Tuesday, September 09, 2008

Cartoon of the Day

Time To Scrutinize Excesses of Home Ownership

Americans may disagree about nearly everything, but few contest the idea that owning your home is a good thing. Paeans to homeownership are a commonplace for American politicians, and, since the 1930s, public policy has been designed to make home buying cheaper and easier. Homeownership, the argument goes, has tremendous social benefits, stabilizing neighborhoods and making people more willing to invest in their communities.

But our veneration of homeowning has blinded us to the fact that, along with the benefits, it has some very real costs—costs that only get bigger as the ranks of homeowners swell. The housing boom undoubtedly helped the economy’s growth rate and made lots of first-time home buyers happy. Unfortunately, it may also end up prolonging and deepening the current downturn.

Homeownership also impedes the economy’s readjustment by tying people down. From a social point of view, it’s beneficial that homeownership encourages commitment to a given town or city. But, from an economic point of view, it’s good for people to be able to leave places where there’s less work and move to places where there’s more. Homeowners are much less likely to move than renters, especially during a downturn, when they aren’t willing (or can’t afford) to sell at market prices. As a result, they often stay in towns even after the jobs leave. And reluctance to move not only keeps unemployment high in struggling areas but makes it hard for businesses elsewhere to attract the workers they need to grow.

With the bursting of the housing bubble, though, it’s time not just to scrutinize the excesses of our home-buying process but to recognize the risks and costs inherent in owning a home. Sometimes the price—for the home buyer and for the economy as a whole—is too high to pay.

Home Economics by James Surowiecki in The New Yorker

Record Budget Deficit in 2008? Not Even Close.

WASHINGTON (Reuters) - The U.S. budget deficit will swell to record levels in 2009 as the "turbulent" economy cuts revenues and hikes government spending, a congressional report said Tuesday.

MP: The budget deficit in 2008 of $407 billion will be 2.86% of GDP, which is nowhere near record levels (see chart above). There have been 18 years (1968, 1975, 1976, 1981, 1982, 1983, 1984, 1985, 1986, 1987, 1988, 1990, 1991, 1992, 1993, 1994, 2003 and 2004) when the budget deficit was larger, as a percent of GDP (historical data here).

In UK Dental Tourism Comes To You In Blowup Tent

LONDONThe Hungarian dentist will see you now. In his inflatable office (pictured above). Getting your jaw X-rayed by a foreign practitioner in a blowup tent may sound like a hard sell to British patients, but a group of Hungarian dentists is arguing otherwise. Their blowup dental clinic is touring the U.K. to showcase their hygiene, professionalism and affordability to the British.

It's all in the hope of attracting a bigger share of Britain's "dental tourists"-- patients looking to Eastern Europe for cut-price crowns, bargain bridges and inexpensive tooth implants.

Basic dental care in Britain is free to those under 16 or over 60, the unemployed, students, military veterans and some low-income families. For others, government dentists offer lower prices than private practitioners.

However, the government does not cover cosmetic dentistry, and a recent reorganization of the way dentists work has prompted many to leave the public sector. Katherine Murphy, a spokeswoman for The Patients Association, an advocacy group, said it was proving increasingly difficult for Britons to get anything beyond basic dental care from Britain's National Health Service.

MP: Where's Michael Moore?

HT: Ben Cunningham

GSE Excess: Privatizing Profits, Socializing Losses

From the Executive Summary of The Cato Institute's Briefing Paper "Freddie Mac and Fannie Mae: An Exit Strategy for the Taxpayer," by economist/blogger Arnold Kling:

The Fannie Mae-Freddie Mac crisis may have been the most avoidable financial crisis in history. Economists have long complained that the risks posed by the government-sponsored enterprises were large relative to any social benefits.

We now realize that the overall policy of promoting home ownership was carried to excess. Even taking as given the goal of expanding home ownership, the public policy case for subsidizing mortgage finance was weak. The case for using the GSEs as a vehicle to subsidize mortgage finance was weaker still. The GSE structure serves to privatize profits and socialize losses. And even if one thought that home ownership was worth encouraging, mortgage debt was worth subsidizing, and the GSE structure was viable, allowing the GSEs to assume a dominant role in mortgage finance was a mistake. The larger they grew, the more precarious our financial markets became.

MP: I think the sentence in bold above says it all.

Markets in Everything: Razor Wire

Razor wire erected to protect property from theft is being targeted by metal thieves.

HT: David Birmingham

Monday, September 08, 2008

Markets in Everything: Better Grades

Russia edition: Cash for better grades.

Iowa edition: Sexual favors for better grades.

The Affordable Footwear Act: End The Shoe Tariff

The Affordable Footwear Act seeks to remove regressive and punitive import duties, commonly called the "shoe tax," on a range of shoe types popular with today's consumers, particularly lower- to moderately-priced footwear and children's shoes.

The Depression-era shoe tax originated in 1930 (Smoot-Hawley) to protect a manufacturing sector that no longer exists today. Over the last 20 years, U.S. footwear production has practically disappeared. The few remaining U.S. footwear manufacturers successfully focus on niche items differentiated by quality, brand, specialized purpose, or other non-price elements.

The Affordable Footwear Act does not apply to the remaining footwear types still manufactured domestically, thus U.S. manufacturers do not oppose it. The shoe types addressed by the Affordable Footwear Act are no longer produced in America, yet are still subject to the regressive, expensive shoe tax.

The hard-nosed competition that exists in the U.S. footwear market - recognized by the U.S. International Trade Commission - ensures that a substantial portion of the duty-savings will be passed on to American consumers. In fact, due to this competition, retail prices for footwear have fallen over 4% since 1998 while overall retail prices grew over 25% during the same period (see chart above).

