Tuesday, August 07, 2007

Greater Diversity = Lower Social Capital?

A Harvard political scientist finds that diversity hurts civic life. What happens when a liberal scholar unearths an inconvenient truth? From "The Downside of Diversity" in Sunday's Boston Globe:

In his findings, Putnam writes that those in more diverse communities tend to "distrust their neighbors, regardless of the color of their skin, to withdraw even from close friends, to expect the worst from their community and its leaders, to volunteer less, give less to charity and work on community projects less often, to register to vote less, to agitate for social reform more but have less faith that they can actually make a difference, and to huddle unhappily in front of the television."

"People living in ethnically diverse settings appear to 'hunker down' -- that is, to pull in like a turtle," Putnam writes.

Higher diversity means lower social capital.

Via Tom McMahon


Never Underestimate the Power of the Market

Last year, Wal-Mart started offering hundreds of prescription drugs of all different kinds for only $4, saving customers about $300 million. Available nationwide since November 2006, the $4 prescriptions now account for more than 35% of all prescriptions filled at Wal-Mart and nearly 30% of the $4 prescriptions are filled without insurance.

Last month, Kmart began offering a 90-day supply of generic drugs for $15, and that program now includes more than 300 drugs.

Today,
Publix supermarket chain announced it will make seven common prescription antibiotics (amoxicillin, cephalexin, penicillin VK, erythromycin, sulfamethoxazole/trimethoprim, ampicillin and ciprofoxacin) available for free, joining other major retailers in trying to lure customers to their stores with cheap medications.

The oral antibiotics, representing the most commonly filled at the chain's pharmacies, will be available at no cost to anyone with a prescription as often as they need them. Fourteen-day supplies of the seven drugs will be available at all 684 of the chain's pharmacies in five Southern states.

Thomas Sowell on The Politics of Bridges

The real problem is that the political incentives are to spend the taxpayers' money on things that will enhance politicians' chances of getting re-elected.

There may be enough money available to maintain bridges and other infrastructure but that same money can have a bigger political pay-off if spent building something new instead of maintaining and repairing existing structures.

When money is spent building a new community center, a golf course, or anything that will be newsworthy, there will be ribbon-cutting ceremonies and the politicians who cut the ribbons can expect to see their pictures in the newspapers and on TV.

All that keeps their name before the public in a positive role and therefore enhances their prospects of being re-elected.

But there are no ribbon-cutting ceremonies when bridges are being repaired or pot-holes are being filled in. These latter activities may be more valuable than a community center or a golf course, but they are not nearly as photogenic.

The preference for showy projects that will enhance a politician's career prospects is not peculiar to current politicians. Adam Smith pointed out the same thing about politicians in 18th-century Europe.

We can vote the rascals out but the new rascals who replace them will face the same incentives and in all likelihood will respond in the same way.

A pattern that has persisted for more than two centuries is likely to continue unless something fundamental is changed.

What really needs to be done is to change the incentives.

From economist Thomas Sowell's most recent column "A Bridge Too Far Gone," read more here.

Ticket Scalping Now Legal in NY and Connecticut

In a recent post, I wrote about Minnesota repealing its 1913 ticket scalping ban. Now both New York and Connecticut have signed legislation to legalize ticket scalping.

From today's WSJ editorial "That's The Ticket":

Fans will now be able to buy and sell tickets in efficient and legal secondary markets. For ardent sports or music fans, this should eliminate the drudgery of camping in line for hours, or sometimes days, outside ticket windows to get choice seats.

Having tickets available to those who are willing to pay even a steep price is better than having no tickets available at any price. Secondary markets work efficiently for trading stocks, bonds, housing and art. When an investor resells his share of Google stock for a profit, we don't call him a price gouger. Yet that still happens in many states to ticket scalpers.

Of all people, Mr. Spitzer put it best when he signed the ticket legislation: "Permitting a free market to work its magic is the smart approach." Hold that thought, Governor.

Bottom Line: As I wrote before, re-selling tickets (or coins, cars, houses or bonds), whether the agreed-upon price is above, below or at the stated face value (list price), in a voluntary transaction between a willing buyer and a willing seller, is a "crime" without a victim in those jurisdictions where ticket scalping is illegal.

Ending ticket scalping laws shows that sometimes common economic sense can rise above politics. If every student was required to take a basic economics course in grade school, high school and college, perhaps these ticket scalping laws would have been repealed decades ago?

Wal-Mart Enters $300 Billion Indian Retail Market

From today's WSJ:

NEW DELHI -- Wal-Mart took a stride toward establishing international operations capable of fueling its sales growth as its U.S. operations mature, signing a long-awaited joint-venture pact with Bharti Enterprises to sell goods to small retailers, manufacturers and farmers in India.

Wal-Mart, the world's largest retailer, and many of its largest competitors long have coveted access to India, which boasts a $300 billion retail industry made up almost entirely of mom-and-pop shops. Indian rules don't allow multiple-brand retailers such as Wal-Mart to sell directly to consumers, but they can run wholesale operations and provide back-end support to Indian retailers.

The 50-50 joint venture, Bharti Wal-Mart, will provide wholesale cash-and-carry and back-end supply-chain management operations in the country, the companies said. Bharti Wal-Mart will also supply retailers such as Bharti Retail, a unit of Bharti Enterprises that is setting up a separate, wholly owned retail chain in India that will sell directly to the end consumer.

Bharti Wal-Mart will launch its first store by the end of 2008 and will open up to 15 such facilities over the next seven years, employing about 5,000 people, the companies said. A typical store will stand between 50,000 and 100,000 square feet and sell a wide range of fruits and vegetables, groceries and staples, stationery, footwear, clothing, consumer durables and other general merchandise items, the companies said.

