Monday, May 26, 2008

Back to Basics: Suddenly, A Bright Future for Old-Economy Firms in Industries Like Steel and Mining

LA Times -- The price of U.S. Steel's stock has shot up 1,000% in recent years (from $16 in 2003 to more than $180 this month, see chart above) as industrial America has been resurrected to meet the needs of a feverishly industrializing world.

"We're in the midst of 2 to 3 billion people around the world rising out of abject poverty and demanding they have a better living standard," said Daniel R. DiMicco, head of Nucor Corp., America's largest steel company. "That means we've got a 20- to 30-year bull market in basic stuff."

The new vitality is reflected in a major surge in exports of U.S. goods, up about 80% over the last five years, to $316 billion in the first quarter of 2008 from $176 billion in the first quarter of 2003, government figures show.Foreign demand has helped drive U.S. Steel from a loss of $420 million five years ago to a nearly $880-million gain last year. Mining giant Freeport-McMoRan's profit is up 1,539%, from $181.7 million to nearly $3 billion. Fertilizer maker Mosaic Co.'s earnings went from $54 million for all of 2003 to $521 million for just the three months ended in February.

Perhaps the most fiercely held assumption about the economy has been that U.S. manufacturers could never compete globally because Americans earned vastly more than foreign workers. During the last several decades, though, the wages of many American workers have not grown at anything like the rates they used to. In the last decade, they haven't grown at anything like wages in much of the emerging world. So the wage gap is narrowing.

Demand Curves Slope Downward: The Largest Monthly Decline in History for Miles Driven

IHT -- For years, it was not clear whether rising prices would ever prompt Americans to use less gasoline. But a combination of record high prices, the slowing economy and a tight credit market is having an effect.

Gasoline demand has fallen sharply since the beginning of the year and is headed for the first annual drop in 17 years, according to U.S. government estimates.

The Transportation Department reported Friday that in March, Americans drove 11 billion fewer miles than in March 2007, a decline of 4.3% (see chart above). It is the first time since 1979 that traffic has dropped from one March to the next, and the month-on-month percentage decline is the largest since record keeping began in 1942.

Note: March was also the fifth consecutive monthly decline in miles driven, compared to the same month a year ago.

Sunday, May 25, 2008

The Weak Dollar and the N.H.L.

1. The bad economy in the United States and the weak dollar have changed the balance of power in the N.H.L. Now Sun Belt teams are in financial trouble and Canadian teams are flush with money — a reversal from five or six years ago.

2. The weak dollar also led to the collapse of the player transfer agreement between the N.H.L. and Europe. For the first time, the N.H.L. cannot dictate terms; it must deal with European clubs as economic equals. Oil-rich Russia, now with standardized contract laws, is matching North American salaries and attracting talented European players to a restructured league with Continental ambitions.

NYTimes article "Things We Learned This Season"

After All, What's NOT To Like About Retail Clinics? Low Prices, Convenient Hours, and Quality Care

NEW YORK (UPI) -- Patrons of so-called retail health clinics in the United States generally were pleased with the service they received, a Harris Poll indicated.

The latest Harris Interactive-Wall Street Journal healthcare study indicated U.S. adults who used such a clinic generally were pleased -- with 90 percent of the respondents saying they were very or somewhat satisfied with the quality of care. Similar results were seen for cost (86%) and quality of care (88%).

The clinics -- usually found in stores such as Walgreens, Target and Wal-Mart and usually staffed by nurse practitioners and physician assistants -- also are popular for services such as vaccinations and care of respiratory infections.

Zimbabwe Inflation Over 1m%, Heading for 5m%

HARARE, Zimbabwe (AP)Weary Zimbabweans are facing a new wave of price increases that will put many basic goods even further out of their reach: A loaf of bread now costs what 12 new cars did a decade ago.

Independent finance houses said in an assessment Tuesday that annual inflation rose this month to 1,063,572 percent based on prices of a basket of basic foodstuffs. Economic analysts say unless the rate of inflation is slowed, annual inflation will likely reach about 5 million percent by October.

As stores opened for business Wednesday, a small pack of locally produced coffee beans cost just short of 1 billion Zimbabwe dollars. A decade ago, that sum would have bought 60 new cars.

To ease cash shortages, Zimbabwe recently introduced a $500 million note, see BBC report here.

Thanks to
SCSU Scholars for the pointer.

Free-Trade Paradox: Poor Benefit More Than Rich

It’s safe to say that the main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. So standing up to China seems like a logical way to help ordinary Americans do better. But there’s a problem with this approach: the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries.

The reason for this is simple: free trade with poorer countries has a huge positive impact on the buying power of middle- and lower-income consumers—a much bigger impact than it does on the buying power of wealthier consumers. The less you make, the bigger the percentage of your spending that goes to manufactured goods—clothes, shoes, and the like—whose prices are often directly affected by free trade. The wealthier you are, the more you tend to spend on services—education, leisure, and so on—that are less subject to competition from abroad.

In a recent paper on the effect of trade with China, the University of Chicago economists Christian Broda and John Romalis estimate that poor Americans devote around forty per cent more of their spending to “non-durable goods” than rich Americans do. That means that lower-income Americans get a much bigger benefit from the lower prices that trade with China has brought.

From The New Yorker via Greg Mankiw

Saturday, May 24, 2008

US: Only Country to Limit Its Own Energy Supplies

This last week the nation of Brazil discovered enough oil sitting only 130 miles off their coast to give them the equivalent of nineteen years worth of oil by their current usage standards. That's nineteen years that they don't have to purchase oil from anywhere else.

