Monday, October 15, 2007

Thinking of a Foreign-Made Car? Better Buy Now

Drivers who have been thinking about buying a European luxury car (like the 2008 Jaguar XJ8 pictured above) may not want to wait too long.

As the dollar continues its long slide against the euro, prices of vehicles made by such auto companies as BMW AG, Porsche AG and Volkswagen AG's Audi unit have steadily crept upward ahead of U.S. and Japanese vehicles over the past few years. But while car makers have largely avoided substantial price increases so far, some analysts are warning that could change as soon as next year.

They "can't make money at the current exchange rates, so they either have to raise prices or start building them here," says David Healy, an analyst at financial-services firm Burnham Securities.

The dollar's weakness against the euro makes European products more expensive for consumers using dollars. If the trend continues -- and many analysts expect it will -- European car makers ultimately may have to raise prices on vehicles they build in Europe and sell in the U.S., shift production to the U.S. or other countries with lower costs, or simply live with lower profit margins.

So far, European car makers have been able to hedge against currency fluctuations by buying contracts that guarantee certain exchange rates. But many of these contracts are set to expire soon, analysts say. Hedging lessens the Europeans' need to quickly change prices with every currency fluctuation, but the strategy is of limited value during long periods of weakness for a particular currency.

Read more here in the WSJ article "Euro-Trashed? Why You May Want to Buy That BMW Now."

Static vs. Dynamic Tax Analysis: What's Up?

As the chart above from today's WSJ shows, the 2003 cut in the capital gains tax produced a doubling of tax receipts to $97 billion in 2005 from $47 billion in 2002. That's twice what Congress predicted. For 2006, Congress predicted less than $60 billion in capital gains tax revenues, and the actual revenue collected was more like $105 billion, which is about a 81% forecast error, pretty large even by government standards one would think.

This result seems typical - tax revenues collected after tax cuts are usually much higher than predicted by Congress. What is going on? Here are several possibilities:

1. Congress only knows how to use static tax analysis, and doesn't know how to account for changes in behavior in response to changes in tax rates.

2. Congress knows how to use dynamic tax analysis to account for changes in behavior, but static analysis is easier.

3. Congress understands that changes in tax rates will change behavior, but modeling or capturing or quantifying the changes in behavior is too difficult.

Which one is correct? I am not sure.

Quotes of the Day: Kennedy Was A Supply-Sider?

'The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy."

~John F. Kennedy, 1963

All of the leading Democratic contenders for President have endorsed higher taxes on capital gains. Hillary Clinton is the "moderate" in that so far she'd merely raise the tax to 20% from the current 15% -- a 33% increase. John Edwards and Mr. Obama want to nearly double it, to 28%.

"Every generation or so, it seems that the American political class has to re-learn these tax policy lessons the hard way. What's especially striking about this year's Democratic economic proposals is how little any of them mention economic growth. Their message is "fairness," inequality and income redistribution. They seem to think taxes can be raised with ease, and no one's behavior or investment choices will change. Jack Kennedy knew better."

~Wall Street Journal editorial

Harvesting Cash: Cotton Farms & The Iron Triangle

What's wrong with cotton subsidies? Let's count the ways, using information from the WSJ editorial today "The Cotton Club":

1. Cotton subsidies primarily benefits large corporate farms and their wealthy owners. Of the $19.1 billion that was paid out from 1995-2005, the top 10% of cotton-subsidy recipients got more than 80%, or almost $15.5 billion. The bottom 80% of recipients had to make do with $1.4 billion.

2. Cotton subsidies are a brazen wealth transfer from the tax-paying middle class to fat cats, i.e. it's a form of corporate welfare, which creates a damaging, corporate dependency on the public's money.

3. Because cotton subsidies eliminate risk and reward production, U.S. cotton growers produce so much cotton that we export 70-80% of our cotton, which creates a glut on world markets and depresses world cotton prices.

4. Cotton subsidies in the U.S. have devastating effects on poor cotton farmers in Africa, because U.S. cotton farmers compete with them and dump so much subsidized cotton on the world market that it depresses world prices, and thereby depresses African farm income from cotton. It is estimated that some 10 million Africans (living on less than $1 per day) could see their incomes from growing cotton increase 8% to 20% if the U.S. reformed its subsidies, and world supplies and the world price of cotton returned to market levels.

5. Another price of cotton subsidies is damage to U.S. credibility in world trade talks. For example, U.S. farm policies have guaranteed cotton exporters the artificially high domestic price of their crop, and at the same time guaranteed that U.S. mills could buy cotton at the lower world price of cotton, creating a protected U.S. market and worsening the problem of too much U.S. cotton being dumped on world markets.

And what's good about cotton subsidies?

Not much, unless you're a) part of the "Cotton Club" that will receive $3.3 billion of taxpayers' money this year, b) a politician receiving "subsidies" or "kickbacks" (aka campaign contributions) from the Cotton Club, or c) a Department of Agriculture bureaucrat involved in the administration of the cotton subsidy program. In other words, if you're part of the "Iron Triangle," which is behind all farm subsidy programs (special interest farmers, politicians who cater to special interest farmers, and bureaucrats who administer the farmers' subsidies).

