Monday, October 27, 2008

Ann Arbor News: No Endorsement for President

When this newspaper decides not to endorse a candidate in an election, it's usually because we believe neither is qualified for the office. In this year's presidential race, that's not the case. Both Barack Obama, a Democrat, and John McCain, a Republican, are qualified to be president.

Yet when we look at this pair, we see two seriously flawed candidates who have run very disappointing campaigns. And although it's possible that either man will turn out to make an excellent president, we find ourselves unable to work up sufficient enthusiasm to endorse either one.

Our political endorsements aren't really meant to tell people how to vote, but rather to add to the public discussion on important issues. In this race, some will surely see this lack of endorsement as a cop-out or a lack of courage. So be it. For us, it's simply a reflection of reality.

~Ann Arbor News Editorial

King Dollar Hits A 30-Month High

The greenback continues its comeback........

The U.S. dollar index (vs. major currencies) hit a 30-month high today, reaching the highest level since April 14, 2006 (see chart above).

Update from the WSJ:

The dollar is king of the hill again -- at least for now.

Amid the cascading credit crisis, the U.S. currency has reclaimed its status as the world's haven in tumultuous times. With investors rushing to sell everything and shove the proceeds into dollars, the greenback has gained more than 11% against the euro in October alone. Since the spring, when the mortgage crisis picked up speed, the dollar has gained some 22% against the euro. It has also strengthened against the British pound, the Swiss franc, the Australian dollar and others, though it's weaker against the Japanese yen.

This reversal halts, at least temporarily, a longstanding bearish trend that had seen the greenback slide against major world currencies for much of this decade. Today's newfound strength has consequences for investors, consumers and travelers. A more robust dollar weakens the benefit of investing abroad, yet makes imports, commodities and even an overseas vacation more affordable.

Middle-Fifth Tax Burden: Lowest Level in Decades

Congressional Budget Office (CBO) data show that the total effective federal tax rate of the middle fifth of households declined after 2001 to its lowest levels since at least 1979, Congressman Jim Saxton, ranking member of the Joint Economic Committee, said today. Under the 2001 and 2003 tax relief legislation, the income tax as a share of income for the middle fifth also has fallen to its lowest levels in decades (see chart above, click to enlarge).

In 2005, the CBO data indicate that in the middle fifth, the total effective tax rate -- the share of federal taxes as a percent of income -- was 14.2%, while the effective individual income tax rate was 3.0%. These figures compare to 2000 levels of 16.6% and 5.0%, respectively. Between 2003 and 2005, the total effective tax rate for the middle fifth edged up, but still remained far below the levels of the previous 24 years.

“The CBO analysis shows that the 2001 and 2003 tax cuts have lowered the tax burden on middle income taxpayers to the lowest levels since at least the late 1970s,” Saxton said. “The CBO tax figures, put into historical perspective, also show that the income tax burden of middle income households has been reduced to its lowest levels in many years,” Saxton concluded. The total effective tax rate includes income, payroll, and excise taxes. The CBO tax numbers do have limitations, and it should be recalled that most households do not remain in a specific quintile for extended periods of time.

~From the Joint Economic Committee of Congress (no link available yet)

MP: Note that the total effective tax rate on the middle-income taxpayers was above 17% during most of the 1990s, and fell below 14% in 2003, and then rose slightly to 14.2% in 2005.

Quote of the Day

To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn't create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.

If you don't believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they'll do with Wall Street.

~Art Laffer in today's WSJ

Fed: Claims of Middle-Class Stagnation Are False

Almost all the benefits of economic growth since the 1970s have gone to a small number of people at the very top. ~Robert Reich, Financial Times (1/29/2008)

Since the mid-1970s income growth has been confined almost entirely to top earners. ~Robert Frank, NY Times (3/9/2008)

The modern American economy distributes the fruits of its growth to a relatively narrow slice of the population. ~David Leonhardt, NY Times (4/9/2008)

Minneapolis Federal Reserve: The claim that the standard of living of middle Americans has stagnated over the past generation is common. An accompanying assertion is that virtually all income growth over the past three decades bypassed middle America and accrued almost entirely to the rich. The findings reported here refute those claims. Careful analysis shows that the incomes of most types of middle American households have increased substantially over the past three decades. These results are consistent with recent research showing that the largest income increases occurred at the top end of the income distribution. But the outsized gains of the rich do not mean that middle America stagnated.

