Sunday, March 09, 2008

Tuition Gouging, Windfall Endowments, Part II

This recent CD post featured a graph that showed that college tuition has increased about 2.5 times more than the CPI over the last 30 years, and has risen even much more than the price of oil. I posed the question: Where are the Congressional hearings on "tuition gouging" and "windfall university endowments ($411 billion currently)." Here's the answer from the Boston Globe:

Under growing pressure from Congress, the country's wealthiest colleges and universities are sharply resisting calls to spend more of their soaring endowments to expand financial aid and curb tuition hikes that critics say are putting college beyond the reach of ordinary families.

The pattern of deep-pocketed universities regularly raising tuition while amassing fast-growing fortunes has drawn unusual scrutiny from government leaders and higher education advocates over the past few months. They say elite colleges are hoarding wealth that could help open their doors to more poor and working-class families.

In Massachusetts, 13 institutions boast endowments of more than $500 million. The Boston area's eight wealthiest schools hold a combined fortune approaching $50 billion.

See the chart above (click to enlarge) of the 20 largest college endowments (totaling almost $200 billion), from a database in the Chronicle of Higher Education (paid subscription required) for the endowments of almost 800 colleges and universities (combined total of $411 billion as of June 2007). Harvard's endowment alone of $34.6 billion is more than the cash holdings of General Electric, IBM, Wal-Mart and Microsoft, combined!

Check Out the New $3 Bill

Click here.

(HT: Shakesville)

Univ. of Michigan Women's Studies Dept. Accused of Discrimination, Against A Female Professor

The fact that women are capable of contributing to the nation's scientific and engineering enterprise but are impeded in doing so because of gender and racial/ethnic bias and outmoded ‘rules' governing academic success is deeply troubling and embarrassing.

Report of the Committee on Maximizing the Potential of Women in Academic Science and Engineering

Many excellent scientists and engineers are opting out of the academic career path because of the perceived hostile climate for women - in hiring, tenure, promotion, and compensation - particularly those who wish to combine family or community service with research and teaching.

Donna Shalala, President of the University of Miami

So how does it work when women control an academic department? The
Women's Studies Department at the University of Michigan lists 72 full-time faculty members, and 69 of those professors, or 96% of the department, are female.

Assistant professor
Andrea Smith was recently denied tenure by the female faculty of the Women's Studies Department, and some University of Michigan faculty and students allege that Professor Smith is a victim of discrimination.

Read the full story in the
Michigan Daily here.

How Government Makes Things Worse

What do ethanol and the subprime mortgage meltdown have in common? Each is a good reminder of that most powerful of unwritten decrees, the Law of Unintended Consequences - and of the all-too-frequent tendency of solutions imposed by the state to exacerbate the harms they were meant to solve.

Read more from Jeff Jacoby's column in today's Boston Globe.

Recent CD Milestones


Half a million visits and 2,000 posts since Oct. 2006!

Fuel Efficiency Has Increased By 71% Since 1973

Thanks to a suggestion in a comment on a previous post by Mad Toothfish, the chart above shows the significant increase in fuel efficiency over time, based on "miles per gallon (m.p.g.)" data from the EIA (Figure 23) for passenger cars. Compared to 1973, when the average passenger car got only 13.4 m.p.g., fuel efficiency increased to 22.9 m.p.g. by 2005, a 71% increase in efficiency in a 32-year period!

Thomas Sowell: Economic Facts and Fallacies

An excellent 5-part National Review Online interview with Thomas Sowell, based on his new book "Economic Facts and Fallacies":

Part 1: The conventional wisdom instructs that the rise of women in corporate America in the latter half of the 20th century was due to the implementation of anti-discrimination laws championed by the feminist movement. In reality, a greater proportion of American women held high-level occupations in the first half of the 20th century. Thomas Sowell sets the record straight on this and other male–female employment fallacies.

Part 2: It has been reported that the incomes of most American households have remained flat in recent decades. But Sowell says this is a misleading statistic, since “households” are a moving target — varying over time in size, among population groups, and from one income level to another. Says Sowell, “Whenever I see somebody quoting household income, he's trying to make things look bad.” The mainstream media, it turns out, works overtime to make most income data look bad.

Part 3: Sowell discusses the outrage that is faculty tenure. Tenured faculty members, he says, run universities for their own best interests — not the interests of students. They schedule classes on their own time, not students’ time. They wield tremendous influence, in particular into areas where they have no expertise. Why, asks Sowell, should someone who teaches French literature decide whether ROTC should be allowed on campus? The trouble with tenure extends far and wide.

Part 4: We’re programmed to think that if we want to make it big in life we need to attend the crème de la crème of colleges. Thomas Sowell says that’s not true at all. Higher-ed institutions also spread the notion that the price of tuition — though astronomically high — doesn’t even cover the full cost of educating each student. Another misleading statement, says Sowell. How can one separate higher-ed truth from fiction? Sowell has the answers.

Part 5: Fallacies about race run rampant through our culture. For instance, racial discrimination is often listed as a root cause of criminality among blacks, but Sowell points out that black crime was declining prior to the 1960s and the civil-rights and anti-poverty laws that emerged during that decade. What then is the source of black criminality in the post-1960s? Simple, says Sowell: “They stopped punishing criminals.”

