Tuesday, June 26, 2007

No Economic Reason to Fear XM/Sirius Merger

The graph above shows Sirius Radio (red) and XM Radio (blue) plotted vs. the S&P500 over the last two years. Sirius and XM have lost 50-70% of their value at the same time that the general stock market has increased by about 25% in value.

Steve Chapman writes in today's Baltimore Sun about the proposed merger between Sirius and XM in an excellent article titled "In A World of Options for Consumers, Fear of Mergers is Misplaced," here is an excerpt:

"The alternative to one (merged) satellite radio company may not be two companies but none. The existing ones have accumulated some $7 billion in losses between them (see chart above). The merger may allow them to reduce costs, so they can eke out a profit and stay in business. Raising prices would not be easy, because consumers have plenty of affordable options. Music fans can listen to terrestrial radio, pop in a CD, find an Internet feed, turn on an iPod, flip to the cable TV music station or check out unknown talents on YouTube.

Web radio may not get as much attention as Howard Stern, but it has four times as big an audience as XM and Sirius combined."

MP: In the begining of satellite radio there was only one station (XM) for almost one year, and if one of the companies fails soon before merging, there would only be one station, so what's the big deal about having one healthy company now resulting from a merger? As Chapman points out, there is so much competition now for music (iPods, cable TV, Internet, AM/FM), that it would be ridiculous to oppose a merger because it might result in "anti-competitive behavior."

And we should never underestimate the "threat of potential competition," which can also act to impose strict discipline on a single "monopoly" provider, like a merged XM/Sirius. As long as there are low barriers to entry, XM/Sirius will feel the threat of potential competition from possible rivals like Apple? Like maybe an iPhone with satellite radio service?

(HT: Cafe Hayek)

Expanding Waistlines Waste A Lot of Fuel

"As American waistlines have expanded since 1960, so has their consumption of gasoline, say researchers at the University of Illinois at Urbana-Champaign and Virginia Commonwealth University," according to this press release. "The conclusions are based on mathematical computations drawn from data on U.S. weight gain from 1960 to 2002, a period in which the weight of the average American has increased by more than 24 pounds.

Americans are now pumping 938 million gallons of fuel (almost 1 billion!) more annually than they were in 1960 as a result of extra weight in vehicles. And when gas prices average $3 a gallon, the tab for overweight people in a vehicle amounts to $7.7 million a day, or $2.8 billion a year. The numbers are added costs linked directly to the extra drain of body weight on fuel economy."

Watch this interesting graphic of the body mass index in the U.S. increasing from 1985 to 2003.

Market-Clearing Pricing vs. The Alternative

Wikipedia has a pretty good summary of basic microeconomic principles in its entry on "Supply and Demand," including the graph above showing market clearing.

In contrast to simple, efficient, spontaneous market-clearing prices, the
Cato Institute provides an example (with this graphic) of the alternative: government-pricing for milk.

Traveling This Summer? Int'l Tipping Etiquette

Tipping customs vary greatly by country and by profession (see the Freakonomics post here about why flight attendants don't get tipped), see some International tipping guidelines from the BBC here, which includes these tipping customs ranging from no tipping for anything, to tipping for almost everything:

No tipping of any kind is expected in Australia, China, Japan and New Zealand.

No tipping is expected at restaurants in Italy and France (service of 15% is included by law in France).

In UK pubs, you don't tip with cash, you offer to buy the bartender a drink.

In Egypt and Mexico, you are expected to tip for almost everything.

(HT: Sanil Kori)

What's Your Carbon Footprint? Don't Forget Fido

Here's a website to calculate your "carbon footprint," the "amount of carbon dioxide emitted through the combustion of fossil fuels; in the case of an individual or household, as part of their daily lives." Check here to find out how to reduce your carbon footprint, and check here to find out how to offset your carbon footprint.

From today's NY Sun, comes an interesting article "
What's Your Paw Print?", about the carbon footprint of people's dogs, who often use lots of carbon in pet owners' air-conditioned apartments and houses during the summer, and lots of carbon in the production of pet food and the "tin" containers, etc.

"When calculating one's carbon footprint, dog owners should add an extra individual, or two or three, to their household size."

And what is the point of feeding "natural/organic" food to animals that lick the behinds of other animals, drink from toilets, sniff up dirty curbs and sidewalks, and chew on shoes and rugs which contain dyes and other chemicals?"

Law Schools Ranked By Blogs Now

From today's WSJ article "Law Schools Also Ranked By Blogs Now":

"Since they first began appearing annually in 1990, U.S. News's law-school rankings have been the go-to list for students venturing into the field... and the magazine has essentially had a monopoly in the law-school realm. In the last two years, at least a dozen upstart Web sites, academic papers and blogs have stepped in with surveys of their own to feed the hunger for information on everything from the quality of the faculty to what a school's diploma might be worth to future employers."

Last year, a blogger and Notre Dame Law School graduate who goes by the name "law firm addict" began trolling message boards frequented by law students. The blogger invited students to share figures on school representation in law firms' summer-associate programs (one finding: Columbia is the perennial winner in New York), as well as where federal appeals clerks went to school. (This year's winner is Stanford by number of clerks as a percentage of its class.) The information is posted on
lawfirmaddict.blogspot.com and lawclerkaddict.blogspot.com."

