Tuesday, November 27, 2007

Buy Houses in Detroit For $250, Monthly Pmt = $1

You can go to Realtor.com and search for homes for sale in any city in the U.S., and you can specify a certain price range. If you search for Detroit homes for sale between $0 and $1,000, you'll find that there are 74 homes for sale in that price range, including the bank owned bargain above for $250, with estimated monthly payments of $1. There are 4 homes for sale for $1. If you search for Detroit houses for less than $5,000, you'll have almost 1,000 homes to choose from!

See previous post on Detroit houses here.

Bank Stocks Outperform Market in The Long Run

Bob Wright wrote in a recent comment "If you look at financial stocks over any meaningful period - like 10 years or more, they kill the DJIA and the S&P 500. They even out-performed over the last 5 years until this recent bit of turmoil."

The chart above (click to enlarge) shows the performance of NASDAQ Bank Stocks (blue line) vs. the NASDAQ Composite (green) and the S&P500 (red) from 1990 to 2007. Consider that $100,000 invested in the NASDAQ Banks stocks in 1990 would have grown to $1,137,000 today, vs. $782,292 today if you had invested $100,000 in 1990 in the NASDAQ Composite, and only $469,812 if you had invested in the S&P500. In other words, you would have almost $700,000 more today from your $100,000 investment in NASDAQ Bank Stocks in 1990 compared to the same initial investment in the S&P500.

Bob is right.

Forcing The Poor To Buy Rich Man's Toys

Closing sweatshops and forcing Western labor and environmental standards down poor people's throats in the third world does nothing to elevate them out of poverty. Instead, it forces poor people to buy a lot of rich man's toys, like clean air, clean water, and leisure time. If clean air and leisure time don't strike you as extravagant luxuries, that's because Americans - even the poorest of us - are so rich these days that we've forgotten what true poverty is like. But chances are your great-great-grandparents could have told you what it's like: when you're truly poor, you can't afford things like clean air. Nobody in 1870 America worried about the environment.

~Rochester economist Steven Landsburg in "More Sex is Safer Sex"

Barefoot Indian Steelworkers: "Help" Is On The Way

I was reminded of this cartoon while reading some of the comments on the Indian-made manhole covers in NYC.

Let me suggest an alternative caption:

"Help is on the way, barefoot Indian steelworkers. We're cancelling all orders for Indian manhole covers in the U.S., and we're also going to help shut down all of those exploitive, steel foundries in your country that fail to meet the safety standards of advanced economies like the U.S. that are 50 years ahead of you."

Carpe Diem On CNBC's "Kudlow and Company"

Thanks to Larry Kudlow for mentioning the Carpe Diem blog last night on CNBC's "Kudlow and Company," as well as featuring some Carpe Diem posts on his blog yesterday: "Perry Is On the Mark." Three Carpe Diem graphs were featured last night on the show: the two from this CD post, and the one from this CD post.

Don't miss "Kudlow and Company" at 7 p.m. on CNBC Mon.-Friday.

Moving In And Out of Those Income Brackets

Significant Income Mobility: Quintiles Not Closed Clubs

Great column today by Thomas Sowell on That "Top One Percent," here are a couple excerpts:

Americans in the top 1%, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring "class" -- especially by those who have overdosed on the magic formula of "race, class and gender," which has replaced thought in many intellectual circles.

At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005.

Among the top one-hundredth of one percent, three-quarters of them were no longer there at the end of the decade.

These are not permanent classes but mostly people at current income levels reached by spikes in income that don't last.

Among corporate CEOs, those who cash in stock options that they have accumulated over the years get a big spike in income the year that they cash them in. This lets critics quote inflated incomes of the top-paid CEOs for that year. Some of these incomes are almost as large as those of big-time entertainers -- who are never accused of "greed," by the way.

Most Americans in the top fifth, the bottom fifth, or any of the fifths in between, do not stay there for a whole decade, much less for life. And most certainly do not remain permanently in the top one percent or the top one-hundredth of one percent.

Most income statistics do not follow given individuals from year to year, the way Internal Revenue statistics do. But those other statistics can create the misleading illusion that they do by comparing income brackets from year to year, even though people are moving in and out of those brackets all the time.

