Saturday, July 28, 2007

Salary Differentials, Why Not Tuition Differentials?

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

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

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

Bumper Crop Expected, Some Drought Concerns

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

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

Workers Pay the Corporate Tax With Lower Wages

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

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

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

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

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

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

Friday, July 27, 2007

Quote of Day: Unsustainable Lavish Expectations

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

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

Thursday, July 26, 2007

How Socialized Medicine Doesn't Work

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

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

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

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

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


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

Read more here from the IBD.....

Cult Hero & George Mason Economist Tyler Cowen

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

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

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


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

Doctor Shortage? Increase Number of Med Schools

Go to Google and do a search for:

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

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

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

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

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

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

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

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

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

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

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

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

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

Housing Market Still Looking for the Basement

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

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

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


More on the Global Bull Market

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

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

Wednesday, July 25, 2007

Bull Market in the Emerging Markets II

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

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

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

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

Excessive Celebrity Pay?

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

Tuesday, July 24, 2007

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


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

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

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

Continue reading The Economist article here.

Reality-Based Economy, Myths vs. Realities

Myths: The rich are getting richer, especially CEOs, while the average American suffers, the middle class is disappearing, globalization only benefits the top 1% and not the average American, etc. etc.

Realities (from today's column by
David Brooks in the NY Times):

1. Real average wages rose in 2006 at the second fastest rate in 30 years.

2. The poor are getting richer. Between 1991 and 2005, the bottom fifth increased its earnings by 80%, compared with 50% for the highest-income group and around 20% for each of the other three groups.

3. Recent rises in inequality have less to do with the grinding unfairness of globalization than with the reality that the market increasingly rewards education and hard work. The education premium is rising.

4. Companies are getting more efficient at singling out and rewarding productive workers. A recent study suggests that 24% of the increase in male wage inequality is due to performance pay.

5. Inequality is rising because people up the income scale work longer hours. In 1965, less educated Americans and more educated Americans worked the same number of hours a week. But today, many highly educated people work like dogs while those down the income scale have seen their leisure time increase by a phenomenal 14 hours a week.

6. The big winners in this economy are not self-dealing corporate greedheads who are bilking shareholders. The top 25 hedge fund managers combined earned more than all 500 S&P 500 C.E.O.s combined. The hedge fund guys are profiting not because there’s been a shift in social norms favoring the megarich. It’s just that a few superstars are now handling so much capital.

7. To the extent that C.E.O. pay packets have thickened (and they have), there may be good economic reasons. The bigger a company gets, the more a talented C.E.O. can do to increase earnings. Over the past two and a half decades, the value of top U.S. companies has increased 500%, and the compensation for the C.E.O.s of those companies has also increased 500%.

8. We’re in the middle of one of the greatest economic eras ever. Global poverty has declined at astounding rates. Globalization boosts each American household’s income by about $10,000 a year. The U.S. economy, despite all the bad-mouthing, is chugging along. Thanks to all the growth, tax revenues are at 18.8% of G.D.P., higher than the historical average. The deficit is down to about 1.5% of G.D.P., below the historical average.


MP: I'll add a few more, to make it 10.

9. The chance of a U.S. recession in 2007 is now only 7%, based on Intrade futures trading.

10. More household wealth has been created in the U.S. economy over the last 10 years than was created in the previous 200 years.

Bull Market in the Emerging Markets

Emerging market stock returns vs. USA, year-to-date, in USD (click to enlarge). Source: MSCI.

Monday, July 23, 2007

A Weak Dollar Ain't All Bad

If you—or your mutual fund—own shares in large American corporations, you're a winner in the weak-dollar sweepstakes. Based on data culled from 238 constituents of the Standard & Poor's 500 Index, S&P analyst Howard Silverblatt concludes that the typical member of the index garnered 44.2% of its sales outside the United States in 2006. Translating cash received from those sales into weaker dollars puts some fizz into earnings. Last week Coca-Cola's stock bubbled to a 5-year high after it reported a fantastic quarter. Foreign sales accounted for 65% of Coke's beverage business. Other American companies profiting from this trend include McDonald's (65% of sales overseas) and IBM (56%).

From "The Sinking Dollar Has An Upside" from Danial Gross at Slate.com

MP: Other advantages of a weak dollar for U.S. investors:

1. The weak dollar has made U.S. stocks (and real estate) more attractive to foreigners, resulting in especially strong foreign purchases of U.S. securities, helping support higher U.S. stock prices (and real estate prices in some markets).

2. U.S. investors holding foreign foreign stocks or international mutual funds have benefited from the appreciation of most major foreign currencies against the U.S. dollar, which has raised the dollar value of U.S.-owned assets abroad.