Sunday, October 14, 2007

More Grammar Nit-picking: Who vs. That

The grammar rule about the use of "who vs. that" seems pretty simple: Who refers to people. That refers to groups or things. Examples:

1. Hillary is the one who rescued the bird.
2. Bill is on the team that won first place.
3. She belongs to an organization that specializes in saving endangered species.

However, the improper use of "that" for "who" when referring to a person, seems to be increasing all the time. There are more than
700 Google News hits for the phrase "the person that," including the following examples, mostly of quotes within a news article:

"The person that made the call..."

"I loved her for the person that she was...."

"The person that donated the money..."

"The person that is causing the problems...."

In all those cases, I think it should be "The person who... "

Likewise, there are more than 1,000 Google News hits for the phrase "
the man that," such as "...the man that the left hates the most, President Bush..," which I suggest should be "The man who..."

Finally, here's an example of using both "that" and "who" in the same sentence! "The quarterback that lost fumbled and threw three interceptions. The quarterback who won, though, is the one who got pulled on Saturday."

Update: When you use "grammar check" in Microsoft Word for the sentence "She is the one that found the bird," it accepts the "incorrect" sentence as written, and of course it also accepts the correct sentence "She is the one who found the bird."

Finance is Top Major at Boston College

After years of being close, finance has finally overtaken communication as the most popular area of study at Boston College. This marks the first time in University history that a major outside of the College of Arts and Sciences has held the top spot.

While A&S is still the most popular school in terms of student enrollment, the Carroll School of Management's (pictured above) finance concentration boasts 855 enrolled students, a 25-year high. At this time last year, finance was the second most popular concentration, and it has been part of the top five for at least the past 10 years.

Futures Trading for Nobel Prize in Economics 2007

Front runner Robert Barro:

The Nobel Prize in Economics will be announced in the next few days. Based on futures trading on for the contract "Nobel Prize for Economics Winner 2007," Robert Barro is the front-runner, with a 22% chance of winning, followed by Romer (13.5%), Fama and Diamond (both a 11.5%), based on the last trades (see chart above, click to enlarge).

International Stock Market Returns, Local Currency

Chart above (click to enlarge) shows 5-year stock market returns from 50 countries in local currency, using the MSCI/Barra database for international stock markets. In a recent post, a similar chart showed the 5-year returns for the same countries in US dollars. Of course, because the dollar has fallen over the last 5-years by 19% vs. a broad currency index, and by 31% vs. a major currency index, the 5-year returns in USDs are greater for most countries than the 5-year returns in local currency.
An anonymous commenter pointed this out, and wrote "Citing incredible growth in nominal terms without referencing the weakness of the underlying currency might just be enough to win you a spot on 'Zimbabwe Tonight'." Here are some comments in response:

1. The original post and graph were based on a recent NY Times article about the 5-year returns for foreign stock markets (in USD) vs. the 5-year return on the S&P500 (in USD).

2. In USD terms, the U.S. market (13.58% 5-year return) ranks #50 of the international stocks markets available through MSCI.

3. In local currency terms, the U.S. stock market returns rank #45 out of 50 countries, still close to the bottom of the list.

4. Almost 25 countries had 5-year returns in local currency that were double the U.S. return of 13.58%, without any currency appreciation effects.

5. For U.S. investors, only USD returns really matter, so the first chart in the original post with returns in USD is more important than the chart above with returns in local currency.

Saturday, October 13, 2007

Interesting Fact of the Day:Copyright Law for Music

1. For music registered before January 1, 1923, the 75-year copyright protection has expired and these musical works are in the public domain.

2. For music registered before January 1, 1978, copyright protection lasts for 95 years from the date the copyright was secured.

3. For music composed after January 1, 1978, copyright protection lasts for 70 years beyond the death of the longest surviving composer, and then the song becomes part of the public domain.


Foreign Mortgages Now Availabe in the U.S.

30-year fixed mortgages are currently available for 6.24% in the U.S. Want a 30-year fixed rate for only 4.43%, a savings of almost 2 percent? Well, mortgages at 4.43% are available in the U.S., but there's a catch - it's a "foreign mortgage," and you'll have to make the payments in Swiss francs, not U.S. dollars.

For example, a $100,000 mortgage would be the equivalent of SF118,430 at the current ex-rate of SF1.1843/$. Foreign mortgages require quarterly payments, in this case SF1,788.60 per quarter (at 4.43%) or $1,510.26, at the current ex-rate. (Quarterly payments at 6.24% on a regular mortgage would be $1,848.46.)

The one-year forward rate for the SF is SF1.1613/$, meaning that the dollar is selling at a one-year forward discount of almost 2%. If the actual ex-rate in one year is close to the one-year forward rate, your quarterly payments would stay the same in SFs, but would increase to $1,540.17 in USD, a 2% increase. Like the interest rate risk on an adjustable rate mortgage, you'd now have currency risk, and your dollar payments would fluctuate on a foreign mortgage, depending on the appreciation (lower USD payments) or depreciation (higher USD payments) of the dollar.

On the upside, if the dollar ever got back up to about SF1.78/$ like in 2001, your quarterly payments in dollars would drop to $1,000.

Read more here in the WSJ.

