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.'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!).

U.S. Unemployment is Short and Rare

Pundits and the media continue to barrage us with recession claims, but unemployment data still do not support this. The graph above shows U.S. unemployment rates over the past 50 years. Note how the sharply the unemployment rate spikes upward at the onset of recessions.

Where is the spike for 2008? So far, there isn't one. In fact, the unemployment rate for March 2008 is just 5.1%, significantly below the long run (50-year) average of 5.9%.

In addition, unemployment duration in the U.S. continues to be relatively short. The median duration of unemployment as of March 2008 is only 8.1 weeks: so the typical worker is only out of work for about two months! And as the pie chart below shows, unemployment lasts less than fourteen weeks for two-thirds of the unemployed.

Vehicle Options: USA (1985 vs. 2007) vs. Russia

On Tuesday in Togliatti, Russia, I toured the production facility of the Chevy Niva (pictured above), a joint venture between GM and Russia's AutoVAZ. The vehicles are one of the best-selling SUVs in Russia right now, and there is a 3-month waiting list to get the vehicles. This situation is somewhat unique to the Niva, most other vehicles in Russia are available immediately. The Nivas sell for about $16,000 and there are only two models and one option: with A/C, or without A/C. Also, there are NO radios available in either model, although the Nivas come radio-ready, with wiring and everything except the audio equipment. It seems that in the Russian market, consumers prefer to purchase their own radio/stereo equipment as an after-market option. It might also be the case that some customers prefer radio only, others prefer audio cassette tapes, and some others prefer CD players.

When in Moscow today, I asked the President of GM Russia why GM/AutoVAZ didn't raise the price of Nivas to reduce the 3-month waiting list, and she said that Russian Niva consumers would easily tolerate a 3-month wait, but many would NOT tolerate a price increase. Go figure.

Related: The fascinating chart below is from a USAToday article last week, showing the significant increase in options considered "essential" to car buyers in the USA, 1985 vs. 2007. Notice that in 1985, fewer than 9% of car buyers considered car radios to be an essential option, vs. 96% today - what a difference 22 years makes!

Another difference: almost 100% of the cars in Russia are standard transmission, vs. almost 0% in the USA, and it seems that the acceptance of automatic transmissions here is a long way off - Russian drivers love their manual transmissions!

The Credibility Tax

Against the 2003 tax cuts? Think it's a good idea for income taxes to be higher? Well, you don't need to wait for some new tax legislation, or the expiration of the 2003 tax cuts. You, or Hillary, or Obama, can pay higher taxes right now. Jeff Lord explains how here.

HT: Tim Groseclose

Price Discrimination: Russians Get a Discount

Blogging From Moscow: It is well-known here that Russians often get discounts to museums, cathedrals and other culturally important national and historic landmarks. But how do Russians get the discount?

One common method here of price discrimination is illustrated in the picture above (click to enlarge), which shows a sign at St. Issac's Cathedral in St. Petersburg, Russia. The top sign says "ENTRANCE TO THE MUSEUM" in Russian. If you can read Russian, you enter to the left and go to a ticket counter that has a lower entrance fee than if you speak English, and enter to the right.

Monday, April 21, 2008

Hello From Red Square

Russian Paintings Fetch Top Dollar in New York

RUSSIA TODAY--Works by Russian artists have fetched more than $17 million at Christie's auction house in New York, $5 million more than organizers had been expecting.

Experts say there's been soaring interest in Russian art recently. Sotheby’s sales of Russian works have quadrupled in the last four years.

MP: More bling... in Russia.....

Russia Gains 50 Billionaires in 12 Months

The number of Russian billionaires has almost doubled in a year to reach 110, Forbes magazine reported, bolstering the country's reputation for conspicuous wealth.

MP: Bling, bling, it's the new "blingshoviks!" A post from the heart of Russia, in Togliatti, on the Volga River, behind the old "Iron Curtain."