Bottom Line: American companies like AOL, Yahoo, Microsoft, Dell and Google employ thousands of Indians in call centers and research centers in India allowing these American companies to become larger, stronger and more efficient, creating more jobs in the U.S. (and India) for these companies, and these jobs in India are allowing thousands or millions of Indians to enter the middle class. Then American companies like Starbucks, Foot Locker, Domino's Pizza and Wal-Mart sell low-priced products to millions of middle-class Indians, allowing these companies to become larger, stronger and more efficient, creating more jobs in the U.S. (and India), and increasing the standard of living in India.

Seems like thousands, no probably millions, of voluntary win-win deals to me. Trade works. America is better off trading with India, and India is better off trading with the U.S.

Monday, August 06, 2007

Quote of the Day: Lessons from the Bridge

We should all learn this lesson from the bridge collapse: nearly every newsworthy tragedy we see would be less common if those who could have prevented it were subject to the harsh and impartial oversight of the free market. At the same time, nearly every tragedy we see will result in endlessly broadcast exhortations that we eliminate more of that free market and replace it with more of the same government that allowed the tragedy to happen in the first place. The same counterarguments presented above will apply the next time you see a newsworthy tragedy. If enough of us begin using them, perhaps someday we'll start learning these correct lessons.

Imagine if a Wal-Mart fell in on customers, killing them. What would be the reaction? The CEOs of Wal-Mart would be strung up. Certainly there would not be any public moaning about how the roofs of our nation's shopping centers are in disrepair. The blame would be focused and intense, with no excuses tolerated.

The correct solution: get government completely out of the business of building bridges. Private engineers and inspectors, completely independent of the power of government to insulate them from the consequences of shoddy work, will inspect with the zeal of (most) private accounting and law firms, who jealously guard their reputations for excellence. Imagine how safe we'd feel if the people who inspect and approve bridges could actually lose their jobs and their fortunes if they make a fatal mistake!

~Brad Edmonds writing for the Mises Institute

Sociology of Economics

Interesting post today on Greg Mankiw's blog, "The Sociology of Economics."

"The economists are the only social scientists in the room who are willing to argue with the statisticians. This could be that you are a more argumentative lot in the absence of substance, but also that you know something. I'm not qualified to tell who wins these disputes, but the statisticians seem to regard the economists with a high degree of regard. Why do you think that different disciplines view the importance of statistics differently?"

MP: In my economics doctoral program at George Mason I had 4 classes in PhD-level statistics and one course in mathematical economics, and George Mason is relatively "non-mathematical." Therefore, I think most economists today get rigorous training in statistics, compared to sociology and other social sciences.

Exhibit A: In a previous post I wrote about why Larry Summers was fired from Harvard for saying something rather sensible and non-controversial from a statistics standpoint. Perhaps the lack of training in statistics in social sciences and other disciplines contributed to Summers' downfall.

Corn is the State Religion, NOT Soybeans

Cato: "The closest thing we have to a state religion in the United States isn't Christianity. It's corn." Given Washington's love affair with corn ethanol, promoted as a way to end dependence on foreign oil, you would think the politicians and bureaucrats would love other biofuels like soybean oil. But you would be wrong.

"Bob Teixeira of Charlotte, NC, decided it was time to take a stand against U.S. dependence on foreign oil. So last fall the Charlotte musician and guitar instructor spent $1,200 to convert his 1981 diesel Mercedes to run on vegetable oil. He bought soybean oil in 5-gallon jugs at Costco, spending about 30 percent more than diesel would cost.

His reward, from a state that heavily promotes alternative fuels: a $1,000 fine last month for not paying motor fuel taxes. He has been told to expect another $1,000 fine from the federal government.

To legally use veggie oil, state officials told him, he would have to first post a $2,500 bond.

Teixeira is one of a growing number of fuel-it-yourselfers -- backyard brewers who recycle restaurant grease or make moonshine for their car tanks. They do it to save money, reduce pollution or thumb their noses at oil sheiks.

They're also caught in a web of little-known state laws that can stifle energy independence.

Read more here.


Saturday, August 04, 2007

Indian Call Centers....in Ohio? Outsourcing TO USA

It would be easy to imagine Reno, Ohio, as the type of place that would be hit hardest by outsourcing - a small American town losing out to the invisible hand shifting jobs to places like Bangalore. Instead, outsourcing is bringing the jobs to Reno. Across the street from an Army Reserve center and next to a farm, a customer-service call center hums, its 250 workers answering phones for online travel agency Expedia. The center's owner? Indian conglomerate Tata Group (NYSE:TTM), based in Mumbai.

According to the Organization for International Investment, firms headquartered abroad employ 5.1 million Americans in their U.S. offices. But while these jobs have typically been in manufacturing (think German carmakers' factories in the South), the mix is changing, and more companies are finding that hiring Americans offers distinct advantages. Some companies feel hearing a fellow American makes callers feel more comfortable. Other foreign firms think Americans bring a more entrepreneurial attitude to their work. In Expedia's case, its call-center workers need a firm grasp on U.S. geography.

Read more from CNN.

(HT: Sanil Kori)

Globalization: Trade Works Both Ways

First it was Starbucks entering the Indian market, then Wal-Mart, then Foot Locker and now Procter and Gamble is set to enter the Indian skin care market with a range of products, read more here.

(HT: Sanil Kori)

Private Bridges?

The tragic bridge collapse in Minneapolis is a stark reminder that too much of our transportation infrastructure is not well-maintained and requires extensive, costly investments to be fixed or even, in some cases, completely replaced.

Nearly a fifth of America's roads are now considered in poor shape and about one-in-four bridges is rated "structurally deficient." The U.S. Department of Transportation estimates that the cost to fix these problems is a staggering $460 billion.

Is more federal transportation money the answer? The problem is that 98% of our bridges and 97% of our roads are owned and operated by state and local governments -- and that these governments have often used past increases in federal transportation aid simply to replace their own infrastructure spending.

