Saturday, March 15, 2008

Dearborn Wal-Mart Tweaks Store for Arabs

DEARBORN, Mich. (AP) -- Faten Saad knew she wasn't in a typical Wal-Mart when she saw an end-of-the-aisle display featuring Mamool.

Boxes of the date-filled, whole wheat cookie from the Middle East welcomed the 21-year-old Lebanon native into the international aisle of the new Wal-Mart store in this Detroit suburb known as the capital of Arab America. Aisle 3, which also features Eastern European and Hispanic food, represents many of the 550 items geared toward Arab-American shoppers in the store that opened last week.

It might be statistically tiny in a store with more than 150,000 items, but it's symbolically huge for the world's largest retailer as it seeks to change from a cost-is-everything monolith to one that customizes its stores to meet neighborhood needs.

The Dearborn store also sells Arabic music and plans to offer Muslim greeting cards. But the modifications go beyond merchandise: It has 35 employees who speak Arabic -- noted in Arabic script on their badges. The store also has hired a local Arab-American educator to teach the staff cultural sensitivity.

The Dearborn Wal-Mart is part of a two-year-old corporate effort to help sales by tailoring stores to local demographics, said spokeswoman Amy Wyatt-Moore at Wal-Mart's Bentonville, Ark., headquarters. It targeted six groups: Hispanics, blacks, empty-nesters/boomers, affluent, suburban and rural shoppers.

Comment: The "invisible hand" at work.

Another Economist Says NO Recession

We still don’t have conclusive evidence that we’re in a recession, and we might avoid one altogether. A credible case could be made that we’re facing just one quarter of negative growth, and that GDP growth will be back in positive territory during the remaining three quarters of 2008.

"Are We In (Or Headed For) a Recession?," by Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor

UCLA: No Recession, Only "Recession Depression"

LOS ANGELES--In its first quarterly report of 2008, released March 11, the UCLA Anderson Forecast remains confident that the national economy was not in a recession through January 2008 and continues to forecast weak growth but no official recession in 2008.

In his national report, UCLA Anderson Forecast director Edward Leamer holds to his belief that the U.S. economy is not in a recession and that there is no recession to be feared in the immediate future, while admitting that there is a tenuous aspect to forecast.

"Our no-recession forecast remains nervously intact. We see a lot of problems in the first half of 2008, as housing remains a drag on GDP growth and weakness in personal consumption contributes as well," he writes. "We expect one quarter of negative GDP growth. The Fed continues to dish out good news for Wall Street with ever lower interest rates. The labor market is sluggish and unemployment elevates to 5.5% by the end of 2008. But the housing drag on GDP dissipates in the second half of the year and a normal economy returns in 2009."

"But until I see evidence of a decline in spending by consumers and businesses because of credit problems," he writes, "I am going to believe that this is just another symptom of 'recession depression.' Main Street is doing well, even as Wall Street suffers."

See LA Times story here and San Diego Tribune story here.

(HT: Newmark's Door)

Watch An Upright Piano Get Shredded



It's a little slow today for new posts, so until I find something more interesting, watch the full upright piano pictured above get shredded (click twice on the arrow above).

(HT: Grant Leonard)

Watch the shreding of a large copier, or an entire Dodge Daytona car, or pick many other items from this list.


Friday, March 14, 2008

Rule of Law Helps Create Wealth

THE ECONOMIST--The better a government upholds the rule of law, the more likely its people are to be richer: every rich country, with the exception of Italy and Greece, scores well on rule-of-law measures (see chart above). Most poor countries do not.

Same Number of Workers, 4.5X as Much Output

Both series (jobs and output) in the above chart are indexes equal to 100 in 1960. With roughly the same number of U.S. employees in manufacturing as in 1960, the U.S. economy produced almost 4.5 times as much manufacturing output in 2007 as in 1960! It's an often unappreciated, but amazing record of increases in American worker productivity in manufacturing.

U.S. Math Education is "Broken and Must Be Fixed"

From the National Mathematics Advisory Panel Final Report, released yesterday:

International and domestic comparisons show that American students have not been succeeding in the mathematical part of their education at anything like a level expected of an international leader. Particularly disturbing is the consistency of findings that American students achieve in mathematics at a mediocre level by comparison to peers worldwide.

