Tuesday, November 20, 2007

Taj Mahal Refuses to Accept Dollars for Admission

BOMBAY -- The Taj Mahal and other top tourist sites in India are refusing to accept dollars to pay for admission, dealing another blow to the prestige of the weakened American currency. Entry tickets to the world famous Mughal tomb in Agra and about 120 sites run by the Archaeological Survey of India will be available only at a fixed rupee rate after the dollar lost more than 12% of its value against the local currency this year.

The Government had fixed a $5 entrance fee for World Heritage sites such as the Taj Mahal and $2 for other monuments of interest at a time when the dollar was worth about 50 rupees. Buoyed by capital inflows into the surging Bombay stock market, the rupee rose yesterday to 39.28 rupees against the dollar.

The new fixed entry fee of 250 rupees and 100 rupees means that a foreign tourist will pay the equivalent of about $6.40 and $2.50 respectively.

(HT: Sanil Kori)

Milton Friedman, Revolutionary

Check out the revolutionary "Milton Friedman Choir."

Goldilocks Rocks in NM, TX, LA, AL, AZ and ID

6 reasons the U.S. economy is not going into a recession:

1. New Mexico's jobless rate fell to an historical record low of 3.1% in October (see chart above, click to enlarge), according to state labor market data released today
by the BLS. October's rate of 3.1% was almost 3.8% below New Mexico's average unemployment rate of 6.9% from 1976-2007.

2. Texas' October jobless rate of 4.1% was also an historical record low that matched the May and June 2007 rates of 4.1%.

3. The October unemployment rate in Louisiana dropped to match a record low of 3.3% that was first achieved in July 2006.

4. As I
reported earlier, Alabama's unemployment rate of 3.1% established a new historical record low in October 2007.

5 and 6. Arizona and Idaho both set record low unemployment rates in September 2007 (3.3% and 2.3% repsectively).

Higher Paying Jobs Outnumber Lower Paying Jobs

Let's put the "hamburger-flipping jobs" myth to rest.

Lou Dobbs: Washington is beginning to make the connection between a record trade deficit and the loss of millions of American manufacturing jobs. Since July 2000, 2.7 million manufacturing jobs have been lost as the result of layoffs and outsourcing of work to cheap foreign labor markets.

WSJ: Many of today's most prominent politicians and pundits claim that the decline in the number of manufacturing jobs has led to the replacement of good middle-class jobs by low-skill, low-pay "hamburger-flipping" service jobs.

Cato Institute: The common story is that globalization has caused the loss of well-paying, mostly unionized, middle-class manufacturing jobs while the service economy creates mostly lower-paying jobs in food service or retail.

The chart above (click to enlarge) is from the Cato Institutes's study "Trading Up: How Expanding Trade Has Delivered Better Jobs and Higher Living Standards for American Workers," and shows a pattern of job growth much different than the standard Lou Dobbs, political pundit's hamburger-flipping mythology. For example:

1. Although there was a decline of 3,332,000 manufacturing jobs from 1997-2007, there was an increase of 17,398,000 jobs in non-manufacturing industries, resulting in a net job increase of more than 14 million U.S. jobs during a period of increasing globalization, international trade liberalization, and outsourcing.

2. And what about the hamburger-flipping story? It's a myth. The 3.3 million manufacturing jobs that were lost paid an average of $17.12 per hour, but more than 11 million jobs were added to the U.S. economy in sectors that paid an average of $20.79 per hour, or 21.4% MORE than manufacturing.

3. Employment growth from 1997-2007 in just two separate sectors (4 million education and health services jobs, and 3.5 million professional and business services jobs) more than replaced all of the manufacturing jobs lost, and both sectors pay more than manufacturing.

4. Although it is true that 5.8 million new jobs were created in industries that pay less than manufacturing, the number of jobs in higher-paying sectors (11.59 million) outnumbers jobs in lower-paying sectors (5.8 million) by a factor of 2 to 1.

Sunday, November 18, 2007

If Fed Can't Fine-Tune, It Should Focus on Inflation

Notice in the chart above that over the last 7 years the Federal Reserve has moved the target Fed Funds rate (blue line) from 6% in early 2001 to 1% for about 12 months from mid-2003 to mid-2004, and then back up 5.25% from mid-2006 to mid-2007, and now it's back down to 4.5%.

And yet despite the 5 percent range (1% to 6%) in the target Fed Funds rate, the 10-year T-note yield has mostly stayed within a half percentage point of its 4.52% average yield during this period. In about 80% of the months from 2001-2007 the 10-year T-note yield stayed within a narrow 1 percentage point range between 4-5%, and varied just slightly above 5% and slightly below 4% with equal frequency the rest of the time.

Bottom Line: The Fed can move its target short-term Fed Funds target rate up and down by a huge 5 percentage point range from a low of 1% to a high of 6%, with no significant effect on long-term rates. If the Fed can't make long-term interest rates change when it makes dramatic changes in monetary policy, doesn't that mean the Fed is largely ineffective at discretionary, activist, countercyclical fine-tuning and instead should just focus exclusively on an inflation target?

Government Failure: "Evidence Of Injustice"

FBI's Bullet Lead Analysis Used Flawed Science To Convict Hundreds Of Defendants

(CBS) -- Aside from eyewitness testimony, some of the most believable evidence presented in criminal cases in the United States comes from the FBI crime laboratory in Quantico, Va. Part of its job is to test and analyze everything from ballistics to DNA for state and local prosecutors around the country, introducing scientific credibility to often murky cases.

But a six-month investigation by 60 Minutes and The Washington Post shows that there are hundreds of defendants imprisoned around the country who were convicted with the help of a now discredited forensic tool, and that the FBI never notified them, their lawyers, or the courts, that the their cases may have been affected by faulty testimony.

The science, called bullet lead analysis, was used by the FBI for 40 years in thousands of cases, and some of the people it helped put in jail may be innocent.