Chart above (click to enlarge) shows law school rankings based on various factors.

Capital, Workers, Foreign Investment Getting Out

I had a post yesterday about capital flight from Venezuela to the U.S., especially Weston ("Westonzuela"), Florida.

Today's WSJ has two related articles, the first about Venezuelan oil workers fleeing to Alberta, Canada:

"Frigid, remote Alberta has become one of the world's fastest growing enclaves of Venezuelans, rivaling such warm-weather spots as Weston, Fla., outside Miami; and Sugar Land, Texas, near Houston. There are now 3,000 Venezuelan-Albertan families, up from 800 or so last year. Some Albertans now call Evergreen, a Calgary housing development, "Vene-green" because of the 100 families who have bought split-level homes there, and dangle Venezuelan flags from car rearview mirrors.

The loss of so many skilled oil workers has hit PdVSA (Venezuela's state-owned oil giant) hard. Since Mr. Chávez took power in 1999, Venezuela's oil production -- according to U.S. government statistics -- is down to 2.4 million barrels a day, from 3.1 million barrels a day, despite high prices."

Also from
today's WSJ, an article about U.S. and other Western private oil companies fleeing Venezuela:

"U.S. oil company ConocoPhillips plans to walk away from its massive Venezuelan investments rather than agree to a government takeover of the assets, a person familiar with the talks says. Five other Western oil companies face the decision of whether to accede to Venezuela's demands and turn over a controlling stake or walk away including Exxon Mobil, BP and Chevron.

It is unclear how the other companies will respond, though industry observers have said ConocoPhillips's decision will increase the likelihood other U.S. companies may follow suit."

Bottom Line: It can't be a good sign when you've got capital, skilled workers, and foreign investment all fleeing a country at the same time, can it?

Monday, June 25, 2007

Hernando de Soto for World Bank Chief Economist?

According to Mark Davis, writing in National Review: "Instead of maintaining the status quo, new World Bank President Robert Zoellick would do better for the world’s poor and for the credibility of the World Bank’s mission if he did the unexpected. He should reorient World Bank policies around the insights of a Peruvian economist Hernando de Soto, and perhaps install de Soto in the prestigious post of World Bank chief economist.

Millions of poor who operate small businesses in the developing world exist in a legal grey zone. They have no clear, legal title to assets against which they can borrow to expand and grow. And they are always in danger that a visiting policeman or petty official will stop by to extract a bribe for looking the other way.

This is not a trivial matter. De Soto estimates that the amount of “dead capital” in untitled assets held by the world’s poor is at least $9.3 trillion — far in excess of anything the developing world can lend, offer, or even invest. In Egypt, de Soto estimates the poor own 55 times the amount of all foreign direct investment in that country since the time of Napoleon.

In essence, the World Bank is like a county agriculture-extension agency trying to irrigate a dry plain, while Hernando de Soto is the geologist patiently explaining that underneath is an immense and untapped water table."

more here.

Chavez Driving Capital from Venezuela to the U.S.

South Florida is a prime destination as Venezuelans rush to move their money out of the reach of Hugo Chávez. Venezuelan economist Emilio Medina-Smith, who studies capital flight, estimates that $1 billion has left the country monthly for the past three years, a big increase from Chávez's first years in power.

Read more here in Business Week.

Criss Angel Exposed; And He Joins Cirque du Soleil

Criss Angel's Mindfreak TV show started its third season a few weeks ago on the A&E network, and during last week's show he made a Lamborghini vanish while driving more than 100 m.p.h., after practicing making a go-kart disappear in front of a live audience on top of a parking garage in Las Vegas. Due to a mistake in a camera angle, and the wonderful technology of cable TV recording devices, slow motion reveals his secret, watch it here.

Cirque du Soleil will feature a new show with Criss Angel, opening at the Luxor Resort and Casino in Las Vegas in the summer of 2008. Cirque du Soleil is working with Criss Angel "to fuse his revolutionary illusions and mind-blowing artistry with acrobatics, dance, puppetry, music and poetry to tell a story, taking audiences on a bizarre and fascinating journey."

The Blogosphere and Business Week's Info Tech 100

Graphic above is from from Business Week, as part of its report on "The Info Tech 100" in the July 2 issue, here is the list of the top 100 IT firms globally, based on four criteria: return on equity, shareholder return and revenue growth (which were given equal weight), and total revenues (which was weighted). Here is another ranked list, with interactive features for ranking and sorting.

#1 Info Tech firm, 2007: Amazon (due largely to ROE of 71%)

# of companies in the top 100 from China: 0

# of companies in the top 100 from U.S.: 45

# of companines in the top 100 from India: 6

# of companies in the top 100 from Japan: 8

Americans Are Most Generous People on Planet

Americans are the most generous people in the world, measured by charitable giving as a percent of GDP. Americans give twice as much (1.67% of GDP) as the next most charitable country, the U.K. at 0.73%, according to this study by the Charities Aid Foundation (chart above is taken from the study). Americans give almost 12 times as much as the French and almost 8 times as much as the Germans. In fact, Americans give more as a percent of GDP than France, Germany, Turkey, New Zealand, Singapore and the Netherlands COMBINED!