Apostrophe Misuse Ending at The NY Times?

NYTimes today: In the first half of the 1990’s, she was Mr. Mitterrand’s lead aide on international trade issues.

NYTimes today: For two years in the mid-1990s, Mr. Morrissey was suspended from practicing law in New York State for mishandling a client’s escrow account.

NYTimes today: As prime minister in the 1990s, Nawaz Sharif was a religiously conservative, nationalist leader who allowed the Taliban to flourish in Afghanistan and detonated a nuclear weapon despite an American plea not to.

NYTimes today: In the past four years, he has designed collections inspired by the war in Chechnya, the boycotted 1980 Moscow Olympics, the Soviet Navy and, this season, Moscow criminal gangs of the 1990s.

Although it's not always consisent, I think the NY Times is phasing out its long-standing policy of adding an unnecessary (IMHO) apostrophe to words like "1990's" (first example above) and is moving toward the standard style guideline in use at every other major newspaper, and is now using "1990s" (most of the time), since a decade is plural, not possessive.

For example, a search of the NY Times in 2007 through November 27 shows almost 3,000 examples of the term "1990s," and only 56 examples of the term "1990's."

A search of the same period in 2006 shows almost 3,000 examples of the term "1990's" and only 237 examples of the term "1990s."

There is a definite trend at the NY Times towards eliminating the misuse of that "puny piece of punctuation." Thank God. See previous CD posts about apostrophe abuse here and here.

Monday, November 26, 2007

New York Manhole Covers, Forged Barefoot in India

It's not just call centers that are outsourced to India.

NEW DELHI — Eight thousand miles from Manhattan, barefoot, shirtless, whip-thin men rippled with muscle were forging prosaic pieces of the urban jigsaw puzzle: manhole covers.

Manhole covers manufactured in India can be anywhere from 20 to 60 percent cheaper than those made in the United States.

MP: Just wondering, to be PC, shouldn't it now be "personhole cover"? After all, "Frosty the Snowman" has been replaced by "Frosty the Snowfriend," and a "grandfather clause" has been replaced by a "grandperson clause," and I'm not making that up!

Watch a slide show here about manholes made in India.

(HT: Sanil Kori)

Mad Money = Money-Losing Investment Advice

In the December 2007 issue of the Quarterly Review of Economics and Finance, there is an article "Does Mad Money make the market go mad?"

From the abstract: Our analysis of returns and trading volume around stock recommendations aired on charismatic host Jim Cramer’s Mad Money program reveals statistical evidence of response to both his buy and sell opinions, with most of the full-day return following an on-air buy recommendation captured by that day’s opening price. Trading strategy analysis suggests that individuals with limited funds should be wary of short-term trading to exploit the show’s suggestions.

From the conclusion: Heightened investor activity around stocks discussed on the show is indicated by statistically significant abnormal and raw returns, as well as trading volume increases, on both the day 0 air dates of buy recommendations and the day +1 trading day, with the day +1 effects being stronger as expected. However, since almost all of the average raw return on day +1 is captured in the difference between the day 0 close price and the day +1 opening price, a change likely induced by the weight of pending buy orders placed by viewer investors before the market opens, the average investor is unable to benefit from this effect and, further, the aggregate impact is to increase the cost of acting on these recommendations for all investors.

From the text: Table 6a (shown above, click to enlarge) shows that the 127 buy recommendations are distributed across twenty-eight different show air dates within our 7/26/2005 to 9/16/2005 sample. On each day, the $10,000 is allocated equally across all of the buy recommendations. Share purchases are rounded to the nearest whole share. As a result, the amount invested on each day is never exactly $10,000 but is more than $10,100 only twice. If an investor had executed this strategy twenty-eight times on the days covered in this sample, a loss of $861.32 would have been realized, not counting the per-trade commissions.

(MP: Add in $10 per trade for 127 buy orders, and your total loss would be $2,131.)

(HT: Mike Munger)

Commercial Bank Lending at All-Time High

From today's front page WSJ article "Recession Fears Weigh Heavily On the Markets":

This time around, much depends on how tight a rein financial institutions keep on their lending and consumers keep on their spending.