Instead, a few states and cities are now creatively turning to the private sector for help. They are partnering with private investors to build from scratch new toll roads, bridges and other infrastructure that the private owners -- not government -- will finance and operate. A few cash-strapped cities and states are also replenishing their transportation trust funds -- so that they can pour more money into repair and maintenance -- by auctioning off existing toll roads and bridges to private operators, who are bidding far more for these assets than most experts would have predicted.

~From today's WSJ editorial "How To Keep Our Bridges Safe"

Note: The original U.S. toll roads in the 18th and 19th century were privately owned, until taken over by state highway deparments in the early 1900s, click here for some history.

Friday, August 03, 2007

The Political Reality of Highway Spending

The last major highway bill was passed in 2005.

From the Heritage Foundation in 2005:
"With the House proposing $370 billion against the Senate’s $318 billion, the President ultimately forced both sides to accept $284 billion as the upper limit on spending, and that number became a part of both bills. But while the President won on total spending, Congress apparently believed that its consolation prize was the right to waste the money on frivolous programs that provided little or no safety and mobility to the motorists whose taxes fund the program."

From CBS News in 2005:
Congress passed sweeping highway and mass transit legislation that will send $284 billion to the states to build and fix roads, create thousands of new jobs and — lawmakers hope — save lives and cut hours wasted in traffic jams.

The bill "will affect every American in some way," said Sen. James Jeffords, I-Vt. "The impact of this bill will be felt for decades to come."

The bill is also stuffed with thousands of so-called "earmarks," projects big and small that influential members of Congress have put in to by-pass state highway department priorities and make a splash in their home districts.

Taxpayers for Common Sense, which lists 6,361 of these projects valued at $23 billion, and other watchdog groups say such projects are wasteful, handed out as political rewards.

From the Cato Institute in 2005: You may recall the highway bill that Congress passed in July. It was the biggest porkfest in history -- more than 13,000 individual projects awarded federal tax dollars in an orgy of logrolling and back-scratching.

Among the most notorious projects were two bridges in Alaska, dubbed the "bridges to nowhere." The bill included $223 million for a bridge linking Gravina Island to the town of Ketchikan in Alaska. According to Taxpayers for Common Sense, federal taxpayers will eventually pay $315 million for this bridge. Here’s the deal: Ketchikan is a town of 8,000 people (13,000 in the whole county, and population is declining). Its airport is on the nearby Gravina Island. Right now you have to take a 7-minute ferry ride from the airport to the town. To save people that 7-minute ride, Alaska wants to build a $315 million bridge.

MP: Perhaps instead of building "bridges to nowhere," Congress should have paid more attention to existing bridges in need of repair?

Thanks to Larry Kudlow.

Sicko in Europe's Backwards Health Care System

We live in an age of unprecedented medical innovation. Unfortunately, most of today's cutting-edge research is conducted outside Europe, which was once a pioneer in this field. About 78% of global biotechnology research funds are spent in the U.S., compared to just 16% in Europe. Americans therefore have better access to modern drugs. One result is that in the U.S., the annual death rate from cancer is 196 per 100,000 people, compared to 235 in Britain, 244 in France, 270 in Italy and 273 in Germany (see chart above, click to enlarge).

It is both a tragedy and an embarrassment that Europe hasn't kept up with the U.S. in saving and improving lives. What's to blame? The Continent's misguided policies and state-run health-care systems.

It is time for politicians and regulators to confront our backward health-care systems and unleash the powers of medical research. Besides expanding drug budgets, European countries should work together to deregulate the pharmaceutical industry -- for instance, by speeding up the approval process for new drugs. The EU can better ensure that drug patents are adequately protected both in Europe and around the world against compulsory licensing and other infringements. Finally, we should give medical researchers tax incentives to slow the brain drain to the U.S. -- much like Ireland is attracting artists with favorable tax laws. We Europeans are getting older; we should be getting wiser, healthier and happier, too.

~From today's WSJ, "
Sicko in Europe" by Daniel Capezzone, president of the productivity committee of the Italian Chamber of Deputies

Thursday, August 02, 2007

Convenient, Affordable Health Care: Retail Clinics

I have posted previously on low-cost, consumer-friendly, market-driven, walk-in retail health care clinics in retail stores like Walgreens, CVS and Wal-Mart, see here, here, here and here.

In today's WSJ, there is an excellent article by the CEO of RediClinic, one of the nation's largest convenient care providers (mostly in Wal-Marts), "
Health Care When You Want It," here are some highlights:

1. There are about 400 such clinics today and could be several thousand more in the next few years.

2. Convenient care clinics are small health-care facilities with new brand names like RediClinic, MinuteClinic, and Take Care Health Clinics. Most are located in high-traffic retail outlets with pharmacies, such as Wal-Mart, CVS and Walgreen stores.

3. Convenient care clinics have been embraced by consumers, who give them consistently high marks for patient satisfaction: 97% of the more than 4,000 RediClinic patients surveyed this year said they would recommend RediClinic to their relatives and friends. This is because the clinics are delivering something that is all too rare in our system -- convenient and affordable health care.

4. The quality of care at convenient care clinics stems from their use of nationally certified nurse practitioners, who are registered nurses with master's degrees or comparable advanced training. Research over the past 30 years has consistently shown that the primary care provided by nurse practitioners is comparable in quality to that provided by physicians, though nurse practitioners are still required to collaborate with local physicians in most states.

5. Treatment for most common ailments ranges from $40 to $70 and preventive services start as low as $15, significantly less than what most physicians, urgent care clinics or emergency rooms charge. Indeed, research shows that as many as 50% of the people who seek care at overburdened emergency rooms could be treated much less expensively in convenient care clinics. Prices are prominently displayed so patients know what they will pay before they are treated, and visits are covered by a growing number of insurance plans, including Medicare.

