Tuesday, June 10, 2008

Senator Dodd: What About the 57 Industries With Higher Profit Margins Than the Oil Industry?

When a high-ranking U.S. senator sounds more like Karl Marx than Adam Smith over the issue of energy prices, it must be an election year.

Democratic Sen. Chris Dodd, the chairman of the Senate Banking Committee, appeared on CNBC’s June 10 “Squawk Box” pushing government control of corporate profits. Dodd said he considered a company to be “doing very, very well” with profits above $8 or $10 per barrel of oil. He said he advocated a windfall profits tax, where Congress would determine what amount of profit is fair and what isn’t.

CNBC's Joe Kernan called the Connecticut senator on the idea, asking if he was going to apply the same strategy to other types of businesses. “Are you going to go across industries, across the board and decide what Congress thinks is a fair amount of profit and drawing lines on what’s fair and what’s not for corporations? That’s not the way it’s done in this country, senator. It could never be done that way, could it?”

“Yes, it could be,” Dodd said. “In fact it’s been done that way in the past and particularly when you’re trying to get some relief for people out here when the economy is in a tailspin. We’re about to go into a recession here. This is really causing a tremendous dislocation, not only here, but around the world.”

MP: If Senator Dodd is concerned about industries making "windfall profits," he might want to start by investigating the 57 industries with profit margins HIGHER than the oil industry (see list above, click to enlarge, profit margin
data available here).

Income Mobility Is Substantial. We Move Up and Down the Income Quintiles. What's the Big Deal?

In the study "Economic Inequality: Facts, Theory and Significance" by David Henderson (Associate Professor of Economics Naval Postgraduate School) he makes 5 main points about income inequality:

  • Although income inequality has increased, it has not increased as much as some economists claim.
  • Even though inequality has increased, almost all Americans have become better off economically.
  • Household income varies substantially for three reasons that are often ignored: (i) differences in household size and especially in numbers of workers, (ii) differences in skill levels among people, and (iii), related to both of the above, differences in age.
  • Income mobility substantially mitigates inequality, and income mobility in the U.S. economy is quite high.
  • The majority of economists judge how just an income distribution is only by how equal it is; they don’t ask how people obtained what they have. This disregards the fact that, by and large, those with higher incomes have earned them.

MP: As the chart above clearly shows, the differences in income between households in the top income quintile (top 20%) and those in the bottom income quintile (lowest 20%) are explained by the facts that:

Households in the top income quintile have:

  • Almost 3X as many earners (2.12 vs. 76) as the bottom quintile,
  • More than twice as many heads of households working full-time (76% vs. 32%),
  • 1.5 times as many heads of households age 35-54 years (peak earning years), and
  • Fewer households headed by those in the non-peak age groups (for income) of 15-24 years old, and 75 years and older. Low income households are 9X as likely to be headed by a 15-24 year old, and 5X as likely to be headed by someone older than 75 years.

Further, Henderson concludes that "The idea that income inequality measures anything important is undercut to the extent people shift frequently from one quintile to another. And in the United States, as in many other relatively free countries, income mobility is substantial. To repeat: income mobility is substantial."

That is, Americans typically start out in a lower income quintile when they are younger, advance to the higher income quintiles during their peak earning years of 35-65, and then drop back to a lower income quintile when they retire (even though they might often remain in one of the higher wealth quintiles). That's life.

Dollar Index Reaches Highest Level Since February

The broad U.S. dollar index reach a three-and-a-half week high today, the highest level since February 26 (see chart above).

Read an AP story here.

Inflation With NO Growth in M1 For 3 Yrs. in a Row?

There's been a lot of talk and discussion recently about inflation and fears of future inflation, but not a lot of focus on the main and necessary ingredient for inflation: the supply of money.

The top chart above shows that the growth in M1 has been close to 0% for about the last 30 months, since early 2006 (percent change from a year ago). The bottom chart shows M1 growth for the last 50 years.

Bottom Line: Maybe I am missing something, or maybe inflation is no longer a "monetary phenomenon," but if we do have rising inflation in 2008, it would be the first time in at least half a century, and maybe ever, that we had problems with inflation accompanied by NO growth in M1 for three years in a row.

Davis-Bacon Above-Market Union Wages for Everything. What's Next, A Davis-Bacon Jobs Bank?

Wall Street Journal -- What do the farm bill, the cap-and-trade global warming bill, the clean water bill, the housing bailout bill, and the school construction bill all have in common? Not much, except that in each one and countless others the Democratic majority in Congress has inserted "prevailing-wage" requirements that amount to a super-minimum wage.

This year's farm bill was the first in 75 years to require Davis-Bacon wages, in this case for the construction of ethanol plants. Democrats also slipped in Davis-Bacon rules for the wind, solar and other alternative energy projects.

What's so bad about that? According to the WSJ:

1. Federal construction costs are inflated by anywhere from 5% to 39% by requiring de facto union wages. In many cities the mandated Davis-Bacon wage is twice as high as the market wage. So while Democrats insist that one of their top priorities is to solve America's "infrastructure crisis," what they aren't saying is that we could be building about 25% more bridges and roads by repealing Davis-Bacon.

2. Davis-Bacon policies victimize minorities. A study by economists at Stanford and Harvard found that when states have repealed their Davis-Bacon laws, this "is associated with a decline in the union wage premium and an appreciable narrowing of the black/nonblack wage differential for construction workers."

MP: What's next? Maybe a Davis-Bacon "jobs bank"?

Read Walter Williams' case for the repeal of Davis-Bacon here.

