Tuesday, April 15, 2008

2007 Current Account Balances

From the CIA, ranked by country, from #1 China with a $363.3 billion surplus, to #164 U.S. with a -$747.1 billion deficit.

Guest Blogger Peter Schweizer Coming Soon to CD

Watch this week for the debut of guest blogger Peter Schweizer, who will help out over the next few weeks with posts on CD during my travels to Russia, where my access to the Internet might be somewhat infrequent. Peter is a research fellow at the Hoover Institution, and author of many books including my favorite, "Do As I Say, Not As I Do: Essays in Liberal Hypocrisy."

Peter's articles have appeared in The New York Times, Wall Street Journal, Los Angeles Times, USA Today, National Review, and Foreign Affairs, and he has appeared on ABC News, NBC News, CBS News, Fox News, CNN, MSNBC, CNBC and the BBC.

62 Million "Taxpayers" Will Pay NO Tax in 2008

The chart above is from the Joint Economic Committee's (JEC) report Overview of the Federal Tax System As In Effect for 2008, showing the distribution of taxpayers (including nonfilers and dependent filers) by marginal Federal income tax rate (MTR). The JCT staff estimates that approximately 62 million "taxpayers," or 37% of the 170 million taxpayers, will have no tax liability in 2008 and generally have a marginal tax rate of zero.

Q: Are you still a "taxpayer" if you don't pay taxes?

See related CD post here

(HT: Ben Cunningham)

Highest Foreclosure Rates: CA, NV and FL

RealtyTrac, the leading online marketplace for foreclosure properties, today released its March 2008 U.S. Foreclosure Market Report, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 234,685 properties nationwide during the month, a 5% increase from the previous month and a 57% increase from March 2007.

The report also shows one in every 538 U.S. households received a foreclosure filing during the month. Nevada, California, Florida has the top state foreclosure rates (see map above), and California, Florida, Ohio reported the highest foreclosure totals.

On Tax Day: The Tax Debate We Need To Have

Here's a cold reality that none of the presidential candidates want to tell you: a shrinking number of Americans are bearing an ever bigger share of the nation's income tax burden. In 2005 (the most recent year for which data is available), the bottom 40% of Americans by income had, in the aggregate, an effective tax rate that's negative: their households received more money through the income tax system, largely from the earned income tax credit, than they paid.

That means that the number of people who actually pay America's income taxes - totaling almost $1 trillion in 2005 - is surprisingly small. Of those who filed returns (themselves a subset of the population), just half accounted for 97% of the Treasury's total income tax revenue (see chart above). The top half's share of total payments has been growing steadily for the past 20 years. The top 10% of taxpayers kicked in 70% of total income tax. And the famous top 1% paid almost 40% of all income tax, a proportion that has jumped dramatically since 1986.

Did Bush cut taxes for the rich? Yes. But he cut taxes for the poor even more. If we look at the measure that really matters - the change in effective tax rates - the bottom 50% got a much bigger tax cut than the top 1%. Did the dollar value of Bush's tax cuts go mostly to the wealthy? Absolutely. It could hardly be otherwise. Since the well-off pay the overwhelming majority of taxes, any tax cut with a prayer of influencing the economy would have to go mostly to them. You could completely eliminate income taxes for the bottom half of the population, and the Treasury would hardly notice.

The real issues here are clear. One is having a shrinking minority of citizens pay most of Washington's bills. Social cohesion falls apart. The majority who pay nothing resent those with higher incomes; the minority who pay heavily resent those who don't pay.

~Geoff Colvin, Fortune Senior Editor


Monday, April 14, 2008

The "NY Times Jobless Rate"

According to Paul Krugman in today's (Apr. 14) NY Times: The official unemployment rate may be relatively low — but the percentage of prime-working-age Americans without jobs, which isn’t the same thing, is historically high.

According to a comment on this earlier CD post about Krugman and Don Boudreaux's response, Krugman was referring to the top chart above in the April 12 NY Times article by Floyd Norris "Many More Are Jobless Than Are Unemployed," which claims that "Men in the prime of their working lives are now less likely to have jobs than they were during all but one recession of the last 60 years. Most of them do not qualify as unemployed, but they are nonetheless without jobs."

Norris uses a "jobless rate," or "proportion of people without jobs," which can be calculated as: 1 - Male Employment Ages 25-54/Population. Using employment/population data for men, women and all workers aged 25-54 from the BLS (via Economagic), the "jobless rates" are calculated and displayed in the bottom chart above. The middle chart above shows this calculation for males aged 25-54, which matches the Norris graph at the top.

If Krugman did refer to that article as his source, there are a few problems:

1. Krugman says "the percentage of prime-working-age Americans without jobs is historically high," which is clearly not accurate. It would be more accurate to say that it is close to being historically low (see middle brown line above for "All Workers"). Krugman may have used Norris' data, but then mistakenly discussed the jobless rate for all workers aged 25-54 being high, when he should have been discussing men only aged 25-54.

2. When the data are displayed over a range from 0% to 70% (bottom graph) instead of a more narrow range from 2-16%, it's much clearer that the jobless rate for men aged 25-54 has been relatively stable at about 12% for the last 25 years. Further, the jobless rate for all workers aged 25-54 has been relatively stable at about 20% for the last 25 years, and jobless rate for women has been stable at about 28% for the last 20 years, and is close to an historical low.