Claims of long-term middle America stagnation—such as those quoted above—are often part of a broader argument about the adverse impact of globalization, outsourcing and free trade. And middle class stagnation is used as motivation for a specific set of policies. But if middle America has not stagnated—as this analysis has shown—then this motivation for those policies is without merit.

From the conclusion of "Where Has All the Income Gone?" by Terry Fitzgerald, Senior Economist

HT: Don Boudreaux

Fourth State: Tennessee Gas Prices Fall Below $2

Tennessee, following Oklahoma, Texas, and Missouri.

Thanks to "like such as."

Sunday, October 26, 2008

Third State: Oklahoma Gas Prices Fall Below $2


Markets In Everything: Blog Edition

The Brokers With Hands on Their Faces Blog.

HT: Andy Roth at
Club for Growth

Without AZ, CA, FL and NV, Foreclosures Dropped in the Third Quarter By -2.45% Vs. Second Quarter

According to RealtyTrac, foreclosure filings were reported on 765,558 U.S. properties during the third quarter of 2008, up by +3.49% from the second quarter (739,741 foreclosures). Foreclosures were heavily concentrated in Arizona (12,982), California (69,548), Florida (47,956) and Nevada (13,022), and those four states accounted for 19.4% of the total (143,508 out of 765,558).

Update: If you analyze the raw data presented by RealtyTrac, and take out those four states (AZ, CA, FL and NV), foreclosures in the rest of the country actually declined by -2.45% in the third quarter 2008 to 356,824, from 365,801 in the second quarter 2008. (Note: This 2.45% decline was not reported by RealtyTrac, it required a separate analysis and caclulation.)

Intrade Odds Almost 7:1 for "President Obama"


Census: Income Inequality Unchanged Since 2000

From the Joint Economic Committee of Congress:

According to a key Census Bureau measure, income inequality has been unchanged since 2000. The Census Bureau recently confirmed that no statistically significant change in the inequality measure occurred between 2000 and 2007 (see chart above), the last year for which data are available. The measure referred to here is known as the Gini coefficient, a standard gauge of income inequality published by the Census Bureau and widely used by economists and other researchers (Gini coeffients data here for households and families).

When examining income data for different groups over time it should be recalled that there is a good deal of income mobility between income groups, and membership of various income groups changes significantly over extended periods of time. For example, a household that was in the middle fifth in 1985 is probably no longer in that group now. As a result, changes in the middle fifth’s average income between 1985 and 2005 aren’t a good reflection of the changes in the economic well-being of a household that left that income group years ago. Nearly half of all households move to a different fifth in as little as three years.

Also, inequality in consumption is much less than inequality in income. For example, the level of consumption in the bottom fifth is nearly twice that of income, indicating that income is not necessarily the best measure of economic well-being. Congress will have to carefully consider these data and other relevant statistics in order to make informed policy decisions.

Rich Farmers Harvesting Cash With Farm Subsidies

Watch John Stossel's report on farm subsidies, highlighting the high and rising levels of income for American farmers (they make twice as much as the average American), and the rising real estate values for U.S. farms (+77% in Nebraska over the last four years).

Making The Case for Low Voter Turnout; Every Civics Teacher's Worst Nightmare?

People often complain about low voter turnout in the United States, which has declined over time and is very low compared to the turnout in other countries. See U.S. voter turnout since 1960 at this link and see an international comparison of voter turnout at this link.

