploitation?

A typical and true story: A huge multinational corporation (MNC) has moved into a low-income area with promises of jobs that pay better than the local average. Actually, those jobs pay below the average for that industry, but the locals do not seem to care.

The MNC says it will hire about 1,500 people and more than 30,000 locals have applied. These are non-union jobs in a union-dominated industry, but the locals seem eager to leave their traditional way of life to grab these opportunities.

The local government joined forces with the MNC in every way. It offered the MNC monetary incentives to come in and take advantage of local workers. Local merchants, eager for U.S. dollars from any source, joined the plot to lure the corporation. Signs of welcome are prominently displayed in businesses throughout the area. Once the MNC agreed to come, local leaders and politicians rushed to take credit. The populace praises them for bringing new jobs. None seem to realize that they have joined into a nefarious scheme that will change forever the life they have enjoyed for generations.

What is the MNC? Honda. Where is the location? Alabama, USA.

Read more here.

Quote of the Day

One question I keep asking home sellers is "Are you committed to price or committed to sell?"

~Flint area realtor Andy Alger, in the Flint Journal article "What Slump? Some Finding Ways to Sell Their Houses"

Partisanship Rankings

According to Lying In Ponds, the most partisan columnists so far this year are:

Paul Krugman, the #1 most partisan Democrat (score of 70, for 180 negative Republican references vs. only 12 negative Democratic references)

Ann Coulter, the #1 most partisan Republican (score of 75, for 176 negative Democratic references vs. only 13 negative Republican references)

In contrast, economist Thomas Sowell has a score of 15 (30 negative Democratic references and 27 negative Republican references), George Will has a score of 14, and David Brooks has a score of 2. The higher (lower) the score the more (less) partisan the columnist.

From Lying in Ponds: The views of pundits who are excessively partisan cannot be taken seriously (like advertising), because their ulterior motives or uncontrolled biases are certain to frequently contaminate their judgements.

Conclusion: Do not take Paul Krugman or Ann Coulter seriously.

Sunday, April 15, 2007

Progess or Congress?

Q1: What's the opposite of "pro?"

Q2: Based on your answer to Q1, what's the opposite of "pro-gress?"

Exhibit A:

In the wake of hurricanes Katrina and Rita, gas prices spiked due to significant supply disruptions, there were allegations of "price gouging," and Congress mandated that the FTC conduct an investigation. In its
222-page investigation relased last spring, the FTC found no instances of anti-competitive market manipulation that led to higher prices after the hurricanes.

The Department of Energy conducted a separate investigation and it also found no evidence of "price gouging."

Further, the
FTC report outlined its official position that federal gasoline price gouging legislation would cause more problems for consumers than it solves, and that competitive market forces should be allowed to determine the price of gasoline.

In a separate report released in the last week by Charles Rivers Associates, researchers estimated how much price controls would increase the overall welfare losses associated with a supply disruption of the size of that caused by Katrina and Rita. The study estimates that for a supply interruption of that scale, total welfare loss from imposing price controls would have totaled $1.9 billion for the period following the hurricanes.

Never a group to be influenced by factual evidence, nor deterred by economic theory or common sense, Congress nevertheless relentlessly pushes forward for federal legislation that would impose serious criminal penalties for “price gouging." Fines up to $150 million and jail sentences could be imposed on those found guilty of "price gouging." Thanks partly to the Big Corn lobby, ethanol would be exempt.

Pro-gress or Con-gress?

GM Country: Flint, MICHIGAN

Toyota Camry (above) is the #1 selling car in the U.S., but ranks only #26 in the Flint, Michigan area, where the Chevy Impala is the #1 seller, and where 9 of the top 10 cars are GM products.

Interesting article from today's Flint Journal, "Us vs. Them: Our New Vehicle Purchases Set Us Apart from Rest of U.S."

Across the nation, Toyota and Honda battle for the top spots in car sales, but in the Flint area, General Motors cars rule and the Chevrolet Impala is the best-selling car.

Toyota's Camry is No. 1 nationally, but comes in at 26th in the Flint area. Honda's Accord is No. 3 in the nation, but 24th in this area.

In The Flint Journal area, nine of the top 10 best-selling cars and seven of the 10 best-selling trucks wear GM badges.

The difference is because so many area buyers qualify for GM's family discount. Dennis Dunfield, general manager at the Al Serra Auto Plaza in Grand Blanc, said about 80 percent to 85 percent of buyers in this area can qualify for the GM discount, which can take about 10-15 percent off the list price.

The Global Blogosphere

World map of recent visits to Carpe Diem.

Average Investors: Be Grateful for Invisible Hand

Thanks to deregulation, innovation, globalization and competition, there have been some marvelous developments in the securities industry that have significantly benefited average investors, to the point that it would be hard for investors in the 1960s to imagine.

