Tuesday, November 06, 2007

How Can You "Give Back," If You Never Took.....

Quote of the Day:

"Giving back" is a similarly mindless mantra.

I have donated money, books and blood for people I have never seen and to whom I owe nothing. Nor is that unusual among Americans, who do more of this than anyone else.

But we are not "giving back" anything to those people because we never took anything from them in the first place.

~Thomas Sowell in his column today

Why A Recession is Not Pending: Jobless Rates for Educated Workers Remain Low and Stable

Unemployment facts based on October BLS data:

1. For workers with some college (but no degree), the unemployment rate in October 2007 was 3.5%, almost the same as October 2006 (3.4%), and about the same as the average rate of 3.6% over the last three years (see chart above, click to enlarge).

2. For college graduates, the October unemployment rate was 2.1%, exactly matching the average unemployment rate for that group of workers during the last three years (see chart above). The jobless rate for college grads has moved in a tight range between 1.8% and 2.5% for the last 24 months, with a slight downward trend.

Bottom Line: As long as unemployment rates remain stable for workers with: a) some college or b) a bachelor's degree or higher, there is no indication of a pending recession. Unless and until we see an upward trend in the unemployment rates for these two groups, the economy will continue on its expansionary path.

For example, in the last recession of 2001, the jobless rate for college grads increased in almost every month during the year, hitting 3% by December 2001; and the jobless rate for workers with some college increased from 2.7% to 4.2% during 2001.

The continued stability of unemployment rates for the most educated American workers, those whose role is most important in a knowledge-based, intensively-competitive, global economy, suggest that the Goldilocks economy will continue its healthy expansion into 2008.

Monday, November 05, 2007

EU vs. USA Smackdown: EU Still Below Mississippi

We've been having a lively discussion on Sweden and the EU, vs. the USA for standard of living, per capita income, etc., based on this post, this post and this post.

Thanks to Ironman at Political Calculations blog, there is now an updated, dynamic, sortable database at this link based on 2006 data.

If you click on the last column and sort from highest to lowest, you'll see that:

1. Based on 2006 data, if the EU countries as a group became the 51st U.S. state, it would be the poorest state in America, with only $27,394 in per capita GDP (PPP adjusted), below even Mississippi (GSP of $28,937).

2. If Sweden, Netherlands, UK, Germany and France were added individually as the 51st U.S. state, they would all rank #49 in per-capita GDP/GSP, ahead of only West Virginia and Mississippi.

3. In other words, updated data show that the results in 2006 are almost exactly the same of the previous posts based on 2002, 2003, 2004 and 2005 data.

Some Inconvenient Questions: How Much Should We Sacrifice Today for Future Billionaires?

From economist Steven E. Landsburg's recent Slate.com column ("Save the Earth in Six Hard Questions: What Al Gore doesn't understand about climate change"):

There is nothing particularly peaceable about Gore's rhetorical approach to climate policy. At his most pugnacious, Gore has depicted the fundamental trade-off as one between environmental responsibility and personal greed. Of course, as everyone over the age of 12 is perfectly aware, the real trade-off is between the quality of our own lives and the quality of our descendants'.

In other words, climate policy is almost entirely about you and me making sacrifices for the benefit of future generations. To contribute usefully to the debate, you've got to think hard about the appropriate level of sacrifice. That in turn requires you to think hard about roughly half a dozen underlying issues.

Here are two of Landsburg's inconvenient questions:

1. Many people (myself excluded, however) believe we should care more about our countrymen than about a bunch of foreigners—hence the sentiment for a border fence. If we are allowed to care less about people who happen to be born in the wrong country, why can't we care less about people who happen to be born in the wrong century?

2. If you expect economic growth to continue at the average annual rate of 2.3%, to which we've grown accustomed, then in 400 years, the average American will have an income of more than $1 million per day—and that's in the equivalent of today's dollars (i.e., after correcting for inflation). Does it really make sense for you and me to sacrifice for the benefit of those future gazillionaires?

MP: And if the economic growth rate is 2.5% instead of 2.3%, the average American would make more than $2 million per day in 400 years. Increase economic growth to 3%, and income for the average American would be $15 million per day in 400 years, in today's dollars!

Further, IBD reported in March that the average American household has a net worth of about $487,000. If real net worth grows at only a modest 2.5%, the average American household in 400 years would be multi-billionaires, with a net worth of almost $10 billion.

Question: Most people favor income redistribution from the wealthy to the poor through progressive taxes, estate taxes, etc. Isn't it then inconsistent for those people to show concern for the future rich, and advocate that the relatively poor (people living today) make sacrifices today for the relatively rich of the future (people living 100 years from now)? Won't that be a transfer of wealth and income from the poor (today) to the rich (tomorrow)?

And if one's position is that we should care about the rich in the future and make sacrifices today to leave them a cleaner environment, why doesn't he or she treat the rich living today with the same respect and concern, e.g. advocate a flat tax on income instead of a progessive income tax?

PetroChina is World's Largest Company, Tops $1T

SHANGHAI, China (AP) — PetroChina became the world's first company worth more than $1 trillion on Monday, surging past Exxon Mobil as the Chinese oil producer's shares nearly tripled in their first day of trading in China (see chart above, click to enlarge).

Adding the value of PetroChina shares traded in Shanghai, Hong Kong and New York — and those still owned by the government — the company's total market capitalization ballooned to just over $1 trillion, compared to Exxon Mobil Corp.'s $488 billion.

