Tuesday, June 24, 2008

Are Concerns About Inflation Inflated?

M2: Percentage Change from Year Ago
M2: Monthly Percent Change, At an Annual Rate
The charts above (click to enlarge) are from the St. Louis Fed's most recent "Monetary Trends" report for M2 growth on a: a) percent change from a year ago basis (top chart), and b) monthly percent change at an annual rate basis (bottom chart).

If stability in the growth of M2 was one measure of monetary policy stability, it would seem like the Fed has been doing a pretty good job. The year-to-year change has been steady at about 5% in 2004, 2005, 2006, 2007 and 2008. It's almost as if the Fed has had a fixed money growth rule for M2 of 5% per year since 2004. Although the month-to-month annualized change spiked in early 2008, it is now down to about 0%.

Doesn't this mean that inflation should NOT be a problem?

Kiplinger's 2008 Best Cities: Houston Is #1

Back with a roar after the oil bust of the 1980s, Houston has reclaimed its title as energy capital of the U.S. and added aerospace, technology and medical companies to the mix, generating more than 100,000 jobs in 2007. Not only does the Houston metro area lead the nation in job growth, but also its cost of living stands well below the national average. Housing prices run half those of other metro areas its size.


HT: Anuj

US Faces Shortage of 44,000 General MDs by 2025

COLUMBIA, Mo. -- By 2025, the wait to see a doctor could get a lot longer if the current number of students training to be primary care physicians doesn't increase soon, according to a new University of Missouri study. Jack Colwill, professor emeritus of family and community medicine in the MU School of Medicine, and his research team found that the U.S. could face a shortage of up to 44,000 family physicians and general internists in less than 20 years, due to a skewed compensation system that rewards specialists increasingly more than primary care practitioners.

MP: Looks like the recent explosion of retail health care clinics might be happening at just the right time (see chart above, from Merchant Medicine)?

Thanks to Ben Cunningham for the pointer.

Don't Shoot The Price Messenger, aka Speculator

The futures market may be a convenient scapegoat, but it's simply a price discovery mechanism. Major energy consumers – refiners, airlines – buy and sell these contracts to lock in goods at a future price, as a hedge against volatility. Essentially, they're guesses about coming oil supply and demand, as well as the rate of inflation. The political theory is that such futures trading is creating a bubble in the spot market (i.e., oil purchased for immediate delivery) beyond oil fundamentals. Thus, $4 gas.

But there's no inherent reason to "bet" that commodities will go up rather than down. Bet wrong – place all your chips on red, say – and you lose. If a company purchases the future right to buy oil at $140 a barrel and it instead sells for $130, the option is worthless. Besides, somebody has to take the other side of any futures contract: Some are trying to predict where the price will go in the future, while the other side is attempting to sell its future price risk. But no one knows how things will end up.

Mr. McCain calls such exchanges "reckless wagering." But speculators – normally known as "traders" – are really managing the exposure risks of American businesses to higher oil prices. Traders not affiliated with major producers or consumers provide liquidity to the market. Without the second group, futures markets would be determined exclusively by commercial participants. Another word for this is a cartel.

On the other hand, inflation does lead to a misallocation of resources, so it's not surprising that the Federal Reserve's weak dollar policy has driven investors to commodities to protect themselves. Loose monetary policy has caused price jumps across nearly all commodities, including surges in grains and precious and base metals. The Fed's rate-cut bender is the most important reason oil is up so sharply since last August.

The other major factor is supply and demand, as prosaic as that might seem amid today's political agitation. Energy consumption is surging in China and India, and global supply is not growing fast enough to keep up (see chart above). Congress could do something useful if it opened up America's vast natural resources, which are blocked by environmentalist romanticism. But then, it's so much easier to shoot the price messengers.

~Wall Street Journal editorial "
Political Speculators"

We Want More Oil, Not More Hot Air from Congress

Senator John McCain recently called for a "thorough and complete investigation of speculators" to see if they've driven up oil prices. And Senate Democrats plan a new bill aimed at commodity speculators - a witch hunt that's clearly about oil.

But, much as politicians would like to blame speculators, it's just not so.

For starters, there's nothing about futures or options that makes it any more attractive to bet that commodity prices will go up than to bet they'll go down. Guess wrong on the direction, and you lose money.

Speculators are now increasingly leaning toward betting the price of oil will go down, not up. So they're unlikely villains if prices do keep rising.

There is no mystery behind the rise in oil prices. They rose too high too fast because of booming demand for oil for electric power, petrochemical products and shipping from many emerging economies (particularly China, India and the Middle East). Meanwhile, the supply of oil slipped in the US, Mexico, Venezuela, Nigeria and Russia (see post below).

