Monday, May 14, 2007

Cartoon of the Week

Quote of the day: "Food prices increase because of government-sponsored ethanol—the magic fuel elixir... One quarter of the nation's corn production will be diverted from livestock feed to unenergetic ethanol this year. In March, corn increased to $3.20 from $2.00 a bushel last year. The cost of feeding chickens, our most popular meat, is up 40%. This expensive and poor substitute for energy-rich gasoline is heavily subsidized with our taxes (51 cents per gallon of ethanol), diverting resources by political decisions rather than through market efficiencies."

Consumer-Friendly, Market-Driven Health Care

It's Friday evening and you suspect that your child might have strep throat or a worsening ear infection. Do you bundle him up and wait half the night in an emergency room? Or do you suffer through the weekend and hope that you can get an appointment with your pediatrician on Monday -- taking time off your job to drive across town for another wait in the doctor's office?

Every parent has faced this dilemma. But now there are new options, courtesy of the competitive marketplace. You might instead be able to take a quick trip on Friday night to a RediClinic in the nearby Wal-Mart or a MinuteClinic at CVS, where you will be seen by a nurse practitioner within 15 minutes, most likely getting a prescription that you can have filled right there. Cost of the visit? Generally between $40 and $60.

These new retail health clinics are opening in big box stores and local pharmacies around the country to treat common maladies at prices lower than a typical doctor's visit and much lower than the emergency room. No appointment necessary. Open daytime, evenings and weekends. Most take insurance.

Much like the response to Hurricane Katrina, private companies are far ahead of the government in answering Americans' needs, this time for more accessible and more affordable health care. Political leaders across the country seeking to expand government's role in health care should take note.

Take note, Congress: The market is providing cheaper medicines, more affordable care -- and it is also helping the uninsured. A Harris Interactive poll conducted in March for The Wall Street Journal said that 22% of those visiting the clinics were uninsured. Wal-Mart says that half of its clinic visitors are uninsured.

From an op-ed in today's WSJ Customer Health Care.

The Crippling Burden of UAW Legacy Costs

Chrysler lost $600 million last year, and now private equity firm Cerberus will buy a majority of the struggling Chrysler Group for $7.4 billion, breaking up a transatlantic car union that never lived up to its billing as a marriage made in heaven.

From today's WSJ: "The proposed deal would allow the German auto giant to shed Chrysler's $18 billion in retirement and health-care liabilities and could open the door to further restructuring of the nation's unionized auto makers.

A private-equity takeover of Chrysler would mark a watershed for the industry, which is struggling under the weight of massive pension and health-care obligations to its union workers. Those debts and the cash required to fund them have hobbled GM, Ford, and Chrysler in the face of relentless competition from Asian and European rivals."

The crippling UAW legacy cost problems are not unique to Chrysler, and they are going to get a lot worse in the future for all of the Big Three automakers.

In 2005, GM provided health and income benefits to more than 450,000 retirees and their surviving spouses, and retirees and their dependents outnumbered the company's active workforce by three-to-one. This imbalance will continue to grow as more and more retirees are supported by fewer and fewer workers, especially since a) nearly a third of GM's hourly workforce signed up for payout packages in 2006, resulting in even more retirees and fewer active workers, b) GM continues to lose market share (see graph above), and rising legacy costs get spread over fewer and fewer vehicles.

Bottom Line: The UAW is the most successful union in U.S. history, at achieving both higher-than-market wages and below-market productivity for its members, in the short run. But that very union success has now created the seeds of a powerful destruction that we are witnessing today, and in the long run the success of the UAW is destroying thousands and thousands, and maybe millions of union jobs, and is destroying many of the very companies that employs its members (GM, Ford and Chrysler).

The UAW's golden era is over. Unless its leaders and members concede that it's been overtaken by economic reality and begin to act accordingly, both the UAW and Big Three will go the way of the dodo bird.

Sunday, May 13, 2007

Gains From Trade = $1 to $3 Trillion

In a research article "The Payoff to America from Globalization," three economists associated with the Institute for International Economics (and Northwestern University and Brigham Young) quantify and estimate: a) the payoff from opening the U.S. economy to international trade since WWII, and b) potential future gains from opening the economy to more trade going forward.

