Tuesday, September 11, 2007

Every Civics Teacher's Worst Nightmare

In an article about low voter turnout in today's Baltimore Sun, I'm described as "an economist, blogger and every civics teacher's worst nightmare."

"The only time your vote counts is if it's a dead tie and you're the last person to vote," says Perry, a professor at the University of Michigan in Flint.

The Baltimore Sun reporter contacted me after reading this post from last November on "The Case for Low Voter Turnout," where I wrote that "I like low voter turnout, because the election results are almost always exactly same as for high voter turnout, and low voter turnout saves and conserves our most precious non-renewable resource: our time, and therefore it is socially more efficient than high voter turnout."

Bottom Line: Increasing voter turnout is very easy: lower the cost of voting.

Monday, September 10, 2007

Starbucks Opens in Moscow, Finally!

MOSCOW, Russia: With the hiss of an espresso machine and a note in Russian explaining the meaning of tall, grande and vente, Starbucks opened its first coffee shop in Russia on Thursday in a mall outside Moscow.

The long-awaited opening sealed a victory for the chain, which is based in Seattle, in a fight with a Russian trademark squatter who had barred Starbucks's entry into this market for more than three years, just as a coffeehouse culture burst onto the scene in Russia. Starbucks refused to pay the squatter and eventually won its case in court.

With the opening of the first Russian café, Starbucks now operates in 43 countries, and the company plans to open a flagship Russian shop on Old Arbat Street, an iconic address in central Moscow, later this year.

(HT: Sanil Kori)

Farmers Have A Permanent Place at Public Trough

Milton Friedman once said that "Nothing is so permanent as a temporary government program." Nothing more clearly illustrates Friedman's insight than farm subsidies. From today's Kansas City Star:

It’s astonishing when you think back on how this got started. It was 1933. It was another “temporary” program to deal with an emergency. It was supposed to help impoverished farm families.

Now the lion’s share of these payments goes to only 10% of the farmers, and since payments are based on per-acre production the recipients are those running the biggest farms.

Not all of them, mind you. Production of fruit, vegetables, beef and poultry — about two-thirds of farm output — remains largely unsubsidized. It makes you wonder why producers of the major subsidized crops — wheat, corn, soybeans, rice and cotton — couldn’t somehow also survive without federal handouts.

New Zealand and Australia have largely done away with farm subsidies. Yet in this country there’s not much stomach in Washington for real reform. Since farm states are often swing states politically, subsidizing agriculture is a bipartisan effort.

Today, farmers constitute only about 1% of the population, yet farmers have carved out a seemingly permanent place at the public trough.

International Unemployment Rates, 2007

The chart above reflects international unemployment data released today by the BLS here and here. As the data show, the U.S. unemployment rate of 4.5% for 2007 and the labor market look pretty good in comparison to other advanaced economies, despite what some considered to be a "dismal employment report" last Friday. For example the U.S. jobless rate is 2.6% below the EU average of 7.1%, more than 4% below France, Germany and Greece, more than 3% below Portugal, Spain and Belgium.

In fact, even our state with the highest unemployment rate for 2007, Michigan at 6.9%, is below the EU average of 7.1%. In other words, the U.S. state with the worst economy and labor market conditions, is still better than the average European country, in terms of jobless rates.

Sunday, September 09, 2007

The UAW's Choking Health Care Burden

ANN ARBOR - "Detroit's automakers have a total of 180,681 hourly workers represented by the UAW. There is a staggering number of 721,025 UAW retirees and surviving spouses who are entitled to retiree health benefits (see chart above, click to enlarge).

The automakers have proposed establishing "voluntary employee benefit associations,'' or VEBAs, to fund retiree benefits.

Automakers might contribute as much as $80 billion to the funds, which would be run by the UAW. The union would invest the money to ensure it had enough money to meet retiree health care obligations.

VEBAs would take the choking obligation to fund retiree benefits off automakers' books, which could help improve their competitiveness.

MP: What company could possibly be competitive and survive when it is obligated to pay health care benefits for 5 workers per employee, one who is currently working, and 4 additional workers who are retired? Ford, GM and Chrysler are paying health care benefits for 900,000 workers, but only 180,000 are actually current workers! Is it any surprise that the Big Three have asked the UAW to take over the obligation for unlimited lifetime health care benefits for its members?

What's Next?

For the first time in history, sandals with a built-in bottle opener! What a country, who say's things aren't getting better all the time?

More on the Pay Gap, From the U.K.

Like in the U.S., the pay gap is a controversial issue in the U.K. English Blogger Tim Worstall has a link to an interesting article in the U.K.'s Sunday Times that reports that Britain's Minister for Women Harriet Harman is "pressing forward with the government’s commitment to reduce the pay gap between men and women,” currently 12.2%, up from 11.8% last year. From the article:

However, what is not recognised in this age-old debate is the fact that many women are happy to be paid less in order to work less and thus spend more time with their families.

Well, not “happy” necessarily, but “able to live with what is an essential compromise”. That sounds like an incredibly old-fashioned, borderline sexist thing to say, but it is in fact an entirely modern and realistic one.

The truth of the matter is that recent generations have produced an awful lot of women who crash through the glass ceiling only to stand triumphantly among the broken shards and think: “Hmm, you know what? I’d rather be home for the baby’s bathtime.”

Men are, with a handful of exceptions, unwilling to compromise an iota on the work/ family front: work comes first and will always come first.

Faced with the choice of their children having two spectacularly absent parents, most women compromise and cut their hours. Or work from home a day or two a week, or leave at 5.30 on the dot, no matter how much they’re needed at work.

Their salary takes a commensurate dip, as often does their popularity or what is perceived as their reliability. It’s not fair because if women didn’t do this then family life would be even more endangered and confused than it already is, but nobody said commerce and domesticity made great bed partners - and women are keener on their children finding them reliable than on being available to their boss at all hours.