Notice at the first link that voter turnout in the U.S. has decreased over time, from greater than 60% in every presidential election year during the 1960s, to less than 60% in every presidential election since, and below 50% in 1996. The pattern is the same for non-presidential election years.
At the second link, notice that a) the U.S. ranks #139 (with 48.3% turnout) out of 172 countries, b) there are 35 countries with voter turnout at 80% or above, and c) Italy is #1 in the world at 92.5%!

Many people are upset by low U.S. voter turnout, but maybe they shouldn't be, and here's why: In almost all cases, higher voter turnout would NOT have changed the outcome of the election, and we therefore get the same election results at a lower cost to society (measured in the opportunity cost of our time).

Those who complain about low voter turnout never make the argument that higher voter turnout would CHANGE the outcome of the election; their position is usually that more people should vote for other reasons: to exercise our right to vote, to fulfill our civic duty, and to participate in democracy. But I have never heard anyone say "More people should vote because low voter turnout leads to unreliable results," or "more people should vote because that would change the outcome of the election. "

Mostly, I think people would simply "feel better" if we had the same results with 80% turnout, compared to having those same election results with 40% turnout. But think about it this way - would you feel any better about a blood test if they took two pints of your blood compared to 20 ccs? Probably not.

Voting is expensive when measured in its full cost: our time. An hour spent researching the candidates, attending or watching debates, and voting at the poll, is an hour lost forever doing something else. Therefore, I like low voter turnout, because the election results are almost always exactly the same as for high voter turnout, and low voter turnout saves and conserves our most precious non-renewable resource: our time, and therefore it is socially more efficient than high voter turnout.

I originally posted about this back in November of 2006, and in September 2007 the
Baltimore Sun ran an article on low voter turnout based partly on my original post, and described me in that article as "an economist, blogger and every civics teacher's worst nightmare."

Saturday, October 25, 2008

Supply and Demand In Action

One-way 26-foot U-Haul truck rental quotes for 11/1/2008:

1. Detroit to Dallas: $1850

2. Dallas to Detroit: $521

Second State: Missouri Gas Prices Fall Below $2


Texas prices fall to $1.86 in some locations.

Interesting Fact of the Day: Life Expectancy in Russia Is Lower Today Than It Was 50 Years Ago

Russia’s health situation today is a disaster — substantially worse than during the Mikhail Gorbachev years or even the Leonid Brezhnev era. In 2006, overall life expectancy in Russia, at fewer than 67 years, was actually lower than it had been at the end of the 1950s, nearly half a century earlier. For a literate, urbanized society during peacetime, such a monumental public health failure is an extraordinary historical anomaly. Russian life expectancy nowadays is about the same as India’s, and life expectancy for Russian men, today barely over 60 years, is lower than for their counterparts in Pakistan.

Nicholas Eberstadt, resident scholar at the American Enterprise Institute, in today's NY Times

U.S. Greenback Reached A 2.5 Year High Yesterday

The U.S. dollar index (vs. major currencies) hit a 2.5-year high today, reaching the highest level since April 20, 2006 (see chart above).

Update: What's so great about a rising dollar?

1. Imports are cheaper. We buy almost $200 billion of goods from the rest of the world, but export only about $120 billion. Since our imports are greater than our exports, we have a net gain from a rising dollar.

2. A strong dollar makes gas and oil (which is priced in dollars) cheaper. As I have reported, consumers save $1.42 billion annually for every cent that gas prices fall. Consumers will save more than $200 billion over the next year from the recent fall in gas prices, and part of that price decline and consumer savings is from the stronger dollar.

3. The appreciation of the dollar suggests that inflationary pressures have eased for the U.S. economy.

Libertarian Candidate Bob Barr Makes His Case

A conservative vote for Sen. McCain is a wasted vote. It is wasted because even if he is elected, he does not stand for conservative values and will not promote conservative values. Government will grow, spending will rise, and liberty will diminish.

