Tuesday, August 19, 2008

Amateurs Often Outperform Professional "Experts"

When amateurs outperform professionals, there is something wrong with that profession. Two examples:

1. If ordinary people, with no medical training, could perform surgery in their kitchens with steak knives, and get results that were better than those of surgeons in hospital operating rooms, the whole medical profession would be discredited.

Yet it is common for ordinary parents, with no training in education, to homeschool their children and consistently produce better academic results than those of children educated by teachers with Master's degrees and in schools spending upwards of $10,000 a year per student-- which is to say, more than a million dollars to educate ten kids from K through 12.

Nevertheless, we continue to take seriously the pretensions of educators who fail to educate, but who put on airs of having "professional" expertise beyond the understanding of mere parents.

2. Central planners in the days of the Soviet Union had to set over 24 million prices. Nobody is capable of setting and changing 24 million prices in a way that will direct resources and output in an efficient manner.

For that, each of the 24 million prices would have to be weighed and set against each of the other 24 million prices. in order to provide incentives for resources to go where they were most in demand by producers and output to go where it was most in demand by consumers.

In a market economy, however, nobody has to take on such an impossible task. Each producer and each consumer need only be concerned with the relatively few prices relevant to their own decisions, with coordination of the economy being left to supply and demand.

In short, amateurs were able to outperform professionals in the economy because the amateurs did not take on tasks beyond the capability of any human being or any manageable group of human beings.

~Thomas Sowell "Amateurs Outdoing Professionals"

Mindset List for the College Class of 2012

This month, almost 2 million first-year students will head off to college campuses around the country. Most of them will be about 18 years old, born in 1990. Each August for the past 11 years, Beloit College in Beloit, Wis., has released the Beloit College Mindset List. It provides a look at the cultural touchstones that shape the lives of students entering college.

The class of 2012 has grown up in an era where computers and rapid communication are the norm, and colleges no longer trumpet the fact that residence halls are “wired” and equipped with the latest hardware. These students will hardly recognize the availability of telephones in their rooms since they have seldom utilized landlines during their adolescence. They will continue to live on their cell phones and communicate via texting. Roommates, few of whom have ever shared a bedroom, have already checked out each other on Facebook where they have shared their most personal thoughts with the whole world.

This year's Mindset List
for the Class of 2012 has 60 items, including the following:

Gas stations have never fixed flats, but most serve cappuccino.

Electronic filing of tax returns has always been an option.

WWW has never stood for World Wide Wrestling.

IBM has never made typewriters.

There have always been charter schools.

Full list here (and previous years as well).

Inflation Is a Clear and Present Danger? No Way

Data here for M2.

Data here for Base.

Brian Wesbury writes in today's WSJ article, "Inflation Is a Clear and Present Danger":

The most painful and frustrating economic policy blunder of the past 50 years was the Great Inflation of the 1970s. Painful, because it was the catalyst for three damaging recessions (1973-75, 1980, 1981-82), all the while eroding living standards and seriously undermining confidence in America.

It was also deeply frustrating. Despite the teaching of Milton Friedman -- which clearly explained that inflation was caused by too much money chasing too few goods -- a combination of bad economic models, denial and political expediency allowed it to happen.

Unfortunately, the lessons seem to be fading. Today, the U.S. (and through it the world) faces its greatest threat from inflation in 30 years. And as in the past, this threat is being met with denial and political expediency.

MP: Brian invokes Milton Friedman's monetarism to explain the inflationary 1970s, but then fails to apply it accurately to today's monetary aggregates (M2 and the monetary base, shown in the above charts), in my opinion.

Exhibit A: During the inflationary 1970s and early 1980s, M2 was growing at double-digit annual rates for much of the time, especially in the three periods circled in red in the top chart above during that period. There was a brief spike of 10% annual M2 growth during the 2001 recession and around 9-11, but M2 has been growing fairly moderately recently, in the 4-7% range for the last 5 years, suggesting that money growth is nowwhere near the double-digit levels required to replicate 1970s-era inflation.

Exhibit B: The monetary base, the "raw ingredient" of money supply and the one monetary aggregate that the Fed can control directly through its open market operations, has been on a contractionary trend since early 2002, almost 7 years ago. From 10% annual growth in early 2002, the growth of monetary base money has declined steadily, and has been around 2% since early 2007. In contrast, the monetary base was growing at around 10-12% annually in the inflationary 1970s.

Bottom Line: Invoking Friedman's monetarist theory (summarized as "inflation is always and everywhere a monetary phenomenon," and "inflation is caused by too much money chasing too few goods") clearly suggests to me that there just hasn't been large enough, recent enough increases in either: a) M2 or b) the monetary base, to fuel a return to the levels of inflation in the 1970s.

In other words, if inflation is a monetary phenomenon, where's the recent money growth that will cause it? It's just not there.

Markets In Everything: Outsourcing Company Blogs

There’s no question entrepreneurs are strapped for time and can benefit by outsourcing things like payroll or administrative work. But, outsourcing your company blog?

Some technology consultants are pitching “blog management” services to companies they say want the benefits of blogging but are too busy to manage a blog themselves. They do everything from writing pithy, thought-provoking posts about a company or industry to managing comments and getting a blog better play on search engines.

