Monday, April 30, 2007

The Pinnacle of Protectionist Prevarication

"The advocates of free trade have on their side over 200 years of settled science in economics, going all the way back to Adam Smith. The advocates of protectionism have Lou Dobbs."

~Donald Luskin, from his NRO commentary today "
Isolationist Ignorance in Action: Watch Lou Dobbs Ascend to the Pinnacle of Protectionist Prevarication."

Q: What was Congress thinking when they allowed a news anchor like Lou Dobbs to "testify" about trade and globalization before the Committee on Foreign Affairs? YIKES!!

Trade with China Works Both Ways: Win-Win

There is a post below about the explosion of exports to China.

From today's Washington Times, an excellent commentary about China by economist Richard Rahn:

Despite the political demagoguery, tens of millions of Americans -- whether they be Texas cotton farmers, Boeing airplane workers, Miami hotel and construction workers, or American homebuyers who can get lower cost mortgages -- are all better off due to the hard-working people in China. Yes, a few American textile workers have lost their jobs, but when Americans spend $15 for a pair of slacks that would have cost them $25, they have another $10 to spend in restaurants and on other goods and services that create many more jobs than were lost.

America now has close to full employment, and real wages are rapidly rising -- proving what good economists have known for more than 200 years that freer trade and investment create more and higher-paying jobs, while reducing the costs of goods and services. China wins, American wins, the world wins -- so stop worrying.

See George Mason economist Don Boudreaux's comments
here at Cafe Hayek.

Sunday, April 29, 2007

Buy and Hold Index Funds

From today's 's NY Times Business Section:

The reason that so few mutual funds beat the market over the long term is that investors shift too much money into the successful ones. As a result, these funds’ managers quickly become swamped with more money than they can invest profitably, causing performance to suffer.

The data certainly provide strong support for this prediction: The mutual funds that have beaten the market in the recent past will rarely be able to keep doing so for longer than a few more months.

Don't even consider holding actively managed mutual funds unless you’re willing to switch funds often. All other fund investors should simply buy and hold an index fund for the long term.

AAUW Got It Wrong: There is No Pay Gap

The American Association of University Women Educational Foundation released a study last week claiming that just one year after college graduation, women earn only 80% of what their male counterparts earn. Ten years after graduation, women fall further behind, earning only 69% of what men earn. The organization further claims that the pay gap is "disturbing," since it can only exist because of sex discrimination. It is hard to take claims like this seriously, and here are the reasons why:

1. Sex discrimination is illegal under the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964. If the AAUW allegedly found thousands of cases where women make 80% of what men make one year out of college with the exact same credentials, and thousands of cases where women make 69% after ten years with the exact same qualifications, why not bring legal action to correct this discrimination? Would thousands of organizations really engage in that much illegal discrimination and expose themselves to litigation where they would clearly lose? Not likely.

2. If profit-seeking corporations can hire women with one year experience for 20% less than equally-qualified males, or a women with ten years experience for 31% less than equally-qualified men, they would have to be blinded by sex discrimination to pass up the opportunity to save 20-30% on their labor costs. They would hire ONLY women, and NO men. The wages of women would then get bid up. Corporations are often condemned for being greedy and motivated solely by profits, so how could they pass up an easy opportunity to save 20-30% on their costs of doing business? And how could men command a 20-30% wage premium that is unjustified by their productivity in a competitive labor market?

Analogy: Think about two gas stations (like a male and female worker competing in the labor market) competing on the same corner offering the exact same product (same credentials), and Station A (male worker) sells gas for $1 per gallon, and Station B (female worker) sells gas for 70 cents. Cost-conscious consumers (employers) would obviously shop only at Station B (hire only female workers), and Station A (male workers) would either be forced to lower its prices (wages) or go out of business (remain unemployed). The only explanation for persistent price (wage) differentials between Station A (male workers) and Station B (female workers) would be differences in the quality of the gas, differences in service, or differences in credit terms, etc. In other words, some differences in wages can be explained by differences in labor services provided by male and female workers.

Wage differentials not explained by differences in productivity or the quality of services provided could not exist and persist in a competitive labor market. Greedy employers provide a sure solution to sex discrimination and lower wages for women: they will hire only women, which will then bid up their wages.

3. Here is one example of differences between male and female workers that would explain differences in pay: A year out of college women in full-time jobs work an average of 42 hours a week, compared to 45 for men. In other words, men work 7% more hours per week than women. More hours translates into more pay.

4. Ten years after graduation, 39% of women are out of the work force or working part time -- compared with only 3% of men, mostly because of marriage and motherhood. When these mothers return to full-time jobs, they naturally earn less than they would have if they had never left. And given the fact that women expect to spend time out of the work force for child-raising, they may naturally select college majors and careers that don't penalize them for gaps in employment and the possible "depreciation" of one's skills. For example, if you planned to be out of the labor market for 10 years, there is probably a significant difference in the depreciation of the skills of a grade school teacher compared to a computer programmer, electrical engineer or accountant.