During most of the 20th century, the United States possessed peerless mathematical prowess—not just as measured by the depth and number of the mathematical specialists who practiced here but also by the scale and quality of its engineering, science, and financial leadership, and even by the extent of mathematical education in its broad population. But without substantial and sustained changes to its educational system, the United States will relinquish its leadership in the 21st century.

This Panel, diverse in experience, expertise, and philosophy, agrees broadly that the delivery system in mathematics education—the system that translates mathematical knowledge into value and ability for the next generation—is broken and must be fixed.

Washington Post--A presidential panel declared math education in the United States "broken" yesterday and called on schools to focus on ensuring that children master fundamental skills that provide the underpinnings for success in higher math and, ultimately, in high-tech jobs.

NY Times--The report cited a number of troubling international comparisons, including a 2007 assessment finding that 15-year-olds in the United States ranked 25th among their peers in 30 developed nations in math literacy and problem solving.

Comment: Can we get rid of "Everyday Math" now and go back to the old math? After all, what was wrong with a system of math education that gave the U.S. its "peerless mathematical prowess?" It seems like that was a much better outcome than 25th place out of 30 among our peers (the panel was being kind to call that result "mediocre") .

Globally, It's Not All Gloom and Doom.....

SINGAPORE--Singapore's employment jumped by a record 234,900, or 9.4%, in 2007, surpassing the gains of 176,000, or 7.6%, in 2006. The Singapore Ministry of Manpower attributed the increase to last year's robust economic growth of 7.7%.

MUMBAI--The Manpower Employment Outlook Survey for the second quarter of 2008 released reveals that the job market in India is expected to remain vibrant. Of the 32 countries and territories surveyed globally this quarter, hiring intentions among Indian employers continue to be among the most optimistic in the world with an overall Net Employment Outlook of +36%. Employers in all eight countries and territories surveyed across the Asia Pacific region anticipate positive hiring activity for the second quarter of 2008.

TORONTO--Canadian employers expect a positive hiring climate for the April to June period of 2008 according to the latest results of the Manpower Employment Outlook Survey, the most extensive, forward-looking employment survey in the world.

SYDNEY--Australia's unemployment rate dropped to a fresh 33-year low of 4.0% in February, according to official data released today. The Australian Bureau of Statistics said the seasonally-adjusted unemployment rate fell from 4.2% in January as the number of full-time jobs in the economy jumped. The jobless rate, which came in below market expectations of 4.2%, is the lowest since data was collected in its current form in 1975.

Thursday, March 13, 2008

Disturbing Video on the Decline of U.S. Math Skills


Q: What does a major state university do when test scores on a precalculus math exam for incoming freshmen continue to decline year after year, while at the same time high school GPAs of incoming freshmen are going up?

A: If your answer is "make the test easier," go to the head of the class!

Watch a disturbing video on the decline in math skills for college students (click twice on the arrow above), with an explanation for why it has been happening ("reform math"), and some ways to solve the problem (abandon "reform math").

Thanks to
Oak Norton for the pointer.

See a previous CD post on the huge shortage of IT professionals and the lack of technology talent in the U.S.. Thanks to "reform math," that huge shortage will likely continue.


And They Have the Nerve to Call It "Reform Math?"

Watch this video "Math Education: An Inconvenient Truth"


Depending on your age, you might have learned basic grade school math calculations like 26 x 31 and 133 ÷ 6, using what is now called the "standard algorithm" (see the video). If the multiplication procedure below looks familiar, you learned math the "old fashioned" way, or according to what is now called the "Singapore method" or the "standard algorithm."
You also then probably learned "long division."













If the "standard algorithm" above looks unfamiliar, you might have learned the new "reform math," "everyday math," "fuzzy math," or "rainforest math," and you might have been taught nitwitery like the "partial products multiplication" or "partial quotients division" (instead of "long division"), or the "lattice method." Too bad. You didn't learn math.

After watching the video above, I am furious to see how math is being taught today. If I was a parent, I would really, really be furious, and I would be at Borders right now buying Singapore Math books. See previous CD posts on "rainforest math" here, here and here ("We don’t teach long division; it stifles creativity.”).

Cartoon of the Day

(Via Blog Adventures of a Substitute Teacher)

Freedom Fest 2008!