And charitable giving in the U.S. set another record in 2006 at almost $300 billion, about the same amount as the GDP of Denmark, Greece, Austria or Norway.

Read more about it here in
The WSJ and here in USA Today.

Bad News Sells II

According to Donald Lambro in "A Worsening Economy? No Way:"

Seventy percent of Americans now say the economy is getting worse, a belief contradicted by a growing workforce, increased wages and household wealth, and a stock-market rally that has boosted worker-retirement investments.

Why are Americans still so sour on the economy when it remains quite sturdy and promises faster growth in the months to come?

One big reason: the almost universally negative reports in the national news media. Americans still get a sense of the economy's health from the nightly network news shows where positive facts about the U.S. economy never get reported.

See a previous related CD post "
Bad News Sells."

Housing Market Continues to Soften

From today's WSJ: "Existing-home sales dipped during May to their lowest level in nearly four years, while inventories climbed and prices fell a 10th straight time.

Home resales fell to a 5.99 million annual rate, a 0.3% decrease from April's revised 6.01 million annual pace, the National Association of Realtors (NAR) said Monday. April's rate was originally estimated at 5.99 million.

The median home price was $223,700 in May, down 2.1% from $228,500 in May 2006. The median price in April this year was $219,800. The 2.1% drop marked the 10th consecutive year-over-year price decline.

Inventories of homes rose 5.0% at the end of May to 4.43 million available for sale, which represented an 8.9-month supply at the current sales pace (see chart above, click to enlarge). There was an 8.4-month supply at the end of April, which was unrevised from a previous estimate."

MP: Although they don't get as much attention as median home price and number of homes sold, I think the housing inventory measures probably give us the best insight into the condition of the housing market.

In 2004, there was an average inventory of 2,244,000 homes for sale, homes were selling at the rate of about 564,800 per month, meaning that there was 4.3 months supply of houses at the current sales pace, according to the NAR.

By May 2007, the inventory of homes for sale has almost doubled to 4,431,000, which represents a 8.9-months supply at the current monthly sales rate of 500,000 (see chart above).

Although the NAR doesn't report national figures on the "average time on the market," it would be safe to assume that since both a) the inventory of homes and b) the months supply of homes has more than doubled since 2004, the average time on the market before a home sells has probably also doubled.

And You Thought Gas Prices Were High.. "Agflation"

The chart above shows prices for retail gasoline prices and wholesale milk prices over the last year, using data from the EIA (monthly gas prices) and Global Financial Data (monthly average corn prices paid to farmers), both converted to a price index that equals 100 in June 2006. As the data show, gas prices are about the same as a year ago, while milk prices have increased by 50% in the last 12 months. And more milk price increases are coming...

today's WSJ: "On Friday, the Agriculture Department, which regulates the minimum milk prices received by farmers, set the price that processors will have to pay for drinkable milk in July at $20.91 per hundred pounds of milk, up 17% from the June price and up 84% from a year earlier.

In the U.S., some dairy farmers are raising milk prices to offset the higher prices they pay for cattle feed as corn prices rise. Corn is a key feed ingredient.

In May, the average price of a gallon of whole milk in the U.S. was $3.26, up 6.2% from $3.07 a year earlier, according to the Labor Department.

Cheese prices are also starting to rise and Pizza Hut recently raised the price of a regular cheese pizza."

Sunday, June 24, 2007

Price Spikes Imply Competition, Not Monopoly

When gas prices spike sharply upward, economic illiterates everywhere are quick to see evidence of collusion or monopoly power among the oil companies. In fact, big gas price spikes are evidence of exactly the opposite. Colluders and monopolists don't have to wait for changes in supply and demand to hike their prices; they squeeze us up to the limit all year round. Sure, changes in demand and supply give them a little more leeway, so prices still fluctuate - but only a relatively small amount.

A monopolist always has price-sensitive consumers - because if they're not price sensitive, he'll keep raising his prices until they are. Therefore, even when market conditions change, a monopolist can rarely afford to prices very much. Big price fluctuations are evidence of competition, not monopoly.

~Economist Steven Landsburg, p. 137 in "More Sex is Safer Sex"

MP: In other words, we assume monopolists/colluders/cartels are greedy and will therefore always charge the "maximum price the market will bear." If the market for gas was able to bear a price of $3.25 per gallon when gas prices spiked about May 22, then that same market would have also been able to bear a price of $3.25 a month ago before that (instead of the actual price of $2.58), or 4 months before that when prices were at $2.18. That is, a true monopolist or cartel would have been able to charge $3.25 per gallon for the last several years, and they wouldn't have had to wait for some shock like refinery outages, hurricanes, political unrest, or rising demand in China and India as an excuse for raising prices.

And if the oil industry was truly a cartel/monopolist, why would they have lowered gas prices from $3.60 in Michigan a month ago on May 22, to prices as low as $2.62 in Michigan today, according to MichiganGasPrices.com (see chart above). If the market was able to bear $3.60 a month ago, a true monopolist/cartel would NOT have lowered the price by $1 per gallon over the last month.