As correspondent Steve Kroft reported on tonight's "60 Minutes," one of them is Lee Wayne Hunt, who is now serving a life sentence for murder in North Carolina (pictured above).

Do a Google Search for "market failure" and you'll get 1.33 million hits. Do a search for "government failure" and you'll find 615,00 links. One might think that market failure happens twice as frequently as government failure.

After serving 22 years and 6 months in jail based on the testimony of two questionable witnesses and what turned out to be erroneous ballistics testimony from the FBI lab, I think Lee Wayne Hunt and the hundreds of other falsely convicted felons are a little more concerned about government failure that any failure the market might pose for them.

See a related Washington Post article "
FBI's Forensic Test Full of Holes."

Interesting Fact of the Day: Chinese Restaurants

According to Chinese Restaurant News, there are nearly 41,000 Chinese restaurants in the United States, three times the number of McDonalds franchise units, and more than the number of McDonald's, Wendy's and Burger King franchises combined!

Quote of the Day: It's Not the Market Rising, Falling

It is not the market that is rising or falling at any moment, even if we commonly speak as though it were. In truth, prices move in response to the buying and selling decisions of countless investors, who are constantly considering the likely decisions of countless others.

~Peter Bernstein in today's NY Times

Food Fight: Partisanship Kills Senate Farm Bill

Of all of the major news reports on the failed Senate farm bill (and there were dozens, see the Washington Post article here), I found that this front page San Francisco Chronicle article offered the best public choice insights about the political realities of farm subsidies:

Money troubles could be unraveling the age-old coalition of Democrats and Republicans that has preserved Depression-era farm subsidies for most of the past century, as pressure from nontraditional farm interests continues to be felt.

The Senate's failure Friday to move forward on a $288 billion, five-year farm bill delays the effort to preserve subsidies to farmers of cotton, corn, rice and a handful of other crops. At the same time, it blocks an increase in spending on a vast array of popular programs to improve the American diet, make farming practices more environmentally sustainable, and provide California fruit and vegetable growers a place in federal policy.

The formula of preserving crop subsidies while expanding programs that appeal to urban lawmakers has worked to keep the crop subsidy system alive for 70 years, even as the number of farmers receiving subsidies has shriveled and the payments have increasingly tilted to the largest and wealthiest farms. But with heavy lobbying by environmental groups, efforts to forge a compromise bill this year faced serious funding hurdles.

And here's the best sentence:

Farm state politicians in both parties face a big problem: the formula of buying off urban interests with food stamps and environmental money in return for keeping crop subsidies is forcing painful budget trade-offs.

In other words, the 70-year tradition of bipartisan consensus to fleece taxpayers, bestow generous benefits on well-organized, wealthy special-interest farm groups, in return for political support (votes, campaign contributions, etc.) fortunately broke down this time. Thank God for occassional partisanship and legislative gridlock.

As P.J. O'Rourke said, "I love legislative gridlock. What I hate is bipartisan consensus. Bipartisan consensus is like when my doctor and my lawyer agree with my wife that I need help."

Talk About Cutthroat Competition and Price Wars!!

DETROIT, MI -- The two gas stations stand across an intersection from each other in Detroit, where even a penny's difference was enough to lure customers. And so came the price war: One station dropped a cent or two, and the other grudgingly followed.

But the seemingly petty back-and-forth escalated Friday, ending with a fatal bullet in BP station owner Jawad Bazzi's head over what police say was a 3-cent difference in the cost of regular gas.

The Marathon station dropped its price to $2.93. That angered Jawad Bazzi, whose regular gas was priced at $2.96. Bazzi walked across the street with a couple of employees to confront the Marathon owner and his posse. The groups argued, then began throwing punches. One of Bazzi's employees hit a Marathon employee with a baseball bat, injuring him. That's when the Marathon owner grabbed a handgun and fired three or four times. Bazzi, 45, was shot in the head.

And here's the amazing conclusion to the story:

After the shooting, with the competing station closed, BP's price per gallon increased to $3.09 for regular.

(HT: Holeydonut)

Saturday, November 17, 2007

Goldilocks Rocks in Alabama; Record Low Un Rate

Birmingham, AL -- Alabama's jobless rate fell to an historical record low of 3.1% in October, state labor figures released Friday show (see graph above). October's rate of 3.1% was almost 3.5% below the average unemployment rate of 6.55% from 1976-2007, and provides further evidence that the U.S. economy is not on the verge of going into a recession.

A full report on October state unemployment rates is due from the BLS on Tuesday.

Competition: Amazon vs. iTunes

I buy a lot of CDs on Amazon.com and just noticed today for the first time that Amazon has now started selling indiviual songs as MP3 files for 99 cents (see chart above for a Gene Harris CD, click to enlarge), in direct competition with iTunes.

Rising Inequality: Natural Outcome of Competition

The top graph above (click to enlarge) shows the rising income share of the top-earning 25% of U.S. taxpayers from 1986-2005 according to IRS data. In 1986, the top 25% earned 59.04% of total income, and by 2005 the income share of the top 25% increased to 67.5%, indicating rising income inequality over time.

Interestingly, the same pattern of rising income inequality over time also can be found in professional baseball. Using a sample of 5 MLB teams from the USA Today Salaries Database for professional sports (NBA, NFL, MLB and NHL), the bottom chart above shows an increasing share of total payroll going to the top 25% highest-earning players on each team from 1988 to 2007.

Consider that in 1988, for the 5 teams listed above, an average of 59% of total payroll went to pay the highest-earning 25% of the team roster (slighly lower than the 62.4% share for the general population), and by 2007 that payroll increased to 70% on average for these teams (slightly higher than the 67.5% for the general population).

What are we to make of this pattern of rising income inequality in both MLB and the general population?

