Monday, May 28, 2007

Seize Property, Control Prices, Silence the Press

CARACAS (Reuters) - VRCTV was the most popular TV station in Venezuela, and has been on the airwaves for 53 years. Venezuela shut down the opposition television channel on Monday and replaced it with one promoting President Hugo Chavez's self-proclaimed socialist revolution in a move widely criticized as a threat to democracy.

In this video, you can see the sad way that the news program on RCTV shut down this past Friday, after Venezuela's president arbitrarily decided to close it.

Reason and BoingBoing.

Update: Read an excellent IBD staff editorial here, "Off The Air."

It's All Relative

TEHRAN, Iran --Iran jumped gasoline prices 25% Tuesday in a new blow to consumers already disgruntled over high inflation, and the government said it will begin rationing fuel in two weeks.

The increase is part of the government's efforts to reduce state subsidies on gasoline and to discourage smugglers who have been buying fuel at Iran's relatively low price and sneaking it out of the country to sell elsewhere.

The hike, which is likely to drive up costs of transportation and put more pressure on inflation, drew quick anger.

Ready for this? The price increase in Iran was from 30 cents a gallon to 38 cents a gallon! The last time gas sold for 30 cents in the U.S. was around 1964, and the last time it was 38 cents was 1973!

Happy Memorial Day and Carpe Diem!

Quotes of the Day

1. The first CAFE standards, according to a 2002 National Research Council study, resulted in 1,300 to 2,600 more Americans killed on the roads in 1993, a typical year, because cars were lighter. If any pharmaceutical product had killed that many patients the manufacturer would be bankrupt. Families can sue Merck, but not Uncle Sam.

2. It's ironic that many politicians who accuse Americans of using too much gasoline want to hold hearings on price gouging when prices rise to reflect hurricanes in the Gulf of Mexico or turbulence in the Middle East. Price increases will eventually lead to less consumption.

~From Diana Furchtgott-Roth's
commentary in the New York Sun.

Greg Mankiw's Excellent Explanation

If Congress proposed to raise our taxes, and use the tax revenues to purchase lots of Chinese treasury bonds, China would certainly enjoy lower interest rates, but wouldn't most Americans object to this proposal? Of course. But then why do we object when China does basically the same thing, and helps finance investment in the U.S. economy? We might object because it possibly makes the Chinese worse off, but nobody makes that argument.

Read Greg Mankiw's excellent explanation of why the current account deficit and capital account surplus with China is not a big deal. "While some jobs are lost to import competition, other jobs are gained because of lower interest rates and greater investment spending that capital inflows finance."

Note: We get a $200 billion capital inflow annually from China.

Sunday, May 27, 2007

U-Haul Update

I have posted several times about U-Haul rates for one-way truck rentals reflect supply and demand, relative moving patterns due to relative economic conditions, etc. Michigan currently has the highest unemployment rate in the country of 7.1% for April, and Michigan has been losing jobs since 2000. Michigan's job-loss streak hit six years in 2006, a string unprecedented since World War II. Over the past six years, Michigan's economy has lost a total of 308,900 jobs. The state's manufacturing workforce has declined by about 25 percent during this time.

As might be expected, there are a lot more people moving OUT of Michigan than moving INTO Michigan, and that is reflected in the following current
quotes from U-Haul for one-way rentals of a 26-foot truck in June:

Ann Arbor, Michigan to Atlanta: $1925
Atlanta to Ann Arbor, Michigan: $556

Ann Arbor, Michigan to Birmingham, AL: $1481
Birhmingham, AL to Ann Arbor, Michigan: $642

Ann Arbor, Michigan to Salt Lake City: $2048
Salt Lake City to Ann Arbor, Michigan: $989

Forget OPEC, What About The Taxi Cartels?

George Will explains in today's Washington Post what an immigrant can teach Americans about capitalism, rent-seeking and democracy, as taxi driver Luis Paucar tackles a twisted sense of entitlement in Minneapolis.

MINNEAPOLIS -- The campaign to deny Luis Paucar his right to economic liberty illustrates the ingenuity people will invest in concocting perverse arguments for novel entitlements. This city's taxi cartel is offering an audacious new rationalization for corporate welfare, asserting a right -- a constitutional right, in perpetuity -- to revenues it would have received if Minneapolis' City Council had not ended the cartel that never should have existed.

Paucar, 37, embodies the best qualities of American immigrants. He is a splendidly self-sufficient entrepreneur. And he is wielding American principles against some Americans who, in their decadent addiction to government assistance, are trying to litigate themselves to prosperity at the expense of Paucar and the public.

Read the rest of the article here, George Will deserves another Pulitzer Prize for this one.

The Institute for Justice (IJ) is representing Luis Paucar, and filed documents in U.S. Federal Court to join with the city of Minneapolis to defend the city’s free-market reforms that removed a cap on the number of taxis allowed to operate within city limits, read more about it here.

The Minnesota chapter of IJ already has four economic liberty victories under its belt despite being just two years old. The group recently published a 21-page paper titled "
The Land Of 10,000 Lakes Drowns Entrepreneurs in Regulations," which exposed the shocking state of economic liberty in Minnesota, including the taxi industry in Minneapolis.