MP: As the graph above shows for the U.S. using BLS data, the average weekly hours for women has been gradually increasing, but men still work almost 6 more hours per week, or 16% more hours on average. At least part of any observed pay gap in the U.S. can certainly be explained by a 16% difference in the "hours worked gap." I don't have UK data, but I'm assuming there is an "hours gap" as well in the U.K., and the article seems to support that assumption.

Like in the U.S., cases of unequal pay for equal work is illegal in the U.K., and can be prosecuted. However, we should always allow for the fact that some differences in pay are based on personal choices made voluntarily, reflecting the tradeoffs between work and family. The article does a nice job of pointing out these tradeoffs.

Green Guilt and The Selling of Eco-Indulgences

From the LA Times article last week "Can You Buy a Greener Conscience?":

The race to save the planet from global warming has spawned a budding industry of middlemen selling environmental salvation at bargain prices.

The companies take millions of dollars collected from their customers and funnel them into carbon-cutting projects, such as tree farms in Ecuador, windmills in Minnesota and no-till fields in Iowa.

In return, customers get to claim the reductions, known as voluntary carbon offsets, as their own. For less than $100 a year, even a Hummer can be pollution-free -- at least on paper.

Driven by guilt, public relations or genuine concern over global warming, tens of thousands of people have purchased offsets to zero out their carbon impact on the planet.

Beneath the feel-good simplicity of buying your way to carbon neutrality is a growing concern that the idea is more hype than solution.

In this related commentary "Carbon Offsets: Eco-Extortion, Green Guilt, and the Selling of Indulgences," Frank Pastore writes:

The selling of “voluntary carbon offsets”—eco-indulgences—is a $55 million per year industry, involving over three dozen companies worldwide. Total sales are anticipated to double both this year and next, and entrepreneurs are clamoring all over themselves for a piece of the action.

And it’s all a scam.

Yes, the money is very real, but the alleged benefits to the environment are fake.

Paying someone to plant a tree to “offset” the carbon footprint of your SUV is just plain silly. Yet there are thousands of people spending real money on these kind of indulgences every day.

Why? The answer is that it’s part green guilt, part eco-extortion, and part just plain novelty.

MP: Both articles point out this part of the scam: Native Energy and other companies selling eco-indulgences often contribute only 1% of the total cost of windmill projects and alternative energy plants, yet they claim and sell 100% of the carbon reductions.

Saturday, September 08, 2007

Naive Enviornmentalism=Religous Fundamentalism

Excerpts below from a classic statement about why naive environmentalism is like religious fundamentalism, from economist Steven Landsburg in his book "Armchair Economics: Economics and Everyday Life:"

Like other coercive ideologies, environmentalism targets children specifically. The naive environmentalism of my daughter's preschool is a force-fed potpourri of myth, superstition, and ritual that has much in common with the least reputable varieties of religious Fundamentalism.

In a letter to his daughter Cayley's teacher, Landsburg writes:

Just as Cayley's teachers in Colorado were honestly oblivious to the fact that there is diversity in religion, it may be that her teachers here have been honestly oblivious that there is diversity in politics.

Let me then make that diversity clear. We are not environmentalists. We ardently oppose environmentalists. We consider environmentalism a form of mass hysteria akin to Islamic fundamentalism or the War on Drugs. We do not recycle. We teach our daughter not to recycle. We teach her that people who try to convince her to recycle, or who try to force her to recycle, are intruding on her rights.

The entire program of environmentalism is as foreign to us as the doctrine of Christianity (Note: Landsburg is Jewish). We face no current threat of having Christianity imposed on us by petty tyrants; the same can not be said of environmentalism. My county government never tried to send me a New Testament, but it did send me a recycling bin.

MP: I'm not sure, but I don't think Landsburg is an environmentalist.

Friday, September 07, 2007

Free MRIs? Sure, If You Can Wait Until Next Spring

In a previous post, the long waiting times for MRI in Canada were outlined: 4.5 months for Ontario and 6.5 months for Newfoundland, vs. the typical 1-2 days in the U.S. To put 4.5 months and 6.5 months in perspective, consider this:

1. If you visited a doctor on Monday in Toronto, and it was determined you needed an MRI, you would likely be waiting until around Febuary 1, 2008.

2. If you visited a doctor on Monday in St. John's, and you scheduled an MRI, it would be almost April 1, 2008 before you could get your MRI.

That's the bad news. The good news? It's "free."

U.S. Leads the World in WTO Trade Complaints

WASHINGTON: The Bush administration has asked the World Trade Organization to rule in a complaint against China over the piracy of copyrighted movies, music, software and books, escalating a dispute that has roiled commercial relations.

We hear a lot about China violating World Trade Organization rules, like the example above involving piracy. In America, one could easily get the impression that the U.S. always follows WTO rules and it's always other countries China that are the bad guys. Statistics available on the WTO website tell a much different story.

Since the WTO started in 1995, the U.S. has been a respondent in almost 100 cases, and 43 of those complaints have been filed since 2002, when China was admitted to the WTO. In contrast, only 8 complaints have been filed against China; so the U.S. has received more than 5 times the number of complaints as China (see chart above). Many (or most) countries have received no complaints.

Employment: It's Not All Bad News Everywhere

1. In contrast to today's BLS report of an employment decline in August, the Monster Employment Index (released yesterday) "rose 3 points in August, reflecting a slight rebound in online job availability across a majority of industries, occupations and geographical regions following the traditionally slower summer months of June and July. The Monster Employment Index is based on a real-time review of millions of employer job opportunities culled from more than 1,500 different Web sites, including Monster."

2. First Trust Advisors is "taking today’s report of a 4,000 drop in payrolls in stride. Overreaction by financial journalists and some investors is the real news."