Saturday, March 08, 2008

Gas Prices As Percent of Income Are Still Affordable

The chart above (click to enlarge) shows the cost of 1,000 gallons of gas at the retail price in each year from 1919 to 2007 using historical gas price data from the EIA, as a percent of GDP per capita in those years using data from Global Financial Data (paid subscription required).

1. As a percent of per-capita GDP to purchase 1,000 gallons of gas, gas prices in 2007 (about 6% of per-capita GDP) are still not even close to the levels reached in the early 1980s, when it cost 9-10% of per-capita GDP to purchase 1,000 gallons of gasoline in 1980, 1981 and 1982. It's true that the inflation-adjusted prices of gas and oil are now about the same as in 1981, but per-capita real GDP is almost twice as high today as then!

2. Except for the 1990s, gas prices today as a percent of per-capita GDP are lower than every other previous decade: the 1920s, 1930s, 1940s, 1950s, 1960s, 1970s and the 1980s!

Real Gas Prices: We've Had It Good for a Long Time

The chart above was created using inflation-adjusted gas prices from the Energy Information Administration from 1919 to 2008, along with the overall trend line for gas prices over the last 90 years.

1. The trend line shows that real gas prices (2007 dollars), started from a price slightly above $3 in 1919 and in general, on average, declined by a little more than 1 cent per year to about $2 in 2008. Obviously, gas prices are now way above the trend, but the general trend for the last 90 years has been steadily falling gas prices.

2. Real gas prices in 1919-1922 averaged $3.08 per gallon, higher than the average price so far this year of $2.98. And real GDP per capita today ($43,000) is about 6.5x higher than in 1919 ($6,675). In other words, adjusted for differences in real income, our ancestors in 1919 paid the equivalent of about $20 per gallon!

3. In the 69 years since 1940, real gas prices have been below the historical trend in 57 of those years and above the trend for only 12 years.

Bottom Line: Despite today's high oil and gas prices, we've had it pretty good for a long, long time, with a long-run historical, 90-year trend of a decline in real gas prices.

What About Tuition Gouging, Windfall Endowments

The graph above was created using college tuition data from the National Center for Education Statistics (with estimates for 2007 and 2008), Consumer Price Index data from the BLS, and average annual oil price data for West Texas Intermediate Oil from Global Financial Data. All series are set to an index value of 100 in the base year of 1976. Comments:

1. During a 22-year period from 1982-2003, real oil prices were below their 1981 level.

2. College tuition has increased by almost 10X since 1976, compared to a 7.48X increase in oil prices over the same period.

3. Given the fact that college tuition has gone up by far more than oil prices over the last thirty years, why doesn't rising college tuition get the same attention as rising oil prices? Where are the Congressional hearings on "tuition gouging," "windfall university endowments ($411 billion currently)," etc.

Friday, March 07, 2008

Why Decoupling May Save The World Economy

Exports from emerging economies to U.S. have fallen, while exports to other emerging economies have remained strong:

Emerging markets now export more to China than to the U.S.:
THE ECONOMIST -- “Decoupling” is the source of a great deal of controversy. Economists argue about whether or not emerging economies will follow America into recession. Recent data suggest decoupling is no myth. Indeed, it may yet save the world economy.

Decoupling does not mean that an American recession will have no impact on developing countries. The point is that their GDP-growth rates will slow by much less than in previous American downturns. Most enjoyed strong growth during the fourth quarter of last year, and some speeded up, even as America’s economy ground to a virtual halt and its non-oil imports fell.

Here are some reasons that globalization and decoupling can co-exist:

Reason 1: While exports to America have stumbled, exports to other emerging economies have surged (see top chart above). China’s growth in exports to America slowed to only 5% in the year to January, but exports to Brazil, India and Russia were up by more than 60%, and those to oil exporters by 45%. Half of China’s exports now go to other emerging economies. Likewise, South Korea's exports to the United States tumbled by 20% in the year to February, but its total exports rose by 20%, thanks to trade with other developing nations.

Reason 2: The popular argument that business cycles should become more synchronised in a globalized world rests on an out-dated impression that poor countries mainly export to rich ones. Instead, emerging economies’ trade with each other has risen faster and now accounts for over half of their total exports. Emerging markets as a group now export more to China than to the United States (see bottom chart above).

Reason 3:
The four biggest emerging economies, which accounted for two-fifths of global GDP growth last year, are the least dependent on the United States: exports to America account for just 8% of China’s GDP, 4% of India’s, 3% of Brazil’s and 1% of Russia’s. Over 95% of China’s growth of 11.2% in the year to the fourth quarter came from domestic demand. China’s growth is widely expected to slow this year but to a still boisterous 9-10%.

Reason 4: Previous American downturns have often caused the prices of oil and other raw materials to slump, but this time China’s surging demand is propping up prices and fuelling booms in Brazil, Russia and the Middle East.

Monetary Mystery?

The top chart above shows the annual percentage changes in the monthly monetary base from 2002-2008. The bottom chart shows M1 (red) and the monetary base (blue) from 2002-2008.

Clearly, the growth rate of the monetary base ("high-powered money") has been slowing, and both M1 and the monetary base have been flat for three years.