Markets in Everything: Copper Kills in Detroit

Crain's Detroit Business -- In June 2003, high-grade copper sold on the New York Mercantile Exchange for 72 cents per pound. Last week, prices topped $3.55 (see chart above). The cost of copper and other scrap metals has soared over the past five years, driven by world demand that's outstripped supply

As the value of copper and other metals has risen, abandoned or occupied structures, utility lines and even vehicles have become targets for scavengers in Detroit.

Derelict houses have long been targets for scavengers, but in recent years utilities have become popular targets for metals thieves. Electricity provider DTE Energy Co. had more than 500 cases of copper theft in 2007, a sharp increase from years past. They've seen about 200 to 250 cases so far this year.

The utility has spent between $6 million and $7 million on copper theft-related issues over the past two years. And there's another, more grisly cost — at least six bodies presumed to be of thieves have been found at the bases of power poles.

Markets In Everything: Random Merchandise

The SomethingStore is a new website that will send you something, an item selected randomly among many things from their inventory, for $10 (free shipping in the US) and you will find out what your something is when you receive it.

Monday, June 09, 2008

Senate Votes To Privatize Its Failing Restaurants

Washington Post -- Year after year, decade upon decade, the U.S. Senate's network of restaurants has lost staggering amounts of money -- more than $18 million since 1993, and an estimated $2 million this year alone.

The financial condition of the world's most exclusive dining hall and its affiliated Capitol Hill restaurants, cafeterias and coffee shops has become so dire that, without a $250,000 subsidy from taxpayers, the Senate won't make payroll next month.

The embarrassment of the Senate food service struggling like some neighborhood pizza joint has quietly sparked change previously unthinkable for Democrats. Last week, the Senate voted to privatize the operation of its food service, a decision that would, for the first time, put it under the control of a contractor.

The House is expected to agree -- its food service operation has been in private hands since the 1980s -- and President Bush's signature on the bill would officially more than four decades of taxpayer bailouts.

Operation of the House cafeterias was privatized in the 1980s by a Democratic-controlled Congress. Restaurant Associates of New York, the current House contractor, would take over the Senate facilities this fall. The company wins high praise from most staffers and lawmakers, who say they are pleased with the wide variety of new items offered every few months.

Restaurant Associates turns a substantial profit -- paying $1.2 million in commissions to the House since 2003. By one estimate, Restaurant Associates would turn a large profit in the Senate within three years and would begin paying about $800,000 annually in commissions.

Bottom Line: The difference between capitalism and socialism? Capitalism works.

(HT: Travis Walker)

Adjusted for the Growth in the Labor Force, Today's Jobless Claims Are BELOW AVERAGE!

From today's "The Gartman Letter": Amidst all of the talk of rising weekly jobless claims being so egregiously large, let us try to put what has gone on thus far in historical perspective: Jobless claims are modest, at worst, compared to past periods of protracted economic weakness. Average weekly jobless claims are hovering around 350,000. In the recession of 2001 they bottomed at or near 470,000. In the recession of 1990-91, they bottomed at or near 500,000 (see top chart above, click to enlarge).

These last two recessions pale, however, when compared to the truly difficult recessions of the 1970s and 1980s. For example, in the recession of 1981-82, initial jobless claims rose to a stunningly high 680,000, while in the short but severe recession of 1980, claims touched 620,000. In the Arab Oil Embargo "inspired" recession of 1972-74, jobless claims rose to 550,000.

We shall not argue that claims will not move higher than where they stand presently, for almost certainly they shall. But let us keep things in perspective. Back in the mid-1970s the US population was approximately 215 million; now it is 303 million, or 140% of what it was. Thus the 550,000 "claims" in the recession in the early 1970s would be the rough equivalent
of 775,000 now, and we are but half of that. Today's "claims" are bad, and for those making the claims they are horrid, but in the great scheme of things they are modest... indeed, surprisingly so.

MP: The top chart above shows initial jobless claims (4-week moving average) and the civilian labor force from 1987 to 2008. The labor force has increased by 30% since 1987, so the frequent comparisons of today's jobless claims of around 350,000 to previous periods and previous recessions is biased and flawed, as Dennis Gartman suggests.

The bottom graph above (click to enlarge) shows initial jobless claims as a percent of the labor force, to adjust for the increase over time in the population and labor force. May's 0.238% level (368,500 claims / 154,534,000 labor force) is below the 0.27% to 0.33% range of the last recession in 2001, and way below the 0.30% to 0.40% of the 1990-1991 recession.

Using the percentage from the first month of the last recession (0.26646% in March 2001), and the current labor force of 154,534,000, jobless claims today would have to be close to 412,000 before the current economy would in as much trouble as the economy in March 2001, when the last recession started. Further, today's level of 0.238% is actually below the .257% average since 1987.

Cartoon of the Day: Oil Boarding

Via the Gill Report

The Corn-Ethanol Industrial Complex

FORBES -- Ethanol, once heralded as the homegrown Nicorette gum of America's oil addiction, is getting a second look from lawmakers suddenly concerned about the unintended consequences of merging the fuel and food markets.

Thanks in part to a wave of well-intentioned Washington policies, corn previously consumed by just people and animals now feeds cars as well. The goal of the government's Renewable Fuels Standard is for 9 billion gallons of renewable fuel to be produced this year--legislation calls for 36 billion gallons by 2022.