By itself, the housing slump seems unlikely to choke off U.S. economic growth. Home construction accounts for less than 5% of the nation's gross domestic product. But if banks curb their lending in response to billions of dollars of mortgage-related write-offs, or if consumers cut their spending as home values fall and gasoline prices rise, it could knock the economy out of its delicate balance.

The chart above (click to enlarge) shows lending activity at all U.S. commercial banks from 1985 through the third quarter 2007, using data from the Federal Reserve Board. As the chart shows, both: a) all loans, and b) real estate loans, are at all-time highs, and there doesn't appear to be any "curbing in lending" by commercial banks, at least not yet.

Sunday, November 25, 2007

In Euros and UK Pounds, Oil Prices Aren't That Bad

Rising oil prices, measured in dollars, get all of the media attention, largely because oil is priced and sold in dollars in world oil markets. What has gotten much less attention is the price of oil in other currencies like British pounds and Euros, which have both appreciated vs. the USD by 16-18% over the last few years, helping to offset the higher price of oil in dollars for Europeans.

The chart above (click to enlarge) shows that oil prices in dollars have almost tripled since 2004, whereas oil prices in pounds and euro have only doubled during this period. Since July 2006, oil prices in dollars have risen more than 15% (see vertical line above), compared to modest increases over the same period of only 2.74% in euros and 4% in pounds.

Further, consider that $100 oil today is only 67.4 euros per barrel at today's exchange rate of $1.4828/euro, compared to 114 euros per barrel at the exchange rate 5 years ago of $0.8766/euro. The double-digit appreciation of major currencies (pound, euro, Canadian dollar, Swiss franc, etc.) vs. the USD might be another factor that explains why the world economy has been able to absorb the shock of $100 oil.

From the NY Times, "Throughout Europe, the rise of the euro has acted as a hedge against fluctuations in the dollar-denominated oil market."

You Can't Trust Those Big-Government Socialists

NY Times: Transparency International, an organization that tracks corruption, ranks countries from least to most corrupt, and in its 2007 index Venezuela was at 162 out of 179 countries.

Some Historical Perspective on Commercial Banks

The charts above are based on Federal Reserve commercial banking data released on Monday and available here, with updated data on a) loan charge-off rates and b) loan delinquency rates through the third quarter 2007 for all U.S. commercial banks.

As the charts show, despite all of the recent bad news and "gloom and doom" about the U.S. banking sector, the commercial banking sector might actually be surviving the subprime crisis quite well, at least so far. The charge-off rates for all bad loans (0.60%) has increased recently (top chart), but is about half the 1.2% rate in 2002, and about 1/3 the 1.75% rate in 1991. The charge-off rate for real estate loans (.19%, or only about 2 properties per 1,000) in the third quarter 2007 is almost half of the .29% rate in 2001, and less than 1/6th of the 1.2% rate in 1991.

Likewise, loan delinquency rates have increased recently (bottom chart), but are still far below the rates of the late 1980s and most of the 1990s.

On a previous CD post, I reported that not a single U.S. bank failed in either 2005 or 2006, and only 3 banks have failed in 2007. The loan charge-off and delinquency rates for U.S. commercial banks through the third quarter of 2007 indicate that our banking system is surviving the subprime crisis, without any danger of pending collapse.

Bottom Line: The U.S. banking system is probably stronger and more stable than most people give it credit for. Empirical data on bank charge-off rates and delinquency rates, at least through the third quarter 2007, suggest that banks are probably doing better than most people think.

Ethanol: "Dangerous, Delusional Bullshit"

Ethanol: Fails a Cost-Benefit Test

Ethanol production in the United States has been steadily growing and is expected to continue growing. Many politicians see increased ethanol use as a way to promote environmental goals, such as reducing greenhouse gas emissions, and energy security goals. This paper provides the first thorough benefit-cost analysis of increasing ethanol use beyond four billion gallons a year, and finds that the costs of increased production are likely to exceed the benefits by about three billion dollars annually. It also suggests that earlier attempts aimed at promoting ethanol would have likely failed a benefit-cost test, and that Congress should consider repealing the ethanol tariff and the ethanol tax credit.

Abstract of a new research paper "The Benefits and Costs of Ethanol," by Robert W. Hahn and Caroline Cecot, both of the AEI-Brookings Joint Center for Regulatory Studies.