But it looks increasingly likely that he won’t be elected, and no one will care about his vote totals if he loses. In contrast, a vote for Bob Barr and the Libertarian Party will be noticed and will have a lasting, positive impact. A vote for Bob Barr and the Libertarian Party will be a vote for liberty and for America’s future.


Traffic Volume Declines in August by Record 5.6%; What Will Happen In September, October?

Updated: The Federal Highway Administration reported yesterday that travel during August 2008 on all roads and streets in the U.S. fell by -5.6% compared to August last year. According to Secretary of Transportation Mary Peters, this was the largest ever year-to-year decline recorded in a single month.

August marks the tenth consecutive month of traffic volume decline compared to the same month in the previous year. Travel YTD through August 2008 fell by -3.3% compared to 2007.

The ten consecutive monthly declines (November 2007 through August 2008) in miles driven compared to the same month in the previous year is almost a record, and represents one of the most significant adjustments to driving behavior in recent history.

On a moving 12-month total basis, traffic volume in August fell to 4.5-year low of 2.929 trillion miles, the lowest level since March of 2004 (see chart above), and this measure has fallen in ten of the last 12 months.

Bottom Line: The moving 12-month total traffic volume in August 2008 (2.929 trillion) is below the August 2007 level (3.008 trillion) by 78.911 billion annual miles driven. At an average fuel efficiency of 20 m.p.g., and an average gas price of $3 per gallon over the last year, that reduction in miles driven represents almost a $12 billion annual savings for American consumers. That's in addition to the much larger $200 billion annual savings for consumers from the drop in gas prices from $4.12 per gallon to $2.71 since August (gas data), since consumers save about $1.42 billion annually for every penny decrease in gas prices.

It will be interesting to see how the significant fall in gas prices in September and October 2008 affects driving behavior, and we'll know in about a month from the next FHA report on September 2008 traffic volume.

Thanks to John Thacker for the FHA update.

Unbelievable McCain Vs. Obama Dance-Off

A little election levity....

Via the Huffington Post: has put together one of the most original and entertaining videos of the campaign season. Titled "Unbelievable McCain Vs. Obama Dance-Off," the video is as advertised: a dance-off between the 'candidates', and yes, kind of unbelievable. See for yourself. Click the arrow below to start the Dance-Off!

Thanks to SCP.

Friday, October 24, 2008

Some Healing in the Housing Market: The 5.5% September Home Sales Increase Highest in 5 Years

From First Trust, based on the National Association of Realtors release today:

1. Existing home sales increased 5.5% in September to an annual rate of 5.18 million, much higher than the consensus expected selling rate of 4.95 million. Existing home sales are up 1.4% versus a year ago.

2. The median price of an existing home declined to $191,600 in September (not seasonally adjusted) and is down 9.0% versus a year ago. Single-family home prices are down 8.6% versus last year.

3. The months’ supply of existing homes (at the current sales rate) fell to 9.9 in September from 10.6 in August.

Implications: The housing market is healing. The key implication of today’s report on existing homes is that credit-worthy home buyers are able get loans. After hovering for twelve months in a range between 4.85 million and 5.11 million, existing home sales spiked up 5.5% in September to a 5.18 million annual rate. The monthly gain in September was the most in five years and the level of sales is now above where it was a year ago (see chart above), the first time that has happened since 2005.

Sales are rising as home sellers (including lenders who have foreclosed on previous owners) are cutting prices aggressively. The median sales price on an existing home is down 9% versus last year and the lowest since 2004. We expect further price declines in the year ahead as the industry continues to work off excess inventory. After hitting 11.0 in June – the highest level since 1985 – the months’ supply of single-family existing homes has fallen to 9.4.

Despite 1.5% Target, Fed Fund Rate Is Below 1%

Since the FOMC cut its target Fed Funds rate to 1.50% two weeks ago on October 10, the average actual Fed Funds rate has actually been below 1% (.92%), and has been below .80% over the last week.