Here's what US Court of Appeals Judge Richard Posner wrote on his blog last year:

As society becomes more competitive and more meritocratic, income inequality is likely to rise simply as a consequence of the underlying inequality--which is very great--between people that is due to differences in IQ, energy, health, social skills, character, ambition, physical attractiveness, talent, and luck. Public policies designed to reduce income inequality, such as highly progressive income taxation and middle-class subsidies, are likely to reduce the aggregate wealth of society, and therefore should not be adopted unless rising income inequality is a social problem.

Here's another way to think about it: If your talents, abilities, and intelligence place you 2-3 standard deviations above the mean, would you rather be selling your labor services in 1807, 1907, 1957, or 2007? Probably 2007. Given Babe Ruth's talent, he would have obviously been much better off playing today instead of the 1920s. The super-talented baseball players of today are facing higher rewards than their peers of 20 years ago, and they are able to command greater shares of team payrolls.

And as talented as Tiger Woods, Oprah, and Bill Gates are, I don't think they would trade today's opportunities for marketing their "superstar" talents with the opportunities of the 1950s. And if your engineering talents place you 3 standard deviations above average and you're living in India or China, I don't think there's any question that you're much better off today than in the 1980s.

Bottom Line: Competition breeds competence, and above-average competence commands higher monetary rewards in an increasingly competitive, increasingly globalized world economy. Rising income inequality over time is a natural outcome of competition and globalization.

Friday, November 16, 2007

Significant Income Inequality in the NFL, Too

According to data from the IRS (presented here by the Tax Foundation), the top 25% of U.S. taxpayers earned 67.5% of total income in 2005 (most recent year available), and that group paid 86% of all income taxes paid.

In the media coverage and in the political commentary on rising income inequality and the "disappearing middle class," much more attention is paid to the disproportionate income share of the richest quarter of Americans (67.5%) than the disproportionate share of taxes paid by that group (86%).

But how does income inequality in the National Football, where the aveage salary is about $1,000,000, compare to the income inequality in the general population? Using this USA Today 2006 salary database for the NFL, NBA, MLB and NHL, the chart above shows the significant income inequality for a selected group of NFL teams (the 4 teams with the highest overall payrolls).

Interestingly, the pattern of income distribution in the NFL is strikingly similar to the income inequality of the general population, and is actually slightly greater in the NFL (at least for these 4 teams). For example, the incomes of the top 25% of the players on the 4 teams above are paid between 71% and 77% of the total payroll.

As I mentioned in one my very first CD posts, perhaps this pattern of income distribution is a natural and expected outcome of any extremeley competitive environment where talent is scare, valuable and highly paid, whether it's the NFL or the overall economy.

Consider that Baltimore Ravens' Steve McNair's 2006 salary of $12 million was 106 times the salary of the lowest paid Raven, Ikechuku Ndukwe, who made only $113,325. Isn't that comparison about as meaningless as the comparison between a CEO's salary and the salary of the lowest paid member of the organization?

Higher Turkey Prices, Thanks To Ethanol

From this news article "Thanksgiving May Cost You":

If you're planning a major feast this Thanksgiving, it might be a good idea to budget a few extra dollars to make sure you can get the guest of honor to the table. The rising cost of oil and other utilities, combined with an explosion in the cost of corn feed, has increased the cost of raising a turkey by as much 35% and costing the industry more than a half-billion dollars.

Nationally, increases in feed costs are expected to cost farmers more than $576 million, said Sherrie Rosenblatt, a spokeswoman for the Washington, D.C.-based National Turkey Federation.

As an increasing number of farms devote their corn crops to the production of ethanol rather than animal feed, feed costs have exploded, from less than $1 per bushel last year to more than $4 today.

"Turkey feed is about one-third of the cost of raising a turkey," she said. "We feed turkeys a combination of corn and soybean."

With many growers switching to the more profitable corn for ethanol, turkey farmers are trying to cope with a one-two punch of increasing corn prices and decreased soybean production.

According to some estimates, the higher prices translate to about an 8 cent increase per pound, per turkey, or about a 35 percent increase in the cost of raising just one bird.

Solution: To protect against rising food prices, you could have bought some shares of ADM (a major ethanol producer) a few years ago. As the chart below shows, ADM stock (blue line) has risen almost 60% over the the last two years, about 3X higher than the 20% increase in the S&P500 (red line).

Thursday, November 15, 2007

Churnin' and Turnin': High Turnover in Forbes 400

In a study by Federal Reserve economist Arthur Kennickell titled "A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001," he looks at the considerable amount of churning that take place in the composition of the annual Forbes 400 list of the richest Americans.

Of the 400 people in the 2001 Forbes list of the wealthiest Americans, 230 were not in the 1989 list and this group achieved enough wealth during the 1990s to replace almost 60% of the 400 richest Americans in 1989. As the study says, "Over this long a period, such movement may be somewhat less surprising, but even between 1998 and 2001 nearly a quarter of the people on the list were replaced by others."

Bottom Line: The way "the rich" are often portrayed by the media and the general public, you would think a group like the Forbes 400 was a private club, closed to new members, and with no turnover. The reality is that there is much more churning and turnover than one might think in the group of the 400 richest Americans. Even in a short 3-year period, there was almost a 25% turnover rate, and over a longer 12-year period there is almost a 60% turnover in the Forbes 400. And the group of the wealthiest 400 Americans is probably fairly representative of other groups of less-wealthy individuas - there is lots of churning and turnover at all levels of the income spectrum as people move up and down the income quintiles over their careers and lifetimes.

Keep in mind that Oprah, Tiger Woods and Bill Gates were probably in the lowest income quintile at one time before moving up to the top end of the richest quintile, and might end up in a lower quintile at some point in retirement by income (although certainly not by wealth).

Gov't: Uniquely Unqualified to Solve Problems

As coercive monopolies that spend other people's money taken by force, governments are uniquely unqualified to solve problems. They are riddled by ignorance, perverse incentives, incompetence and self-serving. The synthetic-fuels program during the Carter years consumed billions of dollars and was finally disbanded as a failure. The push for ethanol today is more driven by special interests than good sense -- it's boosting food prices while producing a fuel of dubious environmental quality.

