Tuesday, June 17, 2008

Members of Congress Are 3-4 Times More Likely Than Public to Send Their Kids To Private Schools

A 2007 Heritage Foundation survey found that the percentage of Members of the 110th Congress who practice pri­vate school choice is disproportionate to the general populace, since only 11.5% of American stu­dents attend private schools. Also of note, Mem­bers of the Congressional Black Caucus and Congressional Hispanic Caucus, who represent populations that have fared poorly academically in public schools and that stand to benefit the most from educational options, showed particularly high rates of practicing school choice.

Notable findings include the following:

Over 37% of Representatives and 45% of Senators responded that they had sent their children to private school;

Over 23% of House Education and Labor Committee members and 33% of Senate Health, Education, Labor, and Pensions Com­mittee members exercised private school choice; and

Exactly 52% of Congressional Black Cau­cus members and 38% of Congressional Hispanic Caucus members sent at least one child to private school.

I-35W Bridge in Minneapolis

I got these pictures from Google Street View:

This is the old I-35W bridge (I think), from West River Parkway (which is closed now), before the collapse on 8/1/2007:

Update: These are pictures of the old I-35W bridge that was undergoing construction work at the time of the collapse:
Minneapolis downtown skyline in background:

World Cement Output & China's Construction Boom

The chart above (click to enlarge) shows annual production of cement by country, in billions of metric tons (data available here: USGS 2006 report and USGS 2008 report).

Cement is mainly used to make concrete, and is sort of the "active ingredient" in concrete - it is combined with sand and gravel in roughly fixed proportions. So cement production can be considered a rough proxy for the total amount of construction going on in a country.

From The Oil Drum, via Ben Cunningham

School Choice: Change You Can Believe In

Barack and Michelle Obama send their children to an upscale private school saying it is "the best option" for their children.

Several hundred low-income parents in our nation's capital have also sent their children to private and parochial schools, with the help of a federal program that provides Opportunity Scholarships. Like Mr. and Mrs. Obama, most of these parents are African-American. And like Mr. and Mrs. Obama, they too believe the schools they've chosen represent the "best option" for their children.

Now these parents have a question for Mr. Obama. Is Mr. Change-You-Can-Believe-In going to let his fellow Democrats take away the one change that is working for them? Or will be one more Beltway pol who speaks eloquently about public schools -- while making sure his own kids never have to step inside one?

From today's WSJ

New Evidence on Fat vs. Slim Governments: The Early Supply-Siders Were Right

In the early 1980s, Ronald Reagan embraced the ideas of a small group of economists dubbed "supply-siders." They argued that lower taxes and slimmer government would stimulate growth, enterprise, harder work and higher levels of saving and investment. These views were widely ridiculed at the time, dismissed as "voodoo economics."

A quarter of a century later, many more countries have cut taxes and reined in heavy-handed government intervention. How far have they gone down this path, and with what success?

My study, "Big, Not Better?" (Centre for Policy Studies, 2008), looks at the performance of 20 countries over the past two decades. The first 10 have slimmer governments with revenue and expenditure levels below 40% of GDP. This group includes Australia, Canada, Estonia, Hong Kong, Ireland, South Korea, Latvia, Singapore, the Slovak Republic and the U.S.

I compared their records to the 10 higher-taxed, bigger-government economies: Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Portugal, Sweden and the United Kingdom. Both groups cover a representative range of large, medium and small economies measured by their gross national incomes. The average incomes per capita of the two groups are similar ($27,046 and $30,426 respectively in 2005).

The early supply-siders were right (see chart above summarizing empirical findings). My findings firmly reject the widely held view that lower taxes inevitably result in cuts in public services, slower growth and widening income inequalities. Today's policy makers should take note of how tax cuts and the pruning of inefficient government programs can stimulate sluggish economies.

~Keith Marsden writing in
yesterday's WSJ

Bottom Line: The chart above clearly shows that: compared to the higher-taxed, bigger-government countries, the lower-taxed, smaller-government countries have higher growth rates of investment, exports, employment, output (GDP), and consumption; budget surpluses instead of deficits, and lower interest payments on government debt.

Economics of Futures Trading, Part II

From this previous post on the economics of oil futures trading:

$100 Spot Price per barrel + $5 Carrying Cost Per Barrel = $105 Futures Price (1 year)

Now suppose that speculators anticipate rising future oil prices, due to increasing global demand in China and India, and tightening world oil supplies. As in my previous example, let's assume that the increased speculative futures trading raises the price of oil in the futures market to $110 per barrel for delivery in one year, which then also raises the spot price to $105.

Q: What's could be so beneficial about speculators trading in oil futures, especially if they are contributing to both increases in spot prices and increases in futures prices for oil?

As Bloomberg's Kevin Hassett
points out, "If speculators know that the price of something is going to go up a month (year) from now, they buy today. If they are correct, they make money, and the price change is smoothed by the higher demand today. By loading up on futures, speculators pulled some of the price increase forward to today. This change is beneficial for society, as it forces consumers to conserve sooner, and suppliers to search for new deposits."

For example, think about what would happen if futures speculators were able to increase the futures price of oil to $110, without affecting the spot price (stays at $100). Consumers would then NOT conserve oil, and suppliers would NOT search for new oil. If speculators were correct about the rising future price of oil in one year, and if consumers and producers did not change their behavior (because the spot price didn't change), then it's likely that the future price of oil would rise above $110, say to $115 per barrel. And that would be an increase in price volatility over time - oil prices would increase to $115 without speculation in one year, instead of $110 with speculation.

By "pulling some of the price increase forward to today" speculators then actually help stabilize oil markets over time, by moving prices in the correct direction and helping allocate resources more efficiently over time. That is, the pain of higher spot prices today due to speculation, would be more than offset by the benefits in the long run, because behavior would change sooner to the increased scarcity of oil.