In addition to the goals of the Renewable Fuels Standard, blenders--who help create the stuff--receive a 51 cent-per-gallon tax credit, increasing profits and the amount of ethanol they produce. The industry is further buoyed by a 54 cent-per-gallon import tariff, which limits competition from foreign ethanol producers.

No wonder more and more of the corn harvest is headed for your car (see chart above), and the cost of bread is on the rise.

U.S. Policies Put Most U.S. Oil Off-Limits to Drilling

The "No Drill" Map
(CNSNews.com) - Huge basins of untapped oil can be found on federal lands throughout the United States, according to a new report from the federal government. But much of it cannot -- and may never be -- recovered, because it lies under national parks and national monuments, or it is subject to environmental laws and restrictions that make drilling prohibitive.

The report, which was produced at the request of Congress by the Department of Interior's Bureau of Land Management (BLM), said there are 279 million acres under federal management where oil and gas could potentially could be extracted. More than half of it is totally off-limits to drillers.

"The total onshore resource is 31 billion barrels," said BLM's lead scientist Richard Watson, who authored the report. "Of that, 19 billion barrels are currently inaccessible or 62%. A little over 2 billion barrels, or 8%, is accessible under what we call standard lease terms."

If you add in the 85.9 billion barrels of oil that lie offshore, as determined by the Interior Department's Minerals Management Service, there are 117 billion barrels of oil on lands owned or managed by the U.S. government. But all expansion of offshore oil recovery is currently off-limits.

Adding in what's available on privately held land, the figure rises to 139 billion barrels of oil, according to the government - more than the known oil reserves of Iran, Iraq, Russia, Nigeria or Venezuela, respectively.

The biggest untapped land-based oil deposit in the United States lies within ANWR, the Artic National Wildlife Refuge, which is currently off-limits. "We estimate there is something on the order of 7.7 billion barrels in that one area alone," Watson said.

But setting aside Alaska, there is untapped oil on federal lands all across the United States, the government reported, with oil pockets found in Oregon, Washington state, Montana, Wyoming, Florida -- even in the Appalachian Mountains. "In the lower 48 states, there are about 12 billion barrels onshore," Watson noted.

(Map HT: Jack McHugh)

Sunday, June 08, 2008

Searchable Database for Campaign Contributions

"The purpose of CampaignMoney.com, a non-partisan web site, is to make available in the easiest way possible the names of financial donors to federal political campaigns. These records are a matter of public record provided by the Federal Election Commission."

You can search for campaign contributions by Name, Employer, Occupation, City, County, Zip Code, State; by Candidate, PAC Committees, 527 Political Organizations, Lobbyists, etc. There are also pre-generated reports on Celebrities, Industries or Professions, Companies, etc.

For example, college professors have given 7X as much to Democrats as Republicans from 1999-2008, trial lawyers have given more that 7X as much to Democrats as Republicans, Oprah Winfrey's only campaign contribution since 1999 was $2,300 to Barack Obama in 2007, Rush Limbaugh has made no campaign contributions since 1999, Bill Gates has donated a little over $200,000, split almost equally between Democrats and Republicans, etc.

Search away, maybe you'll find yourself!! Please report any interesting findings.

Very Unusual Pet: Jessica The Hippo

According to this list, hippos are the most dangerous and deadly animal in Africa (based on the estimated number of human fatalities), next to the mosquito, and more dangerous than crocodiles, elephants or lions. But not Jessica The Hippo, she's become a family pet. Click the arrow to watch the video.

Largest Real Minimum Wage Increase in 50 Years

In nominal dollars, there will be a 41% increase in the minimum wage, from $5.15 per hour in 2007, to $7.25 per hour in 2009. In real, inflation-adjusted dolars, it will be a 25.5% increase, and will be the largest 2-year increase in the real minimum wage in at least 50 years (see chart above).

(Note: I am assuming a 3.8% rate of inflation for 2008 and 2009).

Downward Sloping Demand for Unskilled Workers: Employers WILL Respond to Minimum Wage Hikes

Angry Bear writes: We have a long record to compare the teenage unemployment rate and the minimum wage (see graph above). If you look at the two series you see a very inconsistent record. Sometimes a rise in the minimum wage is followed by a drop in the teenage unemployment rate and sometimes it is followed by a rise in the teenage unemployment rate. Essentially, the correlation between the teenage unemployment rate and changes in the minimum wage is zero, strongly implying that there is no causal relationship.

MP: Let's assume there is no correlation between: a) teenage unemployment rate and b) changes in the minimum wage. That is not the same thing as saying that "the minimum wage has no negative effect on teenage employment." Here's why:

Even if the same number of teenage workers are employed after a hike in the minimum wage, reflected in NO change in the teen jobless rate (and this is not necessarily true), there are many other adjustments that employers would make to offset the monetary increase in labor costs:

1. Fewer hours - unskilled workers might still be employed, but at a reduced number of hours (the BLS counts workers as "employed" even if they work 1 hour per week). Full-time workers now become part-time workers. Overtime hours are eliminated. Full-time workers now are forced to work a split-shift (e.g. 11 a.m. - 2 p.m. and 5 p.m. - 8 p.m.). Therefore, we would expect a negative relationship between increases in the minimum wage and HOURS WORKED.

2. Reduced benefits - employers can adjust "total compensation" and offset higher monetary wages by: a) no longer providing free uniforms, forcing employees to now pay for uniforms, b) no longer providing free or reduced food at fast food restaurants, c) reducing or eliminating "employee discounts" on the employer's merchandise, d) eliminating paid holidays, e) eliminating scholarship programs, f) eliminating group discounts available through large companies like McDonald's, g) eliminating employer sponsored or subsidized health care benefits, etc.