Freedom Fest 2008, The World's Largest Annual Gathering of Free Minds, July 10 - 12, 2008 at Bally's/Paris Resort in Las Vegas. Early bird registration fee before March 15 (this Saturday) is only $395 per person or $595 per couple! Special hotel rate of $97 per night at Bally's. I'm going!

The Cactus Cuties Sing the National Anthem



Click on the arrow above twice to watch an amazing performance of the Cactus Cuties singing the national anthem a cappella at the Texas-Texas Tech basketball game in front of 11,000 people.

Cartoon of the Day


The Subprime Primer (NSFW)

Learn all about the subprime crisis in a cartoon slideshow here or here.

(****Warning: Contains Some Strong "Subprime" Language****)

Two Stories of Retail Sales

Bloomberg--Retail sales in the U.S. unexpectedly fell in February, indicating that declines in payrolls and home values and a surge in energy costs have pushed the economy into a recession.

First Trust Portfolios--Retail sales declined 0.6% in February while retail sales excluding autos declined 0.2%. The consensus had expected each to increase 0.2%. Total sales are up 2.6% versus last year, 4.4% excluding autos. Today’s data are consistent with sluggish growth in Q1, but not recession. If core retail sales (excluding autos, building materials, and gas) remain unchanged in March they will still be up at a 1.1% annual rate in the first quarter (versus the fourth quarter). In turn, given the boom in exports and rebound in inventories, this is consistent with our forecast of 2% real GDP growth in Q1.

Comment: See my chart above of monthly retail sales, displayed as the percentage change from the same month in the previous year, which are still above 4% on a 6-month moving average basis. Although certainly below the peak levels in 2005 and 2006, retail sales growth is still above the recessionary levels of 2001 and 2002; like First Trust Portfolios suggest, this is more consistent with a period of sluggish consumer spending, not a recession.

Picking Taxpayer Pockets: Farmers Do It Best


When it comes to picking taxpayer pockets, no one -- not the trial lawyers or even AARP -- has it over the farm lobby. How's this for clout? Though last year was one of the best ever for farm incomes -- up 50% to $88.7 billion (according to USDA, see chart above) -- farmers are about to score the most lavish subsidies in American history.

The House and Senate are now ironing out differences between their bills, and it's all but certain that farmers will get about $26 billion over the next five years in subsidies. Soybean and wheat farmers are slated to receive higher price supports, though bean prices hit a 34-year high last year and wheat prices have soared to a new record (see chart above).

Corn producers will get subsidies of $10.5 billion over five years, which is on top of the deal of a lifetime these farmers were handed when Congress expanded ethanol subsidies. The handouts make growing corn so profitable that last year some 15.3 million acres were converted to new corn production, according to the USDA. That has a cascading effect on other prices, as farmers convert bean acreage to more lucrative corn fields and feed prices for meat producers climb.

Read more of today's WSJ editorial "Amber Waves of Green

Reminds me of the old joke:

Q: How do you starve a farmer?

A: Weld his mailbox shut.

Politicians and Prostitutes: Same Line of Work?

Politicians take people's money with a promise to fulfill desires that supposedly can't be attained any other way. Prostitutes do the same, though by reputation, they are more reliable in delivering. It's not surprising for people in the same line of work to gravitate toward one another, as Eliot Spitzer and a woman named Kristen reportedly did in a Washington hotel room.

I understand why Spitzer's alleged hiring of a call girl was stupid, selfish, reckless, immoral and a betrayal of his family. What I don't understand is why it was illegal.

Read more in Reason Magazine.

(Via: Tim Worstall)

The Amazing Lingo Kid


Watch an Indian street boy in Mumbai speak in multiple foreign languages.... German, French, Italian, Arabic, Japanese, etc.

Wednesday, March 12, 2008

Late Night Unloads

Letterman, Leno, Conan, Kimmel, Stewart and Colbert on Spitzer.

Prostitution Puzzles

1- Why is it illegal to sell sex, but legal to give it away? (Or for that matter, why is it illegal to sell a kidney, but legal to give it away?)

2- Why is it illegal for Person X to pay Person Y to have sex, but it is legal for Person Z to pay Person X and Person Y to have sex with each other, and film it so Person A, Person, B, and Person C can buy it and view it?

