Tuesday, February 05, 2008

Rich Are Getting Richer, Poor Are Getting Richer

Let's Permanently Dismiss the "Stagnant Wage Myth": ALL income groups have gotten richer in a generation:
2 of Every 3 Americans Are Better Off Today Than Their Parents, and More Than 80% of the Bottom Fifth Are Richer Than Their Parents
The charts above are from the study "Economic Mobility of Families Across Generations" from the Economic Mobility Project, based on a sample of 2,367 individuals who were between the ages of 0 and 18 in 1968 and have been tracked into adulthood. Here is what the study shows:

1. Adults who were children in 1968—those who were in their 30s and 40s at the end of the century—have more income than did their parents’ generation.

Median family income rose by 29% between the two generations, from $55,600 in inflation-adjusted dollars to $71,900. Average family incomes, grew even more rapidly, from $61,600 to $88,000 (a 43% increase). Income growth occurred throughout the income distribution for all five quintiles, as shown in the top chart above (click to enlarge), although family income in the top quintile grew by 52%, compared to 18% for the bottom fifth.

2. The average number of individuals per family shrank from 3.1 to 2.3 individuals between 1969 and 1998. Taking into account the smaller family size as well as the growth in family income, families are generally better off economically today.

3. More than 2 out of every 3 Americans who were children in 1968 had higher levels of real family income in 1995–2002 than their parents had in 1967–1971 (see bottom chart above, click to enlarge). Children born to parents in the bottom fifth were MORE likely to surpass their parents’ income than children from any other background. More than four out of five children (82%) born to parents in the bottom quintile have greater family income than their parents. In contrast, less than half (43%) of those whose parents are in the top fifth of income surpass their parents.

4. Economic mobility is measured in this study by tracking only changes in cash income. Income mobility would be higher at the top income quintiles with the inclusion of the value of fringe benefits, since employer contributions to retirement and health insurance totaled 7% of wages in 1967–1971 (parents' generation) and 13% in 1995–2002 (children's generation).

In other words, contrary to the picture portrayed by the media:

1. Real incomes are NOT stagnant - real median family income has increased by 29% over the last quarter century, and real incomes have increased for ALL income groups over the last generation.

2. The middle class has not disappeared, it's gotten richer! Real income of the middle quintile (middle class) has increased by 29%.

3. Although it's true that income inequality has increased, it doesn't really matter because the poor have gotten richer AND the rich have gotten richer. The rich have NOT gotten richer at the expense of the poor, all groups have gotten richer together.

4. There is significant upward income mobility, especially for the lowest income group. Children born to parents in the bottom quintile are more likely to surpass their parents’ income (82%) than are children from any other background.

Bottom Line: It's truly remarkable and extraordinary that more than 2 of every 3 Americans born a generation ago have already surpassed their parents' income, and more than 4 of every 5 Americans born to parents in the bottom fifth during the late 1960s and early 1970s are better off than their parents. Do you think that was ever the case at any other time in history like the 5th Century, 10th Century or 15th Century? Not likely. It's probably true that just being alive in the 21st Century, especially being alive in the U.S., you've "won first prize in the lottery of life."

Vote Chooser

Answer 10 questions here and find out which presidential candidate you should vote for in 2008.

HT: Mark Skousen

Universal Access = Restricted Access + Long Waits

From today's IBD:

Long waits are a hallmark of government health care anywhere it's employed. When the perception exists that treatment is free, system overuse is inevitable. People can think of no reason to self-ration care. They show up in emergency rooms and doctor's offices with conditions for which they wouldn't seek treatment if they paid directly at the time of service.

Thanks to the profit motive, private health care providers have an incentive to cut waiting times, lest they lose customers to the competition. Government providers have no such motivation.

They do have incentive, however, to ration care when demand gets too high and costs soar. But to do so exposes "universal access" and "equal access" to be inaccurate descriptions. "Restricted access" would be more fitting.

Case Study: Canadian Health Care

Waiting times are the weak spot in Canadian healthcare. Canadian health consumers with a complicated condition can be subject to up to four lengthy waits: the first, to see their family doctor, or to find a general practitioner if they do not have a regular doctor; the second, to see the appropriate specialist for their ailment; the third, for diagnostic procedures to determine appropriate treatment; and the fourth, for treatment. It is not unusual for these cumulative delays to exceed a year.

Wipro's CEO: U.S. Must Fix IT Worker Shortage

ATLANTA--Azim Premji, an Indian entrepreneur who became one of the richest men in the world by transforming a small cooking oil business into a global information technology powerhouse, says the United States' business leadership needs to "take the problem by the horns" and better address the country's growing shortage of high-tech professionals.

Premji, CEO and chairman of Bangalore-based Wipro Ltd., calls the lack of technology talent in the U.S. a "serious problem."

"America does not have the talent," said Premji, 62, in a Jan. 29 interview with Atlanta Business Chronicle. "There's a huge shortage of IT professionals here."

While India has experienced an economic boom due to the increasing number of students getting high-tech degrees there, the number of awarded engineering degrees in the United States has dropped 20 percent over the past two decades, according to pro worker-visa-advocacy group Compete America. That fact can be seen with the growing demand for H-1B visas, which allow foreigners to temporarily live here to fulfill specialty jobs, usually in technology.