Bottom Line: PetroChina, at $1 trillion market capitalization, is worth more than Microsoft, Google, Procter and Gamble ($217 billion, not pictured above) and Wal-Mart combined ($966 billion), and is worth 5.5X the value of Wal-Mart.

Sunday, November 04, 2007

Let a 1,000 Millionaires Bloom in China, And U.S.

BEIJING -- China has the world's fifth largest number of households with more than $1 million in liquid assets, trailing only the U.S., Japan, Britain and Germany, said a report released by the Boston Consulting Group.

There were 310,000 Chinese millionaires at the end of 2006, up from only 124,000 in 2001, more than 48,000 of which have more than $5 million in liquid assets. Given China's continuous and rapid economic growth, the report also predicted the number of millionaires to double by 2011, reaching 609,000.

These households, which only account for 0.1% of the total number of households in China, possess 41.4% of the country's total wealth, said the report.

According to this WSJ report, America’s inequality peaked in 1929, when the top 1% controlled about 48% of the wealth.

We hear a lot of hand-wringing about income inequality in the U.S., but perhaps there are some lessons from China. When a country experiences significant, dynamic change from new technologies, innovation, globalization, opening of markets, increased competition, etc., income inequality increases because talented entrepreneurs are able to generate huge amounts of wealth at levels that are not possible in a static, insulated, uncompetitive environment. Some of the same dynamics that are creating more millionaires and more income inequality in China, are probably also creating the same outcomes in the U.S. Not to worry.

Bottom Line: Wouldn't most Chinese agree (and wouldn't you agree) that the average person in China today is better off today than 10, 20 or 40 years ago, even though income inequality has never been higher?

Harvesting Cash: Big Sugar Invests $1.5m to Make $100m/Year. IRR = 6,666%; A Satan-Like Return

From yesterday's Washington Post:

When U.S. sugar farmers needed help this summer defending a $1 billion, 10-year subsidy plan in a new House farm bill, they found it in some surprising places.

The House sugar vote illustrates the hold that agricultural interests maintain on farm policy even as the number of full-time commercial farmers has shrunk to a few hundred thousand. Sugar groups have used campaign cash and far-reaching alliances with labor unions and politicians to expand their influence far beyond the 15 states and few dozen congressional districts where sugar is grown by fewer than 6,000 farmers.

So far this year, nine sugar farm or refinery groups have made more than 900 separate contributions totaling nearly $1.5 million to candidates, parties and political funds, according to federal election records and CQ MoneyLine. American Crystal Sugar Co., a Minnesota-based sugar-beet cooperative with 3,000 members, has made 317 contributions totaling $819,000. In July alone, its political fund contributed more than $70,000 to 26 House members, 24 of whom sided with it on the July 27 sugar vote.

Bottom Line: Wouldn't you invest $1.5 million today to get $1 billion over ten years ($100 million per year)? Your annual Internal Rate of Return (IRR) would be 6,666.67%, a return that would certainly catch the attention of Satan.

Question: Why is Congress selling special-interest legislation to Big Sugar at such a low price? They are giving $1 billion of benefits away to Big Sugar for a mere $1.5 million in campaign contributions. What gives? Couldn't they have charged $3 million or even $30 million? After all, Congress has a monopoly on special-interest legislation. What could Big Sugar say - "If you give us the sugar subsidies we want, we'll take out business elsewhere?"

Update: EU vs. USA

From Political Calculations blog:

The Sweden-based free-market advocacy group Timbro compared the relative wealth of the nations of Western Europe against individual U.S. states. The key finding in Timbro's report was that:

"If the European Union were a state in the USA it would belong to the poorest group of states. France, Italy, Great Britain and Germany have lower GDP per capita than all but four of the states in the United States. In fact, GDP per capita is lower in the vast majority of the EU-countries (EU 15) than in most of the individual American states. This puts Europeans at a level of prosperity on par with states such as Arkansas, Mississippi and West Virginia."

Timbro's study was based on 2002 economic data, but since it was published, economic data for both 2003 and 2004 has been published. So, the question is now: what's changed in those two years? To find out, Political Calculations has created the following dynamic table comparing each U.S. state's
Gross State Product (GSP) or each E.U. nation's Gross Domestic Product adjusted for Purchasing Power Parity (GDP-PPP) data for 2004, their respective populations and their corresponding per Capita economic data, which you may sort according to the column headings, either from highest to lowest value or vice-versa.

Bottom Line: If you click on the last column of the "US vs EU: 2004 Edition" chart, and sort it from highest to lowest, you'll find that Sweden would rank at the bottom of U.S. states (#49 including D.C), just barely above Mississippi and West Virginia.

Harvesting Cash: Farm Welfare-for-the-Rich

1. Sunday NY Times: When you consider that farm income is at record levels (thanks to the ethanol boom, itself fueled by another set of federal subsidies); that the World Trade Organization has ruled that several of these subsidies are illegal; that the federal government is broke and the president is threatening a veto, bringing forth a $288 billion farm bill that guarantees billions in payments to commodity farmers seems impressively defiant.