Ben Stein writes in today's NY Times that we should be grateful for these investing innovations:

1. Deregulation of commissions, saving investors millions of dollars in commissions.

2. The rise of index funds, thanks largely to the "greatest friend the ordinary investor ever had," John C. Bogle, founder of Vanguard Funds. (You can listen to a one-hour interview with Bogle on George Mason economist Russ Roberts' Econ Talk - Professor Roberts says "he can't think of anyone whose contribution to our lives is so unappreciated.") After taxes and fees, index funds outperformed 97% of actively managed mutual funds according to one study. If you'd be happy with a LSAT, GMAT or GRE score in the 97th percentile, you should consider index funds. Vanguard currently offers 27 different index funds.

3. Easy access to foreign stocks through mutual funds, ETFs and ADRs. There are now at least 1,000 mutual funds for international stocks and bonds.

The list goes on: discount online trading, free online access to research reports, inflation-protected securities, mutual funds targeted to your retirement year (Vanguard offers 11 different target funds), etc.

Never before in history has the average investor had it better than today - there are more investment choices and lower costs than ever before.

As Ben Stein concludes, "In terms of making it much easier for the ordinary investor to get to safe retirement, the securities business is now incalculably superior to what it once was. It allows us little guys to blast profits out of the sedimentary rock of the stock markets. Let’s be grateful."

It's the invisible hand at work once again.

Saturday, April 14, 2007

Bjorn Borg, Come Home

Wealth taxes used to be de rigueur in Europe, where there are only a few holdouts. France's is between 0.5% and 1.8% on assets above $1 million. In Spain, it's 0.2% to 2.5% on assets above $223,000.

But rather than transferring wealth, wealth taxes transfer the wealthy. In Sweden, tennis star Björn Borg, ABBA's Björn Ulvaeus and Ikea founder Ingvar Kamprad are among the mega-rich who have fled the country, taking their money with them.


From today's WSJ editorial "Björn Borg, Come Home."

Quotes of the Day: Milton Friedman

"Fair" is in the eye of the beholder; free is the verdict of the market.

The word 'free' is used three times in the Declaration of Independence and once in the First Amendment to the Constitution, along with 'freedom.' The word 'fair' is not used in either of our founding documents.

~ Milton Friedman, Wall Street Journal, Mar. 7, 1996


What most people really object to when they object to a free market is that it is so hard for them to shape it to their own will. The market gives people what the people want instead of what other people think they ought to want. At the bottom of many criticisms of the market economy is really lack of belief in freedom itself.

~ Milton Friedman, Wall Street Journal, May 18, 1961

The Simpsons: Outsourcing and India

The Singhsons: Hilarious Indian version of the Simpsons, featuring Bartinder, Omar, Mar Ji, Mugglie, and Lisajit


The Simpsons: Kiss Kiss Bang Bangalore: The Simpsons Dance in India

Simpsons: Nuclear Power Plant is Outsourced to India

Homer Dresses Up As Lord Ganesha to try to stop Apu's arranged marriage

Bonus: Burger King Outsources


(HT: Sanil Kori)

Friday, April 13, 2007

Tax Quotes

New York Times editorial in 1909: "When men get in the habit of helping themselves to the property of others, they cannot be easily cured of it." AMEN!

Historian Charles Adams: "From the earliest records of civilization, tax laws have taken away liberty more often than foreign invaders."

WSJ's Stephen Moore: "The complexity of the tax code, the cost it imposes on the economy simply to comply with it, and the civilian army of agents needed to enforce it continues to grow like cancer cells attacking the healthy ones. At the same time, common sense reforms like the flat tax or the national sales tax remain politically stalled -- perhaps because there are so many vested interests in keeping it complicated. Even conservative Republican presidential candidate Mitt Romney of Massachusetts recently came out against a flat tax arguing that it might be unfair. To whom? Tax accountants and lawyers? Meanwhile, just last week the Czech Republic announced plans to become the next former communist nation of Eastern Europe to adopt a flat tax. Everywhere this idea is catching hold, except in Washington."

From today's WSJ "Those April Blues" by Stephen Moore.

Protect Us From Tiger Woods?

A powerful and dangerous force has been unleashed on the global economy. It’s a new source of skilled labor that has put American workers at a competitive disadvantage — and no one knows just how many jobs have already been lost because of it. The U.S. is running a huge trade deficit with this force; every year we’re spending millions more on what it produces than it spends on American goods and services. And to top it all off, this entity has built a massive currency reserve, investing large sums of it on U.S. government securities and thus enabling America’s fiscal profligacy.Why, oh why, won’t the U.S. government do something to protect us from . . . Tiger Woods?

You thought I was talking about China, and I was. But I’m also talking about the modern-day golf legend. You see, China and Tiger Woods are a lot alike.

Go here to read more of Donald Luskin's excellent article "Before You Tee Off on China . . .. . . Answer this question: What is China doing that’s any different than what Tiger Woods is doing?"

(HT: Society and Money)

Thursday, April 12, 2007

American Idol Odds


Sanjaya's odds to win American Idol have improved on Intrade.com, rising to 9% currently, from less than 1% a month ago (see chart above - right scale for odds, click to enlarge). Melinda's odds hold steady at about 55% (see chart below), making her the clear favorite to win, based on actual trading in the "prediction market." Current volume is 8700 contracts for Melinda and more than 10,000 contracts for Sanjaya.