~American Footwear and Apparel Association

Fill-in-the-Blank Price-Gouging Article

Art Carden of the Mises Institute provides: "A universal, fill-in-the-blank article discussing the economics of price-gouging laws. Whenever there is a natural disaster, you can just fill in the relevant blanks for a complete analysis of the economics of the situation."

Fearing increases in the prices of basic items as a result of (disaster ____), officials in (state or municipality _____) have declared a state of emergency whereby restrictions on "price gouging" are now in effect. According to (politician or law enforcement official ____), the law is designed to protect innocent consumers from "unconscionable" increases in the prices of food, gasoline, ice, electric generators, and home-repair services.

The unintended, unseen consequences, however, are predictable, unfortunate, and avoidable. Price controls and price-gouging laws make matters worse rather than better.

Consider the case of (hapless merchant _____), who was fined $___ and sentenced to ___(months/years) in jail for increasing the price of (goods ____) by ___%. The bitter irony is that (merchant _____)'s (goods _____) were confiscated and taken to a secure location, where they (rotted/melted/remain to this day). The citizens of (town _____) are still without (good _____), and the very person who tried to provide them with (good _____) faces prosecution.

Demon Ethanol's Great Disruption: It Threatens to Push 100 Million People Back Into Poverty

The creation of politically popular biofuel mandates by many of the world’s biggest farming nations has been particularly disruptive. U.S. law, for instance, requires that ethanol make up at least 5% of vehicle fuel (rising to 22% by 2022), and 30% of U.S. corn went toward ethanol production last year (see chart above, with slightly different data).

The U.S. government has claimed that biofuel demand is responsible for only 3% of the increase in global food prices over the past year. But a recent World Bank report estimated that figure to be 75% once the resulting economic changes, such as shifts in land use, are considered.

High prices hurt poor, import-dependent nations the most. The price hikes of the past three years threaten to push 100 million people back into poverty, according to the World Bank, erasing seven years of progress.

~"The Great Disruption," September issue of The Altantic

Based On Hours Worked: NO Recession

Investor's Business Daily editorial today:

As Brian Wesbury, chief economist at First Trust, points out, aggregate hours worked — a key growth indicator — are off just 0.6% from a year ago. Every recession since World War II has experienced a decline in this number of at least 3%, year over year. We're not even close.

See chart above, data here.

Going Trayless: College Cafeterias Dump Food Trays

Something familiar will be missing when students buy meals at many college dining halls this fall: trays.

In a bid to discourage food waste and decrease energy use at all-you-can-eat campus cafeterias, dozens of college dining services — from New York University to University of Minnesota (to the University of Michigan-Flint's new cafeteria) — are giving trays the heave.

Some campuses that already have tested the concept report food waste declines of up to 50%. Then, there's the thousands of dollars in energy savings when trays don't need washing.

Detroit's Big Three Shameless Blackmail Attempt

Philosophically, if the Freddie Mac and Fannie Mae debacles teach us any lesson, it is that subsidizing private profits with public risk is a terrible idea. Implicit government backing has led the managements of these two companies to make reckless investments that have backfired badly. Now government backing has become explicit, and under the plan announced by Treasury Secretary Henry Paulson yesterday, taxpayers likely will pay billions to keep Fannie and Freddie solvent -- with the exact amount uncertain.

The Detroit Three got into their current quandary by making decades of bad decisions, with some help from the United Auto Workers union. Yet despite the current crisis, General Motors is still paying dividends to shareholders, the car companies are paying bonuses to executives, and the private-equity billionaires at Cerberus who bought Chrysler are trying to reap enormous rewards from their risky investment. Meanwhile the UAW's Jobs Bank -- which pays laid-off workers for doing nothing -- remains in place.

Of course, we can all hope that shareholders do well, that executives reap handsome rewards for work well done, that the Cerberus billionaires make more billions on Chrysler, and that workers get paid on whatever terms the car companies agree. But we taxpayers shouldn't subsidize any of this.

Even if Ford, GM and Chrysler were to go out of business -- and it's highly unlikely that all three will simply cease to exist -- there will be plenty of good cars for Americans to buy. And many will be made in America, even if they carry foreign nameplates. Toyota, Nissan, Honda, Hyundai and other foreign car companies have expanded greatly their U.S. manufacturing operations in recent years. They're doing so because Americans are buying their cars. Toyota and Honda, the current leaders in hybrids and alternative-fuel technology, did their research and development on their own dimes.

And what about the precedent the government would set? If we bail out Detroit, where do we stop? The newspaper industry is in financial trouble because more readers and advertisers are turning to the Internet. Newspapers are good for democracy -- Thomas Jefferson said he would choose newspapers over government, after all -- so shouldn't they get low-interest government loans to help them adjust to the Internet? Of course not, and ditto for Detroit.

Any low-interest loans to develop fuel-efficient cars should be made available to all car companies, not just the Detroit Three. The law passed by Congress last year is framed to make this highly unlikely. But if developing fuel-efficient and alternative-energy cars is deemed worthy of taxpayer subsidies for public-policy purposes, it's just common sense not to put all our eggs in Detroit's basket.

~Paul Ingrassia in
today's WSJ

Saturday, September 06, 2008

Two Professional Women Help Explain the Pay Gap

Ms. Katty Kay (BBC anchor and reporter) and Ms. Claire Shipman (ABC News reporter), writing in today's WSJ:

Fed up with 50- and 60-hour weeks and a career ladder we didn't build and don't want to climb, women are looking for jobs that demand fewer and freer hours. We want to work but we also want quantity time, as well as quality time, with our children. Most of us no longer buy the onwards-and-upwards drive to the corner office at the cost of a fragmented family life. More and more, women are choosing a tapestry of family and work in which we define our own success in reasonable terms -- even if we sacrifice some "prestige."