Presently in territories under US control we have oil reserves that could eclipse that number by possibly 20 to 30 times. We have the technology to go get it with almost zero impact to the surrounding environment.

And in some places where we could go harvest it from - like the Alaskan wilderness, we would need less than 2% of the total territory to give us domestic oil production that would rival the output of what we purchase abroad and thus cause those suppliers to drop their prices. Off the shores of California, Florida, and other oceanside states further exploration could be had with no cost to the taxpayer and any reserves we would find would belong to the U.S. and thus allow us to control our own energy future.

Read more here.

Oil Companies Paid More Taxes Than Bottom 75%

Investor's Business Daily -- In 2006 alone, according to the American Petroleum Institute, U.S. oil companies paid some $138 billion in taxes to the IRS — and that doesn't include special oil severance, sales and use taxes companies also had to pay.

Internal Revenue Service (Table 6, p. 41) -- In 2005 (the most recent year for which data are available), the bottom 75% of all individual taxpayers (about 100 million taxpayers out of 132 million total) paid about $130.9 billion in income taxes. Adjusting by the recent average of about $5 billion in annual increases in tax revenue from individuals, it is estimated that the bottom 75% of individual taxpayers (more than 100 million individuals) paid about $136 billion in 2006.

Bottom Line: In 2006, U.S. oil companies paid more in corporate income taxes to the IRS ($138 billion) than the individual taxes paid by the more than 100 million individual taxpayers in the bottom 75% of all individual taxpayers (estimated to be $136 billion, see chart above).

Big Oil Is Not the Problem, It's Big Government

Congressional ignorance of basic laws of supply and demand is at once bizarre, breathtaking and frightening. For example, in a speech delivered by New York Democratic Sen. Chuck Schumer on May 13, he urged the U.S. to force Saudi Arabia to pump a million barrels a day more of oil — which Schumer claimed would slash the price of crude by $25 a barrel.

What Schumer didn't say was that 1 million barrels is exactly the amount of extra oil the U.S. would today be pumping if President Clinton hadn't vetoed drilling in the Arctic National Wildlife Refuge in 1995. Despite this, Schumer still opposes drilling in ANWR.

One of the oil business's dirty secrets is that only 6% of all reserves are controlled by investor-owned oil companies such as those demonized by Congress. The rest are controlled by governments, one way or another. And 11 of the 15 largest oil companies are government-owned. Government is the problem, not "Big Oil."

~IBD Editorial

Friday, May 23, 2008

Cartoon of the Day: Alternative Energy

Housing Market Correction: It's Far From Over

WASHINGTON -- Existing-home sales fell a second month in a row during April, while inventories surged and prices dropped sharply from a year earlier.

Home resales fell to a 4.89 million annual rate, a 1.0% decrease from March's revised 4.94 million annual pace, the National Association of Realtors said Friday. Originally, the NAR estimated sales fell 2.0% to 4.93 million in March.

The median home price was $202,300 in April, down 8.0% from $219,900 in April 2007. The median price in March this year was $200,100. High inventories have exerted downward pressure on prices. The decline has kept would-be buyers from signing off on property as they wait for still-lower price tags.

Inventories of homes increased 10.5% at the end of April to 4.55 million available for sale, which represented an 11.2-month supply at the current sales pace (the highest level since 1982 (updated), see chart above, data available here). There was a 10.0-month supply at the end of March, revised from a previously estimated 9.9 months.

Thursday, May 22, 2008

ANWR = MA+NJ+RI+CT+DE; Footprint = 1/6 Dulles

ANWR's frozen desolation looks like:
ANWR's 10.4 billion barrels of oil have become hostage to the planet's saviors (e.g., John McCain, Hillary Clinton, Barack Obama), who block drilling in even a tiny patch of ANWR. You could fit Massachusetts, New Jersey, Rhode Island, Connecticut and Delaware into ANWR's frozen desolation (see bottom picture); the "footprint" of the drilling operation would be one sixth the size of Washington's Dulles airport (see top picture above, click to enlarge).

~George Will

SBVOR Blog (for the images)

Oil's Perfect Storm May Finally Blow Over

UK Daily Telegraph --The perfect storm that has swept oil prices to $132 a barrel may subside over the coming months as rising crude supply from unexpected corners of the world finally comes on stream, just as the global economic downturn begins to bite.

The forces behind the meteoric price rise this spring are slowly receding. Nigeria has boosted output by 200,000 barrels a day (BPD) this month, making up most of the shortfall caused by rebel attacks on pipelines in April.

The Geneva consultancy PetroLogistics says Iraq has added 300,000 BPD to a total of 2.57m as security is beefed up in the northern Kirkuk region. "There is a strong rebound in supply," said the group's president Conrad Gerber.

Saudi Arabia is adding 300,000 BPD to the market in response to a personal plea from President George Bush, and to placate angry Democrats on Capitol Hill - even though Riyadh insists that there are abundant supplies for sale.

Trade Policy: Always Looking Out for the Consumer

NPR -- If you think your dry cleaning bills are high now, hang on. Wire hangers are getting more expensive due to import tariffs on cheaper hangers from China. So dry cleaning operators are asking customers to return their hangers to help keep costs down.

A flood of cheap Chinese hanger imports in recent years has forced all but one major U.S. hanger manufacturer out of business. M&B Hangers in Leeds, Ala., hung on.

