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.

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.

The Angry Grammar Nazi

An angry caller to the SF Chronicle is really upset about the March 19 headline "Four-year anniversary draws protests," because it really should be "4th Anniversary." Check out the actual angry podcast call to Phil Bronstein, the editor of the SF Chronicle.

For another angry call from the same irate caller about the use of the phrase "pilotless drone," click here.

Monday, April 02, 2007

Poor Countries Overregulate Business

One of the main reasons that poor countries are poor and remain poor is because of excessive regulation of business (see graph above - high income countries have significantly less regulation than poor countries).

From the study "Doing Business in 2004: Understanding Regulation" by the World Bank's International Finance Corporation:

Number of days to start a new business:
Australia: 2 days
Venezuela: 141 days
Haiti: 203 days
Suriname: 694 days

Time to enforce a simple commercial contract:
Netherlands: 39 days
New Zealand: 109 days
Singapore: 120 days
India: 1420 days
Guatemala: 1459 days

Cost of enforcement for a simple commercial contract:
Austria, Canada and UK: Less than 1% of the disputed amount
Sweden: 5.9% of the disputed amount
U.S.: 7.7% of the disputed amount
Indonesia: 126.5% of the disputed amount
Congo: 157% of the disputed amount

Time to close a business and go through bankruptcy:
Ireland: 4 months
Japan: 5 months
Brazil: 4 years
India: 10 years

Conclusion: The optimal amount of regulation is not none, but is significantly less than what is currently found in most countries, especially poor ones.

Carpe Diem Moves Up in Rankings: 6 Months Old

Due to a huge spike in daily traffic towards the end of March (see chart above), Carpe Diem moved way up in the monthly "Traffic Rankings for Major Business and Economics Websites," which just came out today from based on March web traffic. Carpe Diem ranked #22 for "average daily pageviews" and #17 for "average daily visits. March also marked the 6th full month for Carpe Diem - the first posting was on September 20, 2006!

Thanks for your interest in Carpe Diem, and please let me know if you have any suggestions - feel free to send me your ideas for interesting links, stories, news, articles, research, graphs, etc.

Quote of the Day: How To Grow Out of Poverty

“Poor people grow out of poverty when their governments create an environment in which educated workers and capitalists have the physical and legal infrastructure that makes it easy to start businesses, raise capital, and become entrepreneurs, and when they subject their people to at least some competition from beyond – because companies and countries with competitors always innovate more, better and faster.”

~Thomas Friedman, "The World is Flat"

Predatory Lending, What About Banks and VISA?

Annual percentage rate (APR) on a 2-week payday loan = 390%.

APR on a VISA or Mastercard credit card with late fees = 700%.

APR cost of a bounced check at a commercial bank = 1,300%.

Congress and many state legislatures are now promising a crackdown on the "payday" loan industry for "unscrupulous" and "predatory" lending. But if payday lending is such a consumer rip off, no one has explained why these stores have become so popular. There are some 25,000 payday stores across America, and in many small towns the payday loan store is now as commonplace as the local post office.

This looks like another illustration of how to hurt working Americans in the name of helping them.

From today's WSJ editorial "Mayday for Payday Loans."

Sunday, April 01, 2007

Maybe This Is Why Americans Are So Fat?

And just how fat are Americans compared to people in other countries? Check out this graph below (click to enlarge):

Globalization of MLB

"Consider the Seattle Mariners. Their Opening Day lineup Monday will feature seven foreign-born players and two Americans -- Richie Sexson and Raul Ibanez.

Consider the New York Yankees, a team that can presumably afford the best talent on the planet. That team has Hideki Matsui and Kei Igawa (from Japan), Chien-Ming Wang (Taiwan), Robinson Cano (Dominican Republic), Bobby Abreu (Venezuela), Mariano Rivera (Panama) and Jorge Posada (Puerto Rico). Those stars complement their American idols Derek Jeter, Johnny Damon and Alex Rodriguez."

From the article "The Changing Face of Baseball" in today's Mpls-St. Paul Star Tribune.

Q: Wouldn't the anti-globalization protectionists like Lou Dobbs argue that foreign baseball players are "taking away jobs from Americans?"

A Final End to Blue-Collar Aristocracy?

The NY Times has an article today about 81,000 of the highest-paid blue-collar workers in the world who took buyouts from GM, Ford and Chrysler, in the largest exodus of workers from a single American industry in decades.

Read "The End of the Line as They Know It" here.