Cartoons of the Day

Chart of the Day: Al Gore Uses 20X Electricity Avg.

Read the report here: "Al Gore’s Personal Energy Use Is His Own 'Inconvenient Truth': Gore’s home uses more than 20 times the national average" (see chart above).

What Were They Thinking?

1. A Wall Street Journal editorial today lists about 2 dozen deserving and courageous, but overlooked, candidates for the Nobel Peace Prize from some of the world's most dangerous places (Burma, Colombia, N. Korea, Lebanon) who actually "put their own lives and livelihoods at risk by working to rid the world of violence and oppression. Let us hope they survive the coming year so that the Nobel Prize Committee might consider them for the 2008 award."

2. Prague -- Czech President Vaclav Klaus, a rare vocal global-warming sceptic among heads of state, is "somewhat surprised" that Al Gore received the Nobel Peace Prize. "The relationship between his activities and world peace is unclear and indistinct," Klaus said.

Emerging Markets Rock, Dominate US Returns

From today's NY Times Business Section article "Strong Gains in U.S., Except by Comparison":

Five years after the American stock market hit bottom after the bursting of the technology stock bubble and the 2001 recession, share prices as measured by the S&P 500 have doubled (see top chart above).

That growth amounts to a compound annual increase of 15% a year and is the fastest doubling off a market bottom since the 1980s. But in the current world environment, it does not look impressive. Nearly every other stock market in the world has done better.

Of the 83 countries for which records of a major stock index were available, the American share price increase in the five years after Oct. 9, 2002, was better than those of only four. All four are small countries, either in the Caribbean or Latin America.

That all 83 markets around the world had an increase is emblematic of the strength of the global economy and the willingness of international investors to pour money into markets that many had never heard of — or that did not exist — 20 years ago.

The figures show the change in dollars, which makes returns in many countries appear more impressive than they would if local currencies were used because the dollar has generally been weak. Markets in Britain and Italy, for example, doubled in terms of dollars, but not in pounds or euros.

MP: Bottom chart above (click to enlarge) shows 5-year stock market returns from MSCI-Barra, measured in USD. Of the 50 international stock market indexes available through MSCI, 5-year returns in the U.S. market rank last.

Individual investors can easily invest globally now through mutual funds to take advantage of the world stock market boom. For example, you can invest in the Vanguard Emerging Markets Stock Index Fund with a minimum of $3,000, and the fund has had a 44% return YTD and 64.35% over the last year.

Friday, October 12, 2007

Style Guidelines for Citing Blogs in Research

The National Center for Biotechnology Information now provides information on how to cite a blog (see example above, click to enlarge).

HT: Marginal Revoultion

U.S. Standardized Life Expectancy Highest in OECD

Two University of Iowa researchers, Robert L. Ohsfeldt and John E. Schneider, reviewed the data for the nations of the OECD to statistically account for the incidence of fatal injuries for the member countries. The dynamic table above presents their findings, showing both the average life expectancy from birth over the years 1980 to 1999 without any adjustment (the actual "raw" mean), and again after accounting for the effects of premature death resulting from a non-health-related fatal injury (the standardized mean).

Without accounting for the incidence of fatal injuries, the United States ties for 14th of the 16 OECD nations listed. But once fatal injuries are taken into account, U.S. "natural" life expectancy from birth (76.9 years) ranks first among the richest nations of the world.

(HT: Ironman)

IBD: Nine Inconvenient Errors for Gore

Junk Science: Al Gore's documentary on climate disaster has been ruled a work of fiction by a British judge. In legal terms, his global warming hysteria has been assuming facts not in evidence.

The judge ruled that the film could be shown to British students, but only on the condition it be accompanied by new guidance notes for teachers to balance Gore's "one-sided" views. Judge Burton documented nine major errors in Gore's film (see chart above) and wrote that some of Gore's claims had arisen "in the context of alarmism and exaggeration."

India's Billionaires and The Market for Bentleys

1. India now has 40 billionaires, according to this Forbes list (well, a few on the list were just short of $1 billion). The Indian stock market has surged 50% since last November 2006, when the Forbes list was published, so there are probably even more Indian billionaires now.

What to do with all that wealth? Read below.

2. NEW DELHI: UK-based luxury car maker Bentley Motors has wheeled in two new models in the Indian market. Called Azure (pictured above) and Continental GTC, the two convertible models come at a price tag of Rs 3.80 and 2.10 crore, respectively. The company is eyeing to sell at least 25 cars every year in the Indian market. Since its India foray in 2003, Bentley has sold over 40 cars in the super-luxury segment.

One crore is 10 million, so 38 million rupees and 21 million rupees would mean a dollar price of $970,000 and $536,000 respectively, at today's exchange rate (Rs. 39.17/$). But, hey, $1 billion is 1,000 X $1,000,000, so even a $1,000,000 vehicle is only 1/10 of 1% (1/1000) of your wealth. You could buy several and not even notice any effect on your wealth....

Just another example of how rising wealth and income in one part of the world (India) can create jobs in another part of the world (UK), thanks to trade.

Thursday, October 11, 2007

US Cancer Survival Rates are Highest in the World

Michael Moore, listen up! There is new evidence from the largest-ever international study of cancer survival rates showing that cancer patients live longer in the United States than anywhere else in the world (see chart above).