In 2006, U.S. shipments of wire hangers were valued at $40.39 per 1,000, compared with $31.69 per 1,000 for shipments from China, according to the U.S. International Trade Commission. Last year, the United States imported 2.7 billion wire hangers from China — up 52% from 2006.

Since the tariff was imposed, nearly every dry cleaner in the U.S. has had to pay more for hangers, on average about $4,000 a year.

US: Only Country to Limit Its Own Energy Supplies

We have failed to increase our country's crude oil production. Domestic oil production has declined, to 1.9 billion in 2007 from 3.1 billion barrels in 1980, while imports increased to 3.7 billion barrels from 1.9 billion. We now importing about 60% of the oil we use.

One reason for the imports is that our public policy has forbidden offshore oil drilling for much of the estimated 85 billion barrels of recoverable oil and 420 trillion cubic feet of natural gas (an 18-year supply) that are on the Outer Continental Shelf, and another 10 billion barrels of oil in Alaska. Together they could replace America's imported oil for about 25 years, but the first President Bush issued a directive forbidding access to a significant portion of the Outer Continental Shelf. President Clinton extended the restriction through 2012 and vetoed legislation that would have allowed drilling in Alaska.

So America has large amounts of oil and gas, but our efforts to extract it have been significantly reduced by the federal moratorium on drilling. America remains the only nation in the world that has curtailed access to its own energy supplies. Meanwhile China will soon begin drilling for oil off Cuba and in Venezuela.

From today's WSJ editorial by Pete DuPont

Want Lower Gas Prices? OK, Let's Increase Supply

World oil prices might decline if there were more spare oil production capacity. But the control of world oil prices is not in the hands of investor-owned oil companies in the United States, which control just 6% of worldwide oil reserves (national oil companies of foreign governments own 80% of the world's oil reserves).

Even if the control of oil prices were in American hands, which it is not, Congress refuses to allow access to plentiful oil and natural gas deposits beneath federal lands and U.S. coastal waters. It's hard for our government to ask the main oil-producing foreign countries to increase their production when 85 percent of the U.S. Outer Continental Shelf and the Arctic National Wildlife Refuge are closed to domestic energy production. All too forgotten is that these areas hold billions of barrels of oil, enough to strengthen U.S. energy security and support our economic growth for many years.

Opening oil exploration in areas that are off-limits would be an encouraging sign that our elected lawmakers are acting in the best long-run interests of our national security and our continued economic prosperity.

From my editorial in today's Detroit News

Cartoon of the Day

Wednesday, May 21, 2008

Pigs At The Public Trough: So Much Pork Even The Dept. of Agriculture is Against The $300B Farm Bill

Imagine if Michigan's struggling Big Three automakers suddenly struck this deal with Congress: The U.S. government would buy the Motor City's cars for roughly twice the world market price, then resell them at about an 80% loss.

This boondoggle of a deal would spur worldwide protest, and rightfully so. But the five-year, $307 billion farm bill is equally ludicrous. President George W. Bush is expected to veto it within days, but no matter. Congress appears to have the votes lined up to override.

Everyone from taxpayer watchdog groups to foreign presidents have rallied to stop its passing. Even the U.S. Department of Agriculture, which is responsible for providing a safety net for American farmers, is denouncing it.

So why are both Democrats and Republicans supporting this absurdity? Plain and simple: they are acting like pigs at the taxpayer trough.

Editorial "Bloated Farm Bill Should Be Plowed Under," from today's Detroit News

What About This Female Pay Gap?

A black woman with a bachelor's degree earns as much as a white woman with a degree. But with a professional degree, black women earn 30% more than white women (see chart above).

Also from The Economist article "Nearer To Overcoming":
  • For every dollar that a white man earns, a black man makes only 70 cents. Such figures are sometimes bandied around to imply that nearly all of this gap is caused by discrimination. That is bunk. If a firm could really get the same work done 30% more cheaply simply by hiring blacks, someone would have noticed and made a fortune doing just that.

  • A study by Richard Sander of the University of California, Los Angeles, found that when the bar is lowered for black applicants to law school, they are admitted to institutions where they cannot cope. Many who drop out of top-tier colleges might have thrived at slightly less competitive ones. Mr. Sander calculated that the net effect of pro-black preferences was actually to reduce the number of blacks who passed the bar exam. That is, racial preferences for black law students result in fewer black lawyers.

Ethanol Post Office Trucks: More Gas, Fewer Miles

Maybe this is why stamp prices are so high?

Bloomberg -- The U.S. Postal Service purchased more than 30,000 ethanol-capable trucks and minivans from 1999 to 2005, making it the biggest American buyer of alternative-fuel vehicles. Gasoline consumption jumped by more than 1.5 million gallons as a result. A Postal Service study found the new vehicles got as much as 29% fewer miles to the gallon.

The experience shows how the U.S. push for crop-based fuels, already contributing to the highest rate of food inflation in 17 years, may not be achieving its goal of reducing gasoline consumption. Lawmakers are seeking caps on the use of biofuels after last year's 40% jump in world food prices, calling the U.S. policy flawed.

"Using food for fuel has created some unintended consequences: food shortages, the high price of livestock feed,'' said Senator John Cornyn, a Texas Republican. "I think it's leading a lot of people to wonder whether our corn-based ethanol goals need to be adjusted.''