NOTE: Bangalore-based Wipro (NYSE: WIT) is in the process of opening its first American software development center in Atlanta and plans to hire 200 employees within a year and up to 500 within three years.

Monday, February 04, 2008

Rx: Online MD House Calls

LA Times--Consulting your family physician is finally moving into the 21st century and out of the doctor's office. Since the dawn of e-mail, patients have been pleading for more doctors to offer medical advice online. No traffic jams, no long waits, no germ-infested offices with outdated magazines and bad elevator music.

There was always one major roadblock: Most health insurers wouldn't pay for it. Until now.

In recent weeks, Aetna Inc., the nation's largest insurer, and Cigna Corp. have agreed to reimburse doctors for online visits. Other large insurers are expected to follow, experts say.

These new online services, which typically cost the same as a regular office visit, are aimed primarily at those who already have a doctor. The virtual visits are considered best for follow-up consultations and treatment for minor ailments such as colds and sore throats.

Commercial Loan Growth Shows Ongoing Strength

A few weeks ago, I posted about commercial bank loans being at a record high of $760 billion in early January, based on weekly Federal Reserve banking data for large commercial banks. The updated chart above (click to enlarge) reflects a few more weeks of banking data, and this time shows the percent change from a year ago. Not only is commercial lending at an all-time high based on volume, but also the year-to-year growth rate has been phenomenal: double-digit growth in commercial bank loans for almost 6 months now, and close to 20% growth for the last 4 months, stronger growth in commercial lending than at any time in at least 20 years.

Listening to media reports on the U.S. banking system and credit markets, one gets the idea that commercial lending and credit have dried up, and thousands of banks and companies are teetering on the edge of insolvency (e.g., see Paul Krugman's blog post "Credit Crunch"). Yet the reality is that commercial lending is at an all-time historical high, and growing at the fastest rate in recent history.

This suggests that thousands of companies are applying for, and being granted, commercial loans to finance business investment and expansion. And the growth in commercial lending is stronger than ever before. Not exactly an ingredient for a recession. Notice on the graph above the significant declines in commercial lending that accompanied the recessions in 1990-1991 and 2001 - it would be difficult to suggest that we have entered a recession in January 2008 with such strong growth in commercial lending.


Congressional Pork Fest:The Earmark Favor Factory

Parade Magazine--Last month, Congress passed a 3,500-page omnibus spending bill after less than 24 hours for review. The bill, which mostly renewed funding for existing programs, contained more than 9,000 “earmarks”—worth at least $7.4 billion—for legislators’ pet projects, including:

  • Olive fruit fly research in France: $213,000

  • Center for Grape Genetics in Geneva, N.Y.: $1.9 million

  • Fish-waste research in Alaska: $2.5 million

  • Awning renovations in Roanoke, Va.: $250,000

  • Cormorant control in Vermont, Michigan, Mississippi and New York: $1.2 million
The real problem with earmarks, says Rep. Jeff Flake (R., Ariz.), is that “they circumvent the normal process,” since they typically are placed in bills without discussion. Thus, lawmakers never get to debate them and find out if they’re genuinely necessary—or just more pork.

(HT: NCPA)

See a related WSJ article "MURTHA INC.: How A Lawmaker Rebuilt Hometown on Earmarks," about the top Congressional earmarkers (see list above), and the #1 Leader of the Pork, Rep. John Murtha.

What About Excessive Athlete Compensation?


Sports Illustrated--For the fourth straight year, Sports Illustrated set out to rank the 50 top-earning American athletes (taking into account on and off the field income), and it's no surprise to see the familiar names at the top of the list (see chart above, click to enlarge). The most obvious? Tiger Woods has reached an otherworldly plateau of nearly $112 million. Boxing is back from the dead for now, thanks to No. 2 Oscar De La Hoya, and the Shaq and Kobe rivalry lives on.

Half the list is made up of NBA players, while only 12 baseball players and five football players made the cut. There were three NASCAR drivers and just one woman (welcome, Michelle Wie!)


NEW YORK (AP) - An Associated Press calculation shows that compensation for America's top CEOs has skyrocketed into the stratospheric heights of pro athletes and movie stars: Half make more than $8.3 million a year, and some make much, much more.

Comment: Average compensation in 2007 of the top 50 athletes was $23.4 million, and median salary was $19.4 million. Median salary for CEOs in 2007 was only $8.3m for the 386 companies in the AP study referenced above (obviously a larger sample than for the SI athlete list).

Question: Why is it that when CEO salaries "skyrocket into the stratospheric heights of pro athletes," CEO salaries are condemned as "excessive?" Where is the outrage about athletes' salaries? After all, athletes made the stratospheric salaries before the CEOs did, so shouldn't those salaries also be considered excessive?

Based on Google searches, apparently not: Search for "excessive CEO compensation" and you'll find more than 3,000 references. Search for "excessive athlete compensation," and you'll find 0.

Update 1: See previous CD post on "excessive celebrity pay."

Update 2: Google search for "overpaid athletes" = 12,600 hits. Google search for "overpaid CEOs" = 8,530 hits. Thanks to an anonymous commenter.

Sunday, February 03, 2008

Scalped: $10,000 Per Ticket??

Superbowl tickets sold for as high as $40,000 on Ebay, for four tickets on the 45-yard line.