3. Fewer opportunities for advancement, fewer or reduced (or no) wage increases, fewer or reduced (or no) bonuses.

For example, see the list of benefits here for McDonald's workers in Canada (I couldn't find a comparable list for the U.S., but I assume it would be pretty similar), and you'll see that are at least ten non-monetary benefits offered to even unskilled minimum wage workers that could be adjusted in the face of higher monetary wage costs resulting from legislated minimum wage increases .

Bottom Line: Demand curves slope downward, and the market for unskilled workers is no exception. Employers WILL respond to increases in the minimum wage, in many ways that will NOT show up in the teenage unemployment rate, but still to the DISADVANTAGE of unskilled workers.

New Ideas, Fueled By Trade, Are Source of Wealth

Conservative and liberal economists agree that new ideas are the fundamental source of higher living standards. We urgently need new biotechnologies, a cure for AIDS and a cleaner energy infrastructure, to name just a few. Trade is part of the path toward achieving those ends. A wealthier China and India also mean higher potential rewards for Americans and others who invest in innovation. A product or idea that might have been marketed just to the United States and to Europe 20 years ago could be sold to billions more in the future.

Globalization is not the primary source of trouble for most American workers. Health care problems, bad schools for our children or, in recent times, bad banking practices have all produced greater disruptions — and these have been fundamentally domestic failings.

We need more awareness of the cosmopolitan benefits of trade and the often hidden — but no less real — gains for ordinary Americans. If we look at trends of the last 20 years, we have every reason to believe that the modern era of free trade is just getting started.

~Tyler Cowen, "This Global Show Must Go On," in today's NY Times

Saturday, June 07, 2008

33 Gas-Guzzling Buses, Trucks, Vans and Limos?

The Streisand Foundation supports the non-profit group Earth Day Network, and they have compiled a list of a few easy ways you can conserve energy and help protect the environment from further deterioration:

1) Change old, incandescent lights to newer energy-saving models (compact fluorescent lights), turn off lights when not in use and dim lights when in use.
2) Update your heating/cooling system to a more efficient model
3) Tune up old heating/cooling systems, clean out the vents, buy a programmable thermostat
4) Make sure windows are sealed and doors are closed when running air conditioners and heaters
5) Turn on the energy saver switch near your refrigerator’s thermostat
6) Make sure that your refrigerator door seals properly
7) Clean out the condenser coil on your refrigerator (can improve the efficiency of your refrigerator by one third)
8) Wait until you have a full load before running your dishwasher
9) Invest in green stocks and renewable energy companies through socially responsible funds
10) Eat locally grown food and fruits and vegetables that are in season (if the food doesn't have to travel far, there's less carbon dioxide from the trucks that ship it)
11) Eat organic (the pesticides used on crops releases carbon contained in soil into the atmosphere)
12) Buy recycled

From Streisand's contract rider for her last tour (2006):

1. The building will need to supply the production office with 120 bath sized towels immediately upon arrival.
2. The show travels in our own thirteen (13) 53 foot semi-tractor trailer trucks. Please arrange parking for the following vehicles:

Thirteen (14) 53 foot semi-tractor trailers (one merchandising)
Four (4) rental vans
Fourteen (14) crew and band busses
One (1) limosuine (artist)

MP: I think that totals to 33 gas-guzzling, fossil-fuel burning vehicles for Ms. Streisand, including 28 large trucks and busses. I wonder kind of carbon footprint that tour left on the environment?

Is Min. Wage Behind the .50% Jobless Rate Jump?

Accoding to BLS data on unemployment rates by age, it looks like almost all of the .50% increase in May unemployment to 5.5% from 5% in April was due to increases in the jobless rates for young workers in the 16-24 year age group, especially the 16-19 year group (see chart above). For workers 25 years and over, the jobless rate has remained pretty stable at around 4%, compared to large increases from April for 16-19 year workers (+3.3% to 18.7%, the highest rate since 1993) and 20-24 year olds (+1.5%).

From the Patterico's Pontifications blog: Who does this age group represent? How about high school and college students coming into the job market for the summer.

And what do many such job seekers get paid? Minimum wage –which Congress increased last year from $5.15 to $5.85, and which will increase again next month to $6.55, and then again next year to $7.25 (see chart below).

Although it apparently hasn't received much media attention, perhaps there is a link between the rising unemployment rate for teenagers and the pending 12% increase in the minimum wage next month. Since we have evidence that consumers respond to higher gas prices by driving less, wouldn't it also be the case that employers of unskilled workers would respond to 12% increases in wages for unskilled workers by hiring fewer unskilled workers?

In nominal dollars, there will be a 41% increase in the minimum wage, from $5.15 per hour in 2007, to $7.25 per hour in 2009. In real, inflation-adjusted dolars, it will be a 25.5% increase, and will be the largest 2-year increase in the real minimum wage in at least 50 years (see chart below). And this HAS to have an adverse effect on employment of teenage workers.

Crisis? What Oil Crisis? Not in Russia!

The Economist -- There is one country where the high oil price is powering the expansion of the market, rather than painful restructuring. Thanks to abundant natural resources, Russia's economy has grown by an average of 7% a year for the past decade. Real disposable income has nearly doubled in the past five years and is growing by more than 10% a year. That means a lot of Russians can suddenly afford to buy cars.

High oil prices may be causing pain for carmakers in America, but they have helped create a booming market in Russia. Compared with other markets, burdened by debt and oil prices, “Russia is still magically isolated.”