In 1992, 57% of women with degrees wanted more responsibility at work, but by 2002 that figure had plummeted to 36%, according to the Family and Work Institute. Four out of five women want more flexibility at work and call it a top priority; 60% of us want to work part-time. What we're saying is we'll trade responsibility, title -- even paycheck -- for more time and more control.

MP: Doesn't that help explain the graph above (click to enlarge)?

Minimum Wage, Maximum Folly

An anonymous left today about this CD post from June:

I own and operate a restaurant in a rural area of California (20,000 population) that is also a seasonal tourist destination and popular retirement spot. In the first three months of 2008, following California's January 1 increase in the minimum wage to $8 per hour, five restaurants went out of business. Restaurants often fail, but these are places that have been in business for long periods (two for 15 years, one for 12 years, and two for 1-3 years). And from my own standpoint, although I did not downsize the number of my employees (20), ALL except two have had to absorb significant cuts in their hours.

I hate to sound like a conspiracy nut, but to anyone with common sense the minimum wage, is dangerous in two ways:

1. Warm fuzzy feelings for the working poor- "Golly, I'm poor and look at what the Democrats are doing for me! They must really be concerned!" Except that the economy resets itself in short order and they end up being in worse shape in the long run.

2. Creating the new poor from the middle class. If minimum wage “Employee A" who is mildly competent receives a compelled, arbitrary, raise, there is less chance that “Employee B" who is a stellar performer will receive any more than the same. Also, “Employee C" who makes a couple of dollars more will also need to get a raise, but because there is only so much money to go around, will get a much smaller raise, percentage wise, and so will fall closer to the minimum. And then, because everybody's hours are cut and fewer overtime hours are allowed, there is less money at the end of the pay period. All because some politicians want to seem "magnanimous" while using other peoples' money.

MP: Even in cases when the increase in the minimum wage doesn't affect the number of unskilled workers employed (like in the case of this restaurant owner), that's not to say that the minimum wage workers are not adversely affected. As this example illustrates, workers' hours are cut, and their overtime opportunities are reduced or eliminated, making them worse off as a result of the mandated increase in the minimum wage.

From 68% to 58% in 54 Days

Obama's odds on Intrade.com.

Shoe Tariff Steals $5B A Year From U.S. Consumers

With the exception of high-end footwear, more than 95% of the shoes Americans wear are produced outside the U.S. Yet the U.S. still imposes a tax on imported shoes that can reach as high as 67%, a legacy (believe it or not) of the Smoot-Hawley tariff of 1930. Shoe tariffs raise more money than auto tariffs, and the tax is applied most heavily on the lowest-priced imported footwear.

"This is the most regressive policy in America today," says Ed Gresser of the Progressive Policy Institute. "The biggest victims are poor, single mothers." He's right. The tariff steals about $5 billion a year from U.S. consumers, and a family that shops at Payless or Wal-Mart typically pays a $5 duty on a $15 pair of sneakers.

Friday, September 05, 2008

Inflation Expectations At Five-year Low

One of the key indications of the market's inflation expectations is the gap between yields on 10-year Treasury notes and Treasury Inflation Protected Securities, known as TIPS.

This gap represents the rate of inflation that investors in the $515 billion market expect over the life of the debt. TIPS pay investors a coupon plus the rate of inflation as measured by the government's consumer price index, effectively eliminating any erosion in the return on fixed-income securities caused by price inflation.

The gap between regular 10-year Treasurys and TIPS yields has fallen to 1.93%, a level not seen since 2003. The drop in commodity prices, chiefly oil, is being interpreted as easing pressure on virtually all other kinds of prices.


HT: Clover Aguayo

Misconceptions and Myths About the CPI

WASHINGTON (MarketWatch) -- The U.S. government has been understating inflation, which has led investors to misprice stocks, bonds and real estate, noted bond-fund manager Bill Gross said Thursday. The real problem is not that the government publishes dubious numbers but that investors believe them and make decisions based upon them, he said.

A recent comment on Carpe Diem: "To change the definition of CPI to erase the effects of inflation is not only disingenuous, but outright fraud."

From the recent BLS Study "Addressing Misconceptions About the Consumer Price Index" written by John Greenlees and Robert McClelland, research economists in the BLS Division of Price and Index Number Research:

A number of longstanding myths regarding the Consumer Price Index and its methods of construction continue to circulate; this article attempts to address some of the misconceptions, with an eye toward increasing public understanding of this key economic indicator.

Within the past several years, commentary on the CPI has extended well beyond the circle of economists, statisticians, and public officials. The strongest criticism of BLS methodology has not been concentrated in a single profession, academic discipline, or political group, but comes instead from an array of investment advisers, bloggers, magazine writers, and others in the popular press. Also, whereas in the past the CPI frequently was held to be overstating inflation, recent criticism has focused on supposed downward biases.


1. It is a myth that the BLS reduced the growth rate of the CPI by assuming that hamburger is substituted for steak.

2. It is a myth that the use of hedonic quality adjustment has substantially reduced the growth rate of the CPI.

3. It is a myth that the 1983 adoption of owner’s equivalent rent systematically reduced the growth rate of the CPI shelter index.

4. It is a myth that Social Security payments are updated by a CPI that does not include food or energy.

Each of the improvements made to the CPI over the years is based on sound economic theory and years of research by academicians and BLS economists. The methods continue to be reviewed by outside commissions and advisory panels, and they are widely used by statistical agencies of other nations.

