Tuesday, September 18, 2007

Ethanol Recipe: Midwest Corn + D.C. Pork + Taxes

"Washington might have a love affair with ethanol for political reasons, but increasing ethanol production will only lead to higher taxes, higher prices for both food and fuel, and damage to the environment, making us all worse off in the process. Congress needs to say no to the ethanol hustlers and end its political addiction to corn."

From my editorial in today's Sacramento Bee, "Ethanol: Midwest Corn, D.C. Pork," also appeared in the Fresno Bee, the Saint Paul Pioneer Press, and the Charlotte News and Observer.

Monday, September 17, 2007

FTC: Market Forces Led to Rising Gas Prices

As directed by lawmakers, who accuse oil companies of manipulation and overcharging almost every time gas prices rise, the Federal Trade Commission once again investigated price increases for gas and oil, this time for the increases during the spring and summer of 2006 (see chart above, click to enlarge). The FTC's report was realeased a few weeks ago, and here is what it concluded:

The fact that the price increases were a worldwide phenomenon, coupled with evidence that U.S. refiners increased output once their refineries were repaired and back online, tends to support our conclusion that the 2006 price increases were caused by a confluence of factors reflecting the normal operation of the market, and also tends to explain why we did not find evidence that those price increases were caused by activities that violate the antitrust laws.

The FTC concluded that gas prices rose in 2006 for 6 factors relating to Supply and 1 factor relating to Demand:

Supply Factors:
1. Seasonal effects of the summer driving season.
2. Increases in the world price of crude oil.
3. Increases in the price of ethanol.
4. Declines in the production of gasoline, due to refiners' transition to ethanol.
5. Persistent refinery damage related to 2005 hurricane damage.
6. Refinery outages caused by unexpected events and required maintenance.

Demand Factor:
7. Increased Demand

In other words, the FTC concluded that market forces of decreased supply coupled with an increase in demand caused gas prices to increase in the spring/summer of 2006. As one
commentator said:

"Once again the bogeyman turns out to be nothing more sinister than the law of supply and demand. Sure enough, when supply dwindles and demand goes up, so do prices. Big surprise. But every time gas prices go up, a certain kind of politician is shocked, shocked! And demands an investigation. Which is a lot easier than taking Economics 101 all over again."

I think he's implying that politicians have already taken Economics 101, but I'm not so sure about that.
Also, notice that two factors for rising gas prices are directly related to ethanol, which Congress mandates and subsidizes!

Sunday, September 16, 2007

Shame on UC Davis and Reporter Sharon Stello

Greg Mankiw reports about how a group of UC Davis women faculty circulated a petition and pressured UC regents into rescinding an invitation to Larry Summers, the controversial former president of Harvard University, to speak at a recent board dinner in Sacramento.

Mankiw links to this article, which unfortunately grossly misquotes what Summers actually said. Here is what appears in the newspaper article:

In January 2005, Summers made controversial comments at the National Bureau of Economics Research Conference on Diversifying the Science and Engineering Workforce. There, he attributed the under-representation of women in science, math and engineering to, among other things, the “relatively clear evidence” that men and women differ in “overall IQ, mathematical ability (and) scientific ability.”

Here is a link to the transcript of what Summers actually said:

It does appear that on many, many different human attributes-height, weight, propensity for criminality, overall IQ, mathematical ability, scientific ability-there is relatively clear evidence that whatever the difference in means-which can be debated-there is a difference in the standard deviation, and variability of a male and a female population.

As the graph above illustrates, the average (mean) intelligence of males and females could be exactly equal, but the variability (standard deviation or variance) of male intelligence could be greater than the variability of female intelligence. Result: There are more males 3-4 standard deviations above the mean, and more males 3-4 standard deviations below the mean, which would mean that there are more male super-geniuses than females, and more male super-idiots than females. MIT math and science professors are typically 3-4 standard deviations above the mean, and males could be overrepresented in those groups because they are overrepresented in the top tail of the intelligence distribution (and the bottom tail).

Mankiw says that UC-Davis should be ashamed of itself, I say that the Davis Enterprise reporter Sharon Stello should be ashamed of herself for journalistic malpractice, for grossly misquoting and misrepresenting what Larry Summers actually said. Notice that she took two different parts of a long sentence, reversed them, left most of the sentence out, put those two parts together and made a completely new sentence, and in the process completely changed the meaning of what Summers actually said at the conference.


Cartoon of the Day

Greenspan's First Interview Tonight on 60 Minutes

(CBS) - Former Federal Reserve Chairman Alan Greenspan admits he "didn't really get it" that the subprime lending trend was significant enough to hurt the economy until very late 2005, but still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place.

