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).

WorldPublicOpinion.org 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

Illusion


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 Stateline.org: 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 SmokingGun.com 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.

(HT:
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?