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, 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 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 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 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?

Best Sentences I Read Today, About The Senate

About the Senate's successful vote to privatize its failing restaurants:

Wizbang Blog: If the U.S. government can't even run a food service organization without driving it into the ground, how in the hell is it going to run our entire health care system?

About the Senate's failed vote to tax the windfall profits of oil companies:

FEE: Giving politicians money is no way to increase the supply of gasoline.

Nyet to Russian, Moscow. Yes to English, West.

All across the former Soviet Union, thousands of students are making the same choice—turning away from the Russian language to embrace English, as well as the education standards of Western Europe and America.

The implications extend far beyond the classroom. The language and culture in which people educate their young say a lot about the world they expect their kids to grow up in. For many members of the elite in Ukraine, Georgia and the Baltic republics—and to a lesser extent Azerbaijan, Kazakhstan and Kyrgyzstan—the cultural center of gravity is no longer Moscow.

From the Newsweek article "Softer Russian Power: Moscow Once Extended Its Reach Through Schools and Language, But No more," via NCPA.

Related 2002 Newsweek article "Saying Nyet To Russian: Beyond the Motherland, The Language is on the Wane."

Hype About Outsourcing: Much Ado About Nothing

WSJ Blog -- A pair of economists have challenged the notion that outsourcing threatens U.S. service-sector jobs, arguing that headline-grabbing estimates of tens of millions of at-risk jobs ignore the positive effects of new services exports.

In fact, the “hype” concerning labor markets and outsourcing is “much ado about nothing,” economists Runjuan Liu of the University of Alberta and Daniel Trefler of the University of Toronto wrote in a NBER paper posted this week.

The economists looked at China and India because their low-wage, high-skilled workforces make them attractive places to outsource services jobs.

Number-crunching data from the Current Population Survey between 1996 to 2006, they found a small positive net effect on U.S. labor markets from outsourcing and what they called “inshoring” — the sale of U.S.-produced services — with China and India.

From the NBER paper "Much Ado About Nothing: American Jobs and the Rise of Service Outsourcing to China and India:"

Turning to our results, we precisely estimate either small negative effects or zero effects of offshore outsourcing. We also precisely estimate small positive effects or zero effects of inshoring. The positive inshoring effects are either as large as or larger than the negative offshore outsourcing effects so that the net effect is either slightly positive or zero.

Since the small effects are precisely estimated we can say with confidence that even if service trade with China and India grows at its current clip, the labor market implications will be small. In short, there can thus be only one way of describing the hype surrounding the labor-market impacts of inshoring and offshore outsourcing services to China and India: Much Ado About Nothing.

Building Modern India

We've got the "Mall of America" outside Minneapolis. Well, the "Mall of India" is now under construction outside New Delhi, with 7,000 laborers working 24 hours a day. Watch a NY Times video here.

One big difference in construction methods: Indians can move bricks on their heads.

Tuesday, June 10, 2008

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

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

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

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

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

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

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

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

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

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

Households in the top income quintile have:

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

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

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

Dollar Index Reaches Highest Level Since February

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

Read an AP story here.

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

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

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

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

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

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

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

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

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

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

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

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

Markets in Everything: Copper Kills in Detroit

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

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

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

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

Markets In Everything: Random Merchandise

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

Monday, June 09, 2008

Senate Votes To Privatize Its Failing Restaurants

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

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

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

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

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

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

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

(HT: Travis Walker)

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

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

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

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

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

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

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

Cartoon of the Day: Oil Boarding

Via the Gill Report

The Corn-Ethanol Industrial Complex

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

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

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

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

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

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

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

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

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

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

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

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

(Map HT: Jack McHugh)

Sunday, June 08, 2008

Searchable Database for Campaign Contributions

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

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

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

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

Very Unusual Pet: Jessica The Hippo

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

Largest Real Minimum Wage Increase in 50 Years

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

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

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

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

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

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

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

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

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

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

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

New Ideas, Fueled By Trade, Are Source of Wealth

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

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

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

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