Q: How can inflation be a problem when M1 has been flat for three years, and the growth rate of the monetary base has been declining for six years?

Ancient Land of Pharaohs Has A High-Tech Future? -- Egypt is making a pitch to be the next offshore outsourcing hot-spot, claiming that its foreign language skills and low labour costs put the country in a strong position to compete with India and eastern Europe.

AT Kearney recently ranked Egypt number 12 in a list of top offshore outsourcing destinations and while the country's share of the offshore call-centre market is still very small, analyst Datamonitor predicts it will grow by 52% over the next 12 months.

Egypt's leading call center company Xceed has a 1,200 seat operation at a new government-subsidised high-tech Smart Village just outside Cairo where salaries for staff working on offshore accounts range from around $400 to $500 per month.

The company, whose customers include General Motors, Microsoft and Oracle, also has no problem picking the best candidates - with 18,000 applications received for each position.
Adel Danish, chairman and CEO of Xceed, speaking to at the company's Egypt headquarters this week said the country is ideally situated to be a near-shore outsourcing destination for European companies.

He said: "Egypt can be for Europe what India is to the US."

The Age of Milton Friedman:Good Time To Be Alive

Amidst all of the gloom and doom, here is some good news from a recent paper by Harvard economist Andrei Shleifer titled "The Age of Milton Friedman":

The last quarter century has witnessed remarkable progress of mankind. The world’s per capita inflation-adjusted income rose from $5,400 in 1980 to $8,500 in 2005 (see chart above). Schooling and life expectancy grew rapidly, while infant mortality and poverty fell just as fast. With the conspicuous exceptions of China and the Middle East, the world has made significant strides in democratization. Compared to 1980, many more countries in the world are democratic today.

We’ve seen remarkable declines in infant mortality in all regions, with the worldwide population-weighted average dropping from 64.5 to 37.5 per thousand births. The World Bank reports that between 1980 and 2000, the share of the world’s population living on less than $1 a day fell from 34.8 percent to 19 percent. It forecasts that the number of people living on less than $1 a day will continue to fall sharply despite population growth, and account for 10 percent of the world’s population by 2015. Billions of people in Asia have been lifted out of poverty thanks to economic growth; Sub-Saharan Africa, with little or no economic growth, is where the really poor are concentrated.

As Pete Geddes reminds us "By most measures, this appears to be a very good time to be alive."

Shleifer continues:

The last quarter century also saw wide acceptance of free market policies in both rich and poor countries: from private ownership, to free trade, to responsible budgets, to lower taxes. Three important events mark the beginning of this period. In 1979, Deng Xiao Ping started market reforms in China, which over the quarter century lifted hundreds of millions of people out of poverty. In the same year, Margaret Thatcher was elected Prime Minister in Britain, and initiated her radical reforms and a long period of growth. A year later, Ronald Reagan was elected President of the United States, and also embraced free market policies. All three of these leaders professed inspiration from the work of Milton Friedman. It is natural, then, to refer to the last quarter century as the Age of Milton Friedman.

(HT: NCPA and Greg Mankiw)

Trade Isn't A Threat, It's Why We Are Prosperous

"Democratic candidates for national office will: 1) make negative comments about free-trade deals while campaigning in a state where hundreds of thousands of blue-collar manufacturing jobs have been lost and yet 2) be committed to free trade should they happen to win."

~Daniel Gross in his article "NAFTA Nonsense"

~Rod Hunter in today's WSJ article "The Democrats and Trade:"

On the campaign trail, both Hillary Clinton and Barack Obama are pandering to organized labor and other antitrade activists on the left.

It is tempting to dismiss this as empty posturing -- important for electioneering but likely to be forgotten after November. But words matter. If one of the Democrats wins the White House, he or she may find that the antitrade tirades delivered carelessly this year will, by next, have unleashed protectionist forces not easily controlled.

Mrs. Clinton is distancing herself from and even dismissing her husband's trade legacy, which includes enacting the North America Free Trade Agreement (Nafta), creating the World Trade Organization (WTO), and negotiating China's admission into it. She is now calling for a "time out" from any new trade pacts. Mr. Obama, unburdened by a record to defend, blames Nafta for shipping jobs abroad and "forcing parents to compete with teenagers for minimum wage jobs at Wal-Mart." He wants to renegotiate Nafta.

It is true that there is a lot of churning as jobs are destroyed, but even more are created as firms enter, exit or are resized in a dynamic economy. Back in 2004, Ben Bernanke, then a Federal Reserve governor, looked at Bureau of Labor Statistics data stretching back a decade and pointed out that about 15 million jobs were lost and 17 million created each year -- an annual net creation of nearly two million jobs. What's more, only about 2.5% of the jobs lost were a result of import competition. The vast majority of jobs lost were caused by changes in consumer tastes, domestic competition, and technology.

It is also true that U.S. manufacturing has been shedding jobs since the late 1970s, with workers increasingly moving into services (see chart above, click to enlarge). But we have seen this process before. In 1900, it took about 40% of the American workforce toiling on the farm to feed the country. Today, thanks to farm mechanization, agricultural chemistry and other innovations, a mere 2.5% of the workforce feeds the nation and exports about third of U.S. farm production.