Updated: Sorry, it was $40,000 for 4 tickets, not 2 tickets! "Only" $10,000 per ticket, not $20,000.

Rethinking Biofuel Enthusiasm

The political importance of corn-growing, ethanol-making Iowa is one reason that biofuel mandates flow from Washington the way oil would flow from the Arctic National Wildlife Refuge (ANWR) if it had nominating caucuses.

ANWR's 10.4 billion barrels of oil have become hostage to the planet's saviors (e.g., John McCain, Hillary Clinton, Barack Obama), who block drilling in even a tiny patch of ANWR. You could fit Massachusetts, New Jersey, Rhode Island, Connecticut and Delaware into ANWR's frozen desolation; the "footprint" of the drilling operation would be one sixth the size of Washington's Dulles airport.

To avoid drilling for oil in ANWR's moonscape, the planet savers evidently prefer destroying forests, even though they absorb greenhouse gases. Will ethanol prevent more carbon-dioxide emissions than would have been absorbed by the trees cut down to clear land for the production of crops for ethanol? Be that as it may, governments mandating the use of biofuels are one reason for the global rise in food prices, which is driving demand for more arable land. That demand is driving the destruction of forests—and animal habitats. In Indonesia alone, 44 million acres have been razed to make way for production of palm oil.

If the argument for ethanol is that domestically produced energy should be increased, there are better ways of doing that. On the outer continental shelf there is a 50-year supply of clean-burning natural gas, 420 trillion cubic feet of it, that the government, at the behest of the planet's saviors, will not allow to be extracted.


~George Will in his Newsweek article "
The Biofuel Follies"

Endless Economic Expansion is Not An Entitlement

Today's Americans, their pain threshold lowered by the successful modulation of business cycles, now regard recessions as not mere misfortunes but as violations of an entitlement to perpetual economic serenity. In the 50 years prior to 1945, contractions were frequent and ferocious enough to fray the social fabric. There were three contractions of 5% of GDP, two of 10% and two of 15%. Since postwar demobilization, the most severe contraction -- that of 1982, when President Ronald Reagan and Fed Chairman Paul Volcker stifled inflation -- was 1.9%.

That recession ended in November 1982. If another recession did start last month, then in the 302 months from November 1982 through December 2007, the economy was in recession only 14 months -- 4.6% of the time. The economy was in recession 22.4% of the time between 1945 and 1982.

A recession-free economy is neither an entitlement nor, truth be told, desirable: The "wisdom of crowds" is real but even markets make mistakes and recessions, aka corrections, are, by definition, constructive. Even so, the modern economy's rhythms are much less alarming than any previous generation could have imagined.


From George Will's
most recent column

Note: Recessions between 1854 and 1945 lasted an average of about 20 months, compared to the average of only 10 months since 1945, and 8 months for the last two (1990-1991 and 2001).

Saturday, February 02, 2008

Market Competition, and Kids in Garages Are Better Regulators Than the Department of Justice

WSJ Editorial: Remember when Microsoft was going to leverage its dominance of the operating-system market into control of the Internet? By a quirk of fate, at almost the exact moment that Justice filed suit against Microsoft in 1998, a couple of graduate students in Silicon Valley were seeking money for a little company they wanted to start. They called it Google.

Ten years on, Google isn't so little and Microsoft is a distant No. 3 in the search market. Yahoo, the No. 2 search engine, had seen its stock fall some 80% from its dot-com-era highs before Microsoft made its bid. Remember those days? It's funny how the one true Internet giant to emerge from the bubble wasn't even publicly traded when the Nasdaq poked its nose above 5,000 in March 2000. Business fortunes are hard to predict.

And so while Microsoft was being excoriated for including a Web browser with Windows and then -- horrors! -- a media player too, Apple found a killer app in iTunes and Microsoft's fleeting monopoly on a browser that it gave away didn't turn out to be a cash cow after all. It's hard to make it up on volume when the product is free.

Yes, Microsoft still makes lots of money selling Windows and Office. But the plans for world domination have been put on hold. Yahoo might help Microsoft give Google a run for its money. Or maybe -- just maybe -- there are some kids in a garage somewhere as you read this, writing the code that will make Google shareholders look back on its $160 billion market cap in early 2008 and weep.

We're willing to bet that in another 10 years all of us will be using the Internet in ways not yet invented in 2008. Microsoft's bid for Yahoo is, above all, an admission that while it was chasing the browser and media player markets, the world was moving on. That won't stop.

The World's Hottest Chili Pepper: 1 Million SHUs

WSJ: It's 200 times hotter than the jalapeño. Workers handle it with goggles and face masks. And spicy-food lovers can't wait to get their hands on it.

The bhut jolokia pepper, which is farmed in the northeast part of India, was plucked from obscurity last year when the Guinness Book of World Records declared it the world's hottest. The standard measure for such things is the Scoville Heat Unit, or SHU, named after Wilbur Lincoln Scoville, a chemist who in 1912 developed a method of assessing the heat given off by capsaicin, the active ingredient in chili peppers. Jalapeño peppers measure about 5,000 SHUs. The bhut jolokia tops a million.

Watch a
video here of the WSJ writer trying to eat a bhut jolokia pepper.

Just another benefit of globalization and world trade!