Monday, August 18, 2008

Markets In Everything: Australian Mayor Pleads For Beauty-Disadvantaged Women


HT: Clover Aguayo

M2 Growth Suggests 1970s Inflation Won't Return

There has been a lot of concern lately about U.S. inflation, and a lot of comparisons to the inflationary 1970s, but here's why that concern might be overblown:

The chart above shows the annual growth in money supply (M2) from 1969 to 2008, and it is easy to see that money growth in the 1970s was much different than today. Notice the three periods in the: a) early 1970s, b) mid-1970s and c) early 1980s of sustained, double-digit money growth (circled in red). Since the early 1980s, money supply growth has been in single digits, except for a brief, double-digit spike around 9-11, and has been growing at around 4-7% for the last 3 years.

To the extent that inflation is a monetary phenomenon, and to the extent that inflation is related to the growth of M2, inflation can't and won't return to the levels of the 1970s - there just hasn't been enough double-digit money growth to make it happen.

Zimbabwe Prices Now Quoted in Liters of Gasoline

Reeling from the highest inflation rate in the world, barred by the government from using U.S. dollars for purchases, Zimbabweans turned to a new money source Wednesday: gasoline coupons.

Private financial institutions say Zimbabwe's inflation rate was about 12.5 million percent in May and estimate that it has probably climbed to 50 million percent this month.

Embattled restaurants were offering discounts of up to 80% for either U.S. dollars or local cash because of shortages of both. They also added a penalty fee of up to 80% on top of the bill for those who paid by check, estimating price rises in the five days it takes a check to clear.

Infant Mortality: Measurements Not Consistent

In international comparisons of infant mortality, the U.S. usually ranks behind most other countries, many of whom have socialized medicine (see chart above, click to enlarge). But do countries around the world measure infant mortality consisently and uniformly? Apparently not, see explanation below from a doctor:

The main factors affecting early infant survival are birth weight and prematurity. The way that these factors are reported — and how such babies are treated statistically — tells a different story than what the numbers reveal.

Low birth weight infants are not counted against the “live birth” statistics for many countries reporting low infant mortality rates.

According to the way statistics are calculated in Canada, Germany, and Austria, a premature baby weighing less than 500 kg is not considered a living child.

But in the U.S., such very low birth weight babies are considered live births. The mortality rate of such babies — considered “unsalvageable” outside of the U.S. and therefore never alive — is extraordinarily high; up to 869 per 1,000 in the first month of life alone. This skews U.S. infant mortality statistics.

Norway boasts one of the lowest infant mortality rates in the world. But when the main determinant of mortality — weight at birth — is factored in, Norway has no better survival rates than the United States.

Read more here.

Thanks to Craig Newmark for the pointer.

The U.S. War on Drugs Kills Thousands in Mexico

Number of Americans killed in Iraq since 2003: 4,142

Number of deaths in Mexico since December 2006, largely because of the U.S. War on Drugs: 4,909

One reason that Mexican security has so deteriorated in the past decade is the demand in the U.S. for illegal narcotics, and the U.S. government's crackdown on the Caribbean trafficking route. Mexican cartels have risen up to serve the U.S. market, and their earnings have made them rich and well-armed.

The victims of last week's killing spree include the deputy police chief of the state of Michoacan and one of his men, a detective in the state of Chihuahua, and a deputy police chief in the state of Quintana Roo. As of July, 449 police and military officers have died in the Calderón offensive, further underscoring the price Mexico is paying for the U.S. "war on drugs." But the costs go well beyond the loss of life.

In a developed country like the U.S., prohibition takes a toll on the rule of law but does not overwhelm it. In Mexico, where a newly revived democracy is trying to reform institutions after 70 years of autocratic governance under the Institutional Revolutionary Party (PRI), the corrupting influence of drug profits is far more pernicious.

Today's WSJ

Sunday, August 17, 2008

Handyman Fights City Over Free Repairs

Jon Tennett loves to tinker in his garage. It's not an uncommon pastime for an 81-year-old man, but what is unusual is the city's response.

Because Tennett fixes his neighbours' lawn mowers and other small machines, the city of Pickering, Ontario has charged him with operating an illegal business - even though he's never charged a penny for his work.

HT: Reason

1 Million Mile '91 Chevy Silverado For Sale on Ebay

Ebay listing.

Newspaper story.

Over the years, the truck has had 4 radiators, 3 gas tanks, 5 transmissions, 6 water pumps, 6 alternators and 2 power steering pumps — probably $40,000 worth of work including routine maintenance and tires — but the engine is still original.

HT: Sanil Kori

Gas Spotted At $3.25 in Missouri

Link. (from Saturday)

Now at $3.27 in South Carolina.

Saturday, August 16, 2008

VP Odds on Intrade

Current Intrade.com odds for GOP VP (last trade):
Romney: 25.2%
Pwalenty: 25%
Ridge: 10%
Palin: 10%

Current Intrade.com odds for Dem VP:
Bayh: 27.8
Biden: 25%
Clarke: 17%
Kaine: 13.9%

Olympic Medal Inequality

So far, the top 20% of the teams earning at least one medal (12 out of 59) have earned 78.4% of the gold medals in the 2008 Summer Olympics, and 71% of the total medal points.

Friday, August 15, 2008

Dollar Summer Rally Continues

The U.S. dollar index (major currencies) ended the week at close an 11-month high, the highest level since mid-September 2007 (see graph above).

The Republicans Are Coming..... to the Twin Cities

Top 10 Interesting Facts about the most plugged-in gathering in Republican history, and its host cities of Minneapolis-St. Paul for the 2008 Republican National Convention (September 1-4):

1. This is the first time since 1928 that the candidate pool doesn't include an incumbent president or vice-president (for at least one party).