Trade Works Both Ways

We hear a lot of complaining about exports from China to the U.S., but don't hear as much about our exports TO China, fueled by the increasing wealth and purchasing power of China's consumers. As China's economy grows, the middle and upper class there will continue to grow, and China will become an increasingly important consumer market, to the benefit of U.S. businesses.

In today's WSJ there is an article
Rich Chinese Fancy Luxury Cars, about the growing demand in China for luxury cars, including Cadillacs and Buicks.

In the 1990s, many in China considered Volkswagens high class. But today, well-to-do Chinese are hankering for Bentleys, Ferraris, Mercedes, Audis, deluxe Cadillacs and even Rolls-Royces, reflecting the nation's growing wealth -- and a new boldness about showing it off.

"The rapid growth of affluence in China and the increasing desire for individuality and expressiveness" are making China "the most dynamic market in the world," says Ulrich Walker, chairman and CEO of DaimlerChrysler's Northeast Asia operations.

Engineers and designers for General Motors Corp. labor to make Buicks and Cadillacs sold in China more luxe than their North American counterparts. Cars have leather upholstery, lacquered wood trim and technical bells and whistles, such as in-seat TVs and remote controls for the audio and video systems. This week, GM launched the Park Avenue sedan, the top of its Buick line, here (see photo above). The price tag: $65,000 and up.

Bottom Line: Exports and imports are two sides of the same coin of international trade.

Indoctrination

In a campaign without peacetime precedent, the media-entertainment-environmental complex is warning about global warming. Never, other than during the two world wars, has there been such a concerted effort by opinion-forming institutions to indoctrinate Americans, 83% of whom now call global warming a "serious problem.'' Indoctrination is supposed to be a predicate for action commensurate with professions of seriousness.

From George Will's column today "The Media and Global Warming."

Wednesday, April 11, 2007

The Nature and Causes of the Weath of Nations

Johan Norberg, the Swedish author of In Defence of Global Capitalism, produced a 49-minute documentary for Channel Four Television (UK) in 2003 called "Globalisation is Good." It explains why anti-globalisation campaigners are wrong and how globalisation is a force for good, lifting billions out of poverty.

The doccumentary tells a tale of two countries that were equally poor 50 years ago - Taiwan and Kenya. Today Taiwan is 20 times richer than Kenya. Entrepreneurs thrived in Taiwan because it introduced a market economy and integrated into global trade. In contrast, Kenyans are still desperately poor, because Kenya shut its door to globalization. Kenyans suffer from regulations, corruption and the lack of property rights.

The unequal distribution in the world is a result of the unequal distribution of capitalism - those who have capitalism grow rich, those who don't stay poor.

You can watch it here.

Don Imus, Assorted Links, Unconventional Views

1. "A Dangerous Detour: Cycles of Outrage and Apology Distract Blacks from Confronting Many Big, Chronic Problems," by John McWhorter

2. "
Al Sharpton: Nappy Headed Race Ho?" by Mike Adams

3.
The Culture of "Bitches, Hos, and Niggas" by Michelle Malkin

4. "Free Speech Double Standard" by Cal Thomas

Detroit: Highest Mortgage Delinquency Rate in U.S.

From today's WSJ: The Detroit-Livonia-Dearborn, Michign area leads the nation in the mortgage delinquency rate for the first-quarter 2007 at 6.19%, up from 5.10% in the fourth quarter 2005. See chart above, click to enlarge.

Global Warming, Assorted Links

1. Global Cooling in NYC? Temperatures in NYC have averaged 42 degrees Fahrenheit in April, only one degree warmer than the average for April 1874, the coldest on record.

2. Climate change concert star Madonna accused of hypocrisy, her "Confessions" tour produced 440 tons of CO2 in 4 months, just for the flights between the countries, not taking into account the truckloads of equipment needed, the power to stage such a show and the transport of all the thousands of fans getting to the gigs.

3. Camile Paglia, "Climate change is built into Earth's system, and cooling and warming will go on forever. Man is too weak to permanently affect nature, which includes infinitely more than this tiny globe."

4. "The Great Global Warming Swindle" - UK Channel 4 Documentary Film.

5. Al Gore’s extreme proposals on climate change are smart politics—and bad policy.

Cheap Goods From China Are a "Complication"?

From a USA Today article "Surging Chinese Exports Complicate U.S. Position:"

Even as the Bush administration toughens its approach to trade disputes with China, an export surge from Chinese factories is raising the stakes for high-level talks scheduled next month in Washington. The $46.4 billion first-quarter global trade surplus China reported Tuesday was twice the figure for the comparable period last year.

Thanks to productivity gains, Chinese imports today are on average 3% cheaper in dollar terms than they were in December 2003, according to the Bureau of Labor Statistics.

