Tuesday, August 21, 2007

Time Cost of Goods: Yesterday vs. Today

Data in the chart above (click to enlarge) are from the Dallas Federal Reserve Bank, 1997 Annual Report, and show the significant improvements in living standards and purchasing power over time. Prices of various food and household items are stated in "time cost," i.e. the number of minutes or hours that the average person, working at the average wage, would have to work to earn enough income to purchase various items in different years.

It should be emphasized that this analysis is for the average person, earning the average wage, i.e. the middle class (not the upper class), and the increasing affordability of commonly purchased items means that the average, middle class household is living at a much higher standard of living now compared to previous generations.

The good old days are now. And things keep getting better all the time.

Minnesota: After the Flood, Day 2

New Houses: 1956 vs. 1996

Chart above is from the Dallas Federal Reserve.

Notice that only 72% of new homes in 1956 had only 1 bathroom, only half of new homes had a garage, only 6% had central air, only 11% had dishwashers, the average house was 70% smaller than in 1996, and houses in 1956 cost more (measured in hours of work at the average wage per square foot) than in 1996.

I don't think most people today would be willing to trade their current home for their grandparents' homes. The good old days are now, and they keep getting better.

Computer Prices and Speed: 1970 to 2007

An IBM mainframe computer in 1970 (pictured above) cost $4.6 million and ran at a speed of 12.5 MHz (12.5 million instructions per second), which is a cost of $368,000 per MHz. After the invention of the microprocessor in 1971, computer speeds increased exponentially (see post below), and computers costs fell exponentially.

Consider that a Dell computer today costs $550 (pictured above) and runs at a speed of 1.6 GHz (1600 million instructions per second), which is a cost of only 34 cents per MHz.

Bottom Line: Compared to today's desktops, mainframe computers were 128 times slower, more than 8,000 as expensive, and were more than 1 million times as expensive in terms of cost per MHz.

(Data are from the
Dallas Federal Reserve and Dell.com.)

More on Indian Higher Education:40 New Colleges

From today's Chronicle for Higher Education (subscription required):

India's university system, which the government has largely neglected in recent years, is now the focus of a reform and development agenda, the country's prime minister, Manmohan Singh, said as he announced plans for several new higher-education institutions.

To ensure that at least a fifth of Indians age 18 to 24 go to college, up from around a tenth, Mr. Singh announced that the government would set up five new Indian Institutes of Science Education and Research, eight new Indian Institutes of Technology, seven new Indian Institutes of Management, and 20 new Indian Institutes of Information Technology.

Only 7% of India's 18-to-24-year-olds are enrolled in higher-education institutions, a proportion that is just half the average for Asian countries. In January a government report recommended that India increase its number of universities to 1,500 by 2015, from only 350 now, to raise the proportion of 18-to-24-year-olds entering higher education to at least 15%. (MP: In contrast, the U.S. has more than 4,000 colleges and universities.)

Mr. Singh lamented that almost two-thirds of the nation's universities and 90% of its degree-granting colleges were rated as below average in quality and that university curricula were typically not synchronized with the needs of employers or job seekers.

Indian Reservations: Entitlement Economy?

No, not Indian reservations in the United States, I'm talking about reservations in India, a government-enforced system of quotas for higher education and government jobs based on caste, religion and language. Like affirmative action in the U.S., reservations in India are highly controversial, because college admissions and job promotions are often not based on merit. In 2006, there were massive anti-reservation rallies and protests in India. India's prime minister (Dr. Manmohan Singh) has apparently suggested extending reservations/quotas to the private sector, which adds to the controversy.

India Economy blog clarifies the controversy about Indian reservations with this question, and commentary:

Why strive for excellence when mediocrity will suffice?

Singh's government has done nothing to improve the incentives for excellence. Why would a marginal student aspire to be in the top 5% of the class if reservations guaranteed that person a place in an engineering college as long as he made the ‘cut-off’ for his caste or group? And why would the marginal student in the engineering college attempt to score top grades, when quotas guarantee a government job? And why would the marginal government employee strive for excellence if promotions can be had with far less effort, as long as there is a quota?

Mercifully, there is no ‘chalta hai’ (Definition: anything will do; the typical Indian careless attitude, read a
story about it here) attitude in the private sector, especially in those segments that have been opened to global competition. That’s one part of India that is indeed striving for global excellence. But why would a marginal employee in a private sector factory strive for excellence when he knows that it’s virtually impossible to sack him for underperformance. Far from easing labour laws that not only stifle excellence but also prevent millions of people from securing employment, Dr. Manmohan Singh’s government wants to introduce job quotas in the private sector.

