Tuesday, February 12, 2008

Last 25 Yrs.: Most Stable Economy in U.S. History

Over the last 25 years, the U.S. economy has been in recession only 5.3% of the time, compared to the much higher frequencies of recessions in previous periods of comparable length (see graph above).
The U.S. economy has become increasingly more stable over time (see graph above). Since 1985, real GDP growth has fluctuated in a range between 0 and 5%. Despite a slowdown, or even a recession, we are fortunate to be living in the most economically stable period in U.S. history, with the lowest frequency of recessions in history.

Oscar Odds

From Intrade, top picks for the 80th Academy Awards, w/odds:

Best Director: Coen Brothers, 71%

Best Supporting Actor: Javier Bardem, 88%

Best Supporting Actress: Kate Blanchett, 42%

Best Actress: Julie Christie, 62%

Best Actor: Daniel Day Lewis, 87%

Best Picture: No Country for Old Men, 71.3%

High Taxes Redistribute People, NOT Income

From UHaul.com:

One-way truck rental from Newark to Charlotte : $2,116

One-way truck rental from Charlotte to Newark: $311

Reason: New Jersey is one of the top five departure states, and North Carolina is one of the top five destination states (see chart above), and the almost 7:1 ratio in prices suggests that 7 times as many trucks are going from NJ-NC as are going from NC-NJ.

From today's WSJ (no subscription required):

A record eight million Americans -- some 20,000 people every day -- relocated to another state last year. So where are these families headed and why? The general picture is this: Americans are continuing to flee the Northeast and Midwest, while the leading destinations continue to be Southern and Western states.

The United Van Lines study finds that the biggest population loser last year was Michigan, where two families moved out of the state for every new family that moved in. Americans are also fleeing New York, New Jersey, Ohio, Pennsylvania and Illinois. Without interviewing the departed, it's impossible to know the reasons for this outward migration. No doubt overall economic prospects, climate, quality of life and housing prices play a role. But one reason to conclude that taxes are also a motivator is because the eight states without an income tax are stealing talent from other states.

Our friends on the left say Americans are willing to pay more taxes to get better government services, but their migration patterns reveal the opposite. Governors would be wise to heed these interstate migration trends as they try to cope with what may be one of the worst years in recent memory for state finances. The people who tend to be the most mobile in American society are the educated and motivated -- in other words, the taxpaying class. Tax them too much, and you'll soon find they aren't there to tax at all.

Spending Other Peoples' Money: The REAL Problem

According to Dr. David Gratzer of the Manhattan Institute, in 1960 about half of health-care expenditures were directly controlled by consumers. Today, it is about 15%. Over the same period in which consumers have relinquished control, per-capita health-care spending has quintupled and costs have skyrocketed.

~Star Parker in
Hillarycare Is Not the Answer

Now imagine how your spending on food, travel, clothing, automobiles, cell phone plans, housing, etc. would change if you only paid 15% of the total cost out-of-pocket.

1. You'd eat a lot better, and so would your dog, e.g. you'd both eat a lot more steak.

2. You'd always travel first-class.

3. You'd get a Jaguar instead of a Ford Focus, or you'd get 2 Ford Focuses instead of one.

4. You'd get 2,000 minute per month plan, instead of a 500 minute plan.

What would happen to the prices of food, cars, etc.? Up, Up, Up.

Bottom Line: Anytime consumers are insulated from the true and full cost of their purchases of goods or services, consumption of those goods or services will increase significantly, which will then eventually significantly increase the prices of those goods and services and/or reduce the quality, which will then make those goods and services less and less affordable, which will then create a crisis, which will lead many to claim that there has been a "market failure" and advocate a government solution.

But anytime consumers are insulated from 85% of the true and full cost of their spending, that's not a market failure, that's a problem that has its source in spending somebody else's money.


Universal healthcare won't do anything to solve the problems of: a) spending somebody else's money, and b) making consumers conscious, aware AND concerned about the full cost of their treatment.

As P.J. O'Rourke said "If you think health care is expensive now, wait until you see how much it costs when it is free."

Monday, February 11, 2008

Wilting Dollar Hurts Colombian Flower Growers

Americans will buy almost 200 million roses for Valentine's Day, and almost all of them will come from South America, mostly from Colombia.

There is simply no better place to be a rose than in a valley near Bogota, Colombia. Near the equator, the valley gets constant sunlight year round. It is 8,500 feet above sea level, so the nights are cool and humid and the days are warm and dry. Flowers can be grown year-round because the area has constant 12-hour periods of daylight and temperatures averaging 57 degrees. In addition, Bogotá is just a three-hour flight to the United States.

