Monday, May 05, 2008

Recession Odds: From 70% to 25% in 18 Days

Based on futures trading on Intrade.com (see chart above, click to enlarge) for the most "predicted recession in U.S. history that will never come to pass" (First Trust Advisors).

Commencement Advice You're Unlikely to Hear Elsewhere

But you'll hear it here, from P.J. O'Rourke:

1. Go out and make a bunch of money! Here we are living in the world's most prosperous country, surrounded by all the comforts, conveniences and security that money can provide. Yet no American political, intellectual or cultural leader ever says to young people, "Go out and make a bunch of money." Instead, they tell you that money can't buy happiness. Maybe, but money can rent it.

There's nothing the matter with honest moneymaking. Wealth is not a pizza, where if I have too many slices you have to eat the Domino's box. In a free society, with the rule of law and property rights, no one loses when someone else gets rich.

2. Don't be an idealist! Idealists are also bullies. The idealist says, "I care more about the redwood trees than you do. I care so much I can't eat. I can't sleep. It broke up my marriage. And because I care more than you do, I'm a better person. And because I'm the better person, I have the right to boss you around."

3. Get politically uninvolved! All politics stink. Even democracy stinks. Imagine if our clothes were selected by the majority of shoppers, which would be teenage girls. I'd be standing here with my bellybutton exposed. Imagine deciding the dinner menu by family secret ballot. I've got three kids and three dogs in my family. We'd be eating Froot Loops and rotten meat.

4. Forget about fairness! I am here to advocate for unfairness. I've got a 10-year-old at home. She's always saying, "That's not fair." When she says this, I say, "Honey, you're cute. That's not fair. Your family is pretty well off. That's not fair. You were born in America. That's not fair. Darling, you had better pray to God that things don't start getting fair for you." What we need is more income, even if it means a bigger income disparity gap.

Via Cafe Hayek.

The US Peso Rallies: The Comeback of King Dollar?

Over the last eight trading days, from April 22 to May 2, the U.S. Dollar increased by 2.57% (from 69.7218 to 71.5147), as measured by the Federal Reserve's Trade Weighted Dollar Index for Major Currencies, data available here.

This is the largest 8-day percentage increase in the dollar in more than 3 years, since January 7, 2005, when the dollar increased by 2.74% over an 8-day period.

Index of Entrepreneurial Activity Rises in 2007

Related to the post below on taco trucks in LA:

Latinos experienced a large increase in the entrepreneurial activity rate in 2007. The entrepreneurial activity rate increased from 0.33% in 2006 to 0.40% in 2007. Non-Latino whites and African-Americans experienced slight increases in entrepreneurial activity rates, and Asians experienced a decline in rates (see top chart above).

A related finding is that the rate of entrepreneurial activity among immigrants, already high relative to the native-born, increased substantially between 2006 and 2007. From 2006 to 2007, the entrepreneurial activity rate among immigrants increased from 0.37% to 0.46%, considerably higher than the native-born entrepreneurial activity rate of 0.27% (see bottom chart above).

From the Kauffman Index of Entrepreneurial Activity, the only annual study to measure business startup activity for the entire United States adult population at the individual owner level. In 2007, 495,000 new businesses per month were started, with 0.30% of the adult population (or 300 out of 100,000 adults) involved in the startup process. This entrepreneurial activity rate is a slight increase over the 2006 rate of 0.29%.

"At a time when the nation is concerned about the economy, it is heartening to see that entrepreneurial activity continues to rise," said Carl Schramm, president and chief executive officer of the Ewing Marion Kauffman Foundation. "The entrepreneurial sector is a critical factor in our nation's economic growth. Even during times of recession, new firms have been responsible for the bulk of new jobs and innovations in America. That is why it is vital to track startup trends like we track other economic indicators."

Historic Change: Cuba Ends Computer Ban


HAVANA (AP) -- Cubans are getting wired. The island's communist government put desktop computers on sale to the public for the first time Friday, ending a ban on PC sales as another despised restriction on daily life fell away under new President Raul Castro.

A tower-style QTECH PC and monitor costs nearly US$780 (505 euros). While few Cubans can afford that, dozens still gawked outside a tiny Havana electronics store, crowding every inch of its large glass windows and leaving finger and nose prints behind (see picture above).