According to the survey of cancer survival rates in Europe and the United States, published recently in Lancet Oncology:

1. American women have a 63% chance of living at least five years after a cancer diagnosis, compared to 56% for European women and 53% for British women.

2. American men have a five-year survival rate of 66% compared to only 47 percent for European men and 45% for British men.

3. These figures reflect the care available to all Americans, not just those with private health coverage.

4. Great Britain, known for its 50-year-old government-run, universal health care system -the National Health Service - (portrayed extremely favorably in Michael Moore's movie "Sicko") fares even worse than the European averages, and far below U.S. averages (see chart above).

5. Despite the large number of uninsured, cancer patients in the United States are most likely to be screened regularly, and once diagnosed, have the fastest access to treatment.

The study concludes that "International comparisons establish that the most important factors in cancer survival are early diagnosis, time to treatment and access to the most effective drugs. Some uninsured cancer patients in the United States encounter problems with timely treatment and access, but a far larger proportion of cancer patients in Europe face these troubles. No country on the globe does as good a job overall as the United States."

Select a Candidate Quiz

Answer 11 questions to find out which of the presidential candidates are most aligned with your views and opinions at this website.

More On The Trade Deficit

Followup to the post below:

Gangbuster positive data today on international trade. Adjusted for inflation the trade deficit in goods is the lowest since February 2004 and down $7.2 billion versus a year ago, the largest one-year drop on record. These numbers suggest trade will add about a percentage point to real GDP growth in the third quarter. As a result we are raising our forecast for real growth in Q3 to 4%.

In our view, many analysts have overestimated the damage to the economy from slower home building. Productive resources have shifted into the trade sector to take advantage of the weaker dollar and strong growth abroad.

From First Trust Advisors (Chief Economist – Brian S. Wesbury).

The Falling Dollar and Shrinking U.S. Trade Deficit

WASHINGTON (AP) -- The U.S. trade deficit fell to the lowest level in seven months (see chart above), helped by record-high sales of American products and the declining value of the dollar. The deficit with China declined as imports edged down slightly following a string of high-profile recalls.

The boom in U.S. exports is helping to cushion the U.S. economy from the adverse effects of the housing bust and a severe credit crunch. Overseas demand for U.S. goods is being helped by a falling value of the dollar against many other currencies. That development pushes up the cost of foreign vacations and imports for American consumers but makes U.S. products cheaper in foreign markets.

WSJ -- The U.S. deficit in international trade of goods and services shrank 2.4% to $57.59 billion from July's revised $59.00 billion, the Commerce Department reported today.

Demand abroad for American-made products has been an important contributor to U.S. economic activity this year and Thursday's report indicated that trend continued through the third quarter. Meanwhile, the weaker U.S. dollar is making imported goods less attractive for American consumers, suppressing imports.

U.S. trade deficits with major trading partners generally narrowed in August, with record U.S. exports recorded to China, and many countries in Latin America.

MP: Compared to the same month last year, the trade deficit has fallen by almost 15%, from $67.6 billion in August 2006 to $57.59 billion in August 2007. Also, notice the close relationship below between the falling trade deficit and the falling value of the US dollar. As I pointed out in a previous post, the U.S. is now like a giant Wal-Mart for the rest of the world because of the falling dollar (almost a 10% drop in the last 2 years), with "everyday low prices."

The Power of Everyday Low Prices

According to these retail sales reports in the WSJ from September and August, monthly retail sales at Wal-Mart ($34.4 billion in September) are about 2X the monthly sales of all of these other retailers, COMBINED ($17.5 billion):

Costco ($4.8B)
Target ($4.7B)
Macy's ($1.8B)
J.C. Penney ($1.5B)
TJX ($1.4B)
Gap ($1.2B)
Nordstrom ($517M)
Abercrombie and Fitch ($425M)
American Eagle ($311M)
Saks ($213M)
Aeropostale ($168M)
Ann Taylor (162M)
Chico's ($118M)
Hot Topic ($71M)
Zumiez ($47M)
Sharper Image ($32M)

Ethanol's Once Seductive Appeal Starts to Fade

From today's WSJ article "Ethanol Industry Is Losing Clout":

Opposition to the ethanol industry's goals has grown significantly stiffer, and even groups that were originally sympathetic to ethanol are drifting away.

The so-called barnyard lobby -- representing the meat, livestock and poultry industries -- says high corn prices are hurting its profits. The price of corn-based animal feed has increased about 60% since 2005, according to the U.S. Department of Agriculture.

"Our single biggest priority is for Congress to reject a new renewable-fuels mandate," says Jesse Sevcik, vice president of legislative affairs at the American Meat Institute, a meat and poultry trade association.

Some environmentalists say unchecked growth in ethanol production could lead to soil erosion and degradation of wildlife habitats as more land is turned over to corn production.

The spreading coalition against new ethanol mandates includes the American Petroleum Institute, representing the oil industry. It says it supports ethanol but prefers a market-driven approach, rather than one driven by the government.

"Many policy makers were seduced by ethanol," says Cal Dooley, president of the Grocery Manufacturers Association. He opposes increasing federal support for ethanol.