For a chart of average NYC taxi medallion prices over time through 2006
click here, and for 2007 prices click here ($418,000 to $550,000 PER medallion, for ONE taxi license).

Saturday, May 26, 2007

Quote of the Day

Wardens and guards can't keep drugs out of our federal prisons, yet there are those who want to turn this country into a prison in an attempt to eliminate drugs.

~From The Casualties of War, a speech by Sharon Harris

Stronger the Drug Laws, The Stronger the Drugs

According to a study by the Office of National Drug Control Policy, cocaine prices (adjusted for inflation) fell by more than 80% between 1981 and 2003, while the average purity almost doubled from 40% to 70% during that period (see graph above, click to enlarge). The data in the graph are for amounts of powdered cocaine less than 2 grams, the report also has price and purity for larger amounts, as well as price/purity data for heroin, crack cocaine, meth and marijuana, for those data go here.

Bottom Line: We spend about $50 billion per year on the War on Drugs, and arrest about 1.7 million Americans every year for drug violations, and yet drugs get cheaper and stronger over time??

Check the Drug War Clock here, to see the amount spent so far this year at the federal and state level, and the number of arrests.

See Slate Magazine's article "How Much for All That Heroin? The Art and Science of the DEA's Drug Valuations," which is where I found the link to the drug study and data.

Friday, May 25, 2007

Two Americas: Public vs. Private Sector Empoyees

From today's Detroit News: According to the Michigan Department of Labor and Economic Growth the average pay in 2006 for state government employees was $49,660. For private-sector workers, the comparable figure was $42,588. That's a difference of close to 17 percent.

And state employees often receive more generous health and retirement benefits than private sector employees. While new state employees receive 401(k)-type retirement contributions, older employees still receive pensions. Michigan civil service employees receive benefits equal on average to 54% of base payroll; nationally, private sector workers on average receive benefits equal to 41% of base payroll.

The Detroit News cites a Mackinac Center study "What Price Government?" that details higher salaries for public sector jobs compared to comparable private sector jobs.

Yes, there are Two Americas in Michigan: One for those work for the government and another for those in the private sector.

Taxes, Revenues, Globlization and Prosperity

Excerpts below from today's WSJ, an editorial about the OECD's study "Making the Most of Globalization," released yesterday.

Over the past decade, most OECD countries cut corporate taxes, some by a great chunk, and saw average state revenues go up -- not just in absolute terms. As the chart above shows, corporate-tax proceeds have also risen as a percentage of GDP.

By scrapping tax exemptions and lowering headline rates, governments have attracted investment, boosted growth and corporate profits, and improved tax compliance. It's a nice demonstration of the Laffer curve at work.

The study also disproves the mercantilist claim that world trade is a zero-sum game. Living standards rise when trade barriers fall. The OECD found that a 10 percentage-point increase in trade exposure -- the rise in exports and imports as a share of GDP -- has led to a 4% rise in income per capita.

Also contrary to protectionist arguments, trade openness doesn't hurt overall employment. Offshoring may reduce the workforce of individual firms in their home country. But for the national economy, the improved competitive position and higher productivity lead to greater demand for labor. As a result, structural unemployment in the EU fell one percentage point over the past decade even though Europe has made little progress in easing labor market rules, the OECD says.

Income Inequality: Generation Gap

A previous post discusses how the "marriage gap" might contribute to increasing income inequality. Another explanation of income inequality is offered by USA Today - it's a "generation gap":

The growing divide between the rich and poor in America is more of a generation gap than class conflict, according to an analysis of federal government data. The rich are getting richer, but what's received little attention is who these rich people are. Overwhelmingly, they're older folks. The graying of wealth and income may be the most important twist in the new inequality.

Nearly all additional wealth created in the USA since 1989 has gone to people 55 and older, according to Federal Reserve data. Wealth has doubled since 1989 in households headed by older Americans, and people 35 to 50 actually have lost wealth since 1989 after adjusting for inflation.

The net worth of households headed by a college-educated person ages 55-59 rose to $526,300 in 2004, up from $271,515 in 1989, adjusted for inflation. This group has enjoyed enormous income gains, too, and had a median annual income of $100,634 in 2004.

Bottom Line: Income typically peaks at age 57 and wealth at age 63, according to the Federal Reserve. Therefore it may not be so much that "the rich are getting richer and the poor are getting poorer," as much as it is that as the older baby boom generation enters their peak years of earnings and wealth, the older baby boom generation (especially the college graduates) is getting richer. Ergo a generation gap contributes to income inequality.

Oil Facts

Percentage of domestic oil resources currently off-limits in ANWR and the Outer Continental Shelf : 78

Amount of Domestic oil currently off-limits: 131 billion barrels

Oil imported annually from the Persian Gulf: About 1 billion barrels

Oil imported annually: About 5 billion barrels

Oil consumed annually in the US: About 7 billion barrels

Oil produced annually in the US: About 2 billion barrels

Number of years that domestic oil in the OCS could substitute for Persian Gulf imports: 60

Number of years that domestic oil in ANWR could substitute for Saudi imports: 25

(Data above are from an IBD editorial, the Energy Information Administration, and the American Petroleum Institute.)

What Tax Cut?