The urge to blame speculators is as big a waste of time as blaming oil companies. Americans want more oil and gas - not more hot air from politicians.

Cato Institute's Alan Reynolds article "Scapegoating the Speculators"

Mischief in the Markets or World Oil Balance?

For the past three years, I have been looking into the excessive speculation occurring on the energy markets. I have done more than just scratch the surface; I’ve really delved deep into this issue to understand the extent to which market speculation is inflating the price of crude oil. I sat through the Enron hearings and saw how Enron manipulated the energy markets. Naturally, when I began to see wild swings in gasoline prices, I was suspicious of mischief in the markets.

And it’s not just me. While the Treasury Secretary and the Commodity Futures Trading Commission (CFTC) won’t acknowledge that excessive speculation is a big part of the problem, more and more people are reaching the conclusion that excessive speculation is a significant factor in the price Americans are paying for gasoline, diesel and all energy products.“

As the price of crude oil has doubled over the past year – up 40% so far in 2008 – more and more people, like the International Monetary Fund and even the Saudi Oil Minister, are coming to realize that speculation has played a significant role in the run-up of oil prices.

~U.S. Congressman Bart Stupak (D-Mich.), who introduced legislation aimed at "closing loopholes that are allowing speculators to manipulate energy markets and artificially inflate prices," Stupak’s Prevent Unfair Manipulation of Prices (PUMP) Act.

MP: The chart above (click to enlarge) shows the "World Oil Balance" from 2003-2007 using EIA data (thanks to SBVOR). Could high oil prices, especially during 2007, be related at all to the fact that since late 2006 (shaded area), world demand started consistently outstripping world oil supply according to the EIA?

Update: As Cato's Alan Reynolds reminds us, "There is no mystery behind the rise in oil prices. They rose too high too fast because of booming demand for oil for petrochemical products, electric power and shipping from many emerging economies (particularly China, India and the Middle East). Meanwhile, the supply of oil slipped in the US, Mexico, Venezuela, Nigeria and Russia."

Note: The EIA will provided updated world oil balance data next week.

Cartoons of the Day

Monday, June 23, 2008

Houston: Silicon Valley of Global Energy Industry

In a stagnant economy, an oil star shines in Texas.
To find a hot spot where soaring oil and commodity prices and the booming economies of the developing world are keeping cash registers ringing and construction crews fully employed, you don't have to trek to Dubai or Moscow. You need travel only as far as Houston. In May, the unemployment rate in the nation's sixth-largest metropolitan area was a measly 3.8%. In the past year, Houston-based companies, which include 26 Fortune 500 firms, added 71,000 jobs to their payrolls (see chart above of employment growth in Houston vs. the country).

Houston has become a sort of Silicon Valley for the global energy industry. "There's hardly any oil and gas production in a 40-mile radius of Houston," says Mayor Bill White, a former energy executive, as he held court in the city's charming Art Deco city hall.

"It's the knowledge that has concentrated here that is driving things." In 1981, the oil and gas industry was a domestic, blue-collar one. Today it's an international, white-collar one. Oil companies, wind-energy startups, consulting geologists, and software developers comprise what John Hofmeister, who is retiring in July as president of Shell Oil Co., calls "this mass aggregation of people who know what they're doing in the energy world."

Urban cowboy? Think suburban geek. Houston has 70,000 engineers and architects (a concentration 60% higher than is typical for the United States). The oil boom and weak dollar are boosting demand for their services, and engineering and construction firms like KBR and Fluor are applying their expertise to power plants and sewage facilities around the world.

~Daniel Gross in Slate.com

Should Homeownership Even Be A Policy Goal? No

Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. Because the I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing.

In effect, U.S. policy is based on the premise that everyone should be a homeowner. But there are some real disadvantages to homeownership.

1. There’s the financial risk. Although it’s rarely put this way, borrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake.

2. Owning a home also ties workers down. Even in the best of times, the costs and hassle of selling one home and buying another — one estimate put the average cost of a house move at more than $60,000 — tend to make workers reluctant to go where the jobs are.

3. There’s the cost of commuting. Buying a home usually though not always means buying a single-family house in the suburbs, often a long way out, where land is cheap. In an age of $4 gas and concerns about climate change, that’s an increasingly problematic choice.

~Paul Krugman in today's NY Times

Today's Drilling Leaves A Tiny Footprint vs. 1970s

New oil development technology, developed over 30 years on Alaska's North Slope, will allow companies to tap underground producing reservoirs with a much smaller "footprint" on the surface.