They find that trade opening since World War II has added between $800 billion to $1.4 trillion to the U.S. economy, or about $7,000 to $13,000 per household. Estimates of the potential additional gains from removing the rest of U.S. trade barriers range from $400 billion to $1.3 trillion, or about $4,000 to $12,000 per household. Since trade opening permanently raises national income, these gains are enjoyed annually.

Trade opening inevitably entails adjustment costs, and they estimate the lifetime cost of all worker dislocations that have been triggered by expanded trade in the United States could be as high as $54 billion, although probably less. The permanent gains from past and potential trade liberalization ($1.2 trillion to $2.7 trillion) easily swamp the modest sums necessary to alleviate the temporary pains of adjustment. In the future as in the past, free trade can significantly raise income – and quality of life – in America. (Via JohanNorberg.net.)

Using both international trade theory models and hundreds of empirical studies like the one above, there is overwhelming evidence that the benefits of free trade significantly outweigh the displacement and adjustments costs of trade, creating positive net economic benefits for countries that trade, and an increase in income, wealth, prosperity and the standard of living.

Web Fun Facts


Number of articles now on Wikipedia: 1.8 million

Wikipedia's traffic rank: #10, according to
Alexa.com

Top 3 most popular websites: Yahoo, MSN, Google (see chart above of the top 10).

For the top 500 websites in the US,
click here.

For the top 500 websites in the world,
click here (Note: 3 of the top 13 sites are in China).

Upcoming Pay Gap Smackdown with Rep. Maloney

I wrote recently here about the problems with the AAUW's report on the "pay gap." Using the information in that blog posting, I wrote a 750-word commentary that appears in my local paper, the Flint Journal ("Graduates, Be Assured That Gender-pay-bias Claim Not Well-founded").

Next week, a 625-word version of my commentary will be distributed nationally as a Pro-Con "Pay Gap Smackdown" between me and Rep. Carolyn Maloney (D-NY), who is one of the leading drivers in Congress on the issue. Stay tuned to CD for specific placements in newspapers around the country on that one.

Saturday, May 12, 2007

Public Suffers From Anti-Market Bias

From today's WSJ, an excellent article by George Mason economist Bryan Caplan, who explains why special interest legislation is so popular even though it makes us worse off:

"Behind every policy that does more harm than good, there's a special interest that favors it anyway. The steel tariff was bad for consumers, steel-using industries and foreign steel producers, but the steel lobby still pushed for it. Farm subsidies are bad for both taxpayers and unsubsidized farmers, but in 2002 the American farm lobby got a 70% increase in government support. The minimum wage is bad for consumers, employers and low-skill workers who get priced out of their jobs, but unions are hard at work to raise it again.

An yet "special-interest" legislation is popular and special interests so often get their way. They do not have to force their policies down the public's throat, or sneak them through Congress unnoticed. To succeed, special interests only need to persuade politicians to swim with the current of public opinion.

Why would the majority favor policies that hurt the majority? There is a good reason. The majority favors these policies because the average person underestimates the social benefits of the free market, especially for international and labor markets. In a phrase, the public suffers from anti-market bias."

Low Jobless Rates, Czechs Find Work in Montana

Billings, Montana and Logan, Utah, tied for first place as cities with the lowest unemployment rates in the nation, at just 2%, according to the BLS's report on metro area jobless rates for March. Billings is facing a labor shortage as demand for workers increases for summer employment, and employers are hiring workers from as far away as the Czech Repbulic!

From today's Billings Gazette: Bonnie Ples, who manages the Red Lodge Pizza Co. says her restaurant is counting on Czech guest workers.

"Yeah, it's hard to find workers, so we are hiring eight Czech Republic workers for the summer," she said.

Czech workers might also find employment opportunities in Australia, where the unemployment rate just fell to a 32-year low of 4.4%, according to the Australian Bureau of Statistics.

Michigan Public School Pyramid Scheme



In Michigan, it's not just the Big 3 automakers who are burdened with the rising legacy costs of providing pensions and lifetime health benefits to a rising number of retirees - Michigan public schools are facing the same financial crisis.

Michigan is the only state that makes its public schools bear the entire burden of retiree pensions and health care. This year's bill -- an estimated $1,015 per student -- is more than schools spend on books, buses, computer technology and building maintenance combined (see top graph above). And it's going to get worse.