Update: After exchanging emails with Norris, he calculated his "jobless rate" by first finding the number of men with jobs aged 25-54 in the household employment survey, and he then compared it to the civilian noninstitutional population for the same age group. Then he subtracted the employment/population ratio from 1 to calculate the "jobless rate." That calculation can be replicated by using the Employment/Population ratio from the BLS, and then subtracting that ratio from 1, see the middle chart above - it replicates Norris' top chart exactly.

What is Paul Krugman Talking About?

Paul Krugman in today's NY Times: The official unemployment rate of 5.1%, though rising, is still fairly low by historical standards. Yet economic attitudes are worse now than they were in 1992, when the average unemployment rate was 7.5%. Why are we feeling so down?

Our bleakness partly reflects the fact that most Americans are doing considerably worse than the usual economic measures let on.
The official unemployment rate may be relatively low — but the percentage of prime-working-age Americans without jobs, which isn’t the same thing, is historically high.

Don Boudreaux responds: Krugman is simply wrong to assert that the percentage of Americans of prime-working-age without jobs is "historically high" -- and misleading to suggest that, whatever this percentage might be today, that it is evidence of some major economy malady.

Comment: The labor-force participation rate for prime-working-age Americans has been relatively flat at about 83% for the last 20 years (see chart above, data available here), and is actually slightly higher so far this year at 83.10% (average from Jan-March 2008) than in any full year since 2002 (83.3%).

Don is correct - what is Krugman talking about? The percentage of prime-working-age Americans without jobs is close to an historical low, not an historical high!

50 Greatest Comedy Sketches of All Time

According to Nerve.com (with video links), including one of my favorites: "Buh-Weet Sings" from SNL, with classic songs like "Wookin' Pa Nub."

Inheritance is NOT The Main Driver: Rich Aren't Getting Richer, They're Getting More Numerous

WSJ--Study after study shows that most of today’s multi-millionaires made their wealth themselves, as opposed to inheriting it from their parents. PNC Wealth Management recently polled 1,500 Americans with $500,000 or more in investible assets and found that 69% of respondents made most of their fortune through work, business ownership or investments. Only 6% made their wealth by inheriting it, while 25% made it through a combination of inheritence and earnings (see chart above).

Other examples (also from WSJ):

1. According to a study of Federal Reserve data conducted by NYU professor Edward Wolff, for the nation’s richest 1%, inherited wealth accounted for only 9% of their net worth in 2001, down from 23% in 1989. (The 2001 number was the latest available.)

2. According to a study by Prince & Associates, less than 10% of today’s multi-millionaires cited “inheritance” as their source of wealth.

3. A study by Spectrem Group found that among today’s millionaires, inherited wealth accounted for just 2% of their total sources of wealth.

Each of these stats measures slightly different things, yet they all come to the same basic conclusion: Inheritance is not the main driver of today’s wealth. The reason we’ve had a doubling in the number of millionaires and billionaires over the past decade (even adjusted for inflation) is that more of the non-wealthy have become wealthy.

So it’s not just that the same old rich folks are getting richer. The more-important shift is that the rich are getting more numerous.

Sunday, April 13, 2008

Bulgaria: New Location for Outsourcing Film Scores

As the American film industry cuts costs, orchestras in Prague, Budapest and Sofia are picking up recording contracts for Hollywood scores, or those of French and Italian blockbusters.
A Balkan country known for its skilled musicians and low labour costs,
Bulgaria has become an attractive spot for outsourcing film scores.

"Compared to the United States or even Western Europe, our prices are five times lower."

What About High-Skill Immigration Zones?

PITTSBURGH--Last year was bad. This year, even worse -- a crush of applications, but a dearth of H-1B visas awarded to employers who say they need to import educated foreign workers to occupy high-tech positions that can't be filled by American workers.

This month, companies across the U.S. began filing petitions for 85,000 available work visas, which will be awarded through a random lottery. Last year, 133,000 petitions were received over two days in April before closing the application window. This year, immigration services accepted petitions for a full business week starting April 1, meaning the number of petitions could exceed 200,000.

The limitations are especially crippling to cities such as Pittsburgh, many businesses here argue, because drawing an educated immigrant class is the city's best short-term hope for population and economic growth, since the native-born population keeps dropping.

What if the cap remained in place across most of the country but was lifted for places that are lagging economically -- Detroit, Buffalo, Cleveland and Pittsburgh? It's a strategy being bounced around by think tanks and immigration advocates. Immigration lawyer Richard T. Herman says we should call them "High-Skill Immigration Zones," patterning the relief from H-1B caps after a similar visa program that allows foreign investors to plant their money more easily in economically "distressed" regions.

See related CD post: Help NOT Wanted in US: National Self-Sabotage

Price Discrimination for Eyeglasses

A firm engaged in price discrimination faces two practical problems. The first is the problem of distinguishing customers who will buy the good at a high price from those who will not. One solution is said to be used by optometrists. When the customer asks how much a new pair of glasses will cost, the optometrist replies, "Forty dollars." If the customer does not flinch, the doctor adds "for the lenses." If the customer still does not flinch, he adds, "each."

~David Friedman's Price Theory textbook (copyright 1990)

Copper: The New Underground Currency

MINNEAPOLIS--As copper prices surge above $4 per pound (see chart above), thieves in Minneapolis are ransacking house after house in search of copper they can sell to scrap dealers for as much as $20,000 a month.