When Prudhoe Bay was developed in the 1970s, about 2% of the surface area over the field, or 5,000 acres, was covered by gravel for roads and drilling and production facility sites. If Prudhoe Bay were developed today, using lessons learned since the 1960s, gravel would cover fewer than 2,000 acres, a 60% reduction.

Advances in directional, or extended-reach, drilling now allow producing companies to reach a reservoir 3 miles from the surface location. Soon "extended reach" wells out to four miles will be possible on the North Slope. When Prudhoe Bay was first developed, wells could reach out only 1.5 miles.

In the 1970s, production wells on drill pads in Prudhoe Bay were spaced 100 feet or more apart. New directional drilling techniques and drill equipment allow wells to be spaced 25 to 15 feet apart, and in some cases 10 feet apart. A drill pad that would have been 65 acres in 1977 can be less than nine acres today (an -87% reduction, see chart above). The same number of wells that required a 65-acre pad in the 1970s can be drilled on less than a nine-acre pad today.

Source: Anwr.Org

MP: To put the advances in computer and oil drilling technology since the 1970s in perspective, keep in mind that the slide rule (pictured below, click to enlarge) was "state-of -the art" technology for performing engineering calculations at about the same time that oil development was designed for Pruhoe Bay in Alaska. Because of the advances in oil drilling technology, the "footprint" of the drilling operation in ANWR today would be one sixth the size of Washington's Dulles airport, in an area (ANWR) the size of the entire United Kingdom.

Conservation: Speculators Do It BEST

I often ask my students, “How many of you are in favor of conservation?” Every hand goes up. I then ask, “How many of you are in favor of speculators?” and almost no one raises his hand. The students see conservation as a noble activity that prevents people from squandering resources now to insure that adequate quantities will be available in the future. On the other hand, they see speculation as the greedy hoarding of valuable resources now in order to gouge those who will need those resources later. I attempt to explain that if they are serious about conservation, they should also applaud speculation. The speculation that results from private property and the desire for profits is the most powerful force for beneficial conservation.

Speculators make money only if they conserve wisely—buying resources (holding them off the market) when they are less valuable and selling them (making them available) when they are more valuable. If speculators don’t conserve enough, they pass up profitable opportunities to buy low and sell high, and if they conserve too much they lose money by buying high and selling low. The speculator who consistently makes mistakes is soon relieved of the money necessary to continue speculating.

For example, at the first indication that next year’s Brazilian coffee crop will be devastated by a frost, speculators will immediately purchase raw coffee beans to store them until next year. Consumers will still see plenty of ground coffee in the stores, but suddenly the prices will be higher. What consumers don’t see is that coffee prices will be lower next year than they otherwise would have been because they are higher today, and that their reduced consumption today will be more than compensated by their greater consumption later. The complaint will be that greedy speculators have unnecessarily driven up prices. Interestingly, the universal complaint against speculators that they cause current prices to be too high is really a complaint that they conserve too much.

The important point is that anyone who believes he has better information on the future value of resources or commodities than is reflected in market prices can both profit personally and benefit society by acting on that information—if he is right. So when conservation is left to speculators, far more relevant information from far more people with far more at stake is acted on than if conservation is left to government.

~University of Georgia Economist Dwight Lee

Minimum Wage = Maximum Unemployment

Michigan's May unemployment rate of 8.5% is the highest in the country, and it's not even close: The state with the next highest jobless rate is Rhode Island at 7.2%, more than a full percentage point below Michigan. And compared to South Dakota, the state with the lowest rate of 2.9%, Michigan's rate is a whopping 5.6% higher. And it's about to get even higher this summer.

Reason? The minimum wage for adults will increase to $7.40 per hour in a week, "a move that has Michigan businesses shuddering," according to
The Flint Journal.

And those younger than 18 get a double increase when the state raises its minimum wage 21 cents to $6.29 on July 1 and then the federal minimum wage goes up to $6.55 on July 24.

Employers must pay the highest minimim wage for which employees are eligible, so the increase will put more money into many teens' pockets. And, in another year, the federal minimum wage jumps to $7.25 an hour for teens.

Some area businesses have felt the sting of the rising minimum wage and say they've had to make changes to maintain their profits. The rising labor costs mean local Dairy Queen owners Tom and Diane Baker are hiring fewer teens this summer, at a time when more Michigan teens than ever are looking for work.

"I have a stack of over 100 applications," Tom Baker said. "I've never had that in 20 years of being in business. People can't find jobs."