~John Stossel in his
column today "Don't Look to Government to Cool Down the Planet"

1.Repeal Humphrey-Hawkins, 2.Establish Price Rule

From today's WSJ editorial, a 2-step plan to improve monetary policy and avoid monetary-induced cycles of booms and busts in the housing and financial sectors.

Step 1. Repeal the Full Employment and Balanced Growth Act of 1978.

Also known as Humphrey-Hawkins, this is the law that mandates that the Fed consider both price stability and full employment in making monetary policy decisions. Mr. Bernanke noted yesterday that this dual mandate makes it impossible for the Fed to target only inflation the way, say, the European Central Bank is mandated to do. It is in pursuit of this dual mandate that the Fed sometimes takes its eye off the prize of price stability, most recently with Alan Greenspan's decision to hold interest rates too low for too long this decade. We are now living with the housing and financial boom and bust consequences.

Step 2. Establish a genuine price rule, i.e. an inflation target, like Canada, New Zealand, Australia, Sweden, and U.K.


Michigan's Troubled Economy: It Could Be Worse

DETROIT -- Bad news on the automotive front pushed Michigan's October unemployment rate up to 7.7%.

The jobless rate is the state's highest in 15 years (see chart above, click to enlarge), two-tenths of a percentage point higher than September's rate, and it almost certainly guarantees that Michigan will continue to post the worst state unemployment rate in the nation.

But hey, it could be worse. It could the late 1970s, when Michigan's jobless rate averaged 8.15% from 1976-1979. It could be the 1980s, when the average was almost 11% (10.81%), and a whopping 13.22% during the first half of the decade. And as bad as a 7.7% unemployment rate sounds today, it's actually slightly below Michgian's average monthly unemployment rate of 7.9% from 1976-2007 (see chart above).

Consider also that Michigan has a $405 billion economy (2006) that would be the 17th largest economy in the world if it were a separate country, ahead of Belgium ($393b), Turkey ($392b), Sweden ($385b), Switzerland ($377b), Taiwan ($355b), and Saudi Arabia ($348b).

So as bad as economic conditions might appear in Michigan, it survived the 1970s and 1980s, and it has a $400 billion economy that will survive the relatively high unemployment rates today.

Wednesday, November 14, 2007

Some Pending Sanity; No, Make That Less Insanity

On a previous post, I wrote about the significant difference in sentencing for powder cocaine possession compared to crack cocaine (powder cocaine + baking soda) possession. Wow, you add a little baking soda to 5 grams of powder cocaine and you're going to jail for 5-years, compared to getting caught with 100X that amount of cocaine without the baking soda. That's a lot of extra jail time for a little Arm and Hammer. Well, it now looks like there's a possiblity that some sanity might actually prevail.... No, let me rephrase that. There's a distinct possibility that the amount of insanity might be significantly lowered. Read on.

WASHINGTON - The federal judiciary supports a change in US sentencing rules that may give about 20,000 crack cocaine offenders early release from prison. The sentencing commission estimates that 19,500 prisoners would be able to seek reduced time if the new guidelines apply to them, yielding an average reduction of 27 months behind bars.

Cell Phone Competition, Innovation and Consumer Value = 250 Million Satisfied Cell Phone Subscribers

WASHINGTON, DCThe Wireless Association announced yesterday that the total estimated wireless cell-phone subscribership in America officially passed the 250 million mark, reaching an all-time national high. Growth in subscribership has more than quadrupled over the past ten years from just over 55 million at year-end 1997 to more than 250 million today—an increase of 352%. The graphic above shows the progression of growth over the past 22 years.

Note: Given the current population of about 303 million, 218 million adults (18 and over) and 111 million households, that means that there are .825 cell phones per person (82.5% penetration rate), more than one cell phone per adult, and 2.25 cell phones per household, all record highs.

According to a Merrill Lynch study, Americans use more minutes for less cost than any other consumers in the developed world. The FCC reports 98% of Americans can choose from at least four service providers.

“The statistics speak for themselves,” said an industry spokesman. “The bottom line is that wireless companies are listening to their customers and in doing so are providing Americans of all walks of life with the mobile products and services that they want and need. Competition, innovation, and consumer value are driving the dynamic U.S. wireless marketplace, giving people access to amazing technology with plans almost anyone can afford and more choices than anywhere else in the world. ”

MP: Can you imagine what the record of costs, choices and service would be if cell phone service was provided by the government like first-class mail or public schools? If that socialist imagery isn't pleasant, do you really want the government to provide us with socialized health care in the future, and are you really that confident about a public school monopoly insulated from competition?

(HT: Ben Cunningham)

Quote of the Day: Why Homeownership May Be Bad

The mortgage-interest deduction is the backbone of American housing policy. It exits to encourage widespread homeownership. In its favor, it doesn’t actually do that. But it does have consequences: It’s been one of the quieter causes of the housing bubble. The mortgage-interest deduction deserves special recognition for the stupidity with which it subsidizes something that should not be subsidized in the first place. I challenge you to design a subsidy for home ownership that is as wasteful, as unfair, and as harmful to the economy in the long run.

The current deduction costs nearly $80 billion a year in foregone revenues. It is available only to the minority of households – typically affluent – that itemize their taxes. Households at the margin of choosing between renting and owning are not, for the most part, itemizers. The deduction has no effect on their choice, and thus does almost nothing to promote homeownership. What it does promote, studies show, is spending on housing – that is, people who would have been owners anyway pay more for their houses. Prices are higher than they would otherwise have been, and mortgages are bigger. As many owners have learned abruptly, this can worsen economic insecurity.

Conclusion: A tax break (mortgage-interest deduction) that fuels speculation and overborrowing, that widens income inequality, and that fails its own questionable purpose deserves a lingering death.