Thieves most often hit foreclosed homes, but not always. They broke into Keili Mac's Minneapolis home while she was out of the country and took copper gas pipes. They left the gas on, the house exploded and the city demolished it. The victim returned to find her house gone.

Election Year: Economic Hypochondriacs Unite

During presidential elections, when candidates postulate this or that "crisis" for which each is the indispensable and sufficient cure, economic hypochondria is encouraged, so a sense of suffering is rampant.

Deranged by the entitlement mentality fostered by a metastasizing welfare state, Americans now have such low pain thresholds that suffering is defined as a slight delay in beginning a subsidized retirement often lasting one-third of the retiree's adult lifetime.

Subprime mortgages are a small minority of mortgages, and only a minority of subprime borrowers are not making their payments. Casting this minority of a minority as victims of "predatory" lending fits the liberal narrative that most Americans are victims of this or that sinister elite or impersonal force, and are not competent to cope with life's complexities without government supervision.

The politics of this may, however, be more complex than the compassion chorus supposes. The 96 percent of mortgage borrowers who are fulfilling their commitments, often by scrimping, may be grumpy bystanders if many of the other 4 percent -- those who found the phrase "variable rate" impenetrably mysterious -- are eligible for ameliorations of their obligations.

What next? Adults still burdened with student loans have not yet announced their entitlement to relief, but as they watch this subprime drama, might.

~From George Will's column "Fooling Ourselves into Entitlements"

Cartoon of the Day

Click to enlarge.

Saturday, April 12, 2008

IMF: Mild Global Slowdown, Strong Rebound

IMF--Global growth is projected to slow to 3.73% in 2008, ½% lower than at the time of the January World Economic Outlook Update and 1¼% lower than the 4.94% growth recorded in 2007. Moreover, growth is projected to remain broadly unchanged in 2009 (see chart above). The U.S. economy will tip into a mild recession in 2008 as the result of mutually reinforcing cycles in the housing and financial markets, before starting a modest recovery in 2009 as balance sheet problems in financial institutions are slowly resolved.

Note: The IMF is predicting U.S. real GDP to grow at .50% in 2008 and .60% in 2009, and is predicting a mild slowdown in world real GDP growth in 2008 (3.73%) and 2009 (3.76%), with a strong rebound to about 5% world growth in 2010-2013 (data here). Even a global "slowdown" to 3.7-3.8% in 2008-09 would still be above the average world GDP growth since 1980 of 3.53%, and would be far above (more than double) the world GDP average growth of only about 1.6% during the last four U.S. recessions (see dark shaded areas above).

If there is a global slowdown and a recession in the U.S. this year, it will potentially be relatively mild compared to previous slowdowns/recessions, and strong economic growth in the U.S. and world will resume shortly. Perhaps a stronger, more stable global economy, with significant growth in emerging economies will help prevent long, deep recessions in the U.S.?

World GDP Share:Emerging Economies Surpass US

The chart above was created using World GDP data from the IMF, U.S. GDP data from the BEA via FRED, and 2008 forecasts from the IMF for world GDP and U.S. GDP. The U.S. share of world GDP fell below 26% in 2007 for the first time since 1996, and is expected to fall below 25% in 2008 (24.76%) for the first time since 1980.

Reason? The significant growth in the emerging market economies, especially in the last five years. The emerging economies surpassed the U.S. in 2007 for share of world GDP (see chart below): U.S. share fell to just below 26% vs. the emerging economies' share of 27.4%.

Rolling Back Gov't: Lessons from New Zealand

When a reform government was elected in New Zealand in 1984, it identified three problems: too much spending, too much taxing and too much government.

We asked some fundamental questions of government agencies. The first question was, “What are you doing?” The second question was, “What should you be doing?” Based on the answers, we then said, “Eliminate what you shouldn’t be doing” - that is, if you are doing something that clearly is not a responsibility of the government, stop doing it.

When we started this process with the Department of Transportation, it had 5,600 employees. When we finished, it had 53. When we started with the Forest Service, it had 17,000 employees. When we finished, it had 17. When we applied it to the Ministry of Works, it had 28,000 employees. I used to be Minister of Works, and ended up being the only employee.

Some of the things that government was doing simply didn’t belong in the government. So we sold off telecommunications, airlines, irrigation schemes, computing services, government printing offices, insurance companies, banks, securities, mortgages, railways, bus services, hotels, shipping lines, agricultural advisory services, etc. In the main, when we sold those things off, their productivity went up and the cost of their services went down, translating into major gains for the economy.

We achieved an overall reduction of 66% in the size of government, measured by the number of employees. The government’s share of GDP dropped from 44 to 27%.

Read more from Maurice P. McTigue (formerly a member of New Zealand's Parliament, and also Minister of Employment) here.

What Credit Crunch?

WALL STREET JOURNAL--The credit crunch has made it harder for Americans to indulge in their love affair with debt. So what are they doing? Borrowing more.

While tighter lending standards have cut off all but the most credit-worthy borrowers from auto loans and home loans, many people are turning to credit cards and tapping more of their home-equity lines of credit to dig themselves in deeper.

The rise in borrowing shows just how addicted the U.S. consumer has become to credit. Even as borrowers are cut off in one area, they promptly look for new sources.

Comment: Consumer credit at U.S. banks is growing now by almost 6% on an annual basis, close to double the rate two years ago when growth was below 3.5% (see chart above). Whether or not the increase in consumer credit is a good thing is certainly subject to debate, but it seems clear that the media focus on a "credit crunch" is way overblown. As I've asked before: What credit crunch?