The growth and size of the Russian market has confounded every forecast. In 2007 sales of new cars grew 36% by volume and, reflecting the steadily increasing buying power of customers, 57% by value. Sales of passenger vehicles exceeded 2.7 million (see chart above).

Russia could outstrip Germany as Europe's biggest market this year, with sales reaching around 3.3 million. By 2012 Russians will be buying more than 5 million new cars a year, of which nearly 90% will be foreign brands. With its big dealer network, Ford has done especially well: a decade ago it sold fewer cars in Russia in a year than it now sells in a week.

(H/T: Greg Allar)

See related CD posts here and here.

Beer and Wine Trends: Falsie Pints and Chic Boxes

WSJ -- Beer prices at bars and restaurants have risen over the past few months, as prices of hops and barley have skyrocketed and retail business has slowed alongside the economy.

Some restaurants have replaced 16-ounce pint glasses with 14 ouncers -- a type of glassware one bartender called a "falsie" (see picture above).

And customers are complaining that bartenders are increasingly putting less than 16 ounces of beer in a pint glass, filling up the extra space with foam. Two of the world's biggest glassware makers, Libbey and Cardinal International, say orders of smaller beer glasses have risen over the past year.

Mainstreet -- Drinking wine out of a box, it’s pretty fair to say, has over the years generally not been the path to recognition by one’s peers as a gentleman or a lady. Problem drinker is more like it.

Indeed, as a conduit, wine from a box is usually lumped with the likes of keeping a cheap keg in the garage or stocking your liquor cabinet with Mad Dog. But the times, it seems, they are a changing.

Increasingly, some very good wineries have taken to packaging their product in a box. Boxed wines, in fact, have become the fastest-growing segment of the industry.

“Boxes are very, very chic now,” says Leslie Sbrocco, author of The Simple & Savvy Wine Guide: Buying, Pairing, and Sharing for All.

(Thanks to Craig Newmark for the pointer on box wine.)

The Outsourcing Billionaires from Taiwan and India

CBC News--Offshore outsourcing has led seven of Forbes' billionaires directly to their fortunes. These seven men hail from just two places: Taiwan and India.

The Taiwanese billionaires — Terry Gou and Barry Lam — lead companies specializing in contract manufacturing, namely in the production of electronics.

Hon Hai, the maker of Apple's iPod, among other everyday gadgets, is one of the world's largest contract electronics manufacturers. CEO Terry Gou has made billions off the company, which he founded in 1974. Founder and CEO of Quanta Computer Barry Lam has pioneered the design and manufacturing of notebook computers.

By contrast, India's offshore outsourcers have made their billions through software services. Wipro, Infosys Technologies and HCL Technologies all have C-level executives who have worked their way to 10-plus digits through companies that provide global software and IT services.

Forbes article "With Outsourcing Smarts, They Struck It Rich"

Forbes slide show

Forbes video

Current Odds: 59.7% Obama vs. 36.3% McCain

From Intrade.com.

Get Ready for the Oil-Price Drop

The world economy can't handle current energy prices, much less a big increase. Which in turn means that oil prices will fall.

When the price of anything gets unbearably high, it discourages demand. The resulting drop in sales, in turn, causes inventories to pile up and the price to come down. That has proven true of overpriced houses - and it will likewise prove true of overpriced oil.

~Alan Reynolds of the Cato Institute in the NY Post

Friday, June 06, 2008

YIKES!! $128 Million for Tiger

With close to $800 million in total earnings on and off the course over his 13-year career, Tiger should become the first billion-dollar athlete in the next two years -- and he's still only 32. With that kind of money, he can afford this yacht:
Ranking the 50 highest-earning athletes in the U.S., from Sports Illustrated.

The highest-earning international athletes.

Full Sports Illustrated story here.

Brits Fail To Cash In On Free £5 Notes

The full extent of Britain’s financial inertia was laid bare today when passers-by in London and Manchester were offered a free £5 note, no strings attached.

Representatives from price comparison website, www.moneysupermarket.com wandered the streets this morning wearing sandwich boards offering a free £5 note to anyone who asked. Despite encountering over 1800 people, only 28 passers by bothered to take advantage of the offer.

The exercise was designed to illustrate that, credit crunch or no credit crunch, Brits are unwilling to take even the simplest steps to improve their financial situation.

Full story here.

Energy: Government vs. Market Solutions

Coercive, government solutions to high energy prices:

1. Investigate oil companies for "price gouging."
2. Impose winfall profits taxes on oil companies.
3. Keep plentiful domestic energy resources off-limits.
4. Pressure (beg) Saudi Arabia to increase output.
5. Regulate stricter CAFE standards for fuel efficiency.
6. Waste taxpayer money to subsidize "demon ethanol."

Voluntary, market solutions to high energy prices:

1. Producers develop fuel-efficient cars like the 300 mpg Aptera (watch CNN video above, click on arrow) that can go cross country on one tank of gas, and the
230 mpg Volkswagen coming in 2010, WITH NO GOVERNMENT SUBSIDIES.
2. Consumers drive less voluntarily and buy more fuel-efficient cars to conserve gas.
3. Producers attempt to find more oil in Canada, North Dakota, the Outer Continental Shelf and ANWR, subject to government restrictions.
4. Oil refiners attempt to build more, energy-efficient, environmentally-safe oil refineries, subject to government restrictions.

Future government solutions?

1. Impose windfall profits taxes on Aptera and other energy-efficient vehicle makers if they start making "windfall profits" from booming sales of small cars.