Business and Economics Blog Rankings

Gongol.com's new Traffic Rankings for Business and Economics Websites are listed above (click to enlarge) for January traffic. Based on "average daily page views," Carpe Diem ranks #22 (out of 138), up one place from #23 last month. Of the top 22 Business and Economics websites, 8 are academic blogs (Marginal Revolution, Greg Mankiw, Economist's View, Tax Prof, Overcoming Bias, Stephen Bainbridge, Drezner and Carpe Diem), and of the 8 academic blogs, only 4 are academic economist blogs (MR, Mankiw, Economist's View and CD).

Note: For the Gongol rankings, only blogs that have publicly-available traffic logs are included.

For an alternative ranking, see the
26Econ.com Economics Blog Directory & Ranking of 218 blogs, based on Technorati rankings. Carpe Diem ranks #25 there.

Cartoon of the Day


Putting Exxon's Tax Bill In Perspective

Over the last three years, Exxon Mobil has paid an average of $27 billion annually in taxes. That's $27,000,000,000 per year, a number so large it's hard to comprehend. Here's one way to put Exxon's taxes into perspective.

According to IRS data for 2004, the most recent year available:

Total number of tax returns: 130 million

Number of Tax Returns for the Bottom 50%: 65 million

Adjusted Gross Income for the Bottom 50%: $922 billion

Total Income Tax Paid by the Bottom 50%: $27.4 billion

Conclusion: In other words, just one corporation (Exxon Mobil) pays as much in taxes ($27 billion) annually as the entire bottom 50% of individual taxpayers paid in 2004 (most recent year available), which is 65,000,000 people! Further, the tax rate for the bottom 50% was only 3% of adjusted gross income ($27.4 billion / $922 billion) in 2004, and the tax rate for Exxon was 41% in 2006 ($67.4 billion in taxable income, $27.9 billion in taxes).

Tax Rebate Smackdown III

In his ongoing tax rebate smackdown with Jason Furman in the LA Times, Economist Steven Landsburg poses this interesting question: "Why weren't last year's unemployed worth helping?"

People lose their jobs all the time. An above-average number might have lost their jobs in December, but plenty of others lost their jobs in November, or October, or a year ago. Why should people who endured this trauma last year — and others who will endure it a year from now — be taxed to help those who happen to be enduring it today?

It seems fundamentally unfair to say that we'll help you out with an expensive stimulus package if you lost your job this month, but we'll foot you with the bill for that package if you lost your job a year ago and then found your way back into the workforce. Not only is it unfair, but if the package doesn't work, it's unwise to boot.

The economy does not need to be stimulated so much as people need to find new ways to be useful. If you're good at building houses and too many houses have been built, then sooner or later you're going to have to become good at doing something else. It is a false favor to delay that process.

Carpe Diem Chart on CNBC's "Kudlow and Company"

The chart above from this CD post was featured last night on CNBC's "Kudlow and Company," it was discussed right at the beginning of this segment.

Friday, February 01, 2008

Recession Probability? Only 1 Out of 17 Chance

Payrolls Unexpectedly Decline, Increasing Odds of Recession:

"U.S. employment unexpectedly tumbled last month for the first time in more than four years, fueling worries that the U.S. economy which already limped into 2008 might soften further or even slip into recession in coming months."

Most reports on today's
employment report were pretty negative, like the WSJ story above. But wait a minute, don't forget the recent study by labor economist Tim Kane (discussed on CD a few days ago), which finds:

"Among popular monthly labor measures, the unemployment rate is the most useful as an indicator of recession, whereas two top measures of employment growth –payroll jobs and civilian employment –have little value. The best pre-recession employment indicator is actually weekly claims for unemployment insurance (UI)."

According to economist Tim Kane, in an
email to Greg Mankiw:

"The Recession Probability Index is a combination of the two most valuable employment indicators of a recession's early stages: weekly initial unemployment insurance (UI) claims and the unemployment rate. In this morning's BLS Employment Situation report for Jan 2008, the unemployment rate is 4.9%. The 4-week moving average of initial UI claims is 325,750, or 17,000 lower than 4 weeks ago and essentially unchanged from the October average. Therefore the new employment-based recession probability index (RPI) is 6.0%."

Note: In December 2007, there was a 35.5% chance that the U.S. economy was in recession according to Kane's model, so the drop to only 6% now is significant (see chart above, red line has been added to update the chart, click to enlarge).

Highest Corporate Tax Bill in U.S. History? $30B

WSJ: Exxon Mobil Corp. posted the highest quarterly results in U.S. corporate history on the back of record oil prices. Exxon's annual after-tax profit of $40.6 billion was a record, exceeding the $39.5 billion it earned in 2006 (see chart above).

Corporate profits receive a lot of media attention, but what receives considerably less attention are the "corporate taxes" paid on corporate profits. Do a Google search for "Exxon profits" and you'll get about 8,000 hits. Now try "Exxon taxes" and you'll get a little more than 300 hits. That's a ratio of about 33 to 1.

I'm pretty sure that Exxon's tax payment in 2007 of $30 billion (that's $30,000,000,000) is probably a record, exceeding the $28 billion it paid last year.

By the way, Exxon pays taxes at a rate of 41% on its taxable income!