What finally emerges from Congress depends on exactly who is paying closest attention next week on the Senate floor and then later in the conference committee. We know the American Farm Bureau will be on the case, defending the commodity title on behalf of those who benefit from it most: the biggest commodity farmers, the corporations who sell them chemicals and equipment and, most of all, the buyers of cheap agricultural commodities — companies like Archer Daniels Midland, Cargill, Coca-Cola and McDonald’s.

2. Sunday NY Times: The Senate has one last chance to rid the country of an irrational, outdated and unfair 70-year-old program of federal farm supports that enriches the few at the expense of the many, distorts international trade and damages the environment. It has one last chance, in other words, to produce a farm program of which the country can be proud.

The old-fashioned bill would perpetuate a system that directs more than half of all farm payments to less than one-tenth of the farms, most of them concentrated in eight states and most of them producers of big row crops like corn, cotton, soybeans, wheat and rice.

To make matters worse, these lucky few get their billions regardless of market conditions — and conditions now happen to be particularly good, given the strong demand for corn-based ethanol as well as for American farm products abroad. So whenever you hear its proponents describe this welfare-for-the-rich program as a safety net, remember this: for the most part, it provides an extra bounce for those who don’t need a safety net while failing to catch those who do.

38% of Uninsured Make $50,000 or More

The chart above (click to enlarge) is from a study by Robert Ohsfeldt (Texas A&M Health Science Center) and John Schneider (Department of Health Management & Policy, University of Iowa) that supports Greg Mankiw's statement in today's NYTimes that:

"The Census Bureau reports that 18 million of the uninsured have annual household income of more than $50,000, which puts them in the top half of the income distribution."

As the chart shows, more than 38% of the uninsured have incomes of $50,000 or higher. To the extent that these 18 million remained uninsured, we would have to assume that many of them remain uninsured voluntarily (or are self-insured and pay for medical services as needed), since their income levels would certainly indicate that they can afford basic health insurance, but choose not to buy it.

Beyond Those Health Care Numbers: US Looks Good

Greg Mankiw has an article in today's NYTimes "Beyond Those Health Care Numbers," where he addresses the statement: "The United States has lower life expectancy than Canada, which has national health insurance." Mankiw points to a study by economists June and Dave O’Neill, and writes:

Americans are more likely than Canadians to die by accident or by homicide. For men in their 20s, mortality rates are more than 50% higher in the United States than in Canada, but the O’Neills show that accidents and homicides account for most of that gap. Maybe these differences have lessons for traffic laws and gun control, but they teach us nothing about our system of health care.

1. In a previous CD post, I cited a study from researchers at the University of Iowa that compares unadjusted life expectancy means in OECD countries from 1980-1999 to standardized life expectancy means, which account for the effects of premature death resulting from a non-health-related fatal injury. As the chart above shows (click to enlarge), the U.S. has the highest standardized life expectancy among the OECD countries (76.9 years), and 0.70 years higher than in Canada (76.2 years).

2. Another important measure of how the effectiveness of a health care system relates to life expectancy is to look not at life expectacy at birth, but life expectancy at older ages when the quality health of care (surgery, treatment, advance testing and screening, MRIs, expensive drugs, radiation, chemotherapy) is probably most important.

I couldn't find data for Canada, but the bottom chart above (click to enlarge) is from a previous CD post that compares additional life expectancy at ages 70, 75 and 80 for men and women in the U.S. and U.K. (see previous post for links to the data). As the chart shows, life expectancy at birth is about one year longer in the U.K. than in the U.S. But once somebody reaches age 70 or older, life expectancy is higher in the U.S. by about 2/3 of a year.

Bottom Line: Once you go beyond the the standard health care data on life expectancy at birth, the U.S. looks pretty good, and actually has the highest standardized life expectancy in the world, according to the University of Iowa study.

Cartoon of the Day

See previous CD post The Energy-Efficient Economy Can Handle $100 Oil.

See Greg Mankiw's post Where Have All the Oil Shocks Gone.

More on Taxi Cartels: Breaking The Mpls. Cartel

Magistrate Judge Franklin L. Noel, in his ruling against the Minneapolis taxi cartel that led to an increase in the number of new taxi licenses by 45, “The established taxi vehicle license holders do not have a constitutionally protected freedom from competition.”

Nice choice of words. We have a lot of freedoms, but freedom from competitors isn’t one of them. Freedom to trade with potential customers is.

Read more here.

Read a previous post about the attempts to break the Minneapolis taxi cartel, with excerpts from an excellent George Will article about the situation.

Saturday, November 03, 2007

Cauliflower Gone Wild

The new "designer" cauliflower comes in bright neon colors. I saw all of these colors at the Minneapolis Farmers' Market 2 weeks ago.

More on The U.S. Poor Getting Richer, And Being Envy of the World's Poor

More data above in the chart (click to enlarge) from Swedish think tank Timbro to support economist Walter Williams' claim that:

"Poverty in the United States, in an absolute sense, has virtually disappeared. Today, there's nothing remotely resembling poverty of yesteryear. However, if poverty is defined in the relative sense, the lowest fifth of income-earners, "poverty" will always be with us. No matter how poverty is defined, if I were an unborn spirit, condemned to a life of poverty, but God allowed me to choose which nation I wanted to be poor in, I'd choose the United States. Our poor must be the envy of the world's poor."