To paraphrase Walter Williams: "Suppose speculators are correct about future supply and demand conditions and oil will be scarcer in the future, what is the socially wise thing to do now so that more will be available in the future? The answer is to use less oil now. How do you get people to voluntarily use less oil now? By letting the spot price today rise."

Q: Do speculators raise spot prices and futures prices when a commodity will be scarcer in the future? Yes, but if a commodity like oil is expected to be less scarce and more abundant in the future, speculators would lower both spots prices today and futures prices. It works both ways, but speculators don't receive attention when they are lowering spot prices, only when they are raising spot prices.

Q: If oil is expected to be more (less) scarce in the future, is it beneficial for spot prices today to rise (fall)? Yes, and speculators help to make that happen.

Q: Are oil prices more or less volatile/stable over time with speculators? More stable, by pulling some of the expected future price changes forward to today. "Speculation has to be stabilizing if speculators are making money," says Hassett. And the more speculators are correct in their assessment of future market conditions, and the more trading they engage in based on those assessments, the more stable prices will be over time.

Russia's Economy is Booming!

NY Times -- Russia’s economy expanded an annual 8.5% in the first quarter, higher than economists expected, as consumer demand fueled an investment boom. The expansion followed 9.5% growth in the previous three months.

The government expects the economy, the world’s 10th biggest, to expand 7.6% this year after growing 8.1% in 2007 (see graph above - 2008 will be the tenth year of solid economic growth in Russia, averaging close to 7%).

Russian industrial output grew an annual rate of 9.2% in April, the most in nine months, as output of trucks, cars and construction materials surged. Real wage growth has advanced more than 12% every month this year, increasing demand for housing and consumer goods.

Monday, June 16, 2008

Carpe Diem

Economics of Futures Trading, Part I

Politicians seem to generally dislike high prices (except maybe when they're selling their own houses or their own stocks) and are quick to conduct investigations or propose legislation any time they feel that prices are "too high."

If market-driven CEO compensation is rising because super-star executive talent is scare relative to the demand, politicians generally condemn the high salaries. If market prices for plywood or generators rise after a hurricane because of increased scarcity, politicians condemn "price gougers" and sometimes pass laws that put them in jail. When gas prices rose after 9-11 and after Hurricanes Rita and Katrina in response to significant disruptions in market conditions, politicians investigated oil companies and gas stations for "price gouging." If rents in NYC or Berkeley are rising due to increasing demand for rental housing interacting with a limited supply, politicians pass "rent control" legislation.

In the most recent period of high and rising oil prices, there's a new bogeyman on the block, coming under the watchful eye of politicians: SPECULATORS. In their perpetual mistrust of market forces, politicians cannot accept that high prices might actually be a result of either rising market demand, or falling market supply, or both. And there seems to be a general misunderstanding among both politicians and the general public about the basics of futures of markets in general, and the relationship between spot prices and futures prices in particular. Consider that:

Spot Price + Carrying Cost = Futures Price

For a one-year period for oil it would be:

Spot Price of Oil Today + Carrying Cost of Oil for One Year = Futures Price of Oil for Delivery in One Year

The carrying cost includes storing oil for one year, and the opportunity cost of $100 of capital invested today to buy oil at the spot price (foregone interest for one year). Assuming the carrying cost of oil is $5 per barrel per year, and a spot price of $100 per barrel, we would have a futures price of $105 per barrel:

$100 Spot Price per barrel + $5 Carrying Cost Per Barrel = $105 Futures Price

Assuming that the $5 carrying cost remains fixed in the short run, we can see that there is a direct one-to-one relationship between the spot price and the futures price, and if the futures price rises, the spot price would rise by about the same amount. And that 1:1 relationship would exist even if speculators were banned from the market, and only hedgers remained to trade.

For example, assume that Northwest Airlines and other carriers anticipated that rising global demand for oil and tightening oil supplies would put upward pressure on oil prices for delivery in June 2009. To hedge against the price risk of higher oil prices, NWA and other transportation companies that rely on oil as a major input might start buying oil futures contracts for delivery in one year, which would put upward pressure on the future price of oil, say to $110 per barrel. Now the relationship would be:

$100 Spot Price + $5 Carrying Cost < $110 Futures Price.

At the spot price of $100 per barrel, arbitrage profit opportunities would exist. You could buy oil today at the spot price of $100 and simultaneously sell contracts at the futures price of $110. After adjusting for the $5 carrying cost, you would have a $5 profit per barrel. But others would join you in your money-making plan, and the rising demand for spot oil would raise the price to $105 per barrel, such that:

$105 + $5 Carrying Cost = $110 Futures Price.

Notice that the spot price went up when the futures price went up, due to the trading of hedgers like NWA, and this would happen EVEN IF THERE WERE NO speculators in the market.

Conclusion #1: Spot prices generally rise (fall) when futures price rise (fall), due to market forces today and anticipated market forces in one year.

Conclusion #2: Conclusion #1 holds even when ONLY hedgers participate in a futures market.

There is a straightforward, mechanical relationship between spot prices and futures prices that doesn't necessarily have anything to do with speculators. In fact, speculators don't determine market forces, they respond to market forces of supply and demand.

Therefore, speculators can't be blamed for high oil prices, because high oil prices are ultimately caused by factors beyond the control of any speculator: rising global demand in places like India and China, and global supply in places like Saudi Arabia, Nigeria and Venezuela. No individual speculator, or any group of speculators has an iota of influence over the demand for gas or oil in Brazil, nor do they have one iota of influence over the amount of oil in Canada or ANWR, or any control over OPEC quotas.

Think about it - Exxon Mobil, one of the largest oil producers and private oil companies in the world, has NO control over the world spot price of oil, so how could a small group of speculators?