Update: The graph shows the annual growth rate in the monthly series "Total Consumer Credit Outstanding" from the Federal Reserve, available here via FRED, calcuated as the percentage change from the same month in the previous year.

Assorted Links: Globalization, Outsourcing, India

1. Indian consulates in the U.S. now outsource all visa applications to a private company - Travisa. Not so long ago, getting a visa from the Indian consulates across the country was a nightmare; now, applicants are all smiles thanks to the smooth functioning of the method of outsourcing such requests. MP: Invisible hand at work, can we do this with the Department of Motor Vehicles?

Republican Legislation: No more passport outsourcing. U.S. passports currently use foreign components and are assembled with a computer chip inside the cover in Thailand.

Iowa Public Radio officials are deflecting criticism for outsourcing volunteer-based fundraising efforts to a call center in California.

India court approves quota plan: Under the plan the lower castes' share of places in educational institutions would more than double to nearly 50%.

Toyota Expands in India: Toyota is building its second plant in India to increase production in a growing market. The plant, which will cost more than $340 million, is to open in 2010 with an initial annual production capacity of 100,000 vehicles, including the Corolla subcompact.

Friday, April 11, 2008

10 Businesses Facing Extinction in 10 Years

According to Entrepreneur.com (from September 2007):

  • Record stores
  • Camera film manufacturing
  • Crop dusters
  • Gay bars
  • Newspapers
  • Pay phones
  • Used bookstores
  • Piggy banks
  • Telemarketing
  • Coin-operated arcades

(HT: Ben Cunningham)

No Matter What Price You Charge, Watch Out....

According to U.S. antitrust laws:

These very simple guidelines, you can rely upon: You're gouging on your prices if you charge more than the rest. But it's unfair competition if you think you can charge less! A second point that we would make to help avoid confusion... Don't try to charge the same amount, that would be collusion!

From The Incredible Bread Machine

Help NOT Wanted in US: "National Self-Sabotage"

THE ECONOMIST--Consider the annual April Fool's joke played on applicants for H1B visas, which allow companies to sponsor highly-educated foreigners to work in America for three years or so. The powers-that-be have set the number of visas so low—at 85,000—that the annual allotment is taken up as soon as applications open on April 1st. America then deals with the mismatch between supply and demand in the worst possible way, allocating the visas by lottery. The result is that hundreds of thousands of highly qualified people—entrepreneurs who want to start companies, doctors who want to save lives, scientists who want to explore the frontiers of knowledge—are kept waiting on the spin of a roulette wheel and then, more often than not, denied the chance to work in the United States.

This is a policy of national self-sabotage. America has always thrived by attracting talent from the world. Some 70 or so of the 300 Americans who have won Nobel prizes since 1901 were immigrants. Great American companies such as Sun Microsystems, Intel and Google had immigrants among their founders. Immigrants continue to make an outsized contribution to the American economy. About a quarter of information technology (IT) firms in Silicon Valley were founded by Chinese and Indians. Some 40% of American PhDs in science and engineering go to immigrants. A similar proportion of all the patents filed in America are filed by foreigners.

The United States is already paying a price for its failure to adjust to the new world. Talent-challenged technology companies are already being forced to export jobs abroad. Microsoft opened a software development centre in Canada in part because Canada's more liberal laws make it easier to recruit qualified people from around the world. This problem is only going to get worse if America's immigration restrictions are not lifted. The Labour Department projects that by 2014 there will be more than 2m job openings in science, technology and engineering, while the number of Americans graduating with degrees in those subjects is plummeting.

How do you win the global talent wars when Congress is already in the hands of the idiocracy?

MP: Good question, Economist.

New Storage Technology: 500,000 Song iPod!!

TIMES ONLINE--Scientists at IBM say they have developed a new type of digital storage which would enable a device such as an MP3 player to store about half a million songs - or 3,500 films - and cost far less to produce. In a paper published in the current issue of Science, a team at the company's research centre in San Jose, California, said that devices which use the new technology would require much less power, would run on a single battery charge for "weeks at a time", and would last for decades.

At present the most capacious iPod - the 160GB iPod Classic - can store 40,000 songs.

IBM said the technology was still "exploratory" at this stage, but that it expected devices which used it to be on the market within ten years.

And You Thought Gas Prices Were High?

WASHINGTON, D.C. -- The American LegislativeExchange Council (ALEC) released its 14th edition of the Report Card on American Education: A State-by-State Analysis, which covers the schoolyears 1985-1986 thru 2006-2007. This comprehensive guide ranks the educational performance of the school systems in the states and the District of Columbia with Minnesota placing first and the District of Columbia last. Findings include:

Based on a variety of indicators, ALEC's 2007 Report Card has found no direct correlation between conventional measures ofeducation inputs, such as expenditures per pupil and teacher salaries, and educational outputs, such as average scores on standardized tests. For instance, class sizes today are 15% smaller than they were 20 years ago, yet of the 10 states that experienced the greatest decreases, only one (Vermont) is found among the highest performing states in the rankings.

Even with dramatic increases in the amount of educational resources spent on primary and secondary education over the past 2 decades--expenditures have risen nationally to an all-time high of $9,295 per pupil--student performance has improved only slightly; 69% of American eighth-graders are still performing below proficiency in math and 71% in reading, according to the 2007 National Assessment of Education Progress.