To develop and strengthen legal industries and help these nations fight drug production and trafficking, Washington has allowed flowers and thousands of other products from Colombia, Ecuador, Peru and Bolivia to enter the U.S. duty-free since 1991. But for all the bustle and fuss of the peak season, growers in Colombia say they are being squeezed.

Prices for flowers remain flat. The falling value of the U.S. dollar has turned profits into losses. Several farms have closed, laying off thousands of employees. And a trade deal that would give Colombian flowers permanent duty-free entry into the United States may be rejected by the U.S. Congress.

Part of the problem is heavy reliance on the United States, where nearly six of every 10 flowers sold are imported from Colombia. Amid an economic slowdown, the U.S. dollar has lost more than one-third of its value against the Colombian peso (see chart above).

Read related stories here, here and here.

See a video of a Colombian rose farm.

See a video of a Minnesota rose farm.

In The Currency of Time, Good Old Days Are Now

More from today's NY Times article by Cox and Alm:

As the chart on the spread of consumption above shows (click to enlarge), the conveniences we take for granted today usually began as niche products only a few wealthy families could afford. In time, ownership spread through the levels of income distribution as rising wages and falling prices made them affordable in the currency that matters most — the amount of time one has to work to gain the necessary purchasing power.

At the average wage, a VCR fell from 365 hours in 1972 to a mere two hours today. A cellphone dropped from 456 hours in 1984 to four hours. A personal computer, jazzed up with thousands of times the computing power of the 1984 I.B.M., declined from 435 hours to 25 hours. Even cars are taking a smaller toll on our bank accounts: in the past decade, the work-time price of a mid-size Ford sedan declined by 6%.

There are several reasons that the costs of goods have dropped so drastically, but perhaps the biggest is increased international trade. Imports lower prices directly. Cheaper inputs cut domestic companies’ costs. International competition forces producers everywhere to become more efficient and hold down prices. Nations do what they do best and trade for the rest.

While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well.


Bottom Line: The rich are getting richer, and the poor are getting richer.

Consumption Equality 7X > Than Income Equality

Dallas Federal Reserve Bank VP/Chief Economist Michael Cox was featured in Drew Carey's video "Living Large: America's Middle Class" (see CD post here).

In today's NY Times, Cox and co-author Richard Alm have an excellent article "You Are What You Spend," which addresses some of the Dobbsian (Lou) myths of "Two Americas," the "Disappearing Middle Class," the "War Against the Middle Class," etc.

According to Cox and Alm, the problem with these myths is that they focus on the wrong measure of financial well-being: Income statistics, which don’t accurately measure Americans’ living standards. "Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume."

For example, "The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? Those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status."

Consider these statistics comparing the top fifth (richest 20%) and the bottom fifth (poorest 20%), measured by household income (see chart above, click to enlarge):

Household Income Ratio: 15 to 1
($149,963 top 20%, $9,974 bottom 20%)

Household Consumption Ratio: 3.84 to 1
($69,863 top 20%, $18,153 bottom 20%)

Persons Per Household: 1.82 to 1
(3.1 top 20%, 1.7 bottom 20%)

Consumption Per Person: 2.1 to 1
($22,536 top 20%, $10,678 bottom 20%)

Bottom Line: Even though households in the top fifth earn 15 times more income per household than the bottom fifth, those households in the top quintile consume only twice as much per person as the bottom fifth. Or, we could say that income inequality is 7 times greater than consumption inequality, or consumption equality is 7X greater than income equality.

Living standards are determined by consumption, not income, so the obsession about income inequality is a distraction from the fact that consumption, and therefore living standards, are distributed much more evenly than we think. After all, both low-income and high-income households own many of the same conveniences: color TVs, cell phones, microwave ovens, washers, dryers, VCR/DVD players, iPods, computers, etc.

Lotteries vs. Auctions for College Classes

From The Chronicle of Higher Education (subscription required):

For its humanities requirement, MIT asks students to rank the courses they'd most like to attend. If your No. 1 class is not in demand, then you're in. But if that class is overenrolled, a computer program chooses randomly among all the students who ranked that class as their first choice.

Wharton auctions spots to its M.B.A. students, allowing them to bid for their classes. They don't use real money; instead, students are each given 5,000 points when they enroll and 1,000 more for every credit they earn. An average course might sell for a few hundred points while the most sought-after ones can top 10,000.