The retirement assessment -- set by the state but paid by individual school districts -- is now at a record high of 17.74% of each district's payroll. That rate is expected to jump to 30% by 2020 -- a level that all sides agree would break the backs of Michigan schools (see bottom graph above).


In many ways, the financial straits of Michigan's public schools mirror the plight of the Big Three. Detroit's automakers and the schools both have offered generous retirement benefits to retirees for decades. As retirees live longer and health care bills rise, retirement costs have skyrocketed. Most organizations that offer retiree health care are dealing with rising bills.

Read more here in the Detroit News.

Friday, May 11, 2007

Too Much Credit or Not Enough?

Years ago, there was concern that the poor didn't have enough access to credit, and were denied access to the American dream of homeownerhsip. Now there is concern that there is too much credit available.

Easy access to the world's most efficient and well-developed mortgage markets helped increase homeownerships rates significantly over the last 40 years. In 1965, the homeownership rate was just less than 63% according to the Census Bureau. A few years ago in 2005, it hit an historical high of 69.1% partly due to subprime lending, and has fallen to 68.4% in 2007, due to recent foreclosures of marginal borrowers.

From
Reason Magazine, "In a sane world, we’d say this is a market behaving as it should, and marvel at an economy where so many people who were once locked into the renters market have gotten a chance at homeownership. Some of them have blown their chance by exhibiting the same kind of behavior that made them bad credit risks in the first place. But most have not. In fact, about nine out of every 10 sub-prime borrowers are still making their payments."

Is there too much credit or not enough? Like all important decisions, let's let the market decide through a trial-and-error discovery process what the optimal amount and distribution of credit should be.

HT: Bill Hood

Let's Abolish the World Bank

George Will writes in his column this week that the World Bank faces much bigger problems than the situtation with Paul Wolfowitz and his girlfriend. In fact, Will says that the rationale for the World Bank was never strong, and has now evaporated, especially because of the waste and corruption of the political yet unaccountable distribution of many billions of World Bank dollars.

What cures poverty is economic growth, and the prerequisite for growth is free markets allocating private capital to efficient uses, not the World Bank's intrusive government actions on behalf of fashionable causes.

According to Will, "It is difficult to demonstrate that World Bank loans have produced growth, let alone as much growth as private capital would have produced."

Local News Reporting Outsourced to India

From today's LA Times, an article about outsourcing local news reporting to India, where you can apparently hire UC-Berkeley grads for $7,000 per year on Craigslist.

When is local journalism not really local? When it's about Pasadena and written by someone in India.

James Macpherson, editor and publisher of the
Pasadena Now website, hired two reporters last weekend to cover the Pasadena City Council. One lives in Mumbai and will be paid $12,000 a year. The other will work in Bangalore for $7,200.

The council broadcasts its meetings on the Web. From nearly 9,000 miles away, the outsourced journalists plan to watch, then write their stories while their boss sleeps — India is 12.5 hours ahead of Pacific Standard Time.

"A lot of the routine stuff we do can be done by really talented people in another time zone at much lower wages," said Macpherson.

On India's Craigslist, he posted an ad that said, "We do not believe that geographic distance between California and India will present unsurmountable problems, and that working together with you will result in your development of a keen working knowledge of this city's affairs."

Dozens replied. One of the two chosen had attended the UC Berkeley Graduate School of Journalism. Rob Gunnison, the director of school affairs there, is dismayed. "It just seems so fundamental to journalism to be there," Gunnison said. "I still can't quite believe it's not a hoax."


Here are a few current ads on Bangalore's Craigslist for writers, click here, and here, and here (this ad says that female writers are preferred?).

Here is the link to the NY Times article about this story.


Thursday, May 10, 2007

Who's Preying on Whom?

Robert Samuelson in yesterday's Washington Post:

"It is not "protectionist" (I am a long-standing free-trader) to complain about policies that are predatory; China's are just that."

Let's see. China sells American consumers and businesses cheap goods, often subsidized by the citizens/taxpayers of China with export subsidies, at prices lower than we could produce those goods ourselves. They also invest about $200 billion each year in our economy buying our financial assets (stocks and bonds).

Here's where I might agree with Samuelson: those results are "predatory," but "predatory" in the sense we are taking advantage of the Chinese, not that they are taking advantage of us. We take advantage of both their cheap goods and their capital investment in the U.S. economy.

Q: What if the China agreed to send us all of their production for free as a gift of foreign aid, would Samuelson still complain about "predatory" trade practices?