According to the CBO, total federal revenues grew by $625 billion, or 35%, between fiscal year 2003 and fiscal year 2006. Tax revenues as a percent of GDP have increased from 16.5% in 2003 to 18.4% in 2006 (see chart above, click to enlarge).

Via Taxing Tennessee.

One Source of Income Inequality? The Marriage Gap

There has been a dramatic rise in illegitimacy and divorce during the last forty years (see charts above), and it has been largely limited to less educated men and women. As the divorce rate plummets at the top for the college-educated and rises at the bottom for those with less than a high school degree, there is a widening “marriage gap” in the U.S. that contributes to the observed income inequality over time.

That is the premise of Kay Hymowitz in her book "Marriage and Caste in America: Separate and Unequal Families in a Post-Marital Age," which is mentioned in The Economist article "Marriage in America: The Frayed Knot." Excerpt:

There is a widening gulf between how the best- and least-educated Americans approach marriage and child-rearing. Only 4% of the children of mothers with college degrees are born out of wedlock. And the divorce rate among college-educated women has plummeted.

At the bottom of the education scale, the picture is reversed. Among high-school dropouts, the divorce rate rose from 38% for those who first married in 1975-79 to 46% for those who first married in 1990-94. Among those with a high school diploma but no college, it rose from 35% to 38% (see chart above).

And these figures are only part of the story. Many mothers avoid divorce by never marrying in the first place. The out-of-wedlock birth rate among women who drop out of high school is 15%. Among African-Americans, it is a staggering 67%.

Bottom Line: It's not so much that the "rich are getting richer and the poor are getting poorer," as much as it's "those going to college and staying married are doing increasing well over time, and single-parents without a high school degree are not doing so well over time."

Thursday, May 24, 2007

Is Gas At An All-Time High? Not Even Close

According to the Energy Information Admininstration (EIA), the highest average monthly gas price in the early 1980s was $1.417 per gallon in March of 1981, which in today's dollars is $3.22 per gallon, which also according to the EIA is the average retail cost of gas today.

However, gas prices as a percent of income are still way below the early 1980s. In both 1980 and 1981, 1000 gallons of gas at the average price cost 14.1% of per-capita disposable personal income in those years. Gas prices averaged $1.245 and $1.38 in 1980 and 1981 respectively, and per-capita income was $8,822 and $9,765 in those years (see chart above, click to enlarge; source for Personal Income is Bureau of Economic Analysis, Table 2).

Gas is now selling for an average of $3.22 and per-capita disposable personal income in March was about $33,000, so that 1000 gallons of gas now costs 9.76% of per-capita personal disposable income (see chart above, click to enlarge).

Bottom Line: Gas is still much cheaper today as a percent of income compared to 1980 or 1981. To be as expensive as gas was in 1980-1981 gas (as a percent of income), prices today would have to get all the way up to $4.62 per gallon.

Reason: Gas prices have increased about 2.5X since 1980-81, but per-capita personal disposable income has increased by about 3.5X during that same period.

Who Would Object to Affordable Health Care?

From Gallup: "Healthcare costs are among the top financial problems facing American families, and healthcare is listed as one of the top economic problems for the country. Healthcare costs are volunteered as the top specific health problem facing the country, above and beyond diseases such as cancer."

And what is the proftit-seeking private sector doing about healthcare reform and healthcare costs?

From the Financial Times: Walk-in clinics represent one of the most advanced and aggressive attempts by US business and entrepreneurs to drive reform of the healthcare system.

This year hundreds will be opened in some of the US’s largest drugstore and retail groups, and thousands of clinics could be running in the next decade. In May, Walgreens bought Take Care, following CVS’s MinuteClinic acquisition last year. Both Wal-Mart and Target, the leading discounters, are opening walk-in clinics.

Advocates say the clinics will improve access to healthcare and reduce costs; that they will reduce more expensive visits to hospital emergency rooms; and that they will catch some illnesses before they become serious and costly. As a result, physicians will have more time for complex cases.

Sounds good, right? As important as healthcare and healthcare costs are to Americans, and as much as we hear about the need for reform, who would possibly object to greater accessibility to low-cost basic health care at a Target, Walgreens or Wal-Mart?

You can probably guess, but
find out here.

Interesting Fact of the Day

Number of cars per 1000 people (from an IHT article):

Western Europe: 500
United States: 450
India: 7

Isn't it interesting that Europe has 11% more cars per person than the U.S., which seems to contradict the notion that massive taxpayer-financed investments in public transportation and $5 per gallon gasoline taxes will cut down on automobile dependence? Certainly the cars in Europe are smaller and more fuel-efficient, but it still seems surprising that Europeans own more cars than Americans.

And watch out for India. From the IHT article, "India's 216 million-member middle class is rushing to make up for decades of automotive deprivation. In the last year, Indian passenger car sales climbed 21% to 1.38 million. By 2015, they are expected to almost triple to three million."

Cartoons of the Day

I have some bad news and some good news Miguel....Remember stagflation?

Four States Set Record Low Jobless Rates in April

State unemployment rates for April were released last week by the BLS, and there are now 18 states that have set historical record-low jobless rates in the last year, and 12 of those states set record-low rates this year. Alabama, Alaska, Texas and Washington set records in April 2007.