Trade is not the threat Mrs. Clinton and Mr. Obama allege. It is a central reason why American workers are among the world's most productive and prosperous. An economy open to trade is also an economy free enough to thrive in a changing world.

Thursday, March 06, 2008

The Tenacious Survival Instinct of the Civil Servant

From The Economist:

Belgium's central bank still employs more than 2,000 people, even though it has not had a currency to oversee since 1999, when it abandoned the Belgian franc and joined the euro. The survival instinct of Belgian civil servants is especially impressive when you compare the National Bank of Belgium's headcount with that of central banks which still have currencies to attend to. Belgium employs twice as many central bankers as Britain and four times as many as Sweden.

Falling Prices:The Real Solution to Housing Collapse

Economist Steven Landsburg made the "case for foreclosure" in, and was featured in this CD post on Tuesday.

Writing in today's IBD, columnist Robert Samuelson makes a convincing case for falling home prices as the only real solution to the country's housing problems:

Gloom. Doom. Calamity. Home prices are tumbling. We're bombarded by somber reports. But wait. This is actually good news, because lower home prices are the only real solution to the housing collapse.

The sooner prices fall, the better. The longer the adjustment takes, the longer the housing slump (weak sales, low construction, high numbers of unsold homes) will last.

It's elementary economics. Pretend that houses are apples. We have 1,000 apples, priced at $1 each. They don't sell. We can either keep the price at $1 and watch the apples rot. Or we can cut the price until people buy. Housing is no different.

Even many economists who should know better describe the present situation as an oversupply of unsold homes. True, there is about 10 months' supply of existing homes as opposed to four a few years ago. But the real problem is insufficient demand.

There aren't more homes than there are Americans who want homes; that would be a true surplus. There's so much supply because many prospective customers can't buy at today's prices.

Comparing Income Taxes: Clinton vs. Bush

Despite all of the political rhetoric about "tax cuts for the rich" and the "middle class squeeze," a recent analysis by the Tax Foundation shows that federal income taxes have fallen for groups at all income levels as a result of the Bush tax cuts, compared to the 1999 tax rates under Clinton (see chart above). And in fact, the group in the chart above that experienced the largest percentage decrease in taxes were the married taxpayers with $50,000 of household income (clearly middle class by most definitions) - they paid 21% less in taxes under the Bush tax rates compared to the Clinton rates. By contrast, "rich" single taxpayers with income of $125,000 paid only 10% less in taxes. In other words, some middle-class taxpayers received twice the tax cut on a percentage basis as some of "the rich." .....So much for the claim that "the Bush Administration and Congressional policies are failing middle-class Americans."

Both Hillbamas want to extend the tax cuts for the middle-class but not for "the wealthy."

Here's my challenge to Hillbama: Both of them are clearly part of "the wealthy," and pay federal income taxes at the highest current marginal income tax rate of 35%. Obama's income in 2007 was about $1 million, and just one or two speeches by Bill Clinton at $200,000 puts the Clinton household income into the top tax bracket (in 2006, Clinton earned $10 million in speaking fees).

If they want to end the tax cuts for "the wealthy," they don't have to wait for the Bush tax cuts to expire at the end of 2010, they can voluntarily pay taxes right now at the old 1999 rates under Clinton. In other words, if the highest marginal rate of 35% is too low for the wealthy Hillbamas, they could make a strong, personal statement right now by voluntarily paying their 2007 taxes at the old highest marginal rate of 39.6%. In fact, Hillbama, Warren Buffet and anybody else opposed to the Bush tax cuts, can voluntarily pay taxes this year under the 1999 Clinton tax rates, instead of the current tax rates (see chart below, click to enlarge). If higher taxes on the wealthy in the future are good, shouldn't they also be good right now?

Here's an idea: Why doesn't TurboTax introduce tax preparation software based on previous years' higher marginal tax rates, to easily allow people like Hillbama, Warren Buffet and other anti-Bush tax cut advocates to pay at their preferred higher rates, instead of the new lower rates. Alternatively, The Tax Foundation has historical income tax rates back to 1913 here. If 39.6% from 1999 is too low, Buffet et al. could file under the 1960s highest marginal tax rate of 91%, the 1970 tax rate of 70%, or the 1980s tax rate of 50%.

(HT: Juandos)

Initial Jobless Claims Fall for Second Week

WASHINGTON -- The number of U.S. workers filing new claims for unemployment benefits fell more sharply than expected last week, a rare sign of resilience in the labor market this year. The four-week average of new claims, which economists use to smooth out weekly volatility, fell by 1,500 to 359,500, the second-straight decline (see chart above).

However, claims for benefits lasting longer than one week rose to a fresh two-and-a-half-year high. The data suggest that while labor markets are clearly softening, there is no sign of the kind of collapse that would deepen the economic downturn.

Cartoons of the Day

Wednesday, March 05, 2008

Moscow Now Has More Billionaires Than NYC

The world's 25 richest billionaires:
Forbes released its report today on the world's billionaires, see the top 25 above (click to enlarge). Note that Indians represent three of the six richest people on the planet, and four of the eight richest people, compared to only two Americans. Of the top 25 richest people in the world, Russia has almost twice as many billionaires (7) as the U.S.

Here's the full list of the
World's Billionaires.