6. As would be expected, their growth is being threatened by burdensome regulations in some states and opposition from some corners of high-priced organized medicine (MDs, AMA, etc). Instead of opposing convenient care, physicians should be working collaboratively with operators -- as many physicians are today -- to fill the critical need that all Americans share for easier access to high-quality, affordable health care.

Bottom Line: Perhaps we don't need more high-cost, bureaucratic, inefficient, socialized medicine, we need more efficient, low-cost, market-driven, and consumer-friendly retail healthcare clinics to reform our health care system.

Almost "All Children Left Behind" in D.C. Schools

Spending per child in Washington, D.C. public schools: $15,414

D.C.'s ranking for per student spending: #1, more than any state

Average spending per student, nationally: $8,899

Percent of D.C. 8th grade students not proficient in reading: 88%

Percent of D.C. 8th grade students not proficient in math: 93%

D.C.'s ranking for reading and math proficiency: #51

Bottom Line: Washington, D.C. spends the most money per student, and gets the worst results.
So much for the idea that spending more money on public schools will improve academic performance.

Read more here.

Minneapolis I-35W Bridge Collapses into Mississippi

See security camera footage that shows the actual collapse of the I-35W bridge in Minneapolis yesterday.

In less than 24 hours, "instant online encyclopedia" Wikipedia already has an extensive listing on the "I-35W Mississippi River Bridge," with a history of the bridge, more than 40 references, photos, external links, alternate routes, etc., updated continuously.

Note: I left Minneapolis yesterday about 1 p.m. to drive down to the Winona, MN area, about 100 miles south of Minneapolis on the Mississippi River, and I am now looking out at a magnificent, peaceful river scene from Buffalo City, Wisconsin, just south of Lock and Dam #4 near Alma, WI, quite a contrast to the chaos and destruction on the Mississippi in Minneapolis, just north of Lock and Dam #1.

"Just Say No" to Corn and The Ethanol Hustlers

There is a real danger that Congress will remain oblivious to the economic and scientific realities of ethanol and take us down the wrong path by mandating a huge increase in ethanol production. Washington might have a love affair with ethanol for political reasons, but increasing ethanol production will lead to higher taxes, higher prices for both food and fuel, and damage to the environment, making us all worse off.

Congress needs to say no to the ethanol hustlers and end its political addiction to corn.

~From my commentary in today's Detroit News "Cornfed overexuberance: Ethanol push raises food prices, guzzles fuel, reduces water levels."

Bottom Line: Corn ethanol is all about politics, not about sound economics or sound science. Ethanol is a classic public choice example of rent seeking, special interest groups, and rational ignorance.

Price Controls Lead to Empty Shelves in Zimbabwe

NY Times: Robert G. Mugabe has ruled over this battered nation (Zimbabwe), his every wish endorsed by Parliament and enforced by the police and soldiers, for more than 27 years. It appears, however, that not even an unchallenged autocrat can repeal the laws of supply and demand (with price controls).

Neither can Congress nor local governments in the U.S. Like when they pass minimum wage laws, rent control laws, price gouging laws, etc.

The biggest difference between market prices and government-controlled prices? See pictures above (controlled prices) and below (market prices) for the answer.


Wednesday, August 01, 2007

Doh!

Foreign rivals outsold the Big Three in July for the first time in history, see graph above (click to enlarge). Read more about it here in the Detroit News.

Cartoon of the Day: Northwest Homers



1,028 Economists Oppose Protectionist Policies

Some in Congress are considering ways to enact protectionist policies against China. Fortunately, 1,028 of America’s top economists, from all 50 states and top universities, have signed the following petition sponsored by the Club for Growth in opposition to protectionist policies against China. In addition to many other prominent and well-respected economists, signatories include Nobel Laureates Finn Kydland, Edward Prescott, Thomas Schelling, and Vernon Smith. The petition and names of the signers appears as full page ad in today's Wall Street Journal.


PETITION
Concerning Protectionist Policies Against China

We, the undersigned, have serious concerns about the recent protectionist sentiments coming from Congress, especially with regards to China.

By the end of this year, China will most likely be the United States' second largest trading partner. Over the past six years, total trade between the two countries has soared, growing from $116 billion in 2000 to almost $343 billion in 2006. That's an average growth rate of almost 20% a year.

This marvelous growth has led to more affordable goods, higher productivity, strong job growth, and a higher standard of living for both countries. These economic benefits were made possible in large part because both China and the United States embraced freer trade.

As economists, we understand the vital and beneficial role that free trade plays in the world economy. Conversely, we believe that barriers to free trade destroy wealth and benefit no one in the long run. Because of these fundamental economic principles, we sign this letter to advise Congress against imposing retaliatory trade measures against China.

There is no foundation in economics that supports punitive tariffs. China currently supplies American consumers with inexpensive goods and low-interest rate loans. Retaliatory tariffs on China are tantamount to taxing ourselves as a punishment. Worse, such a move will likely encourage China to impose its own tariffs, increasing the possibility of a futile and harmful trade war. American consumers and businesses would pay the price for this senseless war through higher prices, worse jobs, and reduced economic growth.

We urge Congress to discard any plans for increased protectionism, and instead urge lawmakers to work towards fostering stronger global economic ties through free trade.

To see the full list of the 1,028 economists who signed the petition click here.

MP: I, along with four other economists at the University of Michigan-Flint signed the petition: School of Management Dean Jack Helmuth, and Professors Yener Kandogan, Dennis Ellis and Chris Douglas.

See a related editorial in the WSJ here.


Minnesota Repeals 1913 Ticket Scalping Ban

Most crimes involve a victim - someone who has been assaulted, raped, murdered, burgled, deceived by fraud, attacked, blackmailed, slandered, or otherwise damaged or harmed in some way. Ticket reselling or "scalping" is an exception, it's a "victimless crime," involving a voluntary buyer and a voluntary seller engaged in a mutually advantageous transaction for tickets to a sporting event or concert. Win-win. The buyer values the tickets more than the cash, and the seller values the cash more than the tickets.