Serban Suvagau bought a seat in a finance course this semester for 200 points. A couple of days later, he sold it for 900 points. Mr. Suvagau, a second-year student, wasn't really trying to make a profit. He just changed his mind. But he's made some shrewd moves in the past, and he began this semester with a solid 7,800 points.

Mr. Suvagau thinks an auction is more fair and efficient than, say, a lottery, but the process can still be annoying, especially if you get outbid. "Complaining about the auction is a big pastime," he says.

It's common knowledge among students which classes sell for a premium and which can be picked up for a song. Professors with more star power command higher prices. It also has to do with how many seats are available. If you restrict your class to 10 students, your price will most likely rise.

Merle Hazzard Meets Arthur Laffer


Merle Hazard is America’s first and only country music star to sing about mortgage-backed securities, derivatives, and leveraged buyouts. In this video, he meets famed economist Arthur Laffer, and Laffer gives Merle the idea for a song, "In the Hamptons."

Sunday, February 10, 2008

Beer Consumption

List of countries by beer consumption per capita in 2004 - U.S. doesn't make the Top 10, but is #2 in the world for total consumption (second to China).

Nordic Welfare States Are Poorest in Europe

In Oslo, library collections are woefully outdated, and public swimming pools are in desperate need of maintenance. News reports describe serious shortages of police officers and school supplies. When my mother-in-law went to an emergency room recently, the hospital was out of cough medicine. Drug addicts crowd downtown Oslo streets, but applicants for methadone programs are put on a months-long waiting list.

Even the humblest of meals - a large pizza delivered from Oslo's most popular pizza joint - will run from $34 to $48, including delivery fee and a 25% value added tax. In Norwegian pubs, anyone rich or insane enough to order a gin and tonic is charged about $15 for a few teaspoons of gin at the bottom of a glass of tonic.

Groceries aren't cheap, either. Every weekend, armies of Norwegians drive to Sweden to stock up at supermarkets that are a bargain only by Norwegian standards. And this isn't a great solution, either, since gasoline (in this oil-exporting nation) costs more than $6 a gallon.

A study by international accounting firm KPMG reported that when disposable income was adjusted for cost of living, Scandinavians were the poorest people in Western Europe.

Read more of the NY Times article "
We're Rich, You're Not. End of Story," (from April 17, 2005)

Vinyl is Back in the Groove

Vinyl's back at Amazon.com. Well, maybe it never left, but it's got its own section now.

Vinyl featured on CBS Sunday Morning.


Saturday, February 09, 2008

Global Migration: Destination USA and Europe

From WorldMapper, International Immigrant Destinations (country size on map represents relative immigration inflow)

Net Flow of Global Migration from the NY Times (click to enlarge).
Nearly 190 million people, about 3% of the world's population, lived outside their country of birth in 2005. The NY Times presents a look at the flow of people around the world in this Global Migration presentation.

Friday, February 08, 2008

Emerging Markets to the Rescue? Recurring Theme

Emerging Markets Rev Up Toyota Sales--Toyota's profit for the fourth quarter jumped 7.5% from the previous year as booming sales in China, Africa and South America offset declining US sales and a stronger yen, the Japanese car maker reported yesterday.

Overseas Snack Sales Help PepsiCo Meet Expectations--The snacks business registered double-digit growth in Russia, the Middle East, Turkey and India. The beverage business had double-digit increases in the Middle East, China, Brazil, Argentina, India and Russia. PepsiCo reported a quarterly profit on Thursday that met analysts’ expectations.

Why Mint the Penny When It Costs 1.675 Cents?

CBS 60 MINUTES--Should the U.S. Mint continue to produce pennies and nickels whose metal content is worth more than their face value? Why mint the penny, when it costs $134 million to make $80 million worth of what most people consider nuisance coins (see chart above of rising copper prices)?

The situation irks Edmund Mony, the director of the U.S. Mint, who would like Congress to find a solution. “You can’t sustain losses on pennies and nickels and expect to be a viable organization that benefits the American people,” says Moy.

Is that really a bureaucrat talking!

Watch "60 Minutes" this Sunday night at 7 p.m. on CBS for the story.

Record Low Jobless Rates in N.Z. and Switzerland

New Zealand's unemployment rate falls to record low 3.4%.

Switzerland's unemployment rate fall to more than 5-year low of 2.6%.