(HT: Freedom Democrats)

World's Highest Inflation Rate = 100,000%

A US $100 bill in Zimbabwe now buys 20kg (44 pounds) of local currency, as Zimbabwe's currency tumbled to a record low of 25 million Zimbabwe dollars per USD. Zimbabwe has the world's highest inflation rate of 100,000%.

Read more here.

What happens when you have 100,000% inflation? Zimbabwe has had a 51% fall in agricultural output between 2000 and 2007, a 47% fall in industrial output, and a 35% fall in resources output. Over the same period, GDP per capita has fallen by more than 40%.

Now THAT'S stagflation!

Hand it Over: Tax Burdens Around The World

THE ECONOMIST--Paying taxes is, for most people, both unavoidable and irksome. But how much hard-earned pay is taken by governments varies considerably across the world. Among the rich countries of the OECD, Germans shell out the most, with a worker earning an average income giving 43% of their gross pay to the state, with nearly half of that going towards social security. Workers in Poland hand over nearly 25% of their wages to social security; whereas Australians pay nothing at all directly. Mexicans and South Koreans enjoy the lightest taxation by some way (see chart above).

Welcome MGT 551 Business Economics Students

To the students in the NetPlus! MBA program at the University of Michigan, Flint campus, who are enrolled in MGT 551 for the Spring 2008 term, WELCOME TO CARPE DIEM!

Professor Perry

New Mexico Jobless Rate Hits Record Low of 3.1%

ALBUQUERQUE—New Mexico's jobless rate was 3.1% in January 2008, which state labor officials say is the lowest since 1976. The unemployment rate was down from 3.2% in December. In January 2007, the state's jobless rate stood at 3.8%.

Want Some Cheap Oil? We've Got Lots in the U.S.

With oil prices hitting record levels above $100 a barrel, the economy in either a slowdown or recession, and with Venezuela threatening to end oil exports to the United States and Nigeria's oil production held hostage to internal strife, the case for tapping more domestic oil is getting stronger every day.

Unfortunately, Congress continues to resist the idea, preferring to hold substantial domestic energy resources on Alaska's North Slope and the U.S. Outer Continental Shelf off-limits to production.

From today's Detroit News

Globalization Can Be Very Worker-Friendly

Breaking the glass ceiling in India: There is a growing group of Indian women in their 30s and older who are rising to senior positions in the country’s financial sector, breaking into what was once a male-dominated world.

End of cheap labor looms in China: For decades, China’s massive workforce of factory hands and construction workers had little choice but to work for long hours in poor conditions for extremely low salaries. But a mushrooming of factories, even in the country’s sluggish interior, mean that these days workers have more clout than ever when hunting for jobs. Wages are being pushed up, and workers can afford to be more selective about where they work.

Tuesday, March 11, 2008

The College-Educated Are Getting Richer....

From columnist Star Parker: According to "Education and Economic Mobility," by Brookings Institution scholar Ron Haskins, the inflation-adjusted median family income for adults ages 30-39 with a graduate degree was 80% higher in 2006 ($90,000) than in 1964 ($50,000). For those with a four-year college degree, it was almost 60% higher ($75,000 vs. $50,000). But incomes for those with a high school education or less have remained virtually unchanged over the same period (see chart above, click to enlarge).

Stated otherwise, the gap in real family income between adults with a graduate degree and those with only a high school diploma is four times as great today ($40,000 difference in median income) as 40 years ago ($10,000 difference in median income).


Comment: To the extent that there is rising income inequality, it appears that much of the inequality is due to the increasing gains to education over time. It's not the "rich are getting richer and the poor are getting poorer" as much as it's "the college-educated are getting richer in an Information Age Global Economy, and the high school-educated are staying the same."


A Short Course in Canadian Brain Surgery

In Canada, you can buy almost anything you want... except an MRI, brain surgery or private health insurance.


Job Survey Suggests Cautious Hiring, No Recession

MILWAUKEE (AP) -- Even as employers nationwide slashed some 63,000 jobs last month, more than a quarter of U.S. companies say they plan to hire within the next three months, according to a survey of 14,000 companies.