Houses often sell for more than the list price, coins often sell for more than face value, cars sometimes sell for more than the sticker price, and thousands of bonds sell daily for more than face value. Why should tickets to the Superbowl or a Prince concert be any different?

Well, they're not different any more in Minnesota, where the 94-year-old Minnesota law that made reselling tickets for more than face value a misdemeanor was erased from the books at 12:01 a.m. today, see the story "Scalp All You Want" here in the Twin Cities StarTribune.

Minnesota is now the 42nd state to decriminalize scalping. There are only 8 left.

Tuesday, July 31, 2007

Ethanol: Dangerous, Delusional Bullshit

Ethanol is not just hype -- it's dangerous, delusional bullshit.

Ethanol doesn't burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption -- yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.

So why bother? Because the whole point of corn ethanol is not to solve America's energy crisis, but to generate one of the great political boondoggles of our time. Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 -- twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners. And a study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about half of ethanol's wholesale market price.

The ethanol boondoggle is largely a tribute to the political muscle of a single company: agribusiness giant Archer Daniels Midland (ADM).

Today, ADM is the leading producer of ethanol, supplying more than 1 billion gallons of the fuel additive last year. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year. And ADM continues to give back: Since 2000, the company has contributed $3.7 million to state and federal politicians.


From "Ethanol Scam: Ethanol Hurts the Environment And Is One of America's Biggest Political Boondoggles," in RollingStone Magazine


MP: The chart above shows the 5-year return on ADM stock (+200%, top blue line) vs. the S&P500 (+60%, bottom red line).


Price Discrimination: Russians Get a Discount

The picture above (click to enlarge) shows a sign at St. Issac's Cathedral in St. Petersburg, Russia. The church, designed to accommodate 14,000 standing worshipers, was closed in the early 1930s and reopened as a museum.

The top sign says "ENTRANCE TO THE MUSEUM" in Russian. If you can read Russian, you enter to the left and go to a separate ticket counter, which has a lower entrance fee than if you speak English, and enter to the right.

Happy Birthday Milton Friedman

Indeed, Friedman once said, "Freedom is not the natural state of mankind. It is a rare and wonderful achievement. It will take an understanding of what freedom is, of where the dangers to freedom come from. It will take the courage to act on that understanding if we are not only to preserve the freedoms that we have, but to realize the full potential of a truly free society."

So as we celebrate Milton Friedman's birthday and achievements, we must continue his legacy and keep making the case for freedom.


Mr. Siems, senior economist and policy advisor at the Federal Reserve Bank of Dallas, writing in today's Wall Street Journal

Markets In Everything: Dog Time Shares

SAN FRANCISCO - From the state that popularized purse puppies, drive-thru dog washes and gourmet dog food delivery comes the latest in canine convenience — a company that contracts out dogs by the day to urbanites without the time or space to care for a pet full-time.

For an annual fee of $99.95, a monthly payment of $49.95 and a per-visit charge of $39.95 a day, (discounted to $24.95 Sunday through Thursday), animal lovers who enroll in FlexPetz get to spend time with a four-legged companion from a 10-dog crew of Afghan hounds, Labrador retrievers and Boston terriers.

(HT: Sanil Kori)

Monday, July 30, 2007

Plain English vs. A Bureaucrat's English

The Missouri Civil Rights Initiative's (MoCRI) proposed language for its November 2008 ballot measure, which has been approved by the Missouri Secretary of State Robin Carnahan:

Shall the Missouri Constitution be amended to prohibit any form of discrimination as an act of the state by declaring: The state shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting?

Language for the ballot measure, with changes, from Secretary of State Carnahan:

Shall the Missouri Constitution be amended to ban affirmative-action programs designed to eliminate discrimination against, and improve opportunities for, women and minorities in public contracting, employment, and education?

Hmmmmmmm.... that seems just a little bit different.....

As you might expect, the MoCRI filed a petition in the circuit court of Cole County legally challenging the changes in the ballot language.

Just Drill in US, Baby; We've Got 131 Billion Barrels

From today's WSJ, "Just Drill Baby," by Pete DuPont:

The government reports that U.S. crude oil production declined to 1.9 billion barrels in 2005 from 3.5 billion in 1970, and the share of our oil that is imported has increased to 60% from 27% in 1985. Washington politicians will tell you this is an "energy crisis," but America's energy challenges are far more political than substantive.

First, we are not running out of oil. In 1920 it was estimated that the world supply of oil was 60 billion barrels. By 1950 it was up to 600 billion, and by 1990 to 2 trillion. In 2000 the world supply of oil was estimated to be 3 trillion barrels.

The U.S. has substantial supplies of oil and gas that could be accessed if lawmakers would allow it, but they frequently don't. A National Petroleum Council study released last week reports that 40 billion barrels of America's "recoverable oil reserves are off limits or are subject to significant lease restrictions"--half inshore and half offshore--and similar restrictions apply to more than 250 trillion cubic feet of natural gas. (We consume about 22 trillion cubic feet a year.)

Access to the 10 billion barrels of oil in Alaska's Arctic National Wildlife Reserve has been prohibited for decades. Some 85 billion barrels of recoverable oil and 420 trillion cubic feet of natural gas exist on the Outer Continental Shelf, but a month ago the House again, as it did last year, voted down an amendment that would have allowed the expansion of coastal drilling for oil and natural gas. All of which leaves the U.S. as the only nation in the world that has forbidden access to significant sources of domestic energy supplies.


