Saturday, December 22, 2007

Overcoming Fear and Paranoia to Blog in Cuba

While there are plenty of bloggers who dish out harsh opinions on Cuba and Castro, most do so from the cozy confines of Miami. 32-year old Yoani Sánchez (pictured above) is one of the few who do so from Havana.

Read about her
here in today's WSJ front page article.

Read her blog
Generación Y (in Spanish).

Friday, December 21, 2007

Consumer Spending Surges in November

WASHINGTON (AP) -- Consumers put aside worries about slumping home sales and soaring gasoline prices and headed to the malls in November, pushing spending up by the largest amount in 3 1/2 years.

The Commerce Department reported Friday that consumer spending shot up 1.1% last month, nearly triple the October gain. It was the biggest one-month jump since a 1.2% rise in May 2004 and was significantly higher than the 0.7% gain analysts had expected.

Bottom Line: Consumer spending increased for the 14th consecutive month (see chart above, shaded area on right), for the first time since 1999 (shaded area on left), providing further evidence that the economy is strong and stable, and not in any imminent danger of falling into a recession.

Real Disposable Income Shows Economic Strength

The BEA reported today that Real Disposable Income grew by 2.1% in November from a year ago, the 23rd consecutive month of positive growth (see chart above).

Bottom Line: This is one of the 5 economic recession-indicating variables watched by the NBER (the others are real GDP, industrial production, trade sales and employment), and suggests that there is still no evidence yet that recessionary conditions are affecting the U.S. economy.

Thursday, December 20, 2007

Cartoon of the Day: A Year of Global Cooling

Follow up on yesterday's post on 2007: a year of global cooling.


Final Estimate of Real GDP: A Healthy 4.9%

The BEA released it final estimate of third quarter (July-September) real GDP growth today, and it remained unchanged from its previous estimate of 4.9%. Third quarter growth in real GDP was more than twice the average growth this decade of 2.2%, and followed second quarter growth of 3.8% (see chart above). Notice also that the strong back-to-back growth in real output during the last two quarters looks nothing like the recessionary period of 2001, or even the pre-recession period of 2000.

Wednesday, December 19, 2007

Milton Friedman Rides Again


The top chart above is from a previous CD post, and the bottom chart above is from Larry Kudlow's blog, and he featured it last night on Kudlow and Company.

I used a three year lag in my chart, and Larry is using a two-year lag in his graph, which might be a slightly better fit. But the main point is that money supply growth takes between 2-3 years to have its full impact on the price level and inflation.

The significant decline in the growth rate of M1 over the last few years (and the monetary base as well), suggests that inflation could likely decrease in 2008 and 2009 from its current year-end level. M1 growth has actually been negative for the last year, and the M1 money supply today is below its level a year ago, suggesting that inflation won't continue to be a problem much longer.

More on Education Majors' Test Scores


See chart above (click to enlarge) for evidence of Walter Williams' claims that Education majors perform poorly on standarized tests like the LSAT, GMAT and GRE.

(HT: Ironman at Political Calculations)


The World is Not Running Out of Oil: Fill 'er Up

From todays' Investor Business Daily:

"The world produces about 85 million barrels of oil a day. Global energy demand is expected to rise 55% from 2005-2030. Peak oil theories abound that new discoveries are not keeping up with oil usage. But it's significant that the new demand also is fostering big new discoveries, largely from the very countries where demand is growing most."

The IBD editorial documents recent discoveries of new oil in Brazil, China, Mexico, India and Russia, and discusses how new oil technologies have also significantly increased the supply of oil.

"The world is not running out of oil," said Daniel Yergin, head of Cambridge Energy Research Associates and one of the world's leading oil experts, in a recent interview with Les Echos in Paris.


Go ahead and fill up your SUV, and engage in some guilt-free driving.

Inconvenient Weather: A Year of Global Cooling

"Al Gore says global warming is a planetary emergency. It is difficult to see how this can be so when record low temperatures are being set all over the world. In 2007, hundreds of people died, not from global warming, but from cold weather hazards," says David Deming, geophysicist and associate professor of Arts and Sciences at the University of Oklahoma, in today's Washington Times. Consider these inconvenient weather facts:

Unexpected bitter cold swept the entire Southern Hemisphere in 2007.
  • Johannesburg, South Africa, had the first significant snowfall in 26 years.