But the rising minimum wage means the Bakers are hiring at least two people fewer than in previous summers. They normally hire 14-16 summer employees, but this year it will be 12.

"It's hurting the business as far as profit and it's hurting the people who want jobs because you're hiring less," he said.

MP: Legislation can artificially increase wages for unskilled workers, but the law cannot force employers to hire workers at those higher wages, and the evidence presented in the Flint Journal article suggests that local employers will now hire fewer workers this summer and in the future. We can hope that employers ignore the laws of economics, but experience tells us that they won’t. The thousands of unemployed, unskilled workers are the unfortunate victims of good intentions – their jobs have been destroyed by the minimum wage hike.

Look for Michigan's unemployment rate to rise above 8.5% this summer.

Markets in Everything II: An Entire Life for Sale

Heartbroken Ian Usher is selling his entire life on eBay - because it has too many painful memories of his marriage break-up. Ian, who emigrated from England to Australia six years ago, is offering his three-bedroom house (pictured above), furniture, car, motorbike, jetski and parachuting gear to the highest bidder.

He is even selling an introduction to his friends and a trial run at his job.

Ian, 44, said on his website "A Life 4 Sale": "On the day it's all sold, I intend to walk out of my front door with my wallet in one pocket and my passport in the other - nothing else at all."

Current high bid on Ebay is AU$245,100 (about US$233,350).

Markets in Everything I: Lunch with Warren Buffett

Bid on Ebay for a Power Lunch with Warren Buffett, current high bid is $40,100.

Mr. Buffett will dine with the winning bidder and up to 7 friends at "Smith and Wollensky" in New York, which has been called “the steakhouse to end all arguments” by The New York Times. A mutually agreed upon date and time for the lunch will be selected by Mr. Buffett and the winning bidder.

Sunday, June 22, 2008

Cross-Price Elasticity: Consumers Respond

In economics, the cross price elasticity of demand measures the responsiveness of the quantity demanded of one good (X), to a change in the price of another good (Y).

As gas prices have soared, consumers have cut back on the amount of gas purchased (measured by the price elasticity of demand, which would be negative), but high gas prices have also resulted in increased purchases of other products and services (positive cross-price elasticity), and Greg Mankiw and Division of Labour have been keeping track:

1. Increased use of public transportation, and increased purchases of homes near public transportion.

2. Increased purchases of smaller cars.

3. Increased purchases of camels in India and mules in the US, for farming.

4. Increased purchases of bicycles and bike repairs.

Division of Labor adds more:

5. Increased purchases of scooters.

6. Increased purchases of locking gas caps.

7. Increased purchases of manual lawn mowers (picture above).

100 Years Later: Flint is Now a Service Economy

General Motors was founded in Flint, Michigan by auto pioneer William Durant, who combined Buick with an assortment of other auto manufacturers and parts suppliers on September 16, 1908. In the next few years, Durant and GM added automakers Oldsmobile, Cadillac, Elmore, and Oakland (later known as Pontiac), along with Reliance Motor Truck Company and the Rapid Motor Vehicle Company (predecessors of GMC Truck).

In forming GM in 1908, "Durant introduced two concepts that define manufacturing today: customer choice and industry consolidation." As GM and the auto industry thrived and expanded in and around Flint, Michigan during the 20th Century, employment opportunities were plentiful, and GM eventually employed close to 85,000 workers in "Vehicle City" by the 1970s.

GM and Flint are now ready to celebrate GM's 100th year anniversary (see picture above) this summer in July with parades, parties, baseball games, paddle boat rides, home tours, car cruises, concerts, new vehicle shows, etc.

What probably won't get celebrated this summer in Flint is this: Almost all of the GM jobs are gone forever. And it's not just the GM jobs that are gone (there are only about 8,500 left and the number is falling), and not just the non-GM automotive jobs, but most of the manufacturing jobs have left Flint forever!

The chart above (click to enlarge) shows the reality of manufacturing job decline in the Flint area (includes Genesee County). As recently as 1990, about 1 in 3 jobs locally were manufacturing (32%), which was about twice the percentage of manufacturing jobs nationally - 16.3% (about 1 in every 6 jobs). Although manufacturing jobs (as a percentage of total jobs) declined nationally and here locally, the decline in Flint was much more dramatic. So much so that by 2008, fewer than 1 in 13 Flint jobs are now in the manufacturing sector (7.8%), which is less than the national average of 9.9% for manufacturing jobs (1 in 10 jobs) by more than two full percentage points!