5. The AAUW report did acknowledge that college-educated women tend to go into fields like education, psychology and the humanities, which typically pay less than careers preferred by men, such as engineering, math and business.

For example, 13% of the bachelor's degrees earned by men are in the relatively high-paying field of engineering, vs. just 2% of women earning college degrees in engineering. Conversely, 12% of bachelor's degrees earned by women are in the relatively low-paying field of education, compared to 5% of men.

In the chart above, note that the average salary of a liberal arts major (which includes the fields identified by the AAUW as preferred by females) is $31,333 which is only:

58% of the average salary for engineering majors
62% of the average salary for finance/economics
63% of the average salary for computer science/MIS
66% of the average salary for accounting majors

Since women are disproportionately represented in majors/fields that pay less (education and humanities), it would be natural for some salary differentials to exist.

6. Most studies that control for all factors that affect earnings show that motherhood and marriage explain almost all of the "pay gap." For example, research shows that:

a. There is no pay gap among single, full-time workers age 21 to 35, who live alone.

b. Among people ages 27 to 33 who have never had a child, the earnings of women are about 98% of men's.

c. Never-married women in their 30s who have worked continuously earn slightly higher incomes than their male counterparts.

d. Men spend only 1.6% of all potential work years out of the workforce, while women spend 14.7% of potential work years away from work.

e. A woman's lifetime earnings are lowered 13% by having her first child, and 19% by having her second.

Bottom Line: Here is what the AAUW didn't report: Median annual earnings of men and women age 25 to 34 with bachelor's degrees in the same field are roughly equal. In other words, there is no "pay gap," once you control for ALL factors that affect earnings, and compare apples with apples.

Saturday, April 28, 2007

Michigan Export Boom to China

1. Michigan exports to China increased by almost 5X (+380%) in the last 6 years (see top chart), and Michigan was third fastest-growing U.S. exporter to China in the 2000–2006 period (see bottom chart).

2. Total export growth for Michigan during the 2000-2006 period was only 19%, vs. 380% for exports to China.

3. See a state-by-state analysis of exports to China here.

Trade Works Both Ways: Exports to China Explode

From today's WSJ: "Populists in America like to badmouth China for flooding the U.S. with what they claim are cheap, job-destroying imports, but the export data offer a very different picture. China is now America's fourth largest export market (MP: Third if China and Hong Kong are combined), buying U.S. goods valued at $55.2 billion last year, according to the U.S. International Trade Commission.

U.S. exports to China increased 240% between 2000 and 2006. America's second-fastest growing export market, Belgium, increased "only" 54% in the same span (see chart above)."

The WSJ refers to this report on China exports, relased this week by the U.S. China Business Council.

Friday, April 27, 2007

Shrugging Off 1.3% GDP Growth

Why did the markets shrug off worse-than-expected real GDP growth of 1.3%?

Exhibit A: The Dow Jones Industrial Average rose 15.44 points to 13120.94 on Friday, hitting its third straight record to end the week. The blue-chip average has risen 19 of the past 21 days, an extremely rare streak, in spite of the GDP report.

GDP specifically measures U.S. output/production of goods and services in a given quarter, which is different from U.S. consumption of goods and services in a given quarter, and different from U.S. disposable personal income (after-tax) in a given quarter.

How would best measure your own standard of living from quarter to quarter? Probably by your household's disposable, after-tax income, and/or your household's consumption. By both measures, you are probably doing pretty well.

As the top graphs above show, inflation-adjusted disposable income increased by almost 3% in each of the last three quarters (and above the 2.4% 6-year average), and inflation-adjusted consumer spending increased by 2.66% in the first quarter 2007 (see bottom chart), compared to 2.52% overall in 2006.

Factors contributing to weak real GDP growth in the first quarter were: a) U.S. exports fell by 1.2% (production) and imports increased 2.3% (consumption), which is negative when measuring GDP production, but positive when measuring consumption and our real standard of living, b) federal government spending decreased 3.0% in the first quarter of 2007, after rising in the fourth quarter of 2006 by 4.6%, which is negative when measuring GDP production, but not necessarily bad overall that government spending fell, c) inventories decreased, which is negative for GDP production, but not necessarily detrimental to our standard of living, and d) home construction dropped 17%, which is negative for GDP production, but positive when considering a better balance between supply and demand for new housing.

Bottom Line: Weaker-than-expected growth in output doesn't necessarily translate into lower disposable income or weaker consumption spending or a weaking economy, as the recent quarter demonstrates. Unemployment is at a 6-year low and 18 states have set record low jobless rates in the last year, so the economy is strong. The record-high stock market seems to agree.

Quote of the Day

In California, which outlawed racial preferences in 1996, more black and Hispanic students are enrolled in college today than ever before -- and more importantly, a higher percentage of them are graduating. In 1995, only 26% of black and Hispanic students actually graduated from the UC system; now 51% graduate, roughly equal to the white and Asian rate.

It's about time we ended racial double standards once and for all. In doing so, we will actually improve the chances that more black and Hispanic students will earn college degrees.