Friday, June 22, 2007

Food Prices Soar Thanks To "Big Corn"

From Thursday's IBD:

Rising demand for greener energy began competing in earnest with the food supply in the last year or so. That sent per-bushel corn prices soaring to around $4 a bushel from a historical average closer to $2.

Those higher costs also trickled down to beef, milk, fruit and a host of other staples. May food prices rose 4.7% from a year earlier, according to the latest consumer price index. The cost of eating out rose only slightly less.

The Agriculture Department said consumer food prices will rise 3% to 4% this year, notably faster than last year's 2.3% gain.
Tighter world grain supplies on top of extra ethanol demand could send those numbers even higher.

Quote of the Day: Faculty Ideologues

The story about the Duke athletes and District Attorney Nifong was not simply a riveting drama. It was in its searing way an educational event, not just about prosecutorial ambition run amok, but about a university world -- reflective of many others -- where faculty ideologues pursued their agendas unchecked and unabashed. Here was a nearly successful legal lynching, applauded by a significant chunk of the Duke faculty, proud to display their indifference to questions of guilt or innocence.

~Dorothy Rabinowitz in today's WSJ

Thursday, June 21, 2007

Backyard Stonehenge: Amazing Video!

Watch an amazing Discovery Channel video of a Michigan guy near Flint, a retired construction worker named Wally Wallington, who thinks he has cracked the method used to build Stonehenge - working in his backyard. In the video, he stands a 19-ton concrete monolith upright all by himself using nothing but wood, some rocks, sand, and a garden hose. He also uses a variation of his technique to move a pole barn by himself more than 300 feet!

Here is the Discovery Channel link (you'll have to watch a 30-second commercial).

Here is the link to the same segment on YouTube.

Quote of the Day: Environmentalism as Religion

"I don't recycle my trash because my time is too precious for me to spend it sorting such items into different containers. I never criticize those who do recycle, but environmentalists point accusing fingers at us nonrecyclers. In environmentalists' eyes, those who unquestioningly disregard the value of one resource (time) in order to spend it on the conservation of other resources (wood, plastic and glass) are righteous while those of us who value and conserve time are sinners."

~George Mason University economist Don Boudreaux in today's
Pittsburgh paper.

As the late, great blues artist Clarence "Gatemouth" Brown sang, "My time is expensive, baby. I'm tryin' to make it last." Gatemouth clearly understood opportunity cost, and probably didn't recycle.

Wanna Bet? Political Futures Contracts At Intrade

Hillary Clinton's falling chances of becoming president in 2008:

Fred Thompson's rising chances to be the Republican candidate:
Graphs above are based on actual political futures contracts trading in the "Prediction Market" at Intrade.com in Ireland, during the last 30 days.

Intrade currently offers about 100 futures contracts for the 2008 elections in the U.S.

Remedial Economics for Bill Gates?

Harvard economist Robert Barro writing in the WSJ, and ABC 20/20 reporter John Stossel writing in his weekly column both think that Bill Gates need some remedial economic education on free markets and wealth creation.

Barro: "Bill Gates is the richest man in the world, but he may not understand the vital role wealth creation plays in society."

Stossel: "Dropping out of college didn't stop Bill Gates from making tons of money, but it kept him from classes where he might have learned about the beauty of spontaneous market processes."

A Freaky Freakonomics Update

If you read the book "Freakonomics," you'll know who Roland G. Fryer is (how about that suprise ending!), and you'll probably be interested in this story about him in today's NY Times, reporting on his new position as "chief equality officer" for the NYC public schools. If you haven't read the book yet, I recommend it.

Read the Freakonomics blog post here.

Outsourcing Destroys Jobs? 10m U.S. Jobs in 6 Yrs.

From yesterday's IBD editorial "Outsourcing Myths":

The media love victims. So when industries began moving jobs once done here to low-cost labor havens like India and China, pundits and reporters portrayed it as a devastating blow to America's traditional working class.

In 2005's "Outsourcing America," TV's Lou Dobbs warned that outsourcing was "nothing less than a direct assault on hard-working middle-class men and women in this country."

Chances are, if you've been fed a steady diet of this, you think outsourcing is a disaster. Well, you've been seriously misinformed. Outsourcing is in fact a big contributor both to recent productivity growth and to rising incomes for average workers in the U.S.

One of the most obvious falsehoods about job outsourcing is that it raises unemployment. Huh? Since 2001, during which criticism of outsourcing has hit a crescendo, U.S. businesses and entrepreneurs have created 9.9 million new jobs (see chart above, click to enlarge). The current jobless rate of 4.5% is below the average in any of the last four decades.

This is nothing new. It's free trade. As Adam Smith wrote in "The Wealth Of Nations" in 1776, "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than buy." That goes for outsourcing, too.

How to Fix Politics

1. Give everybody 2 votes per election, 1 for your own district and 1 for any other district of your choice, to increase political accountability. If a Michigan senator gets too much pork for his home state, the suppliers of those dollar (voters in other states) can express their opinion at the polls.

2. Redraw the boundaries of congressional districts based on alphabet, instead of geography. Congressperson #1 would represent people with last names starting with AA through AE, #2 would represent AF through AH, etc., making it harder to bring home pork to a particular region.