Flint celebrates GM's 100th year anniversary in the same year that Flint has a smaller manufacturing base than even the rest of the country. In other words, in the same year that Flint celebrates its industrial and manufacturing heritage as the birthplace of General Motors, it celebrates another, equally important historical milestone: Flint's manufacturing sector is dead, and it has now officially become a service-sector economy.

What killed off 75,000 manufacturing jobs in Flint? Although other factors may be relevant as well, economic theory clearly tells us that the more successful unions are at achieving above-market compensation, the greater the likelihood that those unionized industries or companies will eventually suffer losses in market share, employment and output. This is exactly the situation today, with GM's market share, UAW membership and Flint manufacturing employment at all-time lows.

The above-market compensation gains of the UAW led ultimately to long-run losses in union employment in places like Flint, Michigan, as the UAW gradually priced its overpaid members out of the globally competitive labor market.

Automobile production is expanding, but it's expanding elsewhere in the U.S., outside Flint and outside Michigan (see chart below), see Mackinac Center article here.

Search Volume: Speculators vs. Gas Prices

Search volume on Google Trends for "speculators" and "gas prices."

What Happened to America's Hopefullness, Abounding Strength and Vitality?

2008: Is everything spinning out of control? Midwestern levees are bursting. Polar bears are adrift. Gas prices are skyrocketing. Home values are abysmal. Air fares, college tuition and health care border on unaffordable. Wars without end rage in Iraq, Afghanistan and against terrorism.

The can-do, bootstrap approach embedded in the American psyche is under assault. Eroding it is a dour powerlessness that is chipping away at the country's sturdy conviction that destiny can be commanded with sheer courage and perseverance. The sense of helplessness is even reflected in this year's presidential election. Each contender offers a sense of order — and hope.

~Associated Press

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

Who Stole the American Spirit? by Zachary Karabell, WSJ

It wasn't always that way. Here's what Britian historian, politician and constitutional lawyer Lord James Bryce said about America 120 years ago:

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

If Politicians Were Honest, Here's What They'd Say

"I voted for this farm bill because farmers are a concentrated, highly organized and well-funded interest group. Of course, I know that the overall benefits of this bill fall far short of its costs. But those benefits are concentrated on a tiny percentage of the population, while the costs are spread out over all 300 million Americans. So those who pay the costs don't feel their burden enough to complain."

~George Mason Economist
Don Boudreaux

Saturday, June 21, 2008

Wal-Mart's Global Reach

Wal-Mart serves more than 49 million iternational customers weekly at 3,146 stores in 13 markets outside the continental U.S. (see chart above), and employs 620,000 international associates. International sales were $90.6 billion for Wal-Mart's latest fiscal year (through 1/31/2008), a 17.5% increase over the previous year.

Carpe Diem Stats

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CD Rank on 26.econ for Economics blogs: #31

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2008: "The Year of the River" in Cedar Rapids

Thanks to J.J. Howe.

Related article from today's WSJ: City leaders in Cedar Rapids, Iowa declared 2008 at the "Year of the River" to highlight the riverfront revitalization that has been taking place there. That was, of course, before the Cedar River turned on an American city like few rivers have before.

Note: I lived in Cedar Rapids from kindergarten through 6th grade.

Classic Milton Friedman; "Classic Liberal" Friedman

In this video from 1975 (the year before he was awarded the Nobel Prize), Milton Friedman explains at the beginning:

"I never characterize myself as a conservative economist. As I understand the English language, conservative means conserving, keeping things as they are. I don't want to keep things as they are. The true conservatives today are the people who are in favor of ever bigger government. The people who call themselves liberals today -- the New Dealers -- they are the true conservatives, because they want to keep going on the same path we're going on. I would like to dismantle that. I call myself a liberal in the true sense of liberal, in the sense in which it means of and pertaining to freedom."

Friedman goes on to explain: why the welfare state philosophy of doing good with other people's money always involves violence and coercion; why even good people lie to the American people once they become politiicians; why the mininum wage law forces employers to discriminate against unskilled workers, especially black teenagers; why government programs almost always have the exact opposite effect of the intended effect; why the harm done by trade unions was becoming patently obvious; why the Great Depression was not necessary and did not arise out of any natural flaw in the market but because of monetary mismanagement, etc.

Transcript here.

Hat tip to Vijay Boyapati.

Friday, June 20, 2008

Cartoons of the Day

America's Environmental Imperialism

Gas is $4 a gallon. Oil is $135 a barrel and rising. We import 2/3 of our oil, sending hundreds of billions of dollars to the likes of Russia, Venezuela and Saudi Arabia. And yet we voluntarily prohibit ourselves from even exploring huge domestic reserves of petroleum and natural gas.