Note also that the same study shows that:

Percent of U.S. Poor Households Owning Washer: 65%

Percent of ALL Swedish Households Owning Washer: 72%

Percent of U.S. Poor Households Owning VCR/DVD: 78%

Percent of ALL Swedish Households With VCR/DVD: 46%

Percent of U.S. Poor Households Owning PC: 25%

Percent of ALL Swedish Households Owning PC: 29%

Percent of U.S. Poor Households With Dishwasher: 34%

Percent ALL Swedish Households With Dishwasher: 31%

Percent of U.S. Poor Households With Clothes Dryer: 56%

Percent of ALL Swedish Households With Dryer: 18%

Percent of U.S. Poor Households Owning Color TV: 97.3%

Percent of ALL Swedish Households Owning TV: 97%

Bottom Line: On many different measures, a poor household in America lives at a standard of living equal to or greater than the average household in Sweden.

If Sweden Left The EU and Joined the US, It Would Be the Poorest U.S. State, Below Even Mississippi

There is some lively discussion in the comments section of this recent post about poverty, Sweden, income inequality, etc. One issue is about the unemployment rates in Sweden vs. the USA, which are displayed in the graph above. Over the last 15 years, the average jobless rate in Sweden was 7.3%, more than two percentage points higher than the U.S. average of 5.2%. I think it would safe to assume that if Sweden was a U.S. state, it would have had the highest unemployment rate in the country since 1993, higher even than Mississippi, Michigan or Alaska.

And for an analysis of Sweden's economic condition, I suggest reading this post: "
Swede and Sour," by Swedish author and blogger Johan Norberg, here are some excerpts:

If Sweden left the EU and joined the U.S. we would be the poorest state of America. Using fixed prices and purchasing power parity adjusted data, the median household income in Sweden in the late 1990s was the equivalent of $26,800 compared with a median of $39,400 for U.S. households - before taxes. And then we should remember that Sweden has the world´s highest taxes.

The Swedish Research Institute of Trade, which conducted the study, underlined that African Americans, who have the lowest income in the United States, now have a higher standard of living than an ordinary Swedish household.

Between 1870-1970, Swedish growth was the highest in the world, next to Japan's. In 1970 Sweden was the fourth richest among the OECD-members, after USA, Luxembourg and Switzerland.

After more than 30 years of high taxation and an expanding welfare state, Sweden is not the 4th richest OECD-country any longer, but the 15th. This hurts the least well off most. Between 1980 and 1999, the gross income of Sweden's poorest households increased by just over 6% while the poorest in the U.S. enjoyed a three time larger increase.

Bottom Line: Unless you think that Mississippi and Michigan represent ideal economic models of growth and prosperity, you probably shouldn't think about Sweden as economic nirvana.

Update: According to this study from Swedish think tank Timbro ("EU vs. USA"), "This report is about the fact that per capita GDP is lower in most of the countries of Europe than in most of the states of the USA." Further, "Sweden would be the seventh poorest as a state of the USA."

Taxi Cartel Membership Has Its Priveleges: Returns That Have Outperformed Every Major Index

NEW YORK -- The priciest piece of aluminum in NYC, a taxi medallion to operate a single cab (pictured above - you'll see them on the hood of every NYC taxi), just sold for as high as $385,000 when the Taxi and Limousine Commission staff unsealed 155 bids yesterday. The lowest winning bid was $277,777, and the average bid was $309,000.

Here is the
press release from the NYC Taxi Cartel, aka as the Taxi and Limousine Commission:

According to the
NYC Taxi and Limousine Commission, the official name of the NYC Taxi Cartel: "In 1937, the number of taxicab medallions was limited to 11,787. Today there are currently 13,087 yellow medallion taxicabs operating in New York City. A new medallion is a rare opportunity."

Yes, a rare opportunity to join a cartel with significant barriers to entry. And cartel membership does have its privileges, including above-market rates of return.

According to the president of Medallion Financial Corporation, the leading lender to the industry, "Taxi medallions have been one of, if not the single best investment to own over the years. While the Dow has gone up 8% per year over the last 50 years, taxi medallions have gone up almost double that, 14% per year. They have outperformed every major index including real estate, gold and other stock indexes."

(HT: Ben Cunningham)

Friday, November 02, 2007

There Are Two Michigans and a Big Pay Gap: Private vs. Public Employees

According to this report from the Mackinac Center for Public Policy, "The average private sector employee in Michigan earned $41,128 in fiscal 2005, compared to $48,421 for the average state civil service worker. State government employees, in other words, earned about 18 percent more than private sector workers."

The report also compared private vs. public compensation (wages and benefits) for specific job classifications, including those shown above in the graph (click to enlarge).

Private sector receptionists make only 63% as much as their counterparts in the public sector, and private sector food service supervisors make only 83% of their public sector counterparts.

So there are "Two Michigans" and there is a "disturbing pay gap" when comparing compensation in the private sector to the public sector.

Two Americas: Private vs. Public Sector Employees

Yes, John Edwards, there really are "Two Americas": One America for those who work for the government and make almost $62,000 on average (wages and benefits), and another America for those saps who work in the private sector who earn $6,000 less on average ($55,470), see chart above (click to enlarge).

And Yes, Hillary Clinton, there really is a disturing pay gap that calls for legislation: Private sector employees earn only 90 cents on average (wages and benefits) for every one dollar that a public sector employee earns, and this pay gap has persisted for decades. And the pay gap between private sector employees and public school teachers is even greater (see graph).

See this press release from the Heartland Institute for more information, which uses data from this BEA website.