Wednesday, May 09, 2007

Instant Translation: Babel Fish


The website "Babel Fish Translation" will instantly translate a block of text or an entire website from English into a dozen different languages including Russian and Chinese (see above), Korean, French, German, Portugese, Italian, Dutch, etc., and vice-versa.

The name of the website Babel Fish comes from a fictional species of fish in the book "The Hitchhiker's Guide to the Galaxy" that can instantly translate any language to any other language.

Government Orders Station to RAISE Gas Prices

Given all of the recent media coverage, I thought most people were worried about HIGH gas prices. Well, apparently not the state of Wisconsin, which is worried about LOW gas prices.

A service station in Wisconsin has been ordered by the state to RAISE its prices, see the story here.

According to the government, any price can be illegal. Too low, it's predatory pricing; too high, it's price gouging (or ticket scalping); too close to the price of your rivals, its collusion or price-fixing.


April Revenue Shower: What Tax Cut?

I wrote a few days ago about the surge in tax revenues. In today's WSJ, there is a related article titled April Revenue Shower, here are some excerpts:

Here's the "surge" you aren't reading about: the continuing flood of tax revenue into the federal Treasury. Tax receipts for April were $70 billion above the same month in 2006, and April 24 marked the single biggest day of tax collections in U.S. history, at $48.7 billion, according to the latest Treasury report.

There's no denying that Americans are sending more money than ever to Washington: Revenues for the first seven months of fiscal 2007 are up 11.3 percent or $153 billion (see chart above).

This Beltway bonanza has helped to slash the projected federal budget deficit by more than half from the same point last year. Across the past three Aprils, federal red ink has sunk by nearly $300 billion. The deficit this year could tumble to $150 billion, or an economically trivial 1% of GDP.

This revenue boom certainly casts doubt on the political wails about tax loopholes for the rich: So far this year, the taxes paid on so-called nonwithheld income, which are dollars that don't come from normal wages and salaries, have climbed by nearly 30%. This is income largely derived from capital gains, dividends and other investment sources - that is, the tax rates that were cut in 2003.

Individual income taxes are also up by 17.5% (see chart above) -- a handsome fiscal dividend from rising wages and low unemployment.


Tragedy of the Commons

A group of Swedish and Malagasy researchers led by Thomas Elmqvist of Stockholm University decided to try to correlate changes in Madagascar’s forest cover with local population densities and customary laws.

The difference between two sparsely populated regions was that in the west, where forest cover has dwindled, neither formal nor customary tenure was enforced. In the north—only about 20km away—land rights were well defined and forest cover increased. As with ocean fisheries, so with tropical forests, everybody’s business is nobody’s business.

Read more here.


Tuesday, May 08, 2007

Annual Spring Gas Price Increases

From Reason Magazine, an explanation of how EPA requirements contribute to an annual spring increase in gasoline prices:

Let's consider the effect of EPA vapor pressure mandates on the price of gasoline. Energy Security Analysis Inc. senior consultant Mark Routt analogizes vapor pressure in gasoline to fizziness in soda pop. In the winter more fizziness (high vapor pressure) means that when you turn the ignition on a cold morning it sparks the gasoline and your car starts. However, in the summer you want "flatter" gasoline (less vapor pressure) because fizzier gasoline evaporates on hot days and contributes to smog. While EPA regulations help reduce smog, they also make it more costly to produce gasoline with lower vapor pressure. Lundberg estimates that summer blends can cost between 3 to 15 cents more to make than winter blends, depending on the exact formulation, time and place.

In addition, Routt pointed out that the regulations have produced several distribution bottlenecks that temporarily boost prices in the spring. "Everybody jams the exit at the same time," explains Routt. What he means is that gas station owners have essentially one week to switch from a winter blend to a summer blend. So in order to get their supplies in a timely manner they end up paying a premium of 8 to 12 cents per gallon to distributors and tank truckers.


In contrast, in the fall, retailers can switch over a period of weeks from a summer blend to a winter blend and so price spikes don't typically occur in the fall. Routt suggests that the EPA relax its vapor pressure regulations allowing retailers to more slowly switch to summer blends. However, he doubts that this policy could ever be adopted since it would characterized by activists as "an attack on the environment."

MP: Notice in the price chart above that there was an increase in gasoline prices last year about the same time as the price increase this year.