At a time when U.S. crude oil production has fallen 40% in the last 25 years, 75 billion barrels of oil have been declared off-limits, according to the Energy Information Administration. That would be enough to replace every barrel of non-North American imports for 22 years, nearly a quarter-century of energy independence.

The entire Arctic refuge is 1/3 the size of the U.K. and the drilling site would be 1/7 the size of Manhattan. The footprint is tiny.

Moreover, forbidding drilling there does not prevent despoliation. It merely exports it. The crude oil we're not getting from the Arctic we import instead from places like the Niger Delta in Nigeria, where millions live and where the resulting pollution and oil spillages poison the lives of many of the world's most wretchedly poor (see photo above of oil spill in Nigeria). Our environmental imperialism redistributes pollution to people who can least afford it.

~Charles Krauthammer, Critical Thinking on Energy

Cedar Rapids, IA Photos

Thanks to Cedar Rapids resident Lee Brown for the photos (click to enlarge).

Al Gore, Energy Hog: Do As I Say, Not As I Do

NASHVILLE - The Tennessee Center for Policy Research, a Nashville-based free market think tank and watchdog organization, obtained information about Al Gore’s home energy use through a public records request to the Nashville Electric Service. In the year since Al Gore took steps to make his home more energy-efficient, the former Vice President’s home energy use surged more than 10%.

In the past year, Gore’s home burned through 213,210 kilowatt-hours (kWh) of electricity, enough to power 232 average American households for a month. Since taking steps to make his home more environmentally-friendly last June, Gore devours an average of 17,768 kWh per month –1,638 kWh more energy per month than before the renovations – at a cost of $16,533.

By comparison, the average American household consumes 11,040 kWh in an entire year (almost 20 times less than Al Gore), according to the Energy Information Administration (see chart above).

MP: Wow, talk about the need for some carbon offsets......

Through $4 Gas, Consumers Find Religion: Record Decline in Drivng, Record Level of Conservation

The Federal Highway Administration reported that travel during April 2008 on all roads and streets in the nation fell by -1.8%, resulting in estimated travel for the month at 245.9 billion vehicle-miles. April marks the sixth consectutive month of traffic volume decline, compared to the same month in the previous year. Cumulative travel for 2008 fell by -2.1% compared to 2007.

On a moving 12-month total basis, traffic volume fell to a three-year low of 2.982 trillion miles, the lowest level since May of 2005 (see chart above), and it has fallen in each of the last six months. This six month trend (in both year-over-year traffic and the moving 12-month total) is the most significant adjustment in driving behavior in at least the last 25 years. There was never more than a single monthly decline in traffic volume until 2006, a few examples of two consectutive monthly declines 2006 and early 2007, but never in the history of these data was there ever a period of more than a 2-month consecutive decline until now, and therefore the 6 consecutive monthly decline is a record, and represents the most significant adjustment to driving behavior in recent history.

High gas prices are working - consumers are changing their behavior by driving less and conserving gasoline. In fact, high gas prices have probably done more to change behavior and inspire conservation of fossil fuels than all of the Earth Days, and all of the efforts of groups like the Sierra Club, combined? Consumers have "found the religion of environmentalism and conservation" through high gas prices.

Why Didn't MDs Ever Object About Cigs in the Past?

Kansas.com -- Physicians this week agreed to support legislation that would ban the sale of tobacco products and/or byproducts in retail outlets housing store-based health clinics.

The American Medical Association wrapped up its policy-making meeting in Chicago this week, where member physicians defined the groups’ political and legislative agenda for the coming year.

If laws that support a no-tobacco policy as described above were enacted, stores such as Walgreens — which plans to open five retail health clinics in Wichita by the end of the year — and other retail chains housing walk-in medical clinics (such as Target, Kroger and Wal-mart) would no longer be allowed to sell cigarettes to customers.

Q: The MDs never objected in the past when their patients went to Walgreens to purchase the medications the doctors prescribed and cigarettes were available, but the docs just now became concerned when Walgreen's starting opening clinics? This is all about concern for their patients, and has nothing do with competition, right?

Thursday, June 19, 2008

"Left Wing" Milton Friedman on Legalizing Drugs, and Why Drug Laws Kill 10,000 People Per Year

In this video, economist Milton Friedman explains his position on why drugs should be legalized, how drug laws created the market for crack cocaine ("the stronger the drug laws, the stronger the drugs") and why the government's drug laws result in 10,000 additional deaths per year.