~Linda Chavez, Ending Racial Preferences: It's About Time

Two Americas

What Does $1 Million Buy Across the U.S.?

From Forbes, "What $1 Million Buys In Homes Across The U.S."

Here is the article, here is the slide show.

Thursday, April 26, 2007

Free Rent? Was Milton Friedman Wrong?

What does a state's largest commercial landlord do when it owns 20 million square feet of office space, and the state's largest city has an office vacancy rate of 30%? Michigan’s largest commercial landlord, Farbman Group, is offering free space as an incentive to attract business into the economically challenged state.

From today's Detroit News, "In another sign of the region's tough economy, the largest commercial landlord in Michigan is offering free rent to startup companies and firms new to the state." Well, actually "rent would be free, for an undetermined amount of time, but the companies must pay for utilities and other operating costs."

Maybe there is such a thing as free lunch?

Spinal Tap Reunites!!

The legendary rock band "Spinal Tap," which earned a distinguished place in rock history as one of England's loudest bands, and was also known for their exuberance, raw power, and punctuality, has reunited to join a campaign to "save the world from global warming." Read about it here.

Director Rob Reiner, whose 1984 film set the bar for the "mockumentary" genre, has made a new short film called "Spinal Tap" as part of a campaign dubbed SOS/Live Earth. The band will also play in London at one of 7 Live Earth concerts on July 7.

Spinal Tap's legendary albums include "Shark Sandwich" (One review of the album was just two words: "Shit sandwich.") and "Smell the Glove," and memorable Tap songs include "Big Bottom" ("How could I leave this behind?"), "Sex Farm," and "Lick My Love Pump" (unreleased, but sort of between Mozart and Bach, like a "Mach" piece, according to guitarist and composer Nigel Tufnel, whose Marshall amps went up to a volume of 11).

Give Me a Loaf of Bread, an iPod and a Flu Shot

According to this press release, Wal-Mart intends to contract with local hospitals and other organizations to open as many as 400 in-store health clinics over the next two to three years, and if current market forces continue, up to 2,000 clinics over the next five to seven years. The clinic program’s expansion is just the latest in a series of moves by Wal-Mart to help implement customer solutions to America’s health care crisis, including the $4 generic drug prescription program. (Note: Customers have saved $290 million from this program just since September, and one-third of $4 prescriptions are bought by the uninsured.)

“We think the clinics are going to provide something our customers and communities desperately need – affordable access at the local level to quality health care,” said Wal-Mart's CEO Lee Scott.

From an editorial in
today's IBD "Dr Sam": Wal-Mart's advance into health care is a testament to private-sector industriousness. While others whine about America's health care "crisis," and back monstrous government programs to solve it, Wal-Mart is actually making care more affordable. Yes, the same Wal-Mart that politicians and activists demonize because its pay and benefits supposedly are insufficient.

But watch out for some new Wal-Mart bashers: physicians and their staffs who don't really want to have to compete against Wal-Mart. Will Wal-Mart now be accussed of "crushing" overpaid physicians, and putting small clinics out of business?

Bottom Line: Gotta Love Wal-Mart, and it's too bad for consumers it was kept out of banking.

Gift Registry for Travel

New from Northwest Airlines: Gift registry! "Wedding, graduation, retirement, anniversary, family vacation - whatever the occasion, TRAVEL is the perfect gift to give or receive."

"Request a specific dollar amount to apply toward travel on Northwest Airlines. Create your own web page with a description of your travel plans plus select a theme and upload a photo. Invite your family and friends to visit your registry by e-mailing announcements or printing and mailing them. Family and friends can contribute to your registry online and send you a gift e-card."

Great idea, why didn't they think of that 10 years ago?

Globalization: Americans Love to Hate It

According to a recent global survey, people around the world believe economic globalization and international trade benefit national economies, companies, and consumers (see chart above). conducted a survey on globalization in countries representing 56% of the world’s population: China, India, U.S., Indonesia, France, Russia, Thailand, Ukraine, Poland, Iran, Mexico, South Korea, the Philippines, Australia, Argentina, Peru, Israel, Armenia—and the Palestinian territories. People in those countries were asked if “Globalization, especially increasing connections of our economy with others around the world, is mostly good or mostly bad” for their country.

The highest levels of support are found in countries with export-oriented economies: China (87%), South Korea (86%) and Israel (82%). Positive answers fall below 50% in only three countries, though such responses outweigh negative replies by wide margins. The greatest skepticism about globalization is found in Mexico (41% good, 22% bad), Russia (41% good, 24% bad) and the Philippines (49% good, 32% bad). In the United States, 60% think globalization is mostly good and 35% call it mostly bad.

However, support for globalization in the U.S. decreases when it comes to more specific questions like "Is trade good or bad for the U.S. economy?" - only 42% of Americans said good. For the question "Is trade good or bad for U.S. companies?" only 45% answered good. For both questions, Americans were among the most negative countries. But when asked about the effect of globalization on consumers and their own standard of living, a strong majority of Americans believes trade is good for consumers (70%) and their own standard of living (64%).