MP: Saying politicians were "seduced" might be a polite way of saying they were "duped?" When you have environmentalists on the same side of an issue as the American Petroleum Institute, you know that ethanol is indeed "dangerous, delusional bullshit," as Rollingstone magazine said
in its article "Ethanol Scam: Ethanol Hurts the Environment And Is One of America's Biggest Political Boondoggles." Further, you also know that something's wrong with ethanol when you have the NY Times, Rollingstone, and LA Times agreeing with the Wall Street Journal and Investor's Business Daily that ethanol is a scam.

Wednesday, October 10, 2007

UAW Strikes Chrysler, Autoworkers = Musicians?

The UAW is now on strike against Chrysler, and it made me think of this old joke:

A kid says, "Dad, I want to grow up and be a musician." And the dad says, "I'm sorry Son, but you can't have it both ways."

Isn't this a little bit like the UAW's position? It wants both: a) job security, and b) rising, above-market compensation.

1. If the UAW wants job security, it might have to give up wage increases, and might even have to accept falling wages. Just like stock prices, home prices, commodity prices and currency values rise and fall in response to changing market forces, the UAW would have to accept lower wages to maintain jobs when market conditions change. However, wages (especially union wages) are "sticky," meaning that they'll adjust upward easily, but won't easily adjust downward when market conditions change and demand for unionized labor falls.

2. If the UAW's priority is rising real wages/compensation, it might have to give up its position of maintaining job security, especially if rising wages are accompanied by rising productivity. Higher-paid and more productive, but fewer workers might be possible; but maintaining the same number of higher-paid and more productive workers might not be possible.

Bottom Line: Unlike the past, rising real union wages and union job security are mutually inconsistent positions in today's competitive, global marketplace. Like the message from the father above, "I'm sorry UAW, but you can't have it both ways."

Top 1% Pay More Taxes Than The Bottom 90%

According to an analysis by the Tax Foundation, based on recently released data from the Internal Revenue Service for 2005 (see chart above, click to enlarge):

The top-earning 25% of taxpayers -- those with an Adjusted Gross Income (AGI) over $62,068 -- earned 67.5% of the nation's income, but they paid 86% of taxes collected.

The top 1% of taxpayers (AGI over $364,657) earned about 21% of the nation's income, yet paid more than 39% of all federal income taxes collected.

That means the top 1% paid about the same amount of federal individual income taxes as the bottom 95 percent, and the top 5% paid more (about 60% of all taxes collected) than the bottom 95% (about 40% of all taxes).

The IRS data also shows increases in individual incomes across all income groups:

Just as the highest earners lost the biggest percentage of their incomes during the recession of 2001, so they have prospered the most as the economy has continued to rebound.

Between 2000 and 2005, pre-tax income for the top 1% group grew by 19.1%, and the pre-tax income for the bottom 50% increased by 15.5% during the same period.

This pattern of income loss and growth at the top of the income spectrum is the same during every recession and recovery, says the Foundation. The net result has also been a sharp rise in federal government tax revenue from 2003-2005 compared to previous years.

Note: The top 1% paid 35.7% of all income taxes in 2004, and 39.38% of all income taxes in 2005, suggesting the "rich" now pay more as share of all income taxes than before and the tax burden on the rich has increased. Weren't the income tax cuts of 2003 supposed to be "tax cuts for the rich?"

Record Highs in Asia; "Let a 100 Billionaires Bloom"

1. Less (fewer?) than two weeks ago on Sept. 27, I posted about India's stock market setting a new record high above 17,000 for the benchmark BSE Index. Well, India's stock market just set another record high, passing the 18,000 mark yesterday, rising 1,000 points in only 8 trading sessions (see chart above).

And the stock market euphoria was not restricted to India - benchmark indexes in China, Australia, Hong Kong, South Korea, Singapore, Indonesia and Pakistan all rose to new peaks in recent days.

Read articles here, here and here.

2. China now has 106 billionaires, up from only 15 last year, as surging stocks boosted the wealth of the nation's richest people. China's billionaire tally is second only to that of the U.S., which has 400, as surging mainland and Hong Kong stock markets have boosted wealth. Hong Kong's Hang Seng Index is up 41% this year through yesterday, the strongest annual performance since 1999 if it holds through year-end (see chart above).

What would Mao say? "Let a hundred billionaires bloom"?

(Thanks to Sanil Kori)

Apostrophe Abuse Illustrated

Some double abuse here:

From an elementary school, where are the "teacher's"?

Notice more double abuse here, check the fine print:

Maybe we should strike for better education?
What's with that puny piece of punctuation? Read more here.

Tuesday, October 09, 2007

Tax Revenues Record High, Deficit Lowest in 5 Yrs.

From its monthly report released last Friday, the "CBO estimates that the federal budget deficit was about $161 billion in fiscal year 2007 (ended September 30), $87 billion less than the shortfall recorded in 2006. Relative to the size of the economy, that deficit was equal to 1.2% of gross domestic product, down from 1.9% in 2006. (See top chart above)

The CBO also reported that "receipts in 2007 were about $161 billion (or 6.7%) higher than in 2006," with individual tax receipts up by 11.3% and corporate tax receipts up by 5% (see bottom chart above).