2. There will be 15,000 members of the media at the convention, second only to the Olympics in size.

3. When NY hosted the Republican convention in 2004, YouTube didn't even exist. This year, the convention has its own pages on Facebook and MySpace, and its own YouTube channel.

4. In 2004, only a dozen bloggers were granted press credentials to cover the convention. This year, 200 bloggers will be granted access.

5. The Twin Cities have 57 museums; only Chicago and Washington, D.C. have more.

6. St. Paul has more higher education institutions per capita than any city except Boston, with 10 colleges and universities within the city limits.

7. Downtown Minneapolis is home to 33,000 residents, more than the downtowns of Dallas, Denver, Houston, Indianapolis and Sacramento combined.

8. Minneapolis-St. Paul have more theater seats per capita than city outside of New York.

9. St. Paul's Summit Avenue has the longest stretch (5 miles) of Victorian mansions in the country.

10. Minneapolis has the fourth most active jazz scene in the country, right after L.A., New York and Chicago.

Source: Northwest Airlines World Traveler Magazine, Aug. 2008

Corporate Taxes Are Harmful for Growth

Unfortunately, U.S. has second highest corporate tax rate among OECD countries.
TAX FOUNDATION -- In a blockbuster new study titled "Tax and Economic Growth," economists at the OECD studied the effects of various types of taxes on the economic growth of developed nations and found that "corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes."

The main recommendation of the study is that if countries want to enhance their economic growth they would do well to move away from income taxes - especially corporate income taxes - toward less distortive taxes such as consumption-based taxes. The key to creating a growth-oriented corporate income tax system is to impose a reasonably low tax rate with few exemptions.

The study is particularly timely in light of the new OECD rankings of corporate taxes among the 30 OECD nations. It shows that the U.S. continues to have the 2nd highest overall corporate tax rate among industrialized countries. Only Japan has a higher overall rate (see chart above, see full list of countries here).

America The Uncompetitive

TAX FOUNDATION -- Amid rising concerns about the state of the U.S. economy, new data compiled by economists at the OECD shows that for the 17th consecutive year the average rate of corporate taxes in non-U.S. countries fell while the U.S. corporate tax rate stayed the same. As a result, the overall U.S. corporate tax rate is now 50% higher than the OECD average (see chart above showing US tax rate of 39.3% vs. 26.2% for non-US OECD).

The U.S. continues to have the second-highest combined federal-state corporate tax rate among industrialized countries at 39.3%. Only Japan has a higher overall corporate tax rate at 39.5%. By contrast, the average corporate tax rate among OECD countries has fallen a full percentage point in the past year, from 27.6% to 26.6%. Ireland's 12.5% corporate tax rate remains the lowest among OECD nations.

The release of these two OECD studies could not have come at a better time for the current political debate over how to move the U.S. economy forward. A U.S. corporate tax rate 50 percent higher than the OECD average should be a wake-up call to Washington, especially when combined with the empirical evidence that corporate taxes are the most harmful tax on economic growth. The question remains for the presidential candidates, What is your plan to restore American competitiveness?

The WSJ has a related editorial today, which concludes that "Every month that goes by without tax reform, America is a relatively less attractive place to do business. Over the past 18 months, nine of the 30 most developed nations and 20 countries world-wide -- from Israel to Germany to Turkey -- have cut their corporate tax rates. Nations are slashing rates to attract capital and jobs from the U.S., and the tragedy is that our politicians keep making it easy for them."

MP: Below is a Tax Foundation chart (click to enlarge) showing how the McCain and Obama tax plans compare to each other, and to the current tax law. Note that McCain would cut the corporate tax to 25% while Obama would leave it at 35%.

Thursday, August 14, 2008

Private Health Care: Canada (.69%) v. US (11.6%)

S&P TSX Composite Index for Canada
S&P 500 Composite Index for U.S.

A regular CD reader from Canada (Andrew Greene) passes along the comparison above of the S&P/TSX Composite Index for the Canadian stock market versus the S&P 500 Index for the U.S. stock market. Notice the difference in health care sectors between the two composite market stock market indexes: it's only .69% of the Canadian market index versus 11.64% of the U.S. stock market.

Andrew wanted "Americans to have the chance to see the effect on homegrown health care innovation when health care is nationalized with policies like ours. It's pretty simple really. Nationalize health care and all the health care companies in the country will simply move somewhere else. Pretty powerful stuff."

With Core Inflation At 2.5%, Inflation's Not a Worry

According to Brian Wesbury and Bob Stein, "Inflation is the leading menace to the US economy."

Although I usually agree them, I don't see inflation as much of a menace right now. The core CPI inflation on an annual basis was 2.5% in July, barely above the 10-year average of 2.21%, below the levels close to 3% between mid-2006 to early 2007, and way below the 4.58% average since 1970 (see graph above).

In my opinion, unless and until the core CPI inflation starts to rise, inflation ain't a big problem. For example, inflation WAS a huge problem in the 1970s and early 1980s, but it was when CORE CPI INFLATION was rising by double-digits, not just oil, energy and food prices. By definition, inflation is a phenomena when ALL prices, in general and on average, are rising, NOT just food and energy. With core inflation so low and stable, I don't see how inflation can be a menace. And with oil prices plummeting and the dollar soaring, look for August inflation, both overall and core, to moderate.