Americans are second only to the French in their belief that trade hurts employment. A majority believes that international trade is bad for “creating jobs” in the United States (60%) and bad for the “job security” of American workers (67%). An overwhelming majority (96%) of Americans sees “protecting the jobs of American workers” as a very (76%) or somewhat (20%) important foreign policy goal.

Bottom Line: It appears that there is still a high degree of confusion in the general public about the economic effects of trade and globalization. Americans are conflicted (they "feel strongly both ways?") - as consumers Americans love globalization (everyday low prices), but as workers they are skeptical, feel threatened and hate globalization.

But if Americans took a more "world view," and paid greater attention to the factual evidence on the labor market, they would understand that globalization expands job opportunities: a) more than 10.5 million U.S. jobs have been created in the last 5 years, b) the unemployment rate is at a 6-year low of 4.4%, and c) 18 states have set record-low jobless rates in the last 8 months, all during a time when globalization has expanded.

Wednesday, April 25, 2007


Quote of the Day: BOO-YAH!!

"After a lifetime of picking stocks, I have to admit that (Vanguard Group founder John) Bogle's arguments in favor of the index fund have me thinking of joining him rather than trying to beat him. Bogle's wisdom and his commonsense way of explaining things make this book indispensible reading for anyone trying to figure out how to invest in this crazy stock market."

~James J. Cramer (Mad Money) on the back cover of "Common Sense on Mutual Funds," John C. Bogle's 1999 book.

Employment Gaps, Fertility Rates and Tax Rates

From The Economist: A study by Kevin Daly of Goldman Sachs has measured the gender employment-rate gap (the male employment rate minus the female one) in several countries. Some findings:

1. In Spain and Italy the employment gap is over 20% (low rate of labor force participation for women), in contrast with Sweden's 4% (almost equal participation rate for men and women), see top graph above.

2. Increasing the rate of female labor force participation could increase economic growth by as much as 13% in the Euro-zone.

3. Higher female emploment does not reduce fertility rates: in countries with a smaller gap (like Sweden, Denmark, Iceland and even the U.S.), women tend to have more babies (see bottom chart above) than in higher gap countries (like Italy and Spain). (MP: This surprises me, I would expect countries like Spain, Greece and Italy with low labor force participation rates for women to have higher fertilty rates, not lower).

4. The tax burden on second earners explains some of the employment gap. In both Spain and Italy second earners pay considerably more tax then their partners do, whereas in Sweden the rate is the same.

Housing Market: Good News, Bad News

Total existing-home sales fell 8.4% to a seasonally adjusted annual rate of 6.12 million units in March. That compares to a pace of 6.68 million in February, and is 11.3% below the 6.90 million-unit level in March 2006. The national median existing-home price for all housing types was $217,000 in March, which is 0.3% below March 2006 when the median was $217,600.

Headlines and stories about yesterday's March sales report included "
Weather Hits March Existing-Home Sales After Three Monthly Gains," "Weather Curtails Existing-Home Sales," both from the National Association of Realtors, and "House Prices Slide as Property Glut Grows" from the WSJ.

One statistic in the monthly
real estate sales report that doesn't always get a lot of attention is the "months supply of inventory at the current sales rate," which I think is one the best measures of the condition of the housing market. The current value is 7.34 months, which means it would take 7.34 months (until the first week of December) to sell the current inventory of homes (3.745 million) at the current sales rate (510,000 homes per month).

As the chart above shows, the months supply in 2004-2005 was about 4.5 months, and now is closer to the 7 month range. Another way to interpret "months supply" is that it used to take a little more than 2 months on average to sell a house in 2004-2005 (1/2 of the months supply) and it now takes closer to 3.5 months on average to sell a house. The high and rising "months supply of houses" measure indicates that it is increasingly shifting towards a buyer's market.

Bottom Line: The "good news" about the soft housing market is that it is definitely a "buyer's market," in contrast to the "good news" several years ago when it was definitely a "seller's market." And pay less attention to unit sales and median prices and more attention to "months supply" to assess the real estate market.

Tuesday, April 24, 2007

Wal-Mart: Equal Opportunity "Crusher"

Wal-Mart opponents (WakeUpWalMart, WalMart Watch, Lets Stop WalMart, etc.) get a lot of public sympathy and support by accusing Wal-Mart of "crushing Mom and Pop stores," although it's really the local consumers who "crush the Mom and Pop stores" by shopping at Wal-Mart for low prices. See my article on how "consumer greed" for low prices puts high-priced downtown merchants out of business when Wal-Mart comes to town.

An article in Business Week "How Wal-Mart's TV Prices Crushed Rivals," says that "it is becoming apparent that Wal-Mart's calculated decision to break the $1,000 barrier for flat-panel TVs last November triggered a disastrous financial meltdown among some consumer-electronics retailers over the past four months."