Finally, the CPI is not, and can never be, a perfect index. Moreover, all of the topics raised in the recent commentary on the CPI—including the methods for dealing with consumer substitution, quality change, and owner-occupied housing—are critically important to the accuracy of the index. The very existence of the CPI methodological changes discussed here attests to the fact that the BLS must always be working to enhance the index. The BLS benefits from the work of academics and others who identify ways in which the CPI can be improved. The BLS also benefits when the public understands how the CPI is constructed and what the index’s strengths and limitations are. It is hoped that this article will help increase that public understanding.

Thursday, September 04, 2008

Markets in Everything: Alcohol Audits

In most industries, a 20% to 25% loss is enough to put you out of business. In the bar business, such losses are routine. Beer foams up, and there are spills. Bartenders pour a little extra into drinks for bar regulars. Waiters and waitresses discreetly dole out freebies to friends. And more unscrupulous employees flat-out steal while their employers aren't looking.

But Keith Bowler, an "alcohol auditor," says a 25% loss isn't necessary. He says in many cases, he can reduce that to 5%. More business owners are hiring him to do just that as the economy slows down and the expenses of running a business go up.

Bowler, owner of Canadian-based Bevinco, performs "alcohol audits" for bar owners, pinpointing losses and translating the ounces lost into dollars. "Our objective is to show them where they can save money," Bowler said. "A lot of times it can be thousands of dollars."

HT: Clover Aguayo

Midwest Farm Land Values Have Doubled Since '00

The charts above for farm values in Midwest states is based on data in the August 2008 "Agricultural Newsletter" from the Federal Reserve Bank of Chicago (7th District). Over the last year, farm land values have increased by 17% in the Seventh District (see top chart), following five consecutive quarters of double-digit increases (see bottom chart). Since 2001, farm land in the Seventh District has roughly doubled in value.

The Chicago Fed also reports that crop prices have increased by 32% on average over the last year, including a 69% increase in corn and 88% increase in soybeans.

With farm real estate values booming, commodity farm prices close to historical highs, and farm profits at record levels, this group still needs billions of dollars of subsidies (e.g. $288 billion 2008 farm bill)??

Wednesday, September 03, 2008

Windfall Profits Tax on Corn, Soybeans, Wheat?

Crop price increases above (click to enlarge) are from the Chicago Fed's August 2008 Agricultural Newsletter, and crude oil is from the St. Louis Fed.

What about a windfall profits tax on corn and soybean farmers? After all, the prices for their products have increased more than oil over the last year, 69% and 88% for corn and soybeans vs. 61% for oil. And compared to two years ago, corn (162%) and soybeans (153%) have increased more than two times as much as oil (59%), even more reason to impose a windfall profits tax on Big Corn and Big Soybeans. And don't forget wheat, it's increased in price by 92% over the last two years, so let's impose windfall profits taxes on Big Wheat.

As Dean Baker explains, "Oil companies (MP: add corn and soybean farmers here) are making enormous profits at present because oil (corn and soybean) prices went up far beyond what almost anyone had anticipated. In other words, Exxon-Mobil, Shell, and the others (Big Corn and Big Bean) had not anticipated $120 a barrel oil ($5.50 and $12.50 per bu.) when they undertook their investments (bought farm equipment and farm land) 10-20 years ago. They would have made a fine profit if oil (corn and soybeans) had stayed in the range of the $30-$40 a barrel ($2 and $5 per bu.) they anticipated when they made their investments. The gap between the return they expected and the return they are getting because of unanticipated events is what economists call a "windfall."

In other words, any argument in favor of windfall profits tax on oil could also be made for any commodity, like corn and soybeans, whose prices "went up far beyond what almost anyone had anticipated." Windfall profits taxes for Big Corn, Big Bean, and Big Oil.

The Largest Record of Conservation in U.S. History?

The Federal Highway Administration reported that travel during June 2008 on all roads and streets in the nation fell by -4.7% compared to June last year. June marks the eighth consecutive month of traffic volume decline compared to the same month in the previous year. Travel YTD through June in 2008 fell by -2.8% compared to 2007.

There was never more than a single monthly decline in traffic volume (vs. the same month a year ago) until 2006, a few examples of two consecutive monthly declines 2006 and early 2007, but never in the history of these data was there ever a period of more than a 2-month consecutive decline until recently, and therefore the 8 consecutive monthly decline (November 2007 through June 2008) in miles driven is a record, and represents the most significant adjustment to driving behavior in recent history.

On a moving 12-month total basis, traffic volume in May fell to a three-and-half year low of 2.954 trillion miles, the lowest level in almost four years, since October of 2004 (see chart above), and this measure has fallen in each of the last eight months. Further, the 13 billion mile decrease in June's moving 12-month total was the largest monthly decrease on record, going back to 1983, and marks the most significant moving 12-month decrease in miles driven in at least the last 25 years.

Q: Now that gas prices started falling in July and August, will consumers continue to reduce driving, or will they revert back to their old driving patterns? We'll know in about a month, when the July traffic volume report is released.

Counting Fringe Benefits, Real Hourly Worker Compensation Is 9% Higher Today Than In 2000

Just last week, the Census Bureau released its annual study of household incomes, poverty and health insurance -- often called the nation's "economic report card." Its hard numbers seemed to confirm how many Americans feel. Sure, we're prosperous, but prosperity is fraying. Except for the rich, living standards are stagnant. Poverty is up; health insurance coverage is down. Naturally, both Barack Obama and John McCain seized upon the report to claim that their policies would restore progress.

Hold it.