Obama Delares War On Two-Income Families, Would Impose a Punitive Marriage Tax Penalty

The Obama campaign has at long last lifted the veil of mystery that has surrounded the Democratic presidential candidate's tax increase plans. Mr. Obama's two economic advisers, Jason Furman and Austan Goolsbee, have an op-ed piece in today's Wall Street Journal, and it isn't pretty.

To begin with, they propose bringing back the 39.6% top income tax bracket, an increase from the 35% current top rate. On top of that, he'd impose a new payroll tax on those top earners of 2% to 4%, bringing their marginal tax rate to as high as 43.6%. Add to that the top New York City income tax rate of 3.648% and the top New York State income tax rate of 6.85%, and the nominal marginal income tax rate mounts to a staggering 54%. Because Mr. Obama proposes to put the capital gains and dividend tax rate at 20% even for the "rich" — a mere 33% increase over the current 15% rate — expect to see plenty of high earners scurrying to find creative ways of structuring their income as capital gains or dividends rather than as earned income.

Meanwhile, the most astonishing sentence in the op-ed is this one: "His plan would not raise any taxes on couples making less than $250,000 a year, nor on any single person with income under $200,000." It amounts to a declaration of war on two-income families, a marriage penalty of punitive proportions.

If those two single persons with income just under $200,000 get married, Mr. Obama is going to hammer them with a huge tax increase. If the second earner, who in many cases is the woman, is going to have to give 54% of what she earns to the government, she might as well stay home with the children. Mr. Obama may be able to get away with symbolic slights to women, such as not picking Senator Clinton as vice president. But punishing them with confiscatory taxes for participating in the workforce at a high income level moves the slight into the realm of substance.

~NY Sun Editorial

Wednesday, August 13, 2008

House Sells for $1 in Detroit

DETROIT -- One dollar can get you a large soda at McDonald's, a used VHS movie at 7-Eleven or a house in Detroit.

The fact that a home on the city's east side was listed for $1 recently shows how depressed the real estate market has become in one of America's poorest big cities. And it still took 19 days to find a buyer.

The home, at 8111 Traverse St., a few blocks from Detroit City Airport, was the nicest house on the block when it sold for $65,000 in November 2006, said neighbor Carl Upshaw. But the home was foreclosed last summer, and it wasn't long until "the vultures closed in," he said. "The siding was the first to go. Then they took the fence. Then they broke in and took everything else."

So desperate was the bank owner to unload the property that it agreed to pay $2,500 in sales commission and another $1,000 bonus for closing the $1 sale; the bank also will pay $500 of the buyer's closing costs. Throw in back taxes and a water bill, and unloading the house will cost the bank about $10,000.

MP: There are currently 182 properties listed in Detroit for less than $1,000, including several more for sale at a list price of $1, and 7 houses for $100, 3 for $200, etc.

ExxonMobil CEO Defends High Profits: Exxon Spends $1 Billion Per Day To Run Its Business

ExxonMobil CEO and chairman Rex Tillerson defended his company's staggering $11.7 billion in profits for the second quarter, saying that the company's earnings reflected the magnitude of its business operation.

"I saw someone characterize our profits the other day in terms of $1,400 in profit per second. Well, they also need to understand we paid $4,000 a second in taxes, and we spent $15,000 a second in cost," Tillerson told ABC News' Charles Gibson. "We spend $1 billion a day just running our business. So this is a business where large numbers are just characteristic of it."

King Dollar Summer Rally:Index Hits 10-Month High

The U.S. dollar index (major currencies) reached a 10-month high today at 74.4614, the highest level since October 9, 2007.

New Online Service for Hedging Weather Risk

The potential market for weather risk coverage is huge, since as much as 70% of American businesses are impacted by weather in some way. While the risks for companies like agricultural firms are obvious, businesses from movie theaters—which see ticket sales slump on sunny days—to transportation companies and clothing manufacturers are affected by the weather. It's estimated that $2 trillion to $3 trillion of the United States' nearly $14 trillion G.D.P. is weather-sensitive.

Businesses have long bought insurance against weather-related damages; more recently, they have been able to buy weather futures contracts on exchanges like the Chicago Mercantile Exchange, but the offerings are largely linked to temperature and are unwieldy and expensive for smaller companies.

As businesses contemplate losing massive amounts of money from events like droughts and hurricanes, the new online service
WeatherBill (company slogan: "Get Paid for Bad Weather") hopes to carve out a market in the growing field of weather-related risk-management products, offering what are essentially weather futures contracts to companies with an internet-era twist. The contracts pay off automatically without any kind of claims process based on objective weather measurements like the inches of rain a given area receives.

HT: Brian Ruppert

Silly Senators, Corn Is For Food

A new Reason.tv video examines the financial and environmental costs of ethanol

Politicians are going crazy for ethanol, touting it as a cure-all that will reduce both pollution and our dependence on foreign oil. But a new Reason.tv video shows ethanol subsidies are costing taxpayers a massive $8 billion this year and that as much as 60 percent of the increase in world food prices can be blamed on biofuel subsidies.

“Ethanol is bad for taxpayers, bad for the environment, and horrible for the world’s poor,” Nick Gillespie, editor of Reason.tv, declares in the video.

We are paying more for beef, milk, and eggs because the ethanol craze has increased demand for corn, driving up prices and diverting corn that used to go towards food products and feeding livestock. “We are in the midst of a world food crisis. Several million people are on the edge of starvation because we are turning food into fuel. The amount of corn that it takes to produce a 20 gallon tank of ethanol could feed one person for an entire year,” Reason magazine Science Correspondent Ronald Bailey says.