Latest Victim of Ethanol: Kraft Foods

NEW YORK (Associated Press) - Standard & Poor's Ratings Services yesterday warned it may lower its credit ratings on food maker Kraft Foods Inc. after the company's third-quarter profit sank 20 percent, partly due to high dairy costs.

S&P noted that the company's margins will likely remained pressured through the fourth quarter and into 2008 by higher commodity costs, particularly for dairy. Dairy costs have skyrocketed due to international demand for milk and higher animal feed costs. Animal feed is made from corn, which has risen to record levels due to demand for the alternative fuel ethanol. Corn is also used to make the fuel.

(HT: Ray Wallace)

Comment of the Day; No, Comment of the Month!

From the Hispanic Pundit, in response to this CD post "Our Poor Are the Envy of the World's Poor:"

At the risk of over-generalizing, there are two views to poverty alleviation: there is the approach of the "left," which tends to champion direct government involvement (welfare, etc.), and there is the approach of the "right," which tends to champion economic growth.

The problem is, the two approaches tend to be mutually exclusive. To get more government involvement, you need higher taxes and an increase in the size of government....two things that greatly harm economic growth. So in effect you have a trade off and a disagreement over which poverty solution is better - direct immediate alleviation, though one that may dramatically change incentives and behavioral patterns along with decreased economic growth, or you have the long term solution that increases economic growth and significantly increases the standard of living over time.

Comparing the standard of living from an earlier era shows in stark contrast the very real gains that economic growth produces, and how overwhelmingly larger they are than any immediate government program can possibly achieve. The same is true when you compare the standard of living in the United States (arguably the most capitalist country in the world) with the standard of living of other less capitalist countries.

Comparisons that show the significant gains from economic growth explain why the left avoids making such comparisons.

Thursday, November 01, 2007

Goldilocks Rocks: Consecutive Monthly Real Disposable Income Growth Strongest Since 1999

The Department of Commerce reported today that disposable income, adjusted for inflation, grew by 3.9% in September compared to the same month a year ago (Table 10 in the report), which marks the 14th consecutive month that real disposable income has increased by 2.9% or higher (the approximate average growth rate since 1970, see horizontal line in graph above).

CD Exclusive: This record of consecutive monthly growth in real disposable income hasn't been matched in the U.S. since July 1997 - April 1999, when real income grew at or above 2.9% for 22 months during the height of the last economic expansion (see shaded areas on the graph above, click to enlarge).

The Goldilocks economy keeps rockin'.

Update: Real disposable income is one of the 4 key economic variables that the National Bureau of Economic Research watches to determine when the U.S. economy goes into recession, see my previous post. Given the 14-month record of above-average real personal income growth, it wouldn't appear that a recession is imminent.

Digital Iron Curtain Still Exists in Cuba and China

The Internet is a tightly controlled privilege in Cuba, reserved for the trusted elite. Private citizens are prohibited from buying computers or accessing the Internet without special authorization. Access in Cuba is limited to citizens who can prove they are engaged in research or connected to an accredited and approved institution.

Updated: According to UNESCO, there are only 6.71 phone subscribers per 100 residents in Cuba, 1 computer for every 42 persons, and only 1/10 of 1% of the population has direct access to the Internet (12,193 Internet subscribers out of a population of 11,313,000).

I guess they won't be visiting Carpe Diem, or any other blog or website, any time soon (see the map above of visits to Carpe Diem, click to enlarge)!

Aprovecha el dia!

Although I can't confirm this, I received an email from a loyal CD reader in Canada, who says that he has visited China twice in the last month for business, and CD is apparently banned in China, along with some other "unacceptable" blogs.

Wednesday, October 31, 2007

Full Disclosure

At this website (WHOIS Search database), you can look up the real name of the owner of any website on the Internet.

Via Reason.

Carpe Diem on Kudlow and Company

Carpe Diem got mentioned on CNBC's "Kudlow and Company" for the third night in a row, here is the link to a 9:37 segment from tonight's show; Carpe Diem is mentioned at about 4:30!

FYI, Larry Kudlow's show has recently gone to a prime time slot at 7 p.m. on CNBC, where he "puts the capital back into capitalism" five nights a week, delivering the message that "free market capitalism is the best path to prosperity."

When it comes to a daily discussion, summary and analysis of the most important business, economic and financial news, it doesn't get any better than "Kudlow and Company."

BTW, the entire CNBC schedule, including "Kudlow and Company," is available on Sirius Satellite radio, I listen to Larry's show in my car, since I am never home by 7 p.m.

Indian Stock Market Sets 38 Record Closes in 2007

It was first reported in the Indian press that "A record-breaking performance by India's stock markets has put the industrialist Mukesh Ambani at the top of a list of the world's richest people.

Buoyed by unprecedented inflows from U.S. and European investors, the benchmark Mumbai Sensex stock index topped 20,000 for the first time yesterday – having almost doubled in value in the last two years.

One of the results of the surge in share prices has been a boost for Mr. Ambani's Reliance Industries, a powerhouse of the country's industrial strength and its most valuable firm. Its excellent performance, along with that of two other of the group's companies, saw the net worth of its chairman and managing director rise to $63.2bn yesterday."

Well, they made a
small mistake, "The correct figure was more like $50 billion, Reliance said, because it had erroneously included the group’s petrol subsidiary in which Mr Ambani does not have a direct holding."