G7 Goldilocks

Economic growth in the G7 countries (U.S., Canada, France, Germany, Italy, Japan, and UK) was 0.48% (1.92% annually) in the first quarter of 2008, just slightly below the average growth of .50% over the last 7 years (see graph above, data from OECD).

Russian Revolution: The World's Hottest Car Market

Detroit News--Fueled by a surge in oil prices, Russia has turned into the hottest of the hot emerging markets -- countries where automakers that can supply the right models earn a lot of money, particularly in the early stages of the boom when demand is outstripping supply.

In the past five years, auto sales have tripled. By 2010, many forecasters see Russia overtaking Germany to become Europe's No. 1 auto market with sales of more than 4 million vehicles.
"There's no sign that this is going to slow down," said Carlos Ghosn, CEO of Renault SA and Nissan. The demand for oil and other raw materials that Russia holds in vast reserves is not likely to subside, he said.

As crude prices have climbed to record levels, Russia's economy has taken off. Its gross domestic product has quadrupled since 2000. The country that once enforced economic equality now counts the second-largest number of billionaires. On the wide boulevards of Moscow and St. Petersburg, glittering Yves Saint Laurent and Gucci boutiques have replaced the drab Soviet stores with their bare shelves.

While China and other emerging economies are evolving fast, the speed of the Russian transformation caught people by surprise. "The unique thing with Russia is that with the boom in commodities, the economy has strengthened very quickly. That's something we didn't foresee when we first started investing in Russia," said Lewis Booth, Ford of Europe chairman.

For automakers like Ford, GM, Toyota and Nissan, which are struggling to boost sales in saturated home markets, emerging economies represent great opportunities at a challenging time.

It's Over

Hillary's odds on From 70% to 6% in 120 days.

Tuesday, May 20, 2008

Inconvenient Truth:Tax Rate Hikes Lower Revenue

The data show that the tax yield (revenues divided by GDP) has been independent of marginal tax rates from 1950 to 2007 (see chart above), but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser's Law says it will also lower tax revenue. That's a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich – if they knew about it.

"You Can't Soak the Rich" from today's WSJ

U.S. Money Discriminates Against Blind People

WASHINGTON -- The U.S. discriminates against blind people by printing paper money that makes it impossible for them to distinguish among the bills' varying values, a federal appeals court ruled today (Tuesday).

Quote of the Day on Being "Green"

At one time, to call someone "green" was to disparage them as inexperienced or immature. Today, to call someone green is to exalt them as one of the environmentalist saviors of the planet. But it is amazing how many people are green in both senses. Some people who think it is wrong to tell children to believe in Santa Claus nevertheless think it is all right to tell adults to believe that the government can give the whole population things that we cannot afford ourselves. Believing in Santa Claus is apparently bad for children but OK for adults.

~Thomas Sowell

EU-15 Economy Grows 3%, Highest Since 2006

FRANKFURT--The euro zone grew 0.76% during the first quarter of this year, the statistics agency Eurostat reported. The region's numbers, which represent quarter-on-quarter growth, also got a surprising lift from France, where the economy grew 0.64% in the first quarter, and from the German economy, which grew 1.53% in the first quarter of this year.

The figures, which were about double what most economists expected, suggested that the European economy was demonstrating a resilience that seemed unlikely as recently as last autumn.

Note: The 0.76% quarter-to-quarter growth (3.04% annualized) for the EU-15 is the strongest economic growth there since the fourth quarter of 2006, and is significantly above the EU-15's average growth of 0.50%.

Everything You Love You Owe to Capitalism

I'm sure that you have had this experience before, or something similar to it. You are sitting at lunch in a nice restaurant or perhaps a hotel. Waiters are coming and going. The food is fantastic. The conversation about all things is going well. You talk about the weather, music, movies, health, trivialities in the news, kids and so on.

The buffet table, which you and your lunch partners only had to walk into a building to find, has a greater variety of food at a cheaper price than that which was available to any living person — king, lord, duke, plutocrat, or pope — in almost all of the history of the world. Not even fifty years ago would this have been imaginable.

All of history has been defined by the struggle for food. And yet that struggle has been abolished, not just for the rich but for everyone living in developed economies.

We owe this scene to capitalism. To put it differently, we owe this scene to centuries of capital accumulation at the hands of free people who have put capital to work on behalf of economic innovations, at once competing with others for profit and cooperating with millions upon millions of people in an ever-expanding global network of the division of labor. The savings, investments, risks, and work of hundreds of years and uncountable numbers of free people have gone into making this scene possible, thanks to the ever-remarkable capacity for a society developing under conditions of liberty to achieve the highest aspirations of the society's members.

Lew Rockwell, Mises Institute

Japan:Suprisingly Strong Economic Growth of 3.3%

THE ECONOMIST--Japan's economy recorded surprisingly strong growth in the first quarter of 2008, according to preliminary government data released on May 16th. Real GDP growth accelerated to 0.8% quarter on quarter, from 0.6% in the previous quarter (see chart above). This translates into a robust expansion of 3.3% in annualized terms. The key drivers of growth were exports and private consumption, both of which performed unexpectedly well.

Note: Real GDP growth in Japan has increased in each of the last four quarters.

Monday, May 19, 2008

Leading Indicators: First 2-Month Gain Since 2006

The Conference Board announced today that the U.S. Index of Leading Economic Indicators increased in April for the second straight month, the first back-to-back gain since October 2006, signaling that the current slowdown will be short-lived (Bloomberg).

Quote of the Day: Traditional Job A Career Failure?