3. India's IT sector is expected to create 400,000 new jobs this year, a 25% increase from 1.6 million jobs last year to 2 million this year. Just like it's always 5 p.m. somewhere in the world, there's always job growth somewhere.......

Can and Bottle Arbitrage

Newman drinking pop so he can return empty bottles to Michigan.
Kramer and Newman en route to Michigan, to return bottles.

Seinfeld had a two-segment episode on "The Bottle Deposit," which aired in 1996, where Kramer and Newman try to take advantage of Michigan's 10 cent per bottle deposit, by driving Newman's mail truck to Saginaw, Michigan filled with empty bottles. Unfortunately, they never it made all the way to Michigan during Part 2, you can read details here for Part 1 and here for Part 2.

However, about $10 million worth of empty bottles and cans do get smuggled into Michigan from Ohio and Indiana by people who cash in on Michigan's 10-cent deposit refund. Ohio and Indiana do not require a deposit on beverage containers, and returning those out-of-state bottles and cans in Michigan can turn in a small profit.

Michigan lawmakers now want to stop the smuggling by requiring beverage manufacturers to put a code on all bottles and cans that are sold in Michigan, and require that automated bottle return machines be programmed to read the Michigan-only code so they accept only containers sold in Michigan.

Read more here in the Detroit News.

Perfect Storm for Real Estate Agents

“It’s a perfect storm for real estate agents,” said Glenn Kelman, chief executive of Redfin, an online brokerage in Seattle. “Not only have unprecedented numbers flocked to the profession, but at the same time you have the mortgage meltdown, the housing bubble bursting, and online competitors attacking the commission structure.”

Traditional real estate agents, who depend entirely on commissions, “are beset on all sides,” Mr. Kelman said.

The number of people taking the real estate sales exam in California soared from a little more than 2,000 a month in the late 1990s to a peak of nearly 20,000 in April 2005, according to the California Department of Real Estate. But by July 2007, the number had dropped to 8,000 (see chart above). Similar patterns are seen in other states.

Continue reading the NY Times article As Housing Market Cools, Far Fewer Become Agents....

Thursday, September 06, 2007

More On City Slickers and Farm Subsidies

From Environmental Working Group (EWG): "You may envision your farm subsidy dollars going to hardworking farmers on picturesque farms, but unfortunately it doesn't work that way. Every year absentee landowners, corporations and other "farmers" collect hundreds of millions of dollars in farm subsidies, all while living smack in the middle of some of America's wealthiest metropolitan areas (see map above of "farmers" in Minneapolis-St. Paul receving farm subsidies). All you need to qualify for farm subsidy payments is a stake in qualifying farmland (and a good lawyer to help you wade through the paperwork). Last time we checked there were no farms on 5th Avenue in Manhattan, but somehow people are getting big bucks to "farm" there anyway."

EWG has prepared a short video presentation making fun of "City Slickers and Farm Subsidies," you can watch it here at EWG or here on YouTube.

Cuba's Health Care System on ABC's 20/20 Friday

This Friday night (tomorrow) on "20/20" at 10 p.m. EDT, John Stossel will do a segment on health care in Cuba. Michael Moore says "If there's one thing they do right in Cuba, it's healthcare." John Stossel looks at whether Michael Moore gets that story right.

Should China Be Judged and Condemned?

Walt G writes: "How can U.S. companies compete against foreign companies that do not have to abide by the same laws and regulations? Even I could run a profitable company in the U.S. with 25 cents-per-hour prison labor, by dumping dangerous chemicals on the ground, spewing poisonous vapors into the air, and ignoring all rules, regulations, and standards. We could easily have a capitalist Chinese economic model in one of our states if we were to remove all the laws and protections inherent to our way of life."

Consider this depressing description of Developing Economy A:

“Workers are paid poorly, only 15-25 cents per hour, and are expected to work 60 hours per week, often in unsafe and dangerous conditions. Sweat shops can be found in every major city across the country. There are no worker fringe benefits, no paid holidays, etc., and unions are nonexistent. Child labor is common, especially providing long hours of grueling manual labor on farms, and farms are so dependent on child labor that schools are not even in session during the peak growing and harvest months of the year. There are no environmental, safety or labor standards to speak of, and dirty black clouds of smoke are a common sight. City streets and sidewalks are often covered with rotting animal waste. People burn garbage everywhere without restriction, and the foul smells and thick smoke from burning garbage are a daily nuisance.”

Sounds like China today? Actually the description above is of the United States in 1900, when it could accurately be described as a “developing economy” by today’s standards.

Now imagine that in 1900 there had actually been a country in Europe or Asia that was an advanced, developed economy equivalent to the U.S. today, and it had started to engage in trade with the emerging, developing USA. Couldn't all of the claims against China today by the U.S. have also been made against the U.S. in 1900 by an advanced economy then – dangerous and unsafe working conditions, limited environmental regulations, no unions, low wages, child labor, etc. etc.?

Many of the conditions we take for granted today in the U.S. are the luxuries of an advanced economy that only became possible because the U.S. went through a developing stage of economic growth (like China today) to eventually become advanced. It's advanced economies with their wealth, prosperity and resources that can afford high standards for safety, the environment and working conditions, not developing economies with their relative lack of wealth and resources.

Therefore, just like it wouldn't have been “fair” for an advanced economy in 1900 to condemn the U.S. for its deplorable working, safety and environmental conditions, it's not “fair” for us today in the U.S. to judge and condemn the conditions in China. Imposing the safety, labor and environmental standards of a developed economy on an emerging, developing economy is not "fair." And imposing trade barriers based on a developing economy like China, based on the standards of a developed economy like the U.S. that has maybe a 100-year head start on China in terms of economic development, cannot be considered "fair."