Thursday, October 23, 2008

Inflation Expectations Plunge By 2% in 4 Months And Drop to Lowest Level Since 1997

The chart above shows the market-based 10-year TIPS-derived expected inflation from the Cleveland Fed, calculated from the difference between 10-year nominal treasury notes and 10-year treasury inflation-protected securities. On an adjusted basis (for an inflation-risk and liquidity premiums, see details here), inflation expectations fell to an 11-year low of 1.36% this week, the lowest since 1997 when TIPS were first introduced (see top chart above).

This is a huge drop in inflation expectations from 3.36% in June to only 1.36% this week (see bottom chart). Inflationary pressure is easing and deflating fast.

Update: The chart above is based on the Cleveland Fed's monthly data (calculated as the mean of daily data in a given month) from February 1997 (when TIPS were first introduced) to September 2008, and the average of the last four days this week (1.462%, 1.441%, 1.495% and 1.026%) for October 2008 (1.36% this week).

Markets in Everything, South Florida Edition: Vultures in Miami's Real Estate Market

South Florida is in the throes of a truly hellish real estate bust. Home prices are down 24% in the past year, with many places changing hands for less than half their height-of-bubble values. The region has seen foreclosures on more than $14.2 billion worth of property this year—a record. Developers can't sell enough units to pay construction loans. Condo boards are trying to keep the stairwells of their half-empty buildings clear of vagrants. Landlords are renting out units at daily rates to makers of porn films.

The bleak tableau is exactly what vulture investors have been waiting for. Having sat out the bubble, they're flocking to the Magic City to make lowball, often all-cash offers for numerous properties at once. Some members of this motley assortment of foreign professionals, U.S. money managers, and retired corporate executives learned how to prey by picking through the detritus of the U.S. savings and loan bust. Others earned their stripes in emerging- market financial crises. They differ in their tactics; what unites them is their absolute insistence on paying bottom dollar.

Business Week

Thanks to DB

Foreclosures Fall in Sept., Partly Due to Legislation

RealtyTrac, the leading online marketplace for foreclosure properties, today released its U.S. Foreclosure Market Report for September 2008 and Q3 2008. Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 265,968 properties in September, a 12% decrease from the previous month but still a 21% increase from September 2007 (see map above). One in every 475 U.S. housing units received a foreclosure filing in September (that's 0.21% of households).

“Much of the 12% decrease in September can be attributed to changes in state laws that have at least temporarily slowed down the pace at which lenders are moving forward with foreclosures,” said James J. Saccacio, CEO of RealtyTrac.

Six states accounted for more than 60% of U.S. foreclosure activity in the third quarter (CA, AZ, NV, FL, MI and OH). California alone accounted for more than 27 percent of the nation’s foreclosure activity, with 210,845 properties receiving a foreclosure filing during the quarter — up 4 percent from the previous quarter and up more than 122 percent from the third quarter of 2007.

The cities with the 10 highest foreclosure rates among the nation’s 100 largest metropolitan areas in the third quarter were all located in California, Florida, Arizona and Nevada.

Klaus: It's Not New Capitalism, It's Old Socialism

Czech President Václav Klaus (picture above) says that the global financial crisis did not result from insufficient market regulation, but, on the contrary, from excessive government interventions and increasing public spending.

"What is now happening in the financial markets after long years of exceptionally solid economic growth around the world is nothing unusual. After years of growth there must necessarily be a decrease at some point," the president wrote.

He rejected that the pending recession can be "prevented by some sort of a global economy management," likening such ideas to the communist-era central planning.

Klaus concludes that the EU plans to better regulate the financial markets and reform the International Monetary Fund will not lead to a "new capitalism", as termed by French President Nicolas Sarkozy, but will represent a return to an "old socialism."

(Thanks to Jack Helmuth.)

Wednesday, October 22, 2008



The Greenback Hits At Two-Year High


The U.S. dollar index (major currencies) hit a two-year high today, reaching the highest level since October 16, 2006 (see chart above).