Update: The $40.6 billion and $39.5 billion figures are after-tax profits. For 2006, Exxon's EBT (earnings before tax) was $67.4 billion, it paid $27.9 billion in taxes (41.4% tax rate), and its NIAT (net income after tax), or profit, was $39.5 billion.


Thursday, January 31, 2008

CLINTON vs. McCAIN?

Current Odds on Intrade.com

Republican Presidential Nominee in 2008
McCain: 83.5%
Romney: 11.6%

Democratic Presidential Nominee in 2008
Clinton: 60.0%
Obama: 37.1%

To Win 2008 US Presidential Election
Clinton: 35.2%
McCain: 34.6%

World's Most Recession-Proof Economy? Superbowl

ESPN: "In these dark economic times, there is still one beacon of light: Super Bowl XLII. America's corporations and citizens might be paring expenses and bracing for hard times in every other respect; but in metro Phoenix this week, the mantra is: Recession? What recession?

The bull market for Super Bowl tickets is the inverse of Wall Street's bearish one. The average price of tickets sold on StubHub is currently $4,227, a hefty premium from their face values of $700 and $900. Rooms at Scottsdale's 5-star resorts are going for $3,000 a night (four-night minimum)."

(HT: Welcome Back Friedman)

Subprime ARMs Are Only 7% of Loans Outstanding

Here's a follow-up graph to the one in the post below, this one is through 2007-Q3 for "foreclosures started," from the Mortgage Bankers Association(MBA). What is pretty obvious is that subprime mortgages in general are not the problem, but subprime ARMs that are the real problem. Subprime fixed foreclosures in 2007-Q3 were actually below the last peak in 2003-Q4, and still aren't much higher than FHA foreclosures. Foreclosures on prime fixed-rate mortgages haven't moved much at all in the last 5 years.

Fortunately, subprime ARMs make up only 7% of the total mortgage loans outstanding according to the MBA, or about one out of every 14 loans, and of those subprime ARM loans outstanding, about 1 out 20 were in foreclosure in 2007-Q3, or about 1/3 of 1% of all mortgages.

Freddie Mac: Delinquency Rates

Interesting chart above from Freddie Mac, showing foreclosures through the middle of 2007. Note that delinquency rates for FHA and VA loans were declining in 2007 and flat for prime conventional mortgages, so the delinquency problems (at least through the middle of 2007) were affecting only the subprime mortgage sector. It will be interesting to see how this changes in the last half of 2007.

8% Jobless Rate Good? In Germany It's 15-Yr. Low

Jan. 31 (Bloomberg) -- Germany's unemployment rate fell to the lowest level in 15 years in January. The jobless rate, adjusted for seasonal swings, dropped to 8.1%, the Federal Labor Agency in Nuremberg said today.

Comment: We haven't had an unemployment rate in the U.S. above 8% in almost a quarter century, since December of 1983 (see chart above, click to enlarge), following the longest post-WWII recession in U.S. history (16 months).

Forbes' Inaugural List: Top 10 Most Miserable Cities

Forbes Magazine introduces the Forbes Misery Measure, based on a city's unemployment rate, personal tax rate, commute time, weather, crime, and toxic waste proximity. The top ten "most miserable" cities, according to Forbes:

1. Detroit, MI
2. Stockton, CA
3. Flint, MI
4. New York City
5. Philadelphia, PA
6. Chicago, IL
7. Los Angeles, CA
8. Modesto, CA
9. Charlotte, NC
10. Providence, RI

Wealth: Then and Now

Territory size shows the proportion of worldwide GDP, equalised in purchasing power parity, found there in the Year 1 A.D.

Territory size shows the proportion of worldwide GDP, adjusted for local purchasing power, found there in the Year 2002.
From WorldMapper.

Real Personal Disposable Income: 3.1% in 2007

From today's BEA report, "Real Disposable Personal Income increased 3.1% in 2007, the same increase as in 2006 (see chart above)."

In fact, there has only been one year since 2001, when real disposable personal income has grown at a higher annual rate than 2007 - the 3.6% rate in 2004.

24th Month of Real Disposable Income Growth

The BEA reported today that Real Disposable Income grew by 2.1% in December from a year ago, the 24th consecutive month of positive growth (see chart above).

Bottom Line: Real Disposable Income 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 the 2.1% growth in December suggests that there is still no evidence yet that recessionary conditions are affecting the U.S. economy.

Update: Graph now goes back to 2001
.

World Cars vs. Motorbikes/Mopeds

Territory size shows the proportion of all cars in the world that are found there.

Territory size shows the proportion of all the motorbikes and mopeds in the world found there.
From WorldMapper.

World Polio and HIV/AIDS

Territory size shows the proportion of worldwide polio cases that were recorded there between 2000 and 2005.

Territories are sized in proportion to the absolute number of people who died from HIV/AIDS.

From WorldMapper.

Wednesday, January 30, 2008

The New World: Then and Now

Distribution of World Population of the World: Year 1

Distribution of the World Population of the World: 2008
From WorldMapper

Yikes: 2007 Foreclosure Map

Check out the foreclosure map (click to enlarge), from RealtyTrac.

HT:
FancyPlaid Pants.

Year-to-Year Real GDP Growth Was Actually 2.5%!

WASHINGTON -- The U.S. economy braked sharply last autumn, pulling growth for all of 2007 to its lowest speed in five years as the housing slump took a heavy toll.