2. Investigate "price gouging" if consumer demand for the Aptera and other small cars results in "excessive prices."

Finally, Some Rational Thinking in South Dakota

Investor's Business Daily: Thirty-two long years have passed since the U.S. had a new oil refinery. But a small South Dakota community wants to change that. Finally, some rational thinking.

Union County, home to 12,584 in South Dakota's southeastern corner, voted 58% to 42% Tuesday to approve a request by Hyperion Energy to build a refinery north of Elk Point, the county seat of 1,855. The facility, expected to turn out 400,000 barrels of ultralow-sulfur gasoline and diesel fuel a day, just might be the biggest thing to happen to the area.

As far as energy is concerned, it could be the biggest thing to happen to this nation since 1976, widely known as America's bicentennial year but less so as the date the last new oil refinery was built in the U.S. Since that refinery was built in Garyville, La., more than three decades ago, environmental groups have successfully bullied policymakers into blocking any new ones.

Meanwhile, America has gone from 301 refineries in 1982 to less than half that (149, see chart above). The refining process is far more efficient today, yet output hasn't kept pace with demand. As domestic oil consumption has increased from 17 million barrels a day in 1982 to nearly 21 million a day in 2007, the country now has to import 10% of the gasoline we burn. We just don't make enough.

Wonder no more why we've become so reliant on foreign crude to fuel our economy and have little choice but to do more business with unsavory characters than we should.

See previous CD post here on this topic.

The Power of $4 Gas: It's A World Transformed

At $3 a gallon, Americans just grin and bear it, suck it up, and, while complaining profusely, keep driving like crazy. At $4, it is a world transformed. Americans become rational creatures. Mass transit ridership is at a 50-year high. Driving is down 4%. (Any U.S. decline is something close to a miracle.) Hybrids and compacts are flying off the lots. SUV sales are in free fall.

The wholesale flight from gas guzzlers is stunning in its swiftness, but utterly predictable. Everything has a price point. Remember that "love affair" with SUVs? Love, it seems, has its price too.

America's sudden change in car-buying habits makes suitable mockery of that absurd debate Congress put on last December on fuel efficiency standards. At stake was precisely what miles-per-gallon average would every car company's fleet have to meet by precisely what date.

It was one out-of-a-hat number (35 mpg) compounded by another (by 2020). It involved, as always, dozens of regulations, loopholes and throws at a dartboard. And we already knew from past history what the fleet average number does. When oil is cheap and everybody wants a gas guzzler, fuel efficiency standards force manufacturers to make cars that nobody wants to buy. When gas prices go through the roof, this agent of inefficiency becomes an utter redundancy.

At $4 a gallon, the fleet composition is changing spontaneously and overnight, not over the 13 years mandated by Congress. (Even Stalin had the modesty to restrict himself to five-year plans.) Just Tuesday, GM announced that it would shutter four SUV and truck plants, add a third shift to its compact and midsize sedan plants in Ohio and Michigan, and green light for 2010 the Chevy Volt, an electric hybrid.

Some things, like renal physiology, are difficult. Some things, like Arab-Israeli peace, are impossible. And some things are preternaturally simple. You want more fuel-efficient cars? Don't regulate. Don't mandate. Don't scold. Don't appeal to the better angels of our nature. Do one thing: Hike the cost of gas until you find the price point.

Charles Krauthammer

The Power of the Market: 600 Million People in China Have Been Lifted Out of Poverty Since 1981

Economic reforms that started in 1978 have helped lift 635 million Chinese people out of poverty, from 839 million in 1981 to 204 million in 2005 (see chart above), according to this study (Table 2). The poverty rate has fallen from 53% of the population in 1981 to 8% by 2001 (see chart above from the World Bank).

Bottom Line: Free market capitalism is the best path out of poverty. The difference between capitalism and socialism? Capitalism works.

Thursday, June 05, 2008

America's Energy Policy

America says to foreign producers: We prefer not to pump our oil, so please pump more of yours, thereby lowering its value, for our benefit. Let it not be said that America has no energy policy.

~George Will

6 Week Low for Unemployment Claims

WSJ/WASHINGTON -- The number of U.S. workers filing new claims for unemployment benefits posted a surprising drop last week to a six-week low, signaling some improvement in labor-market conditions ahead of Friday's employment report for May (DOL report here).

The four-week average of new claims, which economists use to gauge underlying job trends, fell for a second-straight week, by 2,750 to 368,500. Despite the recent improvement, that average remains well above levels seen in 2007 and at the start of this year.

MP: The downward trend over the last two months looks hopeful, and the market today seemed to like it (+214 point jump in the DJIA).

LA vs. Boston: All Economic Indicators Are Up

The nation may be struggling with soaring fuel prices, high food bills and rising home foreclosures, but when it comes to the revival of the celebrated Lakers-Celtics matchup in the NBA championship series after 21 years, all economic indicators are up. Ticket prices and merchandise revenue have risen steadily through this postseason, as have television ratings and online hits, with an even bigger jump anticipated for the Finals.

According to StubHub, the average resale price for the Finals is $772 in Los Angeles and $547 in Boston. In last year's championship series, between the Cleveland Cavaliers and the San Antonio Spurs, the average was $366 in Cleveland, $311 in San Antonio. (Face value for the most expensive seat at Staples Center for the Boston series is just under $4,000.)

LATimes Full Story

Ebay auction: $6,500 for 4 tickets

Retail Health Clinics in the U.K.?