From a previous CD post:


Percentage of domestic oil resources currently off-limits in Arctic National Wildlife Refuge (ANWR) and the Outer Continental Shelf (OCS) : 78

Amount of Domestic oil currently off-limits: 131 billion barrels (that's 131,000,000,000)

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


Elephant in the Room That Politicians Are Dodging

If you haven't noticed, the major presidential candidates—Republican and Democratic—are dodging one of the thorniest problems they'd face if elected: the huge budget costs of aging baby boomers.

Consider the outlook. From 2005 to 2030, the 65-and-over population will nearly double to 71 million; its share of the population will rise to 20 percent from 12 percent. Social Security, Medicare and Medicaid—programs that serve older people—already exceed 40 percent of the $2.7 trillion federal budget. By 2030, their share could hit 75 percent of the present budget, projects the Congressional Budget Office. The result: a political impasse.

The 2030 projections are daunting. To keep federal spending stable as a share of the economy would mean eliminating all defense spending and most other domestic programs (for research, homeland security, the environment, etc.). To balance the budget with existing programs at their present economic shares would require, depending on assumptions, tax increases of 30 percent to 50 percent—or budget deficits could quadruple. A final possibility: cut retirement benefits by increasing eligibility ages, being less generous to wealthier retirees or trimming all payments.

Little wonder politicians stay silent.

~Robert Samuelson in Newsweek, "When Silence Isn't Golden."

Sunday, July 29, 2007

Socialism on the Installment Plan: Zimbabwe

Inflation in Zimbabwe is estimated to be somewhere between 4,000% and 9,000% (see graph above through April 2007, the last time that CPI data were released, click to enlarge).

President Robert Mugabe's solution to the hyperinflation caused by excessive money creation? Print more money to fund government spending. See the full story here in today's Washington Post.

The decision to print more money comes after the government ordered sweeping price cuts of about 50% last month, accusing store owners and businesses of fueling the inflation. The government-ordered price controls have emptied stores across the country, with businesses saying they can't afford to sell at the new prices. About 5,000 managers and gas station and store owners have been arrested and fined for defying the price controls since the order was issued June 26.

Although an extreme example, the pattern of events in Zimbabwe illustrates a fairly common phenomena of "socialism on the installment plan."

1. The government intervenes in the economy with excessive money creation, price controls, tariffs, capital controls, regulation, etc. which create economic inefficiencies and distortions.

2. To "fix" the distortions that they created, the government then intervenes with additional programs, policies, price controls or regulations, which exacerbate the original distortions, which create further interventions, which create more distortions, etc.

3. The government interventions breed and foster additional interventions, which put the economy on a path towards socialism, with a ratchet-like movement toward ever bigger and stronger government, or socialism on the installment plan.

In Zimbabwe, the government engaged in excessive money creation and inflationary finance, which created hyperinflation and massive distortions and inefficiencies in the economy, e.g. the unemployment rate in Zimbabwe is currently 80%. To "fix" hyperinflation, the government orders price controls, which create widespread shortages, and greater economic distortions and inefficiencies. Then to "fix" hyperinflation and shortages, the government prints more money, which will further fuel hyperinflation and lead to even more inefficiencies.

Then with the economy in shambles, and the private sector decimated, the government will have to propose giving itself more power and control to try to "fix" the ailing economy, which will make the problems worse, not better. Socialism on the installment plan. Exhibit A: Zimbabwe.

More on How Medical Tourism Can Help Americans

From the Forbes article "Open-Heart Surgery--90% Off" by Steve Forbes:

A fast-growing phenomenon--"medical tourism," which will be a $40 billion industry by 2010--is showing how we can "solve" the health care financing crisis.

More and more Americans are choosing to go abroad for elective and/or major surgeries. What entrepreneurs began more than a decade ago by constructing world-class facilities to lure patients from the U.S. and around the world into traveling for cosmetic surgery has now blossomed into freshly built foreign hospitals offering a wide array of other types of medical procedures. India, Thailand and Singapore are among the countries heavily involved. Panama and others are just entering this arena.

The hospitals and physicians are usually first-rate and, amazingly, can provide operations at 10% to 30% of the cost in the U.S. For instance, knee replacement surgery that might cost $16,000 here can be done for $4,500 in a top-tier (by U.S. standards) Indian hospital. Dr. John Helfrick, president of the International Society for Quality in Health Care, and Dr. Robert Crone, CEO and president of Harvard Medical International, tell of one dramatic example: A patient was in need of complicated heart surgery. His hospital said the cost would be $200,000 and wanted $100,000 up front. The patient's son, a medical student, knew of the medical tourism industry and arranged for his father to have the operation overseas. The complicated surgery was a success. The cost: $6,700.

How is this possible? Excellent hospitals can be built overseas without the bureaucratic red tape found in the U.S., thereby saving construction time. Construction costs are lower, as are nursing, physician and administrative expenses. Expat doctors who have trained here and in Europe are returning home, where money goes considerably further than in, say, New York or California. More and more of these foreign hospitals--currently numbering about 120, and growing--are not just mirroring the best U.S. practices but are emerging as innovators. They are certified by Joint Commission International, a not-for-profit subsidiary of the Joint Commission, which accredits U.S. hospitals. The international accreditation process is as rigorous as it is in the U.S.--but without the unnecessary bureaucratic paperwork.

(HT: Sanil Kori)

American Farmers Addicted to Harvesting Cash

Fifty-seven percent of farms receive no payments and two-thirds of those that do receive less than $10,000. The largest 8 percent of farms receive 58 percent of the payments. Farms with revenues of $250,000 or more receive payments averaging $70,000.

Under the continuing New Deal approach, five commodities -- corn, soybeans, cotton, rice and wheat -- got about 90 percent of last year's $19 billion in subsidies. This is a perverse incentive for overproduction of the five, which depresses prices, which triggers federal supports.