Gross domestic product rose at a seasonally adjusted 0.6% annual rate October through December, the Commerce Department said Wednesday in the first estimate of fourth-quarter GDP. The 0.6% pace was much slower than the third-quarter's racing 4.9% rate.

Comment: Real GDP growth in the second and third quarters of 2007 was higher than average, at 3.8% and 4.9%, respectively, and then dropped to .60% in the fourth quarter. But why does the media (see WSJ article above) focus so much on these quarter-to-quarter growth in real output? Shouldn't we also be concerned about year-to-year growth as well?

That is, why do we focus so much on 4th quarter 2007 real GDP in comparison to 3rd quarter GDP (0.60%)? Shouldn't we also pay attention to the growth rate in real GDP from a given quarter to the same quarter in the previous year? After all, coming off a 5% quarter like the third quarter, it's going to be difficult to always sustain that kind of above-average growth in the next quarter, and just returning to normal growth (on an annual basis) in the following quarter might make the economy look weaker than it really is.

Comparing real GDP in the 4th quarter of 2007 to the 4th quarter of 2006 (and doing the same for all previous quarters), real output grew at 2.5% in the 4th quarter of 2007 (see chart above), much higher than the .60% growth rate calculated from the previous quarter. Of course, the year-to-year measurement also brings second and third quarter growth down sharply to only 1.9% (vs. 3.8%), and 2.8% (vs. 4.9%). Quarter-to-quarter growth rates are always going to be more volatile than the smoothed annual rates from the same quarter in the previous year.

Buried in today's BEA report, we find this: "During 2007 (that is, measured from the fourth quarter of 2006 to the fourth quarter of 2007), real GDP increased 2.5%. Real GDP increased 2.6% during 2006."

Isn't this another possible indication that the economy is NOT in a recession? Notice that the graph in 2007 looks nothing like the graph in 2001, during the last recession (shaded area).

Another Downside of Ethanol: Haitians Eating Dirt

Making mud cookies in Port-au-Prince, Haiti
PORT-AU-PRINCE, Haiti (AP) — It was lunchtime in one of Haiti's worst slums, and Charlene Dumas was eating mud. With food prices rising, Haiti's poorest can't afford even a daily plate of rice, and some take desperate measures to fill their bellies. Charlene, 16 with a 1-month-old son, has come to rely on a traditional Haitian remedy for hunger pangs: cookies made of dried yellow dirt from the country's central plateau.

Food prices around the world have spiked because of higher oil prices, needed for fertilizer, irrigation and transportation. Prices for basic ingredients such as corn and wheat are also up sharply, and the increasing global demand for biofuels is pressuring food markets as well. The problem is particularly dire in the Caribbean, where island nations depend on imports and food prices are up 40 percent in places.

Response from the ethanol lobby? "Let them eat dirt."

Stimulus Package Nitwitery

There are three ways government can get the money for a stimulus package. It can tax, borrow or inflate the currency by printing money. If government taxes to hand out money, one person is stimulated at the expense of another who pays the tax, who is unstimulated and has less money to spend. If government borrows the money, it's the same story. This time the unstimulated person is the lender who has less money to spend. If government prints money, creditors, and then everyone else, are unstimulated.

~Economist Walter Williams on tax stimulus math:

(+$1 of Stimulus) + (-$1 of Unstimulus) = O Stimulus

P.J. O'Rourke on Comedy Central



Political satirist P.J. O'Rourke says that the free market exists in the eyes of philosopher Adam Smith in order to decentralize our badness.

If Not the Economy, It Might Stimulate Votes?

From Henry Payne.

Tuesday, January 29, 2008

Wafa Sultan Gives New Meaning to the Word "Bad"


Amazing video.

Time Magazine article here.

Wikipedia listing
here.


Gov't. Expansions in MI = 24; Gov't. Limitations = 4

"Hillary, I'd like to expand government by at least this much."
Michigan Governor Jennifer Granholm gave her "State of the State" address tonight, and the Mackinac Center for Public Policy did the math:

Proposed Expansions of State Government: 24

Proposed Limitations of State Government: 4

Gov. Jennifer Granholm tonight surpassed the previous record for government expansions proposed in a State of the State address, according to the Mackinac Center’s annual tally of proposals by Michigan governors to expand or limit the scope of government.

“This year’s State of the State address was a series of contradictory signals,” said Michael D. LaFaive, director of the Mackinac Center’s Morey Fiscal Policy Initiative. “The governor offered a litany of expensive proposals in the same speech in which she discussed our state’s economic distress. Michigan would probably benefit more if the proposals had been reversed, with 24 limitations and just four expansions.”

Laffer Curve, Part I: Understanding the Theory


The Laffer Curve charts a relationship between tax rates and tax revenue. While the theory behind the Laffer Curve is widely accepted, the concept has become very controversial because politicians on both sides of the debate exaggerate. This video, featuring Cato Institute Senior Fellow Dan Mitchell, shows the middle ground between those who claim "all tax cuts pay for themselves" and those who claim tax policy has no impact on economic performance.

This is Part I of a three-part video series, and focuses on the theory of the Laffer Curve. Part II reviews historical evidence of Laffer-Curve responses. Part III discusses how the revenue-estimating process in Washington can be improved.