Monday, May 07, 2007

Investment in Education: The Upside of Inequality


Much of the increase in income inequality over time reflects the rising wage premium for a college education, which is beneficial and desirabe according to Nobel economist Gary Becker and his co-author Kevin Murphy in their article "The Upside of Income Inequality Excerpts:

To show the importance to inequality of the increased return to human capital, consider the top chart above, which shows the link between earn­ings and education by displaying the wage premium received by college-educated workers compared with high school graduates. In 1980, an American with a college degree earned about 30% more than an American who stopped education at high school. But, in recent years, a person with a college educa­tion earned roughly 70% more. Meanwhile, the premium for having a graduate degree increased from roughly 50% in 1980 to well over 100% today. The labor market is placing a greater emphasis on education, dispensing rapidly rising rewards to those who stay in school the longest.


This trend has contributed significantly to the growth in overall earnings inequality in the United States.

When calculating the returns to education, we look at the costs of education as well. And even accounting for the rise in university tuition (it more than doubled, on average, in constant dol­lars between 1980 and 2005), overall returns to college and graduate study have increased substan­tially. Indeed, it appears that the increases in tuition were partly induced by the greater return to col­lege education. (See bottom chart above that shows the increase in enrollment closely following the increase in the wage premium for a college education.)


We conclude that the forces raising earnings inequality in the United States are beneficial to the extent that they reflect higher returns to invest­ments in education and other human capital. Attempts to raise taxes and impose other penalties on the higher earnings that come from greater skills could greatly reduce the productivity of the world’s leading economy by dis­couraging investments in its most productive and precious form of capital—human capital.

Killing the Golden Goose That Gives Us New Drugs

From a scene on the TV show West Wing about protecting pharmaceutical patents. One guy says: "Those pills cost them only 4 cents to produce." The other guy says: "That's not true. The second pill costs them 4 cents, the first pill costs them $800 million dollars."'

From an excellent editorial in today's WSJ by Cato's Roger Pilon about the Senate passing a drug reimportation bill:

Given FDA safety and efficacy standards, it takes on average 12 to 15 years and over $800 million for a company (and most are American) to develop a new drug. But only the U.S. market is free. Abroad, pharmaceutical companies must negotiate prices with socialized medical systems. As a result, foreigners usually pay far less than Americans for their patented drugs. Americans bear the lion's share of R&D costs, subsidizing socialized medical systems in the process, while foreigners are classic "free riders."

There's no question that Congress is responding here to popular will. But the long-term implications are palpable. If companies are forced by the U.S. government to continue supplying cheap drugs to countries from which they are then reimported to the U.S. -- crowding out the higher-priced domestic supply of drugs -- it's only a matter of time until profits are insufficient to support the enormous costs of R&D for future drugs. No one wants to kill that golden goose, but there it is.

Sunday, May 06, 2007

Fuzzy Math An Insult to Working Women

I wrote before about how the AAUW got it wrong, that there really is no pay gap once you control for all factors that affect earnings. Here is some more on the same topic:

"This year the gender victimologists came armed with a new report from the American Association of University Women, Behind the Pay Gap, which purports to show that one year after graduation, women are paid 80% of what men earn.


But beyond the claims of sex discrimination, Behind the Pay Gap contains a put-down to all working women. That message reads, Ladies, you are unwilling to accept the financial consequences of your decision to work shorter hours and in less lucrative occupations.

That’s patronizing and insulting to the women who don’t believe they need a government mandate or gender quota to get ahead in life. Hopefully this time around not so many will be taken in by the AAUW’s creative calculations."

Read more here.

Cartoon of the Day

Via Cafe Hayek.

Freakonomics: The $140 Scarf

Isn’t it puzzling that so many middle-aged Americans are spending so much of their time and money performing menial labors when they don’t have to?

Just as the radio and phonograph proved to be powerful substitutes for the piano, the forces of technology and capitalism have greatly eased the burden of feeding and clothing ourselves. So what’s with all the knitting, gardening and “cooking for fun”?

Why do some forms of menial labor survive as hobbies while others have been killed off? (For instance, we can’t think of a single person who, since the invention of the washing machine, practices “laundry for fun.”)

Why do knitting devotees buy $40 worth of yarn for a single scarf and then spend 10 hours knitting it? Even if her labor is valued at only $10 an hour, the scarf costs at least $140 — or roughly $100 more than a similar machine-made scarf might cost.