The demand for cheaper and more accessible healthcare in the U.S. has led to the proliferation of retail health clinics, which offer simple medical treatments for walk-in patients. Could a similar model work in the UK?

Retail health clinics have succeeded in capturing the US public's imagination because they are organized around principles valued by their customers. Retail health clinics:
  • Offer easy access to healthcare
  • Are backed by strong consumer brands, such as Wal-Mart and CVS Pharmacy
  • Offer value for money, created by the focus on specific treatments, low turnaround time and the use of non-doctor clinical staff
  • Are regarded positively by regulators

As a result, they have tapped into both revealed and latent demand and boast high customer satisfaction rates. In terms of a business model, the obvious comparison is with the hospitality industry. Just as motels forego room service and fancy decor to offer clean, comfortable and economical rooms for the night, so retail health clinics dispense with the complex and costly apparatus of full-service medicine to offer quick treatments for minor ailments.

Conclusion: PA Consulting, a global management consultancy, believes that so-called “retail health clinics” in the U.K. have the potential to provide a wider variety of care for patients, delivering more convenience and greater choice. (News report here)

Tax Consumption, Not Savings

Like philanthropy, saving is an act of self-denial that enriches your neighbors (by leaving more goods available for them to consume). But unlike philanthropy, saving is punished by the tax system (via the taxes on interest, dividends, capital gains and inheritance). That's nuts. When you tax saving, you encourage people – wealthy people in particular – to spend more and grab a larger share of the consumption pie. "More consumption by the rich" should not be among the primary objectives of the tax code.

The alternative is to tax consumption. I and probably most economists believe that a consumption tax is better than an income tax, at least in principle. You can easily implement a consumption tax with a Form 1040 that says: "How much did you earn this year? How much did you save? Now pay tax on the difference." And you can make that tax as progressive as you like.

~Economist Steven Landsburg in today's WSJ

Wednesday, June 04, 2008

Forget Alaska, There's 40X As Much Oil in N.D.

June 3 (Bloomberg) -- The Bakken formation is a sprawling deposit of high-quality crude oil beneath the durum wheat fields of North Dakota, Montana and southern Saskatchewan and Manitoba. The Bakken may give the U.S. -- the world's biggest importer of oil -- a new domestic energy source at a time when demand from China and India is ratcheting up the global competition for supplies and propelling average U.S. gasoline prices to almost $4 a gallon.

And unlike the tar from Canada's oil sands, Bakken crude needs little refining. Swirl some of it in a Mason jar and it leaves a thin, honey-colored film along the sides. It's light - -almost like gasoline -- and sweet, meaning it's low in sulfur.

Best of all, the Bakken could be huge. The U.S. Geological Survey's Leigh Price, a Denver geochemist who died of a heart attack in 2000, estimated that the Bakken might hold a whopping 413 billion barrels. If so, it would dwarf Saudi Arabia's Ghawar, the world's biggest field, which has produced about 55 billion barrels (see chart above).

In contrast, there are 10.4 billion barrels estimated to be recoverable in Alaska's Arctic National Wildlife Refuge (ANWR), which remains off limits. On the other hand, North Dakota is open for business.

Breakthrough? First U.S. Oil Refinery in 30 Years?

ELK POINT, S.D.Voters in Union County on Tuesday approved rezoning for what would be the first new U.S. oil refinery in more than 30 years.

Texas-based Hyperion Resources said it would help the United States reduce its dependence on overseas oil. The refinery would process 400,000 barrels of thick Canadian crude a day. Hyperion officials said the project would mean 1,800 permanent jobs and another 4,500 construction jobs over a four-year period.

Hyperion called it a "green refinery" and said it would produce ultra-low sulfur gasoline and diesel and be among the cleanest and most environmentally friendly in the world.

HT: Anonymous comment on this CD post

Seismic Shift: Asian Rivals Outsell Big Three

FORBES: Hong Kong - U.S. carmakers have relinquished primacy of position on their own home turf to Asian rivals for the first time. In a seismic shift in the automotive industry, consumers are voting with their wallets for the smaller, more fuel-efficient vehicles that Asian manufacturers have excelled at producing.

The combined U.S. market share of Detroit's Big Three--General Motors, Ford Motor and Chrysler--slumped to a record low of 44.4% in May, compared with 47.8% for Asian automakers collectively. Japanese car producers by themselves seized a record share of the U.S. market, 42.5%, according to data for the month of May from Autodata Corp.

MP: The chart above shows cumulative, year-to-date (through May) market shares for the Big 3 vs. all foreign automakers this year, compared to last year.

The Miracle of the Market and Political Silliness

With a couple billion Chinese, Indians and others joining the global marketplace, they will need energy, and lots of it. The price mechanism is our only hope.

Sure enough, it's working. Money is pouring into Canada's massive tar sands. A thousand substitutions are taking place on the demand side. Sales of SUVs are falling; sales of four-cylinder sedans are up. The number of miles driven by American motorists shrank in February for the first time in 26 years.

Yet there's one miracle of adaptation that even $135 oil apparently can't vouchsafe. It can't bring intellectual coherence to American rhetoric or policy on energy.

By one count, America sits on enough oil and gas to meet its own needs for half a century. We won't help ourselves although our environmental delicacy somehow doesn't stop us from screaming at other countries to tear up their own pristine wildernesses to supply us with cheap energy.

President Bush rushes to the Saudis, supplicating for more oil. Congress threatens OPEC with antitrust action. Go figure. That U.S. politicians can afford to indulge a persistent unreality about a basic input of industrial civilization only testifies to how responsive and resilient the global energy market has been despite the political silliness it meets at every turn.