The latest results of comparison among participating nations of the OECD peg American students’ achievement levels in science below dozens of other countries including Croatia, Latvia, and mainland China. In fact, the United States scores below the combined average of all countries observed.

Comment: Based on data in the report from Table 1.6, real Per Pupil Expenditures for public elementary and secondary schools has increased from $6051 in 1985-86 to $9295 in 2005-2006, a 53.61% increase (see graph above). Over the same period, real inflation-adjusted gas prices rose by only 10.9% according to EIA data, from $2.24 per gallon in January 1986 to $2.484 per gallon in January 2006 (the mid-point in the school year). Even adding two more years of real gas price increases and using the January 2008 price of $3.059, real gas prices have only increased by 36.6% since January 1986, far below the 53.6% increase in real public school spending from 1985-86 to 2005-06.

And the quality of gasoline has stayed the same over the last 20 years, which is not necessarily the case with public schools. In fact, the graphs below show that increases in spending have either no effect on test scores (top graph below, taken from the report), or a negative effect on test scores (bottom chart below).

Thursday, April 10, 2008

Can Blogging Make You Smarter, Happier, and More Productive?

It's a few years old, but here's an interesting article from July 2006 in the Chronicle of Higher Education by UC-Berkeley blogger/professor/economist J. Bradford Delong, as part of a Chronicle series on the topic "Can Blogging Derail Your Career?":

The hope of all of us who blog is that we will become smarter, do more useful work, be happier and more productive, and will also impress our deans so they will raise our salaries. The first three hopes are clearly true: Academics who blog think more profound thoughts, have a bigger influence on the world — both the academic and the broader worlds — and are happier for it. Are we more productive in an academic sense? Maybe. We will see when things settle down.

Are our deans impressed? Not so far, but they should be. A lot of a university's long-run success depends on attracting good undergraduates. Undergraduates and their parents are profoundly influenced by the public face of the university. And these days, a thoughtful, intelligent, well-informed Web logger is an important part of a university's public face.

No Recession.......

......According to First Trust Advisors (economists Brian Wesbury and Robert Stein)

Summary: Despite a loss of payroll jobs in the past three months, it is likely that real GDP grew at about a 2% annual rate in the first quarter. While real GDP may slow to just 0.5% in the second quarter, we still expect a sharp rebound to 3%+ growth in the second half of 2008. In other words: No Recession.

Wal-Mart's International Sales Surge by 19%

Wall Street Journal--Wal-Mart reported today a 0.7% rise in U.S. same-store sales excluding fuel, the lower end of its forecast (see top chart above, click to enlarge). The firm's Sam's Club chain posted a 0.7% drop because of losing a day of sales to Easter closures. That hurt sales by 2 to 2.5 percentage points, the company said.

Wal-Mart's namesake chain had a 0.9% increase amid continued strength in groceries, health and wellness and entertainment. Wal-Mart described Easter sales as "good" despite the holiday's earliness this year shortening the season's selling period. Home-related sales remained weak.

What didn't make it into the WSJ's report was Wal-Mart's strong international performance (at stores in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the United Kingdom), with a 5-week sales increase of almost 19% (see bottom chart above), which might suggest that the economic slowdown in the U.S. has not spread internationally, and also suggests that U.S. companies can remain profitable from strong international sales despite a domestic slowdown.

“We are pleased with the overall performance of our International markets,” said Mike Duke, vice chairman responsible for Wal-Mart International. “We had strong sales performance in key countries, including the United Kingdom, Canada, Brazil and China.”

February Trade Report: U.S. Exports Show Strong Annual Growth, Imports Surge in February

Some positive aspects of today's trade report, despite CNBC news reports on "red ink" and "losing the trade deficit war."

1. On an annual basis, U.S. export of goods and services rose in February by almost 21%, from $125 billion in February 2007 to $151.4 billion in February 2008, according to trade data released today by the BEA. This is the strongest annual growth in U.S. exports in at least 15 years (see chart above). Over the same period, U.S. imports increased by 16.45%.

2. WASHINGTON--The U.S. trade deficit took a surprising turn upward in February as imports of cars and consumer goods surged despite the weakness of the economy. The U.S. deficit in international trade of goods and services increased by 5.7% to $62.32 billion from January's revised $58.96 billion, the Commerce Department said Thursday.

Update: From a comment on this post by Ironman, "Since a slowing economy typically demands fewer imported goods, while a growing economy demands more, the increase in goods in February suggests that the recent economic downturn might be milder than the headlines would otherwise seem to indicate."

Wednesday, April 09, 2008

CEO Pay Debate: Who Knows if $40M is Too High?

Washington Post business columnist Steven Pearlstein thinks CEOs are overpaid, and writes about it unconvincingly in his column "Off Balance at the Top." He also appeared on CNBC's "Kudlow & Company" tonight in this segment and said, "As a general rule, CEO pay levels are too high. $12 million is not outrageous, but $30 million, $40 million, $50 million, that's too high." Don Luskin then pretty much destroyed Pearlstein.

Comment 1: I guess that means that means Oprah is overpaid at $260 million, along with Tiger Woods ($112 million), Johny Depp ($92 million), Howard Stern ($70 million), Oscar De La Hoya ($55 million), Phil Mickelson ($51 million), Shaquille O'Neal ($35 million), Kobe Byrant ($34 million), etc.