Via Buyer Behaviour

"Evil Wal-Mart" Continues to Offer Healthcare Solutions and Save Consumers Millions of Dollars

BENTONVILLE, Ark. – May 5, 2008 – While health care costs continue to be a top concern for consumers, Wal-Mart Stores, Inc. (NYSE: WMT) is furthering its efforts to help customers save money by driving down prescription medication costs and providing ongoing savings through its pharmacy offerings.

Expected to save Wal-Mart customers millions annually, today’s announcement is phase three of Wal-Mart’s $4 Prescription Program, which now covers a 90-day prescription for $10, additional women’s health medications and a new $4 over-the-counter (OTC) offer. The 90-day option gives more choices to customers and physicians who may have been limited to mail order prescriptions in the past.

Up to 95 percent of the prescriptions written in the majority of therapeutic categories are included in the $4 Prescription Program available at Wal-Mart, Neighborhood Market and Sam’s Club pharmacies nationwide. The affordable prices for these prescriptions are available for commonly prescribed dosages for up to 30-days or 90-days.

Free Market Reforms in Peru = Economic Growth

Peru has been experiencing fast growth – better than 6% annually – for almost seven years (see chart above of real GDP growth).
High growth rates – averaging 11% a year from 1990-2002 – have occurred in sectors that make china, porcelain, knitted fabrics, plastic products and basic chemicals, to mention a few.
The story of the "cluster" of small metallurgical companies that has emerged in Lima is especially compelling. In recent years, these entrepreneurs have been competitive in bidding for work that was previously dominated by important international firms. They have also become exporting powerhouses.

The agricultural sector on the coast has also revived, in part because private-property rights there (though not in the interior) have replaced the collectivized system of the 1970s. As a result, investment has poured in. Modern farming has put the coast on the map as a global supplier of asparagus, grapes, sweet yellow onions, mangos and organic bananas. All of this has been supported by the deregulation and privatization of key sectors like telecom and banking. And the biggest beneficiaries of openness have been consumers.

From today's
Wall Street Journal

Who Knew?

They still have penmanship contests? Actually I wasn't ever aware of this competition. But a small private school in my hometown of St. Paul, MN with only 157 students, has had nine state champions in the past three years — more than double the number of any other school — and 21 state champions since 2001.

Read
about it here.

HT: Joyce Howe

Taco Truck Battle Heats Up in Los Angeles




Pulitzer-prize winning restaurant critic Jonathan Gold gets paid to eat wherever he wants. And yet, several times a week he chooses to pull over to the side of the road and eat food served on a paper plate — out of a truck.

"I've probably been to 3,000 trucks in my life," says Gold, who writes for the alternative newspaper LA Weekly. "It's a hobby, you might say." Many Angelenos share Gold's love of the quick and inexpensive meals, with blogs and online maps dedicated to the quest for the perfect taco.

Not everyone is so enamored, however.
Los Angeles County officials recently passed a law that makes it a misdemeanor to park a taco truck in the same place for more than an hour. Violators face fines of up to $1,000 or six months in jail.

Who would object to cheap street tacos? Certainly not consumers, they love the taco trucks, and LA food critic Gold describes a great street taco as "happiness translated into the language of warm tortillas, finely chopped onion and a hot sauce that brings you to your knees." It's probably obvious, but find out here who doesn't like taco trucks and would love to put them all out of business.

Watch a slideshow on LA taco trucks here.

Sunday, May 04, 2008

Many Consumer Prices Are Falling, Not Rising


Interesting graphic above from yesterday's NYTimes (click to enlarge), showing the percentage breakdown of consumer spending in 2008 (15% on food and beverages [vs. 46.4% in 1901!], 18% on transportation, 42% on housing, etc.), and the percentage change in the components of the CPI over the last year from March 2007 to March 2008.