And from today's WSJ
staff editorial:

Americans coughed up a record $2.568 trillion in taxes to the IRS in 2007, or 6.7% more than in 2006. This means federal receipts have climbed by $785 billion since the 2003 investment tax cuts, the largest four-year revenue increase in U.S. history. Income, dividend and capital gains tax rates were all cut in 2003, but individual income tax receipts have soared by 46.3% in four years, with payments by the wealthy accounting for most of the windfall. Last year's increase in individual income payments was 11.3%, or more than double the rate of growth in nominal GDP.

The overriding lesson here is that the best antidote for deficits is faster growth, not tax increases. The budget deficit has declined more rapidly this decade in the wake of the Bush tax cuts than it did in the 1990s in the wake of the Clinton tax increases.

No Economic Recession in Sight

U.S. recession 2007 odds:

U.S. recession 2008 odds:
From today's WSJ article "No Recession In Sight," by the chief economist of the Bank of America:

"Despite recent financial turmoil and a dismal housing market, there are key reasons why the economy will continue to expand, albeit at a modest pace, and not go into recession. Businesses are well poised to absorb a period of weaker product demand and are unlikely to significantly alter their hiring and investment behavior. Consumer spending is supported by rising incomes. Exports are strong. And monetary policy is consistent with sustained growth in domestic demand. Next year, we will look back and once again marvel at the flexibility and resilience of the economy."

The "no recession in sight" view is confirmed by futures trading on for contracts on a "U.S. Recession in 2007" and a "U.S. Recession in 2008," shown in the graphs above. For 2007, the chances for a recession have fallen from almost 15% a month ago to almost 5% currently. For 2008, odds of a recession were above 50% for most of September, and have now fallen below 50% in the last week.

Upcoming: On Decemer 1, 2007, the U.S. economic expansion will celebrate its 6th birthday.

The Best Use of Child Labor Since the 19th Century

Child labor is alive and well in America, read about it here in Slate.

Consumer Greed; Indian Backlash Against Wal-Mart

From today's WSJ article "India's Populists Resist Big Retail":

As India's middle class grows and the shopping expectations of its citizens increase, retailing has become a magnet for Indian conglomerates and for Wal-Mart and other foreign operators.

India's total retail market is about $370 billion a year and will expand more than 55% in the next four years to almost $600 billion. (MP: In contrast, annual U.S. retail sales are about $4.5 trillion, but is growning only about 4% per year). Supermarkets and department stores account for less than 5% of the industry, with millions of small grocers, tobacco stands and tea stalls constituting the rest.

Big issue: Those small Indian retailers with a 95% market share aren't too excited about sharing the expanding market with big retailers like Wal-Mart and its Indian partner Bharti Enterprises.

Just like in the U.S., in India there's a "growing backlash among those seeking to protect the livelihoods of small merchants and squelch the plans of large Indian retailers and foreign giants such as Wal-Mart Stores. The protesters contend that the introduction of large retailers will throw hundreds of thousands of smaller merchants out of work, an issue that has been simmering in the U.S. for decades with the expansion of Wal-Mart and other big retailers."

Clarification: It would be the millions of ("greedy?") Indian consumers who might decide to shop at Wal-Mart for lower prices, better selection and more convenient hours, who would put the small Indian merchants out of business, not Wal-Mart and Bharti.

As I pointed in an article about "consumer greed," Wal-Mart can't force people to shop at its stores; all it can do is offer a low-priced alternative to the high-priced small merchants. "Greedy" consumers do the rest.

In a market economy, it is consumers, not businesses, who ultimately make all of the decisions. When they vote in the marketplace with their dollars, consumers decide which products, businesses, and industries survive—and which ones fail. It is therefore consumers who indirectly but ultimately all of the decisions, not corporations."

Shouldn't the Indian consumer be able to vote with their rupees and shop at Wal-Mart if they want to?

Monday, October 08, 2007

Manhattan Housing Boom

NEW YORK ( -- Despite a housing slump across the rest of the nation, home sellers in New York City are selling houses faster with the number of listings reaching a two-year low.

Prudential's Douglas Elliman reported that inventory in Manhattan fell 31.7% to 5,204 units in the third-quarter from a year-ago total of 7,623 units, while units stayed on the market for 123 days, faster than the 150 days seen in the same period last year.

Corcoran Group reported that the average (mean) price of an apartment in Manhattan jumped to $1.41 million, up 14% from the same quarter last year. Market-wide, a Manhattan apartment sold for between a median price of $815,000 and $895,000 during the three months ended September 30.

Sunday, October 07, 2007

Is the Marriage Market an Efficient Market?

UPDATE 1: Craigslist removed the original post at the link below, but here are some other links here and here that have reproduced the original post and response.

UPDATE 2: NYTimes has covered this story, see articles here and here.

Here is the opening paragraph of an actual post on New York's Craigslist, in the Personals section called "Rants & Raves":

"Okay, I'm tired of beating around the bush. I'm a beautiful (spectacularly beautiful) 25 year old girl. I'm articulate and classy. I'm not from New York. I'm looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don't think I'm overreaching at all."

Two responses follow the original post, and both invoke the "efficient markets hypothesis (EMH)":

"I was taught early in my career about efficient markets. So, I wonder why a girl as "articulate, classy and spectacularly beautiful" as you has been unable to find your sugar daddy."