What is not in dispute is that the Indian stock market has set 38 record closes this year, the BSE Index has surpassed 20,000 in recent trading, and is up by 62% YTD (in USD) and 44% YTD (in rupees). It is also true that Mr. Ambani's personal wealth has increased from $20 billion in February of this year to $50 billion today. Not a bad year at all for Mukesh.

The Economics of Tax Cuts

Pete DuPont in today's WSJ:

Tax rate reductions increase tax revenues. This truth has been proved at both state and federal levels, including by President Bush's 2003 tax cuts on income, capital gains and dividends. Those reductions have raised federal tax receipts by $785 billion, the largest four-year revenue increase in U.S. history (see top chart above). In fiscal 2007, which ended last month, the government took in 6.7% more tax revenues than in 2006 (see bottom chart above).

These increases in tax revenue have substantially reduced the federal budget deficits. In 2004 the deficit was $413 billion, or 3.5% of gross domestic product. It narrowed to $318 billion in 2005, $248 billion in 2006 and $163 billion in 2007. That last figure is just 1.2% of GDP, which is half of the average of the past 50 years.

Lower tax rates have be so successful in spurring growth that the percentage of federal income taxes paid by the very wealthy has increased. According to the Treasury Department, the top 1% of income tax filers paid just 19% of income taxes in 1980 (when the top tax rate was 70%), and 36% in 2003, the year the Bush tax cuts took effect (when the top rate became 35%). The top 5% of income taxpayers went from 37% of taxes paid to 56%, and the top 10% from 49% to 68% of taxes paid. And the amount of taxes paid by those earning more than $1 million a year rose to $236 billion in 2005 from $132 billion in 2003, a 78% increase.

Harvesting Cash: A Billion Dollars for Big Sugar

NY Times Editorial Sugar’s Sweetheart Deal:

Of all the government’s farm-support programs, there are few as egregious as the tangle of loans, quotas and import tariffs set up to protect the well-connected club of American sugar producers at the expense of American consumers and farmers in the developing world. This year’s farm bill will add American taxpayers to the list of casualties.

According to estimates from the CBO, supports for sugar in the House bill could cost taxpayers from $750 million to $850 million over the next five years. The eagerness of members of Congress to please their sugar daddies is not surprising. Campaign donations from the sugar industry have topped $3 million in each of the last four political cycles. American consumers and taxpayers, as well as poor farmers overseas, shouldn’t have to pay the price.

MP: According to futures trading on the NY Board of Trade (now ICE), the current world price of sugar is about 10 cents per pound, and the price of sugar in the U.S. is about 21 cents per pound or double the world price, due to U.S. government price supports, tariffs and quotas against foreign sugar.

Two-Quarter Economic Growth Strongest in 4 Years

WASHINGTON/WSJ -- The U.S. economy sped up last summer despite a much heavier drag by the housing sector as surging exports and stronger consumer spending helped turn growth surprisingly faster.

Gross domestic product rose at a seasonally adjusted 3.9% annual rate July through September, the Commerce Department said Wednesday in the first estimate of third-quarter GDP. Second-quarter GDP climbed 3.8% and GDP rose only 0.6% in the first three months of 2007.

Wall Street expected a solid but smaller GDP growth rate. The median estimate of 24 economists surveyed by Dow Jones Newswires was 3.2% GDP growth during the third quarter.

MP: The solid 3.9% growth in third quarter GDP shows that the U.S. economy remains healthy and continues on a solid expansionary path, as the U.S. economic expansion approaches its 6th anniversary on December 1, 2007.

Consider also that on a two-consecutive-quarter basis, the economic growth hasn't been this strong since 2003 (see shaded areas on the graph above), and growth in the last two quarters is a full percentage point above the average growth of 2.8% during this economic expansion (started December 2001).

Never Get Busted Again: Advice from An Ex-Narc

NPR: A former top narcotics officer, credited with over 800 arrests in eight years, is now selling a DVD ("Never Get Busted Again") that shows marijuana users how to avoid arrest when traveling with a stash.

Cooper plans to make a second DVD called "Never Get Raided Again."

Our Poor Are the Envy of the World's Poor

The rich are getting richer and the poor are getting richer, says George Mason economist Walter Williams:

In 1971, only about 32 percent of all Americans enjoyed air conditioning in their homes. By 2001, 76 percent of poor people had air conditioning. In 1971, only 43 percent of Americans owned a color television; in 2001, 97 percent of poor people owned at least one. In 1971, 1 percent of American homes had a microwave oven; in 2001, 73 percent of poor people had one. Forty-six percent of poor households own their homes. Only about 6 percent of poor households are overcrowded. The average poor American has more living space than the average non-poor individual living in Paris, London, Vienna, Athens and other European cities.

Nearly three-quarters of poor households own a car; 30 percent own two or more cars. Seventy-eight percent of the poor have a VCR or DVD player; 62 percent have cable or satellite TV reception; and one-third have an automatic dishwasher.

Poverty in the United States, in an absolute sense, has virtually disappeared. Today, there's nothing remotely resembling poverty of yesteryear. However, if poverty is defined in the relative sense, the lowest fifth of income-earners, "poverty" will always be with us.

Bangalore Butlers: Person-to-Person Offshoring

The New York Times has an interesting article today in its World Business section about “person-to-person offshoring," (see previous posts on PPO here and here):

The Bangalore butler is the latest development in offshore outsourcing.