3. Adjust federal income tax rates in each congressional district by the amount of spending your representative has voted for - the more spending, the higher the taxes in your district. That would sure help solve the "rational ignorance" problem.

4. Abolish withholding, and make ALL taxes due on April 15, including sales taxes, and provide an itemized statement of how much each taxpayer is actually paying for defense, agricultural subsidies, e.g. ethanol subsidies, etc.

From the chapter "How To Fix Politics," in economist Steven Landsburg's excellent book "More Sex is Safer Sex."

I'd add one more idea: Change voting day from the first Tuesday in November to the first Tuesday in April following April 15.

It's Deja Vu All Over Again

1. It has caused public respect for the law to plummet.
2. Even honest
police officers face hostility from the public because of a frivolous and unfair policy.
3. Because the profits are so high, many poor people find selling it an an attractive alternative to honest, legal work.
4. Immigrants and blacks face greater scrutiny and higher sentences than whites.

Sound the Drug War? It's actually about Prohibition from
John McWhorter's article in today's NY Sun:

We look back at Prohibition chuckling that people had to endure what they did for the prissy, puerile notion that no one should be able to have a drink. Yes, alcohol can be addictive. In excess, it harms health. It often ruins lives. Nevertheless, today, we assume that the response to those things hardly is to call for a dry America.

But when it comes to the war on drugs, most of America almost is robotically accepting of the idea that even talking about ending it is "politically unfeasible."

In fact, this passive position on the war on drugs represents a catastrophic failure of imagination, compassion, and plain common sense on the part of this great nation. It will look as grievously ridiculous in the history books as Prohibition does now.

Think of Nicholas Cage's alcoholic character in "Leaving Las Vegas" and Jamie Foxx's heroin-addicted role as Ray Charles in "Ray." Why, precisely, does the latter justify a policy that tears at the fabric of American society just as Prohibition did, and shows no more signs of success — even after having existed for decades longer? What might we learn from other countries' drug policies? Might we stress rehabilitation over interdiction?

Wednesday, June 20, 2007

Quote of the Day: Love Affair with Ethanol in D.C.

We already are paying thrice for Washington's love affair with corn-based fuel, in the form of: 1) higher taxes, 2) higher gasoline prices and 3) higher food prices. Yet because of the prodigious amounts of energy and fertilizer used in its cultivation, corn-based ethanol provides little or no net reduction in CO2 over the gasoline it displaces.

~Holman W. Jenkins, Jr. in today's WSJ article, "Pork, the New Green Meat"

Big Oil vs. Big Food/Big Corn

What does Congress do when we have soaring prices for gas and oil, and record profits for oil companies? They propose "windfall profits" taxes, price controls, and "price gouging" laws to prevent "unconscionable pricing."

What does Congress do when we have soaring food prices (see chart above, corn prices have doubled in the last two years, more than twice the 45% increase in gasoline prices), soaring farm land values, and record profits for farmers? They keep giving billions of tax dollars to farmers in the form of subsidies and price supports.

According to this Washington Post article today:

"A House panel voted unanimously yesterday to extend for five years the current system of payments to farmers and rejected a series of proposed changes. The action left in place the system of income supports and guaranteed prices that has cost taxpayers more than $70 billion since 2002."

Yesterday's vote by the House Agriculture subcommittee on general commodities signaled that the farm bloc is geared to defend the subsidies, despite record profits and soaring prices for commodities and farmland."

Mississippi vs. Michigan: Mississippi Is Winning

Although Michigan's unemployment rate improved in May to 6.9% from 7.1% in April, Michigan ranked #51 for the highest jobless rate in the country (Washington, D.C. is included). For about the the last three years, Michigan and Misssissippi have been fighting for the #51 spot for the state with the highest jobless rate in the country, and in most months Michigan has claimed it, except during the 2005 hurricane (see graph above, click to enlarge). For May, Michigan's jobless rate (6.9%) is almost a full percent above Mississippi's rate of 6%, a rate (6%) that Michigan hasn't seen in more than five years.

Michigan's job troubles won't improve anytime soon, economist Joan Crary of the University of Michigan predicted, according to this Detroit New article. She expects the state's jobless rate to average 7.5% in 2008, after hitting an estimated 6.9% rate this year -- the same as 2006. Job losses are expected to continue through next year before possible gains in 2009, though the rate of job losses may be lower than in recent years.

On the other hand, it look like Mississippi's economy will continue to improve moving forward, according to this report in the
Clarion-Ledger: Employment numbers have returned to their high pre-Katrina levels, indicating the healthiest job market since the August 2005 hurricane.

Recent job increases in Mississippi represent "really good growth for any state," not just for one that has suffered as Mississippi has, said state economist Phil Pepper.

Tuesday, June 19, 2007

Quote of the Day: Forcing Poor to Buy Rich Toys

Closing sweatshops and forcing Western labor and environmental standards down poor people's throats in the third world does nothing to elevate them out of poverty. Instead, it forces poor people to buy a lot of rich man's toys, like clean air, clean water, and leisure time. If clean air and leisure time don't strike you as extravagant luxuries, that's because Americans - even the poorest of us - are so rich these days that we've forgotten what true poverty is like. But chances are your great-great-grandparents could have told you what it's like: when you're truly poor, you can't afford things like clean air. Nobody in 1870 America worried about the environment.