Bottom Line: Contrary to the position of the University of Chicago faculty that Milton Friedman was a right-wing, conservative economist, this video clearly demonstrates that Milton Friedman was a libertarian, and not a conservative. Friedman's advocacy of drug legalization would immediately disqualify him as a Republican and/or a conservative, and would demonstrate that on at least this topic, Friedman was actually radically left-wing.

Would the anti-Friedman faculty at the University of Chicago agree with Friedman that drugs should be legal (in which case they should drop their objections to the "conservative" Friedman Center), or would they align themselves with the right-wing, conservative Republicans in the "War on Drugs" (in which case they are conservatives themselves)? Seems like a no-win outcome for them?

Carbon Footprint Calculator From Delta Airlines

From Delta Airlines website:

Today, when you book a flight on Delta.com, you can make a contribution to The Conservation Fund’s Go Zero program to plant trees to offset the carbon emissions that result from your flight.

Now you can calculate your estimated annual emissions from airline miles and your personal carbon footprint online via our
online Carbon Calculator.

Q: What's next? Will people start buying carbon offsets as gifts pretty soon, e.g. birthday gifts, wedding gifts, Christmas gifts, etc.? "Thanks for travelling so far to join us for Christmas this year, we bought you carbon offsets as this year's gift, to offset your carbon footprint from travelling." "Happy Birthday, I bought carbon offsets to offset some of your carbon footprint over the last year." "Congratulations on your wedding, I'm giving you carbon offsets as a wedding gift to cover some of your wedding's carbon footprint."

Real Compensation HAS Risen With Productivity

It is a commonly held view that the American worker has not shared in the phenomenal economic growth since the late 1970s, and data like the chart below are often cited to show that median household income is falling farther and farther behind gains in productivity:

But the Heritage Foundation's James Sherk reminds us that "Wages are only part of what workers earn. Benefits, such as health coverage, 401(k) plans, and paid sick leave are an increasingly large part of workers' earnings.

Economic theory says that companies will raise workers' earnings when their productivity rises, but it does not say that those increased earnings will take the form of cash wages. The correct comparison is between productivity growth and workers' total compensation, including benefits, not just the cash wages portion of that compensation.

The chart below shows such a comparison. Over the past forty years compensation per hour and output per hour—that is, productivity—have moved almost in unison. Productivity rose 110% since 1968, and total compensation rose 103%.


Thanks to Travis Walker for the pointer.

It's An "Educated-Take-All" Economy

In an interview with The Wall Street Journal, Barack Obama said that he was trying to put together tax and spending policies that dealt with two challenges. One is the competition from rapidly growing developing countries, like India and China. The other: the U.S. becoming what he called a "winner-take-all" economy, where the gains from economic growth skew heavily toward the wealthy.

MP: Sen. Obama should take note of the chart above (click to enlarge), from the Brookings Institution study "Education and Income Mobility," showing the Median Family Income (adjusted for inflation) of Adults Ages 30–39, with Various Levels of Educational Achievement from 1964–2005.

In 1964 the median income of households with a college degree or greater was about 1.67 times higher than households with less than a high school degree ($50,000 vs. $30,000). By 2005, that ratio almost doubled to 3.21 for households with a professional degree - their median income was $90,000 compared to only $28,000 for high school dropout families. That is, the real median income of households with a professional degree increased by 80% between 1964 and 2005, and the real median household income of households with less than a high school degree decreased by almost 7%!

For households with a college degree, median income increased by almost 60% between 1964 and 2005 to about $58,000, increasing the ratio of college-educated income to high school dropout income to almost 3:1 in 2005 (from 1.67 in 1964).

In other words, it would be more accurate to say that the U.S. has become an "educated-take-all" economy, where the gains from economic growth are heavily skewed toward the educated. Wouldn't one way for Obama to solve this "problem" be to have the government shut down all American colleges and universities, eliminate all federal funding for higher education, or have the government put limits on the number of students attending college?

There is rising income inequality, but the inequality is due to the increasing gains to education over time. It's not so much that the "rich are getting richer and the poor are getting poorer," as much as it's "the college-educated are getting richer in an Information Age Global Economy, and the high school dropouts are staying the same or getting poorer."

World's Most Prosperous Workers?

Are these the prosperous workers Obama had in mind?
"Globalization and technology and automation all weaken the position of workers," Barack Obama said in this WSJ article, and a strong government hand is needed to assure that wealth is distributed more equitably.