Part II to follow.

In A Colombian Town, Cocaine is the Only Currency

A shoe shop owner in Guirema, Colombia weighs out coca base handed over by a customer in exchange for goods.
In a remote Colombian settlement, transactions are conducted in coca, with one gram enough to buy a soft drink.

Crude Oil Futures: Trading is Down, But Prices Up?

The chart above shows that open interest (volume) for crude oil futures contracts declined by more than 16% since last November, and yet oil prices kept going up. Less oil futures trading, less speculation, but higher oil prices? Isn't is supposed to be the other way around?

The Phantom Recession is Over

A funny thing happened on the way to the most predicted recession in U.S. history: it didn’t happen.

According to First Trust Advisors.

NY Times Article Explains The Role of Speculators

The NY Times has an article that does a pretty good job of explaining the role of speculators in the futures markets, and highlights some of the benefits they bring to the market: Greater volume of trading, leading to greater liquidity, and thicker, more efficient commodity and futures markets, and even possibly less price volatility. Here are some excepts:

Although it is common in tough financial times to blame the speculators, this escalating hostility toward them is starting to worry people with years of knowledge about how commodity markets work. Because without speculators, they say, these markets do not work at all.

Speculators, people willing to risk their capital in search of high profits, are central to healthy commodity markets, they say, and broad-brush restrictions on them could damage markets that are already under pressure from rising global demand for food and fuel.

The more money that speculators are willing to put to work in the market, the more liquid it is and the easier it is to buy and sell without causing big ripples in prices.

So speculators become the ballast in the market, making the contrary trades, taking on the risks the hedgers want to shed, reacting quickly when news jolts the markets and, most important, creating liquidity by pouring in enough money to allow everyone to make very large trades quickly without causing wild price swings.

Liquidity is, in effect, the hostess gift that speculators bring to every market party, and without the capital poured into energy markets by institutional investors, prices may well be far higher and more volatile than they are, said Philip K. Verleger Jr., an economist and energy policy consultant who testifies frequently before Congress on energy issues.

Mr. Verleger said he strongly disagrees with the view that these new speculators are pushing up the price of oil and other commodities. “In fact, they have at a minimum reduced price volatility and quite possibly contributed to a lower price level than would have been obtained had they been barred from the commodity markets,” he said.

Life Expectancy at RECORD HIGH 78.1 Years

According to a report last week from the National Center for Health Statistics, life expectancy at birth hit a record high in 2006 of 78.1 years, a 0.3 year increase from 2005 (see chart above). Record high life expectancy was recorded for both white males and black males (76 years and 70 years respectively) as well as for white females and black females (81 years and 76.9 years).

Since 1940, life expectancy has increased by more than 15 years, from 62.9 years to 78.1 years, an amazing 24% increase in average life expectancy. Americans today can expect to be alive an additional decade and a half longer than just a few generations ago.

It seems like this story about record high life expectancy went largely unreported in the press. The NY Times had a brief mention buried inside this story yesterday. The Washington Post reported on it here. What if life expectancy had gone down? It probably would have received a lot more attention. Maybe it's like economic news, and news in general - bad news sells, good news doesn't?

What If They Ran An Election and Nobody Came?

That's exactly what happened, read about it here: "Voter Turnout for Tiny North Dakota Town: Zero"

Now that's rational ignorance.

UM in the Post-Prop 2 Period: Reasons to Be Happy

Pre-Proposal 2 Data for University of Michigan (Last column is national data):
The Michigan Daily -- Underrepresented minorities, which the University defines as black, Hispanic or Native American, will make up 10.5% of the Class of 2012. The class from the previous year was comprised of 10.8% underrepresented minority students. The Class of 2011 were admitted during an election cycle place partially after the affirmative action ban took effect. The Class of 2010, the last to be chosen prior to the ban, was made up of 12.6% underrepresented minorities.

Ted Spencer, associate vice provost and executive director of undergraduate admissions, said the number of minority applicants and enrolled students for this year was good, "relative to the fact that we were working under the constraints of the proposition." "We're not happy where we are," Spencer said.

MP: The chart above show UM data (last column is national data) during the pre-Proposal 2 (which ended race-preferences for admission to UM) period, suggesting a possible mismatch between the abilities of underrepresented minority students admitted under affirmative action, and the academic environment at UM.

A black student with a 3.2 high school GPA and 1210 SAT score used to have a 92% chance of admission to UM vs. only a 14% chance for a white student, a ratio of 6.5 to 1. However, once admitted, black students were almost 6 times as likely as white students to be on academic probation at UM (45% vs. 8%), and 10 times less likely to be admitted to the Honors Program (1% vs. 10%). Black students were also graduating from UM with overall GPAs equivalent to a C+/B- letter grade (GPA = 2.63) compared to the A-/B+ (GPA = 3.34) outcome for white students. And if the graduation pattern at UM was consistent with national patterns, fewer than 4 out of 10 black students were graduating within 6 years, compared to almost 6 out of 10 white students.

So here's what UM should be pretty happy about: Relative to the pre-Proposal 2 period, underrepresented minority students now admitted to UM without race-based preferences will: a) be attending an academic institution better matched with their academic qualifications, and will have a better chance of: b) graduating on time with a higher GPA, c) qualifying for the Honors Program at a higher rate, and d) not being on academic probation.

Quote of the Day

Politicians never accuse you of "greed" for wanting other people's money -- only for wanting to keep your own money.

~Joseph Sobran

Sunday, June 15, 2008

Heading South of the Border for $2.54 Gas + Time

SAN DIEGO - If there's pain at the pump in the U.S., Mexico may just have a remedy. A gallon of regular unleaded gasoline in San Diego retails for an average price of $4.61 a gallon. A few miles south, in Tijuana, it's about $2.54 — even less if you pay in pesos.