The Business Week article illustrates the fact that Wal-Mart's should be given credit for being a non-discriminatory "equal opportunity crusher," because its low-price strategy crushes higher-priced large, "greedy," multinational corporations like Best Buy, Circuit City, CompUSA, FAO Schwartz, and Winn-Dixie just as it "crushes" high-priced downtown merchants and Mom and Pop stores.

Bottom Line: Consumers benefit from Wal-Mart: a) directly from Wal-Markt's own everyday low prices, AND b) indirectly from the competitive pressure Wal-Mart puts on its rivals, both small and large, to lower their prices - or go out of business.

Michigan: One-State Recession

From The drumbeat of bad economic news out of Michigan keeps pounding.

The Great Lakes State has lost jobs for six consecutive years, Michigan’s longest run of workplace shrinkages since the Great Depression. Automakers are laying off tens of thousands. Pharmaceutical giant Pfizer is closing up shop in Ann Arbor and Kalamazoo. The state ranks among the top three in the country for home foreclosures and mortgage delinquencies.

Analysts at Comerica Bank, which is moving its headquarters from Detroit to Dallas, say Michigan is stuck in a “one-state recession.”

The state’s political leaders are under pressure to soften the economic blows, but the downturn in the economy means there’s less money in state government’s coffers to fight back.

The state is nearly broke and is bracing for a possible partial shutdown in May. Gov. Jennifer Granholm (D) and Republicans legislators in charge of the state Senate are at odds over how to turn the ship around. The governor stresses investing more in education and job training to develop a talented work force, funded by a new tax on services, while GOP leaders are calling for tax cuts and a leaner state government to lure more business.

Harry Potter and the Mystery of Inequality

From Alex Tabarrok on Marginal Revolution:

The same forces that have generated greater inequality in writing - the leveraging of intellect, the declining importance of physical labor in the production of value, cultural and economic globalization - are at work throughout the economy. Thus, if you really want to understand inequality today you must first understand Harry Potter.

Along the same line of reasoning, I would suggest that there there would be significant and increasing income inequality over time if you looked at these ratios today vs. 10, 20 or 50 years ago:

1. Average professional athlete's salary vs. the average wage for the person working in the box office in the stadium, or the average wage of someone selling peanuts or beer in the stadium.

2. Average salary of professional athletes vs. the average wage for the housekeeping staff where they stay when travelling on the road, or the average wage of the flight attendants on the athletes' flights.

3. Average salary of a top movie star and the average wage for the person working for the caterer on the movie set or the average wage of the light crew.

4. The average salary of a top TV star like Letterman or Oprah and the average wage of the ushers working for the show.

As Alex concludes, The average writer's income hasn't gone up much in the past thirty years but today, for the first time ever, a handful of writers can be multi-millionaires and even billionaires. The top pulls away from the median.

Conclusion: Increasing income inequality does not necessarily mean that the average writer, or the average worker (ticket taker, peanut salesman, light crew, caterer) is doing worse off. Most of the handwringing about rising income inequality seems to be based on the fixed-pie fallacy - that one party can gain only at the expense of another. The fact that J.K. Rowling is a billionaire doesn't come at the expense of other writers.

The Global Warming Warrior

The website has posted Cherly Crow's tour rider and comments: "When the global warming warrior hits the road, her touring entourage (and equipment) travels in three tractor trailers, four buses, and six cars. Now that's a carbon footprint!"

(HT: Dan Mitchell)

Amazing Videos

Watch this amazing video of an insane kid who jumps off a roof, does a back flip, and lands in a swimming pool.

And practice makes purr-fect, watch this video of the piano-playing cat.

Monday, April 23, 2007

Good News for 2007 College Grads

1. Starting salary offers to new college graduates continue to rise, especially for business majors, reflecting the positive job market for Class of 2007 graduates according to a new report from the National Association of Colleges and Employers (NACE). Starting salaries for business grads showed one the biggest increases from last year, rising by 7.5% to $44,048. The average salary for economics graduates ($53,500) was the highest-paid business degree, followed by finance ($47,877), accounting ($47,421), and marketing ($41,285). Liberal arts graduates were offered $31,333 on average, 1.2% more than last year.

2. From the WSJ, "Employers are paying the typical four-year college graduate 75% more than they pay high-school grads. Twenty-five years ago, they were paying 40% more."

3. The current (March) unemployment rate for college grads is only 1.8%, a 6-year low.

The Ultimate Resource

From Free To Choose Media, the same group that produced the "Power of Choice: The Life and Ideas of Milton Friedman," comes a new doccumentary program titled "The Ultimate Resource: Free Markets - People Making Their Own Decisions," inspired by the work of economist Julian Simon and his book "The Ultimate Resource." From the press release:

Free Market incentives are spectacularly changing lives over much of the world. In the last 25 years, hundreds of millions of people-- 400 million in China alone-- have climbed out of the dire poverty of living on less than $1 per day. It is the largest movement out of poverty in human history.

This documentary is the story of what can happen when ordinary people around the world are given the tools to help themselves. "The Ultimate Resource" is people-- skilled, spirited and hopeful people, who are using their wills and imaginations for their own benefit, and, inevitably, they will benefit the rest of the world, as well.