According to
another report on the Forbes list, Moscow has overtaken New York City as home to the most billionaires, with 74 of the super-rich elite now counting the Russian capital as their home. By contrast, 71 billionaires live in New York, according to the magazine's annual list, which placed London in third place with 36.

Russia now counts a total of 87 billionaires, ousting Germany in second place but still trailing the first-placed United States, which has 469.

"Russia is again the dominant story in (Europe) this year. Its billionaires are just fast and fearsome. What's fascinating is that every single one of them is self made," said Forbes senior editor Luisa Kroll.

"We're not going to get into exactly how they got it but none of them inherited it and their average age is 46," she added.

Title IX Gender Equity Applied to Science & Math?

Math 55 is advertised in the Harvard catalog as “prob­ably the most difficult undergraduate math class in the country.” Math 55 does not look like America. Each year as many as 50 students sign up, but at least half drop out within a few weeks. As a former student told The Crimson newspaper in 2006, “We had 51 students the first day, 31 students the second day, 24 for the next four days, 23 for two more weeks, and then 21 for the rest of the first semester.” Said another student, “It’s like an episode of ‘Survivor’ with people voting themselves off.” The final class roster: 45% Jewish, 18% Asian, 100% male.

Women now earn 57% of bachelors degrees and 59% of masters degrees. According to the Survey of Earned Doctorates, 2006 was the fifth year in a row in which the majority of research Ph.D.s awarded to U.S. citizens went to women. Women earn more Ph.D.s than men in the humanities, social sciences, education, and life sciences. Women now serve as presidents of Harvard, MIT, Princeton, the University of Pennsylvania, and other leading research universities.

But elsewhere, the figures are different. Women comprise just 19% of tenure-track professors in math, 11% in physics, 10% in computer science, and 10% in electrical engineering. And the pipeline does not promise statistical parity any time soon: women are now earning 24% of the Ph.D.s in the physical sciences—way up from the 4% of the 1960s, but still far behind the rate they are winning doctorates in other fields.

Departments of physics, math, chemis­try, engineering, and computer science have remained traditional, rigorous, competitive, relatively meritocratic, and under the control of no-nonsense professors dedicated to objec­tive standards. All that may be about to change. Following years of meticulous planning by activists, the era of academic détente is coming to an end.

Reason? There is a movement by some to apply the gender equity provision Title IX to science education, just like it has been applied to college sports.

Read more of the article "Why Can't A Woman Be More Like a Man?" here.

U.S. Productivity Rises 1.9% in QIV 2007

The BLS reported today that productivity in the nonfarm business sector increased by 1.9% in the fourth quarter of 2007 (see chart above), and was up by 2.9% compared to QIV of 2006. Productivity increased by 6.3% in the third quarter of 2007.

From the Wall Street Journal:

On balance, the data should provide some relief to Fed officials that economic fundamentals remain strong.

Though down from the third quarter, productivity held up quite well considering the slowdown in the overall economy. And there are signs that productivity should hold up this year as well. Companies are shedding workers in response to the slower economy, judging by recent monthly employment and weekly jobless claims data. And much of the economy's growth is now being generated by exports, which tend to be more productive than the economy-wide average.

That could provide a key disinflationary offset to higher energy and food prices and the falling dollar. The downside, though, is if greater efficiency comes at the expense of payrolls, which could in turn hurt consumer confidence and spending, which makes up the bulk of economic activity.

About That Middle-Class Squeeze

From today's IBD:

Democrats seem unable to stop themselves from promoting higher taxes for the wealthy and lower taxes for the poor. But if the public knew the facts, their rhetoric would have no resonance.

As the chart above shows (click to enlarge), the effective tax rate for middle-class Americans has fallen since the late 1970s. While that was happening, the median after-tax household income jumped by more than a quarter. Taxes down, incomes up. No question — we're all doing better.

Despite this news, readily available, the two remaining Democratic presidential candidates talk as if the rich are the only group getting tax breaks, while support from Washington for the poor has fallen and the middle class is being crushed out of existence.

What more do the Democrats want? Under the Bush tax cuts, the top 1% paid 39.4% of federal income taxes in 2005, up from 37.4% in 2000 and 30.3% in 1995, when the Clinton administration was in charge and had pushed a tax hike through a Democratic Congress.

As for the bottom 50%, they paid 3.1% of federal income taxes in 2005, down from 3.9% in 2000 and 4.6% in 1995. You can see the decline in tax rates under Bush for yourself (see chart below). The Bush tax cuts have been good for every taxpayer in the country, not just the rich.

"Reproductive Outsourcing" Booming In India

Mumbai, India -- India's lucrative outsourcing sector is not limited to back office jobs. It is now emerging as a major supplier of "back bedroom jobs" as an infant outsourcing hub as well.

Reproduction is the newest addition to the Asian tiger's outsourcing industry. Couples from the United States and Europe are asking Indian women to serve as surrogate mothers (pictured above), leading to a boom in the number of clinics offering the procedure.

Commercial surrogacy is prohibited in a number of European nations and is subject to strict regulations in the U.S., but has been legal in India since 2002. The cost of $25,000, which covers the medical procedure, plane tickets and accommodation for two, is just one-third of what it would cost in the United States. The double fare and hotel bills covers both fertilization procedures and taking back the baby.

