Tuesday, August 14, 2007

Quotes of the Day: Why Socialism Fails

1. Socialize the individual's surplus and you socialize his spirit and creativeness; you cannot paint the Mona Lisa by assigning one dab of paint to a thousand painters.

~William F. Buckley, Jr.

2. Everything that is really great and insipiring is created by the individual who can labor in freedom.

~Albert Einstein

Overwhelming Evidence: Good Old Days Are Now

The chart above is from a 1995 Reason Magazine article "The Good Old Days Are Now," by W. Michael Cox, senior vice president and chief economist at the Federal Reserve Bank of Dallas.

Forget what you've heard in the media about "working harder and getting further behind." Most Americans today have both more leisure and better goods than they did even 10 or 20 years ago, and most of us certainly live at a much higher standard of living than our grandparents or great-grandparents, despite the fact that many people today mistakenly think their standard of living is declining.

Exhibit A: Look at the evidence in the chart above, and consider that further improvements have been made since 1990. We now live longer, start to work later in life and work much less annually (1,562 hours annually in 1990 vs. 3,069 hours in 1870), spend 30% less time working around the home vs. 100 years ago, retire earlier, have an increasing number of years in retirement (expected time in retirement was 0 years through all of human history until the last quarter century or so), experience 3X as much waking leisure now compared to our ancestors in the 1800s, etc. etc.

According to Dr. Cox, "Being distracted by the myth of declining living standards isn't getting us anywhere. The evidence is overwhelming. On average, Americans are better off than ever before."

Just ask yourself: would you be willing to trade the life you lead today, with your current income and with all of the modern conveniences, all of the new and improved products like computers and cell phones, all of the medical advances, for the life of your great-grandparents? I sure wouldn't, and I think the people who would trade their standard of living today for their grandparents' would be the rare exception.

The Fed's Undeserved and Unnecessary Attention

A lot of attention is paid to the Federal Reserve's monetary policy, especially its ability to frequently change its target for short-term (overnight) rates, the "Federal Funds Rate."

As the chart above shows (click to enlarge), the target rate for the Fed Funds has ranged from a high of 6% in early 2001, to a low of 1% in 2003-2004, and now back up to 5.25% since July 2006. But notice how relatively stable both the 30-year mortgage rate and the 10-year T-Note rates have been, fluctuating in range of only about +/- 1% while the Fed Funds has fluctuated in a range of +/- 5%. Notice also how the Fed Funds rate has been above the 10-year T-note rate in 2001 and for the last year and a half, and below the 10-year bond rate by 3% in 2003-2004, with almost no effect on the 10-year bond rate in either case.

Bottom Line:
1) The Fed has very little control over long-term interest rates at horizons of 10 years or more, unless expectations of future inflation change significantly, which they apparently haven't.

2) Long-term investment decisions are made based largely on long-term rates (10 years or longer), not short-term overnight rates (Fed Funds).

3) The Federal Reserve's influence on the economy is probably significantly overstated, since it only moves overnight rates around without changing long-term rates.

4) Undeserved attention paid to the Fed injects unnecessary uncertainty into the economy, as Wall Street and Main Street engage in excessive "Fed watching."

5) We'd probably be better off with an inflation target, like Canada, New Zealand, Australia, European Union and the U.K.

Monday, August 13, 2007

Gas Prices Fall, But You Won't Hear Much About It

Gas prices in Michigan are now below $2.50 in some areas, check prices here, and the national average has fallen from $3.24 to $2.76 per gallon, or about 15%, in the last two months (see chart above, click to enlarge).

Notice in the graph above that gas prices are about the same today ($2.76 per gallon) as two years ago, and there have been alternating periods of rising and falling gas prices between a low of $2.10 and $3.24. However, there are 480,000 hits for a Google search of the term "rising gas prices," but only 33,000 hits for a search of the term "falling gas prices." So even though gas prices have fallen and risen with about the same frequency over the last two years, there is about 14.5X as much attention paid by the media to rising gas prices compared to falling gas prices. (Most of the Google hits are for news reports.)

Record Tax Receipts, Shrinking Budget Deficit

Surging, record tax receipts of $2.116 trillion continued to shrink the federal deficit through the first 10 months of the fiscal year, the Treasury Department reported last Friday (see middle chart above).