Bottom Line: Advanced labor, health, safety, and environmental standards are luxuries that only advanced economies can afford. The U.S. couldn't afford these luxuries in 1900 and China can't afford some of them today. But just like the U.S. eventually created enough wealth to afford a clean environment, end child labor, regulate safety, and improve working conditions, so will China. Just give it time.

Interesting Wal-Mart Fact of the Day

Based on August retail sales reported in the WSJ, Wal-Mart ($28.2 billion) is twice as big as the next 13 retailers on the list combined (Target, Costco, J.C. Penny, TJX, Gap, Abercrombie and Fitch, American Eagle, Saks, Aeropostale, Ann Taylor, Chico's, Hot Topic, Zumiez).

Exposing CAFE Kool-Aid With Economic Analysis

From today's WSJ article "Don't Drink the CAFE Kool-Aid by Robert Crandall (Brookings Institution) and Hal Singer (Criterion Economics):

"If fuel economy improvements make economic sense, the market will achieve them on its own.

For example, if there was fuel-saving technology out there that cost $1,000 but generated $2,500 in the discounted present value of fuel savings over the life of the vehicle, carmakers would surely voluntarily embrace that technology. The carmaker could split the net benefits (equal to the difference between the discounted fuel savings and the cost of the technology) with the car buyer such that both parties to the transaction would be better off.

No need for regulation there. With large numbers of vehicle producers and well-informed consumers, the market is so efficient, in fact, that it ensures that all such transactions will occur, generating the socially optimal level of fuel economy.

When exposed to the piercing light of economic analysis, the alleged benefits of more stringent CAFE standards burn away. Unfortunately, aside from economists, whose voices often carry little weight in Washington, there is virtually no opposition to this form of regulation. Too bad these proposals will not be subjected to economic scrutiny before they become law."

Starting Salaries Rise for College Class of 2007

BETHLEHEM, PA—Employers continue to offer higher starting salaries to new college graduates across many disciplines, according to the Summer 2007 issue of Salary Survey, a quarterly report published by the National Association of Colleges and Employers (NACE).

Wednesday, September 05, 2007

Back-To-School Item: $175 Bulletproof Backpack

Parents have a new item to add to their kids’ back-to-school supplies list this fall: the bulletproof backpack (pictured above).

Just in time for the new academic year, Massachusetts-based MJ Safety Solutions has unveiled "My Child’s Pack," described on the company’s website as the first “full size, lightweight ballistic protection backpack that is affordable and practical.”

The response has been overwhelming. Orders for the $175 bags have been pouring in online and the one store in Danvers, Mass. carrying the packs has been sold out since day one.

Continue reading here.

Ticketmaster's Ticket Monopoly is Crumbling: Consumers Are Pissed Off and Investors Are Selling

Ticketmaster's parent company IAC (blue) vs. SP500 (red):
Internet technology is loosening Ticketmaster's tight grip on the lucrative live concert and sporting event scene. The Net is shaking up the ticketing market by giving artists and venues a way to sell tickets directly to fans. And it is fueling the rise of a resale market by giving buyers and sellers a safe place to connect with one another more easily and cheaply.

As the rules of the game change, talent and event managers sense a chance to seize back some control. Sports teams are trying to assert more say over the way tickets are sold. And venues and concert promoters are rethinking their relationships with ticket sellers.

"Consumers don't like Ticketmaster's fat service charge, and they are pissed off."

Read more here from the BusinessWeek article: "Ticketmaster Faces A Full-Court Press: Can the Internet break the giant's grip on music and sporting events?" Given consumer's foul mood and Ticketmaster's falling stock price (see chart above), I'd say the answer is Yes.

Capitalism and Competition: Can We Handle It?

"We have a China problem. It is not, however, a China problem in the way most people think. It is not a problem with safety standards that threaten our children and our pets. It is a problem with the very fact of China as an emerging force on the global economic stage, and it underscores a profound and worrying trend in American political and economic life. For half a century we fought for the creation of a global capitalist system. Now that we have one, we seem to have forgotten one little thing: Capitalism means competition, and we are acting like we can't handle it.

Since the dawn of the American republic, we have never faced the kind of economic challenge that China presents. It is playing the game of global capitalism almost as adeptly as we are, and our response for now seems to be a mixture of fear and disbelief.

China bashing raises questions about the ability of the U.S. to compete in the global economy that it did so much to create."

~From today's WSJ editorial "Watch Out for the China Bashers."

Trade Retaliation is the Worst Possible Response

Bob Wright asks: "When foreign countries have policies that keep U.S. products out of their markets, what is the appropriate response by the U.S. government?"

Another way to phrase the question: "When foreign countries enact trade policies that: a) deny their own citizens access to foreign products, or b) raise prices for their own citizens with tariffs (taxes) on foreign products, both which result in a lower standard of living for the citizens of those foreign countries, what is the appropriate response of the U.S. government?"

The response that would make the LEAST sense is for the U.S. government to "retaliate" with trade policies "to level the playing field" by denying American citizens access to foreign products or raising prices for Americans by imposing "punitive" tariffs on imports.

Reason? It would lower our own standard of living, with the following nonsensical logic: "OK, China/Japan/India, if you're going to lower the standard of living of your citizens with trade barriers, we'll really show you... we're going to retaliate and lower the standard of living of our citizens with our own 'punitive' trade barriers to get back at you." How childish. After all, imposing "punitive tariffs on Japan or China" is really imposing "punitive tariffs on American consumers or businesses buying Japanese or Chinese products"!

The response that would make the MOST sense is for the U.S. government to do nothing in most cases. Here's a few examples to illustrate:

Case 1: You grow the best and cheapest tomatoes in your area, and your neighbor grows the best and cheapest sweet corn in your area. You buy your neighbor's cheap sweet corn, but your neighbor refuses to buy your cheap tomatoes. What should your response be? You should probably continue to buy your neighbor's cheap sweet corn, regardless of whether he/she buys your tomatoes. To "impose a personal trade barrier" by refusing to buy your neighbor's sweet corn in retaliation, would only serve to make you WORSE OFF, not better off.