Superficially, the conventional wisdom seems convincing. The Census Bureau found that median household income in 2007 was $50,233. Though up 1.3% from 2006, that was still less than the peak of $50,641 in 1999. But Census counts only money income -- wages, salaries, dividends, interest payments - and compensation growth is increasingly channeled into fringes.

~Robert Samuelson's article "The Real Economic Scorecard"

MP: As the chart above shows, real compensation per hour (BLS data here) for the business sector, although flat recently, has increased by almost 9% since 2000. In other words, after taking into account fringe benefits, the average worker is 9% better off today in real terms than in 2000, even though the Census data shows a slight decline in real median household income since 2000.

5 Problems With Census Poverty and Income Data

A previous CD post pointed out one of the problems with historical median household income from the Census Bureau income data: It doesn't adjust the declining household size over time. After adjusting for household size, real median income is at an all-time high (see charts above).

Robert Samuelson points out three more problems with poverty and income data from the Census Bureau: a) comparing real household income or poverty rates in 2007 to the year 2000 is unfair because 2000 was an artificially high benchmark because of the "tech bubble," b) immigration distorts commonly cited statistics for both poverty and income, and c) Census figures understate income gains by not counting fringe benefits.

Greg Mankiw cites another problem today with Census income data, citing the NY Times, which reported that "The current poverty measure only counts cash as income, and doesn't include government assistance like food stamps, housing subsidies and tax credits. Such aid has been devised to help support the poor, but its impact is not calculated by the current measure."

HT: Greg Mankiw

Rising Income Inequality is Between Middle & Top

Perhaps for the first time since we’ve kept track of such things, higher-income folks work more hours than lower-wage earners do. Since 1980, the number of men in the bottom fifth of the income ladder who work long hours (over 49 hours per week) has dropped by half, according to a study by the economists Peter Kuhn and Fernando Lozano. But among the top fifth of earners, long weeks have increased by 80%.

This is a stunning moment in economic history: At one time we worked hard so that someday we (or our children) wouldn’t have to. Today, the more we earn, the more we work, since the opportunity cost of not working is all the greater (and since the higher we go, the more relatively deprived we feel).

In other words, when we get a raise, instead of using that hard-won money to buy “the good life,” we feel even more pressure to work since the shadow costs of not working are all the greater.

We typically think of America’s income inequality, which has steadily increased since 1969 as a process in which the rich get richer and the poor get poorer. Surely, that should, if anything, make upper income earners able to relax.

But it turns out that the growing disparity is really between the middle and the top. If we divided the American population in half, we would find that those in the lower half have been pretty stable over the last few decades in terms of their incomes relative to one another. However, the top half has been stretching out like taffy. In fact, as we move up the ladder the rungs get spaced farther and farther apart.

NYU Sociology Professor Dalton Conley in yesterday's NYTimes

MP: Interesting explanation of rising income inequality - the higher income quintiles are getting richer because they're working harder, and the lower and middle income quintiles are doing about the same, even though they're less likely to work long hours.

Economic Facts: U.S. Economy Doing Quite Well

Successive speakers at the Democratic National Convention poured scorn on President Bush's economic record. Yet Democrats cited no good evidence for their claims that the administration has produced a stagnant economy, widening disparities of income and wealth, high unemployment, and a heavy burden of government debt.

How does the performance of the U.S. economy really compare with other advanced economies over the eight years of George Bush's presidency? Data published by the International Monetary Fund, the Organization for Economic Cooperation and Development, the World Bank, the International Comparison Program (a cooperative venture coordinated by the World Bank) and the U.S. Census Bureau allow a nonpartisan, factual assessment.

Economic Fact #1: The latest World Bank findings show that GDP per capita in the U.S. reached $41,813 (in purchasing power parity dollars) in 2005. This was a third higher than the United Kingdom's, 37% above Germany's and 38% more than Japan's (see chart above).

Economic Fact #2: U.S. output has expanded faster than in most advanced economies since 2000. The IMF reports that real U.S. GDP grew at an average annual rate of 2.2% over the period 2001-2008 (including its forecast for the current year). The U.S. economy is 19% larger than in 2008, and this U.S. expansion compares with 14% by France, 13% by Japan and just 8% by Italy and Germany over the same period.

Economic Fact #3: Average per-capita consumption of the U.S. population was second only to Luxembourg's, out of 146 countries covered in 2005. The U.S. average was $32,045. This was 27% above the levels in the UK ($25,155), 38% higher than Canada ($23,526), 30% above France ($23,027) and 47% above Germany ($21,742). China stood at $1,751.

Economic Fact #4: The U.S. unemployment rate averaged 4.7% from 2001-2007. This compares with a 5.2% average rate during President Clinton's term of office, and is well below the euro zone average of 8.3% since 2000.

Read more here
of Keith Marsden's article in today's WSJ.

MP: The way the media reports it, the U.S. is a basket-case economy on the verge of plunging into another Great Depression. The factual evidence suggests otherwise.

Tuesday, September 02, 2008

Demand and Price Are Falling for Lobster

Surprise, surprise. Demand for lobsters is down, supply is up, and prices have fallen. Even the NT Times now understands that markets actually work.

Now maybe they and politicians can understand that after a natural disaster when demand for water, hotel rooms, ice gasoline, generators or chain saws goes up, and supply falls, prices naturally go up. Not because of price gouging, but because of market forces.

Obama’s Tax Plan Folly: A Middle-Class Tax Hike

Senator Obama’s proposed ‘tax cuts for the middle class’ are actually marginal rate hikes in disguise.
Senator Barack Obama declared recently that he wants to “reform our tax code so that it rewards work and not just wealth.” We think that is a great goal if it means a simple tax system with low marginal tax rates. Unfortunately, a close inspection of Obama’s proposals reveals something disquieting: he would raise marginal tax rates for many middle-income taxpayers, a bad move for anyone seeking to promote economic growth (see chart above).