The most compelling statistic of all? Half of all new college graduates now believe that self-employment is more secure than a full-time job. Today, 80% of the colleges and universities in the U.S. now offer courses on entrepreneurship; 60% of Gen Y business owners consider themselves to be serial entrepreneurs, according to Inc. magazine. Tellingly, 18 to 24-year-olds are starting companies at a faster rate than 35 to 44-year-olds. And 70% of today's high schoolers intend to start their own companies, according to a Gallup poll.

An upcoming wave of new workers in our society will never work for an established company if they can help it. To them, having a traditional job is one of the biggest career failures they can imagine.

~From "The Next American Frontier" in today's WSJ

Texas Jobless Rate in April At Record Low of 4.1%

AUSTIN — The April statewide seasonally adjusted unemployment rate fell to 4.1%, down from 4.3% in March and 4.4% in April 2007, once again matching the record low set in February (see chart above, click to enlarge). The 4.1% April unemployment rate in Texas remains far below the U.S. unemployment rate of 5.0%. Seasonally adjusted nonagricultural employment in Texas grew by 15,400 jobs in April.

“Texas continues to outpace national trends with its record low unemployment rate,” said Texas Workforce Commission (TWC) Chairman Tom Pauken. “Texas employers now have added 262,000 jobs in the past 12 months.”

Note: Adding 262,000 jobs in Texas over the last 12 months is almost like adding an entire new state the size of Wyoming (total state employment of 283,000) to the Texas economy. Even the construction sector in Texas is booming - 3,000 jobs were added in April, for a gain of 23,200 jobs over the year.

Sunday, May 18, 2008

Clothing Deflation: One of Today's Best Bargains

Related to the post below on "The World's Cheapest Clothes," the chart above (click to enlarge) compares the "Consumer Price Index for All Items" to the "Consumer Price Index for Apparel," from 1992 to 2008 (with each index set to equal 100 in January of 1992, data are from the BLS). While consumer prices on average have risen by almost 55% in the last 16 years, the prices for clothing have FALLEN (deflated) by almost 10% over the same period. In fact, clothing for American consumers has never been cheaper, nor more affordable.

The World’s Cheapest Clothes, Cheaper Than Even Wal-Mart. How Does Steve & Barry Do It?

The most basic dresses at J. Crew start at $58. At American Apparel, they start at $26; at Old Navy, $19.50; and at Forever 21, some styles cost $15.80. The least expensive dress on the Wal-Mart Web site is $14.92.

Prices at Steve & Barry’s (a clothing chain where everything costs less than $10) are actually dropping — the $8.98 threshold for dresses (pictured above) was introduced as a holiday promotion last year, but remains with no set expiration. Meanwhile, the company’s sales at locations open at least a year, a crucial indicator of retail health, have increased more than 20% each month since January.

The question on everyone’s lips: How does Steve & Barry's make a decent dress or a jacket, with sleeves, or a pair of functioning shoes for $8.98?

Find the answer here in the NY Times.

HT: Division of Labour

Europe's Economy Rocks, Defies U.S. Slowdown


Surprising even the most optimistic forecasters, the German economy grew 1.535% in the first quarter of this year (about 6% on an annual basis), delivering its best performance in over a decade (see chart above, click to enlarge, data from OECD) despite the global financial crisis and recessionary fears enveloping the United States.

The euro zone, where Germany accounts for a third of economic output among 15 members, grew 0.7% during the period (2.8% annually), the statistics agency Eurostat reported Thursday. The region's numbers, which represent quarter-on-quarter growth, also got a surprising lift from France, where the economy grew 0.6% (2.4% annually) in the first quarter.

The figures, which were about double what most economists expected, suggested that the European economy was demonstrating a resilience that seemed unlikely as recently as last autumn.

Read news reports here, here and here.

Note: First-quarter GDP estimates show that the U.S. economy grew 0.2% (compared to the .60% growth on an annual basis reported in the U.S.) when the official figure is translated into a measure comparable with the estimates published in Europe. In the U.S., quarterly growth rates for GDP are annualized, while in Europe they are reported as quarterly rates without adjusting on an annual basis (see adjustments above in parentheses).

Economic Opportunity Is Close To An All-Time High

How much opportunity do Americans have today compared to 25 years ago (MP: about 60% more, according to the chart above)? How does opportunity compare across gender and racial groups? What will matter most in ensuring opportunity in America in the future?

Economic Opportunity Index (EOI) is a tool for measuring the extent to which Americans have the opportunities available to them to achieve the American Dream, and identifying those factors which could contribute most to improved opportunity in the future. There are many measures of economic activity, such as unemployment, inflation, GDP1 growth, productivity, or income distribution. However, there is no credible, authoritative measure of economic opportunity – the potential for people to improve their economic well-being based on their individual efforts.

There is a profound and unmet need for a trustworthy set of measures that policymakers, media, or citizens can rely on to assess the degree to which America is indeed the “land of opportunity” for all its people – and whether the amount of opportunity is growing or shrinking over time. The Index will bring hard facts and solid, non-partisan analysis to what is now a confused and ideological debate that falls into the tired paradigm of “grow the pie” versus “redistribute the pie.” In our view, this misses the point because it is focused on the wrong “pie” altogether – we should aim to increase opportunity, and outcomes will follow.

Hope Street Group defines economic opportunity as “Expected lifetime real income, given effort.”