Case 2: A company in Japan develops a cure for cancer and has exclusive rights to sell it. A company in the U.S. develops a cure for AIDS and has exclusive rights to sell it. Suppose now that Japan has a trade policy that prevents its citizens from having access to the American cure for AIDS, or imposes a huge tariff on the drug, perhaps to protect a Japanese company that is developing its own AIDS drug.

What is the appropriate response of the U.S. government? Certainly not to deny American citizens access to Japan's cancer cure, or impose "punitive" tariffs on Americans buying the cancer drug, which would serve to make us WORSE OFF, not better off, and would even cause Americans to die needlessly. Japan's trade policy is unfortunate for Japanese citizens, because it denies its own citizens access to a drug for a life-threatening disease, or imposes tariffs/taxes on its own citizen, and could even cause some Japanese to die.

Bottom Line: The best response for the U.S. government to foreign trade barriers is NO response, and the worst response for the U.S. government is trade retaliation that restricts choices for American consumers and/or raises prices for Americans.

Remember that countries don't trade, individual consumers and individual firms trade. That is, China as a country doesn't trade with the U.S. as a country, it's American consumers and businesses buying Chinese products. Restrictions or tariffs on Chinese products are in reality restrictions or tariffs on Americans buying Chinese products.

Tuesday, September 04, 2007

Globalization and Cultural Diversity

From an excellent editorial in today's WSJ, written by the CEO of Sony Pictures, titled "Globalization and Cultural Diversity":

"If what can be seen in the cinemas and on television screens from Bangalore to Barcelona these days is any indication, globalization does not mean homogeneity. It means heterogeneity.

Instead of creating a single, boring global village, the forces of globalization are actually encouraging the proliferation of cultural diversity.

Instead of one voice, there are many. Instead of fewer choices, there are more. And instead of a uniform, Americanized world, there remains a rich and dizzying array of cultures, all of them allowing thousands of movies and televisions shows to bloom."

MP: There are many other examples of how globalization has not resulted in a uniform, Americaned world, but instead has resulted a richer, more culturally diverse world, including:

1. Think of the explosion of Jamacian reggae music around the world, including the U.S. and U.K., where it was embraced and supported, allowing it to thrive and prosper with a global market for new music.

2. Think of the explosion of ethnic restaurants around the U.S. - a Yellow pages search shows that there are now 54 Vietnamese restaurants and 75 Thai restaurants in Minneapolis-St. Paul, the epicenter of Midwest culture, traditionally Scandanavian, home of Garrison Keillor and the Prairie Home Companion Show, and about as far away from the East or West Coast as you can get (see Thai food above). As recently as the early 1980s, there were NO Vietnamese or Thai restaurants anywhere in the state of Minnesota, and probably almost none between Chicago and San Francisco.

3. Do a search on Ebay for "mola" and you'll find anywhere from 200-300 items for sale of the traditional textile art form made by the Kuna people of Panama and Costa Rica. Molas are cloth panels featuring complex designs made with multiple layers of cloth in a reverse appliqué technique (see photo above, click to enlarge). Most mola buyers are probably Americans who have recently developed an awareness and appreciation of a traditional art form due to globalization, and this art form is now much less likely to become extinct now that the Kunas have access to a global marketplace through Ebay.

Other examples?

Turn Your Car Into a Wireless Hotspot

It had to happen eventually didn't it? Well, now it's here: an Internet connection for your car.

"It's the ability to maintain the Internet-based lifestyle people live today," said Sterling Pratz, chief executive of Autonet, the first automotive Internet provider, in today's WSJ article about how cars, planes and maybe even trains are becoming wireless hot spots."

"Avis Car Rental has recorded thousands of rental days for the Wi-Fi boxes -- customers pay $10.95 a day to use the service. Passengers -- typically tourists -- who use the service surf the Web to find local restaurants or activities."

MP: How long will it take before there is a "no surfing while driving ordinance?"

Carpe Diem Finishes #6 for August Econ Blog Traffic

According to today's Gongol.com's Traffic Rankings for Major Business and Economics Websites, Carpe Diem broke into the Top 10 for the first time (see chart above, click to enlarge), finishing in 6th place for average daily page visits (based on August activity), just behind #5 Greg Mankiw! If Carpe Diem was a newspaper, it would have the readership of Phoenix's Arizona Republic. Thanks for your support! I was helped enormously in August by several CD postings that were featured on Reddit.com (like the one on $1500 houses in Detroit) and generated tons of activity, thanks to Reddit readers and posters!

Carpe Diem

Quote of the Day: The Magic of Government

Economist Thomas Sowell, commenting in his column today about how he survived for 30 years on a limited income with no health insurance, by paying cash for a broken arm, a broken jaw, a badly injured shoulder, and miscellaneous other medical problems:

"This was all before politicians gave us the idea that the things we could not afford individually we could somehow afford collectively through the magic of government."

MP: Just a thought, but isn't all magic based on illusion, deception, misdirection, and sleight-of-hand?

Economic Freedom of the World 2007


1. Nations in the most-free quartile of economic freedom have an average per-capita GDP of $26,013, compared to $3,305 for those nations in the least-free quartile (see chart above).

2. Nations in the top quartile have an average per-capita economic growth rate of 2.25%, compared to 0.35% for the bottom quartile.

3. In nations of the top quartile, the average income of the poorest 10% of the population is $7,334, compared to $905 for those in the bottom quartile.

4. Life expectancy is 78.7 years in the most free quartile but 56.7 years in the bottom quartile.

5. Nations in the top quartile of economic freedom have an average score of 1.8 for political rights on a scale of 1 to 7 (where 1 = the highest level), while those in the bottom quartile have an average score of 4.4.