How To Sing The Blues

Check out "A Primer on Singin' The Blues," including:

Blues cars: Chevys, Fords, Cadillacs and broken-down trucks. Blues don't travel in Volvos, BMWs, or SUVs. Most Blues transportation is a Greyhound bus or a southbound train. Jet aircraft an' state-sponsored motor pools ain't even in the running. Walkin' plays a major part in the blues lifestyle. So does fixin' to die.

Blues can take place in New York City but not in Hawaii or any place in Canada. Hard times in Minneapolis or Seattle is probably just clinical depression. Chicago, St. Louis, and Kansas City are still the best places to have the Blues.

Breaking your leg cause you skiing is not the blues. Breaking your leg 'cause a alligator be chomping on it is.

Acceptable Blues beverages are: a) Cheap wine; b) Whiskey or bourbon; c) Muddy water; d) Nasty black coffee. The following are NOT Blues beverages: a) Perrier; b) Chardonnay; c) Snapple; d) Slim Fast; e) Mocha Latte.

Persons with names like Michelle, Amber, Debbie, and Heather can't sing the Blues no matter how many men they shoot in Memphis.

Trying to Define a Foreign Car Will Drive You Crazy

To: Local UAW #659 in Flint, Michigan
From: Carpe Diem Blog
RE: Parking Policy Clarification

From your
Consumer Buying Guide for 2007 Cars and Trucks on the UAW website, these 11 vehicles are built by UAW workers in the U.S. for foreign car companies:

Mazda Mazda 6
Mitsubishi Eclipse
Mitsubishi Eclipse Spyder
Mitsubishi Galant
Toyota Corolla
Isuzu i-Series Truck
Mazda B-series Truck
Mitsubishi Raider Truck
Toyota Tacoma Truck
Mazda Tribute SUV
Mitsubishi Endeavor SUV

Q: Do these 11 vehicles qualify as "foreign made autos" that would be towed from your lot?

From your website, these 18 vehicle are produced by UAW workers in Canada:

Buick Lacrosse
Chevrolet Impala
Chevrolet Monte Carlo
Chrysler 300
Dodge Charger
Ford Crown Victoria
Mercury Grand Marquis
Pontiac Grand Prix
Chevrolet Equinox SUV

Chrysler Pacifica SUV
Dodge Magnum SUV
Ford Edge SUV
Lincoln MKX SUV
Pontiac Torrent SUV
Suzuki XL7 SUV
Chevrolet Silverado Truck

GMC Sierra Truck
Ford Freestar Van

Q: Since Canada is a foreign country, do these 18 vehicles qualify as "foreign made autos" that would be towed from your lot?

Just wondering if you could help clarify this confusing situation of vehicle production in a global economy and parking policies that ban "foreign made autos."

Professor Perry

Sunday, July 22, 2007

A Year Without "Made in China": Not a Good Idea

A new book "A Year Without "Made in China": One Family's True Life Adventure in the Global Economy" chronicles how writer Sara Bongiorni and her family tried to live for a whole year without buying anything produced in China. You can listen to an NPR review of the book here.

As one could easily predict, the Bongiornis spent a lot of money and a lot of time intentionally trying to avoid products made in China for a year, and were relieved when their self-imposed protectionist embargo ended. And that was just a one country embargo, imagine if their self-imposed embargo included all foreign countries!

Trade = Technology = Progress = Outsourcing

"From an economic point of view, outsourcing work overseas is exactly the same thing as discovering a new technology; there is no fundamental difference between having your MRI data analyzed by an Indian over the Internet and having your MRI data analyzed by clever new software that runs directly on your laptop. If technology makes us richer, than so must trade. If you cheer for progress, then you must cheer for trade."

~Steven E. Landsburg in his new book "More Sex is Safer Sex: The Unconventional Wisdom of Economics"

MP: To carry Landsburg's analysis one step further: If you support protectionist trade policies, then logically you must also be against progress and technology in general, and should also support legislation that would inhibit progress and retard technology.

Recommended

1. Republican/libertarian Ron Paul, Texas Congressman and candidate for president, is featured in today's NY Times Magazine article "The Antiwar, Anti-Abortion, Anti-Drug-Enforcement-Administration, Anti-Medicare Candidacy of Dr. Ron Paul."

2. UC-Berkeley economist and now Chief Economist at Google (where he will build a team of economists, statisticians, and analysts to assist the company in “marketing, in human resources, in strategy, in policy related stuff”) Hal Varian is featured in an interview in the WSJ titled "Economics According to Google."