More and more people appear to be taking advantage of the lower price. The lower prices mean a U.S. motorist could save almost $54 filling up a two-year-old Ford F150 pickup with a 26-gallon fuel tank in Mexico. The differential in diesel is even greater, selling at $5.04 a gallon in San Diego County and $2.20 in Tijuana.

Still, international gas-buying trips don't make sense for everyone. The wait getting back into the U.S. at the border in Tijuana frequently takes longer than two hours and cars can burn about a gallon of gas for each hour they idle.

Bandwidth Hogs Face Limits on Internet Use

Some people use the Internet simply to check e-mail and look up phone numbers. Others are online all day, downloading big video and music files.

For years, both kinds of Web surfers have paid the same price for access. But now three of the country’s largest Internet service providers are threatening to clamp down on their most active subscribers by placing monthly limits on their online activity.

NY Times article "Charging by the Byte to Curb Internet Traffic"

Related CD post from yesterday

Free and Flush, Russians Eager to Roam Abroad

One of the most enduring changes in the lives of Russians in recent years has occurred not in Russia itself, but in places like this coastal region of Turkey, where an influx of Russian tourists has given rise to a mini-industry catering to their needs. A people who under Communism were rarely allowed to venture abroad, and then lacked money to do so when the political barriers first fell, are now seeing the world. And relishing it.

The number of Russian tourists visiting countries outside the former Soviet Union grew to 7.1 million in 2006, the last year statistics were available, from 2.6 million in 1995, according to the Russian government.

A record 2.5 million Russians visited Turkey in 2007, up 33 percent from 2006, Turkish officials said. Only Germany, that paragon of European wealth, sends more tourists to Turkey. (By contrast, in 1988, a few years before the collapse of the Soviet Union, all of 22,000 Soviet citizens visited Turkey.)

NY Times

New Real Car Prices Fell by $2,500 from 1998-2006

Thanks to an anonymous comment for the link to this Dept. of Energy website with data on the Average Price of a New Car from 1970 to 2006, in both current and constant dollars. The chart above shows the real, inflation-adjusted average price of a new car from 1976 to 2006 (in constant 2006 dollars).

What's interesting is that the real price of a new car fell by 10% from 1998 ($25,186) to 2006 ($22,651), and decreased in 7 out those 8 years, or by a total of $2,535 during that period.

Note that this measure of retail car prices does NOT adjust for the continual quality improvements over time in new vehicles, while the CPI: New Cars measure does (see post below).

The Real Cost of New Cars is Falling 2% Per Year

In the face of all of the bad news about rising gas prices, here's maybe some good news: The real cost of new cars is actually declining.

Here's why: In the last 30 years since 1978, consumer prices on average (CPI: All Items) have increased by about 3X (see chart above). During that same period, the CPI for Gasoline Prices has increased almost 6X, meaning that the real cost of gasoline has risen. But the CPI for New Cars has only gone up by less than 2X, meaning that the real cost of new cars has been falling, offsetting some of the sting of higher gas prices for consumers.

On an average annual compounded basis, consumer prices have increased annually at a 4.1% rate since 1978 (see chart above), while gas prices have increased by 6%, meaning that the real cost of gasoline has been rising by 2% per year on average over the last 30 years. But the cost of new cars has increased by only 2% annually, suggesting that car prices adjusted for inflation have been falling on average by 2% each year since 1978!

Another way to look at it: If new car prices had risen at the same rate as inflation since 1978, new cars would be more than 50% higher than today's prices. And if new cars had increased annually at the same rate as gasoline prices, they be more than 3X higher than current car prices! If the real price of gas is rising, but the real cost of new cars is falling, is it possible that the overall cost of owning and operating a car might not be changing that much?

Update: IRS guidelines allow 50.5 cents per mile deduction for vehicle expenses in 2008. At 12,000 miles per year, 25 mpg and $4 gasoline, that works out to about 16 cents per mile in fuel costs, leaving 34.5 cents for non-fuel related expenses. In percentage terms, that's 32% for gasoline and 68% for non-fuel expenses, including the cost of the vehicle, financing, depreciation, etc.

Saturday, June 14, 2008

8 Reasons Web Connections Should Be Metered

While the exact mechanisms for metering are not yet developed, there's no way that the current all-you-can-eat model can continue much longer. It's stupid, and it contributes to complex problems we do not need.

First, let's establish that your monthly cost for using the Web--if you are a typical user--should not change at all. By metering the Web, I do not mean gouging the customer. I mean charging per the amount of activity. The Internet is a resource, like water and electricity, and should be metered in much the same way.

PC Magazine link

I like Reason #5 best of all: Spammers pay more for junking up the Web. Spammers are said to clog up about half to 75% of e-mail and much of overall Web traffic. They should pay! Metered Internest use would eliminate spam right away.

HT: Tom McMahon

Quote of the Day

When you look at the Republicans you see the scum off the top of business. When you look at the Democrats you see the scum off the top of politics. Personally, I prefer business. A businessman will steal from you directly instead of getting the IRS to do it for him. And when Republicans ruin the environment, destroy the supply of affordable housing, and wreck the industrial infrastructure, at least they make a buck off it. The Democrats just do these things for fun.

Democrats are also the party of government activism, the party that says government can make you richer, smarter, taller and get the chickweed out of your lawn. Republicans are the party that says government doesn’t work, and then they get elected and prove it. One philosophy is not necessarily an improvement on the other, but if you want the tooth fairy to come, you’ve got to have some teeth under your pillow.
~P.J. O'Rourke, in his book "The Parliament of Whores"

King Dollar Makes a Comeback

On Friday, the US dollar (broad index) reached its highest level since late February 2008, and is up by more than 2% since its April lows.