See a previous CD post on this
topic here.

Tuesday, March 04, 2008

Case for Foreclosure:Law of Conservation of Homes

One family's sorrow (the one moving out of this house) is another family's joy (the one moving into this house).

University of Rochester Steven E. Landsburg presents the "case for foreclosure" in his new Everyday Economics column:

If you're facing foreclosure, Treasury Secretary Henry Paulson wants to help. "If someone is willing to make a call to reach out," says Paulson, "there's a chance we can save their homes." But Paulson can't save these homes because the homes are not endangered in the first place. They stand to change hands, not to vanish. There cannot be more homeowners than there are homes, and if one home becomes vacant, then there can be one new homeowner. Call it the Law of Conservation of Homes.

None of these foreclosed houses is going to disappear. After a foreclosure, one family moves out, and another moves in. We see the sad faces of the people moving out, but we don't as often see the happy faces of the new homeowners moving in. Nevertheless, those happy faces are out there, and we should not discount them.

That's important, and it's important in a larger context. Often when it comes to economic policy, some effects—in this case, the genuinely moving stories of good people who can't afford to live where they've been living—are highly visible, while others—the genuinely moving stories of good people who can now achieve their dreams of home ownership—are less well-publicized. That doesn't make them any less real.

Landsburg analysis on foreclosures reminds me of Bastiat's essay "What Is Seen and What Is Not Seen":

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

This difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

I think Landsburg falls into the "good economist" category.

What's Love Got To Do With It? Economic Growth

Don't Tell Mom She Has a College Degree
From the abstract of an interesting research paper "What’s Love Got To Do With It? Parental Involvement and Spouse Choice in Urban India," by a University of Chicago economics graduate student Divya Mathur:

“Arranged” marriages, characterized by strong parental control over mate choice, are the norm in India, although there is a steady transition towards autonomous “love” marriages, especially within the urban middle class. I construct a novel dataset by surveying 6,030 parents and adult children in Mumbai, India, to study selection into arranged marriage and its effects on spouse choice. I consider the choice between an arranged and a love marriage as the outcome of bargaining between parents and children, when agents have different preferences for spouse attributes. I find that stronger financial and kinship ties between parents and sons increase the likelihood of an arranged marriage. Furthermore, when parents are involved in mate choice, sons are significantly less likely to marry college-educated women and women engaged in the labor force, after controlling for individual and family characteristics. I show that these effects are driven, at least in part, by parental preferences. These results suggest that lowering the incentive for parental control in mate choice may improve investments in women’s human capital in India.

From the Conclusion:

My results also suggest that a movement from arranged marriage to love marriage may be instrumental in promoting growth. I find that parental control in the selection of a daughter-inlaw results in brides with lower levels of human capital. In equilibrium, this lowers the return on women’s education and thus adversely affects the incentive to invest in women’s human capital. This suggests that developing infrastructure for the care of the elderly, improving social security, encouraging retirement planning, and thereby lowering the incentive for parental control over son’s marital choices, may be an effective mechanism for increasing investment in women’s human capital.

The Altantic has a report on the paper here.


From the Office of the United States Trade Representative, some NAFTA Fact Sheets:

1. NAFTA - Myth vs. Facts

2. NAFTA: An Annual Tax Cut and Income Gain for American Families

3. NAFTA Benefits

4. NAFTA - A Success for Trade

5. NAFTA Analysis

Bottom Line: By almost all measures, NAFTA has been a success: a) trade among NAFTA nations has tripled and has especially helped U.S. farm exports, b) NAFTA has NOT cost the U.S. jobs, has NOT supressed wages in the U.S. or Mexico and has NOT hurt the U.S. manufacturing base, and c) NAFTA has led to environmental improvements in Mexico.

Global Warming Religion: The "Biggest Threat to Freedom"; and Global Cooling Gets Some Respect

Given the extremely cold winter this year in many parts of the world, it probably makes sense that global cooling is getting an increasing amount of attention, see the Google Trends chart above of search volume for the term "global cooling" over the last 12 months, and note the recent spike in February. At the same time, note the significant decline in search volume for the term "global warming" in the bottom chart above.

From yesterday's IBD editorial:

1. According to the Canadian Ice service, this Arctic winter has been so severe that the continent's allegedly vanishing ice is 10 to 20 centimeters thicker than it was at this time a year ago.

2. Recent satellite images show the polar ice cap is at near-normal coverage levels, according to Josefino Comiso, a senior research scientist with NASA.

3. This winter has been particularly severe. The U.S. National Climatic Data Center (NCDC) reports that many American cities and towns suffered record cold temperatures in January and early February. The average temperature in January "was 0.3 (degrees) F cooler than the 1901-2000 average," the NCDC says.

4. Ontario and Quebec have experienced major snow and ice storms. In the first two weeks of February, as Canada's National Post reports, Toronto got 79 centimeters of snow, "smashing the record of 66.6 cm for the entire month set back in the pre-SUV, pre-Kyoto, pre-carbon footprint days of 1950."