Notice all of the components above in blue, showing the more than 30 goods that have FALLEN in price over the last year (the NYTimes graph is interactive - move your cursor around to see specific items and price changes), including even many food items, such as:

Citrus fruits: -9.5%
Lettuce: -3.2%
Pork chops: -1.3%
Ham: -1.3%
Sugar: -1.7%
Bedroom furniture: -2.3%
New cars: -1.1%
TVs: -18.3%
Clocks, lamps, decorations: -7.5%
Computers: -12%
Women's suits: -6%
Men's shirts: -3.4%
Girl's clothes: -9.4%
Watches: -2.3%
Software: -5.3%
Toys: -5.2%
Phones: -5.3%
Outdoor equipment: -2.5%
Cameras, film: -6.1%

Foreclosures on Subprime Fixed Below 1999-2004

The chart above (click to enlarge) is from a new study by the CBO, showing foreclosures by type of mortgage through QIV 2007. As the chart indicates, the real mortgage problem is pretty much contained to subprime ARMs only, which make up less than 5% of the 75 million homes in America. Although foreclosures increased for Subprime Fixed mortgages in 2007, the 1.5% rate in late 2007 was actually at or below the peak levels from 1999 to 2004. Prime ARM foreclosures increased in 2007, but reached a level of only about 1% by the end of 2007.

An Unreasonable, Unconscionably Ridiculous Idea

Profit Margins by Industry, click to enlarge
"While Hillary Clinton may have failed ECON 101 along with John McCain, it appears as if Rep. Paul Kanjorski (D-PA) may been enrolled in Marxism 450 at the time," according to The Tax Foundation. Reason?

Exhibit A: Kanjorski's House Resolution 5800, the "Consumer Reasonable Energy Price Protection Act of 2008," which would:
  • Tax the oil industries’ "windfall profits."
  • Set up a "Reasonable Profits Board" to determine when the oil companies’ profits are in excess, and then tax them on those windfall profits.
  • As oil and gas companies’ windfall profits increase, so would the tax rate for those companies.

In this news article, Kanjorski said his legislation will encourage oil companies to lower prices to prevent them from receiving higher tax rates.

A few Questions/Comments:

1. Oil companies don't set oil and gas prices, global market forces do. The fact that oil and gas prices change daily demonstrate very clearly that oil companies are at the mercy of market forces of supply and demand.

2. If you tax something (oil), you get less of it. If you get less of something (oil), prices go up, not down.

3. How does Rep. Kanjorski know what "reasonable profits" are? He might start by having Congress investigate the 57 industries listed above (click to enlarge, data available here and here) that already have higher profits than the average 9.6% profit margin of the "Major Integrated Oil and Gas Industry" (which includes Exxon, Chevron, ConocoPhillips, BP, Royal Dutch Shell, etc.)


Where's Michael Moore?

LONDON/THE SUN -- Illegal immigrants are sneaking OUT of Britain because they are sick of our weather and hospitals.

Chief immigration officer Les Williams said: “We have recently noticed people trying to leave the country. Some said they wanted to go to a warmer country as they are fed up with the English weather and their treatment from the National Health Service.”

He said: “They were sick of the rain and cold and wanted to go somewhere with a bit more sun. They also complained they could not get appointments to see a doctor or a dentist.”

The Sun revealed in December how pregnant Polish immigrants were heading home to give birth because prenatal care was better in Poland.

Saturday, May 03, 2008

Good Question: These Folks Want to Be President?

Politicians want lower gas and oil prices but don't want more production to increase supply. They want oil "independence" but they've declared off limits most of the big sources of domestic oil that could replace foreign imports. They want Americans to use less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They want more oil company investment but they want to confiscate the profits from that investment. And these folks want to be President?

~"Windfall Profits for Dummies" in today's WSJ

IQ and The Wealth of Nations

GDP per capita vs. IQ
Top 20 Countries for Average IQ

IQ by country, click on map above to enlarge (green is highest, yellow is second-highest).

Source: "IQ and The Wealth of Nations" entry
on Wikipedia

The Energy Efficient Economy Can Handle $112 Oil

Compared to the early 1970s, the U.S. economy is now twice as energy efficient, requiring only about 1/2 of the energy consumption per dollar of real GDP in 2007 (8.78 BTUs per dollar of real GDP) as in 1973 (17.44 BTUs per dollar of real GDP), according to data just released by the Energy Information Administration.

Bottom Line: The energy-efficient economy of today is much better able to absorb higher energy prices than in the past. Although high oil prices crippled the economy in the 1970s and early 1980s, and contributed to three serious recessions between 1973-1982, the energy-efficient Goldilocks Economy of the 21st Century just keeps humming along, recession-free.