~Economist Steven Landsburg, from the chapter "Children At Work" in his book "More Sex is Safer Sex"

Three States Set Record Low Jobless Rates in May

State unemployment rates for May were released today by the BLS, showing that 18 states have set historical record-low jobless rates in the last year, and 12 of those record lows were set this year. The states of Arizona (3.6%), Idaho (2.3%), and Texas (4.1%) all recorded historical record low unemployment rates in May 2007.

Here are the 18 states that have set historical record-low jobless rates in the last year:

Alabama: 3.3% in April 2007
Alaska: 5.8% in April 2007
Arizona: 3.6% in May 2007
California: 4.7% in November 2006
Florida: 3.2% in October 2006
Hawaii: 2.0% in December 2006
Idaho: 2.3% in May 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: 4.1% in May 2007
Utah: 2.3% in February 2007
Washington: 4.4% in April 2007
W. Virginia: 4.0% in January 2007

India Outsourcing Thousands of Jobs, TO the U.S.

The U.S. dollar has depreciated by more than 17% against the Indian rupee over the last 5 years, and by more than 10% over the last year (see chart above, click to enlarge). Result: Outsourcing of jobs and production has increased, but now FROM India TO the US by Indian IT companies like Tata, Wipro (NYSE:WIT) and Infosys (NASD:INFY)! For example, Tata plans to hire 2,000 Americans within three years for jobs IN the U.S.

From India's
The Economic Times: "Indian companies, which are becoming major players in the international arena, are hiring aggressively in the United States, reversing the earlier trend when they always transferred Indians to work in America on temporary visas.

Also, as the Indian rupee has risen more than 10% against the dollar this year, hiring Americans has gotten cheaper. At the same time, fierce competition for tech talent in India is pushing salaries there up by 12% to 15% per year, although they remain less than a third of those in the US."

In this related
Economic Times article, India is now the #1 job creator on the planet: "India generated 11.3 million net new jobs per year on an average during this period, higher than 7 million in China, 2.7 million in Brazil and 0.7 million in Russia. In contrast, the average was 3.7 million in the OECD area as a whole."

Bottom Line: As India and China's economies grow and prosper, and in the process create jobs, income, and wealth internally, they also become wealthier consumers of goods and services produced in the U.S. (American cars, software, education, travel, etc.) and they help to create jobs in the U.S.

Do we really need the World Bank and IMF when we have the forces of globalization, free markets and international trade (and Wal-Mart) lifting millions of people out of poverty in India and China, creating millions of jobs not just there, but in the US as well!?

(HT: Sanil Kori)

Monday, June 18, 2007

Housing Market Past and Future, In Pictures

Looking forward:
Looking back: Historical year-over-year monthly percent change in the actual home-price figures for selected cities:

Read more here at Yahoo! Finance.

Bottom Line: It's a good time to buy, and it'll get even better over the next year, but it's a bad time to sell.

What Do USA, Liberia and Burma Have in Common?

USA, Liberia and Burma (Myanmar) are the only three countries in the world that do not use the metric system.

Despite Complaints, People Love NY For Crowds

People who live in Manhattan or Detroit might complain about the crowds, but as long as they remain in Manhattan or Detroit it's hard to take them seriously. There are plenty of sparsely populated areas in the United States, and anybody who wants to move there is free to do so. Manhattanites will tell you that they stay in New York because of the theater or the symphony or the job opportunities - but that's just another way of saying they stay in New York because it's crowded.

~Steven Landsburg in More Sex is Safer Sex

Female Millionaires to Outnumber Males by 2020

According to this forecast by the Center for Economics and Business Research in the UK, 53% of millionaires in the U.K. are likely to be female by the year 2020.

Why? According to June 14 issue of The Economist, "Females do better at school and in higher education, and they live longer. Girl power, it seems, never had it so good."

The historical sources of women's wealth—marriage, inheritance and divorce—have been replaced by independent income, business ownership and investments. More than 80% of women now derive their riches from personal earnings, particularly from their own businesses. Divorce, long the engine that propelled women into prosperity, is cited by only 2.9% of those questioned as the main source of their wealth."

The WSJ also reports on this here.

Looking for a Cheap Dentist? Go to Mexico

From today's Washington Post, "Discount Dentistry, South of The Border":

Americans travel to Mexico for stomach surgery, eye exams and routine checkups. But it is the dentistas -- thousands of them strung along the border -- who are in the vanguard in attracting U.S. health consumers.

Mexican dentists often charge one-fifth to one-fourth of U.S. prices (see price list above from this website).

I had a previous related post about this Slate article.

Children Staying Closer to Home

From the UK's Daily Mail an interersting article "How children lost the right to roam in four generations," with the map above of the city of Sheffield, showing the shrinking acceptable roaming areas for children over four generations of the Thomas family.

Via Reason, via Boing Boing.

World's Most Expensive Cities

According to this new Cost of Living Survey from Mercer Human Resources Consulting, Moscow is the world’s most expensive city for expatriates for the second consecutive year, followed by London, Seoul, Tokyo and Hong Kong (see chart above). Here is a list of the top 50 cities.