President Vaclav Klaus of the Czech Republic (who will speak today at the 2008 International Conference on Climate Change in NYC) sees an eerie similarity between communism and what he calls the global warming "religion." "As someone who lived under communism for most of his life, I feel obliged to say that I see the biggest threat to freedom, democracy, the market economy and prosperity now in ambitious environmentalism, not communism. This ideology wants to replace the free and spontaneous evolution of mankind by a sort of central (now global) planning."

Note: The 2008 International Conference on Climate Change is the "first major international conference to focus on issues and questions not answered by advocates of the theory of man-made global warming. Hundreds of scientists, economists, and public policy experts from around the world will gather on March 2-4, 2008, at the Marriott New York Marquis Hotel to call attention to widespread dissent in the scientific community to the alleged “consensus” that the modern warming is primarily man-made and is a crisis."

Al Gore was offered an opportunity to address this conference, and although his usual $200,000 speaking fee and expenses were met, he declined.


As usual, economist Thomas Sowell has some real gems in his latest commentary "Rescuing the Rust Belt":

1. Jobs are always disappearing. The big question is why they are not being replaced by new jobs. Rust belt policies that drove out old jobs also keep out new jobs. NAFTA makes it easier for politicians to blame the problem on foreigners. In fact, foreigners make ideal scapegoats for politicians. After all, people in Japan or India can't vote in American elections.

2. Senator Obama says that he is for free trade, provided it is "fair trade." That is election year rhetoric at its cleverest. Since "fair" is one of those words that can mean virtually anything to anybody, what this amounts to is that politicians can pile on whatever restrictions they want, in the name of fairness, and still claim to be for "free trade." Clever.

3. In the short run, you can get away with all sorts of things. But, in the long run, the chickens come home to roost. The rust belt is where those rising costs have come home to roost. While American auto makers are laying off workers by the thousands, Japanese auto makers like Toyota and Honda are hiring thousands of American workers. But they are not hiring them in the rust belts. They are avoiding the rust belts, just as domestic businesses are avoiding the high costs that have been piled on over the years by both unions and governments in the rust belt regions.

Bottom Line: TANSTAAFL

Monday, March 03, 2008

NAFTA: No Statistically Significant Effect on Jobs

From a comment from Spencer about this CD post:

"Is this how they teach you do do econmic (sic) analysis at GMU?You should compare the percent increases rather then (sic) the absolute numbers. Take the payroll number you use, for example. You show a gain of 21.4 million in the first period and 25.6 million in the second. The gain in the first period is 24% while the gain in the second period is 13%. That means that job gains after NAFTA were nearly cut in half."

Actually, using
these payroll data from the BLS (via FRED), the percentage increase from January 1980 (90,800,000) to December 1993 (112,206,000) is 23.57%, and the percentage increase from January 1994 (112,474,000) to December 2007 (138,119,000) is 22.80%, and not 13%! In other words, on a percent change basis, job growth in the 14-year period before NAFTA was almost exactly the same as the 14-year period after NAFTA.

For a more sophisticated statistical analysis, see the chart above with results of a difference-in-means t-test of the null hypothesis that there is no difference in monthly job growth in the pre-NAFTA and post-NAFTA periods. The results suggest that there is no statistical difference in job growth during the 1980-1993 period and the 1994-2007 period. Further, especially for payroll employment, the variability of monthly job growth (measured by the standard deviation) was much lower post-NAFTA (.1300%) than pre-NAFTA (.2152%), suggesting much greater stability in job growth after NAFTA.

Bottom Line: NAFTA had no statistically significant effect on U.S. job growth.

Increases in Productivity Have Caused Job Losses

1. According to annual BLS data on manufacturing productivity, there was a 30% increase in productivity from 1993 (before NAFTA passed) to 2005, following a period of flat productivity growth from 1985-1992 (see top chart above, click to enlarge).

2. According to BLS data on manufacturing employment, there was an increase of almost one million manufacturing jobs in the five-year period following NAFTA (see middle chart above).

3. According to Federal Reserve data,
manufacturing output increased by almost 60% in the period between 1994 and 2005 (see bottom chart above).

Bottom Line: Despite all of the political rhetoric about NAFTA, free trade and globalization causing U.S. job losses in manufacturing, one of the most significant factors in the recent decline of American manufacturing jobs is the significant increase in productivity of U.S. workers. Manufacturing output and productivity in the U.S. are both at all-time highs - we're able to produce more and more output with fewer and fewer workers.

Although some manufacturing jobs are gone forever, we're much better off as a country to be able to get increases in manufactruing output with fewer workers, just like the productivity gains in agriculture that eliminated millions of farming jobs. In the long run, we are much better off with fewer jobs in the farming sector producing an increasing amount of agricultural output, and likewise, we'll be better off in the long run with fewer workers in the manufacturing sector producing an increasing amount of output.

NAFTA Bashing: Pure Politics Unsupported by Data

"We're going to take a hard look at NAFTA, which has a lot of problems," Hillary Clinton said. "We're going to renegotiate it."

"If you travel through Ohio and you travel through communities in my home state of Illinois, you will see entire cities that have been devastated as a consequence of trade agreements that were not adequately structured to make sure that U.S. workers have a fair deal," said Senator Obama.