Read more here of the Freakonomics column in today's NY Times.

Saturday, May 05, 2007

The War on Drugs is War Against American People

From the Cato Institute's report on "Botched Paramilitary Police Raids:"

"The proliferation of SWAT teams, police militarization, and the Drug War have given rise to a dramatic increase in the number of "no-knock" or "quick-knock" raids on suspected drug offenders. Because these raids are often conducted based on tips from notoriously unreliable confidential informants, police sometimes conduct SWAT-style raids on the wrong home, or on the homes of nonviolent, misdemeanor drug users. Such highly-volatile, overly confrontational tactics are bad enough when no one is hurt -- it's difficult to imagine the terror an innocent suspect or family faces when a SWAT team mistakenly breaks down their door in the middle of the night.

But even more disturbing are the number of times such "wrong door" raids unnecessarily lead to the injury or death of suspects, bystanders, and police officers. Defenders of SWAT teams and paramilitary tactics say such incidents are isolated and rare. The map above (click to enlarge) aims to refute that notion."

For more on this topic, read the Reason Magazine article "Atlanta Police Nearly Killed 80-Year Old Woman--Two Months Before Kathryn Johnston."

What Tax Cut?

The Congressional Budget Office reported yesterday that through the first seven months of the fiscal year (Oct 2006 - April 2007), total tax revenues collected increased by $153 billion compared to the same period last year, an 11.3% increase. As the table above shows, individual income tax receipts increased by $105B (+17.5B) and corporate taxes increased by $27B (+15.2%), compared to the same period a year ago.

We've heard a lot 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 high of $2.4 trillion. At the current pace, tax revenues collected this year will be $2.67 trillion, and will set another record.

Friday, May 04, 2007

Quote of the Day, The State Religion - Ethanol

"The closest thing to a state religion in America today isn’t Christianity – it’s corn."

~Jerry Taylor, Cato Institute, co-author of "The Ethanol Boondoggle."

Rising Demand + Falling Supply = Higher Gas Prices

Gas prices (red line in the chart above) are now above $3/gallon in the U.S., and average $3.18 in Michigan, up by almost $1 since just January. Why so high, and how high will they go?

According to the WSJ, "Gasoline prices, already flirting with $3 a gallon, could move even higher during the summer driving season. It all depends on refineries, weather and drivers' tolerance for expensive fuel.

How high prices go this summer depends largely on what happens to the refineries that crank out the nation's fuel. Refinery outages in recent weeks, largely for maintenance, are part of the reason fuel prices have rocketed up. If refinery operations smooth out, gas prices could remain stable or even fall."

According to the American Petroleum Institute, gas has recently become more expensive because of:

1. Rising crude oil prices (see blue line in chart above)
2. Rising and record-high demand for gas in the U.S.
3. Rising prices for ethanol, which is blended in 50% of gasoline
4. Annual transition to more expensive “summer blend” gasoline required by EPA
5. Less imported gasoline because of spring refinery maintenance in Europe

In other words, gasoline prices have risen recetnly for the main factors that always cause prices to rise: a) Increase in demand, b) Decrease in supply, and c) Regulation.

Q.E.D.

Quote of the Day: Imports Are Good, Not Bad

"Another fallacy seldom contradicted is that exports are good, imports bad. The truth is very different. We cannot eat, wear, or enjoy the goods we send abroad. We eat bananas from Central America, wear Italian shoes, drive German automobiles, and enjoy programs we see on our Japanese TV sets. Our gain from foreign trade is what we import. Exports are the price we pay to get imports."

~Milton Friedman, Free to Choose

Two Americas: Public vs. Private Sector Workers


Source: Calculations based on data from the Michigan Department of Civil Service, the U.S. Bureau of Labor Statistics and private-sector sources. *Total compensation range centerpoint.

Yes, there are Two Americas: Those who work in the private sector, and those who work for the state of Michigan at a +50% wage premium (see chart above, click to enlarge).

Read more here about "Bigger Taxes or Smaller Government — Let the People Decide," from the Mackinac Center for Public Policy.

Thursday, May 03, 2007

Quote of the Day: India vs. USA

"In the USA you can kiss in public places but cannot shit; in India you can shit in public places but cannot kiss."