Watch a 3-minute preview here on YouTube. The full documentary premiers tomorrow night, Tuesday, April 24, at 10:00 P.M. EST on HDNet.

There is No Wealth Factory

Wealth is not a product or commodity. There is not some factory out there manufacturing wealth that will someday run out. Wealth is not a service that ends when the shop closes for the night. Wealth is simply a measure. Having more of it does not mean your neighbor has less. Having more of it does not mean you took it from someone else. It is instead a reflection of who we are; our talents, our choices, our opportunities, how hard we have applied ourselves, and, often overlooked, the economic system that underlies the nation in which we live. In other words, unless fraud or some other nefarious scheme is in place, obtaining wealth is not a zero-sum game.

~Your Getting Rich Costs Me Nothing by Thomas W. Washburne at the Mackinac Center for Public Policy in Midland, MI

Sunday, April 22, 2007

Increasing Income Inequality in Higher Education

In 1985-1986, an assistant professor of business (finance, accounting, marketing) earned 48.5% more on average than an assistant professor of English, according to the American Association of University Professors' 2006-07 Report on the Economic Status of the Profession. In the 2005-2006 academic year, the average assistant professor of business earned more than twice as much as an assistant professor of English nationwide (see chart above, click to enlarge).

Like the general public, the AAUP is so concerned with income inequlity that its salary report this year is titled "Financial Inequality in Higher Education," which states that "Financial inequality is growing in U.S. higher education. We observe increasing differences between the endowments of rich and poor institutions, between the salaries of college and university presidents and their faculties, between the salaries of athletic coaches and professors, and between well and poorly compensated faculty members. This economic inequality has the potential to negatively affect higher education."

The AAUP doesn't say exactly how increasing income inequality would "negatively affect higher education," and doesn't say exactly what should be done about it, but at least it does recognize the significant contribution of
opportunity cost in explalining salary differentials between disciplines like business and English.

Note also that except for business and economics, and to a lesser extent computer science, and psychology, pay in most disciplines relative to English has been fairly constant, even high-opportunity cost disciplines like engineering and law.

Greg Mankiw).

Earth Day Reading

Today is Earth Day. According to Reason Magazine, if you must read one Earth Day story, it should be its 2000 cover story (the 30th anniversary of Earth Day), "Earth Day, Then and Now: The Planet's Future Has Never Looked Better." A few excerpts:

Three decades later (in 2000), the world hasn't come to an end; if anything, the planet's ecological future has never looked so promising. With half a billion people suiting up around the globe for Earth Day 2000, now is a good time to look back on the predictions made at the first Earth Day and see how they've held up and what we can learn from them. The short answer: The prophets of doom were not simply wrong, but spectacularly wrong.

There's much to celebrate on the 30th anniversary of Earth Day. Indeed, one of the chief things to get happy about is that the doomsters were so wrong. Civilization didn't collapse, hundreds of millions didn't die in famines, pesticides didn't cause epidemics of cancer, and the air and water didn't get dirtier in the industrialized countries.

As far as affluence goes, it is clearly the case that the richer the country, the cleaner the water, the clearer the air, and the more protected the forests. Additionally, richer countries also boast less hunger, longer lifespans, lower fertility rates, and more land set aside for nature. Relatively poor people can't afford to care overmuch for the state of the natural world.

Another good article for Earth Day reading is the classic "Recycling is Garbage" by NY Times writer John Tierney, who writes that "Rinsing out tuna cans and tying up newspapers may make you feel virtuous, but recycling may be the most wasteful activity in modern America: a waste of time and money, a waste of human and natural resources."

And one more: George Mason economist Don Boudreaux's excellent article "I Recycle:" In fact, market prices compel us to recycle when recycling is appropriate—and to not recycle when recycling is inappropriate.

David Friedman on Obesity and Rising Incomes

From Milton Friedman's son David Friedman's blog, his latest posting "Obesity: A Conjecture."

Humans evolved in an environment where food was costly, fat scarce, sweetness a useful signal that fruit was ripe. We are designed by evolution to put on weight when we can as a precaution against future famines and to favor fat and sugar when we can get them. In a world where food is inexpensive and plentiful we are inclined to overeat, in particular to eat more fat and sugar than is good for us.

The obvious explanation of the increase in obesity is that real incomes around the world have been trending up for decades. Now poor people in the U.S., and increasingly in poorer parts of the world, can afford to eat all the calories they want. Since all the calories they want represents more than what they require, the result is that they get fat.

Watch a map graphic that shows obesity (BMI) rising in the U.S. from 1985 to 2003 (takes a few seconds to load).

In a very interesting previous post, David poses the "restaurant puzzle:" A restaurant provides two different products: Food and a place to eat it. Both are valuable, both are costly to the restaurant. Yet restaurants price only the food. The table is free, however long you use it. Why?

Saturday, April 21, 2007


Count every F in the following sentence.


How many did you count? See the correct answer here.