Since Oct. 1, when the fiscal year began, the government has run a deficit of $157.3 billion, sharply narrower than the $239.6 billion in the year-earlier period. The White House predicts that the deficit this year drop to $205 billion, which will be the lowest deficit in 5 years, both in absolute dollars, and as a percent of GDP (see bottom chart above).

According to the WSJ, "So far this year, individual income taxes are up 11.4% to $965 billion (see top chart above), with much of the increase stemming from taxes on investments and other sources of income more important to the wealthy. Receipts from these so-called nonwithheld taxes are up 13.5% so far this year. Corporations also helped to fill the coffers, with corporate tax receipts up 10.5% so far this year to $289 billion."

MP: What happened to the "tax cut for the rich?" Aren't these data more consistent with a "tax hike for the rich?"

Yes, There's Still a Large Pay Gap.... For MEN Now!

From the NY Times (subscription required):

"Young women in New York and several of the nation's other largest cities who work full time have forged ahead of men in wages, according to an analysis of recent census data.

A recent study shows that women of all educational levels from 21 to 30 living in New York City and working full time made 117 percent of men's wages, and even more in Dallas, 120 percent (see chart above for NYC, 1970-2005, click to enlarge)."

Why the pay gap..... for MEN?

"Women have been graduating from college in larger numbers than men, and that many of those women seem to be gravitating toward major urban areas. In 2005, 53% of women in their 20s working in New York were college graduates, compared with only 38% of men of that age. And many of those women are not marrying right after college, leaving them freer to focus on building careers."

MP: Just wondering if Representative Carolyn Maloney (D-NY), who represents NYC and has long been an advocate of gender equity, will be as concerned about this pay gap for NYC men as she has been when there was a pay gap for women?

Other news stories appear
here in the Star Tribune, and here in the Gothamist.

(Thanks to Sanil Kori)

Carpe Diem's Back!!

1. I'm back blogging now after a break for a few days to give 8 hours of lectures during the weekend residency for the Business Economics course in UM-Flint's NetPlus! MBA program.

2. Even without any new posts for a few days, web traffic to CD was heavy over the weekend because of a link to a previous CD post on Slate.com. I think that CD post set a record for the most number of comments on a single CD post: 55.

Carpe Diem!

Friday, August 10, 2007

Mandatory High School Econ Test for Congress?

From today's WSJ's editorial "The Kids Are All Right"

NAEP reported this week that 79% of twelfth graders passed the first-ever national economics test. Holy Hayek.

The test included technical questions on price floors, opportunity cost, and the supply curve. One question asked what would happen if government mandated a high price floor for chocolate. A plurality deftly analyzed a graph to choose the correct answer: There would be a surplus of chocolate. Presumably the test could have asked about a minimum wage, too, and students would have arrived at a similar conclusion. Maybe Congress should make this test, or one like it, mandatory for all Members.

All of this welcome economic literacy comes despite the fact that only one-third of states require a course in economics for a high school degree. Yet when economics is offered, it is a popular choice: In 2005, 66% of graduates had received formal instruction, compared with 49% in 1982. The depth of knowledge shown by ordinary seniors suggests that they have been able to absorb basic economic truths from their daily experiences. Now, if this wisdom can only survive four years of instruction by your average college faculty.

Thursday, August 09, 2007

Outsourcing Works Both Ways

Lou Dobbs, listen up:

Hindustan Times: Indian software giant Wipro (NASDAQ: WIT) plans to open several software development and IT facilities in the United States.

In addition to a software development center to be opened in Atlanta within the next three months, India's third-biggest software maker is considering opening three new U.S. facilities: Raleigh, NC, Austin, TX and Richmond, VA, which could open as early as next year.

However, the company first wants to see "how it goes" when its Atlanta center opens by the year's end. Wipro expects within three years to have about 1,000 American workers in Atlanta.

Bottom Line: Outsourcing and trade work both ways. American companies hire workers in India, and Indian companies hire workers in the U.S.

Economics Education

1. From today's Washington Post "12th-Graders Show Strength in Economics":

"Forty-two percent of 12th-graders nationwide scored at the proficient level or better on the economics test, meaning they could handle challenging subject matter. In contrast, just 23% of 12th-graders hit the proficient mark in math, according to results published earlier this year. In reading, 35% were proficient or better."