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

Alabama: 3.3% in April 2007
Alaska: 5.8% in April 2007
Arizona: 3.9% in March 2007
California: 4.7% in November 2006
Florida: 3.2% in October 2006
Hawaii: 2.0% in December 2006
Idaho: 2.8% in March 2007
Illinois: 4.0% in November 2006
Louisiana: 3.3% in July 2006
Montana: 2.0% in March 2007
Nevada: 4.1% in May 2006
New Mexico: 3.5% in February 2007
New York: 4.0% in March 2007
Pennsylvania: 3.8% in March 2007
Texas: 4.2% in April 2007
Utah: 2.3% in February 2007
Washington: 4.4% in April 2007
W. Virginia: 4.0% in January 2007

Wednesday, May 23, 2007

Dueling Fools on Housing: Good or Bad Investment?

One Motley Fool contributor argues that buying a home is "The Best Investment Ever."

Another Motley Fool contributor argues that a house is "The Worst Investment Ever," (via Society and Money blog).

Using quarterly "House Price Index" data from the Office of Federal Housing Enterprise Oversight (OFHEO), the chart above compares the S&P 500 Index to the House Price Index for the U.S. and for the state of California from 1975-2006.

Average annual return for owning a home: 6.08%
Average annual return for owning S&P500: 9.32%

Gasoline Taxes vs. Profits

After crude oil costs, gasoline taxes are the second largest contributor to the price paid at the pump. Together Federal and State excise taxes on fuel account for an average cost of approximately 62 cents per gallon. That's a combined tax of about 20% per gallon of gas.

The federal tax per gallon is 18.4 cents per gallon,
see the history of federal gasoline taxes here, and the state tax per gallon varies by state, see the complete list of state gasoline taxes here.

Average profit per gallon of gas for oil companies: 10 cents according to the EIA.

Quote: The government collects far more in taxes on every gallon of gasoline than the oil companies collect in profits. If oil company profits are "obscene," as some politicians claim, are the government's taxes PG-13?

~Thomas Sowell

Chart of the Day

Fact: In the last five years, the U.S. money supply (M1) has increased by about 19% and the value of the U.S. dollar (Trade Weighted Exchange Index: Broad) has decreased by about 19%.

Tuesday, May 22, 2007

Bad News for 2 Americas Myth: The Poor Got Richer

Some bad news today for John Edwards and his "two Americas" campaign theme.

Today's WSJ reports on a new study just released by the Congressional Budget Office that shows that the poor have been making significant earnings gains, due to a combination of welfare reform, expansion of the earned income tax credit and wage gains from a tight labor market, especially during the 1990s expansion.

The CBO reports that low-wage households with children had earnings after inflation in 2005 that were about 80% higher than in the early 1990s. From the WSJ:

The CBO results don't fit the prevailing media stereotype of the U.S. economy as a richer take all affair -- which may explain why you haven't read about them. Among all families with children, the poorest fifth had the fastest overall earnings growth over the 15 years measured(see the chart above). The poorest even had higher earnings growth than the richest 20%. The earnings of these poor households are about 80% higher today than in the early 1990s.

The report also rebuts the claim that the middle class is losing ground. The median family with children saw an 18% rise in earnings from the early 1990s through 2005. That's $8,500 more purchasing power after inflation. The wealthiest fifth made a 55% gain in earnings, but the key point is that every class saw significant gains in income.

There's a lot of income mobility in America, so comparing poor families today with the poor families of 10 years ago can be misleading because they're not the same families. Every year hundreds of thousands of new immigrants and the young enter the workforce at "poor" income levels. But the CBO study found that, with the exception of chronically poor families who have no breadwinner, low-income job holders are climbing the income ladder.

Life Expectancy 1000-1999

The chart above (click to enlarge) shows life expectancy at birth from 1000-1999, taken from "The World Economy," by Angus Maddison, published by the OECD.

Group A includes Western Europe, U.S., Canada, Australia, New Zealand, and Japan. Group B includes Africa, Asia, Eastern Europe and Latin America.

Note that a) life expectancy more than doubled during the 20th century, b) life expectancy remained basically the same from 1000 to 1800, and c) more gains were made in the last 100 century than all previous centuries combined.

Wal-Mart Gets the Gold Medal For Employee Safety

In a comment about my post Wal-Mart Gets Gold Medal for Pleasing Consumers, Walt G. says "You don’t have to take my word about Wal-Mart’s and Sam’s Club safety records, go here to the OSHA website and type in Wal-Mart or Sam’s Club to see for yourself, they get the Lead Medal for employee safety."

I did go to the Department of Labor's website for OSHA enforcement inspections over the last 5 years and typed in Wal-Mart, Target and Home Depot and obtained these results: 535, 242, and 326 for those 3 employers. I also obtained the number of employees per company using Yahoo Finance (1.9 million, 352,000 and 247,520), and then calcuatled the number of OSHA inspections per 100,000 employees at each company, and those calculations are displayed above in the graph.

As you can see, Target has almost 2.5 X as many OSHA inspections as Wal-Mart, and Home Depot has almost 5 times as many OSHA inspection.

Conclusion: Wal-Mart has a much better safety record than either Target or Home Depot, measured by inspections per employee, and therefore gets the Gold Medal for employee safety, not the Lead Medal.