Mercer’s survey covers 143 cities across six continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. It is the world’s most comprehensive cost of living survey and is used to help multinational companies and governments determine compensation allowances for their expatriate employees.

According to
this CNN story, a luxury two-bedroom in Moscow now rents for $4,000 a month; a CD costs $24.83, and an international newspaper, $6.30. By comparison, a fast food meal with a burger is a steal at $4.80.

Among North American cities, New York and Los Angeles are the most expensive and are the only two to rank in the top 50 of the world's most expensive cities. But both have fallen in their rankings since last year's survey -- New York came in 15th, down from 10th place, while Los Angeles fell to 42nd from 29th place a year ago. San Francisco came in a distant third at No. 54, down 20 places from a year earlier.

Sunday, June 17, 2007

"Gender Gift Gap": Dads Get 71% of What Moms Get

Total Spending
Mother's Day: $16 billion
Father's Day: $9.9 billion

Per Gift (see chart above):
Mother's Day: $139.14
Father's Day: $98.34

Gift Certificates:
Moms: 39.3%
Dads: 29.9%

Dinner or Brunch:
Moms: 61%
Dads: 42.7%

Read more here about the "gender gift gap" here in the Newsweek Business article Playing Favorites.

(HT: Sanil Kori)

What About This Pay Gap? CEOs vs. Celebrities

According to this AP story, CEOs of 386 companies in the S&P500 that filed proxy information in the first half of this year received a combined $4.16 billion in 2006, which is an average compensation of $10.77 million per CEO (see graph above).

Yahoo Inc.'s Terry Semel led the pack with total compensation last year of $71.7 million, according to the AP formula used to analyze those filings, which adds up salaries, bonuses, perks, above-market interest on pay that is set aside for later and what companies estimated the present value to be of restricted stock and options awards on the day they were granted last year.

According to the
Forbes Celebrity list, the top 100 celebrities earned a combined total of $3.286 billion, or an average of $32.86 million per celebrity from June 2006 to June 2007, which according to Forbes "includes dollars earned solely from entertainment income."

Oprah topped the celebrity list with a whopping $260 million in earnings, or more than 3.5 times the highest CEO, followed by Tiger Woods with $100 million in pay.

Do a Google search for "excessive CEO pay" and you'll get about 10,000 hits. Now try a search for "excessive celebrity pay," and you'll get exactly 0 hits.

Another factor to consider when comparing CEOs and celebrities is the amount of time worked per year. Most people would agree that CEOs work full-time, year-round, probably 60-hour weeks, whereas a lot of athletes, musicians and actors (Madonna, Kobe Bryant, Shaq, Bon Jovi) realistically only really work during part of the year. On a per-hour basis, the "pay gap" between CEOs and celebrities would be even greater!

Driving in India is 10X As Dangerous as the USA!

Buyer Behavior blog (Professor Ray Titus in Bangalore India), has a post "Driving in Bangalore/India," about how "accidents on Indian roads have now reached gargantuan proportions," with the following picture:

Ray also provides some tips for driving in India, and I have actually driven in Bangalore with Ray as recently as last March, and I can say from firsthand experience that the man knows how to drive in India!

According to World Bank data, India had 20.3 traffic fatalities per 10,000 vehicles in 2003, which compares to only 1.86 traffic deaths in the U.S. per 10,000 vehicles according to these NCSA data (note the U.S. reports deaths per 100,000 vehicles as 18.59). Therefore, it is more than 10X more dangerous to drive in India than the U.S., measured by traffic deaths per 10,000 vehicles (see graph above).

Watch this amazing video of traffic somewhere in India at an unmarked intersection, and you'll get an idea of how insanely chaotic the traffic situation really is in India, with the crazy mix of cars, trucks, buses, motorcycles, bicycles, auto rickshaws, cows, pedestrians, dogs and even occasionally camels!

(Thanks to an anonymous comment that questioned my previous post, which was based on data from this website that incorrectly shows 185.8 deaths per 10,000 vehicles in the USA instead of 1.86, they must have studied "rainforest math.")

Quote of the Day: Markets Solving Organ Shortage

"Thousands of people die each year for lack of a healthy kidney, while hundreds of millions walk around with spare kidneys they’re unlikely to need. That’s nuts and most people can probably see that it’s nuts. For some reason, most of those people seem reluctant to embrace the one mechanism — the market — that can actually solve this kind of problem."

Economist Steven Landsburg talking to Freakonomics blogger Steven Dubner

Saturday, June 16, 2007

America: An Economic Incubator for Entrepreneurs

The IMD World Competitiveness Yearbook (WCY) analyzes and ranks nations' ability to create and maintain environments to sustain the competitiveness of enterprises. Considered the global authority on world competitiveness, it has been published annually since 1989 and ranks 55 economies on 323 criteria.

Results for 2007 were released in May, here is the press release, see the top 25 countries in the chart above (click to enlarge). As usual, the U.S. ranks #1 as the most competitive economy in the world, followed by Singapore and Hong Kong.