Are 18 Million Americans Uninsured Voluntarily?

According to this Census Bureau report (most recent data available), there were about 47 million uninsured Americans in 2006. The chart above shows the household income levels of those 47 million uninsured Americans. There are 9,283,000 uninsured Americans living in households that make $75,000 or more, and this represents about 20% of the total number of uninsured. There are about 8.5 million American without health insurance in households making between $50,000 and $75,000. With those two groups combined, 38% of Americans without health insurance (almost 18 million people) lived in households with $50,000 or more of household income in 2006.

Q: With $50,000 or more in household income, wouldn't many of those 18 million uninsured be without insurance voluntarily? That is, couldn't most of those households afford health insurance?

In Michigan, you can get basic health insurance through Blue Cross starting at $47.14 per month for those 18-30 years old (about the cost of a basic cell phone plan), and for $138.54 per month for individuals under 65 (not too much more than a cable TV plan with premium channels, and less than two cells phones at the monthly average of $77).

Since most households making $50,000 or more can afford multiple cell phones and cable TV, it would seem like they could also afford basic health insurance, and choose not to buy it. If they say they can't afford health insurance, they should consider cancelling their cell phones and/or their cable TV service. If they choose cell phones and cable TV over health insurance, that's a voluntary choice.

Thanks to the
Chicago School blog for the idea for this post.

Who's Making Windfall Profits?

From the Motley Fool: Let's play a game called Pick the Profiteer! Your choice will indicate the industry that's clearly making more than its fair share. We'll tax those excess profits to subsidize the unreasonable prices that consumers pay for the industry's products. Sound good? Here are your choices:

Retail Health Clinics:Not What the Doctors Ordered

There are nearly 1,000 retail medical clinics across the country, typically staffed by advanced-degree nurses known as practitioners. Most clinics are open seven days a week, with no appointment needed.

The model has been greeted by health insurers, employers and consumer groups as a way to address the national problem of accessing medical care, particularly with the rising number of uninsured Americans. "People are looking for convenience and access, and the problem is most docs don't have weekend and evening hours and these fill that gap," said the president of the Midwest Business Group on Health.

But the model has not received such a warm welcome from physician groups around the country, like the politically powerful Illinois Medical Society, which pressured lawmakers in Illinois to introduce a bill to increase regulation of the facilities by requiring permits, curbing their advertising plans, and (surprise, surprise) requiring more physician involvement.

F0rtunately for consumers, the Federal Trade Commission (FTC) reviewed the pending legislation and issued a rebuke to the Illinois Medical Society and its proposed bill, criticizing some of bill's provisions as being anti-competitive and harmful to consumers. The bill did not emerge from an Illinois House committee, and legislators say the FTC letter could thwart the legislation.

Read more here in today's Chicago Tribune.

Fuel Economy Websites

2008 most and least fuel efficient vehicles, click here

Thinking of getting a car with better gas mileage? Find out how much money you can save, click here

Find out the mpg of your car (and your carbon footprint), click here

Homepage for Fuel Economy.gov, click here

Update: Here's another website to help answer the question "Should You Trade in Your Gas Guzzler?" Thanks to Ironman.

Friday, June 13, 2008

Starting Salaries for 2008 College Grads

As a followup to this CD post, the Political Calculations blog has this recent post on starting salaries for 2008 college graduates, and you can easily sort the data. Econ grads at $53,000 fall just below engineering and computer science, and way above all of the business majors like accounting, finance and marketing.

Oil Shocks Are NOT Necessarily Inflationary

Oil Shock I: World oil prices almost quadrupled between 1973 to 1975, from $3.50 per barrel in 1973 to $13.50, a 286% jump. Result in Germany? Inflation DECREASED from about 8% to 5% during this period, while U.S. inflation more than tripled from 3.65% in January 1973 (not pictured above) to 12.34% by the end of 1974.

Oil Shock II: From 1979 to 1981, world oil prices more than doubled from $15.35 per barrel to $38.34 per barrel. Result? U.S. inflation reached almost 15% in the spring of 1980, while German inflation never got above 6% during the oil shock (see shaded area above).

Bottom Line: The case of German inflation in the 1970s and early 1980s demonstrates that oil shocks are not necessarily inflationary, unless accompanied by "accommodative" (i.e. "easy") monetary policy, like was the case in the U.S. Faced with the same rising world oil prices as the U.S. during both oil shocks pictured above, Germany's inflation was much, much lower than the U.S.

M2 money supply in the U.S. grew by 25% from 1973 to 1975, and again by 28% from 1979 to 1981, and it was that monetary expansion in the U.S. that caused all prices to rise significantly (including the non-food, non-energy core CPI items, see related post), and not rising oil prices.

Race Preferences: Obama vs. Connerly

It simply stretches credulity to argue that an "opportunity" given to one, on the basis of race, is not discrimination against another for the same reason.

How does Mr. Obama expect America to compete with China and India when we abandon the principle of individual merit and elevate skin color and sex above performance?

If either Barack Obama or John McCain want to be a truly "post-racial president," then it is essential that they support efforts to place our nation on a path to guarantee equal treatment under the law for all Americans. That means preferential treatment for none on the basis of their race, ethnic background, skin color or sex.

~Ward Connerly in today's WSJ, "Obama Is No 'Post-Racial' Candidate"

Why Today is Different From the Inflationary 1970s

WASHINGTON (Reuters) - Soaring gasoline prices helped drive up overall U.S. consumer prices during May by the fastest rate in six months, but core prices remained tame, a government report today showed. But 12-month core prices advanced 2.3% as expected (see chart above).