~From the India Uncut Blog

Where Do All The Millionaires Live?

There are now 9.3 millionaire million households (2006), which is 5% more than the previous year (8.9 million). Where do all of the millionaires live? New Yorkers see so much wealth around them, they figure that it has to have the most rich people in the country, if not the world. Well, not really, see chart above, click to enlarge.

According to a new study by TNS, the research company, Manhattan’s number of millionaire households doesn’t even rank among the top 10 counties in the country.

See the WSJ report here.

Stock Market: Best Streak Since 1955

Yesterday the Dow Jones Industrial Average ended at a record high for the fifth time in six sessions, after hitting a trading high during the session. The blue-chip indicator has now risen in 21 of the last 24 sessions for a gain of 7.4%. That's the best streak since the summer of 1955, when the Dow climbed about 10%, rising in 22 of 25 sessions.

What has happening in the world back in 1955? Check it out here.

Music in 1955, click here.

Television in 1955, click here.

Film in 1955, click here.

JFK: Supply-Side Economics


In the 1950s and early 1960s, the highest marginal income tax rate in the U.S. was 91% (see graph above). President John F. Kennedy was elected to office in November 1960, in the middle of a recession that lasted from April 1960 to February 1961.

In his tax message to Congress, Kennedy asked that the top income tax rate be brought down from 91% to 65%. His goal was to reduce all statutory income tax rates by about 30%, including a reduction in the bottom tax rate from 20% to 14%. Subsequently, Congress only reduced the top rate to 70%, when Kennedy's tax reform package passed after his assasination.

Watch Kennedy argue here for cutting tax rates to stimulate economic growth, he sounds like a real supply-sider.

Timing the Market is a Sucker's Game

Some of the best investment you'll get: "It's time in the market, not timing the market that counts in the long run." In other words, forgot about market timing, watch Jim Cramer for entertainment purposes only, and follow a "buy and hold" approach to investing.

In today's NY Times, economist Hal Varian analyzes several recent research articles that support the buy and hold approach, and he concludes that:

"Taken together, this research offers yet more support for the time-tested investment strategy of buy and hold. Anything that you think is news is old hat to the professionals. Trying to outguess the market is a sucker’s game."

Strong Job Market: Monster Index Up By 14%

According to Reuters: A gauge of U.S. labor demand edged up one point in April, as growth in U.S. online recruitment activity and demand for workers eased following two previous months of sharper gains, Monster, a global online careers and recruiting firm (Monster), said on Thursday (see chart above).

Here is a link to Monster's press release, and here is its summary:

The Monster Employment Index rose one point in April, as U.S. online recruitment activity and demand for workers eased following two previous months of sharper growth. Overall, 16 of 20 industries and 19 of 23 occupational categories tracked by the Index registered increases of varying degrees in April. The Index is now up 14% year-over-year, but is still showing a modest annual growth pace compared to a year ago.

Methodology: Based on a real-time review of millions of employer job opportunities culled from more than 1,500 Web sites, including a variety of corporate career sites, job boards and Monster, the Monster Employment Index presents a snapshot of employer online recruitment activity nationwide.

The Monster Employment Index for Europe likewise shows job growth there as well (see chart below).


Wednesday, May 02, 2007

EU Unemployment Falls to Record Low: 7.3%

According to Reuters, European Union statistics office Eurostat reported that the seasonally adjusted jobless rate in the 13 countries using the euro dipped to 7.2% - the lowest reading since its records began in 1993 - from 7.3% in February.

1. The state with the highest unemployment rate in the U.S. is Mississippi at 6.9%, well below the average EU country.

2. When the jobless rate in the U.S. was above 6% for six months in 2003, it was called a "jobless recovery."

3. The U.S. economy, even its worst years like 2003 when the unemployment rate hit 6.3%, is still better than the EU economy in its best years when the unemployment is at an historical low of 7.2%.

The Benefits of Trade

Some highlights of Fed Chair Ben Bernanke's comments on free trade and globalization:

Trade benefits advanced countries like the United States, but open trade is, if anything, even more important for developing nations. Trade and globalization are lifting hundreds of millions of people out of poverty, especially in Asia, but also in parts of Africa and Latin America. As a source of economic growth and development in poor countries, trade is proving far more effective than traditional development aid.