Intrade: Recession Odds Plunge From 60% to 30%

hammertime.gif

In just the last 10 days, the odds of a recession have fallen from 60% to 30%, based on futures trading on Intrade.com (see chart above, click to enlarge). Goldilocks rocks!!

Friday, May 02, 2008

Chart of the Day: Monetary Base Growth Only .70%

The chart above (click to enlarge) shows the percent change (from a year ago) in the Adjusted Monetary Base. It's now growing at an annual rate of only 0.70% through April 23, down from 10% in 2002, and the lowest rate in more than 7 years.

Right-to-Work States: 7, Forced-Union States 0

What are the main economic differences between right-to-work states and forced-union states (see map above)?

Not much really, except that compared to forced-union states, right-to-work states have had faster economic growth, lower unemployment rates, greater employment growth, higher state real GDP growth, greater growth in personal income, higher population growth, and greater home price appreciation. That's all.

James Hohman at the Mackinac Center has the data.

Household Survey: 362,000 Jobs Added in April

From today's BLS employment report, here's what probably won't get reported:

According to the more comprehensive Household Survey Data (which unlike the establishment data, includes the self-employed, unpaid family workers, agricultural workers, and private household workers), there were 146.331 million Americans employed in April (see chart above), which is: a) 618,000 higher than April of last year (145.733 million jobs), and b) 362,000 higher than March of 2008 (145.969 million).


Note also what happened to employment levels for both measures during the 2001 recession. Much different than 2008. No recession.


Update: Also, as Brian Wesbury points out, the actual, unrounded unemployment rate is only 4.952%, very, very close to being reported as 4.9% instead of 5%!


Beer Prices in 182 Countries

Check out The Price of a Pint database of World Beer Prices in 182 countries, priced in USDs, BPs, Euros, $CAN and $AUD, including a list of the most expensive countries (#1 is Monaco - $11 for a pint) and most affordable countries (#1 is Congo - 15 cents for a pint).

Thursday, May 01, 2008

Exxon Paid Almost $3 in Taxes for Every $1 Profit


Actually, income taxes of $9.3B are only about 1/3 of Exxon's total tax liability of $29.3B for the first quarter of 2008, according to this press release (see top chart above). Further, Exxon paid close to $3 in taxes ($2.69) for each $1 it earned in profits.

2008 Job Market Looks Good for College Grads


CNN--The average starting salary offer is 4% higher for 2008 graduates than last year's alumni, according to a recent study by the National Association of Colleges and Employers. Additionally, hiring is expected to increase by 8%. (Chart above show average starting salaries by discipline.)

Via Club for Growth.

CD Exclusive: Exxon's Record Tax Payment

Exxon's income taxes of $9.32 billion ($9,320,000,000) in the first quarter 2008 sets a new all-time record for the highest amount of income taxes ever paid by a U.S. corporation in a single quarter, and tops the previous record amounts of income taxes paid by Exxon last year (see chart above).

Amount of taxes Exxon paid in the first quarter 2008:

Daily: $103,500,000

Hourly: $4,300,000

Every minute: $72,000

Every second: $1,200

Exxon Income Taxes Set All-Time Record of $9.3B

NEW YORK (CNNMoney.com) -- Record oil prices netted Exxon Mobil $10.89 billion in the first quarter, sharply higher than a year earlier but short of Wall Street expectations and below what was needed to set a new all-time profit record.

The sheer size of the Exxon profit reported Thursday will still likely attract attention from consumer groups and lawmakers, who have been arguing for higher taxes on oil companies amid soaring gas and oil prices.

The company posted first-quarter net income of $10.89 billion, or $2.03 a share. That's up 17% from the $9.28 billion, or $1.62 a share it earned a year earlier, but it missed analysts' consensus forecast of $2.14.

Revenue hit $116.85 billion, up 34% from a year earlier when sales hit $87.2 billion. The profit was still enough to be the second highest U.S. corporate profit on record, falling just short of the record $11.66 billion Exxon Mobil earned in the fourth quarter. The profit came to $1,385 a second, enough to buy nearly 382 gallons of gas at current prices.

Prediction: In every single media story today about Exxon, the one key income statement variable that will receive ABSOLUTELY NO ATTENTION is the amount of income taxes paid by Exxon, which was $9.32 billion in the first quarter,
according to Exxon.

Following CNN's analysis, Exxon paid $1185 in income taxes every second this quarter, enough to buy 327 gallons of gas.