MP: Note that core CPI inflation (less food and energy, data here) has been below 3% now for 149 consecutive months, since January of 1996 (shaded area above). Also notice that there is a huge difference between the inflationary 1970s and today - in the inflationary 1970s (fueled by excessive money creation) ALL prices were rising simultaneously at double-digits rates, EVEN the non-energy and non-food items of the CPI. Today, except for energy and food prices, core inflation is contained, low and stable, as is growth in the monetary base, suggesting that the concern about inflation is well... inflated.

Also, compared to a recent peak close to 3% during 2006, the core inflation rate is lower today, and has been generally declining since late 2007.

Rising energy prices alone cannot cause inflationary increases in all goods and services, as the situation today suggests, with core inflation remaining low and stable despite rising energy prices. Keep in mind also that during the double-digit inflation in the U.S. during the 1970s, fueled by expansionary monetary policy, the German central bank demonstrated much greater monetary restraint, and inflation in Germany never exceeded 8% in any year during the 1970s and averaged only 5% during that decade (despite experiencing the same increase in world oil prices as the U.S.).

Protecting the Health and Well-Being of What?

A CD post yesterday linked to a Wichita Eagle story about Walgreens becoming the first national retailer to bring in-store, walk-in clinics to the Wichita market.

Who would possibly object to low-cost, convenient, patient-friendly, market-driven, retail health care clinics in Wichita?

The local AMA cartel of course, aka the Medical Society of Sedgwick County, which
drafted a resolution that suggests that retail health care clinics present "multiple dilemmas to Kansas physicians," such as:

1. It hasn't yet been determined whether this entrepreneurial approach to health care delivery enhances or further fragments patient health care.

2. The value of a team approach to health care is subverted in “retail health care” alternatives to the detriment of the patient.

3. A concern about the quality of health care delivered by a mid-level professional practicing in a semi-autonomous setting and the quality of the supervision delivered by the attending physician.

4. The potential for inappropriate referring of patients needing expanded health care.

THEREFORE BE IT RESOLVED THAT: The Kansas Medical Society ask the Kansas Medical Society Task Force to specifically address the issue of “retail health clinics” as a part of their on-going study and make specific policy recommendations that protect the health and well-being of patients.

MP: My inner economist suspects that the Kansas physicians might also want to "protect the health and well-being of their medical cartel and above-market wages."

ANWR: One of the Bleakest, Most Remote Places

Washington Post editorial in 1987 in support of drilling in ANWR (see picture above):

That part of ANWR is one of the bleakest, most remote places on this continent, and there is hardly any other where drilling would have less impact on the surrounding life.

Cartoon of the Day

Are Futures Traders to Blame for High Oil Prices?

The president of the Futures Industry Association, John Damgard, answers that question in this FT.com video.

Thursday, June 12, 2008

Market Wages Introduced in Cuba After 50 Years

Cuba took another leap away from Fidel Castro's creaky egalitarian model yesterday when it swept away the wage restraints that have kept surgeons and taxi drivers on much the same salaries for the past 50 years. The latest and most dramatic liberalisation by Raul Castro appears to be aimed at bringing to communist Cuba the Chinese-style economic reforms he admires so much.

The decision to scrap one of the fundamental pillars of socialism, in place for the past 50 years, was revealed in an eye-popping item in the Communist Party newspaper, Granma, yesterday. In its deadpan style, Granma stated that "the socialist principle of distribution will be achieved wherein everyone earns in accordance with his contribution, in other words, pay in accordance with quality and quantity."

The measure is part of the government's policy to get the moribund economy on the move again. The idea is to give people earning a typical salary of just $17 a month an incentive to work hard and make money. Cuban salaries are too low for families to survive on and are supplemented by a crude system of rationing.

Every Cuban family gets a single bar of soap a month, a portion of rice and "ground beef" that is more than 50 per cent soy. The ration system has given the Communist Party tight control over families, but it is widely abused and open to corruption.

Thanks to Carlos in Bogota, Colombia for the link.

Quote of the Day

There's probably more oil spilled in a Wal-Mart parking lot on a daily basis from oil seeping out of cars than on the North Slope.

~Dave Dittman, Anchorage pollster, quoted in The Juneau Empire

Note: The North Slope of Alaska is home to Prudhoe Bay, the largest oil field in North America (containing approximately 25 billion barrel of oil), operated by British Petroleum, ExxonMobil and ConocoPhillips.

Lower Oil Prices, More Jobs, More Tax Revenues, and Union Support: What's Not to Like?

In all of the recent discussion about opening up America's vast energy resources, what has received the most attention is the potential effect on oil and gas prices. But there are two other important issues that have not received much attention - the effect of domestic oil development on: a) jobs and b) taxes.

From ANWR.org: The U.S. economy benefits from domestic production when new construction, service, manufacturing, and engineering jobs are created. These jobs occur in all 50 states. A national impact study by Wharton Econometrics estimates total employment at full production in ANWR to be 735,000 jobs. Federal revenues would be enhanced by billions of dollars from bonus bids, lease rentals, royalties and taxes.

And these jobs would be created across the country, not just in Alaska. To see the number of jobs created by state, go here. And that's just for ANWR, and doesn't count the new jobs from oil production in the OCS.

Aside from possible environmental concerns about devleoping America's 140 billion barrels of domestic oil reserves, what's not to like? We'd get lower oil and gas prices, more jobs and increased tax revenues. Seems like those outcomes should be welcomed by politicians of any party. And they'd even likely get the support of union members.

Add Health Care to Your Shopping List

From the Witchita-based Flint Hills Center for Public Policy's recent study "Adding Health Care to Your Shopping List: The Emergence of In-Store Clinics":

Kansas is one of many states across the country considering ways to reform its health care system. With the number of uninsured a top concern, the debate centers on how to provide care for those who lack coverage. Too often, unfortunately, policymakers assume that government solutions are the only answers to reforms. Ignoring private sector opportunities to enhance access to health care is a mistake.