(Update: Graph has been revised to include GM in response to Walt G.'s comments, Wal-Mart still gets the Gold!).

Stop Fixating on the Fixed Dollar-Yuan Peg

From today's WSJ, an excellent op-ed by Dartmouth professor Matt Slaughter ("Yuan Worries") about the misplaced concern and misgivings that the "unfairly" low value of the dollar-yuan peg is causing our massive trade "imbalance" with China ($232 billion in 2006). Professor Slaughter makes several excellent points:

1. The yuan floats against European currencies such as the euro and the pound but has been fixed against the dollar (see chart above). If nominal exchange rates were driving trade flows as commonly alleged, then Chinese exports to the U.S. should have been growing faster than to Europe. The data show something completely different, however. In 1995, monthly Chinese exports to both destinations averaged about $2 billion. By 2006, monthly Chinese exports to both destinations were still the same, at about $17 billion. Plotted together over that entire decade, these two series look nearly identical. This is because the same real economic forces -- e.g., China's relative abundance of less-skilled labor -- have been driving both sets of trade flows.

MP: And NOT the currency values, emphasis added. In other words, if China had allowed the yuan to float against the dollar in the past, the U.S. would still have a large trade deficit with China today, because real economic forces of comparative advantage drive trade flows, not nominal prices or ex-rates.

2. Many central banks today use their sovereign power to fix a nominal short-term interest rate rather than a nominal exchange rate. The U.S. Federal Reserve targets the federal-funds rate; the European Central Bank targets the main refinancing operations rate; and the Bank of Japan targets the overnight call rate. But exchange-rate targets are by no means uncommon. Indeed, in 2005, 55.6% of the world's countries fixed their exchange rates (see chart above for the Hong Kong dollar, which is pegged to the USD). And many countries have switched their targets over time. From 1945 to 1971, for example, the Federal Reserve targeted the value of the dollar at $35 per ounce of gold.

In other words, all central banks peg, fix or target something: the U.S. Fed targets interest rates (Fed Funds rate), but used to target the money supply, many central banks have an inflation target (Canada, New Zealand, Australia), and many countries have an ex-rate target (e.g. see the pegged Hong Kong dollar in the chart above). Referring to China's policy of pegging the value of the Yuan as "currency manipulation" or "unfair" would like calling the Fed's current monetary policy unfair "interest-rate manipulation." Notice also that nobody ever complains about the hundreds of countries like Hong Kong that also target or peg their ex-rate.

3. Professor Slaughter furthers explains why it might sense for China to target its ex-rate instead of its interest rates: Chinese capital markets today lack many of the microeconomic institutions that transmit changes in short-term interest rates into the broader economy: e.g., a primary-dealer market in government debt securities and, more generally, a deep network of investment and commercial banks allocating credit guided by risk-adjusted returns. This may well be one reason the PBOC maintains its exchange-rate target: An interest-rate target might weaken its linkages to the real economy.

In other words, it makes more sense for an advanced economy like the U.S. with advanced credit markets to target ("manipulate") interest rates than a developing economy like China without advanced credit markets.

Wal-Mart Gets Gold Medal for Pleasing Consumers

As America's (and the world's) premier entrepreneurial organization, Wal-Mart is engaged in an ongoing process of innovation, experimentation, trial-and-error, "continuous improvement" and discovery, always with the ultimate goal of trying to figure out how to best serve and please consumers. No organization in history has probably better exlempified the concept economists call "consumer sovereignty" than Wal-Mart - consumers are the kings and queens in Wal-Mart's world. And hey, it's not always an easy job figuring out how to best please consumers, whose tastes and preferences are subjective, fickle and ever-changing.

A few recent examples of Wal-Mart's ongoing innovation:

1. From today's WSJ an article "Slow Sales of Designer Line Show Higher-End Clothes Remain a Weak Spot" discusses Wal-Mart's worsening struggles in fashion apparel - a Wal-Mart experiment into higher-end clothing that apparently isn't working so well, which is why it's called "trial" and "error."

2. After being denied entry into the banking industry by federal regulators, Wal-Mart announced last week that it has teamed with discount brokerage ShareBuilder Corp. to offer low-cost investment services, marking the retailer's initial expansion of its financial-services offerings, read the WSJ article here. Wal-Mart is aggressively expanding its financial-services business, which already includes selling money orders, bill payment and check-cashing services.

3. Wal-Mart will contract with local hospitals and other organizations to open as many as 400 in-store health clinics over the next several years, and up to 2,000 health clinics in Wal-Mart stores over the next five to seven years.

4. Wal-Mart customers have saved $300 million on selected generic prescription drugs since 2006, when the company began selling prescriptions for $4 nationwide. The $4 prescriptions now account for 35% of all prescriptions filled at Wal-Mart, and 30% of the $4 prescriptions are filled without insurance.

When it comes to innovation directed toward consumer sovereignty, Wal-Mart gets the Gold Medal.

Monday, May 21, 2007

Quote of the Day and Species Inflation

“No science in the world is more elevated, more necessary and more useful than economics.”

~Carl Linnaeus, a Swedish naturalist, born three centuries ago this week, who is better remembered for devising the system used to this day to classify living organisms.