~From "Housebound: Why Homeownership May Be Bad for America," by Clive Crook in the December issue of "The Atlantic" (subscription required)

Tuesday, November 13, 2007

Carpe Diem on CNBC's "Kudlow and Company"

Thanks to Larry Kudlow for another nice mention of Carpe Diem (this post and the graph above) on tonight's "Kudlow and Company" show on CNBC. Here is a link to the 14:38 segment titled "Goldilocks Is Golden" (go to about 13:24 for CD part).

The discussion was about how Goldman Sachs' stock price rose by 8% today (and is up by 33% since August, see chart below), in spite of the subprime mortgage crisis, partly because of the short positions that it used to successfully hedge credit risk.

I suggested during my appearance on "Kudlow and Company" last Thursday that the explosion in futures trading (35% annual growth since 2000, see chart above) has elevated hedging and risk-management to an all-time historical high, allowing many companies and investors to "hedge themselves out of diaster," as Larry Kudlow said on tonight's program.

(HT: Zied Lajnef)

Forget Everything You've Heard in the Media About Income Inequality and Income Mobility

Here is the link to the full Treasury study "Income Mobility in the U.S. From 1996 TO 2005" and here is an excerpt:

Using three different measures of income mobility that track changes in the incomes of a large sample of individual taxpayers over time, this study presents new evidence on income mobility over the decade from 1996 through 2005. Key findings include:

• There is considerable income mobility of individuals in the U.S. economy over the 1996 through 2005 period. More than half of taxpayers moved to a different income quintile between 1996 and 2005. About half of those in the bottom income quintile in 1996 moved to a higher income group by 2005.

• Median incomes of taxpayers in the sample increased by 24% after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. Further, the median incomes of those initially in the lowest income groups increased more in percentage terms than the median incomes of those in the higher income groups. The median inflation-adjusted incomes of the taxpayers who were in the very highest income groups in 1996 declined by 2005.

• The composition of the very top income groups changes dramatically over time. Less than half (40-43% depending on the measure) of those in the top 1% in 1996 were still in the top 1% in 2005. Only about 25% of the individuals in the top 1/100th percent in 1996 remained in the top 1/100th percent in 2005.

• The degree of relative income mobility among income groups over the 1996 to 2005 period is very similar to that over the prior decade (1987 to 1996). To the extent that increasing income inequality widened income gaps, this was offset by increased absolute income mobility so that relative income mobility has neither increased nor decreased over the past 20 years.

In other words, almost everything we hear in the media about increasing income inequality, the disappearing middle class, the rich getting richer and the poor getting poorer, and the lack of income mobility is either flawed, deficient, incorrect, incomplete or wrong. The data show that:

1. There is significant income mobility up and down the income quintiles over longer periods of time, e.g. 1996-2005. Many of today's poor are tomorrow's rich, and many of today's rich are tomorrow's middle class or poor. The richest quintile is not a private club closed to new members, but a shifting, dynamic quintile composed of an ever-changing group of different individuals from year to year. Consider that 75% of the individuals in the richest group in 1996, the top 1/100th percent, moved down into a lower income group by 2005, making room for a completely different group of individuals in that super-rich category.

This is exactly the shifting pattern of quintile compositions that economic historian Joseph Schumpeter had in mind when he compared income distribution to a hotel where some rooms are luxurious, and others are small and shabby. The rooms are always occupied, but by a shifting, dynamic changing pattern of different people from day to day, or year to year. (Note: this paragraph is paraphrased.)

2. Real incomes are not stagnant, and the middle class is not disappearing. The real incomes of 2/3 of all taxpayers increased from 1996-2005.

3. The rich are not getting richer, and the poor are not getting poorer. The median incomes of those in the lowest income groups in 1995 increased more in percentage terms by 2005 than the median incomes of those in the higher income groups.

Despite Myths, Income Mobility is Alive and Well

From today's WSJ editorial "Movin' On Up," which is based on a Treasury Department study to be released today:

One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest quintile in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.

Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.

Also encouraging is the fact that the after-inflation median income of all tax filers increased by an impressive 24% over the same period (see chart above). Two of every three workers had a real income gain -- which contradicts the Huckabee-Edwards-Lou Dobbs spin about stagnant incomes.

Those who start at the bottom but hold full-time jobs nonetheless enjoyed steady income gains. The Treasury study found that those tax filers who were in the poorest income quintile in 1996 saw a near doubling of their incomes (90.5%) over the subsequent decade. Those in the highest quintile, on the other hand, saw only modest income gains (10%). The chart above tells the story, which is that the poorer an individual or household was in 1996 the greater the percentage income gain after 10 years.

Bottom Line: A prevailing mythology persists that: a) those in the poorest income quintile are doomed to a life of poverty, with no hope of ever rising to a higher quintile, b) those in the lowest income quintile are doomed to a life of falling real income, c) those who end up in the top quintile become lifelong members of an exclusive private club that is closed to new members, and d) the richest income group gets richer and richer over time, at the expense of lower income quintiles.

The new Treasury data support previous research, which overwhelmingly shows that the prevailing myth is pure, populist hokum. The truth is that the rich get richer and the poor get richer, and today's poor are often tomorrow's rich. Income mobility is alive and well today, as it has been for decades. No, make that centuries.

Markets in Everything: Organ Sales

WSJ Front Page: Amid a severe kidney-donor shortage, an idea long considered anathema in the medical community is gaining new currency: payments for people willing to give up a kidney.

Under the current system, patients who need a kidney transplant are put on a waiting list for kidneys from deceased donors, which are handed out based on geography, waiting time and various medical factors. Waits vary across the country, and easily top five or six years in many areas. Those who have a willing, living donor can bypass the list altogether and get transplants right away. But the donors must give their kidneys freely and attest that no one is paying them to do so.

Last year, there were about 70,000 people on the waiting list, and about 4,400 people on the waiting list died.

