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."

Sunday, May 11, 2008

I Had A Dream........ (IN CAPS)

DETROIT FREE PRESS--Congressional Democrats, including Michigan Sen. Carl Levin, increased their calls Thursday for an energy bill (FIRST CLASS MAIL BILL) aimed at lowering record oil and gasoline prices (STAMP PRICES) – and putting OPEC (UNITED STATES POST OFFICE) under U.S. antitrust laws.

Leven denounced OPEC’s (UNITED STATES POST OFFICE's) role in setting world (U.S. STAMP) prices. “OPEC (UNITED STATES POST OFFICE) is a monopoly. They have squeezed the American people and consumers,” Levin said. “Whenever they want to increase or reduce supply (INCREASE STAMP PRICES), they do it. If (SINCE) they were (ARE) an American outfit they’d be (SHOULD BE) in jail for monopolistic practices.”

And You Thought Gasoline Prices Were High? The U.S. Postal Monopoly Has Its Privileges

Unconscionably Excessive Stamp Prices?
Over the last 89 years, the average retail price of gasoline has increased almost 14X, from 25.5 cents per gallon in 1919 to $3.517 per gallon in 2008, according to annual price data from the EIA. Over the same period, the price of a first-class stamp in the U.S. has increased 21X, from 2 cents in 1919 to 42 cents in 2008 (starting Monday, May 12), according to historical stamp price data available here. The chart above compares the two prices using an index that is equal to 100 in 1919 for both series.

If stamp prices had increased over time at "only" the rate of gas prices, a first-class stamp would only cost only 27.6 cents today instead of 42 cents.

When gas prices rose last year, Rep. Bart Stupak (D.-MI) introduced "The Federal Price Gouging Prevention Act," which would make it a crime to "sell crude oil or gasoline at a price that is unconscionably excessive." Shouldn't we now investigate "unconscionably excessive stamp prices"?
Monopoly has its privileges.