30-Year Mortgage Rates Fall Close to A 4-Year Low

According to the Federal Reserve (via the St. Louis Fed), 30-year fixed-rate mortgage rates fell below 5.5% last week for the first time in almost 4 years (see graph above), since early March 2004.

Durable Goods Strength Suggests No Recession

From yesterday's WSJ article by Brian Wesbury:

A year ago, most economic data looked much worse than they do today. New orders for durable goods fell 3.9% at an annual rate during the six months ending in November 2006 (see graph above, red circle). Real GDP grew just 0.6% in the first quarter of 2007 and retail sales fell in January and again in April. But the economy came back and roared in the middle of the year -- real GDP expanded 4.4% at an annual rate between April and September.

From today's Commerce Department report:

New orders for manufactured durable goods in December increased $11.2 billion or 5.2% to $226.6 billion (Note: Expected consensus was only a 1.6% gain). This was the second consecutive monthly increase and followed 0.5% November increase. Excluding transportation, new orders increased 2.6%. Excluding defense, new orders increased 2.9%. Transportation equipment, up three consecutive months, had the largest increase, $7.3 billion or 11.3% to $71.4 billion. This was due to defense aircraft and parts, which increased $3.5 billion.

Bottom Line: Durable goods orders signal a much stronger economy today than a year ago, as Brian Wesbury suggests. Further, the continued gains in durable goods orders indicate that the U.S. economy is nowhere near a recession, see the graph above (data available here) and notice the steep decline in durable goods orders before, during and after the last recession in 2001.


Due to Falling Unemployment Claims in January, Recession Odds Have Fallen From 35% to 15%

Last week there was a CD post featuring the graph above of initial claims for unemployment benefits, which was mentioned on Greg Mankiw's blog.

Now a recently released study by labor economist Tim Kane for the Joint Economic Committe of Congress "Employment Numbers As Recession Indicators" reports (p. 12) that:

The most surprising finding, contrary to conventional wisdom, is that both payroll and household employment measures are of no value as recession indicators. The 1-month change in the unemployment rate has value, but is perhaps prone to false signals due to its moderately high variance. Finally, we have learned that unemployment insurance claims are very valuable and reliable pre-recession indicators. The fact that the UI data are released weekly makes it even more timely, and so it merits close attention.

From the Executive Summary: The best pre-recession employment indicator is actually weekly claims for unemployment insurance (UI).

From the WSJ:

Kane based his model on the three-month change in the unemployment rate and initial jobless claims. Both rose in December, which pushed up Kane’s model to signal 35% recession odds, which was still below what many on Wall Street and academia have thought.

Yet the surprising decline in weekly jobless claims this month to around 300,000 — which is usually consistent with a very healthy labor market — has brought those chances down to around 15%-16%, Kane said.

Food Fight and The Failure of Price Controls

COLOMBIA--More than a thousand additional Venezuelan troops have been sent to the Colombian border to stop food and fuel from going to Colombia. Normally, twice as much stuff (over $3 billion worth) comes FROM Colombia, than goes in the other direction TO Colombia. But Venezuela is suffering from inflation and food shortages, and president Hugo Chavez addressed the problem by putting price controls on food. But he did not put controls on the items farmers have to buy to produce the food. Thus farmers are being forced to sell food at a loss and go bankrupt. To avoid that, farmers are smuggling their products to adjacent countries like Colombia, where they can be sold at market rates.

VENEZUELA--Venezuela's top food company has accused troops of illegally seizing more than 500 tons of food from its trucks as part of President Hugo Chavez's campaign to stem shortages. The campaign has also included government crackdowns on accused smuggling, with the military seizing 1,600 tons of food and sending 1,200 troops to the border with Colombia.

Troops said they halted the transport of 350 tons of food to states along the Colombian border on suspicion of smuggling, he said. Another 165 tons were impounded in an eastern state on accusations of hoarding.

Bottom Line: The lessons from economics and history are very clear: Price controls haven't ever worked, they won't work in Venezuela, and they won't ever work anywhere. Chavez can attempt to ignore or circumvent the laws of economics, but he can't prevent the inevitable shortages that will inevitably result as a direct consequence of his artificial price ceilings (see graph above). "The market be a harsh mistress."

Tax Rebate Smackdown II: INCENTIVES MATTER

The government's resources are not infinite. If it gives out $150 billion today, it must collect an extra $150 billion in taxes tomorrow (unless the government cuts spending, which nobody seems interested in). That's a law of arithmetic. Where will that future $150 billion come from? From the same people who are being encouraged to spend their rebate checks today. That's why this whole thing is eerily similar to the sub-prime lending crisis that got us into this mess — people are being encouraged to spend beyond their means and forgetting that it's all got to be paid back someday.

The only way out is for people to actually earn more so they can afford to pay those future taxes. They can earn more only if they work more. They'll work more only if they have the right incentives. For $150 billion, you can hand out a lot of incentives. But the stimulus package is incentive-free.


~Steven Landsburg in today's LA Times

Monday, January 28, 2008

World Record:135m Escape Poverty in Only 5 Years

In China 25 years ago, over 600 million people—two-thirds of the population—were living in extreme poverty (on $1 a day or less). Now, the number on $1 a day is below 180 million. In the world as a whole, a stunning 135 million people escaped dire poverty between 1999 and 2004. This is more than the population of Japan or Russia—and more people, more quickly than at any other time in history.