The Economist mentions Carl Linnaeus in an article about the recent "species inflation." For example, there are twice as many primate species (monkey, ape and lemur) today compared to the 1960s, not because any new discoveries, but because a lot of established subspecies have been reclassified as species, especially in the limited group of big, showy animals that the public, as opposed to the experts, care about. Why the species inflation?

1. A species becoming extinct is easy to grasp, and thus easy to make laws about. Subspecies just do not carry as much political clout.

2. Upgrading subspecies into species simultaneously increases the number of rare species (by fragmenting populations) and augments the biodiversity of a piece of habitat and thus its claim for protection.

Read more about species inflation here.

Abortion Laws Worldwide

From The Economist: More than 60% of the world's 6.5 billion people now live in countries where abortion is generally allowed, and a quarter where it is banned, according to the Center for Reproductive Rights. Mexico city has just decriminalized it, whereas in some countries, such as America and Poland, laws are becoming more restrictive. Some 46m abortions are thought to be carried out annually (more than one in three pregnancies is terminated). Of these, 20m are illegal, resulting in the deaths of some 70,000 women, according to the World Health Organization.

There is No Pay Gap for Singles 35-43 W/No Kids

From yesterday's San Diego Union-Tribune, my article on the pay gap, and Rep. Carolyn Maloney's (D-NY) side of the issue. (Note: They somehow messed up my article by mixing a draft version with the final version, here is the actual final version.)

I had email questions from several professors about sources for my claim of “no pay gap after controlling for all of the factors that affect earnings." One of my sources is a 2005 NBER working paper "
What Do Wage Differentials Tell Us about Labor Market Discrimination?" by June O'Neill (Professor of economics at Baruch College CUNY, and former Director of the Congressional Budget Office), who conducts an empirical investigation using census data, and she concludes:

"There is no gender gap in wages among men and women with similar family roles. Comparing the wage gap between women and men ages 35-43 who have never married and never had a child, we find a small observed gap in favor of women, which becomes insignificant after accounting for differences in skills and job and workplace characteristics.

This observation is an important one because it suggests that the factors underlying the gender gap in pay primarily reflect choices made by men and women given their different societal roles, rather than labor market discrimination against women due to their sex."

Oil Economics

From an editorial in today's Pittsburgh Tribune-Review, "The price at the pump: It's economics:"

We begin the economics lesson by stating that the oil industry owes no motorist a gallon of gasoline at any price. It doesn't have to provide a single drop.

In Pennsylvania, the combined federal and state gasoline tax per gallon is about 50 cents. The government can, if it wishes, abolish gasoline taxes in order to help the consumer, especially the poor.

Likewise, government officials and environmentalists can lift their resistance to building new petroleum refineries and can drop objections to drilling in the Arctic and off shore.

More From Today's WSJ, An Especially Great Issue

1. In India, Clashes Erupt As Industry Expands. India's push to build an industrial manufacturing sector is facing a backlash as villagers are uprooted to make room for factories.

2. With Corn Prices Rising, Pigs Switch To Fatty Snacks. Growing demand for ethanol has pushed corn prices to record levels and farmers are now serving pigs and cattle people food (cookies, licorice, cheese curls, candy bars, french fries, frosted wheat cereal and peanut-butter cups), since it is cheaper than corn.

3. As Meth Trade Goes Global, South Africa Becomes a Hub. As the methamphetamine trade expands globally, South Africa has become a significant market. It is also an emerging smuggling hub as ingredients for the drug make their way from Asia to the U.S.

4. U.S. Investors' Overseas Bets Dent Greenback. As U.S. investors chase profits overseas, there may be an unintended consequence closer to home: pressure on the American dollar.

Quote of the Day: Price Controls in Venezuela

Free prices are to an economy what microchips are to a computer. They carry information. As Austrian economist Ludwig von Mises explained in his legendary treatise 60 years ago, it is free prices that ensure that supply will meet demand. When Mr. Chávez imposed price controls in Venezuela, he destroyed the price mechanism.

~Mary Anastasia O'Grady in Today's
Wall Street Journal

As predicted by simple economics, Venezuela now has serious and chronic shortages as a direct result of the Chávez price controls.

The reason is simple: Producers have no incentive to bring goods to market if they are forced to sell them at unprofitable prices. Ranchers hold back their animals from slaughter, fisherman don't cast their nets, food processors don't invest in equipment and farmers don't plant. Those who do produce find it makes more sense to take their goods across the border to Colombia or to seek out unregulated (black) markets.

And so it is that the Venezuelan egg is now a delicacy, the chicken an endangered species, toilet paper a luxury and meat an extravagance. White cheese, milk, tuna, sardines, sugar, corn oil, sunflower oil, carbonated drinks, beans, flour and rice are also in short supply.

Bottom Line: If you took the microchip out of a computer, you would have a computer that didn't work. If you take market prices out of the economy, you have an economy that doesn't work. Exhibit A: Venezuela and Chavez economics.

Update: See today's
Washington Times editorial about another reason the Venezuelan economy is failing and headed for more trouble: the redistribution of Venezuela's land from large farms to cooperatives as part of Chavez's usual Marxist rhetoric of social equality and class struggle.

Sunday, May 20, 2007

What If Every Child Had A Laptop?