Read more here
of the American Enterprise Institute article.

Note that for tax year 2006, the median Adjusted Gross Income (AGI) for American taxpayers was $32,000. Since median income is the statistical definition of "middle-class," that group will experience a whopping increase in effective marginal tax rate from about 20% to 35% under the Obama tax plan (see chart above).

From "Borrow & Buy" Economy to "Cash & Carry"

In 2007, according to the National Association of Realtors, 45% of first-time homebuyers put no money down, and the median first-time homebuyer financed a massive 98% of the purchase. But no-money-down mortgages began fading in late 2007 and largely disappeared in the cruel winter of 2008. No wonder existing home sales fell 13.2%in July from last year while new home sales plummeted 35.3%.

The most revolutionary notion in commerce today is one of the oldest. If you want to buy something, you may actually have to pay for it. We are reverting from a "borrow and buy" economy to the "cash and carry" model of our grandparents.

From the Slate.com article "The Death of the Credit Card Economy: Car Leases, Student Loans, No-Money-Down Mortgages, and High Credit Limits Are Vanishing."

Let A Thousand Retail Clinics Bloom

The company that practically invented one-stop shopping is getting serious about adding physicals, vaccinations and virus treatment to the list. Wal-Mart Stores announced in February that it planned to open 400 clinics in its retail stores by 2010. Don't call it a Wal-Mart clinic, it's The Clinic at Wal-Mart. They are located inside the stores and co-branded, but operated by local medical outfits.

Wal-Mart isn't the only retailer looking to capitalize on the retail clinic. Target, Kroger and drugstore chains CVS, Walgreens and Rite Aid have also opened retail clinics in recent years. CVS in 2006 acquired MinuteClinic, and the clinics inside its drugstores account for the majority of MinuteClinic's 500-plus locations.

There are more than 1,000 convenience care clinics operating in 34 states, according to Merchant Market, an industry consulting and research group. In 2006, there were just around 200 nationwide, and those were mostly MinuteClinics. With Wal-Mart's plan to add 400 to the national tally within just a year and a half, the in-store clinic may be on a path to becoming a relatively common sight (see chart above).

Nuclear Energy in France

Number of nuclear power plants in France: 59

Percent of electric power production in France from nuclear: 87.5% (see chart above)

World's largest net exporter of electric power: France, exporting 18% of its total production to Italy, the Netherlands, Britain, and Germany

Electricity costs in France: For industry ($.0533 per kWh in 2007), the lowest in Europe; for households ($.1515 per kWh), among the lowest in Europe

Sources: Wikipedia and International Energy Agency

Monday, September 01, 2008

Unconscionably Ridiculous: First It Was the Speculators, Now It's the Price Gougers

In Alabama, Attorney General Troy King is warning unscrupulous contractors and businesses that he will take action against those who seek to profit illegally at the expense of Alabamians who may suffer damage and others who seek refuge in the state from tropical storms and hurricanes.

The state law that prohibits "unconscionable pricing" of items for sale or rent comes into play when the governor has declared an official state of emergency. Gov. Riley declared a state of emergency Friday in anticipation of Hurricane Gustav.

An unconscionable price is defined as one that is 25% more than the average price charged in the same area within the last 30 days, unless the increase can be attributed to a reasonable cost. The penalty is a fine up to $1,000 per violation, and those determined to have willfully and continuously violated this law may be prohibited from doing business in Alabama.

In Louisiana, Attorney General Buddy Caldwell announced zero tolerance for price gouging at the gas pump before, during, or after Gustav. His office says it's logged over 300 complaints. In one case, a station was caught jacking up the price of gas from $3.50 a gallon to $4.10

MP: Hey wait a minute, that's only a 17% increase, that would be legal in Alabama.

Caldwell says when they busted these stations, employees told his investigators they didn't know they are not allowed to raise the prices. On Highway 415, west of Port Allen, gas prices are hovering around $3.65. People are warned that if they haven't gassed up, they should get to the pump soon. Some stations are running out of gas.

MP: Hey wait minute, officials are telling people to fill up, so demand for gas is rising sharply, and supply is declining, stations are running out, and prices aren't supposed to increase?

Update: Politicians seem to have a strong dislike for high oil and gas prices, and are willing to immediately blame, investigate and prosecute price gougers and speculators for "unconscionable pricing" when oil and gas prices increase. But it's often those same politicians who continually hold our own vast domestic energy resources off-limits to exploration and development, which contributes to higher prices. Isn't that "unconscionable logic?"

Relentless Negativity Of The Media

A crumbling economy? U.S. workers didn't get the memo.
Barack Obama during his acceptance speech played a riff on Phil Gramm's impolitic remarks about a "mental recession" and a "nation of whiners." Like a succession of Democrats at the podium, he painted the economy in the darkest, most hopeless of colors -- never mind that the economy is actually growing and unemployment is still lower than it was during much of the Clinton presidency (graph above shows that the average jobless rate was exactly the same under both Clinton and Bush: 5.2%).

But here's the bad news for the dour Democrats in Denver -- most Americans don't share their economic pessimism. That's the finding of public opinion expert Karlyn Bowman of the American Enterprise Institute. "Most Americans are feeling pretty good about their jobs and their personal lives," she says after investigating the fine details of recent polls. Her report goes right to Mr. Gramm's concern about the gap between actual economic performance and the dreary negativity of politicians and the media.

What accounts for the gap between people's attitudes about their own lives and the economy in general? Bowman replies: "The relentless negativity of the media."