  • Australia experienced the coldest June ever; in northeastern Australia, the city of Townsville underwent the longest period of continuously cold weather since 1941.

  • In New Zealand, the weather turned so cold that vineyards were endangered.
In the United States:
  • In April, a killing freeze destroyed 95% of South Carolina's peach crop, and 90% of North Carolina's apple harvest.

  • At Charlotte, N.C., a record low temperature of 21 degrees Fahrenheit on April 8 was the coldest ever recorded for April, breaking a record set in 1923.

  • On June 8, Denver recorded a new low of 31 degrees Fahrenheit; Denver's temperature records extend back to 1872.

  • On Dec. 7, St. Cloud, Minn., set a new record low of minus 15 degrees Fahrenheit.
Further:
  • On Dec. 4, in Seoul, Korea, the temperature was a record minus 5 degrees Celsius.

  • The Canadian government warns that this winter is likely to be the coldest in 15 years.
(HT: NCPA)

Academic Slums: Schools of Education?

American education will never be improved until we address one of the problems seen as too delicate to discuss. That problem is the overall quality of people teaching our children. Students who have chosen education as their major have the lowest SAT scores of any other major. Students who have graduated with an education degree earn lower scores than any other major on graduate school admissions tests such as the GRE, MCAT or LSAT. Schools of education, either graduate or undergraduate, represent the academic slums of most any university. As such, they are home to the least able students and professors with the lowest academic respect. Were we serious about efforts to improve public education, one of the first things we would do is eliminate schools of education.

~George Mason economist Walter Williams writing in his most recent nationally syndicated column

Tuesday, December 18, 2007

Tonight on Kudlow!

Subject to any last minute changes, I'll be a guest on CNBC's "Kudlow and Company" tonight at 7 p.m. EST to discuss some of my recent blog postings on inflation.

Here's the link to my segment, it should be good for at least a few days.

Real Tourism Output at Record High

Real direct tourism spending increased at an annual rate of 1.6% in the third quarter of 2007, according to data released today by the U.S. Bureau of Economic Analysis.

Overwhelming Evidence V: Good Old Days Are Now

Another post on the theme "The good old days are now." The standard of living for the average American just keeps getting better and better over time. One reason we don't appreciate it, is that the improvements, though persistent and relentless, happen gradually year after year, so we end up taking it for granted. If the average home size increased from 983 sq. ft. to 2,349 sq. ft. overnight, we would treat it as a modern miracle. When it happens 25 sq. ft. per year for a half century, we don't even notice it.

(HT: FancyPlaidPants, via NPR)

There's Hope For the US Dollar: Comeback Ahead?

Using mid-December exchange-rate data from FT.com, the chart above shows the one-year forward discount or premium for the US dollar vs. the Euro and British Pound in 2005, 2006, and 2007.

Note that two years ago, the USD was trading at a one-year forward discount vs. both the Euro (-2.0%) and the BP (-0.20%). In recent trading, the USD is now trading at a one-year forward premium vs. both the Euro (+0.20%) and the BP (+1.20%).

Bottom Line: There's hope for the USD! Its value has stabilized, and it has actually appreciated by more than 2% vs. the Euro in the last week, and by 1.5% vs. the British Pound. And since late November, the USD has been trading at a one-year forward premium vs. the Euro for the first time in at least three years, and I don't think that has received any media attention.

Biggest Factor in Rising Health Care Costs? MDs

There are a myriad of factors involved in the rising costs of health care, but the biggest factor in rising medical costs? The medical doctors themselves, says one physician......

Dr. Steve Cole, staff physician at Baylor University Medical Center, writing in today's
Dallas News.

(HT:
NCPA)

Tata: Maker of World's Most, Least Expensive Cars?

NY TIMES--The luxury brand Jaguar is poised to join Tata Motors, a widely diverse Indian auto company that makes tractor-trailers, full-size SUVs and the world’s cheapest car. A final signed deal, which is expected to be worth about $2 billion, will not be announced until early next year.

When Tata is done buying a company, it should look the same as before, “except now it’s owned by someone in India,” said Ratan Tata, chairman of the Tata Group.