Saturday, May 17, 2008

Cartoon of the Day: How the Tax Rebate Works

HT: Andy Roth at Club for Growth

Open Source "Intro to Microeconomics," Price = $0

Introduction to Economic Analysis, by R. Preston McAfee, California Institute of Technology

This is a "technical" principles book, assuming a working knowledge of calculus. It will cover most intermediate material as well and could easily be used for an intermediate course; the difference is that there are explanations of principles ideas in the text.

The focus of this book is on the conceptual tools and not on fluff. Most microeconomics texts are mostly fluff and the fluff market is exceedingly over-served by $100+ texts. In contrast, this book reflects the approach actually adopted by the majority of economists for understanding economic activity. There are lots of models and equations and no pictures of economists.

Download the entire book for free here.

Buy a printed copy for $11.10 plus shipping

Class Websites
McAfee's Class Website and powerpoints.
Hsueh-Ling Huynh's Ec 1011a at Harvard.
Simon Wilkie's Class Website.
Roy Radner's course syllabus at NYU.
Angelo Zago plans to use the text at Verona University.
Tom Andrews' course syllabus at West Chester U.
Nicolas Schmitt's course syllabus at Simon Fraser.
Michelle Goeree's course syllabus at Claremont McKenna.

Individual chapters in pdf format.

Friday, May 16, 2008

It's Not Just Gasoline That's Dirt-Cheap in the U.S.

American households can buy natural gas at prices that are among the lowest in the world, see chart above (date from EIA available here, p. 43). See related post below on electricity prices.

Electricity Prices in US Among Lowest in World, Less Than 50% of Most Countries in Europe

In 2007, the price that American households paid for electricity ($0.1002 per KWh) was among the most affordable in the world, and about half the price of electricty in many European countries like Denmark, Netherlands, Italy, Ireland, Germany, U.K., Portugal, and Austria (see chart above, click to enlarge). Data from the EIA available here (p. 43).

Univ. of Chicago Plans Milton Friedman Institute

Chicago Tribune--The University of Chicago, in a move officials said will build on the school's longtime strength in economics, said it plans to spend $200 million to create the Milton Friedman Institute.

(HT: Jeff Perry)

Gas Taxes By State

The map above (click to enlgarge) shows gas taxes by state, from the API as of January 2008. The map above helps explain the map below of gas prices by state.

Are You Ready for This? Cars That Get 200-300 mpg

VW will sell a 230-mpg car (above) in 2010, here's the story.

The 300 m.p.g. Aptera (pictured above) will sell for $27,000-$30,000, and you can reserve one now for $500, they should be available within 12 months.

(Thanks to an anonymous commentor on a previous post for these links.)

Wheat Prices Plunge By 41% in Three Months

On a recent CD post "As Share of Disposable Income, Food Is Still Cheap," Machiavelli999 left a comment about the falling price of wheat. The graph above confirms his observation - spot wheat prices have actually fallen by 41% in the last three months from $9.36 per bushel in February to $5.54 per bushel in February, and prices are now at their lowest level in almost a year (since June 2007 when wheat was $5.34).

Updated: Prices have fallen by 41%.

U.S. Gasoline is Still Dirt-Cheap

American gasoline is also dirt-cheap compared with gas in other countries. British motorists are currently paying about $8.38 per gallon for gasoline. In Norway, a major oil exporter, drivers are paying $8.73.

In 2007, out of the 32 industrialized countries
surveyed by the International Energy Agency (see p. 42 of the report) only one (Mexico) had cheaper gasoline than the United States

(MP: And it't not just gasoline, consumer prices for electricity and natural gas in the U.S. are among the lowest of the 32 countries, about half the prices in the U.K. for example, see p. 43).

Last year, drivers in Turkey were paying three times as much for their gasoline as Americans were. The IEA data also show that in India—where the
per capita GDP is about $2,700 (about 6 percent of the per capita GDP in the United States)—drivers have been paying more for their diesel fuel and gasoline than their American counterparts.

Gasoline is also cheap compared with other essential fuels. A Starbucks venti latte costs the equivalent of $23 per gallon while Budweiser beer runs $11 per gallon.

The simple truth is that Americans are going to have to get used to more expensive gasoline. And while they may continue grumbling at the pump, they need to accept the fact that even at $3.50 or $4 per gallon, the fuel they are buying is still a bargain.

From "Gasoline is Cheap" in

Thursday, May 15, 2008

Politics vs. Economics: Politics Wins All the Time

Chain stores have been disliked for decades, at both local and national levels. Taking advantage of economies of scale that lower their costs of doing business, chain stores are able to charge lower prices than smaller independent stores, and therefore attract customers away from their higher-cost competitors.

The economics of this is certainly not too "complex" to understand. However, politics is not economics, so politicians tend to respond to people's emotional reactions-- and if economic realities stand in the way, then so much the worse for economics.

People have every right to indulge their emotions at their own expense. Unfortunately, through politics, those emotions are expressed in laws and administrative decisions by people who pay no price at all for indulging either their own emotions or the emotions of the people who vote for them.

Anyone who doesn't like chain stores is free not to shop there. But that is wholly different from saying that they have a right to stop other people from exercising their own freedom of choice. That's not too "complex" to understand.

Thomas Sowell

Wednesday, May 14, 2008

The "Cultural Rut of Pessimism" in the U.S.