Comment: As the chart above shows, more U.S. jobs have been created in the 14-year period after NAFTA was passed than in the 14-year period before NAFTA. Payroll data from the BLS, via FRED, are available here, and civilian employment data here.

Sunday, March 02, 2008

Putin's Rough, Brutal, and Cheerful Capitalism

DMITRI A. MEDVEDEV will be anointed president of Russia today thanks to the political handiwork of Vladimir V. Putin. But maybe the real winner is economic globalization.

From December 1999 to the end of 2007, a period overlapping the presidency of Mr. Putin, the value of Russia’s stock market increased from $60 billion to more than $1 trillion (see chart above).

Most Russians do not love Mr. Putin per se, but they love Mr. Putin’s Russia. They love being middle class. They love planning for the future. It is no comfort to the politically persecuted, but average wages in Russia are leaping 10 percent a year, in real terms.

The growing millions of Russian homeowners, vacationers and investors may seem inclined to authoritarianism or just apolitical. But they certainly value a strong ruble, moderate inflation, affordable mortgages, access to higher education, satellite television, Internet connections, passports, foreign visas and — above all else — no economic shocks.

Continue reading the
NY Times article on Russia here.

Cartoon of the Day: The Dinosaurs

St. Obama's Auto Trouble

Henry Payne writing in National Review:

Senator Obama rarely drives himself anywhere, depending instead on a Secret Service-provided fleet of 15 mpg Chevy Suburban SUVs (pictured above).

But now that Chevy is compromising him on the issue of trade.

Campaigning in Ohio this week, Obama folded his standard anti-Detroit message into a larger, anti-NAFTA theme, ripping into the Clinton-signed trade deal that Obama claims has sucked Midwest manufacturing jobs south of the border.

And where is Obama's Suburban assembled? Silao, Mexico.

Saturday, March 01, 2008

A City Growing, A City Dying

From 4-Block World.

See related CD post here.

The Coming Death of Indian Outsourcing?

From Forbes Magazine:

Forbes recently published some scary statistics on wage inflation in India. (See "Indian Employees Enjoying Swift Pay Hikes.") Salaries rose 15.1% in 2007, up from 14.4% the previous year. The 2008 forecast: 15.2%. This would be the fifth consecutive year of salary growth above 10%.

Add to that the appreciation of the rupee against the weakening dollar (11.5% in 2007), and its impact on the labor arbitrage market.

Is the death of Indian outsourcing all that far off?

Assuming a 15% year-to-year salary hike rate, and a 2007 cost advantage of 1:3 in favor of India, if U.S. wages remain constant, India’s cost advantage disappears by 2015. Then what?

(HT: Mad Toothfish)

Resource Economist Julian Simon on YouTube

Economist Julian Simon foresaw the falling natural resource prices, increased world oil supply, and decline in farmland prices. His view of population economics is unique and persuasive. In this 6-part series now available on YouTube, Julian Simon discusses resources, environment, population growth and his analytical methods. Watch Part 1 above.

(HT: Drew Suder)

McCain:Free Trade; Clinton, Obama: Intervention

The charts above (click to enlarge) are from Cato Institute's "Free Trade, Free Markets: Rating the Congress," an interactive web site that allows users to examine how Congress and its individual members have voted on bills and amendments affecting the freedom of Americans to trade and invest in the global economy.

You can search by individual member of Congress, or by a particular bill, or by party breakdown on a particular bill, see below:

Bottom Line: When it comes to the voting records of the main presidential candidates on free trade, John McCain is clearly a "Free Trader," Hillary Clinton is clearly an "Interventionist," and Obama is leaning towards being an "Interventionist." It's also the case that Republicans as a group have a much stronger free trade voting record than Democrats on most bills. With either Clinton or Obama in the White House, we can probably expect more protectionism and less free trade.

Inconvenient Weather: Welcome to the Ice Age

The ice is back.

Gilles Langis, a senior forecaster with the Canadian Ice Service in Ottawa, says the Arctic winter has been so severe the ice has not only recovered, it is actually 10 to 20 cm thicker in many places than at this time last year.

OK, so one winter does not a climate make. It would be premature to claim an Ice Age is looming just because we have had one of our most brutal winters in decades.

But if environmentalists and environment reporters can run around shrieking about the manmade destruction of the natural order every time a robin shows up on Georgian Bay two weeks early, then it is at least fair game to use this winter's weather stories to wonder whether the alarmist are being a tad premature.

From the article "Forget global warming: Welcome to the new Ice Age," in Toronto's National Post

Friday, February 29, 2008

25th Month of Real Disposable Income Growth

According to today's BEA report, real disposable personal income increased by 1.23% in January compared the same month a year ago (see chart above).


1. January marks the 25th consecutive month of positive growth for real disposable personal income.

2. Although there has certainly been a slowdown in the growth of real disposable income over the last 5 months, it's not necessarily an indication of recession. Notice in the graph that there was a period in 2002-2003 when real disposable income was growing at below 1% in 6 out of 9 months, and several months in 2005 with negative growth, and neither period was recessionary.

R.I.P. Buddy Miles

George Allen "Buddy" Miles passed away late last night in Austin, Texas after a long fight with congestive heart disease.

Live clip above of "Them Changes," by Buddy Miles and Jimi Hendrix at the Fillmore East on January 1, 1970.