2. From today's NY Times "12th Graders Show Better Grasp of Market Forces Than Expected on U.S. Economics Test":

"The nation’s high school seniors performed significantly better on the first nationwide economics test than they did on other recent national exams in history and science, and demonstrated higher than expected understanding of basic market forces like supply and demand than officials expected."

3. Question: Where is the best place to learn about economics?
Answer: Blogs, according to Tyler Cowen.

Fair But Unbalanced Reporting on the Economy

According to futures trading on Intrade.com, there is only a 8.5% chance that the U.S. economy will experience a recession in 2007.

According to Brian Wesbury writing in today's WSJ, "the July WSJ economic forecasting survey shows that 49 out of 60 forecasters expect real GDP to grow at an average annual rate of 2%, or faster, in 2007. Of the remaining 11 forecasters, only two expect growth of less than 1%, and only one expects a recession. For 2008, the forecasters are even more optimistic, with none expecting recession."

"Despite this, an NBC News/WSJ poll in July found that 68% of Americans thought that the economy was either in recession already, or would experience a recession sometime during the next 12 months. Interestingly, this is not much of a change from the past. This same survey question has been polled at least five times since September 2002. Each time a robust majority of between 65% and 85% of respondents thought a recession was either underway or would occur within the year. Americans have been bearish on the economy for quite some time."

Why the disconnect between economic reality and the general public's misguided and distorted perception of the economy?

Brian explains it this way: "A randomly selected pairing of economists from the WSJ forecasting panel would pit two rather optimistic forecasters against each other in debate. But having two economists debate about whether GDP will grow 2.1% this year or 2.4% is downright boring. As a result, the producers of business news spice things up. They arrange for debates between a bullish economist and a bearish economist." (MP: Like my debate on Kudlow & Company.)

"While this is entertaining, and may bring in eyeballs, which sell commercials, this idea of "fair and balanced" debates leaves an impression that the experts are split 50/50, when in reality it's more like 80/20, or 90/10. But if all the public sees is an endless stream of 50/50 debates, then it is really not that much of a surprise that people think the future is basically a coin toss. And a coin toss, especially in a time of war and terrorism, is not very good odds."

Life vs. Death Struggle in Africa

Watch this amazing video of Lions vs. Buffaloes vs. Crocodiles.

Isn't LASIK Eye Surgery Cheating?

Tiger's thrilled with his new 20/15 vision through LASIK surgery
Slate.com asks an interesting question "If steroids are cheating, why isn't LASIK?"

A month ago, Mark McGwire was hauled before a congressional hearing and lambasted as a cheater for using a legal, performance-enhancing steroid precursor when he broke baseball's single-season home run record.

A week ago, Tiger Woods was celebrated for winning golf's biggest tournament, the Masters, with the help of superior vision he acquired through laser surgery, which upgraded his vision to 20/15. Golfers Scott Hoch, Hale Irwin, Tom Kite, and Mike Weir have hit the 20/15 mark. So have baseball players Jeff Bagwell, Jeff Cirillo, Jeff Conine, Jose Cruz Jr., Wally Joyner, Greg Maddux, Mark Redman, and Larry Walker. Amare Stoudemire and Rip Hamilton of the NBA have done it, along with NFL players Troy Aikman, Ray Buchanan, Tiki Barber, Wayne Chrebet, and Danny Kanell.

What's the difference?

And what about high-powered contact lenses? McGwire's custom-designed lenses improved his vision to 20/10, which means he could see at a distance of 20 feet what a person with normal, healthy vision could see at 10 feet. Think what a difference that makes in hitting a fastball. Imagine how many games those lenses altered.

Business Don't Pay Taxes, They Collect Them

From today's Washington Post:

President Bush said yesterday that he is considering a fresh plan to cut tax rates for U.S. corporations to make them more competitive around the world, an initiative that could further inflame a battle with the Democratic Congress over spending and taxes and help define the remainder of his tenure.

The administration said the U.S. corporate tax rate, once modest compared with international competitors, is now second only to Japan's among 30 member states in the Organization for Economic Cooperation and Development (see chart above, click to enlarge, note that Germany's rate is now slightly lower at 38%). Moreover, officials said, Germany, France, Japan, Britain and China have signaled that they will or may cut their rates.