And those far-reaching environmental benefits that politicians promised? It turns out they were wrong. “Ethanol is much worse for the environment than gasoline,” states Bailey. “As some studies suggest, you put more energy into producing ethanol than you get out of it when you burn it.”

The Case for Dumping the BA Degree

Outside a handful of majors -- engineering and some of the sciences -- a bachelor's degree tells an employer nothing except that the applicant has a certain amount of intellectual ability and perseverance. Even a degree in a vocational major like business administration can mean anything from a solid base of knowledge to four years of barely remembered gut courses.

The solution is not better degrees, but no degrees. Young people entering the job market should have a known, trusted measure of their qualifications they can carry into job interviews. That measure should express what they know, not where they learned it or how long it took them. They need a certification, not a degree.

~Charles Murray in today's WSJ

Tuesday, August 12, 2008

Employment Dynamics Suggest No Recession in '07

The BLS released its quarterly Business Employment Dynamics study today for the fourth quarter of 2007, reporting that the number of job gains from opening and expanding private sector establishments was 7.65 million, and the number of job losses from closing and contracting establishments was 7.333 million, for a net job gain of 317,000 from October to December 2007.

According to the BLS, "The Business Employment Dynamics (BED) data series include gross job gains and gross job losses at the establishment level by major industry sector and for the 50 states, as well as gross job gains and gross job losses at the firm level by employer size class. Gross job gains are the sum of increases in employment from expansions at existing units and the addition of new jobs at opening units. Gross job losses are the result of contractions in employment at existing units and the loss of jobs at closing units. The difference between the number of gross jobs gained and the number of gross jobs lost is the net change in employment."

On a percentage basis, gross job gains represented 6.8% of private sector employment in the fourth quarter 2007, and exceeded job losses of 6.5%, resulting in a net .30% job gain (see chart above). The fourth quarter 0.30% job gain followed a -0.20% third quarter loss, the first loss in 16 quarters.

Note that there were four consecutive quarters of job losses during the 2001 recession, and three consecutive quarters of losses greater than -.75% in that year. The BED data for 2007 suggest a possible slowdown in the third quarter, but do not support the possibility that a recession started in 2007.

(Note: For certain quarters in 2002, the net job growth was 0%.)

Real Estate Boom Continues for U.S. Farms

Average Farm Real Estate Value

Maps are from the USDA's National Agricultural Statistics Service. The average farm real estate value has increased by 85% in the last five years, from $1,270 per acre in 2003 to $2,350 in 2008 (see top chart above, click to enlarge). Many Midwest corn and grain states like the Dakotas, Minnesota, Illinois, Indiana and Nebrask have experience double-digit increases in farm values in just the last year (see bottom chart above, click to enlarge).

Strong commodity prices and farm programs, outside investments, favorable interest rates, and tax incentives
continue to be the factors that drive farm real estate values to record levels.

Update: With farm real estate values booming, commodity farm prices close to historical highs, and farm profits at record levels (see chart below), this group still needs farm subsidies (e.g. $288 billion 2008 farm bill).

Recycling is Rubbish

The notion that recycling makes economic sense is rubbish.

Some things are profitable to recycle, some things only make sense to recycle when we consider the environmental effects, some things we would be crazy even to try to recycle. Working out what falls into each category should be done by cost-benefit analysis. Add up all the costs, then all the benefits, and see which outweighs the other.

However, there is one cost that no one acknowledges: the time spent preparing items for recycling. No one mentions it because it's done by you, free, in your own home.

Tim Worstall

Englishman's Castle blog points out that, "The
sorting of rubbish can actually now be done very efficiently by large machines at centralized factories. But the green movement insists we do it at home as a penance for our consumerism, almost as if when we needed pins we were forced to make them at home. It is this forbidding of the division of labour that makes us poorer and is symptomatic of the green movement."

See related, classic article "
Recycling is Garbage" by John Tierney in the NY Times Sunday Magazine (June 30, 1996).

Free-Market Optimism vs. Statist Pessimism

Why are optimists about the state of the world disproportionately represented by classical liberals, libertarians, and free-market conservatives, while pessimists about the state of the world are disproportionately represented by statists?

Why do left-leaning media such as the New York Times and CNN devote so much ink and airtime alleging that middle-class Americans have made little or no economic progress over the past 35 years and that the planet continues to spiral into imminent catastrophe?

Why, whenever the New York Times’s Paul Krugman and the Washington Post’s Harold Meyerson write (as they do, almost weekly) that ordinary Americans are trapped in a no-growth economic situation by “the rich” and powerful, do market-oriented bloggers respond with data showing that this claim is false?

And why, whenever the Los Angeles Times or The New Yorker publishes yet another “report” allegedly documenting continuing environmental degradation, do so many market-oriented scholars frequently expose these reports as being factually wrong or poorly reasoned, or both?

George Mason economist Don Boudreaux answers those questions here.

USA As Export Superpower; +3% Real GDP in QII '08

From First Trust economists Brian Wesbury and Bob Stein:

The U.S. is becoming an export superpower. The trade deficit declined substantially in June, with exports up 21.1% versus last year, the fastest growth in the past twenty years (see chart above). Largely as a result of this report, the real GDP growth rate in the second quarter is likely to be revised up to about 3% versus the 1.9% originally reported.