Quote of the Day

"If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization."

~Nobel economist Friedrich Hayek, from "The Use of Knowledge in Society," explaining why a decentralized market system is superior to central planning.

Carpe Diem Exclusive!

Carpe Diem Exclusive: In a previous Carpe Diem exclusive, I reported in January that 15 U.S. states set historical record-low jobless rates in 2006 - nobody else reported this. Well, the labor market news just keeps getting better all the time, now more than 1 out of every 3 states has set a record-low unemployment rate since last July, and yet nobody reports this??

State unemployment rates for March were just released yesterday
by the BLS, and there are now 18 states that have experienced historical record-low jobless rates in the last 8 months since July 2006, and 12 of those states set record-low rates in January, February or March of this year.

Here are the 18 states with historical record-low jobless rates since July 2006:

Alabama: 3.3% in November 2006
Alaska: 5.9% in March 2007
Arizona: 3.9% in March 2007
California: 4.7% in November 2006
Florida: 3.2% in October 2006
Hawaii: 2.0% in December 2006
Idaho: 2.8% in March 2007
Illinois: 4.0% in November 2006
Louisiana: 3.3% in July 2006
Montana: 2.0% in March 2007
Nevada: 4.1% in May 2006
New Mexico: 3.5% in February 2007
New York: 4.0% in March 2007
Pennsylvania: 3.8% in March 2007
Texas: 4.3% in March 2007
Utah: 2.3% in February 2007
Washington: 4.6% in March 2007
W. Virginia: 4.0% in January 2007

A Google News (and Yahoo) search indicates that nobody has yet reported this - shouldn't that be big economic news that more than 1 out of 3 states have set record-low jobless rates since last July?

There are many reports on individual states setting record-low job less rates, click here for
Washington, click here for Montana, click here for Alabama, click here for Alabama, but nothing at the national level about 18 states setting records for jobless rates! Doesn't the White House or somebody want to take credit for this phenomenal record of so many states setting historical low unemployment rates?

Female Economist Wins Prize for First Time

From today's WSJ: The American Economic Association announced Friday that Susan Athey, a 36-year-old professor at Harvard University with professional interests ranging from deepest economic theory to Canadian timber auctions, had won the prestigious John Bates Clark medal, awarded every two years to the nation's most promising economist under the age of 40. No woman had won the medal in its 60-year history.

Around 40% of past Medal winners have gone on to win the Nobel prize in economics, following an average wait of 22 years. Former winners include Nobel laureates such as Paul Samuelson (1947), Milton Friedman (1951), Gary Becker (1967), and other economists such as Paul Krugman (1991), Lawrence Summers (1993) and Steven Levitt (2003).

Penn and Teller on Showtime

Penn and Teller on Wal-Mart: Penn & Teller expose America's love/hate relationship with Wal-Mart and look at the good and bad sides of the biggest employer in the US. They challenge the director of the documentary, "Wal-Mart: The High Cost of Low Price," they reveal union efforts to smear Wal-Mart, and meet a chronically unemployed young mother in Chicago to see how her life changed when Wal-Mart came to town and we look for the silver lining behind third world sweatshops.

Penn and Teller on Gun Control, thanks to Cafe Hayek.

Penn and Teller on Creationism.

Penn and Teller on Big Brother.

Warning: Strong language!

Friday, April 20, 2007

Parking Your Car is Worse Than Driving Your Car

University of Rochester economist Steven Landsburg (author of Armchair Economist) writes in today about why parking your car is more environmentally destructive than driving it. Some excerpts:

Feeling guilty about your car's contribution to global warming? The good and bad news is that you and your car have got something far bigger to feel guilty about. My CO2 emissions cause about $50 worth of damage each year. But my parking—on public streets where I take up valuable real estate—imposes far greater costs.

It took until 2006 for someone to notice that the social cost of mandated free and underpriced parking is nothing short of phenomenal, the implied subsidy being comparable to what we spend on Medicare or national defense.

There's a general principle here: We get bad outcomes when damaging the environment carries no penalty. That's why the world has too much pollution and too many cars on the street. It's also why, whenever something exciting happens at the ballpark, everyone stands up to see better and nobody succeeds. We all jump up out of exquisite concern for our own interests and none at all for the damage we inflict on our neighbors.

Update: A controversial new plan is about to be implemented to improve the quality of life in New York City. This weekend Mayor Michael Bloomberg is expected to introduce an $8 congestion fee for drivers who enter Manhattan below 86th Street. Read more here.

Thursday, April 19, 2007

Will Farrell in "The Landlord"

Check out this hilarious video clip of Will Farrell in "The Landlord."

Detroit Free Press

From my commentary in today's Detroit Free Press "Don't Buy Into Myth on Price Gouging:"

People assume that oil companies control gasoline prices, but the economic reality is that they don't. Even the biggest oil companies don't set prices for gasoline, diesel or jet fuel, any more than farmers set the price of corn, soybeans or milk. Oil prices, like prices for all world commodities, are set by competitive international market forces.