From a story tonight on"60 Minutes:"

Nicholas Negroponte, a professor at MIT, had a dream. In it every child on the planet had his own computer. In that way, he figured, children from the most impoverished places – from deserts and jungles and slums could become educated and part of the modern world. Poor kids would have new possibilities.

So, two years ago he founded a non-profit organization called “One Laptop Per Child.” He recruited a cadre of geeks and viola! The hundred dollar laptop, designed specifically for poor children, was born.

"One Laptops" are for sale in minimum lots of 250,000. Each costs $176, though Negroponte expects the price will go down to $100 within two years. It's designed for a child, so it looks like a toy – on purpose. But it’s a serious computer with many innovations. For instance, it’s the first laptop with a screen you can use outdoors, in full sunlight. You can draw on it...or compose music.

They have two or three times better Wi-Fi range than a $3000 dollar laptop in the U.S., and the battery lasts up to 12 hours with heavy use. If the battery does run out and you live in a thatch hut in the middle of nowhere, you can charge it up with a crank… or a salad spinner. A minute or two of spinning and you get 10 or 20 minutes of reading. And they're completely waterproof and sandproof. The families love the computers because in villages with no electricity, they are the brightest light source in the house.

Ax or Ask?

The book is titled "Ax or Ask? The African American Guide to Better English," by Chicago English teacher Garrard McClendon, watch him explain his approach here on a TV news report.

Why Do You Think It's Called "Pork"?

Every half a decade or so, Congress considers what to do with a massive system of federal handouts that enriches a narrow band of American businessmen. Too often, after a fair amount of acrimony and spectacular displays of local-interest, pork-barrel politics, the system is altered -- sometimes for the good, sometimes not -- but not reformed as dramatically as it ought to be. The issue, of course, is American farm subsidies, an inefficient, trade-distorting program of price and income support included in the expiring farm bill; a new one is being prepared.

From today's Washington Post staff editorial.

Limited Refinery Capacity = High Gas Prices

There hasn’t been a new refinery built in the U.S. since 1976, the result of extremely tight environmental restrictions, not-in-my-back-yard community opposition, and the high cost of new construction. Used refineries currently sell for about 30 to 50 percent of the cost of building a new one, so it’s cheaper to buy an old refinery and upgrade it. Or squeeze a little more gasoline out of the refineries you already own.

Read about it here and here.

Saturday, May 19, 2007

Colombia's Stock Market and Economic Boom

From this week's cover story in Business Week, "Extreme Investing: Inside Colombia. An improbable journey from crime capital to investment hot spot. Can this boom last?"

"Entrepreneurial thinking here is spreading. Run a Google geographical-hit query, and you'll see that, per capita, nowhere in the world are there more searches for the words "Peter Drucker," the late management guru, than in Bogotá. No. 2? Medellín.

Yes, Medellín. Once the murder capital of the world, this city of 2.4 million is regaining its status as a commercial hub, hosting regional offices for a growing roster of multinationals including Philip Morris, Toyota, and Renault, as well as globally minded Colombian companies that make up 70% of the country's stock market value. More high-rises are under construction here than in Manhattan and Los Angeles combined."

As the graph above shows, Colombia's stock market is booming, generating returns of 32.81%, 50.22%, 45.07%, 86.22%, 118.91% and 17.32% in years 2001 through 2006!

And what about all the crime that Colombia is so well known for?

One sign of the rising fortunes in Colombia is the sudden misfortune of the self-proclaimed Bulletproof Tailor. Miguel Caballero makes suits and other apparel tough enough to withstand gunshots. His garment factory, located in a seedy neighborhood of Bogotá, features a picture gallery of famous customers, including action film star Steven Seagal and President Uribe, as well as glossies of Caballero discharging his handgun into the bulletproofed torsos of employees. Ten years ago, he says, his company sold 70% of its wares in Colombia. Now, thanks to the ebbing violence, that figure is just 20%. Caballero is dispatching salesmen to Russia, Venezuela, even Iraq. "The idea is to save the business," he says. "You can say we're globalizing."

"Unconscionably Excessive" Prices? Who Decides

House of Representatives' Federal Price Gouging Prevention Act:

"To protect consumers from price-gouging of gasoline and other fuels, it would be unlawful for any person to sell crude oil, gasoline, natural gas, or petroleum distillates at a price that: a) is unconscionably excessive; or b) indicates the seller is taking unfair advantage of unusual market conditions (whether real or perceived), or the circumstances of an emergency to increase prices unreasonably.”

First question and the biggest problem with legislation like this: What exactly is "unconscionably excessive," and who decides? When is a seller taking "unfair advantage" of a buyer, and who decides?

Maybe lawmakers ought to apply the same restrictions to other products. Some of us might find it “unconscionably excessive” that Starbucks charges the same amount for a 20-ounce cup of coffee that a consumer would pay at a supermarket for an entire can of coffee, one that will make dozens of cups. We might also find it “unconscionably excessive” that the same supermarket charges $1.25 for a bottle of the same water we can get direct from a tap for pennies. Talk about a markup.

From today's editorial by Rich Tucker Driving Up Prices

McIndia, McDelivery, McVeggie

McDonald's currently operates about 50 restaurants in India, including 18 in Mumbai and 2 in Bangalore. What does it do differently there?