6. Nations in the most-free quartile of economic freedom have an average score of 1.7 for civil liberties on a scale of 1 to 7, where 1 marks the highest level, while those in the least-free quartile have an average score of 4.1.

7. Nations in the top quartile of economic freedom have an average score of 81.0 (out of 100) for environmental performance, while those in the bottom quartile have an average score of 58.9.

8. The infant mortality per 1,000 live births is 69.6 in the least-free quartile, compared to only 5.9 in the most-free quartile.

9. The incidence of tuberculosis is 217.9 per 100,000 people in the least free quartile, compared to only 21.1 in the most free quartile.

10. Access to improved water sources and improved sanitation facilities is almost 100% in the most-free countries (99.2% and 97.5%), versus only 72.7% (water) and 53.5% (sanitation) in the least-free countries.

From the Economic Freedom of the World: 2007 Annual Report, released this morning by the Cato Institute, showing that economic freedom is on the rise globally.

Bottom Line: More economic freedom is associated with higher incomes, greater economic growth, increased life expectancy, a cleaner environment, greater civil liberties, less corruption, greater foreign investment, increased sanitation and water, lower infant mortality, greater political freedom, and a lower incidence of life-threatening diseases like tuberculosis.

Outsourcing 101 for Dummies (Politicians)

"A lawmaker from Washington State might be told something like this: Indian outsourcing companies may funnel some Seattle-area technology jobs to India, but with the affluence that creates in India, more and more Indians are flying. That has made India a huge buyer of Boeing aircraft and thus a creator of jobs in the Seattle area, where Boeing does much of its manufacturing."

From today's NY Times article "
Lobbying in U.S., Indian Firms Present an American Face." Here's more:

In the heat of the 2004 presidential race in the United States, John Kerry compared outsourcing to treason, Lou Dobbs harangued against it on CNN and the Indian outsourcing vendors were left scrambling. As the 2008 campaign starts to pick up speed, the Indian outsourcing companies have returned to Washington as veritable insiders, slicker and better connected than ever.

They have hired a former official in the Bush administration as a lobbyist. They are humanizing the issue by bringing Americans they have hired into meetings with politicians. The Indian companies are mounting this effort out of fear that the pressures of the presidential election, and of the Democratic primaries especially, will induce candidates to lash out at Indian vendors.

Bottom Line: India's National Association of Software and Service Companies (NASSCOM) now has to spend millions of dollars educating American politicians on the basic economic principles of how voluntary trade and outsourcing is a mutually beneficial and win-win outcome, and how the dollars spent on outsourcing in India end up getting spent back in the U.S. Shouldn't they have learned this in high school economics?

Monday, September 03, 2007

Canadian Medicine is Sick: MRI? Go to the Back of the 4 Mo. Line in Ontario, Even With Brain Tumor

First Lesson of Economics: We live in a universe of scarcity, and scare goods must be rationed efficiently.

First lesson of Politics and Canadian Medicine: Ignore the first lesson economics.

According to the first lesson of economics, scare goods MUST be rationed somehow. The most efficient way to ration scarce goods is with money - as crude as it sounds, it works, and in some cases it even saves lives, as this post illustrates (keep reading). The alternative is to ration scarce goods with time, e.g. waiting in line to buy "cheap goods" in the Soviet Union, or waiting in line to buy "cheap gas" during the 1970s in the U.S. under price controls. When it comes to critical health care, some people will die waiting in line when time is used to ration service.

For example: how to ration MRIs? In Canada, MRIs are "free," so the scarce service must be rationed by waiting in line (time), with waits from 4.5 to 6.5 months in some Canadian provinces like Ontario and Newfoundland (see chart above, click to enlarge). In the U.S. we ration MRIs with money, and there really are no documented waiting times for American - do a Google search for "MRI waiting times in the U.S." and you'll find nothing. Just like there are really no waiting times to have your oil changed or brakes fixed, scarce services which are rationed with money.

Exhibit A: I had my first MRI last week in the Flint, Michigan area because of prolonged neck and shoulder pain. From the time I left my initial appointment at my doctor's office to my scheduled MRI appointment, it was only 24 hours, i.e. I was able to schedule an MRI the very next day! When I asked if that was typical, the answer was yes, many MRIs can be scheduled within 24 hours, and certainly within a week.

My case was fairly routine and I was still able to get an MRI within 24 hours in the U.S. Compare that to the experience of Canadian citizen Lindsay McCreith, who was told in 2006 that he probably had a brain tumor. His case was an emergency and he needed an MRI fast, but the wait time for a "free" MRI was 4.5 months in Ontario, and it's illegal to purchase a private MRI in Ontario. So he was told to get to the end of the MRI line with his suspected brain tumor and wait 135 days for his free MRI.

What to do? Lindsay contacted Timely Medical in Vancouver, a three-year old private medical broker in Canada, which got him an MRI the next day across the border in Buffalo, NY. Result? As suspected, he did indeed have a brain tumor the size of a golf ball. McCreith then was able to schedule brain surgery within a week in the U.S., surgery that would have taken eight months in Canada -- if Lindsay had still been alive.

View a video clip here of Lindsay McCreith's ordeal with Canadian medicine, as he and his wife explain how U.S. medical care probably saved his life.

Read a recent commentary "Uh-Oh Canada," which inspired this post, along with my personal experience about my first MRI in the U.S.

Harvesting Cash II

"Farmers" harvesting cash in Minneapolis-St. Paul, MN:
"Farmers" harvesting cash in Chicago, IL:
Further investigation of the EWG Farm Subsidy Database reveals that there are wealthy "farmers" harvesting cash from the taxpayers in all major urban areas, see maps above of Minneapolis-St. Paul and Chicago (click to enlarge). Note that the largest circles represent payments of more than $250,000 from 2003-2005, and the second largest circles are for payments between $100,000-$250,000, etc.