In-store health care clinics are popping up across the nation and offer a private sector solution to some of the growing concerns of policymakers.

Based on the study, I was able to put together the Top Ten reasons that private-sector retail clinics are a great alternative to government health care:

1. These clinics offer basic acute care services, as well as preventative care options.

2. They offer clear price transparency with posted lists of services and prices and often accept insurance.

3. For the uninsured particularly, these clinics offer an alternative to emergency room visits or untreated symptoms.

4. In-store health care clinics are conveniently located in pharmacies and stores making them particularly attractive for individuals who live in rural areas, areas with doctor shortages, or for virtually anyone with a busy schedule.

5. The clinics are open extended hours into the evenings, weekends, and holidays making it easier for working families to get care.

6. The clinics are often paired with pharmacies, which makes it convenient to get prescriptions filled in one stop.

7. These private-sector clinics provide people seeking treatment an alternative to emergency rooms and government-run clinics.

8. They empower people to take control of, and responsibility for, their own health needs.

9. In-clinics offer an excellent opportunity for health care reform.

10. Retail clinics now operate in a very competitive marketplace with many other retail health care clinics (e.g. Kroger, Walgreens, CVS, Target and Wal-Mart) and "competition breeds competence."


The Flint Hills Center must be happy about this story in
today's Witicha Eagle: Walgreens confirmed it will open three Take Care Health Clinics in Wichita by the end of July, with another two slated to open by the end of the year. The drugstore giant becomes the first national retailer to bring its in-store, walk-in clinics to the Wichita market, beating out other retailers such as Wal-Mart, Kroger and Target, which are launching similar clinics in other states.

Update (from an anonymous comment):

11. Emergency Rooms can offer better, faster care of emergency cases when non-emergency cases are taken to a clinic at Wallmart or Wallgreens.

12. Many patients have conditions like diabetes or take medication like Warfarin that require frequent monitoring. Improved monitoring reduces the number of complications that can result in hospitalization.

13. Full-time workers and small business owners will not have to choose between taking 2 hours off work and their responsibilities on the job.

14. Early detection and improved health outcomes. Met a gentleman recently who had not been able to see to drive. He was diagnosed with advance cataracts at Wallmart and referred to a surgeon. His words seem to sum it up "I never thought I would have anything to thank Wallmart for."

Congress Hates "Big Oil" and the OPEC Cartel, But Likes "Big School" and the Public School Cartel

Democrats in Congress have finally found a federal program they want to eliminate. And wouldn't you know, it's one that actually works and helps thousands of poor children.

We're speaking of the four-year-old Washington, D.C. Opportunity Scholarship Program that provides vouchers to about 2,000 low-income children so they can attend religious or other private schools. The budget for the experimental program is $18 million, or about what the U.S. Department of Education spends every hour and a half.

More than 80% of the recipients are black and most of the rest Hispanic. Their average income is about $23,000 a year. But the teachers unions have put out the word to Congress that they want all vouchers for private schools that compete with their monopoly system shut down.

~From today's WSJ editorial

MP: The House voted in May to let the Justice Department pursue antitrust cases against the OPEC oil cartel for anti-competitive behavior. What about a similar bill to allow Justice to investigate the public school cartel for its anti-competitive practices?

Maybe Americans Are Ready For Drilling in America

Anyone wondering why U.S. energy policy is so dysfunctional need only review Congress's recent antics. Members have debated ideas ranging from suing OPEC to the Senate's carbon tax-and-regulation monstrosity, to a windfall profits tax on oil companies, to new punishments for "price gouging" – everything except expanding domestic energy supplies.

Amid $135 oil, it ought to be an easy, bipartisan victory to lift the political restrictions on energy exploration and production. Record-high fuel costs are hitting consumers and business like a huge tax increase. Yet the U.S. remains one of the only countries in the world that chooses as a matter of policy to lock up its natural resources. The Chinese think we're insane and self-destructive, while the Saudis laugh all the way to the bank.

It looks like the public is increasingly ready for . . . change. In a May Gallup poll, 57% favored "allowing drilling in U.S. coastal and wilderness areas now off limits" (see chart above). Just 20% blamed the increase in gas prices on Big Oil.

Today's WSJ

Lesson From Brazil: Drill! Drill! Drill!

One thing Brazil and the U.S. have in common is that each country has vast oil reserves in waters off their coastlines. Here we may draw a line in the waves between the serious and the unserious.

Brazil discovered in November that billions of barrels of oil sit in difficult water beneath a swath of the Santos Basin, 180 miles offshore from Rio de Janeiro and Sao Paulo. The U.S. has known for decades that at least 8.5 billion proven barrels of oil sit off its Pacific, Atlantic and Gulf coasts, with the Interior Department estimating 86 billion barrels of undiscovered oil resources.

When Brazil made this find last November, did its legislature announce that, for fear of oil spills hitting Rio's beaches or altering the climate, it would forgo exploiting these fields?

Of course it didn't. Guilherme Estrella, director of exploration and production for the Brazilian oil company Petrobras, said, "It's an extraordinary position for Brazil to be in." Indeed it is.

At this point in time, is there another country on the face of the earth that would possess the oil and gas reserves held by the United States and refuse to exploit them? Only technical incompetence, as in Mexico, would hold anyone back.

But not us. We won't drill.

Daniel Henninger in today's WSJ

Cartoons of the Day

Wednesday, June 11, 2008

Taxes 101: Tax Rates, Tax Base and Tax Revenue

Especially in an election year, we hear a lot of talk about "raising taxes," "lowering taxes," "tax hikes for the rich," "tax cuts for the middle class," etc. etc. and as a result of an epiphany earlier today while driving to the university, I think I finally figured out why there is so much confusion about taxes. As a result of imprecise language, we interchange the terms "raising (lowering) taxes" and "raising (lowering) tax rates," assuming that increases (decreases) in tax revenues are always associated with increases (decreases) in tax rates. Let me digress to clarify the confusion.