Far from creating incentives for excellence, the government is determined to create an entitlement economy. If excellence is what we seek, we must organise our society around merit.

Monday, August 20, 2007

Overwhelming Evidence II: Good Old Days Are Now

On a previous post, I presented historical data to show that we live longer, start to work later in life and work much less annually, spend 30% less time working around the home vs. 100 years ago, retire earlier, have an increasing number of years in retirement, experience 3X as much waking leisure now compared to our ancestors in the 1800s, etc.

In this post, I present more data from economist W. Michael Cox (Federal Reserve Bank of Dallas), showing the significant improvements in living standards that took place during a single 20-year period, from 1970 to 1990 (see chart above, click to enlarge). Certainly, many improvements have taken place since 1990, and a comparison of 2000 to 1970 would be even more remarkable (see post below on microprocessor speed). But I think the evidence is clear and overwhelming: Americans today are better off than at any other time in history, and living standards for the average person just keep getting better, and better and better.

Mad Money=Bad Advice; BOO, NOT BOOYAH!!

From Baron's cover story "The Cramer Effect, and Defect: Shorting Cramer":

Jim Cramer is held out by CNBC as the guy who can help viewers make big money. But a comprehensive and careful review of his stock picks by Barron's finds that his picks haven't beaten the market. Over the past two years, viewers holding Cramer's stocks would be up 12% while the Dow rose 22% and the S&P 500 16%, according to a record of 1,300 of the CNBC star's Buy recommendations compiled by YourMoneyWatch.com, a Website run by a retired stock analyst and loyal Cramer-watcher (see top chart above).

We also looked at a database of Cramer's Mad Money picks maintained by his Website, TheStreet.com. It covers only the past six months, but includes an astounding 3,458 stocks -- Buys mainly, punctuated by some Sells. These picks were flat to down in relation to the market. Count commissions and you would have been much better off in an index fund that simply tracks the market.

The bottom chart above shows how Cramer's stock picks surge an average of +2% following his recommendations, then remain flat for the next month. Subtracting the effects of a rising stock market, and Cramer's picks trail the overall market by quite a bit.

Read a previous post about Cramer here, with links to other posts about Cramer.

Recommendation: For investment purposes, buy and hold a stock index fund from Vanguard or Fidelity. Watch Cramer for entertainment purposes only.

Sunday, August 19, 2007

What Consensus on Global Warming?

From Jeff Jacoby in the Boston Globe:

In 2003, environmental scientists Dennis Bray and Hans von Storch surveyed 530 of their peers in 27 countries on topics related to global warming.

Question 1: To what extent do you agree or disagree that climate change is mostly the result of anthropogenic (human) causes?
Answer: On a scale of 1 (strongly agree) to 7 (strongly disagree), the average score was 3.62, reflecting no clear consensus.

Question 2: Will abrupt climate changes wreak devastation in some areas of the world?
Answer: 9.1% of the scientists strongly agreed, which was nearly identical to the percentage strongly disagreeing, 9%.

Question 3: To what degree might global warming prove beneficial for some societies?
Answer: A striking 34% of the scientists answered 1 or 2 (a great degree of benefit); just 8.3% answered 6 or 7 (very little/no benefit).

Bottom Line: Clearly, the science of climate change is still young and unsettled. Years of trial and error are still to come. Al Gore notwithstanding, the debate is hardly over.

Aren't Sharks' Teeth Forever? How The Diamond Cartel Turned Worthless Rocks Into Priceless Gems

The 5 inch fossilized tooth above is from a giant prehistoric megalodon shark, which lived between 2 to 25 million years ago, and then went extinct. Megalodon sharks are likely the largest predatory fish to have ever lived. The megalodon tooth above just sold on Ebay for $560.

If fossilized sharks' teeth last for 25 million years, some showing almost no signs of wear like the one above, I think it would be pretty safe to say that "sharks' teeth are forever," just like diamonds.

But unlike sharks' teeth, which are bought and sold according to market conditions of supply and demand on Ebay, the supply and sale of diamonds is tightly controlled by the DeBeers Diamond cartel. Edward Jay Epstein, wrote in this 1982 Atlantic article "The Marketing of Diamonds: How a Successful Cartel Turned a Worthless Rock into a Priceless Gem":

De Beers proved to be the most successful cartel arrangement in the annals of modern commerce. While other commodities, such as gold, silver, copper, rubber, and grains, fluctuate wildly in response to economic conditions of supply and demand, diamonds have continued, with few exceptions, to advance upward in price every year since the Depression.