Greenspan, who led the U.S. Federal Reserve Bank through 18 years and 4 presidents, speaks to 60 Minutes correspondent Lesley Stahl in his first major interview tonight (Sunday), at 7 p.m. EST.

Saturday, September 15, 2007

Outsourcing/"Nearshoring" Updates

1. Caribbean Call Centers Booming: "In a global search for low-cost customer service, AOL considered call centers in India and other hotspots - then settled on the tiny island of St. Lucia.

In choosing the Caribbean island, AOL - a unit of Time Warner Inc. - joined other U.S. companies that have made the region a new global hub for call centers.

Plunging communication costs, workers who relate easily to American customers and the region's famed hospitality are attracting American corporations, boosting the work force in the "nearshore" service industry in the Caribbean.

Note: Typical wage in Jamaica, one of the leaders of Caribbean "nearshoring," with about 14,000 employees in the sector: $2.75 to $3.20 an hour.

2. Outsourcing Britain's elderly to India: "First jobs were outsourced from Britain to India. Next it was healthcare, with hundreds of Britons travelling to leading hospitals in Indian cities for surgical operations and other medical procedures. Now another aspect of healthcare may be outsourced to India — that of looking after some of Britain's elderly or disabled.
The reason is the same — costs are much lower in India."

(Thanks to Sanil Kori)

Wages and Rupee Rising in India, Prices Up in China

1. NEW DELHI - Rising salaries for Indian software professionals will add to margin pressures at technology outsourcing companies in India, according to a survey released on Tuesday that showed wages rose an average of 18.7% this year.

The average annual salary for a software worker in India has risen to Rs620,000 ($15,500). The rise is slightly above the 18.3% salary increases recorded last year.

While salaries are still low compared with those of developed countries, margins at India’s information technology companies are also being squeezed by the appreciation of the rupee against the dollar. India’s biggest IT outsourcing firms generate most of their revenue from software exports to the US.

2. BEIJING - CONSUMERS in China's cities have had it good for an unusually long time. During most of the past few years of double-digit economic growth, inflation—at least according to official figures—has been barely detectable. But data published this week show the biggest monthly rise in consumer prices for over ten years.

The latest figures were higher than many had expected. The National Bureau of Statistics said that consumer prices rose 6.5% in August compared with a year earlier, up from 5.6% in July.

London: Most Expensive City for Restaurant Meals

According to a recent Zagat Survey, restaurants in London, Paris and Tokyo are about twice as expensive on average as New York and Los Angeles (see chart above), read about it here.

Thanks to Sanil Kori.

Biomedicine Revolution, Motivated By Profits

Last night on 20/20, Michael Moore praised government-controlled health care systems in Canada and Europe. He then called for "the elimination of all private profit-making companies in the health care industry" and suggests turning over all health-care spending in the U.S. to the government to provide "free" health care to everyone.

Before turning over the entire profit-making pharmaceutical industry to the government,
consider this fact:

"Looking at a broad range of pharmaceuticals, scholars at Tufts University examined all 284 new medicines approved in the U.S. in the 1990s. They found that 93% originated from the pharmaceutical industry, with 7% split between government and academic or nonprofit sources."

In other words, it was the profit-making private sector that developed 264 out of 284 new medicines in the 1990s, and many are saving lives today. Without the profit motive, most of those drugs probably wouldn't exist today.

And what can we expect in the future from the profit-making pharmaceutical industry?

Looking to the future, one can see the tremendous potential for the flow of pharmaceutical innovation to expand and accelerate. In terms of the science, we are now in the early stages of a revolution in biomedicine, an explosion of new knowledge that will translate into a whole host of new and better medicines. Yet, the business of finding these new medicines is risky and costly. No one is guaranteed to achieve the financial returns that encourage investment in pharmaceutical R&D. However, two important principles guarantee that such a return is possible: a market-based system of pricing, and intellectual property protection.

I don't think Michael Moore understands the "
invisible hand."

Friday, September 14, 2007

99.9% of All Species Have Already Gone Extinct

From The Economist: "More species are under threat than ever before according to the World Conservation Union (see chart above). Its “Red List” gives warning that 16,306 species are now under threat of extinction, nearly 200 more than in 2005. This number has risen steadily since the first report in 1996."