In Minnesota, one out of every three recipients of federal farm subsidies live in either Minneapolis or St. Paul (1,831 out of 5,652 total for the state). In Illinois, more than 1,700 recipients of farm subsidies live in Chicago, which represents 25% of subsidy recipients in the state.

Sunday, September 02, 2007

55% of Imports are Inputs, Not Finished Goods

From today's Detroit News, "Manufacturing Thrives Despite Myth of Decline," by Dan Ikenson of The Cato Institute:

"While misguided (or disingenuous) politicians rail against the rising trade deficit, they fail to comprehend (or acknowledge) that U.S. producers are America's largest importers. In 2006, 55% percent of all U.S. goods imports were industrial products and components, the kinds of purchases made not by consumers, but by producers.

That statistic supports the strong correlation between manufactured imports and U.S. manufacturing output, which has been observed for decades. Imports and output rise and fall in tandem. Thus, policymakers who seek to restrain imports are effectively advocating a manufacturing recession. If their mercantilist worldview prevails, and imports decline, reports of idled factory equipment will not be far behind."

MP: Using data from the Bureau of Economic Analysis data, the chart above shows import data by "End-use Category," and confirms that 55% of imports to the U.S. ($504 billion) were either "Industrial Supplies and Materials" ($299 billion) like iron, steel, rubber, aluminum, tin, lumber, newsprint, chemicals, etc. or "Capital Goods, Except Automotive" ($205 billion) like industrial machinery, engines, tools, instruments, etc. The other 45% ($411 billion) of imports were consumer goods and food.

In other words, U.S. companies spend about $100 billion more on imported inputs ($504 billion) than consumers spend on final goods ($411 billion). This distinction is important because, when most people think about imports, we think about finished, retail consumer goods like Toyotas from Japan, toys or big screen TVs from China, etc., and don't realize that the majority of imports are inputs, raw materials and capital equipment for U.S. firms. Raising trade barriers with protectionist tariffs would create significant harm for U.S. companies and their employees by artificially raising the price of their inputs, putting them at a competitive disadvantage in an increasingly competitive global economy.

Bottom Line: Tariffs on imports are essentially punitive taxes on the inputs of U.S. producers, and if you tax something you'll get less of it, including fewer jobs for Americans working at U.S. companies buying inputs from abroad.

Saturday, September 01, 2007

100% Chance of Rate Cut to 5% in September

Good primer here from the WSJ on how to calculate probabilities of future Federal Reserve policy changes using the Chicago Board of Trade's 30-Day Federal Funds Futures contracts.

For example, the Federal Open Market Committee (FOMC) meets in about two weeks, on September 12. What is the probably that the FOMC will cut its target Fed Funds rate from 5.25% to 5% at that meeting? Or maybe even to 4.75%? Using the Federal Funds Futures contracts, the probabilities are 100% of rate cut to 5%, and 73% chance of a rate cut to 4.75%. Here's why:

The October Fed Funds futures contracts settled at a price of 95.1150 on Friday (see chart above). The contracts are priced on the basis of 100 minus the average effective federal funds rate for the delivery month. Therefore, a price of 95.1150 for the October futures contract implies an expected Fed Funds rate of 4.885% for October. This implies that a .25% rate cut in the target Fed Funds rate, from 5.25% to 5% is already fully priced in to the futures contracts, meaning that markets expect at least a .25% rate cut with 100% probability at the September FOMC meeting.

Since the contracts are selling at a price to reflect a Fed Funds rate (4.885%) below 5%, there is also some probability that the Fed will cut rates by .50%. What is that probability?

The implied rate of 4.885% from the futures market is .365% below the current rate of 5.25% (5.25% - 4.885%), suggesting that there is a .365% / .50%, or 73% chance of a 1/2 point rate cut. Further, there is a .365% / .75%, or 46.8% chance of a 3/4 point rate cut in September.

Using the January Fed Funds futures contract, there is a 93% probability that the target Fed Funds rate will be down to 4.5% by early 2008.

I'll revisit this post on September 12 after the FOMC meeting.

Harvesting Cash in Manhattan?

Looks like maybe a map of subway stations in Manhattan?

Well, the "sub" part is correct, but it's not a sub-way map of Manhattan, it's a farm sub-sidy map that I was able to generate from the Environmental Working Group's Farm Subsidy Database, showing Manhattanites receiving farm subsidies. Here's an interactive map of NYC that allows you to click on the red circles and find information about the individual recipients and where their farm is located.

According to National Review Online, "The red dots indicate people who live in Manhattan (and so clearly are neither hurting for money nor tilling the soil on the family farm) but receive agricultural subsidies from the federal government. The larger red blobs mark people receiving more than $250,000 in farm subsidies annually."

The farm bill passed by House Democrats in July would continue giving millionaires farm subsidies (setting the income threshold for payments at $1 million a year, and keeping loopholes in place that allow some making much more to qualify). The Bush administration has proposed sharply reducing the income threshold to $200,000 a year and ending many of those loopholes. That would reduce the number of subsidy recipients by fewer than 40,000 (of the current million or so recipients)—though I suppose it might put some rooftop gardens on Park Avenue out of commission.

MP: I'm speechless, I don't even know where to start my comments on this one. Help me out.

Safety Smackdown: China Say America Has Worms

The US and China appear to be determined to go blow for blow to determine who is the filthiest nation of them all. The latest playground-style broadside from China is that the US has worms.

China struck on Friday in its latest tit-for-tat on trade contamination with reports in the China Daily that inspectors had found microscopic worms in wooden packaging from the US and had uncovered substandard U.S. vitamin pills and fish oil for children.