~The Economist Magazine, "The World's Silver Lining: In a Week of Financial Uncertainty We Look Behind the Headlines to a World That is Unexpectedly Prosperous and Peaceful"

Tax Rebate Smackdown

From today's LA Times:

Jason Furman:

In May, June and July the U.S. Treasury will likely mail out $100 billion worth of checks to working households. If past experience is any guide, at least $50 billion of these funds will be spent — which together with multiplier effects will add about 3% to the annualized growth rate in the third quarter of 2008. If food stamp increases or extended unemployment insurance are added to the final package, as demanded by many in the Senate, the macroeconomic benefits would be somewhat larger.We will eventually need to pay back this money, but an extra year of lower unemployment and higher output will put us in a better position to do so.

Steven E. Landsburg:

In sum, you (along with the president and the majority of Congress) are asking us to:
  • shower people with loans to encourage reckless spending;
  • somehow expect that the loan recipients will feel both richer and not richer at the same time (so that they'll spend more without working less), and;
  • do all this in the name of delaying the sometimes painful adjustments that are going to have to get made a year down the line in any event.

I object. The last time large numbers of people were showered with loan money and encouraged to live beyond their means, it was called the sub-prime crisis, which is what got us into this mess to begin with.

Note: All week in the LA Times, Jason Furman, an advisor to President Clinton, and author-economist Steven E. Landsburg discuss the U.S. economy and the recently announced stimulus package.

Standings So Far: Landsburg 1, Furman 0.


Consumer Surplus on EBAY = $19 Billion in 2007

From today's NY Times: Winners of eBay auctions typically pay not the highest amount they bid but the second highest amount, plus the bidding increment of that auction. In other words, there is a gap between what they pay and what they are willing to pay – a “consumer surplus” whose size eBay has never revealed, since the company does not share data on the highest bids.

Researchers at the University of Maryland and the Indian School of Business have now quantified the consumer surplus by using a sniping agent called Cniper to track 4,500 eBay auctions in 2003 and 2004. By using the sniper software, the researchers could track the highest bids and measure the difference with the winning bid – an average of $4, or 30% savings on the average $14 eBay auction.

Writing in an upcoming issue of Information Systems Research, the researchers report that eBay buyers saved more than $7 billion in 2003 and $8.4 billion in 2004. Extrapolating from their data, they project that consumers saved $19 billion on eBay last year.

The Economy Is Fine (Really): Dow 15,000 Likely

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"It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble."

~Brian Wesbury, chief economist for First Trust Portfolios, writing in today's WSJ

Goldilocks rocks!

Rent-Seeking

From Indexed.

Earnings for Most Major Banks Forecast Up in 2008

A recent post reported that every major U.S. commercial bank was profitable last year. An anonymous commenter reported some 2008 earnings per share (EPS) estimates for some of the banks listed in the post. That comment inspired the table above (click to enlarge), which shows 2007 EPS (actual) and 2008 EPS estimates for 17 of the largest U.S. commercial and investment banks.

Conclusions:

1. Merrill Lynch is the only major investment bank to report negative earnings in 2007, and all other banks above were profitable last year. For 2008, $5.22 EPS is forecast for Merrill Lynch.

2. For 2008, all 17 banks are expected to be profitable, and EPS for 12 out of 17 banks are expected to increase from 2007.

EPS Source: Yahoo! Finance

Sunday, January 27, 2008

Retirement Assets Reach Record High Levels, in Both Dollars and As A Share of Household Assets


According to the most recent report (December 2007) on the U.S. retirement market through the second quarter of 2007 from the Investment Company Institute, the national association of U.S. investment companies including mutual funds, closed-end funds, and exchange-traded funds:

1. Total U.S. retirement assets climbed to $17.4 trillion at the end of the second quarter of 2007, up from $16.7 trillion at the end of the first quarter of 2007 (see top chart above, click to enlarge).

2. Retirement savings now account for almost 40% of all household financial assets in the United States (see bottom chart).

Conclusions:

1. As much retirement wealth was created in the last 5 years since 2002 (almost $7 trillion) as was created in the entire history of the country through 1995, when retirement wealth reached $7 trillion for the first time.

2. Retirement assets now account for nearly 40% of all U.S. household financial assets, or about twice the percentage of 20% in the mid-1980s, and more than three times the 12% share in the mid-1970s.

3. Household assets in the form of real estate have probably become much LESS important over time as retirement assets have grown in value, and real estate now accounts for a maximum of 60% of household assets, compared to a maximum of 80% during the S&L crisis and 88% during the 1970s.

Bottom Line: Not only have retirement assets reached record levels, but as I wrote in a previous post recently, household wealth has increased by almost $20 trillion in the last five years ($7 trillion due to retirement assets increasing), and the average American household now owns about $528,000 worth of stuff (assets, real estate, etc.), free and clear of any debt! In 2002, average net household wealth was about $370,000, and today it's more than half a million dollars. Therefore, in just the last five years we've become more than a third richer (+43%), which is truly amazing!

Further, real estate assets represent a smaller share of all household assets than any time in history, which could be a reason why the economy can absorb the subprime crisis.