The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever — "forever" in the sense that they should never be resold.

Convincing people that diamonds last forever and should never be resold reinforces DeBeers' monopoly power and helps the cartel restrict the supply of diamonds by keeping diamonds off the secondary market.

The article points out that diamond prices collapsed worldwide during the Great Depression, followed by World War II, which further depressed the diamond market until the mid-1940s. Following WWII, De Beers needed a new slogan for diamonds, to help revitalize the demand. It was in the late 1940s that:

A marketing copywriter came up with the caption "A Diamond Is Forever," which was scrawled on the bottom of a picture of 2 young lovers on a honeymoon. Even though diamonds can in fact be shattered, chipped, discolored, or incinerated to ash, the concept of eternity perfectly captured the magical qualities that the advertising agency wanted to attribute to diamonds. Within a year, "A Diamond Is Forever" became the official motto of DeBeers.

"A Diamond Is Forever" has to be one of the most successful and clever marketing scams in the history of commerce. After all, it's not just diamonds that are forever: isn't a shark's tooth forever, isn't a plain rock forever, isn't an emerald forever, aren't the coins in your pockets forever, aren't thousands of museums around the world filled with stuff that has lasted almost forever? And as Epstein points out, diamonds aren't really forever anyway - they can be shattered, chipped, etc.

Buy Recommendation: Consider cultured laboratory-grown
diamonds from Gemesis, and avoid the DeBeers diamond cartel.

Why Concern About Subprime Loans is Overblown

According to the Mortgage Bankers Association (MBA), there are about 75 million homeowners in the U.S., and about 1/3 (or 25 million) own their homes free and clear of any mortgage and 2/3 (about 50 million) have some kind of mortgage (see chart above, click to enlarge).

Of the 50 million homeowners who do have mortgages, three-quarters have fixed rate loans (37.5 million). Only one quarter of these borrowers (12.4 million), or about a sixth of all homeowners, have adjustable rate mortgages (ARMs).

Among current homeowners with mortgages, 4.9% (2.45 million) are subprime borrowers with adjustable rate mortgages. Of these 2.45 million homeowners with subprime ARMs, 10.13% (or 248,000) are seriously delinquent or in foreclosure (see chart above).

According to the MBA: "Considering historic rates of foreclosure, these statistics, while important, are not out of line with rates in the past and do not alone characterize a macroeconomic event for the U.S. economy."

Further as the chart below (click to enlarge) from the MBA for delinquency rates (not foreclosures) from 1998-2007 indicates, the subprime delinquency rate (top blue line) has been rising recently, but overall delinquency rates have been fairly constant.

Bottom Line: Considering that: a) most loans are fixed-rate, b) more than 1/3 of American homeowners don't even have a mortgage, c) the overall subprime market is such a small fraction of the overall mortgage market and the riskiest subprime ARMs are even a smaller fraction, I agree with the MBA, I don't see how troubles in the subprime market can bring the economy down, or start a recession, or be considered a "macroeconomic event."

Saturday, August 18, 2007

The OPEC of Health Care: The AMA

I have written several posts on convenient, low-cost, consumer-friendly, market-driven, walk-in health care clinics in retail stores like Wal-Mart, Walgreens, and CVS, go here, here, and here. This trend seems to me like one of the most promising solutions to the status quo of high-cost, consumer-unfriendly, non-market-driven health care in the U.S.

As I have asked before, which group do you think would be the most vocal in its opposition to this trend of market-driven health care? Well, of course it's the "OPEC of Health Care": the American Medical Association, trying to protect its cartel, see the WSJ article at the link below. Well, at least one member of the AMA's cartel is open to market-driven health care, see his letter below which appears in today's WSJ:

Your article "States Boost Scrutiny of Drugstore Clinics" (Personal Journal, Aug. 9) identifies a key problem confronting American health care today: opposition to change from the medical establishment. Many state regulators and physician groups, including the American Medical Association, oppose retail health clinics, which provide easy access to low-cost health care in retail settings. These clinics, with care provided by nurse practitioners, are emerging because of a shortage of primary-care doctors, which is forecast to worsen in the next 20 years; the emergence of higher deductibles and higher co-pays, forcing consumers to bear more of the cost of care and to become smarter health-care shoppers; and the rising number of medically uninsured, who, studies show, are willing to pay for care, but not at the exorbitant rates charged by emergency rooms and urgent-care clinics.