~Stephen Moore in today's WSJ

From p. 3 of Bowman's recent study "The State of the American Worker 2008: Attitudes About Work in America," based on Gallup poll results:

QUESTION: How satisfied or dissatisfied are you with your job/the work you do?

Clinton Years Average (1993 - 2000): 39.75% of American Workers Reported Being Completely Satisfied, 86.25% Completely or Somewhat Satisfied

Bush Years Average (2001 - 2008): 44.63% of American Workers Reported Being Completely Satisfied, 88.5% Completely or Somewhat Satisfied

Professor Resigns From Admissions Committee: Claims UCLA Illegally Uses Race Preferences

A growing body of evidence strongly suggests that UCLA is cheating on admissions. Specifically, applicants often reveal their own race on the essay part of their application. This allows admissions staff members to learn the race of applicants; then, in violation of California Proposition 209 (which prohibit public institutions from considering race, sex, or ethnicity), readers use such information to evaluate applicants. To the extent that this happens – an extent which can only be assessed with systematic data on admissions – such practices are de facto implementations of racial preferences.

For the past three years I have been a member of UCLA’s Committee on Undergraduate Admissions and Relations with Schools (CUARS), the faculty committee responsible for oversight of undergraduate admissions at UCLA. Since late April 2008, I have made several requests for data to investigate the above, as well as other suspicions, including possible discrimination based on religion. Without exception, my requests for data have been denied.

There is considerable evidence that high-ranking administrators and a controlling block of my committee are engaged in a cover-up – they are preventing me and others from obtaining these data and make me complicit in what appears to be illegal activity.

Because I cannot properly conduct the duties with which I am charged as a member of CUARS, I am therefore resigning, in protest, from the committee. To do otherwise would condone and make me complicit in what appears to be illegal activity.

~UCLA Political Science Professor
Tim Groseclose, from the summary of his 89-page "Report on Suspected Malfeasance in UCLA Admissions and the Accompanying Cover-Up"

HT: Freakonomics

Sunday, August 31, 2008

How Pervasive is Discrimination in Higher Ed?

Former Harvard President Lawrence Summers on the issue of female under-representation in tenured positions in science and engineering at top universities and research institutions at NBER's Conference on Diversifying the Science and Engineering Workforce in 2005:

If it was really the case that everybody was discriminating, there would be very substantial opportunities for a limited number of people who were not prepared to discriminate to assemble remarkable departments of high quality people at relatively limited cost simply by the act of their not discriminating, because of what it would mean for the pool that was available.

And there are certainly examples of institutions that have focused on increasing their diversity to their substantial benefit, but if there was really a pervasive pattern of discrimination that was leaving an extraordinary number of high-quality potential candidates behind, one suspects that in the highly competitive academic marketplace, there would be more examples of institutions that succeeded substantially by working to fill the gap.

And I think one sees relatively little evidence of that. So my best guess, to provoke you, of what's behind all of this is that the largest phenomenon, by far, is the general clash between people's legitimate family desires and employers' current desire for high power and high intensity, that in the special case of science and engineering, there are issues of intrinsic aptitude, and particularly of the variability of aptitude, and that those considerations are reinforced by what are in fact lesser factors involving socialization and continuing discrimination. I would like nothing better than to be proved wrong, because I would like nothing better than for these problems to be addressable simply by everybody understanding what they are, and working very hard to address them.

Exxon Shareholders Suffer Windfall Loss of -13.7%

Exxon's record profits and its possible "windfall profits" have received a lot of media attention recently - do a Google search for "Exxon's record taxes" or "Exxon's windfall profits" and you'll find several hundred thousand results for either. Do a Google News search for "windfall profits tax Senator Obama" and you'll find hundreds of links to news stories where Senator Obama has proposed taxes on Big Oil's "windfall profits."

CEP's Dean Baker explains here what windfall profits are (according to him), and why the government should act to prevent windfall gains.

In all of the discussions about Exxon's windfall, record profits, which are owned ultimately by Exxon's shareholders, nobody ever discusses how Exxon shareholds have been doing lately. So let's ask the question: With oil and gas prices at record recent highs (rising 50% this year), with Exxon profits at record highs, how is the average Exxon shareholder faring?

Well, not too well really. If you had bought one share of Exxon at the begining of the year, you would have paid $94, and you would have received a $0.35 dividend in Febuary, and $0.40 dividends in May and August, for a total of $1.15 in dividends this year. Exxon is now selling for $80 (see chart above), so your annual return this year from holding Exxon stock would be -13.7%, and a $1,000 investment in Exxon on January 1 would now be worth only $863. Seems like more of a windfall loss than a windfall gain for Exxon shareholders.

Ben Stein Asks Some Good Questions

I would argue that over the long term, oil companies’ profits relative to sales are not above average for industrial or financial companies. But even if they were, why punish the owners of the oil companies, who are largely pension plans, group or individual, and individual investors (see chart above)? Why should we punish some American firefighters who own oil company stocks more than American firefighters who own drug company stocks or tobacco stocks? Why tax away the savings of some Americans because they happen to own a share in a company that supplies a totally legal, absolutely indispensable product like oil? I don’t get that at all.

~Ben Stein in the NY Times

Change We Dare Not Believe In: Audacity of Hype

Economist Thomas Sowell unloads on Obama.

Saturday, August 30, 2008

Starbucks vs. The Little Guy

As anti-corporate crusaders are now discovering, instead of advocating for legal prohibitions on chain stores or attempting to zone the offending businesses off of Main Street USA, mom-and-pop shops can successfully combat the coffee behemoth by using old-fashioned market competition.