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

Thomas Sowell:
Many people who have never run one business for one day are nevertheless confident that they know corporate CEOs are not worth as much as they are paid.

Comment 2: There's a very good reason for that average CEO pay has risen by a factor of about 7X from 1980 -2003: there was about a 7X 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.

Kudlow & Co: Goldilocks Rocks in Texas

The CD graph above was featured on CNBC's "Kudlow & Company" tonight, during the segment "Texas Economics" (starting about 0:45) featuring Texas Governor Rick Perry (no relation!) discussing the recession-proof Texas economy. Texas had the lowest unemployment rate in February (4.1%) since the 1970s (see chart below from this CD post), and cities like Dallas and Houston are booming!

Subprimes Didn't Have PMI?

Question from a CD reader:

I am hoping you might be able to answer questions for me that have been bothering me since the sub prime lending crisis began last year. Why hasn't private mortgage insurance (PMI) kicked in to protect lenders whose loans have defaulted or are in foreclosure?

Answer: Subprime lenders don’t require private mortgage insurance (PMI), unlike traditional lenders, at least some subprime lenders, according to this website and this one.

Two Conflicting Stories?

WASHINGTON -- The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.

WASHINGTON -- Mortgage applications in the U.S. rose last week as purchases and refinancing increased. The Mortgage Bankers Association's index of applications to buy a home or refinance a loan rose 5.4% to 725.6 from 688.3 the prior week. The group's purchase index gained 8.1% percent and its refinancing gauge increased 3.4%.

Lower prices have made homes more affordable and rates on fixed mortgages have retreated over the last month after the Federal Reserve cut the benchmark and pumped money in credit markets.

Note: Through February, real estate loans at commercial banks (
Fed data here) are at an all-time high, and increased almost 10% (annual rate) compared to January.

Paul Krugman Comes Out Against "Demon Ethanol" in the NY Times. It's Now Official: Ethanol is a Scam

Paul Krugman in the NY Times, "Grains Gone Wild"

Where the effects of bad policy are clearest, however, is in the rise of demon ethanol and other biofuels. The subsidized conversion of crops into fuel was supposed to promote energy independence and help limit global warming. But this promise was, as Time magazine bluntly put it, a “scam.”

This is especially true of corn ethanol: even on optimistic estimates, producing a gallon of ethanol from corn uses most of the energy the gallon contains. But it turns out that even seemingly “good” biofuel policies, like Brazil’s use of ethanol from sugar cane, accelerate the pace of climate change by promoting deforestation.

And meanwhile, land used to grow biofuel feedstock is land not available to grow food, so subsidies to biofuels are a major factor in the food crisis. You might put it this way: people are starving in Africa so that American politicians can court votes in farm states.

OK, now that Paul Krugman's on board by coming out against ethanol, it's now official: Ethanol is a complete and total scam.

Anytime you have Paul Krugman agreeing on ethanol with such a diverse group as the
WSJ, Reason Magazine, the Cato Institute, Investor's Business Daily, Rollingstone Magazine, Christian Science Monitor, the New York Times, John Stossel, The Ecological Society of America, the American Enterprise and Brookings Institution, the Heritage Foundation, George Will, and Time Magazine, you know that ethanol has to be one of the most misguided public policies in U.S. history.

So who is left out there supporting ethanol? You sure won't find very many scientists, economists, policy groups, or editorial page contributors. But, ethanol has been very, very good to corn farmers and ethanol producers like Archer-Daniels-Midland (ADM), the largest producer of ethanol in the United States. ADM stock has quadrupled over the last five years, from about $10 to about $40 per share, and increase of 300%, while the S&P has only increased by about 50% during the same period (see chart above).

Money Mag: Best Careers to Have in a Recession

According to Money Magazine, the 10 white-collar jobs above (click to enlarge) have the best combination of high pay and high security, and are among the best careers to have in a recession.

Cartoon of the Day

Tuesday, April 08, 2008

25% High School Graduation Rate in Detroit, Although State Dept of Education Says 67%

DETROIT--The Washington, D.C.-based America's Promise Alliance looked at the country's top 50 urban centers and found an average graduation rate of 51.8%. The Mesa, Ariz., school district had the best graduation rate, with 71.8%. Detroit Public Schools brought up the rear with a 24.9% graduation rate.

Detroit Public Schools spokesman Steve Wasko declined to comment on the study.

Graduation rates are controversial since they can be calculated in a variety of ways, but the study follows several others that have concluded Detroit has a serious dropout problem to address. A study released Feb. 25 by Michigan State University researchers found a 31.9% graduation rate for Detroit Public Schools students--just 25% for boys, and 39% for girls.

The Michigan Department of Education reported a 66.8% graduation rate for Detroit Public Schools for the Class of 2006.

More News on Retail Healthcare Clinics

BALTIMORE--MedStar Health is tapping into the retail health care trend. The Columbia health care company said Tuesday it is partnering with Rite Aid and a health clinic management firm to open four walk-in clinics providing treatment for flu, strep throat, injuries and other common ailments. The clinics -- two in Greater Baltimore and two in the Washington, D.C., area -- will be located inside Rite Aid stores sporting a MedStar PromptCare brand and will be staffed by physicians.