Medical literature consistently shows that care provided by nurse practitioners is comparable to that provided by physicians. In all of the major retail clinic chains, nurse practitioners use evidence-based treatment protocols and state-of-the-art software to standardize care.

A constant refrain of those opposed to retail health clinics is that continuity of care will suffer. Continuity isn't interrupted, however, if a patient tells his primary-care doctor that he went to a retail health clinic on a Sunday to have his poison ivy treated for $35 after waiting five minutes, when the alternative is to go to the local ER, wait as long as eight to 10 hours, and pay more than $300.

~J. Kevin Shushtari, M.D. and Chief Hospitalist, Hospital Internists of New London, New London, Conn.

China: Everyday Low Prices, Why Complain?

This is the state of U.S.-China trade relations: China keeps selling cheap stuff to American consumers and businesses, the Americans aren’t selling so much to China (but plenty to other parts of the world). The U.S. is demanding that the Chinese charge more for its products, and the Chinese are refusing.

~Tim Harford, in an excellent article disucssing his trade deficit with his babysitter

MP: Another way to think of the U.S.-China trade relationship, is to imagine that China is actually Wal-Mart and the U.S. is actually Target. Here it goes:

Target (U.S.) complains that the prices that Wal-Mart (China) is charging American customers are too low (currency is undervalued) and therefore the low prices (undervalued currency) are "unfair." To address the situation, Congress tries to pressure Wal-Mart (China) to raise its prices (appreciate its currency) for American consumers, and Wal-Mart (China) refuses, saying that its "everyday low prices" (everyday low currency) are in its best interest and its American consumers' interest. Congress then threatens to impose a special sales tax (import tariff) on Wal-Mart's (China's) products, and raise prices of Wal-Mart's (China's) products in the so-called "interest of fairness"?

Point A: Which is the only group that would support such a policy? Of course, Target (U.S. manufacturers), Wal-Mart's (China's) main competitor.

Point B: What is the consequence of the special sales tax (import tariff) on Wal-Mart's (China's) products? Higher prices for American consumers.

Point C: If we raise prices for American consumers with special sales taxes (import tariffs), are they worse off or better off? Worse off, of course.

Point D: National borders are just imaginary lines, and trade between U.S. and China involves a buyer and seller on different sides of an imaginary line called a national border, which is really no different than trade involving a buyer and seller on different sides (or the same side) of an imaginary line we call a state border, county border, city border, etc. If you support trade between your state and another state, you should support trade between the U.S. and China.

Quote of the Day - CSR: Picking 91 Million Pockets

It does not take an economics guru to conclude that diverting corporate assets away from activities that improve earnings endangers the financial well being of millions of Americans. About half of American households own stock. So, the pocket books of more than 91 million of our fellow citizens are tied to the fortunes of publicly traded corporations. Every dollar that is shanghaied from corporate coffers represents a hidden levy on shareholders, undermining their financial prosperity.

A quick Google search suggests that thousands of companies are joining the march toward corporate socialism. One critic claims that Nike spends about $10 million a year just staffing its Corporate Social Responsibility (CSR) program. After all, it costs cash to spend other people’s money. Reports must be written. Meetings attended. News releases issued. Croissants consumed.

While no one knows how many shareholder dollars are being spent each year on CSR, I suspect the bottom line would impress even the Congressional Budget Office. Think of CSR as the redistribution of prosperity away from those who have invested their savings in the stock market and toward those people or things that the unelected non-government organizations of the world consider worthy.

~Nick Nichols, Corporate Social Responsibility: Picking 91 Million Pockets

Friday, August 17, 2007

Ignore Those Who Complain of Trade Imbalances

As a general rule of thumb, experience has taught me that anytime somebody talks about an "imbalance in trade," or says they support "fair trade" instead of "free trade," it's pretty much guaranteed that either: a) they really don't know what they're talking about and don't really understand international trade, and/or b) they have told only a partial, incomplete story about trade. In either case, it would be a pretty good assumption that you can safely dismiss and ignore their comments.

Or as George Mason economist Don Boudreaux advises today in Cafe Hayek, "ignore anyone who complains that trade is "imbalanced." I have never encountered any such complaint that makes even a whiff of economic sense."

Professor Boudreaux is responding to complaints by UAW President Ron Gettelfinger's in yesterday's WSJ that "the U.S. and South Korea have a huge imbalance in auto trade."