Before you get too concerned,
consider this: "Since life first appeared on Earth some 3.8 billion years ago, it has been estimated that more than 99.9% of all species have gone extinct. Billions of species have gone extinct throughout geologic history. Many of these went extinct during mass extinction events, the most famous and well documented of which took place some sixty-four million years ago at the end of the Mesozoic Era. This mass extinction event marked the end of the reign of dinosaurs."

And consider this from The Economist: "Nobody knows how many species occupy the planet. Most experts think 10 million is roughly correct, though they have only formally noted 1.4 million."

Suppose that half of the 16,000 threatened species went extinct, a highly, highly unlikely event. That would be less than a 1/10 of 1% extinction rate, meaning that more than 99.9% of all existing species would surve.

Question 1: Wouldn't a 0% extinction rate (100% survival rate) be undesirable because it would be too costly?

Question 2: Isn't is true that the optimal number of extinct species is probably NOT zero, assuming that it is costly to save some species; just like the optimal amount of pollution is NOT zero, the optimal amount of traffics deaths is NOT zero, etc.?

I would say Yes to both. Like all other decisions, we need to weigh the costs and the benefits.

Michael Moore vs. John Stossel

Watch a 5-minute preview of 20/20's special tonight, a 5-minute debate between Michael Moore and John Stossel about Cuba's health care system.

Note: When Moore compares life expectancy and infant mortality in Cuba to the U.S., he uses statistics provided by the Cuban government, and not subject to independent verification. It reminds me of the story about how the Soviet Union used to export wheat, but after the farms were collectived they reported 50 straight years of bad weather to explain why they stopped exporting....

(Thanks to Drew Suder.)

Thursday, September 13, 2007

John Stossel On Health Care: 20/20 and WSJ

On 20/20 tomorrow (Friday, Sept 14) night at 10 p.m. EST, John Stossel presents: "Whose Body Is It, Anyway?! Sick in America." American Health Care in Critical Condition: The Case for Putting Individuals, Not Employers or Government, in Control of Health Care.

In today's Wall Street Journal John Stossell writes: "Michael Moore thinks that profit is the enemy and government is the answer. The opposite is true. Profit is what has created the amazing scientific innovations that the U.S. offers to the world. If government takes over, innovation slows, health care is rationed, and spending is controlled by politicians more influenced by the sob story of the moment than by medical science."

It's True: The Fed Has Already Cut Fed Funds to 5%

Greg Mankiw reports today on the Fed's s "secret rate cut" to 5%, via Robert Barro. The graph above reflects the "effective daily Fed Funds rate" from the Federal Reserve and confirms what Barro is saying.

As Mankiw points out, the Fed was able to hit its target rate of 5.25% in every month since the Fed Funds target was increased from 5% to 5.25% on June 29, 2006. But in August, the average daily Fed Funds rate fell to 5.02% and so far this month the average is 4.99%. In fact, the effective Fed Funds rate has been below 5% on 8 out of the last 11 days, and has been below 4.9% on 3 out of the last 4 days.

Overwhelming Evidence IV: Good Old Days Are Now

The top graph was featured in yesterday's WSJ (thanks to Cafe Hayek), showing the 50% increase in median size of a new single-family home in the last 25 years, from 1500 sq. ft. in 1982 to 2,250 square feet today.

And not only is the typical new house larger today by 50% vs. 1980, the percentage of homes with features like dishwashers, garages, central heat and air, 2 or more bathrooms, fireplaces, and garbage disposals has increased significantly as well since 1970 (see middle chart above,
from the Federal Reserve of Dallas).

Question: But don't today's larger homes with significantly more features cost more than the smaller homes in the past? Not really, at least not when measured by "hours of work at the average hourly wage per square foot."

For example, in 1920 the typical cost a new home was $4,700, which was 7.8 hours of work at the average wage, per square foot. In 1956, the typical home cost of $14,500 represented 6.5 hours of work per square foot, and by 1996, the cost fell to 5.6 hours per square foot (see bottom chart above).

Bottom Line: Today's homes are larger, have significantly more features, and yet cost less per square foot on an inflation-adjusted basis than the homes of our parents and grandparents. On a personal note, most of the homes I lived in as a child had only 1 bathroom, and we had a family of 8 (6 kids)!

See previous posts on this topic
here, here, here, here, and here.

Wednesday, September 12, 2007

Smartest College Kids Are Rushing to Economics

From The American, via Marginal Revolution, about how "the smartest college kids are rushing to major in economics."

Recent enrollment figures are ominous. The number of smart kids studying computer science peaked a few years ago and has dropped dramatically since. The number of new computer science majors today has fallen by half since 2000, according to the Higher Education Research Institute at UCLA. Merrilea Mayo, director of the Government-University-Industry Research Roundtable at the National Academies, says the drop-off was particularly pronounced among women.