"I also do believe in the efficient market theory, and am surprised that $500k hasn't found you yet. There are plenty of rich lawyers, investment bankers and hedgies to go around in this city. What gives?"

The "efficient market hypothesis" assumes that there are no hundred dollar bills lying around on the sidewalk unclaimed, and would it not also imply that there should be no "spectacularly beautiful, classy and articulate 25-year old women" unattached in Mannhattan?

Actually the market for dating and marriage might not always be efficient, because it operates as a barter economy, and relys on the "double coincidence of wants," or more accurately the "double coincidence of attraction," unlike the stock market or currency trading, where barter is replaced by the much more efficient money to facilitate trading, avoiding the inefficient "double coincidence of wants."

BTW, Eugene Fama at U. of Chicago, who developed the EMH in his Ph.D. thesis in the early 1960s at Chicago, has been mentioned as a likely candidate for this year's Nobel Prize in Economics. The first 2007 Nobel Prize (medicine) will be announced tomorrow, Monday.

(HT: Sanil Kori)

Interesting Web Site of the Day

Planning a family reunion, or meeting 1-3 old friends for a weekend and looking for a place to meet in the middle to equalize travel distance for everybody?

HappyMedian allows a user to enter 2 to 4 towns representing each person wishing to meet, via zip code, or a city-state combination. HappyMedian then finds the most fairly equidistant towns between those entered, and then provides a list of various types of places to meet, from restaurants and bars, to coffee shops and lodging.

What next?

NYC Teachers Have a "Jobs Bank" Too

From the NY Post article "Why Is The City Paying 757 People To Do Nothing?"

It's all in a day's work on the city payroll.

For seven hours a day, five days a week, hundreds of Department of Education employees - who've been accused of wrongdoing ranging from buying a plant for a school against the principal's wishes to inappropriately touching a student - do absolutely no work.

The Post has learned that the number of salaried teachers sitting idly waiting for their cases to be heard has exploded to 757 this year - more than twice the number just two years ago - at a cost of about $40 million a year, based on the median teacher salary.

The city pays millions more for substitute teachers and employees to replace them and to lease rubber-room space.

Meanwhile, the 757 - paid from $42,500 to $93,400 a year - bring in lounge chairs to recline, talk on their cellphones and watch movies on portable DVD players, according to interviews with more than 50 employees.

MP: One of the problems is that NYC's public schools are a monopoly, with unionized employees, so heavily regulated that it's sometimes impossible to fire even dangerous teachers. Here are the illustrated procedures required to fire an imcompetent union teacher in NYC.

Picture of the Day: More Bad, Bad Grammar

Another example above of bad, bad grammar that you see everywhere. For an explanation of why this is wrong, go here.

I think most Wal-Mart stores actually have correct grammar for their express lane signs ("Everyday Correct Grammar"), unlike Target, which has this one wrong and has bad, bad grammar in its stores.

Free Market Leads to Lower Ticket Prices for MLB

Sites like StubHub may let people sell some World Series tickets for eye-popping prices. But letting the free market work actually leads to cheaper prices for fans.

The fact that there are services like StubHub increases the supply of tickets that can be sold on the secondary market, thus lowering the price.

It also helps that this year, Major League Baseball and more and more states around the country are finally acknowledging that it is in everyone's best interest to have a true transparent secondary market for ticket sales.

Baseball ticket sales on StubHub soared, and the site is now on pace to sell 5 million tickets this year alone, after selling a total of 5 million tickets in its first six years of existence.

The deal with baseball was beneficial enough to StubHub that it gave the sport something it never granted other teams or sports in its sponsorship deals -- a cut of the 25 percent combined commission that StubHub gets from the buyer and seller when a ticket is sold.

Read the full article here from CNN Money: Why $75,000 Playoff Tickets Are a Good Thing

(HT: Sanil Kori)

Saturday, October 06, 2007

GM: Market Share Falling, But "Job Share" Rising?

The chart above is from the Level Field Institute's 2007 report, in which it says:

"Our car-by-car analysis also accounts for differences in market share. In other words, an automaker with 15% market share that employs 20% of U.S. autoworkers is overperforming on jobs, while an automaker with 15% market share that employs just 10% of autoworkers is underperforming."

That's a very interesting definition of "overperforming and underperforming on jobs," isn't it?

GM has a 23% market share and 29% of the autoworkers and is "overperforming on jobs?" That sounds a lot more like "ineffiency" to me. And Toyota has a 17% market share and 9% job share and is "underperforming on jobs?" That seems more like "efficiency" to me.

After all, corporations don't exist to create the maximum number of jobs, they exist to serve consumers and shareholders by producing output with the least number of employees.

Free Markets Are Good, But Foreign Firms Are Bad?

The Pew Research Center conducts a major international survey about every five years on the general public's perception of trade and globalization. The most recent study was just released, based on responses from 45,000 people worldwide in 47 countries (more than 2,000 in the U.S.).