Dr. Arthur Matas envisions a plan where donors would be able to sell their kidneys, regardless of motivation. A set price, he says, could be established by the government and paid by the recipient's insurance, typically Medicare. The kidney would go to whoever is at the top of the waiting list, rich or poor. Potential sellers would be medically and psychologically screened to make sure they are suitable donors. Afterwards, they would be tracked by the government to see what impact the kidney sale had on their life and overall health.

Proposition 1: Anytime you have congestion or shortages, it's almost guaranteed that market pricing is absent.

Proposition 2: Market pricing will almost always reduce or eliminate congestion and shortages.

Conclusion: Market pricing for kidneys would eliminate the artificial shortage and save thousands of lives every year.

1st Significant Increase in Int'l Students in US Since 9/11: India, China, Korea Lead

WASHINGTON D.C. -- The number of international students enrolled in colleges and universities in the United States increased by 3% to a total of 582,984 in the 2006-07 academic year, according to the Institute of International Education (IIE). This is the first significant increase in total international student enrollments since 2001-02. The reports shows an even higher increase in the number of new international students, those enrolled for the first time at a college or university in fall 2006, which rose 10% from the previous year.

For the sixth successive year, India remained the leading country of origin for students coming to the U.S. (see chart above, click to enlarge).

The total of Indian students coming to the U.S. this year was up by 9.6% from the previous year, when the number was 76,503, and India dominated with 14.4% of the total of 582,984 international students enrolled in American colleges and universities in the US in 2006-2007.

Among the leading fields of study for international students in the U.S., business remains the leading field, with 18% percent of the total, closely followed by Engineering with 15%.

Saudi Arabia was the country with the largest percent increase in students coming to the U.S., with a 129% increase, as its student population studying in the U.S. more than doubled.

Monday, November 12, 2007

Right Brain vs. Left Brain Test

The Right Brain vs Left Brain test ... Go to this link and watch the dancer moving. Is she turning clockwise or counter-clockwise?

For serveral days now, I could only see the dancer turning clockwise and wasn't convinced it could be otherwise, but I was just able to get her to switch directions and could see her turning counter-clockwise by staring at her feet for awhile to trigger the switch in directions, and I can now get my mind to adjust and go back-and-forth..... from clockwise to counter-clockwise.... by staring at her feet......

Pretty amazing, comments welcome.

(HT: Heidi Stinson)

Top 1% Earn 19% of Income, But Pay 37% of Taxes

Yes, income in America is skewed toward the rich. But taxes are skewed far, far more. The top 5% pay well over half of all income taxes (57%) even though they only earn only 33% of the total income. The wealthiest 1% earn 19% of total income but pay 37% of all taxes. Somehow that never seems to upset those who profess to be concerned about "fairness" and "social justice" and "equity."

Stephen Moore has breaks down the numbers for us in "Guess Who Really Pays the Taxes."

Quote of the Day

Many people who have never run one business for one day are nevertheless confident that they know corporate CEOs are not worth as much as they are paid.

~Thomas Sowell

Excessive College President Pay? Not Really

From today's NY Times article "Increased Compensation Puts More College Presidents in the Million-Dollar Club":

Soaring compensation of university presidents, once limited to a few wealthy institutions, is becoming increasingly common, with the number of million-dollar pay packages at private institutions nearly doubling last year, and compensation at many public universities not far behind.

Presidents at 12 private universities received more than $1 million in the 2005-6 school year, the most recent period for which data on private institutions is available, up from seven a year earlier, according to an annual survey of presidential pay to be released today by The Chronicle of Higher Education (subscription required). The number of private college presidents earning more than $500,000 reached 81, up from 70 a year earlier and just three a decade ago.

The survey also found that the number of public university presidents making $700,000 or more rose to eight in 2006-7, the reporting period for public institutions.

From The Chronicle: Among private institutions, the median compensation of leaders of research institutions rose 37% in the last five years of the survey, from $386,631 in 2001-2002 to $528,105 in 2005-2006 (see chart above, click to enlarge).

From The Chronicle's salary database, the highest paid private college president in 2005-2006 was Donald Ross, who earned $5.7 million at Lynn University. The highest paid public university president was Purdue's Martin Jischke, who earned $880,000 in 2006-2007. Note also that almost all college presidents get a free house, free car and expense accounts, in addition to deferred compensation, retention bonuses, performance bonuses, retirement pay and club dues.

MP: Since administrator pay has increased at a rate far above pay increases for faculty and staff pay increases, income inequality in higher education has increased significantly in recent years, perhaps just another industry-specific example that reflects an overall, general pattern of rising income inequality in the U.S. in many/most industries.

I really don't have any problems with college presidents' pay, just like I don't have any problems with Bill Clinton's speaking fees, or rising CEO pay, or the rising number of millionaires in China or India, or rising income inequality in the U.S., etc. See this previous CD
post where I suggest that the more competitive and dynamic the economy, the greater the natural amount of income inequality.

Bottom Line: College presidents are academic CEOs who are often managing very large organizations in an increasingly competitive environment, operating in an increasingly globalized market, facing declining public support for higher education, etc. Rising college president salaries are a reflection of an increasingly dynamic and competitive market for academic CEOs. Not to worry.

Google Stock Option Wealth Creation

From today's NY Times article "Google Options Make Masseuse a Multimillionaire":

"Although no one keeps an official count of Google millionaires, it is estimated that 1,000 people each have more than $5 million worth of Google shares from stock grants and stock options."

Including massage therapist Bonnie Brown, "who answered an ad for an in-house masseuse at Google, then a Silicon Valley start-up with only 40 employees. She was offered the part-time job, which started out at $450 a week but included a pile of Google stock options that she figured might never be worth a penny.

After five years of kneading engineers’ backs, Ms. Brown retired, cashing in most of her stock options, which were worth millions of dollars. To her delight, the shares she held onto have continued to balloon in value." (See chart above of Google's stock price over the last two years.)