The first wave of slicing up services work and sending it abroad has been all about business operations. Computer programming, call centers, product design and back-office jobs like accounting and billing have to some degree migrated abroad, mainly to India. The Internet, of course, makes it possible, while lower wages in developing nations make outsourcing attractive to corporate America.

The second wave, according to some entrepreneurs, venture capitalists and offshoring veterans, will be the globalization of consumer services (pictured above is a tutor in Chennai who tutors students in the U.S. for TutorVista).

Tuesday, October 30, 2007

$60 Oil?

Get ready, it's coming soon. Read about it here at Forbes.

The Global Stock Market Boom: CD on CNBC

A version (top graph) of a Carpe Diem graph based on this post (bottom graph) was featured tonight on CNBC's "Kudlow and Company," the second time in two days that a CD graph was featured on Kudlow's program!

Larry Kudlow: "Let's run this graph of the global stock market boom; I may run this graph every day for the rest of the week - we've set a new record for the world stock market. We had a $14 trillion dollar increase in the last year, and we are up to $60 trillion of capitalization in the global stock market boom. It's because of the global spread of free market capitalism."

Carpe Diem!

Carpe Diem On CNBC's Kudlow and Company

CNBC featured the CD chart above on Larry Kudlow's show last night, based on this CD post.

Close-up of One Subprime Mortgage Deal Gone Bad

Fortune has an excellent article about subprime mortgages, with a detailed analysis of a specific $494 million mortgage-backed security (MBS) issued by Goldman Sachs (GSAMP Trust 2006-S3) in 2006 backed by second-mortgages, probably typical of many other MBSs issued by Goldman Sachs, Merrill-Lynch, and other investment banks. Here are some details of the GSAMP Trust-2006 S3 MBS:

Number of individual second-mortgages in Goldman Sachs' GSAMP Trust 2006-S3 MBS: 8,274

Average equity that the second-mortgage borrowers had in their homes: 0.71%

Average loan-to-value of the issue's borrowers: 99.29%

Percentage of loans originated in California: More than 33%

Percent of loans that were no-documentation or low-documentation: 58%

Number of tranches created in the MBS: 13

Number of tranches that were originally investment-grade: 10 (see chart above)

Percent of the MBS originally rated investment-grade: 68%

Number of tranches currently investment-grade: 3

Number of tranches currently in default: 6

Moody's projection of Moody's projection of loans that would default: 10%

Actual number of loans in default in September 2007: 18%

Read the article for more details, it's fascinating.

Bottom Line: Given that most of the original borrowers had no equity in their homes, the only way this story could have turned out positive is if home prices had continued to appreciate. It's also amazing and surprising that Moody's and and S&P could have rated 68% of the issue investment grade.

Political "Solutions": Socialism on Installment Plan?

From economist Thomas Sowell's op-ed Political "Solutions":

It is remarkable how many political "solutions" today are dealing with problems created by previous political "solutions." Three examples that come to mind immediately are the housing market crisis, the wildfires in southern California, and the water shortages in the west.

Sowell outlines a dangerous pattern:

1. Based on some perceived market failure, a political solution (regulation, subsidies, legislation, tariffs, price controls, property rights restrictions, below-market insurance programs, zoning laws, real estate regulations, etc.) is implemented to solve the "problem."

2. The political solution is inherently distortionary, introduces inefficiencies, and makes the original situation even worse.

3. Additional politcal solutions are then proposed to addresss the growing problems created by the previous political solutions.

Steps 1-3 continue to repeat, leading to the possibility of "socialism on the installment plan," or Hayek's concept of "The Road to Serfdom," because of the "fatal conceit" of policymakers.

What's The Difference Between Wall St. and D.C.?

From the WSJ's editorial today Wall Street Reckoning: A CEO gets "marked to market":

Washington is the one place where no one is being held accountable for the subprime boom and bust. That includes in particular the Federal Reserve, whose far too easy monetary policy created a subsidy for debt that fueled the housing and subprime mortgage excesses. One difference between Wall Street and Washington is that in the latter no one ever admits a mistake, much less suffers for it.

Creative Housing Offer: You Get Your Money Back

Pittsburgh Post-Gazette -- When the housing market slows, some home sellers drop their asking price. Others give buyers allowances to cover the cost of upgrades or offer help with financing.

A Pittsburgh couple came up with a more creative twist: Whoever buys their four-bedroom, 3 1/2-bath home would get their money back after the couple dies.

Google Government

FOXNEWS -- Presidential candidates Sen. Barack Obama, Rep. Ron Paul, Sen. Sam Brownback, Sen. Mike Gravel, Rep. Dennis Kucinch and Mr. John Cox have all embraced the concept of "Google government" by signing the Oath of Presidential Transparency — which is sponsored by a non-partisan coalition led by the Reason Foundation.

By signing the oath they are promising, should they win the presidency in 2008, that they will issue an executive order during their first month in office instructing the entire executive branch to put into practice the Federal Funding Accountability and Transparency Act of 2006, a Google-like search tool that will allow taxpayers to hop online and see exactly how their tax dollars are being spent on federal contracts, grants and earmarks.

"Every American has the right to know how the government spends their tax dollars, but for too long that information has been largely hidden from public view," notes Sen. Obama. Rep. Paul explains, "When government spends the people’s money, it must be done with utmost possible transparency."