What a difference a century makes:

1888: America excites an admiration which must be felt upon the spot to be understood. The hopefulness of her people communicates itself to one who moves among them, and makes him perceive that the graver faults of politics may be far less dangerous there than they would be in Europe. A hundred times in writing this book have I been disheartened by the facts I was stating; a hundred times has the recollection of the abounding strength and vitality of the nation chased away these tremors.

~"The American Commonwealth" by Britain's Lord Bryce

2008: There is something both startling and disturbing about the gloom that has settled over Wall Street and the country in general. In fact, looking back over the past century, it would be a stretch to rank the current problems as especially notable or dramatic. Something else is going on – namely a cultural rut of pessimism that is draining our collective energy, blinding us to possibilities, and eroding our position in the world.

~Who Stole the American Spirit? by Zachary Karabell, WSJ

As Share of Disposable Income, Food Is Still Cheap

Just like with gas prices, we hear a lot about food prices being at record levels, but we don't hear as much about disposable income also being at record high levels. How do food prices compare to disposable personal income?

According to data available from the USDA, expenditures on food as a share of disposable personal income have decreased from a high of 25.2% in 1933 to a low of 9.7% in 2004 (see chart above). In 2005 and 2006, there were insignificant increases to 9.8% and 9.9%, respectively.

Although data for 2007 and 2008 are not yet available, Eugene Volokh provides estimates of relatively insignificant increases for those years. For example, food prices increased by 3.9% in 2007 according to the BLS, and disposable personal income increased by 5.4% in 2007 according to BEA data (available here via FRED). Allowing for a 1.1% increase in population, the percentage of disposable income spent on food would remain unchanged at about 9.9% in 2007.

Through March 2008, the CPI for food increased annually by 3.9%, and disposable income increased by 4.1% from a year ago. Allowing for a 1% increase in population, the percentage of income spent on food has increased to 9.98%, a fairly small increase. Through April 2008, annual food inflation was slightly higher, about 5%, which could bring the percent of disposable income spent on food to about 10% in 2008. But even at 10% of disposable income, spending on food would still be below any year of the 1990s, and way below any previous year or decade, and about half of the spending on food during the early 1950s when spending on food was almost 21% of disposable income.

Even with the recent increases in some food prices, food is still relatively cheap and affordable, when spending on food is measured as a share of disposable income. And this analysis suggests that any comparisons between today's economic situation and the 1930s and the Great Depression are pure nonsense and nitwitery.

Welcome Finance Students in Romania!!

Special Carpe Diem Welcome to the Finance Students at the Academy of Economic Studies in Bucharest, Romania (see Wikipedia listing here) and UM-Flint Professor and Fulbright Scholar Dr. Seyed Mehdian.

Is Concern for Inflation Inflated?

The chart above (click to enlarge) shows the growth rates (from a year ago) for the monetary base and M1 money supply since 2005. M1 has been flat with zero growth for more than 2 years, and the growth in the monetary base has been declining and is now approaching 0% growth. Given these monetary data, is the concern about inflation inflated?


Inflation Falls 4 Months in a Row, April Inflation of 3.9% is Lowest Rate in 6 Months, Since Oct. 2007

WASHINGTON -- U.S. consumer prices were under wraps last month, a government report showed, especially when food and energy prices were stripped out, further evidence that the economic slowdown is easing some of the inflationary effect of recent sharp gains in food and energy prices.

Consumer prices rose 3.9% on a year-over-year basis, down slightly from the prior month (see chart above). The core CPI grew a more modest 2.3% compared to April 2007. Over the past three months, core inflation rose at only a 1.2% annual rate.

MP: CPI inflation at an annual rate has fallen in each of the last four months, and is at the lowest rate in six months (since October 2007).

Harvesting Cash: Who Wants to Be a Millionaire?

WSJ--We can't wait to hear how Members of Congress explain their vote this week for the new $300 billion farm bill. At a time when Americans are squeezed at the grocery store, they will now see more of their taxes flow to the very farmers profiting from these high food prices.

Nearly every crop – corn, wheat, sugar – has won increases in subsidy payments even as farm commodity prices explode (see bottom chart above).

This year farm income is expected to reach an all-time high of $92.3 billion, an increase of 56% in two years (see chart above), making growers perhaps the most undeserving welfare recipients in American history. But that won't stop this bill from passing the House and Senate by wide margins.

If you wonder why urban Democrats would vote for this rural giveaway, the answer is they have been bought off with roughly $10 billion in extra funding for food stamps and nutrition welfare programs. Someone should tell them that their constituents might not need this cash if the farm bill didn't help keep food prices high.

Tuesday, May 13, 2008

Melodrama and Villains vs. Supply and Demand

With all the commotion in the media and in politics about the high price of gasoline, is there really some terribly complex explanation?

Is there anything complex about the fact that with two countries-- India and China-- having rapid economic growth, and with combined populations 8 times that of the United States, they are creating an increased demand for the world's oil supply?

The problem is not that supply and demand is such a complex explanation. The problem is that supply and demand is not an emotionally satisfying explanation. For that, you need melodrama, heroes and villains.

Thomas Sowell

Where Are Home Prices Headed in 2009?

Money Magazine recently put out a city-by-city home price forecast, using data from Fiserv Lending Solutions, First American CoreLogic, city and county assessors, and realtors. The magazine determined that U.S. home prices will fall an average of 9.7%, see list above (click to enlarge).

Notice Detroit has the highest expected appreciation of 8.6% in 2009, up from $120,000 in 2008!