1. According to a CBS report (with video from Bangalore), "It's got the same old golden arches, the same efficient counter help slinging cheap eats, just the way they do everywhere from Poughkeepsie to Port Arthur. But in India, there's something missing at the world's fast food giant: hamburgers. That's right - McDonald's signature snack and its most recognizable symbol is nowhere to be found in one of the biggest countries on earth. According to Amit Jatia, a partner of McDonald's India, "It is the only country in the world that does not offer beef at all."

McDonald's has customized its menu to take advantage of the fact that India is the world's vegetarian paradise. Nearly all of the one billion people living here eat meat only occasionally, or not at all. McDonalds serves only veggie burgers and chicken burgers in India.

2. McDonald’s India is one of the few countries that provides home delivery service, available through a single access number for the entire country. McDelivery accounts for 5% of sales and is one of the fastest growing platforms, according to this report. Pizza delivery service has become so popular in India that McDonald's is trying to compete now with burger delivery. I wonder also if the horrible traffic conditions in large cities in India also make home delivery of burgers more attractive there than in the U.S. and Europe?

(Via Alliance Business School Ray Titus'
BuyerBehaviour blog.)

Google: Free Food, Massages, and Volleyball

Does your company encourage you to work on your own projects? Bring your pet to work, or simply go off and play beach volleyball? If yes, then you are probably working for Google.

Working for Google at its headquarters, Googleplex, is like being back at college. That may seem wacky but according to Fortune magazine, this is what made Google the best company to work for in the US. A visit to Googleplex in Mountain View, California, shows why.

There are a lot of perks for the staff: a well-equipped gym, on site massages and medical care. Transport, ranging from company provided scooters and pushbikes, to a massive fleet of shuttle buses. And there is free food. It's all part of a plan to attract the best and the brightest.

That explains why Google gets 3,000 job applications per day! Watch a video here about working at Google.

(Via Ray Titus' BuyerBehaviour blog in Bangalore.)

Friday, May 18, 2007

Quit Your Whining, It Could Be a LOT Worse

The graph above (click to enlarge) shows GDP growth over the last 2,000 years from year 0 to 1998 (Source: "The World Economy," by Angus Maddison, OECD). Notice that sustained growth in output of even 1% per year was not a reality until the 19th century, and sustained economic growth of 2-3% was not a reality until the last 50 years. A growth rate of just 3% means that output doubles every 24 years, which now happens at least 3 times during an average person's lifetime, which means we now actually experience significant increases in standard of living in a single lifetime.

Compare that to the pre-1800 period when economic growth was basically non-existent, which means that the standard of living for the average person was not much different in the 18th century compared to the standard of living in the 1st century. Or another way to think about it is that we can get more economic growth in a single year today (3%) than they used to get in a thousand years.

We might complain about income inequality and pay gaps, but those should be looked at as relatively minor complaints of a dynamic advanced economy growing an historically unprecedented rate of 3% - it could be a lot worse, it could be 507, 1207 or 1507 instead of 2007.

Actual Fan Mail Received in Today's Mail

Mr. Perry:

Based on your most recent column in the Flint Journal, regarding lower wages for women versus those paid to males, I believe we can now add MISOGYNY to the long list of character flaws for Mark Perry. It is ironic that your column was published shortly after a column by Ellen Goodman appeared in Flint Journal, concerning the same issue.

It appears that Goodman, a Pulitzer Prize winner, and an eloquent writer, was able to address this issue without resorting to the shrill rhetoric indigenous to your writing. Like most business majors, your writing skills are barely adequate, reflecting a "knee-jerk" conservatism, and, even worse, a mediocre intellect.

M. Wilson
Flint, Michigan

Mind the Pay Gap: It's Not There

Last month's "Behind the Pay Gap" report from the American Association of University Women once again highlighted a purported disparity between salaries earned by men and women. One year after graduation, women appear to be paid only 80% of what men are paid, the report found. After 10 years, their pay dropped to 69%.

That would be terrible - if true. Instead, the much ballyhooed gender pay gap is a false premise, and it risks distracting Iowa and the nation from focusing on innovative ways to lead and develop the work force in changing times.

The truth is that women choose professional careers that pay less in the entry-level marketplace. That is a career choice, not a pay gap.

From the commentary "Gender Pay Differences: Mind the Gap; It's not There," in the Des Moines Register.

ADM Loves Ethanol, The "State Religion"

From The Straight Dope blog: The immediate beneficiaries of ethanol subsidies have been corn farmers and, more significantly, the Archer Daniels Midland Corporation of Decatur, Illinois, better known as ADM. The world's largest grain processor, ADM produces 40% of the ethanol used to make gasohol. As might be supposed, the company and its officers have been eloquent in their defense of ethanol and generous in contributing to both political parties. The politicians have been generous right back. The libertarian Cato Institute estimates that every dollar of ADM's ethanol profit costs taxpayers 30 bucks.

MP: ADM's embrace of ethanol has paid off hanbsomely, see the chart above of ADM's stock price vs. the S&P500. Over the last 5 years, the S&P 500 stocks have increased by about 48%, while ADM's share price has increased by more than 150%.