As the Foundation for Economic Education points out, Only in the crazy world of politics are more inexpensive consumer goods a "complication."

What's so complicated? China produces cheap goods and U.S. consumers and businesses voluntary buy them. Volunatry trade. Win-win. Very simple. Not complicated.

Thomas Sowell explains:

“At least half of the popular fallacies about economics come from assuming that economic activity is a zero-sum game, in which what is gained by someone is lost by someone else. But transactions would not continue unless both sides gained, whether in international trade, employment, or renting an apartment.”

Only in a political fantasy world of trade as a zero-sum game would inexpensive goods produced on the other side of an imaginary line called a national border be considered a "complication."

Tuesday, April 10, 2007

Let's Move Tax Day and Voting Day Closer Together

If you pay your income taxes next Monday, April 16, it will have been 160 days since you last voted on November 7, 2006 (see the graph above), and it will be 204 days until you vote again on November 6, 2007.

The day we pay taxes in April is about as far away from the day we vote for politicians as possible. It's been more than 5 months since the last voting day, and more than six months before the next election, and November is probably the time of the year that we are least likely to be thinking about April 15 and taxes.

Suggestions:

1. Let's abolish withholding taxes, and require all taxpayers to write a check once a year for their entire tax liability, like taxpayers did from 1913 to WWII (or make monthly or quarterly tax payments). For someone with $100,000 of adjusted gross income that would mean writing a check to the IRS of about $17,400, and probably another $3,000 or so to the state treasury, depending on the state you live in. This would not only relieve companies and organizations of the costly burden of tax collection for the government, but would significantly increase our "tax awareness."

Here is an exercise about your tax awareness: What is your monthly car or cell phone payment? What is your monthly mortgage or rent payment? Most people know these amounts immediately, because most of us write a check for those expenses. Now, what is your monthly tax liability for federal income taxes, and what is the amount of state income taxes you pay monthly? Most of us have no idea what our tax liabilities are, because we don't write monthly checks for federal and state taxes, employers withhold those taxes and make payments on our behalf.

2. Next we should move Voting Day and Tax Day much closer together, like the same week or same month. We could move Voting Day to mid-April right after we pay taxes, or we could move Tax Day to early November right before we vote.

Having greater tax awareness and voting closer to the day we pay taxes might influence our voting behavior?

Monday, April 09, 2007

Wal-Mart More Selective Than Harvard

From the NY Times, "A Great Year for Ivy League Schools, but Not So Good for Applicants to Them," the acceptance rates this year are as follows:

Columbia University 8.9%

Harvard University 9%
Stanford University 10.3%
Cal Tech 16.2%
Amherst 17.5%

Acceptance rate for job applicants at new Wal-Marts: 1-3% (e.g. 11,000 applications for 330 jobs at the first Wal-Mart inside the D.C. beltway, a 3% acceptance rate, read more here)

Conclusion: Wal-Mart is more selective than an Ivy League university, and turns away more job applicants than Harvard or Columbia turn aways students.

Famed Violinist Goes Incognito on the DC Subway

What would happen if one of the world's great violinists performed incognito before a traveling rush-hour audience of 1,000-odd people in a subway station?

No one knew it, but on January 12 the violinist standing against a bare wall outside a Washington, D.C. Metro station in an indoor arcade at the top of the escalators was one of the finest classical musicians in the world, playing some of the most elegant music ever written on one of the most valuable violins ever made. His performance was arranged by The Washington Post as an experiment in context, perception and priorities -- as well as an unblinking assessment of public taste: In a banal setting at an inconvenient time, would beauty transcend?

Read what happened here.

Maybe to complete the experiment the Washington Post should next arrange for a mediocore street musician to get dressed up in a tuxedo and perform classical music in a concert hall with perfect acoustics, and see if "in an elegant setting at a convenient time, would mediocrity be obvious?"

Grammar Mistake's That Make You Look Stupid

If you want to craft an error-free message that reflects your professionalism, be on the lookout for these common grammatical slip-ups:

#1: Loose for lose
#2: It's for its (or god forbid, its')
#3: They're for their
#4: Effect for affect
#5: You're for your

Read more about the "10 flagrant grammar mistakes that make you look stupid."

Your welcome.

History of Corporate Income Tax, People Pay Taxes

Even before the personal income tax started in 1913, corporate income was taxed starting in 1909, at an initial rate of only 1% on income over $5,000, equivalent in today's dollars to about $113,000 of tax-exempt business income.

Until 1931, some amount of corporate income was tax-exempt - $2,000 or $3,000 in most years, equivalent in today's dollars to $45,000-$68,000 of non-taxable income. By 1932, tax-exempt corporate income was eliminated forever, and all business income gets taxed, starting with the first dollar of income. Also, by 1932 the corporate tax rate was up to 13.75%, having been increased gradually over the years from its original 1% level in 1909.

Myth: Corporations pay taxes.

