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.