What If Gov't. Subsidized Students, Not Colleges?

In my judgment, there is a problem of balance between research and teaching in American colleges and universities. Most of the problem comes from the fact that government subsidies have undermined market forces.

By and large, the government subsidizes colleges, not students. Federal and state financial support, although based on the enrollment of each student, goes to the university, and the university administration allocates it. If the government actually subsidized students, the payoff from undergraduate teaching would be higher, because students would seek to spend their subsidy dollars at schools emphasizing undergraduate education and not at schools emphasizing research.

In other words, the current public university system makes it very difficult for students to cast dollar votes for excellence in teaching.

I do think that research helps one become a better teacher, particularly at the graduate level. But the marginal payoff of research is low for most faculty members. The creative energies of those who are interested in tenure and larger raises are directed toward knocking out more articles, even if few read them. Would this be the case if the government subsidies followed the student and students were free to choose among colleges? I don't think so. Student dollars would go more toward good teaching and less toward esoteric research.

~Florida State economist and textbook author James Gwartney speaking at a recent forum on "Are Research and Teaching Friends or Foes?" with three other economists.

HT: Pete Boettke

If You Tax Something, You Get Less of It, Part II

Exhibit A: Maryland's $2 a pack cigarette tax, see yesterday's post.

Exhibit B: Chicago's new bottled water tax, which has brought in just $2 million since going into effect on January 1 through the end of May, far off track for the $10.8 million Chicago city officials hoped it would raise this year, according to the Tax Foundation. As one retailer said, "There's no reason someone is gonna pay $1.20 extra in taxes for a $4 dollar case of water in Chicago when they can go to the suburbs to buy it without that tax."

Mayor Daley blamed the disappointing tax revenues on "the weather." Reminds me of how the Communists in the Soviet Union and China used to cite "bad weather" for the significant reductions in production after collective farms were imposed. I vaguely remember some story about the Soviets going from being a grain exporter before its farms were collectived by Stalin in the late 1920s and early 1930s, to having "50 straight years of bad weather" as the excuse for the disappointing production levels and even starvation resulting from Communist collectivization.

HT: Travis Walker

The Great Teenage Depression: Minimum Wage Scheduled to Increase By 41% in Two Years

Teenage unemployment (16-19 years old, seasonally adjusted) for July (20.3%) was at the highest level in more than 15 years (see chart above, data here). It seems like that would be pretty newsworthy, but it received almost no media attention.

A Google News search for "teenage unemployment 20.3" resulted in only 11 news reports, and only a few of those stories linked the historic level of teen joblessness to one of the most obvious factors: the 41% percent increase in the federal minimum wage, from $5.15 to $7.25 per hour, scheduled to take place in three steps between July 2007 and July 2009 (the second increase, to $6.55 per hour, just took effect in July 2008).

For example, the Minneapolis StarTribune had two reports on the July 20.3% jobless rate for teens (here and here), but blamed it on the country's "economic malaise" and "economic downturn," without a single mention of the increase in minimum wage.

The only newspaper report that linked the 20.3% teen unemployment rate to the increase in minimum wage was a story in the
LA Times, which quoted David Resler, economist at Nomura Securities:

"The July jump in the federal minimum wage rate appears to have had the predicted impact on teen employment: The higher required rate enticed more teens into the job market to search for a smaller number of jobs on offer."

In the blogosphere, there was notably more discussion linking the 20.3% teen jobless rate to the minimum wage increase, see
Political Calculations, American Thinker, Market Power, and EclectEcon.

Bottom Line: Demand curves slope downward, whether it's the demand for gasoline, the demand for cigarettes, or the demand for unskilled workers. We can argue about price sensitivity, elastic demand vs. inelastic demand, availability of substitutes, etc., but higher prices or wages result in a reduction in the quantity demanded. That is, we can argue about the slope, but the slope of the demand curve is always negative.

Higher wages for unskilled workers = fewer jobs for unskilled workers = higher unemployment rates for unskilled workers. Period.

Update: Thanks to Ironman for the new post title.

Sri Lanka Sees Gresham's Law Come Alive

Sri Lanka is melting its coinage and minting less valuable coins amidst booming commodity prices and rising inflation at home, continuing a tradition of monetary debasement that dates back to ancient monarchies. Central Bank Governor Nivard Cabraal says the monetary authority is cutting the cost of the coin issue by melting existing coins and re-striking new and lightweight ones.

By collecting the Nickel/brass and Cupro/Nickel coins in circulation and shipping them to the minter for melting and re-striking, Sri Lanka could now debase the coins with less valuable plated steel coins. Debasing coins has been a traditional tactic of monarchs to steal from the population secretly, before the advent of paper money central banking gave rulers an even better weapon to create inflation and impoverish the population.

The process has been formalized in monetary economics famously as Gresham's Law, named after Sir Thomas Gresham who advised Queen Elizabeth I in 1558 about the bad effects of debasing coins.

Hayek on Maximizing Accidents; Political Success

Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.

The successful politician owes his power to the fact that he moves within the accepted framework of thought, that he thinks and talks conventionally. It would be almost a contradiction in terms for a politician to be a leader in the field of ideas. His task in a democracy is to find out what the opinions held by the largest number are, not to give currency to new opinions which may become the majority view in some distant future.

~From F.A. Hayek, more quotes here.