"Our tax structure makes us less competitive, and if we want to be a competitive nation, we've got to analyze a lot of things, including taxes, dependence on oil or good education policy," Bush said. "And so we will work through possible suggestions for Congress."

As the Foundation for Economic Education reminds us, "Businesses don't pay taxes; they collect them." Consumers pay corporate taxes through higher prices, workers pay corporate taxes through lower wages, and shareholders pay for corporate taxes through lower dividends.

Don't Steroids Help the Pitchers Who Face Bonds?

From today's NYTimes (one of hundreds of similar articles):

"There will always be fans who feel that Aaron and Ruth are the pure home run kings. Bonds has been connected to investigations into steroid use, muddying how he accumulated 756 homers, which improved to 757 on Wednesday, and creating suspicion about how he conquered Aaron and 755."

Bonds’s critics will note how his body and statistics inflated in his late 30s, an age when they are supposed to decline. They will repeat how Bonds has been central to steroid investigations and has been featured in a best-selling book about the subject. They will argue that Bonds has avoided failing tests only because some steroids are undetectable."

Q: If MLB players have been using steroids, wouldn't the pitchers who face Bonds also be using them, and wouldn't steroid use enhance their performance as pitchers, balancing out the enhanced performance of hitters like Bonds? Or is the agrument that steroids improve the performance of batters disproportionately more than steroids help pitchers?

Comments welcome.

Wednesday, August 08, 2007

More on Scraping the Scalping Laws

Why is someone who sells tickets to a Red Sox fan outside Fenway Park for a heavily inflated price called a "scalper," while someone who charges the same fan $4 for a bottle of water inside the stadium is called a "concessionaire"?

Why does anyone thinks the government should be involved in deciding how much a willing buyer can pay a willing seller for tickets to a lawful entertainment event?

We all take it for granted that if you're willing to pay for the privilege, you can stay at the best hotel, live in the best neighborhood, eat at the best restaurant, or hire the best lawyer. So what accounts for the heavy breathing when some fans pay a premium in order to see Daisuke Matsuzaka take the mound or watch David Beckham bend it with the L.A. Galaxy? Or -- this isn't only about sports -- to hear Beyoncé sing "Irreplaceable" or catch a sold-out "Wicked" on Broadway?

All told, 42 states have decided that the heavens won't collapse if people who own tickets to games and shows are free to sell them for whatever the market will bear -- as free as people who own real estate, shares of stock, Beanie Babies, or just about anything else.

~Jeff Jacoby, writing in today's Boston Globe

Skyrocketing Farmland Prices, Fueled by Ethanol

Ethanol Facts:

1. Corn is 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.

2. Ethanol is propped up by hefty subsidies, including a 51 cent-per-gallon tax allowance for refiners. A study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about 50% of ethanol's wholesale price. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year.

3. A Senate energy bill is coming up for final approval next month that would require a 7X increase in ethanol from 5 billion gallons this year to 36 billion gallons by 2022, and a separate Senate bill would raise the ethanol mandate to 60 billion gallons by 2030.

4. The ethanol legislation currently being considered by Congress will cost taxpayers an estimated $131 to $205 billion over the next 15 years in ethanol subsidies.

As would be expected, when Congress transfers $250 billion of taxpayers' money to a single industry over a 25-year period, there will be significant pressure on prices for the inputs of that industry, in this case farmland.

From today's NYTimes, "
Ethanol Is Feeding Hot Market for Farmland:"

While much of the nation worries about a slumping real estate market, people in Midwestern farm country are experiencing exactly the opposite.

Skyrocketing farmland prices, particularly in states like Illinois, Iowa and Nebraska,
giddy with the promise of corn-based ethanol, are stirring new optimism among established farmers.

In central Illinois, prime farmland is selling for about $5,000 an acre on average, up from just over $3,000 an acre five years ago. In Nebraska, meanwhile, land values rose 17% in the first quarter of this year over the same time last year, the swiftest such gain in more than a quarter century. A federal-government analysis of farm real estate values released Friday showed record average-per-acre values across the country - property prices averaged $2,160 an acre at the start of 2007, up 14% from a year earlier.

Bottom Line: "Subsidizing ethanol from corn as a gasoline oxygenate is one of the most misguided public policy decisions made in recent history." Professor Tad Patzek, UC-Berkeley

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.

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


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.

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