By subsidizing corn-based ethanol, the government is making the "crop specific" approach to subsidies increasingly irrational: Ethanol enthusiasm has produced a one-year increase of 12 percent in acres planted in corn, the price of which has risen 20 percent in a year. So farmers are planting fewer acres in soybeans, which therefore also are being made more expensive by federal policy. Furthermore, U.S. agriculture subsidies, which have the World Trade Organization properly frowning, are becoming major impediments to further liberalization of global trade, and hence to the huge potential growth of U.S. farmers' incomes from exports.

Agriculture policy -- another manifestation of the welfare state, another contributor to another faction's entitlement mentality -- involves a perennial conundrum of welfare, corporate as well as individual: How do you break an addiction to government without breaking the addicted? If Lugar and like-minded legislators can accomplish their aims, their achievement will be comparable to the welfare reform of 1996 -- the fecund year of the short-lived Freedom to Farm Act. As Lugar again puts his hand to the plow, attempting to plow under a New Deal remnant, wish him well.

~George Will from his most recent column

FlightStats Website Tracks Airline Performance

The chart above is from FlightStats, a website that tracks performance by airport and airline in 3 hour increments, showing today's departures for Northwest Airlines from Detroit (DTW).

Of 94 flights scheduled to leave this morning, 8 have been cancelled (8.5%), and the other 86 (91.5%) are either en route, landed, or scheduled to leave on time.

That's better than several time periods yesterday, when between 20-30% of Northwest flights from DTW were cancelled, see this story in the Detroit News.

Saturday, July 28, 2007

Salary Differentials, Why Not Tuition Differentials?

Salaries above are the median starting salaries by discipline for college professors at all public universities for the 2005-2006 academic year, according to CUPA-HR (College and University Professional Association for Human Resources). The data show significant salary differentials, ranging from $43,500 for theatre to $79,000 for business.

If universities across the country use salary differenatials for different disciplines as the standard practice when hiring professors, why should they object to "tuition differentials" when pricing different academic programs and majors? That is, why would universities object to charging higher tuition for business programs than for humanities? Well, many universities have started to use tuition differential pricing, but the practice is somewhat controversial.

Find out why in this NY Times article "Certain Degrees Now Cost More at Public Universities."

Bumper Crop Expected, Some Drought Concerns

From Global Insight: USDA reports that current crop conditions still point toward large 2007 corn, soybean, and cotton crops. Encroaching drought conditions, however, could reduce crop potential in some areas.

As USDA's drought monitor indicates, drought is encroaching on the Corn Belt where the majority of corn and soybean are grown. However, much of the corn is already mature, reducing the impact of dry conditions late in the season. Crop conditions as of July 22 indicate a corn crop of 12.9 billion bushels is on its way.

Workers Pay the Corporate Tax With Lower Wages

Economist and Columbia Business School Dean R. Glen Hubbard writes in the WSJ that workers actually bear most of the corporate tax burden in the form of lower wages, and cutting the corporate tax rates would increase wages:

Who bears the corporate tax burden? Some may be tempted with a quick answer, "corporations." But that is clearly wrong. The Econ 101 admonition that people pay taxes -- in this case, suppliers of capital through lower returns, workers through lower wages, and/or consumers through higher prices -- remains true even when the tax is aimed at capital.

Recent research has cast an eye in a somewhat different direction, showing that the corporate tax may be borne not entirely (or even principally) by owners of capital, but by workers. Globalization plays a role. In an open economy, with mobile capital, a source-based tax like the corporate tax will lead to a capital outflow, reducing investment and productivity and wages.

A recent paper by the American Enterprise Institute analyzes data across countries and over time, concluding that for OECD countries, a 1% increase in corporate tax rates results in a 0.8% decrease in manufacturing wage rates.

Wage effects of this size suggest labor bears much of the burden of the corporate tax. In fact, workers collectively would be better off if they voted for higher taxes on labor with corresponding cuts in the corporate tax.

Cutting the corporate tax rate would be positive for investment, productivity and economic growth. It would also reduce a tax burden now borne in large part (or even entirely) by labor, bolstering wages.

Friday, July 27, 2007

Quote of Day: Unsustainable Lavish Expectations

UAW workers still enjoy a health-care deal that no one else in America or Japan -- or quite possibly the planet -- does. Yet Mr. Gettelfinger said last week that the 2005 health-care givebacks were the toughest decision he ever made in his entire career. This is a startling admission that reflects the depth of the UAW's entitlement mentality, and its detachment from the world that its fellow Americans inhabit. But such lavish expectations are unsustainable under any system -- American or Japanese. This is a reality that Mr. Gettelfinger must accept. Otherwise, he may well push U.S. auto makers over the cliff -- and his comrades with them.

~Shikha Dalmia in today's WSJ editorial "The UAW's Health-Care Dreams"

Thursday, July 26, 2007

How Socialized Medicine Doesn't Work

A Canadian MD explains how socialized medicine doesn't work:

I was once a believer in socialized medicine. As a Canadian, I had soaked up the belief that government-run health care was truly compassionate. What I knew about American health care was unappealing: high expenses and lots of uninsured people.

My health care prejudices crumbled on the way to a medical school class. On a subzero Winnipeg morning in 1997, I cut across the hospital emergency room to shave a few minutes off my frigid commute.

Swinging open the door, I stepped into a nightmare: the ER overflowed with elderly people on stretchers, waiting for admission. Some, it turned out, had waited five days. The air stank with sweat and urine. Right then, I began to reconsider everything that I thought I knew about Canadian health care.

I soon discovered that the problems went well beyond overcrowded ERs. Patients had to wait for practically any diagnostic test or procedure, such as the man with persistent pain from a hernia operation whom we referred to a pain clinic — with a three-year wait list; or the woman with breast cancer who needed to wait four months for radiation therapy, when the standard of care was four weeks.