Reality: Corporations really don't pay any taxes at all; people pay all taxes, in our roles as customers, workers and shareholders. In other words, higher taxes on corporations mean either higher prices for a corporation's customers, lower wages for its workers, or lower dividends for its shareholders, or all three.

Tax Law Complexity Continues to Grow

From the National Taxpayers Union’s 8th Annual Study of Tax Law Complexity Trends, released last year on April 17, 2006 (release of a new study is pending):

  • The total number of paperwork hours imposed by the Department of the Treasury exceeds 6.4 billion hours (most of which are IRS-related).

  • Taxpayers had to wade through 142 pages of instructions for the standard 1040 form and schedules, up from 128 pages in the previous year, and more than double the number in 1985. As mentioned in the post direclty below, the instructions in 1913 came on one page.

  • 9 out of 10 filers used a paid preparer and/or a computer for assistance in filing their tax returns.

  • Self-employed taxpayers filing the 1040 with small business schedules face an 80-hour completion task – the equivalent of two weeks’ paid vacation.

  • The 1040 tax form with common Schedules A, D, and others will take the average taxpayer 38 hours to prepare this year – with the assistance of a computer! Even the so- called “short” form will take more than half a day (12.6 hours) to complete.

Tax Deadline Approaches: Bring Us Back to 1913


University of Dayton history professor Larry Schweikart traces the history of the U.S. income tax in today's NY Sun (Take Us Back to '13) and concludes that:

As it now stands, the income tax is oppressive in its rates and ridiculously complex. While a good argument could be made for alternatives, the best solution to fixing the tax code is to return to the lowrate simple form of 1913. (appears above)

See the entire 1913 IRS 1040 form here (only 4 pages including all forms and instructions).

We now have a 67,204 page tax code, which significantly contributes to the reality that 60% of taxpayers today have to hire a tax professional - I don't think anybody in 1913 needed help to fill out the one-page tax form above!

From the USA Today article from last week "67,204-page Code Confounds Taxpayers:"

This year, individuals and companies will spend about $300 billion on tax preparation costs. To put that in perspective, that is a 20% levy on top of the $1.5 trillion they will actually pay in taxes.

Shortage of High-Quality Workers in India

From the Boston Globe (via Cafe Hayek), an article "India High-tech Industry Out of Workers:"

Nearly two decades into India's phenomenal growth as an international center for high technology, the industry has a problem: It's running out of workers.

The problem is not a shortage of people," said Mohandas Pai, human resources chief for Infosys Technologies, the software giant that built and runs the Mysore campus for its new employees. "It's a shortage of trained people."

In 2000, there were maybe 50,000 IT jobs and 500,000 applicants. Now there are perhaps 180,000 annual openings, but only between 100,000 and 200,000 qualified candidates.

Much of the problem is rooted in a deeply flawed school system. As India's economy blossomed over 15 years, spawning a middle class desperate to push their children further up the economic ladder, the higher education system grew dramatically. The number of engineering colleges, for instance, has nearly tripled.

But the problems have simply grown worse. India has technical institutes that seldom have electricity, and colleges with no computers. There are universities where professors seldom show up. Textbooks can be decades old.

Instruction is by rote learning, and only test scores count. "Everything else is forgotten: the capacity to think, to write, to be logical, to get along with people," Pai said. The result is smart, well-educated people who can have trouble with such professional basics as working on a team or good phone manners.


Not to worry, it looks like the U.S. government will help out by continuing to restrict the competition for India's workers. From today's IBD:

This year, as in the past, 65,000 of these H-1B visas are available. Last Monday, the first day on which applications were accepted for 2007, U.S. Citizenship and Immigration Services received more than 150,000 petitions from companies needing them to hire scientists, engineers, architects, computer programmers and other highly trained employees. It's clear that a lot of skilled workers wishing to live and work here are out of luck.

The U.S. is again showing how well it can seal the border against skilled, law-abiding workers who are crucial to its economic future.

Sunday, April 08, 2007

Quote of the Day: Economics vs. Politics

Good economists are seldom popular with the political class. This is not a shortcoming unique to democratic systems. Dictators like good economists even less. Why is this?

As a rule, politics doesn’t educate. It obfuscates, pontificates and prevaricates. It often seeks to advance the interests of the few at the expense of the many. It is a playground for the short-sighted and the demagogic. Economics, on the other hand, tells us a great deal about how material life can be improved through the operation of entrepreneurship and markets. It informs us that there are laws beyond those that legislatures pass, and consequences for ignoring them.

The good economist is the one who takes the discussion of economic matters to the lofty level it deserves. When others spout clever sound bites, unsubstantiated charges and snake-oil remedies, it’s the good economist who raises his hand and calmly declares, "Wait a minute! Let’s look at the facts. Let’s separate the wheat (truth, logic and evidence) from the chaff (nonsense, false assumptions and panaceas)."

~Lawrence W. Reed, President of the Mackinac Center for Public Policy in Midland, MI

Saturday, April 07, 2007

Happy Easter: The Energizer Bunny Economy


From yesterday's Employment Situation Summary, the BLS reported that U.S. employment grew by 180,000 in March and that job growth in January and February was stronger than previously thought. The March U.S. unemployment rate edged down to 4.4%, the lowest level since October, matching a six-year low (May 2001 was the last time the jobless rate was below 4.4%).