Bottom Line: Although Exxon's profits in the first quarter didn't set a record, its quarterly income taxes paid of $9.32 billion did set an all-time record. I predict this will go largely unreported.

New Paradigms Don't Come from Old Paradigms

Quote of the Day:

The Rockefellers, of all families, should know that Exxon Mobil is unlikely to have much success ushering in a new energy paradigm that will change the world for the better. A company that depends on an established technology rarely has the incentives or ability to lead a shift to the technology that will upend the old way. The oil industry was created by a dry-goods merchant in Cleveland, not by whale-oil harvesters in New England.

~Daniel Gross in Slate.com

Monster Employment Index Rises 7 Points in April

The Monster Employment Index added seven points in April, the strongest single month gain in more than 12 months, as online job availability in the U.S. continued to rise for the third consecutive month (see chart above).

Monster Worldwide's VP of Research said "The Index’s three-month growth trend, combined with its slightly improved year-over-year growth rate, is an encouraging sign of stabilization in the U.S. labor market.”

Highlights of the April report include:
  • The financial services sector is showing a degree of stabilization, despite highly publicized layoffs in the banking industry.

  • Online job opportunities continue to expand in Kansas City, Pittsburgh and Houston.

MP: This positive labor market report provides additional support for the view that the U.S. economy is not in recession, and has started to show some signs of recovery.


Outsourcing Airplane Maintenance to El Salvador and Personal Household Outsourcing


San Luis Talpa, El Salvador/LA TIMES BUSINESS--Southwest Airlines planned to begin flying planes to this small Central American nation this year -- but not with passengers aboard. The carrier wanted to outsource some of its maintenance to a Salvadoran repair shop called Aeroman (pictured above).

Aeroman already services jetliners operated by U.S. carriers JetBlue and America West. The airlines fly empty planes hundreds of miles from the United States to have them refurbished, repaired and inspected. It's like driving across town for a cheaper mechanic -- except that airlines can save millions of dollars over the life of their rides.

Industry experts say maintenance outsourcing will only increase as airlines grapple with post-9/11 security costs and sharply higher fuel prices. Already a $41-billion business, so-called MRO (for maintenance, repair and overhaul) outsourcing is expected to reach nearly $60 billion within a decade.

HT: Ben Cunningham

MP: Just in case you have any objections to this type of outsourcing, consider your own frequent personal outsourcing at the level of your own household. You probably outsource the cleaning of some of your clothes to a local dry cleaner, you often outsource the preparation and cooking of your food to a local restaurant, you outsource the upkeep and maintenance of your vehicle to a local car wash, oil change service, and repair shop, you might outsource the cleaning of your house and your lawn maintenance to an outside agency, you outsource the preparation of your taxes to a tax service, etc. etc.

In almost all of these examples, you could have performed those services internally within your own household (cleaned your own clothes, prepared your own food, changed your own oil, cleaned your own house or prepared your own taxes), but a personal cost-benefit analysis suggested that it was more cost-effective for you to outsource those tasks to someone outside your household, compared to performing those services yourself. In that sense, a household is just like a small business firm, which continually makes business decisions that involve comparing the cost of external vs. internal production. Just like a small or large firm, your household chooses the least expensive alternative, and outsources when it makes economic sense.

Wednesday, April 30, 2008

Recession Odds Fall On Intrade

The chart above (click to enlarge) shows the falling odds of a 2008 recession, based on futures trading on Intrade.com over the last 14 days. From a 70% chance of a 2008 recession on April 17, the odds have now fallen below 45%.

World's Most Worthless Currencies

#1 is the new 10,000,000 Zimbabwe dollar banknote (pictured above), which is currently worth less than $4. See the list here.

NO RECESSION

According to today's Bureau of Economic Analysis report, "Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.6% in the first quarter of 2008, according to advance estimates. In the fourth quarter, real GDP also increased 0.6%."

Pussy Willow Sunday

Our group was in Togliatti, Russia on Palm Sunday (April 20 this year according to the Russian orthodox calendar) and we visited a Russian Orthodox church and were surprised to see people carrying pussy willows instead of palm branches (which do not grow that far north).