As Don points out, GM and Ford have HUGE "trade imbalances" with their workers, just like most of us have with all of our employers (they buy more of our labor services than we buy of their products or services), and just like the "trade imbalances" most of us have with our dry cleaners, grocery stores, restaurants, cell phone companies, gas stations, banks, Amazon.com, Starbucks, etc. (we buy more from them than they buy from us).

Bottom Line: Any time somebody uses terms like "fair trade," or "trade imbalances," be extremely skeptical of what follows, because it will almost always be some kind of protectionist trade policy (e.g. tariffs on imports) to "balance trade" and make it more "fair."

#1 Song on Any Day, 1950-2007

What was the #1 song on the day you were born, the day you turned 18, the day you got married, or any day from 1950-2007 (in the U.S., UK or Australia)? Find out here.

Growing Pay Gap:Union Leaders Gain, Workers Lose

During the toughest economic times for organized labor in decades, union leaders are more likely to keep their jobs and get raises than the members they serve. A Detroit News analysis (Labor Bosses Don't Share Workers' Pain) revealed a growing pay divide between labor bosses and the rank and file who pay their salaries with their dues.

Decrease in Michigan union membership since 2002:
-14.2% (see chart above, click to enlarge)

Decrease in Michigan jobs at union halls since 2002: -1%

Increase in amount each union worker pays since 2002 to support union payroll costs: +21% (see chart above)

Increase in pay gap since 2002 between Michigan's 50 top-paid labor leaders and union workers: +$18,000

Average pay of Michigan's 50 top-paid union officials in 2007: $186,000

Number of labor officers and staffers in Michigan earning more than $100,000 in 2006: More than 1,000

Average pay of labor officers and staffers vs. the average Michigan union worker: More than 2X

Salaries of two secretaries at Local 659 in Flint: $101,000 and $95,000

Chart of the Day: World Cannabis Laws

The chart above (click to enlarge) shows how marijuana laws vary around the world.

Note: When it comes to cannabis, the U.S. (most states) is more of a police state than even Russia or Iran. For example, smoking pot in Iran is technically illegal but enforcement is next to nothing.

We arrest 1.7 million Americans annually for drugs (including marijuana), and will spend about $50 billion this year on the "War on Drugs." See the "Drug War Clock" here (updated every second) - we've spent about $30 billion so far this year on that war... By comparison, the War in Iraq cost $50 billion during the first full year (2003), increased in each of the following years, reaching about $100 billion in 2006.

Thursday, August 16, 2007

The Market Imposes a $2.75 Billion Fine on Mattel

Mattel stock price, March-August 2007
Mattel vs. S&P500, March-August 2007:
The discipline of the market can be strict, swift and severe. Mattel's stock price has dropped by almost 24% since late May (see chart above), largely due to two separate recalls of Chinese-made toys, which represents a $2.75 billion penalty for Mattel in the form of a loss of market value from about $11.45 billion in late May vs. $8.7 billion today (even accounting for the overall recent decline in stock prices (red line is S&P500), Matell (blue line) has fallen even further).

See related Forbes article here.

Bottom Line: Market competition is often the ultimate regulator. Who needs the FTC and FDA when you've got the market imposing immediate fines and discpline?

U.S. Companies With Global Sales Perform Better

From today's Financial Times (paid subscription required):

When Isaac Merritt Singer set up a branch of his sewing machine maker in Paris in 1855, he probably did not think he was blazing a trail U.S. companies would still be following more than 150 years later. Singer's expansion in France turned the New York-based company into the first US multinational, pioneering a business model that would be adopted by other icons of American capitalism, from Ford to Standard Oil to General Electric.

But perhaps the most important legacy of Singer's daring move was that it worked: within six years of the French opening, foreign sales had exceeded US revenues. It is a lesson not lost on today's corporate leaders (see chart above, many U.S. MNCs have half to two-thirds of sales overseas).

As the U.S. economy is squeezed by a housing slump and credit turmoil, a gap has opened up between companies with large overseas operations and those focused on the domestic market. The second-quarter results season drawing to a close has provided the starkest evidence yet of this trend.

Over the past three months, blue-chips such as General Electric, the conglomerate, IBM, the technology giant have hitched a ride on a global economy growing faster than the U.S. By contrast, companies that depend on domestic sales such as Wal-Mart and Home Depot, the do-it-yourself chain, have released disappointing results and gloomy predictions.

"U.S. companies are in the midst of an unprecedented boom in global earnings," wrote Joseph Quinlan, chief market strategist for Bank of America, in a recent note to clients. "The second-quarter earnings season was a tale of two earnings: robust overseas earnings . . . versus weak/soft domestic earnings".