What Credit Crisis?

For almost the last year (starting in November 2007), I have posted at least ten times (see here, here, here, here, here, here, here, here, here, and here) on the theme "What Credit Crisis?," featuring graphs like the one above, which shows Total Bank Credit at all U.S. commercial banks (data here) at an all-time historical high of almost $10 trillion as of two weeks ago (October 8, 2008).

A new working paper from the Minneapolis Federal Reserve, "Myths about the Financial Crisis of 2008," confirms much of what I have been saying for the last year, here is an excerpt:

The financial press and policymakers have made four claims about the nature of the crisis.

1. Bank lending to non-financial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by non-financial corporations has declined sharply and
rates have risen to unprecedented levels.
4. Banks play a large role in channeling funds from savers to borrowers.

Here we examine these claims using data from the Federal Reserve Board. At least based on data up until October 8, 2008, we argue that all four claims are false.

MP: Commercial loans are at an all-time high (data here) through October 8, consumer loans are at an all-time high through September (data here), and even real estate loans are at an all-time high through September (data here). Where's the credit crisis?

Thanks to Alex Tabarrok at Marginal Revolution.

Odds For Obama Now 6.2 To 1 On Intrade

86% for Obama vs. 14% for McCain.

The opinion poll average at Real Clear Politics shows Obama at 50.6%, with a 7.6% margin over McCain (43%).

Tuesday, October 21, 2008

1 Of 3 States Have Jobless Rates Below 5%

The September unemployment rate for the U.S. is 6.1%. For individual states, the jobless rate ranges from a low of 3.2% in South Dakota (shortest bar above in graph), to a high of 8.8% in Rhode Island (tallest bar above in graph). Michigan at 8.7% in September is finally not the #1 state in the country for the first month in a long time. Some interesting facts:

1. By state (without adjusting for population), the mean (average) state unemployment rate is 5.63% and the median state unemployment rate is 5.6% (half of U.S. states have jobless rates below 5.6% and half are above 5.6%).

2. The average jobless rate is only 3.8% for the ten states with the lowest unemployment rates (SD, WY, NE, UT, ND, OK, NM, NH, IA and VA).

3. One of of every three states (17) have jobless rates below 5%.

4. If you take out California (7.7%) and Michigan (8.7%), the average state unemployment rate falls from 5.63% to 5.52% (without adjusting for population).

5. If you adjust for the size of California (12.19% of the U.S. population), the overall U.S. unemployment rate falls from 6.1% to 5.88% without California.

6. If you adjust for the size of California and Michigan (3.41% of the population), and take those two states out, the unemployment rate for the other 48 states (and D.C.) falls from 6.1% to 5.76%. Therefore, more than 1/3 of 1% (.34%) of the 6.1% national jobless rate can be explained by the high levels of unemployment in just two large states: CA and MI.

Bottom Line: There is probably a lot more variation in state economic conditions than most people realize. To hear the media reports, one would think that all 50 states are on the brink of falling into another Great Depression, when the reality is much different: one out of every three states (17) actually have jobless rates BELOW 5%.

King Dollar: The Greenback Makes A Comeback

The U.S. dollar index (vs. major currencies: Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden ) hit a 17-month high today.

Political Hypocrisy: Do As I Say, Not As I Do

Political Rhetoric: An Obama campaign ad says: “Today women work to help support their families but are paid just 77 cents for every $1 a man makes. It’s just one more thing John McCain doesn’t get about our economy.”

Factual Evidence:

1. Obama pays his own female Senate staffers, on average, only 78% of what he pays male staffers (see top chart above), and females make up 53% of Obama's staff.

2. McCain pays female staffers 101% of what he pays men (see bottom chart above), and females made 62% of McCain's staff.

3. Women occupy seven of the top 10 highest-paid positions on McCain’s staff, and five of the top 10 highest-paid positions on Obama’s staff.