Tuesday, April 29, 2008

Result of U.S. War on Drugs: PRISON NATION

The United States leads the world in prisoner production. There are 2.3 million people behind bars. China, with four times as many people, has 1.6 million in prison.

In terms of population, the United States has 738 people in prison for every 100,000, while the closest competitor in this regard is Russia with 611 (see chart above,
data available here). I'm struck by this figure: 487 in Cuba. The median global rate is 125.


What's amazing is that most of this imprisoning trend is recent, dating really from the 1980s, and most of the change is due to drug laws. From 1925 to 1975, the rate of imprisonment was stable at 110, lower than the international average, which is what you might expect in a country that purports to value freedom. But then it suddenly shot up in the 1980s. There were 30,000 people in jail for drugs in 1980, while today there are half a million.

From Prison Nation by Llewellyn Rockwell, via Division of Labour

Strippers Can't Compete with Internet

TORONTO, April 28 (UPI) -- The number of strippers and strip clubs in Toronto is declining, with former dancers blaming the Internet for putting them out of work.

An economics lesson here in low barriers to entry, competition and contestable markets?

Are Inflationary Concerns Inflated?

Inflation: Food
Inflation: Energy
Inflation: All Items Less Energy and Food
The charts above are from the St. Louis Federal Reserve, using CPI data from the BLS, and show the percent change from a year ago, from 2000 - 2008. Is it possible that inflationary fears are inflated? Consider that:

1. Food inflation fell in both February and March 2008.

2. Energy inflation fell in both February and March, and is lower in 2008 than in 11 months in 2005 and 2006.

3. Inflation for all items less food and energy is lower in 2008 than in 10 months in 2006 and 2007.

Bad Auto Investments / Weight Inequality



Monday, April 28, 2008

Economics of College

In the first of a three-part series on the "Economics of College," economist Thomas Sowell asks, "How many people would go to college if they had to pay the real cost of all the resources taken from other parts of the economy? Probably a lot fewer people."

Part 1 here, Part 2 here and Part 3 here.

$100 Int'l. Phone Call in 1973 Now Costs Only $1.60


ECONOMIST--The cost of a phone call abroad has dropped dramatically in the past three decades, thanks to market liberalization and advances in technology. A one-minute fixed-line call from America has fallen by 98.4% in real terms since 1973 (see chart above).

In other words, an international phone call that cost $100 in 1973 now costs only $1.60 (adjusted for inflation), and a call that cost $10 now costs only 16 cents.

Russia's New Consumer Nation: Wal-Mart Drools

BENTONVILLE, ARKANSAS/MSNBC - Wal-Mart is moving closer to a possible expansion into Russia with the appointment of an experienced European executive to scope out possibilities in a vast retail market worth more than $140 billion a year in food sales alone.

From a related Reuters article, Wal-Mart Chief Executive Lee Scott said at the company's analyst meeting last October that Wal-Mart hoped to be in Russia "at some point in the future." Scott called Russia a "growing consumer nation," and he said consumers there have shown a propensity to spend while in other developing countries they tend to save.

MP: If you thought the oil and gas markets are booming in places like Russia, check out the consumer and retail sector stock index in Russia compared to the oil/gas sector stock index in Russia (see graph above, data available here)! From what we heard in Russia at visits to both Ford and GM headquarters in Moscow, Russia will probably overtake Germany this year as both Ford and GM's #1 European market for vehicle sales.

Every Sales Receipt in Russia Gets Ripped!

I've been to Russia now four times, and one of the most interesting and unusual retail practices in stores there is the Russian sales clerks' habit of tearing almost every sales receipt before they hand it to you or set it down on the counter (see picture above).

Supposedly, this practice goes back to the Soviet days, when most stores had the merchandise behind counters and glass cases. To make a purchase, you would ask an employee to get the merchandise for you and prepare a sales receipt, which you take to a second employee/cashier. After you paid, you would take the receipt back to the first employee to pick up your stuff. Then that employee would tear the receipt, to finalize the transaction, and prevent customers from trying to come back and get a second item later for free.

Although no longer necessary, the "receipt-tearing" practice continues to this day at almost every retail store in Russia out of an old Soviet-era habit! Makes it a little inconvenient when you need to present receipts back in the USA for reimbusement!