US HIPocrisy: 3,770 Calories/Day vs. 2,440 in India

NEW DELHI: Instead of blaming India and other developing nations for the rise in food prices, Americans should rethink their energy policy and go on a diet.

Americans eat an average of 3,770 calories per capita a day, the highest amount in the world, according to data from the UN Food and Agricultural Organization, compared to 2,440 calories in India (see chart above, click to enlarge). They are also the largest per capita consumers in any major economy of beef, the most energy-intensive common food source, according to the U.S. Department of Agriculture. The United States and Canada top the world in oil consumption per person, according to the U.S. Energy Information Administration.

Wal-Mart's Strong International Sales Boost Profits

WSJ--Wal-Mart Stores Inc. reported today a 6.9% rise in profit for its fiscal first quarter, helped by strong international sales and a tighter grip on inventories and markdowns.

International sales jumped 22%, pushing operating income up 16%. Wal-Mart's expansions into international markets such as Brazil and China are yielding fruit, analysts have said, and the company saw solid sales growth in the U.K.

What Recession? What Credit Crunch?

The chart above (click to enlarge) shows the annual percentage growth rate of the series "Commercial and Industrial Loans at All Commercial Banks," from the Fed, data available here at the St. Louis Fed. For the last 5 months through April 2008, the growth in business loans has been above 20%, the strongest period of growth in commercial loans since 1973.

Male Recession? The Gender Jobs Gap

As the top chart above shows, since late 2006 male employment in the U.S. has been stagnant, while female employment has continued to grow. From April of last year through April 2008, men have lost 131,000 jobs while women have gained 781,000 jobs (see bottom chart).

What's going on?

According to this BusinessWeek article, Men have the misfortune of being concentrated in the two sectors that are doing the worst: manufacturing (70% male) and construction (88% male). Women are concentrated in sectors that are still growing, such as education and health care (77% female).

The troubles for the American male worker, while exacerbated by the current slump, are hardly new. The manufacturing sector is in long-term decline, and construction goes through repeated booms and busts. Meanwhile women are graduating from college at higher rates than men. Some analysts even argue that men are less suited than women to the knowledge economy, which rewards supposedly female traits such as sensitivity, intuition, and a willingness to collaborate. "Men have tended to do better in the hierarchies, following orders and relying on positional power," says Andy Hines, a futurist at the Washington (D.C.) consulting firm Social Technologies, who previously worked for Kellogg and Dow Chemical.

Economists are debating whether the overall economy is in a recession. For men, the evidence is clear.

MP: Further, in 12 out of the last 16 months, the female unemployment rate has been below the male unemployment rate, and in each of the last 16 months, the female unemployment has been at OR below the male rate (see chart below).

Monday, May 12, 2008

WSJ India: Indian Billionaires

India has more billionaires than ever before. But are they robber barons or national heroes?

Find out here.

Foretelling the Future: Online Prediction Markets

ABC 20/20 Report (watch video here)--As a result of the collective intelligence of more than 77,000 bettors on Ireland's, the prices on the site may be a good way to predict the outcome of current events -- more accurate than some polls and pundits.

How accurate?

In 2004, the market odds on Intrade predicted the presidential vote of every state but Alaska. In 2006, the odds correctly indicated the outcome of every Senate race.

Note: Although most U.S. states sponsor legalized betting through state lotteries (with the worst possible odds), electronic prediction markets are illegal in the U.S.

Smoking: Greece is #1

The Economist

Assorted Energy Links

1. "Wind ($23.37) v. Gas (25 Cents)," in today's WSJ: There is a reason fossil fuels continue to dominate American energy production: They are extremely cost-effective.

2. "Democrats Windfall Tax—On You," Investor's Business Daily: The last time the U.S. had a windfall profits tax on oil companies, the results were disappointing: 1) Domestic oil production decreased, as oil companies produced less oil, not more, b) The level of imported oil increased due to the huge tax advantage we gave foreign oil companies, and c) Revenues from the windfall tax were far less than expected, because domestic producers pumped less and nontaxed imports flooded our market.

3. "How to Use the Strategic Petroleum Reserve (SPR)," WSJ: Over the last 8 months, the government purchased more than 10 million barrels of oil for the SPR as the price rose $40 to above $120. This is not sensible. It puts upward pressure on oil prices at the worst possible time. It is a waste of taxpayer money. It gives aid and comfort to unfriendly nations. And it is an insurance policy that, for the most part, is no longer needed. In fact, we should be selling oil from the SPR at $120. Doing so could be a powerful tool for U.S. energy policy.


Inspirational Message

I don't often pass along inspirational stuff, as I do not want to offend or "preach," but this one got to me. We can all use a single image that speaks to us of love, harmony, peace, prosperity and joy. All I ask is that you take a moment to reflect upon it.

Click here to see image.

The Taxi Cartel and Their Government Enforcers

Government Crackdown on Good Samaritans II

MIAMI GARDENS, FL.--A man who said he thought he was just helping a woman in need is accused of running an illegal taxi service and Miami-Dade County's Consumer Services Department has slapped him with $2,000 worth of fines.

The 78-year-old said he was walking into a Winn-Dixie to get some groceries when he was approached by a woman who said she needed a ride. Rosco O'Neil told the woman if she was still there when he finished his shopping, he would give her a ride. She was, so he did. As it turned out, the woman was an undercover agent with the consumer services department targeting people providing illegal taxi services.

MP: Taxi Cartel membership has its privileges, doesn't it? See a related post here "Government Crackdown on Good Samaritans."