This dichotomy has been reflected in U.S. stock markets, particularly during the past few weeks as investors have run for cover from domestic woes. After monitoring more than 40 stock-picking techniques, Merrill Lynch analysts concluded that buying shares in S&P500 companies with the highest percentage of international sales was the second-best performing investment strategy this year.

Bottom Line: U.S. companies with a higher percentage of foreign sales are stronger, more stable and more diversified, compared to companies that rely only, or mostly, on domestic sales. Just another underappreciated benefit of globalization.

Craigslist: Definitely Not Your Ordinary Company

Craigslist is one of the most popular websites in the U.S. (currently ranked #9 by Alexa), getting 8 billion page views per month. But you'd never know it by its world headquarters (see picture above), its staff (only 26 employees), or its business model - it doesn't want to maximize revenues or profits, and refuses to take advertising.

See a 5-minute Forbes.com video of Craigslist's CEO Jim Buckmaster.

Thanks to Sanil Kori.

George Will On Bernanke's Minimalist Fed

Every improvident loan requires an improvident borrower to seek and accept it. Furthermore, when there is no penalty for folly -- such as getting a variable-rate mortgage that will be ruinous if the rate varies upward -- folly proliferates. To get a mortgage is usually to commit capitalism; it is to make an investment in the hope of gain. And if lenders know that whenever they go too far and require inexpensive money the Federal Reserve will provide it with low interest rates, then going too far will not really be going too far.

The Federal Reserve's proper mission is not to produce a particular rate of economic growth or unemployment, or to cure injuries -- least of all, self-inflicted ones -- to certain sectors of the economy. It is to preserve the currency as a store of value -- to contain inflation. The fact that inflation remains a worry is testimony to the fundamental soundness of the economy, in spite of turbulence in a small slice of one sector.

Happily, Chairman Ben Bernanke's Federal Reserve remains committed to minimal management, which is what government does best.

~George Will from his most recent column

Related Quotes:

"If you protect a man from folly, you'll soon have a nation of fools."
~William Penn

"If you make the world safe for idiots, you'll have a world of idiots."
~Author unknnown


1. More on India At 60, a special report from Forbes, via Club for Growth.

2. More on world beer prices, check out the "Price of a Pint" database of beer prices in 137 countries, thanks to Ray Titus.

Wednesday, August 15, 2007

Smart (Market-based) vs. Dumb (Flat-Rate) Pricing

Most residential and commercial customers still pay their electric utility a flat rate (national average of 9 cents per kilowatt hour) multiplied by the kilowatt hours they use. That 's an example of a "dumb grid."

But with a smart grid in place, a utility can restructure rates, and then offer all its customers products that allow either the customer, or the utility, to control usage based on demand and hourly rates.

For example, maybe you 'd be ready to put off running your dishwasher until 3 a.m. if you could do it with electricity costing 5 cents a kilowatt hour, instead of 25 cents during the day at times of peak demand.

Read more about the increasing use of "smart grids" in Forbes.com.

Happy 60th Birthday INDIA!

"India is, the cradle of the human race, the birthplace of human speech, the mother of history, the grandmother of legend, and the great-grandmother of tradition. Our most valuable and most instructive materials in the history of man are treasured up in India."

"In religion, India is the only millionaire......the One land that all men desire to see, and having seen once, by even a glimpse, would not give that glimpse for all the shows of all the rest of the globe combined."

~Mark Twain (American Author, 1835-1910)

Read about the history of India's Independence Day here.

Read a list of reasons why you should be "Proud To Be An Indian."

Read news about India's Independence Day in "The Hindu" here.

Read Indian professor
Ray Titus' Buyer Behaviour blog here.

Read about what 60 years of independence has meant for India's financial and capital markets here.

Adjusted for purchasing power, India's economy is the world's 4th largest, and will probably surpass Japan this year to become the 3rd largest economy, behind only the U.S. and China.

Look Out Big Mac, Now There's a World Beer Index

The average Indian has to work more than 6 hours to earn enough money to buy a beer, whereas it takes a U.S. worker only 10 minutes, and an Italian worker only 9 minutes, according to a beer affordability index compiled by global beer giant SAB-Miller. Based in South African, SAB-Miller is one of the world’s largest brewers, with brewing interests and distribution agreements in over 60 countries across six continents.

Read a news report here. Read a previous post on the Big Mac Index here, and a previous post on iPod parity here.

Thanks to Sanil Kori.

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.