Across the country, some 26% of companies expect to increase the size of their work force between April and June, according to the survey released today by Manpower Inc. Nine percent plan a decrease, while 60% predict no change and 5% are unsure, the Milwaukee-based global staffing company found.

The numbers are slightly worse than those for the same quarter last year, when 28% of employers expected to hire and 7% planned to cut jobs. But they're better than the predictions for the current quarter, when hiring was expected to outpace job cuts by a margin of just 10 percentage points.

From the Manpower press release, "A slowing in hiring intentions reflects a widespread wait-and-see approach among employers," said Jeffrey A. Joerres, Chairman & CEO of Manpower Inc. However, the survey data points to a gradual and measured downshift, not a sudden and overwhelming change. Interestingly, these data do not look like previous recessionary periods where we experienced much more accelerated declines."

(HT: Rick Ballard)

Prostitution: The Ultimate Victimless Crime

Following the news that Eliot Spitzer allegedly hired the services of a prostitute, I found these comments from a 2007 Reason Magazine article by Cathy Young to be very interesting. From "Prostitutes and Politics: Why Is It Still Illegal to Pay for Sex?"

Prostitution is currently legal in virtually all developed nations, though often surrounded by restrictions and regulations. It is illegal everywhere in the United States except Nevada and, by a legal quirk, in Rhode Island if all transactions are conducted in a private residence.

Yet prostitution is perhaps the ultimate victimless crime: a consensual transaction in which both parties are supposedly committing a crime, and the person most likely to be charged—the one selling sex—is also the one most likely to be viewed as the victim. (A bizarre inversion of this situation occurs in Sweden, where, as a result of feminist pressure to treat prostitutes as victims, it is now a crime to pay for sex but not to offer it for sale.) It is sometimes claimed that the true victims of prostitution are the johns' wives. But surely women whose husbands are involved in noncommercial—and sometimes quite expensive—extramarital affairs are no less victimized.

It's the criminalization of prostitution that does take actual victims. As with other victimless crimes, the criminalization of prostitution creates a vast breeding ground for corruption, hypocrisy, and morally dubious law enforcement tactics.

Strong Export Growth Reduces Recession Odds

WSJ/WASHINGTON -- The U.S. trade deficit widened in January as the price for oil set a new record, but the shortfall was smaller than expected, with exports making their largest climb in six months. U.S. exports in January climbed 1.6% to $148.23 billion from $145.86 billion, spurred by a weak dollar and solid growth of major trading partners. Imports also increased, despite the U.S. economy's sharp slowdown. Purchases of foreign goods and services rose by 1.3% to $206.43 billion from $203.72 billion.

The graph above (click to enlarge) shows monthly U.S. exports of goods and services, on a year-to-year percentage change basis, from 1993-2008. The 16.56% growth in U.S. exports from January 2007-Janauary 2008 was the highest annual increase in more than 3-and-a-half years(since May 2004, see horizontal line in graph), was the fifth highest increase since 1993, and followed a general trend over the last year of increasing exports.

Notice also the significant decline in the exports during the 2001 recession - much different than today's robust and healthy export sector. As First Trust Advisors report, "Today’s trade data greatly reduce the odds the U.S. economy is in recession."


Monday, March 10, 2008

It's Not All Gloom and Doom.....



LONDON March 11, 2008The Monster Employment Index Europe rose by 26 points in February, the largest monthly increase since the Index started in 2005, as online job opportunities grew across the European Union (see chart above).

The UK saw the largest growth of 32 points while the Netherlands saw the smallest recovery, of 13 points. Year-on-year the Index had its strongest growth in more than two years, increasing by 36 points or 28%. The Monster Employment Index Europe is a monthly analysis of millions of online job opportunities culled from a large, representative selection of corporate career sites and job boards across Europe,including Monster.


The U.S. Monster Employment Index rose five points in February, reflecting a moderate increase in overall U.S. online job availability following a three-month downward trend. During February, a majority of industry and occupational categories tracked showed greater online job demand compared to the previous month, with 18 of 20 industries and 17 of 23 occupations registering gains.

Can't We Bury the Middle Class Income Myths?

The graph above was created using inflation-adjusted median household income data and average household size data (both from the Census Bureau), and was inspired by an article in today's WSJ - "The Inequality Myth," (see previous CD post here).