Small health clinics like these are cropping up at CVS, Walgreens, Target, Wal-Mart, Kroger and other retail stores throughout the country. At the end of 2006, there were about 250 retail store health clinics in the U.S., according to the Convenient Care Association. Now, more than 900 such clinics are operated by more than 20 companies in 30 states -- including 32 retail health clinics in Maryland.

Comment: While politicians in Washington and presidential candidates dream up the next grandiose government health care reform to address rising healthcare costs, the most effective, affordable and convenient healthcare solutions might be right around the corner at your local Rite-Aid, Target or Wal-Mart.

Venezuelan Healthcare Takes Turn for the Worse: "A System Only Michael Moore Could Love"

LA TIMES--Palacios, Venezuela's largest public maternity hospital and once the nation's beacon of neonatal care, has fallen on hard times. Half of the anesthesiologists and pediatricians on staff two years ago have quit. Basic equipment such as respirators, ultrasound monitors and incubators are either broken or scarce. Six of 12 birth rooms have been shut, and on one day last month, five newborns were crowded into one incubator.

There were six infant deaths at Palacios over a 24-hour period late last month, and since the beginning of February, six mothers have died in the hospital during or after childbirth.

Cases of malaria nearly doubled in Venezuela between 1998, the year before Chavez took office, and 2007. Incidents of dengue fever more than doubled over the same period. After the medical establishment blamed him for an outbreak of dengue fever last summer, Chavez halted weekly publication of an epidemiology report that for 50 years had tallied occurrences of infectious diseases nationwide.

As the Liberty Papers blog reports, this is a "healthcare system only Michael Moore could love."

(Via Taxing Tennessee)

Monster Employment Index Up +31% in Europe

The Monster Index Europe rose 5 points in March, leaving online job availability 31% higher than a year ago, indicating continued robust employer demand for labor across the European Union

"EU online recruitment activity picked up further pace in March, driven primarily by strong demand for technically skilled workers in areas such as architecture, engineering and manufacturing," said Hugo Sellert, Head of Economic Research, Monster Worldwide. "The underlying strengthening in demand has by and large been fuelled by Germany, Europe's largest economy, whose job market appears to have been gaining momentum in spite of concerns about slowing economic growth."

"Unemployment rates across the European Union have continued falling largely because employment is growing at a higher pace than the workforce," added Sellert. "The tightening labour market has resulted in ever more challenging recruitment conditions and the scarcity of qualified workers is likely adding to the availability of unfilled jobs."

Monday, April 07, 2008

Let's Review the Historical Record

From a comment by Publius on this CD post: "At a Joint Economic Committee hearing on Friday, Keith Hall, Commissioner of the Bureau of Labor Statistics suggested that median unemployment duration has declined simply because more people have lost their jobs recently, and therefore a large number have only been receiving unemployment payments for a few weeks, driving the average time of unemployment down."

That may or may not be true, but we do know for sure that in each of the last six recessions, median duration of unemployment went UP, not down (see chart above, click to enlarge).

101 Countries Have Lower Total Tax Rate than U.S.

From the World Bank and PricewaterhouseCoopers study "Paying Taxes 2008: The Global Picture:"

The Paying Taxes Study involves gathering information on the tax affairs of a standard case study company in 178 countries, by reviewing the financial statements and a list of transactions of a standard modest-sized firm. This information is used to generate three indicators related to the number of tax payments, the time taken to comply with its tax affairs, and the tax cost. These are equally weighted to produce an overall ranking for each country for the ease of paying taxes.

From the Executive Summary: The results show that tax reform is widespread. This year 31 countries improved their tax system and 65 have done so over the past three years.

Reducing corporate income tax was the most popular reform.

However, many countries have made changes to reduce the compliance burden by simplifying or eliminating other business taxes.

Total tax rates have been in a downward trend during the period in which Paying Taxes data has been collected.

Rankings for the United States:

Total Tax Payments: Rank #21/178 (10 different tax payments)

Total Tax Rate: #102/178 (46.2% total tax rate)

Time to Comply: #122/178 (325 hours)

Overall Ranking for the Ease of Paying Taxes: #76/178

Comment: Before American politicians consider imposing higher taxes on U.S. corporations, they should keep in mind that there are 101 countries that have a lower total tax rate than the U.S., 121 countries with a lower time to comply for corporate taxes, and 75 countries have a lower overall ranking for "ease of paying taxes."

Further, the global trend is towards LOWER total tax rates. In today's highly globalized economy, the mobility of capital, talent, investment and production is greater than ever, and they will move to where they receive the best tax treatment. As the NCPA points out "Despite the popular perception of America as a land of laissez-faire," this World Bank study tells a much different story of an economy with an uncompetitive, high corporate tax burden.

Obama Now Almost 7:1 Favorite Over Hillary

Based on actual futures trading on Intrade.com.

Weak Dollar Benefiting Michigan Exports

MICHIGAN--Manufacturers in Michigan and the rest of the country are benefiting from a weak dollar that is making their goods sold abroad cheaper, while imported goods are becoming more costly. In fact, a boom in Michigan exports is one of few bright spots in a mostly gloomy state economy. Exports from Michigan have risen 31% in the past five years, from $33.8 billion in 2002 to $44.4 billion last year, according to the U.S. Commerce Department (see chart above).

For an excellent database of state export data, click here.