Monday, August 11, 2008

Take Care Clinics Now Offering $25 Sports Physicals

Take Care Health Systems, a wholly-owned subsidiary of Walgreens (NYSE, NASDAQ: WAG) and one of the largest managers of convenient care clinics, is now offering school and sports physicals for $25 at Take Care Clinics nationwide. Take Care Clinics, located at select Walgreens drugstores, provide high-quality, convenient and affordable health care to all patients 18 months and older.

Falling Gas and Oil Prices

Chart above (click to enlarge) shows gas prices (blue line) falling to 3-month low, and oil prices (red line) falling to 3.5-month low (link).

King Dollar Summer Rally Continues!

Since the most recent low on July 15 of 70.0318, the U.S. dollar index (vs. major currencies) has increased by 6.2% to close today at 74.3478 (see chart above).

FT: Dollar at Crossroads Amid Brighter US Outlook

FT.com --This week will be crucial in determining whether the dollar has broken free from its six-year downward trend, as speculation mounts that the U.S. is in the best position to emerge quickly from the economic downturn.

The dollar index, which measures its value against a basket of six major currencies, put in its best performance for over three-and-a-half years last week and boosted the dollar to its highest level for four months (see chart above).

Ulrich Leuchtmann at Commerzbank said in a note he expected the dollar to rise “like a phoenix.” He said low U.S. interest rates were not a burden on the dollar but an attraction, proof that the Federal Reserve was able to react quicker to turmoil than other central banks.

He said that in a very short period, “sentiment turned by 180 degrees – the market now believes that the US economy once again will be able to leave a crisis behind very quickly.”

Couldn't They Have Predicted This in Advance?

Politicians in Annapolis, MD are scratching their heads wondering what happened to all those chain smokers who were supposed to help balance Maryland's budget. Last year the legislature doubled the cigarette tax to $2 a pack to pay for expanded health-care coverage. Eight months later, cigarette sales have plunged 25% and the state is in fiscal distress again.

Residents of Maryland's Washington suburbs can shop in nearby Virginia, where the tax is only 30 cents a pack, and save at least $15 per carton. The Maryland pols are so afraid this is true that they've made it a crime for residents to carry two packs of cigarettes that weren't purchased in the state. In other words, the state says it's legal to smoke, so long as you use cigarettes that the government can tax and thus become a financial partner in your bad habit. But if you dare to buy smokes across state lines, you can be fined.

ECON 101: If you tax something you get less of it, especially if perfect substitutes are available nearby (like cigarettes in Virginia). Q: Do politicians just not understand simple economics, or do they understand it, but ignore it for political purposes?

Sunday, August 10, 2008

Current Subprime Mortgage Stats

The chart above is from NY Federal Reserve data on Nonprime Mortgage Conditions in the United States for June 2008. Based on those data, the chart below shows the current distribution of housing units:
Note that the 3 million subprime mortgages represent only 2.6% of 116 million total housing units, and only 17% of subprime loans (510,000) are in foreclosure or REO. As a percent of total housing units, the subprime mortgages in foreclosure or REO represent less than 1/2 of 1 percent of all housing units (0.44%).

NYFed:Dynamic Maps of Nonprime Loan Conditions

Map (click to enlarge) showing that as of June 2007, 47% of subprime mortgages in California were low or no documentation (highest in the country).

Dynamic map showing that 19.4% of subprime mortgages in Florida were in foreclosure in June 2007 (highest in the country).

More dynamic maps available here from the NY Fed, you can search by 12 criteria (subprime mortgages per 1000 housing units, share of subprime loans that are ARMs, share of subprime loans in foreclosure, etc.), and can search geographically by zipcode. Also, state-level data in Excel is available here.

Top 20% of NBA Players Scored 80% of Total Points

In 1906, Italian economist Vilfredo Pareto made the famous observation that 20% of the population owned 80% of the property in Italy, later generalised by Joseph M. Juran and others into the so-called Pareto principle (also termed the 80-20 rule) and generalised further to the concept of a Pareto distribution (see graphs below).
Exhibit A: For the 2007-2008 NBA season, there were a total of 245,811 points scored by 450 players (data here). The top 20% of scorers (led by #1 Kobe Bryant with 2,323 points) had 195,420 points, or 79.50% of the total points, an almost perfect example of a Pareto outcome and Pareto distribution (see chart below).
Bottom Line: Just like income or wealth, points in the NBA are distributed unequally, and it's a natural outcome (Pareto distribution) that 20% of the players get 80% of the points. Does anybody advocate "point redistribution" to achieve a more "fair" outcome of NBA points?

It Might Be the Land of 10,000 Lakes, But You Could Get Fined $1,000 If You Swim Across One

A Minneapolis man went for a swim in Lake Nokomis (pictured above, Minneapolis skyline in background) Tuesday night, only to find Minneapolis Park Police waiting for him when he got out. Officers cited 41-year-old Dr. Tom Kleven for swimming too far.

Kleven, who is training for a triathlon later this year, said he was attempting to swim shore-to-shore around 7:30 p.m.

He said he was half way across the lake when a lifeguard ordered him to turn around. When he got back to shore, Kleven said police were waiting for him.

"We should be allowed to swim in the lake wherever we want to," said Kleven.

HT: Reason

Note: There are no motorboats allowed on Lake Nokomis.

Significant Home Run Inequality, and Economic Lessons About Inequality from Professional Sports

The chart above shows that the share of income earned by the top 5% in 2006 (IRS data here) was 35.9% (the IRS data also shows that group paid 60% of all income taxes). How does that distribution of income in the U.S. compare to the distribution of home runs in Major League Baseball for the top 5% of the players, ranked by number of home runs? Amazingly, it's almost exactly the same.