From the study: "Overwhelmingly, the surveyed publics see the benefits of increasing global commerce and free market economies. In all 47 nations included in the survey, large majorities believe that international trade is benefiting their countries. For the most part, the multinational corporations that dominate global commerce receive favorable ratings. Nonetheless, since 2002 enthusiasm for trade has declined significantly in the United States, Italy, France and Britain, and views of multinationals are less positive in Western countries where economic growth has been relatively modest in recent years.

Just 59% of Americans say trade with other countries is having a good effect on the U.S., down sharply from 2002, when 78% believed it was having a positive impact."

Interestingly, these results are consistent with the recent trend reported in the Wall Street Journal that "Republican voters believe free trade is bad for the U.S. economy by nearly a two-to-one margin, a shift in opinion that mirrors Democratic views."

Notice in the chart above (click to enlarge), that in many countries like the U.S., Canada, UK, France, Germany, Spain, Sweden and Italy, people inconsistently express strong support for both: a) trade and b) free markets, but very weak support for "foreign companies."

In the U.S., 70% of the respondents have a favorable view of "free markets," but only 45% have a favorable view towards "foreign companies." In the U.K. and Italy, those percentages are 72% (free markets) vs. 49% (foreign companies) and 73% vs. 38%, respectively.

What's up with that? Aren't "foreign companies" an intergral part of "free markets"? Without foreign companies, we wouldn't have "free markets," we would have "closed markets" and a closed economy.

Is Wall Street Now Conducting Monetary Policy?

From Larry Kudlow's very interesting column today "Anatomy of a Fabulous Fed Flip-Flop":

On the afternoon of Aug. 7, the Federal Reserve chair was an inflation hawk -- according to the unchanged FOMC policy statement -- fearful of adding liquidity to the markets. By day's end on Aug. 9, however, he was leading the liquidity charge, initiating a process that would help unlock the credit seize-up that started in late-July.

Using the Freedom of Information Act, Ken Thomas, researcher and lecturer at the University of Pennsylvania's Wharton school, was able to get Bernanke's calendar of phone calls and meetings at the time the flip-flop occurred.

Over the next few weeks, Bernanke participated in no fewer than 35 separate conference calls with fellow Fed operatives -- a complete departure from his earlier no-conference-call style. And he got the liquidity ball rolling. As we now know, the Fed started pouring liquidity into the system on Aug. 9.

Exhibit A: See the chart above (click to enlarge) showing the significant drop in effective Fed Funds rate on August 9 to 4.68%, at a time the official target rate was 5.25%. During the entire month of August the effective Fed Funds rate was 5.02%, almost a quarter point below the official target. Simply put, the Fed implemented an unannounced "secret" rate cut to 5% in August, under pressure from Wall Street.

But is this a good outcome? Kudlow seems to think so, and says that "the academic Bernanke became a hands-on market participant through his contacts with Rubin, Paulson, the hedgies and others. He reached out to savvy financial-market players, who put him in touch with the real world."

Doesn't this call into question the concept of "central bank independence?" Most economists consider it desirable to have central bank decisions insulated from political pressure from politicians seeking short-term political goals, so that the central bank can do what is best for the economy in the long run. But shouldn't the central bank also be insulated from pressure from hedge fund managers and investment bankers on Wall Street, which is apparently exactly what happened in August? Wouldn't an official inflation target insulate the Fed from Wall Street pressure?

Comments welcome.

Friday, October 05, 2007

Picture's (Yes, I Know) of the Day: D'oh!

At this middle school in "Floriduh" there are multiple signs with this wording in its parking lots. If you have to make a grammatical blunder, at least don't make it in front of a school!

Here are a few more.....

Just wondering, are the grammar rules about the proper use of it's vs. its really that hard to learn? Isn't that something you are supposed learn in elementary school, maybe about third grade?

Rising Unemployment, But Education Pays Off

Employment rose in September, and the unemployment rate increased slightly to 4.7%, the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor reported today.

AP: "The bump up in the unemployment rate from 4.6%in August came as hundreds of thousands of people streamed back into the labor market. That new rate of 4.7% the highest since the summer of 2006, is still considered low by historical standards."

The BLS also reports the unemployment by educational attainment in Table A-4 of its report, shown above in the chart (click to enlarge). Notice that the unemployment rate for those with some college has actually decreased from August to September from 3.7% to 3.4%, and has stayed the same for workers with a college degree (2.0%). For high school graduates, the jobless rate has increased by .40% from 4.3% in August to 4.6% in September, and for workers without a high school diploma the rate increased by .70%, from 6.7% to 7.4%.

Therefore, the increase in the September unemployment rate is entirely due to an increase in unemployment for workers with a high school degree or less. For workers with at least some college, unemployment rates are falling (some college, no degree) or stable (college graduates).

Yahoo Search for Foreclosures

I'm not sure how long this website has been going, but I just found the Yahoo! Real Estate website, where you can do a foreclosure search, by city and state, or zipcode. Here is a sample of some cities and the number of foreclosures currently available:

Las Vegas: 21,205
Chicago: 9,107
Detroit: 9,876
Minneapolis: 2,066
Miami: 6,614
St. Louis: 1,882
Cleveland: 8,006
Orlando: 12,448
San Diego: 7,764
Houston: 20,271

This seems like more evidence that house prices will continue to fall. Exhibit A: 21,205 foreclosed properties in Las Vegas!