ABCDs in India

NPR: In this broadcast we talk to a bunch of American-born Indians and their local friends who discuss what it's like to come "home" and what it's like to be invaded by Americans who want to rediscover their "Indian-ness". The locals have a nickname for these Americans —they call them "ABCDs." That's an acronym for American-Born Confused Desis. Desi is slang for an Indian guy or gal, and the term basically means kids from America who return a little mixed-up about who they are.

The conversation, as you'll hear here, explores all kinds of issues: the advantages of an American accent in India, the value (and limits) of Western experience in attacking pollution and poverty, the importance (or not) of movies and popular culture in creating social change, and why Indian women (some of them) like beef-eating men.

Free Trade

"Freer Trade Could Fill the World’s Rice Bowl," by Tyler Cowen in The NY Times

"America Needs to Make a New Case for Trade," by Lawrence Summers in The Financial Times

Saturday, April 26, 2008

LA Food Fight: Black Market Bacon Dogs

Amid the hustle and bustle of downtown Los Angeles, there exists another world, an underground world of illicit trade in—not drugs or sex—but bacon-wrapped hot dogs. Street vendors may sell you an illegal bacon dog, but hardly anyone will talk about it, for fear of being hassled, shut down or worse. Reason.tv's Drew Carey catches a bacon dog bust on tape.

Quote of the Day: Government Doesn't Make Gas

The government takes over 40 cents a gallon in taxes for gasoline, far more than the profit per gallon made by oil refiners like Exxon. And the government doesn’t make any gas for you.

~Temple University Economics Professor
Bill Dunkleberg

New Cars Today: More Options At Lower Prices

What is remarkable and amazing is that as "car options considered to be essential to car shoppers" have increased significantly between 1985 and 2007 (see chart above), new car prices have: a) increased much less than the general price level during that period, b) been relatively flat since about 1993, and c) decreased slightly since 1996 (see chart below). Supposedly, the Bureau of Labor Statistics adjusts for changes in quality over time, but I'm not sure that the series "CPI: New Cars" accurately captures all of the improvements in the quantity and quality of vehicle options over time.

Bottom Line: Car buyers have gotten more and more options over time, while vehicle prices have been flat, reducing the overall cost of owning a car. Gasoline might be getting more expensive, but real car prices are a baragin. Looking at the graph below, if vehicle prices had increased at the same rate as the "CPI for All Items" since 1985, new car prices in 2008 would be almost double today's prices.


Friday, April 25, 2008

Russia vs. USA: Smoking and Obesity

Two big, very noticeable differences between Russia and the USA:

1. Everybody here in Moscow smokes. Well, almost everybody.

2. Nobody here in Moscow is overweight. Well, almost nobody. Our MBA group sat in the Food Court in a popular mall near Red Square, drinking $2 beers, and watched Russians walk by for about 45 minutes looking for somebody who could be considered either "overweight" or "obese." In that time, we only saw a few Russians, out of many hundreds who walked by, who would be considered overweight, and not a single obese person. Even after being in Moscow for 4 days, I don't think we've seen a single obese Russian, and very, very few overweight Russians. Maybe that's because they all smoke?

McDonald's and Customer Service in Russia

While visiting the American Chamber of Commerce in Russia (in Moscow) yesterday, President Andrew Sommers told our group a wonderful story that really captures the old Soviet-era mentality towards customer service.

When McDonald's opened its first restaurant in the Soviet Union in 1990 near Moscow's Pushkin Square (pictured above, still the largest McDonald's in the world, with 27 cash registers and seating capacity of 700), it went through an extensive training program for the new workers. Of course, customer service, which was a brand new concept for the Soviets, was extensively emphasized for the new McDonald's employees.

After several days of training about customer service at McDonald's, a young Soviet teenager asked the McDonald's trainer a very serious question: "Why do we have to be so nice to the customers? After all, WE have the hamburgers, and they don't!"

There's still a little bit of that mentality left in Russia, and although customer service here is still not up to US standards, it's gotten much better than my last visit in 2003.

Moscow: Most Expensive City? Not For Tourists

CNN--Moscow is supposed to be the most expensive city in the world to live in, and is 34.4% more expensive than New York City. But I don't think that translates to Moscow being the most expensive city for a tourist to travel to. In fact, our group has found Moscow to be relatively inexpensive, probably much cheaper than NYC for most items.