1. Standard economic theory tells us that Price (P) X Quantity (Q) = Total Revenue (TR). Now, notice that all three variables (P, Q and TR) have different names, so that there would be absolutely no way to confuse, mix or interchange the three completely different variables!

2. We also know that if P changes, Q changes in the opposite direction, according to the Law of Demand, and further, TR changes, but in an uncertain direction. If demand is elastic (inelastic), quantity will change by a greater (smaller) percentage amount than the percent change in price, and TR will change in the opposite (same) direction of the price change. If P goes up, TR may either go down or up, depending on the elasticity (price sensitivity) of demand.

Back to tax rates and tax revenues.

We also know that THE TAX RATE x THE TAX BASE = TAX REVENUE, and here is the source of the confusion: each of the three key terms have the word "tax" in them, which results in the common, but often incorrect, assumption that changes in "tax rates" lead to changes in "tax revenues" in the SAME DIRECTION. We also frequently forget, or ignore, the inevitable fact that changes in the tax rate will cause the tax base to change, IN THE OPPOSITE DIRECTION!

For example, underlying the common phrase "tax cuts for the rich" is the incorrect assumption that reductions in tax rates necessarily leads to a reduction in tax revenue. Reason? We incorrectly interchange the terms "tax rate cuts" and "tax revenue cuts" because both terms have the word "tax." In reality, tax rate reductions usually lead to an increase in tax revenues, because the tax base increases in response to lower tax rates!

Most people have a much greater understanding that significant changes in prices might either raise or lower sales revenue, and would readily accept the suggestion that if McDonald's offers a $1 menu, its sales revenues might actually increase! But those same people don't always understand that reducing tax rates might actually increase tax revenues!

Bottom Line: When it comes to basic economic theory and the Law of Demand, economists have a much greater chance of getting the public to understand the effects of price changes, and the dynamic interaction among P, Q and TR, largely because the three key variables all have different and distinct names.

When it comes to basic tax theory, the general public, media and even politicians gets confused about the dynamic interaction among Tax Rates, Tax Base and Tax Revenues, because the three variables sound too much alike! Oh, and politicians always seem to ignore the reality that the Tax Base ALWAYS CHANGES when tax rates change, in the OPPOSITE DIRECTION (the "Law of Demand" applied to taxes). That is, they use static tax analysis (incorrectly assuming the tax base is unaffected by tax rate changes), instead of dynamic analysis (correctly assuming that the tax base changes in response to tax rate changes).

Drew Carey on Medical Marijuana and Minors

Seventeen-year-old Owen Beck played football and soccer for a local high school, but one day his thoughts abruptly turned away from sports and school. Doctors told Owen he had bone cancer, and would have to begin chemotherapy right away.

The young athlete suffered another blow—doctors would have to amputate his leg to try to keep the cancer from spreading. Chemotherapy attacked Owen's cancer and his body, leaving him bald, gaunt, and vomiting the food he needed to recover. The amputation introduced Owen to a bizarre, new agony called phantom pain, and although doctors gave him powerful medication, nothing helped.

A medical marijuana dispensary had recently opened in the nearby city of Morro Bay. Owen's parents knew the idea of giving medical marijuana to a 17-year-old strikes many people as scandalous. With a written doctor recommendation in hand, they purchased medical marijuana for their teenage son. The new medication eased Owen's pain and nausea like nothing else had.

You won't believe what happened next. Find out here by watching Drew Carey's latest Reason.tv video.

Proven World Oil Reserves:1,238 Billion Barrels

That's 1.238 trillion barrels of known oil reserves, or 1,238,00,000,000 barrels. And reserves have actually been growing, by 107.8 billion barrels since 2001, and 168.5 billion barrels, or 14%, over the last decade. Global reserves have risen by 36% since 1987 (map/chart above shows how the 1.23 trillion barrels of oil reserves are distributed globally).

These stats are from the "Statistical Review of World Energy 2008," released today by BP, and reported by The Economist:

"We're not running out of hydrocarbons,” insists Tony Hayward, the boss of BP, one of the world’s biggest oil firms. To back up this view, he cites various comforting figures from the latest edition of the firm’s “Statistical Review of World Energy," released today.

Enough oil has already been discovered around the world, Hayward says, to maintain consumption at current levels for another 42 years. As he put it, humanity has guzzled through 1 trillion barrels, but has its next trillion already lined up, and could probably unearth a third trillion if it really applied itself.

Why then, are oil prices hovering over $130 a barrel?

Mr. Hayward blames poor policy-making or, in his florid phrase, “the madness of men." Some 80% of the world’s oil reserves, he says, are in the hands of state-owned oil firms, which tend to allow firms like his only limited access. He believes that if these riches were fully exploited, the world could easily produce 100m barrels a day or more, a big increase on last year’s figure of 82m barrels per day.

MP: What about all of the attention on rising demand for energy in China and India, and how that contributes to rising oil prices? Well, according to the report's statistical tables, India's share of global oil consumption in 2007 was only 3.3%, not much more than Canada's 2.6% share or Mexico's 2.3% share, and India's oil consumption has grown less than 3% annually during this decade. And India and China's 12.6% combined share of world consumption is still only about half of America's 24%.

In fact, total global oil demand increased by only 1.1% in both 2006 and 2007, roughly the same rate as the increase in world population, and about half the 2.03% average annual growth in oil demand during the 2002-2005 period.

What's going on? Increasing world oil reserves, and relatively weak growth in world oil demand, and oil prices have now doubled in the last year? Is this an oil bubble?