Economist Brad Schiller wrote:

The Census data originate from an annual survey of households. The data don't track individual households from year to year, but instead just take a snapshot of the households in existence in March of each year. From these annual snapshots, we try to infer what's happening to the typical household over time.

The "typical" household, however, keeps changing. Since 1970 there has been a dramatic rise in divorced, never-married and single-person households. Back in 1970, 71% of all U.S. households were two-parent families. Now the ratio is only 51%. In the process of this social revolution, the average household size has shrunk from 3.14 to 2.57 persons -- a drop of 18%.
The meaning? Even a "stagnant" average household income implies a higher standard of living for the average household member.

Bottom Line: As the graph above shows, the average household size has declined by 21% from 1967 to 2006, while real, median household income increased by 31% over the same period. Result? A significantly, much, much higher standard of living for the average household member, i.e. the typical member of the middle class!

Isn't it time that we bury many of the myths forever about the "middle-class squeeze," "the war on the middle-class," "the American middle-class is fighting for its life," "Two Americas," etc.

Globalization Works Both Ways

BMW Z4, Built in South Carolina
COLUMBIA, S.C.On one side of the Atlantic Ocean, BMW says it will cut 7.5% of its work force over two years. On this side of the water, the company says it plans to increase production by more than 50% by 2012.

By building the cars in the U.S., BMW can save money on the lower dollar and on wages because its South Carolina workers make less than German workers. And the declining dollar also means BMW and other foreign automakers probably will start buying locally for more of the parts used by their U.S. plants. That shift in production has led to the job cuts at home for the Munich-based luxury car maker.

In the U.S., BMW Manufacturing expects to increase production to 240,000 cars by 2012. That's up from 155,000 last year.

Stagflation: It's Sure Nothing Like the 1970s, Yet.

There has been a lot of concern lately about inflation, including a WSJ editorial today by Gerald O'Driscoll (former VP of the Dallas Fed) titled "Inflation Alert." There have also been numerous comparisons recently of today's inflationary environment to the inflation and stagflation of the 1970s, including in today's WSJ.

What do the inflation data show? Below are graphs from the St. Louis Fed for five different measures of inflation from 1970-2008, calculated as the annual percent change from the same period in the previous year.

GDP Deflator Inflation:

CPI Inflation: All items
CPI "Core" Inflation: All items less food and energy
CPI Inflation: Food
CPI Inflation: Energy
Comments:

1. GDP Deflator inflation (top graph) has actually been generally declining for the last two years, and was higher on average in 2004, 2005, 2006 than in 2007.

2. Although CPI (all items) inflation (second graph above) is rising, it's still at or below several peaks in 2005 and 2006, and still doesn't look anything like the 1970s inflationary levels.

3. Likewise, core CPI inflation (third graph above) is below peak levels in 2006, below the entire decade of the 1990s, and doesn't remotely resemble the inflationary levels in the 1970s that were 2 to 5 times higher than today for core CPI.

4. CPI Food inflation (fourth graph above) is certainly high and rising, but still in line with the levels of the 1980s and 1990s, and far below the double-digit levels of the 1970s, and way below the peak of 20% food inflation in 1973, which signaled the significant inflationary pressure at the beginning of the stagflation era. Also, much of today's food "agflation" is probably caused more by distortionary government subsidies of ethanol than by easy monetary policy.

5. CPI energy inflation is also certainly high, but at or below peak energy inflation levels of 2000, 2003, and 2005, and way below the 30-40% peaks in the 1970s.

Bottom Line: If there is any 1970s-like stagflationary pressures in today's economy, it sure isn't showing up in the inflation data. At least not yet.

Hey, It's Not All Gloom and Doom

CHICAGO--McDonald's Corp., the world's largest restaurant company, said sales at locations open more than 13 months increased 12% in February, spurred by growth in Europe and Asia.

Comparable-store sales at U.S. outlets rose 8.3%, driven by strong performance from its breakfast, coffee and "everyday value" offerings. Sales in Europe advanced 15% while gaining 11% in the region encompassing Asia, the Middle East and Africa.