For example, the Moscow Metro subway system has to be the best value, and maybe the most efficient system in the world. A 10-fare pass costs 165 rubles, which is about 70 cents per trip (including as many transfers as you need), and the trains come literaly every couple minutes, so you never have to wait more than a minute or so for the next train.

There are 12 different lines connecting all parts of the city, 176 stations, and more than 7 million passengers on an average weekday! The stations have to be the most ornate in the world, with marble floors and walls, stained glass, chandaliers, etc., it's more like being in a church or museum or bank lobby than a subway station (see photo above).

Dinner tonight at an excellent restaurant on the famous Arbat Street for two cost only about $40 with 2 drinks each, and we bought beer last night for $2 at a food court in an upscale mall next to Red Square.

Moscow: It's Booming and You Can Feel the Energy

Chinese author Mian Mian said that "As a city, Shanghai is like a beautiful young bitch who loves money."

After being in Moscow for 3 days, I think the same could be said about this incredibly dynamic and energetic city, with construction going on everywhere and the economy absolutely booming! A lot has changed in just 5 years since I was here last in 2003, and Moscow has to be one of the most energetic and dynamic cities in the world today. It's absolutely electric here, you can feel the energy!

Try to visit Moscow if you ever get a chance, although you still need an official letter of invitation to travel here, and therefore tourists of any kind are somewhat scarce here.
It's much easier to get here if you're either on business or some kind of educational or cultural trip - I'm travelling with 13 MBA students from University of Michigan-Flint, with an invitation from our partner institution - the Togliatti Academy of Management, where I taught for part of a semester in 1999. It's certainly not the "Iron Curtain" any more, but it's still like a flimsy "shower curtain" I guess.....

Two on McCainomics

John McCain sure sounds like a tax rate-cutting fiscal conservative. His tax proposals, detailed in this speech last week, seem to extend the Reagan-Bush legacy of lower marginal rates across the board, and special emphasis on supply-side incentives (see various tax breaks below). But this article contrasts McCain the candidate with McCain the Senator.

Elsewhere, the New York Times profiles McCain's chief economic adviser, Douglas Holtz-Eakins. The article argues McCain's policy proposals focus mainly on the revenue side, without addressing spending:
The problem is that the campaign has been far, far more detailed about its tax cuts, which would worsen the deficit, than its spending cuts, which would reduce it. Mr. McCain has proposed the elimination of the alternative minimum tax (at a cost of $60 billion a year), new child tax deductions ($65 billion), a corporate tax cut ($100 billion) and faster write-offs for corporate investments in new equipment ($50 billion to $75 billion).
But in academia, Mr. Holtz-Eakin is known for empirical work that questions the productivity of government expenditures. Here is an ungated example.

Wednesday, April 23, 2008

Earth Day Hysteria: Most Original Predictions Were Stunningly Wrong

Another Earth Day is upon us. This is a good time to look back at predictions made on the original Earth Day about environmental disasters that were about to hit the planet.

Most Earth Day predictions turned out to be stunningly wrong. In 1970, environmentalists said there would soon be a new ice age and massive deaths from air pollution. The New York Times foresaw the extinction of the human race. Widely-quoted biologist Paul Ehrlich predicted worldwide starvation by 1975.

Read more here from the Washington Policy Center.

Russia Motor Vehicle Market is Booming!

After meeting with GM's President in Russia yesterday, our group of 14 UM-Flint MBA students visited Russia's largest Chevy dealer yesterday in Moscow, where they also sell Hummers, Saab, Opels and Cadillacs (including STS and CTS models made in Lansing, Michigan). The dealer sells about 1,000 vehicles per month, and was hoping to close 40 deals yesterday. Sales this year have doubled compared to last year.

For new car sales, prices are fixed by GM and not negotiable. Salespeople are paid a fixed salary, and do not receive commissions for each sale, but do have some incentives for excellent customer service ratings. About 40% of the vehicles are financed through banks, typically for 5 years at interest rates of about 10-14% right now (inflation is about 12% here).

Vehicles at the Chevy dealer range from the $10,000 Chevy Spark (pictured above) to the $100,000 Cadillac Escalade.

During our trip to Togliatti where we visited GM's joint venture with AutoVAZ, we learned that the average autoworker here makes about $800 per month, and the average age of the Russian autoworkers is about 24 years old (some of them look almost like high school students!).