Since these comments reflect such a basic principle of accountability, one is left wondering what Hillary Clinton, John Edwards, John McCain, Fred Thompson, Mitt Romney and Rudy Giuliani have against providing taxpayers with details on how well their money is spent.

Via Adam Smith Institute blog.

Monday, October 29, 2007

Harvesting Cash: Urban Farming in Mpls.-St. Paul

From the Minneapolis-St. Paul StarTribune:

Year after year, the federal government sends farm subsidy checks to homes nestled in some of the most expensive neighborhoods in Minneapolis, far from any corn or soybean field.

The urban payments total millions of dollars out of the nearly $1 billion sent to Minnesota farmers in 2005, according to federal records sent to the Star Tribune under a Freedom of Information Act request.

The flow of federal largesse comes thanks to rules that allow landowners -- including some 2,000 in the Twin Cities metro area -- to collect subsidies without farming the land themselves, a legal and increasingly common practice as farm ownership has consolidated over the past few decades.

See map above of urban "farmers" in the Minneapolis-St. Paul metro area receving farm subsidies.

(HT: JJ Howe)

Global Stock Market Capitalization Sets New Record

Carpe Diem Exclusive!

According to global stock market statistics from the World Federation of Exchanges, the world stock market capitalization reached an all-time record of $59.74 trillion in September 2007 (see graph above, click to enlarge). Comared to last September, world stock markets have increased in value by 31% over the last year, adding $14 trillion of new stock market wealth to the world economy in just the last 12 months.

Over the last five years, almost $40 trillion of stock market wealth has been created, as the global market capitalization rose from about $20 trillion in September of 2002 to almost $60 trillion in September 2007.

In other words, more global wealth (measured by stock market value) was created in the last 5 years ($40 trillion total, or almost $6,000 for every person on the planet) than was created during the thousands of years it took to create the first $35 trillion of stock market value, a level reached in 2000.

Not a bad record for globalization and the significant amount of wealth created in its wake.

Historic Milestone:Indian-American Elected as Gov.

Hindustan Times: The Indian-American community passed another milestone with the election on Saturday of Bobby Jindal to the governorship of Louisiana, the highest US political post any Indian community member has won.

Jindal, 36, will also be the youngest governor in the US and the first non-white to rule Louisiana since the end of the US civil war.

Washington -- Bobby Jindal made history on October 20 when Louisiana voters chose him, the son of Indian immigrants, as their next governor. He is the first Indian American to be elected as a state’s chief executive.

(HT: Sanil Kori)

Carpe Diem Milestone

This CD post was cited on Greg Mankiw's blog over the weekend.

Trading Places: Computers Now Rule in Chicago

Open-outcry pit trading (pictured above) traces its roots to 1848, when the Chicago Board of Trade was founded to trade agricultural futures contracts. But computers and electronic trading are rapidly replacing the 159 year-old tradition.

-- With the consolidation of the Chicago Board of Trade and the Chicago Mercantile Exchange, the pork belly pit, formerly emblematic of Chicago's open-outcry commodity trading, will close and begin operating exclusively by computer.

The open-outcry pits of other low-volume markets, including cash dairy products and South American bean futures, are also closing. Many traders believe that all commodity markets will inevitably follow suit.

Since 2000, open-outcry has declined from about 90 percent of the trades at the exchanges to roughly 22 percent.

Sunday, October 28, 2007

Why Income Inequality Has Increased and Why It Really Doesn't Matter

From "Making Sense of Income Inequality" by Diana Furchtgott-Roth:

1. Percent of bottom quintile households who own their homes free of debt: 30%

2. Percent of top quintile households who own their homes free of debt: 17%

3. Percent of top quintile households who have two or more earners: 75%

4. Percent of bottom quintile households who have multiple earners: 2.6%

5. Average age of those in the lowest income quintile: 54 years

Conclusion #1: One reason that the top quintile of households collects more income is that these households tend to have more full-time earners. Census data show that the top quintile has two income earners per household, whereas the bottom quintile has about one earner for every two households. This means there are more than four times as many full-time workers in the top fifth of the income distribution as there are in the bottom fifth.

Women now earn well over half of all B.A. and M.A. degrees, plus half of all medical and law degrees. With higher numbers of well-educated women in the workforce, marriage often combines two medium-earning single-person households into one high-earning two-person household. Such demographic changes have increased both the number and relative wealth of two-earner couples.

Conclusion #2: The average age of the bottom 20% by income (54 years) suggests that the bottom quintile is actually a mix of: a) very young low-income earners and b) many older retirees who are probably in one the top quintiles by wealth (they own their homes free of debt at almost twice the rate as the top 20% by income) even though they might be quite wealthy and living off accumulated savings and investments.

Conclusion #3: In a dynamic economy like the U.S., people typically move among income groups as they grow older and advance in their careers, so a snapshot view of income statistics does not reflect Americans’ true well-being. Given the reality of income mobility, some low-income households arguably are not poor. They may be students who have yet to enter the workforce and whose earnings will rise, or wealth retirees.

Most people, even Bill Gates, Tiger Woods, Oprah and Howard Stern, start in the lowest income quintile early in their lives and careers, advance into one of the higher qunitiles as they become successful, and drop back to one of the lower quintiles by income later in life, even though they might be in one of the top quintiles by wealth.