Thursday, February 07, 2008

1845 vs. 2008: Protectionism Hasn't Changed

In a classic, satirical anti-protectionism essay by French economist Bastiat, French candlemakers' in 1845 petitioned against "the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry is all at once reduced to complete stagnation. This rival is none other than the sun."

According to yesterday's
FT Times, The European Candle Institute is currently petitioning the European Union against "a surge in Chinese candle imports that is unfairly damaging our businesses."

The complaint says that hundreds of jobs have been lost in the past few months, and that Chinese producers are selling below the costs of their EU rivals.


The French candlemakers in 1845, according to Bastiat, wanted to pass a law "requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, and blinds -- in short, all openings and holes through which the light of the sun can enter houses, to the detriment of the candle industry."

The European candlemakers today want to impose anti-dumping duties against China in retaliation against "unfair prices."

Same difference.

HT: Tim Worstall

"Euros Accepted" Signs Sighted in NYC

NEW YORK -- Some New York City businesses have begun accepting euros as payment for merchandise, as the dollar remains weak against the European currency.

Signs reading “euros accepted” are now being posted in store windows around the city, including liquor stores in the East Village and clothing stores in Midtown.

Foreign tourism to New York City reached record levels last year, as European tourists flock to New York to shop and dine.

Q: Why Did CEO Pay Increase 6X From 1980-2003?

A: Simple. Because there was a 6X increase in the market capitalization of large companies during that period (see red line in graph above for market cap, vs. blue/green lines for CEO pay), according to this forthcoming QJE article by NYU business professors Xavier Gabaix and Augustin Landier.

HT:
Kevin "Angus" Grier at KPC

Rx:1,500 Market-based Retail Health Clinics in 2008

ASSOCIATED PRESS--Wal-Mart Stores Inc. will open its first in-store medical clinics under its own brand name after leasing space in dozens of stores to outside companies that operate the quick-service health stops.

The world's largest retailer said Thursday it will open "The Clinic at Wal-Mart" (pictured above) as a joint venture with local hospital systems in Atlanta, Dallas and Little Rock, Ark., starting in April.

Bentonville, Ark.-based Wal-Mart is among several U.S. supermarket and drug store chains that in the past couple of years have begun opening store-based health clinics, which are staffed mostly by nurse practitioners or physician assistants and offer quick service for routine conditions from colds and bladder infections to sunburn.

About 7% of Americans have tried a clinic at least once, and t
hat number is expected to increase dramatically, as chains like Wal-Mart, CVS Corp., Target Corp. and Walgreen Co. partner with mini-clinic providers like RediClinic and MinuteClinic to expand operations. The trade group estimates there will be more than 1,500 by year-end, up from about 800 in November.

From
Wal-Mart's press release: Today’s announcement is the first step towards opening 400 co-branded convenient clinics by 2010 and further proof of Wal-Mart’s commitment to providing affordable, accessible solutions to America’s healthcare challenges. Wal-Mart expects “The Clinic at Wal-Mart” to become synonymous with quality healthcare at affordable prices, provided by trusted, local providers.

Rx: Market Competition. Exhibit A: Inflation Rate for Prescription Drugs at 34-Year Low of 1.4%

Partly due to increasing generic-drug competition (generics were 63% of all prescriptions in 2006 vs. 50% in 2005) and the ongoing, fierce price war among drug retailers (see previous CD posts about $4 prescription drugs at Wal-Mart, Kmart, Publix, and Kroger), the inflation rate for prescription drugs fell to a 34-year low of 1.4% in 2007 (see graph above, click to enlarge), way below the average annual inflation rate of 4.12% for 2007, and way below the 34-year average drug inflation rate of 6.28%.

"The decline in drug prices shows that when things go right in health care -- when competitive markets are allowed to function -- prices respond favorably for consumers, just as they do in other sectors of the economy. So while politicians and pundits in Washington dream up the next grandiose health care reform, smart consumers know that the most effective health care solutions may be right around the corner at their local retailer."

Robert Goldberg, Vice-president of the Center for Medicine in the Public Interest

Concerned About Health Care Costs?

So is Kroger, which now offers more than 300 generic prescriptions for $4 at its 26 stores in the Memphis metro area. See the list of available generics here.

Wednesday, February 06, 2008

Being Alive Today in US, You've Won Lottery of Life

A previous CD post documented the significant gains in real income (not counting fringe benefits) over just a single generation (for ALL income groups), based on a sample of individuals who were between the ages of 0 and 18 in 1968 and have been tracked into adulthood.