Why is the U.S. economy the most competitive in the world? And a related question: why has America produced so many successful young entrepreneurs? George Mason economist Tyler Cowen offers some excellent insights in this recent
NY Times article:

1. American youths are so successful at entrepreneurship in part because so many older and wealthier people are willing to help them. The broader American success at philanthropy, then, lays the groundwork for American entrepreneurship. By global standards, Americans may have looser networks of friends and family, but Americans are more willing to help relative strangers, and this often helps business.

2. The fact that American schooling is less disciplined than that in other countries gives young creators the time and the energy to accomplish something outside their formal education.

3. Relatively loose family structures have similar effects; American children are especially likely to be working on their own projects, rather than being directed by parents and elders.

4. Compared with those in other countries, American children play a much more influential role in society and enjoy a remarkable degree of autonomy. Teenagers receive higher allowances, have greater access to credit cards, and have more money to spend on starting a business. American labor markets are flexible enough to create a large number of jobs at the lower end of the wage scale. Teenagers are more likely to acquire work experience, and they are more likely to earn a small amount of capital for financing a start-up enterprise.

5. It is a common American dream to want to start one’s own business, and this cultural influence spreads to the young.

Tyler concludes, "On a national level, these successes are rooted in the commercial, competitive, philanthropic, nonegalitarian and open nature of American society. America’s economic head start probably won’t go away anytime soon."

MP: In other words, America's competitiveness results from an entrepreneurial-friendly society and culture, along with efficient and well-developed financial and credit markets, and generous philanthropic traditions, that together create an incredible infrastructure that nurtures and supports young entrepreneurs more successfully than any place on the planet - like an "economic incubator" for entrepreneurs. Imagine if a Bill Gates or a Michael Dell had been born in any other country - they might not have had the same supportive environment to nurture their entrepreneurial talents as they did here to start Microsoft and Dell, without any inherited wealth and without any political connections?

Making Michigan a Right-to-Work State

From Larry Reed's (president of Michigan's Mackinac Center for Public Policy) editorial in today's WSJ "It Takes a Recession" (subscription required):

Why is the basic truth, that unions are part of the state's economic problem, now coming to replace the notion that they are the state's salvation? A 2002 study from the Mackinac Center for Public Policy gives us a little hint. The study found that from 1970 to 2000, right-to-work states created 1.43 million manufacturing jobs. At the same time non-right-to-work states lost 2.18 million jobs. Not surprisingly, heavily unionized Michigan was near the bottom of the pile.

Michigan lost a quarter million jobs since the start of this decade. Unemployment is the highest for any state in the country. And while inflation-adjusted per capita personal incomes grew nationally by 4.2% since 2001, in Michigan they have fallen. Over the same period, real per capita GDP grew by nearly 9% nationally and declined in only one state -- Michigan. High-profile companies like the Big Three auto makers, Pfizer and Comerica are slashing workforces or moving operations out of state. Tax revenue is down and the state budget is hemorrhaging red ink.

Michigan's "economic development" efforts have obviously flopped, and for largely the same reason that a bad restaurant can't turn itself around by offering discounts or subsidies to a handful of customers. It must change the menu for everybody.

The state has tried to stop the bleeding with expensive TV ads featuring Michigan-born actor Jeff Daniels spotlighting the state's corporate welfare. But what's really dumb and getting dumber is the persistent reluctance of the administration of Democratic Gov. Jennifer Granholm to tackle the union issue, even as signs swell that the public is ready for a sea change. Her strategy is to sweep aside any suggestion for labor reform and lobby instead for an unpopular, job-killing tax increase and a billion-dollar hike in state spending.

Making Michigan a right-to-work state would quash with one powerful blow the nagging perception that our labor climate is too hostile and costly for business. It would provide more freedom for individual workers and a temporizing influence on union leadership.

Friday, June 15, 2007

Google's Success = Income Inequality, So What?

Increased income inequality, in and of itself, is neither positive nor negative. What matters is why inequality has increased.

A quarter of the increased income inequality since 1976--and almost all of the increase in inequality among the top earners--is a direct result of the increased use of performance pay by American companies. Inequality is rising because hard workers are being increasingly rewarded for their higher productivity.

In an economy where most wealth is not inherited but earned, increased inequality can be beneficial. Consider the impact of Google, Inc. The company's founders, Larry Page and Sergey Brin, are now worth more than $16 billion each. Their financial success has made America a demonstrably less equal country, and most Americans are better off for it. Google's various services allow tens of millions of Americans to quickly find what they want on the Internet, conveniently get directions to where they need to go, and use a quality e-mail server--all for free. Page and Brin became wealthy--and increased inequality--by improving the lives of others.

Performance pay increases wage inequality for two reasons. First, such jobs usually pay more than jobs without performance pay. Performance pay makes workers more productive, allowing employers to increase pay. However, higher wages for these workers, but not others, increases inequality.

Second, performance pay increases inequality directly because it means the workers who produce more, earn more. Imagine two car repair shops: The first pays employees a flat $15 per hour wage for installing replacement windshields; the second pays employees $20 for each windshield they install. There will be very little inequality in the first company since every worker earns the same wage. The second company pays more to diligent or talented employees because they install more windshields. Performance pay rewards productive workers more than less productive workers, meaning higher inequality.

Read more here.