And yet oil companies are constantly accused by politicians of "price gouging," and a House Energy and Commerce subcommittee is pushing for federal regulation of oil prices that would end up harming U.S. consumers and increasing our dependence on foreign oil.

There is a great deal to be gained by allowing market forces to drive down gasoline prices when there are supply disruptions, and a lot to be lost if we foolishly enact price gouging legislation.

Pro-Con, Progress-Congress II

From today's WSJ, an excellent commentary titled "Gasbags" by two former Texas Congressmen (Bill Archer and Chalres Stenholm), who apparently understand basic economics (see excerpts below), in contrast to Rep. Bart Stupak (D-MI), sponsor of the Federal Price Gouging Prevention Act, who could use some remedial economic lessons about price controls.

1. "Government intervention to control prices, reduce demand or increase supply, however temporary, will create more instability in the marketplace, not less."

2. "The reality is that there has never been a legitimate finding that gasoline price increases were caused by any manipulation of the markets."

3. "History and basic economics teach us that price caps result in shortages in the market and hardships for consumers."

4. "Even when price controls have been designed carefully and included very specific rules defining legal prices and specific enforcement mechanisms, they have proven to be failures of enormous consequence."

See a previous post on the same topic.

Chemistry Research: Information Age Style

Folding@home is one of the world's largest "distributed computing projects" and is designed to perform computationally intensive simulations of protein folding and other molecular dynamics simulations. It was launched by Stanford University's Chemistry department in 2001 "to understand protein folding, misfolding, and related diseases."

According to the listing in
Wikipedia, "Folding@home does not rely on powerful supercomputers for its data processing; instead, the primary contributors to the F@H project are many hundreds of thousands of personal computer users who have installed a small client program. The client will run in the background utilizing otherwise unused CPU power, or run as a screensaver only while the user is away."

To date, 50 scientific research papers have been published using the project's work, and there are about 200,000 participants worldwide (see map above, click to enlarge) who run software to collaborate and band together to make one of the largest supercomputers in the world.

Thanks to University of Michigan-Flint student Anna Stanczyk, who presented this to my Senior Honors Seminar class yesterday.

Prague, Warsaw, Bucharest: Europe's Bangalores

From today's NY Times, an interesting article "Eastern Europe Becomes a Center for Outsourcing:"

The U.S. may turn to India to fill many of its call-center jobs and the like. But Western Europe is turning more frequently these days to its own backyard, transforming a few urban centers of the former Communist bloc into the Bangalores of Europe.

American companies are cashing in as well. In recent years, I.B.M., Dell and Morgan Stanley, among others, have outsourced services to Eastern Europe, or helped other American companies do so.

What is unusual about Eastern and Central Europe is that their most advanced cities offer a potent mix of attributes that even Bangalore cannot rival: a highly educated, multilingual pool of talent in an increasingly affluent consumer market — all barely a stone’s throw from its prime clients.

Wednesday, April 18, 2007

Outsource Your Medical Care to India or France

Vancouver-based MedSolution helps Americans and Canadians "explore global health options" and connects patients with international hospitals as a reaction to the exorbitant prices of health care in the United States, and the increasingly long wait lists of Canada and the United Kingdom.

Notice on the chart above (click to enlarge) that it costs $100,000 for heart bypass in the U.S. and only $7,000 in India, a 93% savings; a hip replacement here costs $40,000 vs. $5,800 in India, an 85% savings, etc. For those afraid of India, even going to Europe can result in a 50% savings vs. the U.S. for procedures like hip replacement, knee replacement and heart bypass in France.

Quote of the Day

If someone comes along and offers you an opportunity superior to any other that you have, is "exploitation" an appropriate term to describe that offer?

Put more concretely, if a U.S. company pays a Cambodian $3 a day, when his next best opportunity -- digging through trash at a nasty dump -- yields 75 cents a day, has that company made him worse off or better off? If your answer is "better off," how can "exploitation" be an appropriate term to describe the transaction?

~George Mason economist Walter Williams' latest column

US: The World's Dream Factory

We hear a lot about the "disappearance of the middle class," and general economic "gloom and doom," even though the jobless rate is at a 6-year low of 4.4%? But we don't always hear so much about the incredible economic opportunities that exist today, and the many amazing stories of successful entrepreneurs in the U.S.

Like ex-con and former prison cook Jeff Henderson (pictured above), who has a new book out about his rise from convicted LA cocaine dealer to executive chef of the Bellagio Café in Las Vegas, titled "Cooked: From the Streets to the Stove, from Cocaine to Foie Gras;" it's now a NY Times bestseller.

For several excerpts from the book, see the Freakonomics blog, "How the Crack Dealer Became a Chef."

NY Times columnist Thomas Friedman refers to the U.S. as the "world's dream factory" in "The World is Flat," because of the U.S. economy's openness and dynamism, which nutures entrepreneurs more successfully than any place else on the planet (Exhibit A: Jeff Henderson). In how many other countries could a convicted crack dealer become a successful chef with a best-selling book?

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

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