Canadian Employment at Record Highs--The U.S. should be envying Canada, its northern neighbor who reported stunning job growth in the month of February. The market was forecasting an increase of only 3k jobs, but to their surprise, 43k new jobs were added to Canadian payrolls, keeping the unemployment rate at a 33 year low of 5.8%. The increase in jobs was concentrated in the Ontario region and in the construction, public administration, service and trade sectors. Wages were also very strong with a 4.9% increase in the average hourly rate, more than double the rate of inflation.

Inequality Myth: Political Rhetoric v. Econ. Facts

Political Rhetoric: Class warfare is once again a campaign theme. The Democratic candidates are railing against the "tax cuts for the rich," lamenting the stagnation of middle-class incomes, and decrying the deepening woes of the poor.

Both candidates portray America as a nation where the fruits of economic progress have been usurped by corporate CEOs, equity-fund managers, inside traders and international speculators. Main Street has floundered, while Wall Street has flourished.

Economic Reality: The median household income in 2006 was $48,201, just a trifle ahead of its 1998 level ($48,034). That seems to confirm middle-class stagnation, but demographic changes in the size and composition of U.S. households have distorted the statistics in important ways.

1. The share of the pie consumed by the poorest 20% has been shrinking (from 4.1% in 1970 to 3.4% in 2006), but the "pie" has grown enormously. This year's real GDP of $14 trillion is three times that of 1970. So the absolute size of the slice received by the bottom 20% has increased from $181 billion to $476 billion. Allowing for population growth shows that the average income of the bottom quintile has risen 36%. They're not rich, but they're certainly not poorer. In reality, economic growth has raised incomes across the board.

2. We track "household income" of the "typical" (median) household over time, but the "typical" household keeps changing. Since 1970 there has been a dramatic rise in divorced, never-married and single-person households. Back in 1970, 71% of all U.S. households were two-parent families. Now the ratio is only 51%. In the process of this social revolution, the average household size has shrunk from 3.14 to 2.57 persons -- a drop of 18%. The meaning? Even a "stagnant" average household income implies a higher standard of living for the average household member.

3. A closer look at household trends reveals that the percentage of one-person households has jumped from 17% to 27%. That's right: More than one out of four U.S. households now has only one occupant. Who are these people? Overwhelmingly, they are Generation Xers whose good jobs and high pay have permitted them to move out of their parental homes and establish their own residences. The rest are largely seniors who have enough savings and income to escape from their grandchildren and enjoy the serenity of an independent household. Both transitions are evidence of rising affluence, not increasing hardship. Yet this splintering of the extended family exerts strong downward statistical pressure on the average income of U.S. households. Had the Generation Xers and their affluent grandparents all stayed under the same roof the average household income would be higher, but most of us would be worse off.

4. The supposed decline of the poor and middle class is exaggerated even more by the dynamics of population growth. When people look at the "poor" in any two years, they think they're looking at the same people. That's rarely true, especially over longer periods of time. Since 1998, the U.S. population has increased by over 20 million. Nearly half of that growth has come from immigration, legal and illegal. Overwhelmingly, these immigrants enter at the lowest rungs on the income ladder. Statistically, this immigrant surge not only reduces the income of the "average" household, but also changes the occupants of the lowest income classes.

5. To understand what's happening here, envision a line of people queued up for March Madness tickets. Individuals move up the line as tickets are purchased. But new people keep coming. So the line never gets shorter, even though individuals are advancing.

Something similar happens with the distribution of income. People keep entering the distribution line from the bottom. Even though individuals are moving up the line, the middle of the line never seems to move. Hence, an unchanged -- or even receding -- median marker could co-exist with individual advancement. The people who were at the middle marker before have moved up the distribution line. This is the kind of income mobility that has long characterized U.S. income dynamics.

From today's WSJ editorial "
The Inequality Myth," by economist Brad Schiller

Outsourcing E-Mail to Google: Free vs. $450,000

Arizona State University was the first major university to outsource its e-mail to Google in October 2006, and has seen over $1 million in savings.

Iowa State University is now the latest major university considering whether to outsource the university's e-mail system to Google. University e-mail is expensive ($450,000 per year for Iowa State), and Google would provide the service for free.

Free vs. $450,000. Seems like a no-brainer.

Update: Other universities that have adopted Google's Gmail include Clemson University, the University of Texas at San Antonio, Arkansas State University and Kennesaw State University.

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

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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.”