5,000 Retail Clinics & The Threat to the MD Cartel

DETROIT--Retail health clinics have made their way into metro Detroit and are competing with doctors' offices for routine patient visits. Clinics contend that the quality of care is high and that when a patient requires urgent care or a visit to a physician's office, the process is seamless, said May Hang, manager of operations in Detroit for Minneapolis-based MinuteClinic, a subsidiary of CVS Pharmacy.

The latest numbers show that there are fewer than 1,000 U.S. retail clinics operating, but some expect the number of clinics to grow to 4,000 to 5,000 over the next five years.

Doctors and other groups, though, remain skeptical about how the clinics are operated and consider them a potential competitive threat.

Translation of the last paragraph: MDs are worried about competitive threats to their "medical cartel," and the potential erosion of their above-market, cartel wages.

Outsourcing to Ohio and Michigan.... Via India

MUMBAI, INDIA--India's leading software company Tata Consultancy Services (TCS) has signed a multi-year contract with US-based automobile manufacturer Chrysler to provide a comprehensive portfolio of IT services. According to the agreement, TCS will deliver IT application and maintenance support services to Chrysler by leveraging its Global Network Delivery Model from various locations around the world, including the recently announced TCS center outside Cincinnati, Ohio, and through a locally recruited team in the Detroit, Michigan, region.

Comment: What a wacky, interconnected, digital, Information Age, globalized, flat outsourced world - IT services outsourced from Chrysler in Michigan to Tata in India, back to Michigan and Ohio.

Don't Like Bush Tax Cuts? Pay at the Clinton Rates

WALL STREET JOURNAL--Senator Clinton's main tax proposal is to repeal the tax cuts of 2001 and 2003, raising rates to the levels of the Clinton Presidency. "We didn't ask for George Bush's tax cuts. We didn't want them, and we didn't need them," Mrs. Clinton explained.

But her higher tax rates wouldn't merely hit those who make $109 million; they'd soak middle-class families that make $100,000 or $200,000 a year and hardly feel "rich." If the former first lady feels so strongly that she should pay more taxes, we suggest she lay off the middle class and instead write a personal check to the U.S. Treasury for the difference between the Clinton and Bush tax rates (see 2000 tax rates above). She and her husband can afford it.

Comment: Here is the link to the Treasury's Gifts to the United States Government website for Citizens who wish to make a general donation to the U.S. government. This account was established in 1843 to accept gifts from individuals wishing to express their patriotism to the United States.

Hey, the Clintons could express their patriotism, and their disdain for the Bush tax cuts, at the same time by paying taxes this year at the 2000 rates. For Warren Buffet or anybody else who doesn't like the Bush tax cuts, you do NOT have to pay taxes at those lower rates, you can file taxes for 2007 at the higher Clinton tax rates, shown above!

Cartoon of the Day

Sunday, April 06, 2008

The World According to Newspapers

The UK's Online Journalism Blog features maps that show the world in 2007 through the eyes of editors-in-chief. The larger (smaller) the country on the maps, the more (less) media attention. See the world according to London's The Sun above.

Looking at the three British dailies, editors favour countries that are bigger and more populous, but also closer to home and better developed. They also give more room to the countries of origin of British immigrants, especially if they are white (look at the size of Australia and New-Zealand).

The Only Fair Choice: Support FREE Trade

Some of the conclusions from the article UNFAIR TRADE, by the Adam Smith Institute:

1. The
Fairtrade certification system and the Fair Trade movement from which it springs are fundamentally unfair. They offer a small improvement in prices to very few primary producers, while leaving most out in the cold and possibly even worse off than before. Of the farmers Fairtrade helps, many live in Mexico, a relatively wealthy and well-developed country. Fairtrade does little for the poorest of the poor in the agricultural sector, the landless laborers who are refused permanent employment under Fairtrade rules.

2. Fairtrade is not an answer to poverty. For those who promote it, Fairtrade is not even necessarily intended to aid economic development. Instead, Fairtrade operates to keep the poor in their place, sustaining uncompetitive farmers on their land and holding back the changes that could give their children a richer future by encouraging mechanization and diversification. Proponents of Fairtrade seek to present a consumer-friendly face, and have persuaded some commentators that it is an example of the free market in action. Yet the ultimate goals of the fair trade movement include the management of production and the rejection of free trade.

3. Economic growth in India and China is lifting more people out of poverty than ever before in human history. The insignificant scale of Fairtrade has no prospect of improving so many lives. Indeed, its economic vision, if implemented, would undoubtedly prevent such improvements from continuing.

4. Fair Trade is unfair: it seeks to reduce voluntary exchange to a government controlled privilege and to refuse agrarian societies the opportunity to become rich. By selling itself as the only option for the ethical consumer, Fairtrade directs the public away from new and exciting alternatives that may do much more good. Ultimately, for those who want to see the poor lift themselves out of their poverty, the only fair choice is to support free trade.

Comment: In a related
previous CD post I wrote: Whenever you hear politicians or Lou Dobbs talk about "fair trade" instead of "free trade," you'll pretty much be guaranteed that the discussion has left the realm of economic theory and the overwhelming empirical evidence of the benefits of free trade, and ventured off into a philosophical/political discussion justifying using the political process to bestow protectionist trade policy favoring a well-organized domestic, special-interest industry at the expense of consumers, in the philosophical interest of "fairness."

Likewise, any attempt by a private nonprofit organization to substitute controlled and managed "fair trade" for voluntary exchange and free trade, motivated by the goal to "seek greater equity in international trade," will necessarily result in inferior outcomes which are fundamentally unfair.