From Robert W. Hahn's editorial in yesterday's WSJ:

To hear the candidates tell it -- especially those on the stump in Iowa -- ethanol is the answer to America's energy-security woes. And back in Washington, politicians since 1978 have been putting your money where their mouths are: Ethanol is currently subsidized to the tune of 51 cents per gallon when blended with gasoline.

To make sure foreigners don't share the ride on the ethanol gravy train, moreover, Congress has imposed a 54-cent tariff on imported ethanol.

Saturday, November 24, 2007

Goldilocks Rocks on Black Friday, +8.3% Increase

NEW YORK (AP) -- The nation's retailers had a robust start to the holiday shopping season, according to results announced today by a national research group that tracks sales at retail outlets across the country. According to ShopperTrak RCT, which tracks sales at more than 50,000 retail outlets, total sales rose 8.3% to $10.3 billion on Friday, the day after Thanksgiving, compared with $9.5 billion on the same day a year ago. ShopperTrak had expected an increase of no more than 4-5%.

By the way, consider that gas prices last Thanksgiving were about $2.25 per gallon, and gas prices today are about $3.09. Even with gas prices 37% higher than a year ago, consumers spent a record amount this year on Black Friday. See the post below.

Why The Goldilocks Economy Can Handle $3 Gas

In a previous CD post "The Energy-Efficient Economy Can Handle $100 Oil," I suggested that today's economy is much better able to absorb higher energy prices than at any other time in the past, due to significant improvements in energy efficiency of the last 50 years. Compared to the early 1970s, the economy today is about twice as efficient, measured by energy consumption per dollar of real GDP. The graph in that post was featured on CNBC's "Kudlow and Company" a few weeks ago and also appeared in Larry's blog.

Here's another reason that the Goldilocks economy is able to handle $3 per gallon gas without sending consumer spending into a tailspin and without causing a recession: Even at $3 per gallon, gas is still relatively affordable for today's consumers, as a percent of disposable income, especially compared to the 1970s and 1980s.

The graph above (click to enlarge) shows the cost of 1,000 gallons of gas at the average retail price (using EIA data) as a percent of per-capita disposable income (from the BEA), from 1974-2007. Consider that since gas prices peaked in the early 1981 at about $1.40 per gallon, retail gas prices have increased by 2.21 times to $3.099 per gallon today. But per-capita disposable income has increased during that same period by more than 3.5 times, from $9591 in 1981 to $33,940 today.

In the early 1980s, it would have taken almost 15% of per-capita disposable income to buy 1,000 gallons of gas, and today it only takes only 8.5% (third quarter 2007). Even back in the "good old days" when gas sold for 50-60 cents per gallon in the mid-1970s, gas was more expensive as a share of income (10-11%) than today.

Bottom Line: Measured as a share of per-capita disposable income, gas prices would have to rise all the way to $5 per gallon today to be as expensive as gas in the early 1980s. Even if gas gets to $3.76 per gallon, it would be equivalent to 50 cent gas in the "good old days" of the mid-1970s, when measured as a share of disposable income. Goldilocks can handle $3 gas, no problem.

Friday, November 23, 2007

Libertarian Drew Carey on Medical Marijuana

One of the most outrageous consequences of the war on drugs is the federal crackdown on medical marijuana, which is used by patients to help treat the effects of cancer, glaucoma, HIV-AIDS, chronic pain and nausea, and other severe symptoms associated with serious illnesses. Medical marijuana prescribed by a physician is legal in 12 states, yet federal agents are raiding state-approved dispensaries and preventing patients from having safe access to this drug.

In Episode 2 of Reason.tv's Drew Carey Project, Drew takes a look at patients who need and use medical marijuana in California, and how the federal government is making their lives even worse.

Bank Stocks Rebound by 2.5%, Keepin' Hope Alive

In some "Black Friday bargain hunting," the broader stock market indexes rebounded today by about 1.4% (see chart above, SP=red line, DJ=black and NASDAQ=green), and bank stocks rebounded at almost twice that rate (about 2.5%) as measured by the NASDAQ Bank Index (blue line above).

Maybe there's hope.