America is right to seek a model for delivering good health care at good prices, but we should be looking not to Canada, but close to home — in the other four-fifths or so of our economy. From telecommunications to retail, deregulation and market competition have driven prices down and quality and productivity up. Health care is long overdue for the same prescription.

Read more here from the IBD.....

Cult Hero & George Mason Economist Tyler Cowen

From a profile of George Mason economist Tyler Cowen in New York Magazine:

Not so long ago, economists not named Milton Friedman mostly kept to themselves, impressing each other with their inscrutable theories. Now they’re the pop stars of academia. Spurred on by Freakonomics, the 2005 best seller by Steven Levitt and Stephen Dubner, economists realized that, if only they can learn to communicate normally, they have the tools to explain people’s lives to them. Like, why won’t my teenage daughter wash the dishes?

Among this new crowd of economists, Cowen, a 45-year-old professor at George Mason University just outside D.C., is a cult hero, insofar as he co-runs an influential blog called marginalrevolution.com. You don’t need to be an economist to enjoy it.


Tyler has a new book "Discover Your Inner Economist," his blog Marginal Revolution gets more than 10,000 visits daily, his Ethnic Dining Guide for D.C. is in its 23 edition, and he was a member of my Ph.D. dissertation committee at George Mason!

Doctor Shortage? Increase Number of Med Schools

Go to Google and do a search for:

"Economist shortage" and you'll get 4 results.

"Truck driver shortage" and you'll get 1 result.

"Realtor shortage" and you'll get 3 results.

"Computer programmer shortage" and you'll get 32 hits.

"Attorney shortage" and you'll get 163 hits.

"Accountant shortage" and you'll get 445 hits.

Now try "doctor shortage" and you'll get 313,000 results!

Why the difference? Shouldn't a competitive, dynamic labor market eliminate shortages and surpluses of certain professions? Sure, but the market for doctors is neither competitive nor dynamic.

In fact, the number of medical schools today (125) is less than the number of medical schools 100 years ago (166), even though the U.S. population has increased by 300%. Consider also that the number of medical students in the U.S. has remained constant at 67,000 for at least the period between 1994 and 2005, according to this report, and perhaps much longer.

In contrast, the number of law schools in the U.S. is about 200, and we don't hear about any shortages of attorneys.

From the WSJ article "Doctor Shortage Hurts A Coverage-for-All Plan," Massachusetts faces a "critical shortage" of primary-care physicians, according to a study by the Massachusetts Medical Society, which found that 49% of internists aren't accepting new patients. Boston's top three teaching hospitals say that 95% of their 270 doctors in general practice have halted enrollment.

As it happens, primary-care doctors, including internists, family physicians, and pediatricians, are in short supply across the country. Their numbers dropped 6% relative to the general population from 2001 to 2005, according to the Center for Studying Health System Change in Washington. The proportion of third-year internal medicine residents choosing to practice primary care fell to 20% in 2005, from 54% in 1998 (see chart above).

Solution: Let's increase the number of U.S. medical schools to 200 (same as the number of law schools), and we won't hear about any more doctor shortages, just like we don't hear about lawyer shortages.

Housing Market Still Looking for the Basement

From IBD: Housing activity has yet to find the floor, the latest existing-home sales data showed Wednesday.

June sales fell 3.8% to an annual rate of 5.75 million, the lowest since November 2002, the National Association of Realtors said. It is the fourth straight monthly drop and below estimates.

The supply of unsold homes at the current sales pace held at 8.8 months, near the highest level since the early 1990s (see chart above, click to enlarge).


More on the Global Bull Market

Chinese stocks just hit a new record high, and have increased by 62% YTD (Shanghai Composite Index).

Global economic output is growing faster than was expected just a few months ago, fueled by demand in China, India and other developing countries, the International Monetary Fund said.

Wednesday, July 25, 2007

Bull Market in the Emerging Markets II

In response to a comment below about a previous post, the 1-year returns above (click to enlarge) are for emerging stock markets, measured in local currency (from MSCI) instead of USD like the graph below for YTD returns in USD.

While it is true that the appreciation of foreign currencies (depreciation of the USD) has boosted the dollar returns to Americans from investing in emerging markets above the returns above, the 1-year returns in local currency above are still pretty impressive. And it has nothing to do with the falling dollar, and everything to do with a global stock market boom.

As Larry Kudlow said, "Simply put, this is the greatest global stock market boom in history."

The global stock market boom is also part of the largest movement out of poverty in human history. In the last 25 years, hundreds of millions of people--400 million in China alone--have climbed out of the dire poverty of living on less than $1 per day.

Excessive Celebrity Pay?

According to this report on TV Guide's list of the highest paid TV stars, Oprah earns $260 million per year, more than 24X higher than the typical S&P 500 CEO, who makes $10.77 million on average. Will this generate any outrage over "excessive celebrity pay?" Will anybody do a study of the difference between Oprah's compensation and the compensation of a low-level staffer of hers (like an usher for her TV program or her caterer), and how this difference has been increasing over time?

Tuesday, July 24, 2007

Google, AOL & Dell Outsource to India, So Can You


More on PPO (person to person outsourcing), see previous post here:

“We are addressing the bottom of the pyramid,” says Krishnan Ganesh, an Indian entrepreneur, of his latest venture, TutorVista. Mr. Ganesh founded the company in late 2005 after spotting that personal tutoring for American schoolchildren was unaffordable for most parents. His solution is to use tutors in India to teach Western students over the Internet.

The teachers all work from home, which means that the company is better able to avoid India's high-wage employment hotspots. TutorVista further hammers home its labour-cost advantage through its pricing model. It offers unlimited tuition in a range of subjects for a subscription fee of $100 per month in America (and £50 a month in UK, where the service launched earlier this year) rather than charging by the hour. Tutors are available around the clock; appointments can be made with only 12 hours' notice.

Continue reading The Economist article here.