Watch the ReasonTV video here:

ReasonTV: Stop Outsourcing Roles in Pro-Obama Videos to Foreigners

From ReasonTV (note that this is a spoof/parody, Reason is strongly pro-free trade).

Electoral Map Based on Home Prices?

On this recent CD post, I featured the top map above (click to enlarge) showing annual home prices changes from OFHEO. In the light blue states, home prices have increased over the last year year (2007:Q2 to 2008:Q2), and in the yellow and red states home prices have declined, with the largest percentage price declines (double-digit) in the red states (CA, FL and NV). Is it possible that the pattern of home prices increases/decreases will translate into a comparable voting pattern in the presidential election?

Real Clear Politics allows you to create your own electoral map, and the bottom map above (click to enlarge) shows the results of an analysis done at Right Thinking blog, which reports:

Conventional wisdom, and the current strategy of the Democrats, would be to use the anger and suffering of those under economic hardship to vote against the incumbent party. According to this thinking, Republicans would suffer in those states. I got to wondering that if this theory were true, how would the election turn out?

As the bottom map shows, McCain would win with 275 electoral votes to Obama's 263. As Right Thinking points out, it won't actually end up that way, but it's an interesting analysis. And using the Real Clear Politics website, you can create alternative electoral maps based on various assumptions.

HT: Ben Cunningham

Economy of Words

Some 94% of Americans polled by Harris Interactive this month said they were satisfied with the lives they lead. According to Gallup, only 9% of Americans are dissatisfied with their jobs and only 13% are dissatisfied with their job security. The unemployment rate is at a five-year high of 5.7%, but it wasn't long ago when that was considered close to full employment (see chart above, average unemployment since 1970 is 6.11%).

To hear the Democrats at their convention this week, you'd think Americans were listening to the Democratic speeches as they huddled around their kitchen tables - if they hadn't already been used for firewood - deciding which of their children to pack off to the orphanage and how much tree bark they can afford to eat next week.

Thursday night, Barack Obama proclaimed: "Our economy is in turmoil, and the American promise has been threatened once more." He went on to describe an America reminiscent of "The Grapes of Wrath."

~Jonah Goldberg, "Economy of Words"

Friday, August 29, 2008

Intrade 2008 Recession Odds At All-Time Low: 17%

Last Day:

Real Disposable Income Up By 11.4% in QII

According to today's BEA report (Table 10), real disposable personal income increased in July by 1.2% compared to July last year, following a 3.4% annual increase in June and 6.3% increase in May (see chart above). Both growth rates (May and June) were above the 2.6% average growth in real disposable income since 2001, following 7 months (October 2007 to April 2008) of below-average growth (see chart above). On a monthly basis, the July growth in real personal disposable income was negative at -1.7% (from June).

Although real disposable income growth showed weakness in the last quarter of 2007 (0.6%) and the first quarter of 2008 (-0.7%), the above-average, year-to-year growth rates of 6.3% (May) and 3.4% (June) contributed to an 11.4% increase in real disposable income during the second quarter 2008 (see Table 6), one of the biggest quarterly increases in history
, largely due to the the Economic Stimulus Act of 2008. According to the Joint Committee on Taxation and the Congressional Budget Office, "rebates to individuals are expected to total $106.7 billion for 2008. The majority of rebates were sent during the initial round of payments, which began April 28, 2008, and will continue on a weekly basis through mid-July 2008."

Thursday, August 28, 2008

Fat Cat Oil Shareholders? No, "Broadly Middle-Class"

According to the study "The Distribution of Ownership of U.S. Oil and Natural Gas Companies," authored by Robert J. Shapiro and Nam D. Pham of Sonecon:

The data suggest that ownership of oil and natural gas company shares is broadly middle-class.

1. 42.7% are owned or held by mutual funds and other asset management companies that have mutual funds. Mutual funds manage accounts for 55 million U.S. households with a median income of $68,7006, and the owners of mutual funds include 16% of households with incomes of $25,000 or less.

2. 27% of oil and natural gas company shares are held in private and public pension funds, and these funds manage assets, directly or indirectly, on behalf of 129 million pension-fund participants whose accounts have an average value of $62,280.

3. 14% of oil and natural gas company shares are held in IRA-type retirement accounts with an average value of $22,465, owned by 45 million Americans.

Recession Spoiler: Real GDP Grew At 3.3% in Q2

Real GDP exceed consensus expectations and grew at an annual rate of 3.3% in the second quarter 2008 (see chart above), a significant upward revision from the 1.9% advance estimate one month ago. According to First Trust Advisors, "The largest drag on real GDP continues to be home building, which subtracted 0.6 points from the growth rate. Excluding housing, real GDP grew at a 4.0% rate in Q2."

The 3.3% growth in real, second-quarter GDP was also above the 2.72% average since 1998 (see chart above).

Exxon Mobil Per Second: $1,400 in Profits, But It Pays $4,000 in Taxes, $15,000 in Operating Costs

Obama thinks government is not getting a "reasonable share" of oil companies' profits, which in 2007 were, as a percentage of revenue (8.3%), below those of U.S. manufacturing generally (8.9 %). Exxon Mobil pays almost as much in corporate taxes to various governments as the bottom 50% of American earners pay in income taxes. Exxon Mobil does make $1,400 a second in profits -- hear the sharp intakes of breath from liberals with pursed lips -- but pays $4,000 a second in taxes and $15,000 a second in operating costs.

George Will in
today's Washington Post, partly based on this CD post (his office called to verify the data in that post)

Wednesday, August 27, 2008

GOP VP Odds on Intrade.com

Romney: 45%

Pawlenty: 21%

Hutchinson: 16.1%