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.

Private School Tuition: 1/3 to 1/2 Less Than Publics

Using data from this U.S. 2006 Department of Education report, the graph above (click to enlarge) shows average tuition at private schools (elementary and secondary) vs. average per pupil spending for public schools (elementary and secondary) for the 2003-2004 school year.

Average private school tuition ($6,600) was about 1/3 less than the spending per pupil in public schools ($9,620) in 2003-2004 (the most recent year available), and average Catholic school tuition ($4,254) was less than half of public school spending per student.

Not only was the average private school tuition between 1/3 and 1/2 less than the cost per public school student, the private schools had on average 18% more teachers per 1000 students (72.25 in private schools vs. 61 in public schools) in 2003-2004.

Bottom Line: Private schools can educate students at a lower cost, with more teachers per 1000 students, than the public schools. Reason: Private schools must have significantly fewer non-instructional administrative employees, and therefore significantly lower administrative expenses than their public counterparts.

Bloated, Costly Public School Administrations

A previous post documented the 10X increase in the real cost per public school student from 1929-2007. Why has the cost of public education increased so much in real terms?

One important factor is the increase in the number of public school employees in relation to student enrollment. From the Cato Institute report "Saving Money and Improving Education":

"As shown in the graph above (click to enlarge), student enrollment in public schools grew by 13% between 1979 and 2000. During the same period the total number of school employees grew by 61%, and the number of teachers grew by 35%. Nationally, public schools now have about 1 employee for every 8.1 students, and teachers make up only 40% of total school employees."

From my article "The Educational Octopus":

Consider the following cases of bloated, costly public school administration.

1. The Chicago Board of Education, which has 3,300 employees, is larger than the entire Japanese Ministry of Education.

2. The New York City public schools system has 250 times as many administrators as the New York Catholic school system (6,000 administrators in public school system versus 24 in Catholic school system), even though New York public schools have only four times as many students as the Catholic schools.

3. Administrative costs have exploded since World War II as the number of school districts has declined, from over 100,000 districts in 1945 to fewer than 16,000 in 1980. As school districts have consolidated and grown in size, they have become increasingly bloated--more top-heavy, more bureaucratic, more centralized, less efficient--and more costly to administer.