(P.S. I'll probably retire from intraday prognasticatin', and wait until the market has closed to do my analyses.)

Weak Dollar = Strong Christmas Sales for Europeans

Returning to Iceland After Shopping Bender
at the Mall of America
MINNEAPOLIS -- Andrea Guðjónsdóttir arrived in Minnesota from Iceland last week with nothing but the clothes on her back. Oh, and two empty suitcases, which she promptly filled to near-bursting with clothes, toys and other gifts during a five-day shopping spree in the Twin Cities.

"Everything's so cheap," said Guðjónsdóttir, 35, who lives in Akranes, a seaport city on Iceland's west coast. "You can pay $30 for Levi's here; at home, it'd be $200."

Guðjónsdóttir joins a growing number of shoppers across the world who are coming to the U.S. -- and Minnesota -- this holiday season to take advantage of good deals against the falling dollar. At a time when the U.S. economy is sagging, retailers say foreign tourists are providing a hedge against a Christmas season that's expected to be the slowest in five years.

The Only Way to Follow People Over Time is To Follow People, Not Income Brackets or Quintiles

There are wild cards that need to be kept in mind when you hear income statistics thrown around. One of these wild cards is that most Americans do not stay in the same income brackets throughout their lives. Millions of people move from one bracket to another in just a few years.

What that means statistically is that comparing the top income bracket with the bottom income bracket over a period of years tells you nothing about what is happening to the actual flesh-and-blood human beings who are moving between brackets during those years.

Following trends among income brackets over the years creates the illusion of following people over time. But the only way to follow people is to follow people.

That is why the IRS data, which are for people 25 years old and older, and which follow the same individuals over time, find those in the bottom 20 percent of income-tax filers almost doubling their income in a decade. That is why they are no longer in the same bracket.

That is also why the share of income going to the bottom 20 percent bracket can be going down, as the Census Bureau data show, while the income going to the people who began the decade in that bracket is going up by large amounts.

~Thomas Sowell in "
Income Confusion"

Thursday, November 22, 2007

More Government Control = More Corruption

World Corruption Map
From Transparency International: The 2007 Corruption Perceptions Index (CPI) looks at perceptions of public sector corruption in 180 countries and territories - the greatest country coverage of any CPI to date – and is a composite index that draws on 14 expert opinion surveys. It scores countries on a scale from zero to ten, with zero indicating high levels of perceived corruption and ten indicating low levels of perceived corruption (see world map above, click to enlarge).

A strong correlation between corruption and poverty continues to be evident. Forty percent of those scoring below three, indicating that corruption is perceived as rampant, are classified by the World Bank as low income countries. Somalia and Myanmar share the lowest score of 1.4, while Denmark has edged up to share the top score of 9.4 with perennial high-flyers Finland and New Zealand.

Notice a pattern? The greater the degree of free market capitalism, the greater the income levels and the less corruption (see the yellow and orange areas on the map). The greater the degree of government control over the economy, the lower the income levels and the greater the corruption (see the red and brown areas on the map). In other words, there appears to be a direct and positive relationship between the size of government and the amount corruption in a country.

(HT: Captain Capitalism)

Bogleheads: Stock-Picking is Evil; Boring is Good

If John Bogle is the high priest of the Bogleheads, stock-picking fanatic Jim Cramer would have to be Lucifer.

Meet the Bogleheads, devotees of Vanguard Group founder John Bogle, long-time advocate of the passive, low-cost, index approach to investing where you try to "meet, not beat the market."

Bogleheads adhere to the "boring is good" investment philosophy of index investing, and they are against stock picking, against high fees and against what they say is the mostly self-serving investment industry.

In defense of the Bogleheads, consider the two charts above that compare the Fidelity Magellan Fund, one of the largest and most popular actively managed mutual funds in history, vs. the S&P500 Index. Over the last 25 years (top chart, click to enlarge), the S&P500 Index rose by almost +1200% vs. only about +400% for the Fidelity Magellan fund. In other words, if you have invested in Fidelity Magellan from 1982 to 2007, you would have been paying large fees to professional investment advisors like Peter Lynch to "help" you lose lots of money, compared to a passive investment in Bogle's low-cost Vanguard S&P500 Index fund.