MP: Perhaps this is one explanation for rising income inequality in the U.S. in recent years. I don't think there were any comparable examples of this type of "Google stock option" wealth creation for part-time employees during the 1960s, 1970s, 1980s, or maybe even the 1990s?

Sunday, November 11, 2007

Excessive Speaking Fees for Bill Clinton?

According to the Washington Post, Bill Clinton earned $31 million in speaking fees between 2001 and 2005, as disclosed in his wife's Senate ethics reports. The chart above (click to enlarge) lists the amount Bill Clinton earned for 43 speeches he gave in 2005.

Working less than one day a week, Bill Clinton earned almost $7.5 million in 2005, making an average of about $174,000 per one-hour speech. In other words, Bill Clinton earns more in one hour than the average American makes in about 6 years ($29,544 per year), and certainly earns much on an hourly basis than the average CEO of a large corporation, who probably has to work 50-60 hours per week to earn $10.8 million per year on average in salary and bonuses in 2007.

According to this report from Social Funds, "While Americans have been concerned about the widening pay gap for years, what is different now is that this concern is beginning to impact lawmakers. Several bills addressing executive pay are pending in the House and the issue is gaining the attention of some high profile politicians, including Barak Obama and Hillary Clinton."

Just wondering... if the Clintons are so concerned about excessive CEO pay, why is Bill Clinton charging $174,000 per hour to give speeches, in addition to receiving an annual pension of $186,000 from the government? Or if Clinton is just charging "whatever the market will bear" for his speaking services, how is that different than highly-skilled managers charging "whatever the market will bear" for their managerial services?

Milton Friedman Breaks It Down for Phil on Greed

Nobel economist Milton Friedman schools Phil Donahue on greed, virtue, and free enterprise.

(Via Cafe Hayek)

Proclamation of Pardon For European-Americans

From George Mason Economics Professor Walter Williams' "Proclamation of Amnesty and Pardon Granted to All Persons of European Descent":

Whereas, Europeans kept my forebears in bondage some three centuries toiling without pay, Americans of European ancestry are guilty of great crimes against my ancestors and their progeny.

But, in the recognition Europeans themselves have been victims of various and sundry human rights violations to wit: the Norman Conquest, the Irish Potato Famine, Decline of the Hapsburg Dynasty, Napoleonic and Czarist adventurism, and gratuitous insults and speculations about the intelligence of Europeans of Polish descent,

I, Walter E. Williams, do declare full and general amnesty and pardon to all persons of European ancestry, for both their own grievances, and those of their forebears, against my people.

Therefore, from this day forward Americans of European ancestry can stand straight and proud knowing they are without guilt and thus obliged not to act like damn fools in their relationships with Americans of African ancestry.

Saturday, November 10, 2007

Ron Paul Asks the Tough Questions About Money

Ron Paul vs. Ben Bernanke, Part 1

Ron Paul vs. Ben Bernanke,
Part 2

Ron Paul vs. Ben Bernanke, Part 3

Challenge: Raise Taxes on Your Rich Selves Now!

All of the major Democratic presidential candidates would allow the 2003 tax cuts for wealthier households to expire. Most support raising the cap on income subject to Social Security taxes. Some want to raise taxes on capital gains and other investment income.

On Capitol Hill, a leading Democrat - Rep. Charles Rangel - has proposed an additional tax on wealthy people and a levy on hedge fund managers to help pay for easing taxes on the middle class.

In 2005 (most recent year available) it took income of $145,283 to be in the top 5%, according to
IRS data. Members of Congress earned a base salary of $162,100 in 2005, putting each member of Congress into at least the top 5% category and making them part of the group most would agree is "the rich."

Given Bill Clinton's $9-10 million in income from speeches
in 2006 (see a list here), the Clintons are probably the kind of super-rich Americans in the top 1/10 of 1% that John Edwards has in mind when he unveiled his plan to raise taxes on the rich: "The top 300,000 income-earners in America now make more than the bottom 150 million combined. Our tax code has shifted most of the burden onto the backs of working Americans."

When a presidential candidate like John Edwards or Hillary Clinton, or a tax-raising member of Congress like Rep. Rangel, tells us that they think taxes should be raised on the rich (which includes themselves), isn't it a fair question to ask them how much they voluntarily added to their tax bill this year, and how much they plan to add next year? After all, if they think "the rich" should pay more taxes, shouldn't they already be doing so voluntarily?

Challenge: If taxes increases for "the rich" are a good thing, the members of Congress and presidential candidates (all part of either "the rich" or "super-rich") don't have wait for the Bush tax cuts to expire or for Congress to pass new tax legislation, they can immediately raise taxes on themselves voluntarily by making a gift to the U.S. Treasury.

Here is the link to the
Treasury's website with instructions for politicians, presidential candidates, or any citizen who wish to make a general donation to the U.S. government into an official account called "Gifts to the United States."

For example, what if Edwards, Rangel or Clinton proposed legislation to force everybody to "donate" 5 pints of blood every year. Wouldn't it be a lot more credible if they were already donating blood themselves right now voluntarily, and not waiting until they were forced to "donate" blood by their own legislation

Quote of the Day: You Can Fight Or Ignore Economics, But Economics Will Win Every Time

Attempting to put all the drug dealers in jail is simply not possible. There is a demand for their job function, so the only effect of jailing somebody who has taken on that job is to create a job opening at a higher pay rate.

The War on Drugs is a War on Economics. You can ignore economics if you want. You can even fight economics. But economics is going to win every time.

~The Angry Economist

Alcohol Nannies and The New War On Alcohol

David Harsanyi, a columnist at the Denver Post, is the author of the book "Nanny State: How Food Fascists, Teetotaling Do-Gooders, Priggish Moralists, and Other Boneheaded Bureaucrats Are Turning America Into a Nation of Children."

Part of the book was published in the November issue of Reason Magazine as an article titled "Prohibition Returns! Teetotaling do-gooders attack your right to drink."