Crass Commercialism vs. Crass Politics

Even more predictable than the post-Thanksgiving appearance of shopping-mall Santas is the inability of pundits at this time of year to say or to write "commercialism" without prefixing to it the word "crass."

I challenge this notion. Commerce is peaceful. It involves sellers working hard and taking risks to bring to market goods and services that consumers want to buy. No one forces anyone to do anything; all is voluntary.

What truly is crass is politics. Far more enlightened and ethical behavior is on display during any one day in a shopping mall than the most intrepid observer will find in a century on Pennsylvania Avenue.

~George Mason Economist and Cafe Hayek blogger Don Boudreaux

More On Why Inflation Will NOT Be A Problem

Exhibit A: See graph below (click to enlarge) of the Adjusted Monetary Base, from the St. Louis Federal Reserve, from 2002-2007. Notice the decline in growth from 10% to 2%, suggesting a deflationary trend in high-powered money.

Exhibit B: See graph below of the Adjusted Monetary Base vs. M1 Money Supply, from 2002-2007. Notice that as the growth in high-powered money growth, controlled by the Fed, has come down from 10% in 2002 to 2% in 2007, the M1 Money Supply has stablized at about $1.36 trillion.


Monday, December 17, 2007

Don't Like the Bush Tax Cuts? Don't Pay Them! Pay Your Taxes Under Old Rates From 2000 or 2001

SAN FRANCISCO--Buffett indirectly blamed the Bush administration for a tax code he said is out of whack.

"In the last seven-eight years what has happened is that the super-rich have gotten a huge break," said Buffett, one of the world's richest people with a net worth of $52 billion, according to Forbes magazine.

In a previous post, I challenged proponents of tax increases to raise taxes on themselves immediately by making a voluntary gift to to the U.S. Treasury, and not waiting for the Bush tax cuts to expire. After all, if forced increases in taxes are desirable by future changes in the tax code, then voluntary tax increases by rich taxpayers like Buffet and the Clintons right now should be desirable.

Here's another idea for Buffet and the Clintons. If they think that the tax codes in previous years were more equitable, fair and desirable then they can pay under the old rates for their 2007 tax returns. Here are the tax rates for 2000 (highest rate 39.6%), 2001 (highest rate 39.1%), and 2002 (highest rate 38.6%). In other words, if they don't like the Bush tax cuts (highest rate 35%), they don't have to accept them, they can file under the pre-Bush tax rates, i.e. the Clinton tax rates.

It Wasn't a Tax Cut for "The Rich," It Was a Tax Hike

Based on the latest available tax data, no Administration in modern history has done more to pry tax revenue from the wealthy than the current one, says the Wall Street Journal today. Consider:
  • For 2005, the richest 1% paid about 39% of all income taxes that year (see chart above).

  • The richest 5% paid a little less than 60%, and the richest 10% paid 70%.

  • The richest 1.3 million tax-filers -- those Americans with adjusted gross incomes of more than $365,000 in 2005 -- paid more income tax than all of the 66 million American tax filers below the median in income; ten times more.

For the political left and most of the media, this means only that the rich are getting richer. However:

  • The rich showed more rapid gains in reported income shares in the 1990s than in the first half of this decade.

  • The share of the richest 1 percent jumped to 20.8% of total income in 2000, from 14% in 1990, but increased only slightly to 21.2% in 2005.

  • Notably, however, the share of taxes paid by the top 1% has kept climbing this decade -- to 39.4% in 2005, from 37.4% in 2000.

  • The share paid by the top 5% has increased even more rapidly.

In other words, despite the tax reductions of 2001 and 2003, the rich saw their share of taxes paid rise at a faster rate than their share of income. This makes it hard to pin their claim of "rising inequality" on the Bush tax cuts, though the income redistributionists are trying. By this measure, the Clinton years were far worse for "inequality."

Conclusion from the WSJ: "We hate to break up the media's egalitarian chorus with these details, but facts are facts. If Democrats really want to soak the rich, they'll keep tax rates where they are, or, better, lower them some more."

(HT: NCPA)


Goldilocks Sets Record: 51 Months of Job Growth

According to the BLS labor report on December 7, "Nonfarm payroll employment continued to trend up in November (94,000), and the unemployment rate held at 4.7%."