Since January 2002 when civilian employment bottomed out at 135.7 million following the 2001 recession, more than +10.5 millions jobs have been added to the U.S. economy (see graph above, click to enlarge), despite record trade deficits, globalization, outsourcing, offshoring, etc. At that pace of job creation, U.S. employment has increased by:

5,780 new jobs every day for the last 5 years
240 new jobs every hour
4 new jobs every minute
1 new job every 15 seconds

In just the time it takes to read this post, at least several new jobs will have been created somewhere in the U.S. economy.

Lou Dobbs, listen up!

Restarting Michigan's Stalled Economy

For much of the 20th century, Michigan was a model of prosperity, a magnet for human capital -- attracting and retaining a critical mass of world-renowned engineers and entrepreneurs -- and seemed destined to be an economic engine for the nation. But then came the 1970s and the state has been sputtering ever since. Today, a deep fog has settled over a once bright business climate.

Read more of former Comerica Bank chief economist David Littman's (now with the Mackinac Center) article in the WSJ, "Restarting Michigan's Economy," where he proposes to make Michigan a right-to-work state.

Friday, April 06, 2007

Blame Ethanol for Rising Egg and Milk Prices

Almost 100 million dozens of eggs are sold each year in the week before Easter. And egg prices are on the rise, nearly 30% higher than they were at the end of 2006, according to a survey by the American Farm Bureau Association. The national average for a dozen large eggs is $1.51, 33 cents higher than at the end of the fourth quarter 2006.

"Sixty percent of the cost of eggs is due to the feed, and the feed costs are just about double compared to a year ago," he said.

So why are feed prices rising? Many experts blame increased ethanol production.

Read
more here.

And that's not all. Increased ethanol production is driving up the price of milk in Wisconsin, by more than 27% in the last year. Read about
that here.

Self-Sufficiency: Road to Poverty and Bad Fashion

From Wired Magazine, a story on the "100 Mile Suit:"

When educator and designer Kelly Cobb decided to make a man's suit only from materials produced within 100 miles of her home, she knew it would be a challenge. But Cobb's locally made suit turned into a exhausting task. The suit took a team of 20 artisans several months to produce -- 500 man-hours of work in total -- and the finished product wears its rustic origins on its sleeve.

Cobb's suit is a demonstration of the massive manufacturing power of the global economy. Industrial processes and cheap foreign labor belie the tremendous resources that go into garments as simple as a T-shirt.


Here's a photo gallery of the 100-mile "suit."

Thanks to Russ Roberts at Cafe Hayek, who points out that "Self-sufficiency is the road to poverty."

Having access to the global economy gives us access to the best the world has to offer, which is usually better (and cheaper) than what your local area has to offer. Think globally, shop globally, travel globally and invest globally.

Questioning Free Trade: It's P.C.

If you question whether global warming is happening, or whether human activity is causing it, or whether it’s worth doing anything about it, then you must be a crack-pot. You are standing athwart the “consensus of scientists.” You are disputing “settled science.” You are a “global warming denier,” the moral equivalent of an apologist for the Nazi holocaust.

But no such accusations are made against the protectionists who question the benefits of free trade among nations, deny the manifest evidence of its success, or challenge its status as a human right. Such people are in fact standing athwart 250 years of economics, and an overwhelming consensus of living economists. These protectionists are denying the enormous gains in standards of living and human freedom that are the direct result of free global trade.


Question the global warming consensus and you’re something between a fool and a Nazi. But question free trade? Ah … that’s different. That’s politically correct.

Read more here from Donald Luskin's article "A Convenient (and Excellent) Truth. The benefits of free trade are settled science. (Although that won’t stop the deniers.)

Thursday, April 05, 2007

Record Tax Revenue: The "Tax Hike of 2003"

The Congressional Budget Office reported today that through the first six months of the fiscal year (Oct 2006 - March 2007), total tax revenues collected increased by $83 billion compared to the same period last year, an 8% increase. As the table above shows, individual income tax receipts increased by $49B (+11.4%) and corporate taxes increased by $24B (+18.5%), 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.

The Good Old Days of Cheap Gas Are Now

As the graph in my post below shows, gas prices today in real dollars are about the same as gas prices back in the 1930s and 1940s, a little higher than the 1950s, 1960s and 1970s; and significantly lower than the early 1980s.

Another measure of the affordability of gas prices over time is to calcualte the cost of 1,000 gallons of gas at the average retail price in a given year as a percent of the average disposable per-captia income in that same year. Because real gas prices have remained relatively flat over the last 80 years, but real incomes have increased by a factor of about 4X since 1929, the cost of gasoline as a percent of disposable income has decreased significantly over time (see graph above, click to enlarge).