Another important financial gain over that same generation from the late 1960s to the late 1990s was the significant increase in real net household wealth from about $159,000 per household in 1969 to $452,000 by 1999 (according to data from the Federal Reserve, adjusted for inflation using the CPI). In other words, at the same time that real median household income rose by 29% between the two generations, average real household net worth almost tripled!

Waiting Times: 40% of Swedes In One County Can't Even Contact Their Local Clinic By Phone When Ill

SWEDEN--Health Minister Göran Hägglund publicly criticized the lack of progress made toward shortening wait times in Sweden’s health system.

He made the comments in an opinion article in which he stated that the $39 million spent by the government on lowering wait times has apparently had little effect. The criticism comes in response to a report by the National Board of Health and Welfare showing that nearly 45% of patients have longer wait times than are supposedly guaranteed by the healthcare system.

Wait times for service were also found to vary greatly from one county to another. In Jämtland county, for example, four out of ten patients couldn’t even get through to their local clinic by telephone on the day they become ill.


Just wondering: How long would Domino's Pizza, Northwest Airlines or Dell Computer stay in business if four out of ten customers couldn't get through by phone when they wanted to order a pizza, an airline ticket or a computer?

If Detroit's Mayor Were a CEO, He'd Be Fired

Q: What would happen if Detroit Mayor Kwame Kilpatrick, who is accused of having an affair with his chief of staff and lying about it under oath, were the chief executive of a major corporation or nonprofit group instead of the mayor of Detroit?

A: His fate would be a foregone conclusion. He'd be fired. (I think we could say the same for Monica Lewinsky's ex-boyfriend.)

Read more here of University of Michigan's David Hess' (Ross School professor of business ethics) editorial in the Detroit News

Bottom Line: Isn't it interesting that the private sector now has higher ethical standards for its CEOs than the public sector has for its highest elected officials?

The Real Scandal: How Feds Invited Mortgage Mess

Countrywide Financial heads towards bankruptcy
Thomas Sowell, on the subprime credit crisis:

The government has brought on the housing problem, partly by these very low interest rates, which encouraged many people to go way out on a limb. They’ve brought it on by highly restrictive building policies, which have caused housing prices to skyrocket artificially. And they’ve brought it on by the Community Reinvestment Act, which presumes that politicians are better able to tell investors where to put their money than the investors themselves are. When you put all that together, you get something like what you have.

Stan Liebowitz, Professor of Economics, University of Texas at Dallas, writing in yesterday's NY Post:

Perhaps the greatest scandal of the mort gage crisis is that it is a direct result of an intentional loosening of underwriting standards - done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults.

From the current hand-wringing, you'd think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards - at the behest of community groups and "progressive" political forces.

A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities. It also let community activists intervene at yearly bank reviews, shaking the banks down for large pots of money.

Ironically, an enthusiastic Fannie Mae Foundation report singled out one paragon of nondiscriminatory lending, which worked with community activists and followed "the most flexible underwriting criteria permitted." That lender's $1 billion commitment to low-income loans in 1992 had grown to $80 billion by 1999 and $600 billion by early 2003.

Who was that virtuous lender? Why - Countrywide, the nation's largest mortgage lender, recently in the headlines as it hurtled toward bankruptcy (see chart above of Countrywide's 90% stock decline).

Living Large: America's Prosperous Middle Class

Reason.tv: To hear the Lou Dobbses and Bill O'Reillys of the world--not to mention politicians ranging from Ron Paul to Hillary Clinton--the middle class of America (however you define that term) has never had it so tough. Between credit squeezes, out-of-control immigration, rising costs of education and health care and everything else, it's all darkness out there for those of us who are neither millionaires nor welfare cases, right?

In "Living Large," Drew Carey and Reason.tv examine the plight of the American middle class. What do they find?
Click here to watch the video.

Featured in the video is Michael Cox, chief economist at the Federal Reserve Bank of Dallas. On the topic of the middle class making ends meet Cox says, "If you’re willing to settle for the living standards of the 1970s, it’s easy to make ends meet. It’s not the high cost of living, it’s the cost of living high, and it’s the fact that we insist on having so much more today." Further, "Americans are richer today than at any time in history. We should really be thankful that we live in a society where we don’t have to work day and night in order just to eke out a living."

Despite what Lou Dobbs and the media tell us, just by being alive in 21st century America, even if you're middle class, you've "won first prize in the lottery of life."

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%