To sum up, international trade in goods, services, and assets, like other forms of market-based exchange, allows us to transform what we have into what we need or want under increasingly beneficial terms. Trade allows us to enjoy both a more productive economy and higher living standards.

With our strong institutions, deep capital markets, flexible labor markets, technological leadership, and penchant for entrepreneurship and innovation, no country is better placed than the United States to benefit from increased participation in the global economy. If we resist protectionism and isolationism while working to increase the skills and adaptability of our labor force, the forces of globalization and trade will continue to make our economy stronger and our citizens more prosperous.

Amen.

Minneapolis Food Scene

From Sunday's NY Times Travel Section: "Recently, a crop of innovative restaurants have expanded the city's (Minneapolis) culinary landscape with their cosmopolitan mix of celebrity chefs and appreciation of organic and regional ingredients."

Sex Discrimination, and the "Tariff Gap"

From the current U.S. Tariff Schedule for imports:

Bathing suits: 28% tariff on men's imports; 12% on women's.

Overalls: 14% tariff on women's; 9% on men's.

Woven wool shirts: 18% for men's, 37% for women's.

Imported wool suits: 8.5% for women's and zero for a men's.

Hiking boots: 10% for women's, 8.5% for men's.

From the IHT: "There is no apparent pattern to the tariffs, which penalize men in some instances and women in others. But the fees tacked onto clothing, shoes and swimwear as they enter the country's ports may be the last legal form of sex discrimination in the United States, approved year after year by lawmakers and passed on to consumers.

Several major apparel makers are challenging the tariffs in lawsuits against the federal government and they could reclaim close to $1 billion worth of tariffs based on gender differences. For example, the lawsuit claims that the government earned $2.5 million last year from discriminatory tariffs on underpants (penalizing women), $93 million for cotton shirts (penalizing men), $16 million for silk shirts (penalizing women) and $71 million for shoes with leather tops (women again)."

Read more here about the sexist "tariff gap."


Why Most Economists Oppose Gun Control Laws

From the Mises Institute:

We see car bombings in the news almost every day, but mass shootings are so rare that we remember them all. We remember the Columbine shooting, and we will remember the Virginia Tech shooting. Why do we remember these things? Because they are so rare! However, we don't remember how many people were killed in Iraq this week, or last week, or the week before. Why not? Because there are so many car bombings that we are nearly immune to news of them. Mass shootings are extremely rare, which makes them news.

However much some people might yearn for gun control, it seems unlikely that it would have prevented Cho from achieving his ends. He had substitutes available (like a car bomb), he had more than one means available to achieve his ends, and he plotted long enough to hit upon other means — especially since those other means are described in detail on TV, in the newspapers, and on the Internet every day.

Economists recognize the relationship between means and ends, including the role played by substitutes. Economists understand that when government restricts one market, consumers merely move into another market, and when government tries to foreclose one means, individuals will simply shift into other means to achieve the same ends.

Tuesday, May 01, 2007

What Will They Tax Next?

From Wikipedia: 18 Doughty Street is a British political Internet-based broadcaster that hosts a webcast televisual station as its chief product, from its studio at 18 Doughty Street in the Bloomsbury area of London.

Check out this hilarious video clip from 18 Doughty Street called "What Will They Tax Next?"

Via ATR.

India's Skill Famine?

From The New Yorker:

India has run into a surprising hitch on its way to superpower status: its inexhaustible supply of workers is becoming exhausted.

How is this possible in a country that every year produces two and a half million college graduates and 400,000 engineers? Start with the fact that just 10% of Indians get any kind of post-secondary education, compared with 50% who do in the U.S. Moreover, of that 10%, the vast majority go to one of India’s 17,000 colleges, many of which are closer to community colleges than to four-year institutions.

India does have more than 300 universities, but a recent survey by the London Times Higher Education Supplement put only 2 of them among the top 100 in the world. Many Indian graduates therefore enter the workforce with a low level of skills.

A study at Duke University found that if you define “engineer” by U.S. standards, India produces just 170,000 engineers a year, not 400,000. Infosys says that, of 1.3 million applicants for jobs last year, it found only 2% acceptable.

Quote of the Day

Is your employer poorer by the amount of money he pays you? Probably not, or you would never have been hired. Why then should we assume that a corporation or its customers are poorer by the amount paid to its chief executive officer?

~Thomas Sowell in his recent commentary Random Thoughts

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.