Even though gas in the 1950s sold for about 25 cents a gallon, it was about twice as expensive as in 2006, measured in the percent of disposable income to buy 1000 gallons - about 16% in the 1950s vs. about 8% in 2006. Likewise, to buy 1000 gallons of gas in 1981 was almost twice expensive (14.1%) as 1000 gallons of gas in 2006 (8.1%), as a percent of income.

If you're old enough to feel nostalgic for the "good old days of cheap gas" in the 1950s or 1960s, forget about it! The good old days of chear gas are now!

The Failed War on Drugs

Watch a 3-part Penn & Teller show on "The Drug War."

"When you criminalize things that aren't real crimes, you still create real criminals."

Real Gas Prices, Big Oil and Big Government

From George Will's latest column On Rising Gas Prices, "They come with metronomic regularity, these media stories about "soaring" gasoline prices...

Today, as the price of a gallon of regular "soars" almost to where it was (measured in constant dollars) in 1982, the "news" is: "Drivers Offer a Collective Ho-Hum as Gasoline Prices Soar'' (The New York Times, last Friday). People are not changing their behavior because the real, inflation-adjusted cost of that behavior has not changed significantly.

MP: See the chart above of real, inflation-adjusted annual retail gas prices from 1919 to 2007. Gas prices today (2007 average of $2.50 per gallon) are still about 20% below the peak in 1981-1982, and below the gas prices of the 1920s (average of $2.72) and 1930s (average of $2.73).

Will also points out that: In the 20 years from 1987 to 2006, Exxon Mobil invested more ($279 billion) than it earned in profits ($266 billion).

Big Oil's profits are much smaller than Big Government's revenue from gasoline consumption. Oil companies make about 13 cents in profit on a gallon of gas. Government makes much more. The federal tax is 18.4 cents per gallon. Mrs. Clinton's New York collects 42.4 cents a gallon. Forty-nine states -- all but Alaska -- make more than the oil companies do on every gallon.

Wednesday, April 04, 2007

Interesting Fact of the Day II

From the menu posted at any Starbucks, it is possible to make 19,000 different coffee drinks.

Interesting Fact of the Day

When you are on the 6th floor of a building in New Delhi (population 14 million, not too far behind NYC's population of 19 million), you can look out a window and see for miles. Reason?

You don't have dependable electricity in Delhi for elevators, so there are not many tall buildings - imagine having to walk up 30 flights of stairs when the power goes out. Or being trapped on the elevator between floors.

More On Sweatshops

Via Mahalanobis.

U.S. Labor Market Continues to Improve

From today's BLS Report on metropolitan area unemployment rates:

In February 2007, 101 metropolitan areas recorded unemployment rates below 4%, up from 77 areas a year earlier, while 36 metropolitan areas had jobless rates of 7% or higher, down from 52 areas in February 2006.


Unemployment rates were lower in February than a year earlier in 249 of the 369 metropolitan areas, higher in 94 areas, and unchanged in 26 areas.

The only two states to lose jobs from February 2006 to February 2007 were Ohio (-11,500 jobs) and Michigan (-44,600 jobs).

Denying Jobs for Desperately Poor People

University of Michigan police arrested 12 student activists yesterday after they refused to leave President Mary Sue Coleman's office, according to the Michigan Daily. The protesters staged the sit-in as part of Students Organizing for Labor and Economic Equality's Sweatfree Campaign, and demanded that the University toughen its labor standards for suppliers producing University-licensed apparel.

From Nicholas Kristof, "In Praise of the Maligned Sweatshop," available here or here.

Imagine that a Nike vice president proposed manufacturing cheap T-shirts in Ethiopia: "Look, boss, it would be tough to operate there, but a factory would be a godsend to one of the poorest countries in the world. And if we kept a tight eye on costs and paid 25 cents an hour, we might be able to make a go of it.

"The boss would reply: "You're crazy! We'd be boycotted on every campus in the country.

So companies like Nike, itself once a target of sweatshop critics, tend not to have highly labor-intensive factories in the very poorest countries, but rather more capital-intensive factories (in which machines do more of the work) in better-off nations like Malaysia or Indonesia. And the real losers are the world's poorest people.

Well-meaning American university students regularly campaign against sweatshops. But instead, anyone who cares about fighting poverty should campaign in favor of sweatshops, demanding that companies set up factories in Africa. If Africa could establish a clothing export industry, that would fight poverty far more effectively than any foreign aid program.

Even Paul Krugman wrote
an article in favor of sweatshops titled "In Praise of Cheap Labor: Bad jobs at bad wages are better than no jobs at all," where he concludes that:

As long as you have no realistic alternative to industrialization based on low wages (MP: i.e. sweatshops), to oppose it (the sweatshop) means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard--that is, the fact that you don't like the idea of workers being paid a pittance to supply rich Westerners with fashion items.


Outsourcing to India Moves Beyond the Back Office


From today's NY Times article "India's Edge Goes Beyond Outsourcing"

“India is at the epicenter of the flat world,” said Michael J. Cannon-Brookes, vice president for business development in India and China at I.B.M., which has reduced its American work force by 31,000 since 1992 even as its Indian staff mushroomed to 52,000 from zero.