As Don Boudreaux points out
on Cafe Hayek, if Obama is correct, "then some of the world's most prosperous workers must be the people in that newly discovered tribe in Brazil (see picture above) -- persons with absolutely no contact with the global economy or with modern technology. Less extreme cases, of course, include persons not so cut off from the world as these Brazilian tribes. Sub-Saharan Africans should be more prosperous than eastern Europeans, who, in turn, should be more prosperous than Americans and western Europeans."

Wednesday, June 18, 2008

87% of Faculty at Elite Colleges Are Liberal, and UC Faculty Are Worried About Milton Friedman?

Chicago Tribune -- In a letter to University of Chicago President Robert Zimmer, 101 professors—about 8% of the university's full-time faculty—said they feared that having a center named after the conservative, free-market economist Milton Friedman could "reinforce among the public a perception that the university's faculty lacks intellectual and ideological diversity."

About a half-dozen faculty members aired their concerns Tuesday in a meeting with Zimmer and Provost Thomas Rosenbaum, who remain committed to the project.

"It is a right-wing think tank being put in place," said Bruce Lincoln, a professor of the history of religions and one of the faculty members who met with the administration Tuesday. "The long-term consequences will be very severe. This will be a flagship entity and it will attract a lot of money and a lot of attention, and I think work at the university and the university's reputation will take a serious rightward turn to the detriment of all."

Now wait a minute. First of all, Milton Friedman's political philosophy could be more accurately described as libertarian, and not conservative. Exhibits A and B: Friedman supported legalization (or decriminalization) of both prostitution and drugs, and both positions are associated much more with liberals and Democrats, than with conservatives and Republicans.

Secondly, college faculty are worried that a "conservative" center on a college campus would reinforce a perception that university faculty lack intellectual and ideological diversity?
"Give me a Stossel!"

By their own description, 72% of those teaching at American universities and colleges are liberal and 15% are conservative. (In comparison, only 39% of college faculty identified themselves as liberal in 1984.) The current disparity is even more pronounced at the most elite schools, where 87% of faculty are liberal and 13% are conservative (that's almost a 7:1 ratio), according to a study cited in the
Washington Post.

And faculty have the nerve to object to a Friedman Center because they're worried about intellectual diversity? Where's their concern about underrepresented ideologies?

14,000 Countrywide Foreclosures

The chart above shows the number of foreclosed properties being offered for sale by Countrywide Mortgage since January 2007. As of this week, Countrywide has 14,029 properties for sale around the country, representing almost $2.6 billion of real estate (by list price), at an average list price of $167,055. You can view detailed foreclosure listing in each state at Countrywide's website.

You can view additional foreclosure charts here for individual states. From these state charts, it looks like recent spikes in Florida, Nevada and Arizona foreclosures in the last week were responsible for the reversal of the downward trend in foreclosures that started in late 2007 (see chart above).

What Goes Up Must Come Down?

Updated: The chart above from Zillow.com shows property values in the Sacramento, CA zipcode 95843, going from about $250,000 in 2003 to almost $400,000 in late 2005 (+60%) and now back down to about $244,000.

Some Homework for Sen. Obama

From yesterday's Wall Street Journal:

"While Sen. McCain has argued that tax cuts—particularly on business—spur growth, Sen. Obama rejected that as flawed economics. "I've seen no evidence that . . . would actually boost the economic growth and productivity," he said."

The Tax Foundation provides plenty of evidence for Sen. Obama from the experience of developed nations over the past 20 years (
NBER, OECD, Treasury, American Enterprise Institute, KC Fed, Oxford University) suggesting that corporate tax rates "boost economic growth and productivity"—not to mention real wages and living standards for U.S. workers.

Thanks to Travis Walker for the pointer.

Chart of the Day: Say "Ahhhh"

The Economist

Unions Attack Vouchers and Charter Schools

1. Since when does Washington, D.C. pass up $18 million in federal money? When the teachers' unions demand it. Link.
(Via Club for Growth)

2. Since when does a state come up with a novel way to kill off its innovative and successful charter schools? When the labor unions demand it. Link.

Email Stats and Email Netiquette

Email netiquette from NPR: Are electronic wedding invitations OK? May I forward a friend's personal e-mail without her permission? How big is too big when it comes to sending photos?

Legalize It. Legalize Everything. Legal Is Better.

Of course medical marijuana should be legal. For adults, everything should be legal.

Banning drugs certainly hasn't kept young people from getting them. We can't even keep these drugs out of prisons. How do we expect to keep them out of America?

While drugs harm many, the drug war's black market harms more. Legal is better. And most importantly, in a free country, adults should have the right to harm themselves.

~John Stossel's latest column "Legalize All Drugs"

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.