A D.C. police officer who arrested a middle-aged mother of two driving in Georgetown after eating in a restaurant and having only one glass of wine (only 0.03% BAC), was quoted as saying "If you get behind the wheel of a car with any measurable amount of alcohol, you will be dealt with in D.C. We have zero tolerance .... Anything above 0.01, we can arrest."

Note: That would mean that .0001 of you blood is alcohol.

From the article:

Drinking is under attack these days in ways we haven't seen since the failed experiment with national alcohol prohibition in the 1920s. Indeed, for many neoprohibitionists, that experiment wasn't a failure at all, since it did cut alcohol consumption, which is all that matters. We can see that mentality today in policies that go beyond preventing drunk driving or punishing drunk drivers and aim to discourage drinking per se.

Pretty scarcy stuff from a very interesting article.

(HT: Society and Money)

Top Ten Reasons That $100 Oil Won't Last

1. The amount of oil in storage tanks around the world is near all-time highs.

2. Supply below ground is abundant. The world's proven reserves are now at 1.4 trillion barrels, up 12% in the past 10 years.

3. Production is set to increase. Sustained high oil prices have encouraged drilling. There are 45% more oil rigs in service today than there were three years ago.

4. The cost of production is much less than $100 a barrel, about $4-30 per barrel. Oil prices can fall heavily without making any of this production uneconomic.

5. Iranian exports aren't likely to be cut.

6. High prices are pulling back demand. Oil consumption in the U.S. fell by 1.3% in 2006 and world-wide demand grew only 0.60%.

7. High prices are forcing governments to cut subsidies (Iran, China), which should curb demand growth.

8. On a relative basis — comparing the amount of energy bought with a dollar’s worth of oil with a dollar’s worth of natural gas — the price for natural gas is now about half that of oil, further suggesting that $100 oil is not sustainable (see chart below from today's NY Times).

9. A weak dollar doesn't justify $100 oil. Since Aug. 22, the dollar is down by only 8% against a basket of currencies while the oil price has risen by 40%.

10. Speculation is artificially boosting prices.

Source: Wall Street Journal article "Why $100 Oil Can't Float"

Global Cooling More of a Concern Than Warming?

Watch the first of a four-part series of a lecture by Professor Bob Carter, who uses the scientific method to analyze the popular theory of global warming being linked to CO2 levels. He examnines the hypothesis using charts and graphs and it fails the test. According to this scientist, we should be more concerned about global cooling than global warming (see chart above).

Friday, November 09, 2007

Quote of the Day: It Takes A Lot of Pretending

It takes faith to believe in global warming.

You need to pretend the sun is not the major factor in how warm Earth is at any given time.

You need to pretend that your choice of light bulb can really impact the temperature of the planet.

You need to pretend deviating temperatures of the past, before industrialization, didn't mean anything, while deviating temperatures in the industrial age spell doom and gloom.

You need to pretend that buying carbon credits from Al Gore will actually save the planet.

You need to pretend massive, government-forced redistributions of wealth can reduce the temperature of the planet.

That's a lot of pretending.

~Joseph Farah

Goldilocks or Recession? Goldilocks!

Thursday Night Lineup

DEBATE: GOLDILOCKS OR RECESSION?...Mark Perry, University of Michigan economics professor and Carpe Diem blogger will join the market panel in a look at what's ahead for the economy.

Thanks to an invitation from Larry Kudlow, I appeared on a segment of "Kudlow and Company" last night, featuring a discussion based on this recent
CD post, and this CD post, with a nice presentation of the graphs from those posts.

My position is that we aren't headed for a recession for the following reasons:

1. We won't have a recession unless and until the Business Cycle Dating Committee of the National Bureau of Economic Research says so, and that committee doesn't look at the value of the dollar, oil prices, financial sector troubles, or even the stock market, when it determines that a recession has started. It looks at industrial production, employment levels, real personal income, and real manufacturing and trade sales. In the discussions about recession, too much attention is paid to the subprime crisis, the falling dollar, the stock market and oil prices, and not enough attention is paid to the 4 variables that really matter - and none of them show any weakness, see this CD post and this CD post.

2. If the serious S&L crisis in the 1980s, when almost 1,500 banks failed (about 1 out of every 10), didn't cause a recession, then a subprime mortgage crisis by itself won't cause a recession. The banking sector has never been more stable than it is today - not a single bank failed in 2005 or 2006 (out of about 8,000), and only 3 have failed in 2007. That has to be a record unmatched at any other time in U.S. history.

3. Consider that in 1987, at the peak of the S&L crisis, there were 184 bank failures (3.5 every week) AND the stock market crash in October, with a 22.6% decline in one day (October 19) and a 31% decline in a week. That would be equivalent today to a 3,000 -4,000 point drop in the DJIA. Further, the unemployment rate in 1987 was 6.2% (vs. 4.7% today) and the 30-year mortgage rate was 11.26% (vs. 6% today). If the economy of 1987 was able to survive a major banking crisis and Black Monday without going into recession, today's much stronger and more stable economy will continue its expansion. See this CD post.

4. The significant increase in derivatives trading and risk-management instruments has helped insulate the U.S. economy from recent credit shocks, oil shocks and a falling dollar. See this CD post.

5. The U.S. economy is much more energy-efficient today than ever before - energy consumption per dollar of real GDP today is about half of the level in 1980 - and can absorb high oil prices better than ever before. See this post.

6. Oil prices will probably start falling by next year - futures trading indicates a price in the low 80s by 2009. And see yesterday's WSJ article "
Why $100 Oil Can't Float": "The fundamentals give a clear message: The price is too high to be sustainable." Expect falling prices.

7. The weak dollar has significant benefits for the U.S. economy: Surging, record-high exports, adding about a percentage point to real GDP, see today's trade report, showing a 13.6% increase in exports since last year.

Carpe Diem!