With multinationals employing tens of thousands of Indians, some are beginning to treat the country like a second headquarters, sending senior executives with global responsibilities to work there. For example, Cisco Systems, the leading maker of communications equipment, has decided that 20 percent of its top talent should be in India within five years; it recently moved one of its highest-ranking executives, Wim Elfrink, to Bangalore, the center of the Indian industry, as chief globalization officer.

Accenture, the global consulting giant, has its worldwide head of business-process outsourcing in Bangalore; by December it expects to have more employees in India than in the United States.

Tuesday, April 03, 2007

A Million Classical Musicians Bloom in China


From the NY Times article "Classical Music Looks Toward China With Hope:"

Three decades ago, the Communist Party was trying to wipe out Western classical music, but now deems it an essential component of the “advanced culture” it vows to create to make the country a true great power.

With the same energy, drive and sheer population weight that has made it an economic power, China has become a considerable force in Western classical music. Conservatories are bulging. Provincial cities demand orchestras and concert halls. China now has 30 million piano students and 10 million violin students.

The hardware side has also exploded. As of 2003, 87 factories made Western musical instruments. By last year the number had grown to 142, producing 370,000 pianos, one million violins and six million guitars. China dominates world production of all three.

MP: NY Times columnist Thomas Friedman proposed "The Golden Arches Theory of Conflict Prevention," observing that no two countries with a McDonald's franchise had ever gone to war with one another. Perhaps a variation of this is the "Classical Music Theory of Conflict Prevention" - no two countries that both embrace classical music will ever go to war with each other.

(HT to Bob Houbeck.)

Income Inequality by Position, MLB

I recently wrote about the increasing income inequality for MLB here, showing an increasing share of total income over time for the top 1%, 5% and 10%. Further analysis shows increasing income equality by position from 1988 to 2006, it appears that most of the income gains over time have gone disproportionately to first basemen and third basemen. Notice for example that:

1. In 1998, the average first baseman made 1.38 times as much as the average second baseman, and by 2006 that ratio had increased to 2.55 times.

2. Between 1998 and 2006, the average salary for first basemen increased 8.61 times, compared to an increase in average salary of only 4.66 times for second basemen.

3. First basemen in 1988 made 48% more than catchers (lowest paid position), and in 2006 first basemen made 155% more than the lowest paid position (second basemen).

4. The overall salary range by position increased significantly from 1998 ($362,000 to $537,000) to 2006 ($1,816,000 to $4,632,000).

Speculation: To the extent that income inequality has increased for both the general population and in MLB (and other pro sports) over time, it is possibly a natural phenomenon resulting from an increasingly competitive, globalized environment? Perhaps the greater the intensity of the competitive process, the greater the degrees and level of competence, resulting in a natural increase in income inequality?

For example, wouldn't we expect income inequality to be greater in the 21st century than in the 18th century?

Coming Soon: WiFi In The Sky

From today's WSJ: U.S. airlines will start offering in-flight Internet connections, instant messaging and wireless email within 12 months, turning the cabin into a WiFi "hotspot." Carriers are expected to start making announcements around the end of the summer, with service beginning early next year.

My only question is, why didn't this happen years ago?

USA Today: Plastic Bag Ban is Full of Holes

San Francisco is the first city to ban plastic shopping bags - the city's Board of Supervisors approved legislation to outlaw plastic checkout bags at large supermarkets in about six months and large chain pharmacies in about a year. The stores are encouraged to use bags made of recyclable paper. Read more here.

From USA Today, comes an editorial in today's edition "Plastic-bag ban full of holes: San Francisco’s scheme sounds good, until you hear the costs." For example:

1. Plastic bags cost a penny each, paper costs about a nickel, and compostable bags can run as high as 10 cents each.

2. Compared to plastic bags, paper bags require four times as much energy to produce, and 85 times as much energy to recycle paper bags.

3. Paper bags generate 70% more air pollutants and 50 times more water pollutants than plastic bags.

4. Paper takes up nine times as much space in landfills and doesn't break down at a substantially faster rate than plastic does.

Spinach Farmers: Harvesting Cash

"Spinach might not seem to have anything to do with military operations. But there it is, in an emergency supplemental bill to fund the wars in Iraq and Afghanistan: $25 million for California spinach growers.

The war bill illustrates the axiom that guides the nation's agricultural policy: namely, that any principles of good government, common sense and fiscal sanity must always be abandoned in the cause of shoveling federal dollars at American farmers. Its $4 billion for disaster relief, together with millions for peanut storage, sugar-beet production and the Milk Income Loss Contract Program, isn't unusual, except for the fact that it was used to buy votes for a pullout from Iraq. For House Speaker Nancy Pelosi, apparently, all geopolitics is local, and some of her members are happy to lose a war if they can win a subsidy."


From the commentary "Fighting for Subsidies" by Rich Lowry.