Lots and lots of money. $100,000 invested in Fidelity Magellan in 1982 would have grown to $500,000 by 2007, compared to $1,200,000 if you had selected the Vanguard S&P500 Index fund.

The bottom chart compares the Fidelity Magellan Fund to the S&P500 during the last 9 years of the period when legendary investment strategist Peter Lynch was managing the fund. Even a brilliant investor like Peter Lynch couldn't beat the market during the period from 1982-1990.

And consider that a previous CD post reported that the return in 2006 for a portfolio of mostly Vanguard Index funds was +20.6%, compared to a -0.20% loss for a portfolio of "Select Jim Cramer Featured Stocks."

Call me crazy, but I think the evidence is clear. Consider me a Boglehead.

(HT: Joyce Howe)


CD Penetrates Cuba's Digital Iron Curtain

Finally, the first visit to Carpe Diem from the heart of Cuba (see ClustrMap above), maybe from the city of Camaguey?!! As recently as Nov. 1, there hadn't been a single visit to CD, see my post here.

From this Miami Herald article, "A meager 9 out of every 1,000 Cubans are estimated to be Internet users, most of them linked to the government. Reporters Without Borders last year denounced Cuba as one of a dozen nations with the most controlled and least accessible Internet, grouping the country with Iran and Vietnam."

From this Reuters news report, "At a downtown Havana post office, Cubans line up for hours for their turn in the "surfing room."

When users get to one of the four computers, they can send and receive e-mail and surf an Intranet of Cuban Web sites, but access to the global Internet is barred.

Getting online is not easy in communist-run Cuba, where the state strictly controls all Web servers and recently announced plans to crack down on illegal Internet access."

Aprovecha el dia!

Wednesday, November 21, 2007

Price Controls=Long Lines in Venezuela; Surprised?

Not a lot to be thankful for in Chavez's Venezuela....

CARACAS, Venezuela -- The lines formed at dawn and remained long throughout the day — hundreds upon hundreds of Venezuelans waiting to buy scarce milk, chicken and sugar at state-run outdoor markets staffed by soldiers in fatigues (see photo above).

President Chavez's government is trying to cope with shortages of some foods, and the lines at state-run "Megamercal" street markets show many Venezuelans are willing to wait for hours to snap up a handful of products they seldom find in supermarkets.

The lines for basic foods at subsidized prices are paradoxical for an oil-rich nation that in many ways is a land of plenty. Shopping malls are bustling, new car sales are booming and privately owned supermarkets are stocked with American potato chips, French wines and Swiss Gruyere cheese.

Yet other foods covered by price controls — eggs, chicken — periodically are hard to find in supermarkets. Fresh milk has become a luxury, and even baby formula is scarcer nowadays.

Exhibit A: Goods not covered by price controls are plentiful.

Exhibit B: Goods covered by price controls are hard to find.

Conclusion: Kinda obvious, no?

(HT: Ben Cunningham)

Good Old Days Are Now; It Keeps Getting Better

George Mason's Russ Roberts at Cafe Hayek had this post yesterday about data from the Census Bureau's annual American Housing Survey that shows significant progress in living standards for Amercian households below the poverty level.

As Russ points out "Supposedly, over the last 20 years, all of the income gains have gone to the rich. Yet, somehow, the poorest households increased their access to appliances that make life more pleasant."

The chart above is based on data taken from in the 1985 survey and the 2005 survey, and expands on the data provided in Russ' post.

Bottom Line: Compared to 1985, today's (2005) poorest households have bigger homes and apartments by 15-20%, they are almost 3 times as likely to have central air conditioning, about two times as likely to have a dishwasher, clothes dryer and garbage disposal, more likely to have a washing machine, and more likely to be in a household with a car, or even 2 or more vehicles.

If those significant improvements happened overnight, it would be considered miraculous and would make headline news; but when they happen gradually over several decades, nobody notices, and the significant progress and advances in everybody's standard of living (including households below the poverty level) go largely unrecognized and unappreciated.

More evidence that "the good old days are now," and they keep getting better, see related previous CD posts here, here, here, here, here and here. There is a lot to be thankful for.

Happy Thanksgiving.

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.