Using the sortable MLB historical database for years 2007, 1997 and 1987, and analyzing the total number of home runs in those years (4,959, 4,638 and 4,470 respectively), the number of active players in those years (1210, 1159, and 996), and the number of those home runs hit by the top 5% of the players (ranked by home runs in the year), we can determine that the percentage of home runs hit by the top 5% was 35.82% (2007), 36.80% (1997) and 35.5% (1987). In other words, home runs are distributed just about as unequally as income - the top 5% earn a disproportionate share of income, about 36%; and the top 5% of baseball players hit a disproportionate amount of home runs, about 36%.

See previous CD post Olympic medal inequality.

MP: I have a confession to make: I'm not bothered at all by income inequality, Olympic medal inequality, or home run inequality, and in fact I think it's perfectly natural and an outcome that should be expected. Why such a negative reaction from the general public to inequalities of outcome for income, but never for unequal outcomes in professional sports? We don't expect home runs in MLB or points in the NBA or NHL to be distributed equally, so why do we expect income to be distributed equally? And if inequalities of outcome or income increase or decreases over time, so what?

For example, in a previous CD post, I presented the chart below:

Even within most MLB teams there is significant income inequality, which is directly related to the significant inequality in the distribution of athletic talent reflected in the "home run inequality" documented above. And the chart above shows that: a) the income share of the top 25% is fairly similar when comparing the general U.S. population and the 5 MLB teams above, and b) income inequality increased both for MLB and the general public between 1988 and 2007, measured by the income share of the top 25%. Why is that considered a problem, and not perhaps a natural, and expected outcome?

Finally, it should be noted that when it comes to the income of the general population, the income of MLB players, or the distribution of home runs, the top 5% or top 25% in any given year is a different group than the previous year - there is significant and constant turnover. A common misperception is that the top 5% (or top 1% or top 10%) by income is something like a closed, private club with very little turnover - once you get in, you stay there, making it difficult for others to join. But reality is very different - people move up and down the income quintiles or quartiles throughout their careers and lives. The top 1/5/10% is never the same people.

Maybe we can learn some economic lessons about income inequality from professional sports and the Olympics?

Friday, August 08, 2008

Booming Business-School Applications

THE ECONOMIST -- Applications for full-time Master of Business Administration (MBA) programs are booming.

Summer Rally: King Dollar Roars Back, Oil Plunges


The U.S. Dollar index for major currencies reached its highest level this year, and is at the highest level since December 21, 2007 (see chart above). Oil fell today by almost $5 per barrel in the spot market to $112.43 (brent spot) and $115.20 (WTI) and below $115 in the futures market. Stock market rose by +300 points.

Cartoon of the Day

Thank God for the Chinese Consumer

The health of the global economy used to rest on the back of the American consumer. Now it will rely on the Chinese.

In the U.S. and Europe, public debate centers on China as a low-cost producer that puts workers in the developed world out to pasture; hence the popularity of antitrade legislation. But the real story is the rise of the Chinese consumer, whose passion for spending is remarkably American.

Take Yum Brands, with its Kentucky Fried Chicken and Pizza Hut restaurants. In the U.S. and Germany, it is barely growing and has anemic margins. In China, KFC is hugely popular and growing more than 25% a year. It has 2,000-plus outlets that constitute a fraction of KFC's global presence but account for a staggering 20% of the company's total profits.

KFC is one of hundreds of struggling U.S. and multinational companies doing booming business in China. Proctor & Gamble and Oil of Olay found new life selling to the Chinese. Nike has long been an avidly desired brand for young Chinese. Caterpillar, which has seen its U.S. business contract because of a weak residential construction market, has hardly been able to keep pace with the demand for its combines and earth movers in a rapidly industrializing China. Otis Elevators, a division of United Technologies, has an enviable backlog servicing China's endless skyscrapers.

Luxury companies ranging from Louis Vuitton to Versace to Coach look to Chinese affluence as the next wave to replace a waning Japanese market, an aging European one, and an unpredictable America. And, let's not forgot gambling. Macau recently surpassed Las Vegas as the most lucrative gambling destination on the planet. You can always tell a country's proclivities to spend based on its eagerness to gamble.

The Chinese consumer is the only thing standing between hundreds of global companies and the abyss. While some U.S. companies may have cut jobs to outsource to China, think of how many more jobs they might be cutting if they were losing money or barely profitable. Caterpillar keeps its factories open in the U.S. because of what it currently needs to sell in China. So do countless other companies.

~Zachary Karabell in today's WSJ

Thursday, August 07, 2008

Some Hope in Pending Home Sales Data?

US News and World Report -- After months and months of painful data, economists said there is a sliver of sunshine in a housing report released today.

The National Association of Realtors announced that June pending homes sales increased a stronger-than-expected 5.3% from the previous month, although sales remain more than 12% lower than year-ago levels (see chart above).

Economists had been expecting the report to show a 1% drop. "While this indicator is volatile and affected to an unknown degree by foreclosures, it does suggest that conditions in the resale market for real estate may be stabilizing," economists at Goldman Sachs said in a report.

King Dollar Rally Continues

The summer rally for the U.S. dollar continued, as the Broad Dollar Index went above 73 today for the first time since mid-February (see graph above). Today's index of 73.05 is 4.35% above the level of 70 in mid-July.