From "The Coming Oil Investment Boom" in today's WSJ

San Diego Housing Market: Buy One, Get One Free


Dynamic Maps of Income Distribution Over Time

The Rise of India's Middle Class
Check out the dynamic, time-series graphs of income distribution from Gapminder.com here. Pick a country (or the world), and click the arrow on the left to watch the year-by-year change in income distribution. For an interesting comparison, watch India (see charts above for 1970 and 2000) and then Nigeria - two different stories.

Africa = U.S. + Europe + China + India + Argentina

Africa (30.3 million km²) is larger than China (9.6 million km²), the U.S. (9.4 million km²), Western Europe (4.9 million km²), India (3.2 million km²) and Argentina (2.8 million km²), three Scandinavian countries and the British Isles COMBINED (see map above, click to enlarge).

Link here.

Big 3 Want to Build Cars, Just Not With Union Labor

Word that Ford will build its new fuel-efficient Fiesta "global car" in Mexico City is bad news for American auto unions. U.S. companies still want to build cars; they just don't want to build them with union labor.

We don't fault workers for trying to get more in labor negotiations. But the fact is, past UAW deals have saddled U.S. companies with such high costs that they can no longer make cars here and compete on a global market. So they make cars elsewhere.

Like a coyote caught in a trap, U.S. automakers have been desperately gnawing off a leg to escape certain death. They're closing plants and slashing jobs in Michigan, Ohio and other U.S. union havens, in favor of non-union, foreign places. Like Mexico and China.

Meanwhile, foreign companies have no problem making cars here. They do it in the non-union South, where the UAW is weak.

Ford's move to Mexico should be a warning to the UAW, which has seen its membership shrink from 1.5 million in 1979 to about 500,000 today. The UAW may "win" every negotiation they enter from now until doomsday, but to what end? The decline of Ford, GM or Chrysler is bad news for the U.S. — but it may be a death-knell for the UAW.

IBD Editorial

Consumer Confidence About Economy Might Be Low, But Foreign Investor Confidence is High

According to data released today by the BEA, foreign investors pumped $276.8 billion into the U.S. economy in 2007 to acquire U.S. businesses ($255 billion) or to establish new U.S. businesses ($22 billion). This investment activity by foreign investors represents a 5X increase since 2002, when FDI was only $54.5 billion (see chart above, click to enlarge).

Certainly some of the increase could be explained by the 17% depreciation of the USD between 2002-2007 (
data here), but that has to be a relatively insignificant factor in the +400% FDI increase.

Bottom Line: Americans might have lost confidence in their economy over the last few years, but foreign investors apparently haven't, and in fact, are increasingly bullish about the U.S. economy and its businesses. Despite subprime mortgage problems, a housing slump, threats of a recession in 2007, and comparisons to the Great Depression, foreigners almost doubled their investments in U.S. businesses in 2007 ($277 billion), compared to 2006 ($165 billion). Consumer confidence might be low, but foreign investor confidence in the U.S. economy is close to an all-time high.

The Global Flat Tax Revolution

24 countries now have a flat tax, with great success.

Can the U.S. learn something about taxes from the emerging market countries of Eastern Europe? Dan Mitchell of the Cato Institute breaks it down in the video above, click on the arrow.

Thanks to
Cafe Hayek for the pointer.

Tuesday, June 03, 2008

It's Over: From 70% Odds to 5.5% in 135 Days

Hillary's odds on Intrade.com, from 70% in February 2008 to 5.5% today (click graph to enlarge).

How Rich Are You? Even Minimum Wage Workers in the U.S. Are Richer Than 87% of People in World

Check it out here at the Global Rich List. Enter your annual salary and find out how you rank (percentage ranking) among the 6 billion people on the planet, based on world salary data from the World Bank Development Research Group. Here are a few examples:

A single American living at the poverty level of $10,294 annual income (in 2006) would be in the top richest 13.25% people in the world.

An American worker earning the minimum wage of $6.55 (July 2008) would be in the top richest 12.64% people in the world.

The median income per household member of $26,036 (in 2006) would be in the top richest 9.47%.

An American making the average hourly wage of $17.88 ($35,760 in 2008) would be in the top richest 4.4% people in the world.

A U.S. high school teacher earning the average salary of $52,450 (in 2007) would be among the top richest 0.96% people in the world.

A UAW worker making the average hourly wage of $39.68 (in 2007 with overtime, holiday and vacation pay, etc.) would be in the top 0.79% richest people in the world.

Bottom Line: We might complain about declining real wages in the U.S., increasing income inequality, the "middle-class squeeze," and the "disappearing middle class," etc., but think about it: even minimum wage workers in the U.S. are richer than 87.36% of the people on the planet. As much as we might complain, just by being alive in 21st century America, even if you're lower or middle class, you've "won first prize in the lottery of life."

Want Cheaper Gas? Here Are 4 Solutions

To address rising oil and gas prices, there's not much we can do about rising global demand, but we can do a lot to increase supply. Cato Institute's Jerry Taylor outlines 4 ways to increase domestic supplies of oil and gas in today's NY Post:

1. Open up key areas for oil and gas exploration and development.

2. Open up the West to oil-shale development.

3. Empty out the Strategic Petroleum Reserve.

4. Suspend federal rules that force refiners to use only low-sulfur oil to make gasoline and diesel.

Thanks to Cafe Hayek for the pointer.