Read more in The Financial Times here.

Indian Hotels Now Want Rupees, Not Dollars

Reversing a 180-year trend (see chart above, click to enlarge) from 1822-2002, the USD has fallen by 17% vs. the Indian rupee in the last five years, from a high of Rs. 48.96/USD in May 2002 to Rs. 40.62/USD today, the lowest level for the dollar in more than nine years vs. the Indian rupee.

Result? Indian hotels now want rupees, not dollars.

MUMBAI: On Saturday, most hoteliers across the country will move to a single currency pricing policy: room rates will be quoted in Indian rupees. Historically, hotels have followed a dual pricing system that allowed them to quote room rates in both US dollars - the universally accepted currency - and Indian rupees.

With the weakening of dollar against the rupee, hoteliers feel there is more value for money earned in rupees and hence have decided to price their services in rupees.

Read more here from The Times of India.

(HT: Sanil Kori)

Financial Calcuator and Finance Excel Tutorials

Now that we're at the start of fall semester, college students might find these websites helpful for their finance classes:

Financial Calculator Tutorials for all HPs, TIs and Sharp financial calculators. I have reviewed the tutorial for the HP-10BII calculator, which is used at the University of Michigan-Flint's School of Management for all of our finance classes, and I think it is excellent.

Time Value of Money (TVM) Math, some parts of this site are under construction, but it provides good coverage of the mathematics of TVM.

Time Value of Money Tutorial for Microsoft Excel, showing how to do financial calculations in Excel.

Thanks to Matt Short.

China's Health Care: Cash Up Front, Lots of Drugs

If you are Chinese, or visiting China, try very hard NOT to get sick. Here's why:

1. China has no system of general practitioners, so most people go to a hospital for health care.

2. Most hospitals demand cash up front. Chinese people cannot get treatment, even for life-threatening illnesses, until they hand over money.

3. Chinese hospitals have been turned into pharmacies on steroids, more than half their funding is from the sale of drugs. The system has in-built incentives for everyone to sell as many drugs as possible, including doctors, whose salaries are tied to prescription targets. It is no coincidence that one of the biggest corruption cases this year centred on the former head of the state food and drug administration, who was executed last month for taking bribes of $1m to approve new drugs.

4. The most common prescription is for antibiotics, with devastating effect. The health ministry says that 70-90% of child pneumonia patients are resistant to drugs used to treat the disease, because of overuse of antibiotics.

5. A Chinese journalist visited 10 hospitals this year and, pretending to be a patient, provided tea in the place of a requested urine sample. Six of the hospitals said they had discovered "blood cells" in the "urine" and immediately prescribed drugs.

Read more in the Financial Times here.

MP: China's health care system also has implications for China's trade surplus with the U.S.

The fear of being financially crippled by falling ill is an important driver of the country's high savings rates, which in turn feeds the economy's bias towards investment and, more recently, with a large current account surplus, in favor of exports.

Countries like Japan and China with high savings rates (and low consumption) typically have trade surpluses and countries like the U.S. with low savings rates (and low consumption) have trade deficits. Trade policies in the U.S. targeted at reducing the trade deficit with China will never work unless the underlying savings/consumption patterns are altered in both the U.S. and China. That is, unless the U.S. somehow becomes a high savings country, we'll continue to have a trade deficit, and unless China somehow beceomes a low savings country, it'll continue to have trade surpluses. Not likely during our lifetimes.

Friday, August 31, 2007

Who Gets The Most National Public Holidays?

Thursday, August 30, 2007

Buy Houses in Detroit for $1500, Monthly Pmt. = $7

You can go to Realtor.com and search for homes for sale in any city in the U.S., and you can specify a certain price range. If you search for homes for sale in Detroit, Michigan, you'll find that there are 22,387 homes for sale right now, and if you search for Detroit homes for sales between $0 and $20,000, you'll find that there are 3,431 homes for sale in that price range!

That is, more than 15% of the homes for sale in Detroit, or almost 1 out every 7 homes for sale, is priced at $20,000 or less, including the "Great Investment Property" pictured above, which is listed at a $1,500 sales price (negotiable?) with estimated monthly payments of only "$7 per month."

"$7 for a monthly house payment," isn't that about what a single pack of cigarettes cost now?

Energizer Bunny Economy

The Commerce Department reported today that corporate profits strengthened in the second quarter, and hit an all-time high of $1.646 trillion on a before tax basis and $1.154 trillion after taxes (see chart above). Profits after taxes grew by 5.4% in the second quarter, after rising by 1.5% in the first quarter. Year over year, corporate profits increased by 3.5%.

During the last five years, corporate profits in the expanding U.S. economy doubled from $829 billion in 2002 to $1646 billion ($1.646 trillion) in 2007. Another way to think about it is to say that it took 220 years, from 1776 to 1996, before the U.S. economy was able to go from close to zero corporate profits to being able to generate $800 billion of corporate profits (not adjusted for inflation) in a year, and it then took only a 5 year period (2002-2007) for the U.S. economy's corporate profits to double from $800 billion to $1600 billion. Not bad for a "Rodney Dangerfield economy" that gets no respect from the media.

Another way to put U.S. corporate profits of $1.646 trillion in perspective is to compare it to world GDP figures. If the $1.646 trillion of profits generated by American businesses were considered to be a "country," the corporate sector of America would be the
8th largest country in the world, just slightly behind Italy, and larger than the entire economies of Canada, Spain, Brazil, Russia, and about twice the size of the entire economies of S. Korea, Mexico, India and Australia!

There has certainly been a lot of volatility in stock prices, but corporate profits in the "Energizer Bunny economy" are rising steadily and consistently, and have reached all-time historical highs in each of the last 6 years! Like the Energizer Bunny, corporate profits in the U.S. economy just keep going and going and going. UP.