What didn't get reported anywhere in the media (that I could find), and was only reported by the White House, is that November 2007 marked the 51st straight month of employment growth, setting an all-time record for the longest continuous run of job growth on record (back to 1939, see chart above). The previous record of continuous job growth was set back in the July 1986 to June 1990 period, when there were 48 straight months of employment growth.

Bottom Line: In each of the last three months (September, October, and November), the Goldilocks economy has set new all-time records for continous monthly job growth, and yet this has gone virtually unreported. Never before in U.S. history have we experienced an extended period of job growth like in the last four years, and all we hear about are recessionary fears, and gloom and doom.

Chocolate Goes Global

The World Is Flat, and Chocolatiers Want to Coat It


NY Times: Swiss chocolatiers, having long ago conquered markets in Europe and North America, are now aiming at the vast expanses of Russia, India and China, making Swiss chocolate a case study in globalization.

Reminder: Trade works both ways. As economies like India, Russia, China, and Brazil become wealthy and prosperous by producing goods and services for the U.S. and European markets, the workers of those economies also become increasingly wealthy and prosperous consumers of American and European products.

Exhibit A: Swiss chocolate.


Sunday, December 16, 2007

Finally, Some Relief for Double-Standard, Racist, and Insane Drug Sentencing for Baking Soda

WASHINGTON - The Supreme Court on Monday (December 10) said judges may impose shorter prison terms for crack cocaine crimes, enhancing judicial discretion to reduce the disparity between sentences for crack and cocaine powder.

WASHINGTON -- The U.S. Sentencing Commission voted unanimously Tuesday (December 11) to allow some 19,500 federal prison inmates, most of them black, to seek reductions in their crack cocaine sentences.

Four of every five crack defendants is black. Most powder cocaine convictions involve whites.

Even after the change, prison terms for crack cocaine still are two to five times longer on average than sentences for powder cocaine, the result of a 20-year-old decision by Congress to treat crack more harshly.

See previous CD posts
here and here. Note that crack cocaine is powdered cocaine + baking soda.

Gene Fama: Hardest Workin' Man in Finance/Econ

From the Minneapolis Fed's interview with University of Chicago economist Eugene Fama (pictured above):

Fama’s work transformed Wall Street, and later Main Street, by giving rise to a proliferation of low-cost index funds, as many questioned the value of paying for active portfolio management. “If one takes into account the higher initial loading charges of the mutual funds,” he observed over 40 years ago, “the random investment policy outperforms the funds.”

Mpls. Fed: How do you view the suggestion that some CEOs are overcompensated?

Fama:
If it’s a market wage, it’s a market wage. They may be big numbers; that’s not saying they’re too high. It’s easy to say that people are paid too much, but when you’re on the other side of the fence trying to hire high-level corporate managers, it turns out not to be so easy.

Mpls. Fed: I understand that you work every day, even holidays. Is that right?

Fama:
Right.

Mpls. Fed: That’s an amazing work ethic.

Fama: Not really.


(HT: Marginal Revolution)

Quote of the Day, Chart of the Day

"Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output."

~Milton Friedman in his book "Monetary History of the United States 1867-1960," (co-authored with Anna Schwartz)

Exhibit A: See chart above, click to enlarge. Monthly data for CPI and M1 are from the St. Louis Federal Reserve.

Market Signals Suggest Low Inflation, Stable Dollar


The top chart above (click to enlarge), shows the one-year percentage forward premiums and discounts for the USD vs. other currencies, based on current quotes for one-year forward exchange rates. The USD is now selling at a one-year forward premium vs. at least a dozen currencies, suggesting that the value of the USD has stabilized and might start appreciating in 2008.

The bottom chart above displays gold futures trading on the NYMEX, and shows moderate annual increases in the price of gold over the next 4 years of about 4%. Since gold is a hedge against inflation, the moderate increases in gold prices through 2011 indicate that there are no inflationary pressures building in the U.S. economy.

Bottom Line: These direct market signals suggest that: a) the fall of the USD is probably over and we can expect an appreciation of the USD vs. the pound, rupee, peso, etc., and b) the current rise in inflation (4.29% increase through November 2007) is probably temporary, and we can expect lower inflation in 2008 and beyond. See related previous post here.