Meanwhile, elite schools are reporting that the number of economics majors is exploding. For the 2003–2004 academic year, the number of economics degrees granted by U.S. colleges and universities increased 40 percent from five years previously. Economics is seen by bright undergraduates as the path to a high-paying job on Wall Street or at a major corporation.

See top chart above, it's true that economics majors have increased by more than 45% from 1996-2003 (most recent year for which data are available), and by 40% from 1998 to 2003, according to data from the
National Center for Education Statistics.

However, the annual number of Ph.D. graduates in economics decreased by more than 7% between 1996 and 2003, which raises the question: Will there be enough economics professors to teaching the increasing number of economics students?

Farming: The Most Pampered, Protected and Subsidized Industry in America

The farm legislation proceeding through Congress symbolizes much of what's wrong with Washington. It's government by inertia. We do today what we did yesterday, because politicians draw their power from distributing benefits and various interest groups feel entitled to receive them -- even if they serve no defensible public purpose. Our extravagant farm programs capture the absurdity as well as any other.

Farming has become the economy's most pampered, protected and subsidized sector. Mandates for ethanol, which raise demand for corn but save little crude oil, are the latest unjustified promotion. That's in addition to the subsidies in the farm bill: easily $50 billion from 2008 to 2012 in the bill passed by the House. The Senate will soon debate its version.

~Robert Samuelson, writing in today's Washington Post

Autoworkers Seek Jobs in Health Care: The Very Industry That Is Bleeding The Big 3

From yesterday's WSJ article: "NURSING AMBITIONS: In Shift, Auto Workers Flee to Health-Care Jobs; Many Seek New Starts In Field That Bled Big 3; Detroit's Next Migration:"

Bad News 1: Health care has long been a huge budget item for Detroit's auto makers. Last year, health care cost the three more than $10 billion combined, more than they spent on steel for their cars and trucks. The manufacturers figure that over coming decades, they will be obligated to pay about $95 billion in retiree health-care costs for current workers, retirees and their spouses (see top chart above).

Bad News 2: GM spends about $1600 per vehicle on health care costs, about 10 times the amount Toyota spends per vehicle (see middle chart above).

Bad News 3: UAW membership has declined by 126,000 since 2003, as workers have early retirements or lump-sum buyouts.

Good News 1: The American Association of College Nursing estimates the U.S. currently has 126,000 nursing vacancies. By 2014, the U.S. will require 1.2 million new and replacement nurses, as many of the nation's 2.9 million nurses retire and aging baby boomers need increasing amounts of care.

Good News 2: In Michigan, health care is the only industry in demand across the state, says Andy Levin, the deputy director of the state's department of labor and economic growth. Michigan projects a shortage of 18,000 nurses by 2015. "Every hospital in Michigan needs nurses, and every school has a nursing waiting list," he says. "The health-care industry is a growth sector we want to foster."

Solution: Last year, Ford began offering a buyout package that covers schooling, following an internal 2005 study that showed many of its younger workers would leave if given a chance to attend college. Under this plan, Ford agrees to pay former workers half of their annual pay for four years -- typically $25,000 to $30,000 annually -- plus health-care benefits and up to $15,000 each year for school. Workers surrender retiree health benefits but retain whatever Ford pensions they've earned.

Ford says 40% of its former workers who are going to school are studying in medical fields -- more than half specializing in nursing, followed by radiology, dental hygiene and pharmacology. "Health care is where the jobs are," says Marty Mulloy, Ford's head of labor relations, who helped develop Ford's education buyout plan and is handling this summer's UAW contract talks.

Good News 3: Former auto workers say they are drawn to health care because the jobs pay well and are less vulnerable to being outsourced. Registered nurses currently have an annual mean salary of nearly $60,000, the Bureau of Labor Statistics says. Dental hygienists earn about $62,000. By comparison, auto-manufacturing jobs currently pay about $54,000.

Conclusion 1: The Big Three have almost $100 billion in health care obligations, and some of that money will be spent in the future to employ the autoworkers who have left the auto industry and gone into health care. In other words, Ford's buyout packages will help train the nurses and other medical professionals necessary to provide essentially unlimited lifetime health care for 721,000 current and retired UAW workers. The very industry (health care) that could eventually bankrupt GM and Ford, is nevertheless currently providing many jobs for former UAW workers.

Conclusion 2: Many UAW workers will be better off in the medical field than in the auto industry, and could have greater job stability and higher wages.

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?