4. Women on McCain’s staff earn 24% more on average than women on Obama’s Senate staff.

Source: The most recent Report of the Secretary of the Senate, which includes the salaries of every member of each U.S. senator’s staff during the period of Oct. 1, 2007 through March 31, 2008, via CNS News. This is the second consecutive six-month period reviewed by in which McCain, an Arizona Republican, has paid women on his Senate staff a higher average salary than he pays men and Obama has paid men a higher average salary than he pays women.

Thanks to a comment left by "like such as" for the CNS link.

UK Pay Gap Based on Personal Lifestyle Choices: Like Marriage and Motherhood

The UK's Institute of Economics Affairs has released a new study "Should We Mind the Gap? Gender Pay Differentials and Public Policy" (full study here, press release here, newspaper report here).

Professor John Shackleton, of the University of East London, who led the report, said in reality the pay gap hardly existed for workers under 30.

"The widespread belief that the gender pay gap is a reflection of deep rooted discrimination by employers is ill-informed and an unhelpful contribution to the debate. The pay gap is falling but is also a reflection of individuals' lifestyle preferences. Government can't regulate or legislate these away - and shouldn't try to," said the report.

He said men work longer hours in more dangerous jobs and face a greater risk of being sacked, while women who take career breaks outnumber their male equivalents by more than five to one.

"In the last decade, in the name of promoting equality, we have had a huge increase in the burden placed upon employers. This can often harm the very people it is intended to help. Indeed, given this new evidence, we should question the need for the Equal Pay Act. It seems to be individual choices and not systematic discrimination that determine pay and conditions."

MP: The table above from the report is very enlightening:

1. For unmarried, single workers there is NO "pay gap," and in fact women make 1.1% MORE than men in the U.K. (median wage of £8.82 per hour for females vs. £8.72 for men), so there is actually a pay gap for men!

2. For the overall population of U.K. workers, without even controlling for relevant factors like hours worked, career choices, etc., quite a bit of the "pay gap" can be explained by just two factors, both of which relate to voluntary and personal lifestyle choices: marriage and motherhood (see table above).

3. The pay gap increases as the number of children increases, and is highest for married workers with 4 children.

Falling Gas Prices: A Tax Cut of Massive Proportions

Update: A recent CD post reported that American consumers save $1.42 billion annually for every one penny decrease in retail gasoline prices. According to EIA data, the average retail gasoline price peaked in early July at $4.165 (national average) per gallon, and is now at $2.914, a decrease of 125.1 cents (see chart above). That fall in gas prices translates into a $177.6 billion savings for U.S. consumers over a one-year period, and there'll probably be more to come as gas prices continue to fall.

And in Texas, where gas prices are down to $2.02 in some areas, the $2 per gallon fall in gas prices there (from $4 in July) would translate into almost $300 billion worth of annual consumer savings (actually $284 billion).

As Dennis Gartman wrote in "The Gartman Letter" last Friday:

"This [$177 billion savings] dwarfs by a huge factor the recent tax rebate checks that went out to the nations taxpayers and which helped bump up the economy in the summer. That was a one-off event; the weakness in gasoline prices is an on-going one instead. This is a tax cut of massive proportions... beyond anything that Obama might promise."

The Magic Word: "Change"

The magic word "change" makes specifics unnecessary. If things are going bad, some think that what is needed is blank-check "change." But history shows any number of countries in crises worse than ours, where "change" turned problems into catastrophes.

In czarist Russia, for example, the economy was worse than ours is today and the First World War was going far worse for the Russians than anything we have faced in Iraq. Moreover, Russians had nothing like the rights of Americans today. So they went for "change." That "change" brought on a totalitarian regime that made the czars' despotism look like child's play. The Communists killed more people in one year than the czars killed in more than 90 years, not counting the millions who died in a government-created famine in the 1930s.

Other despotic regimes in China, Cuba, and Iran were similarly replaced by people who promised "change" that turned out to be even worse than what went before.

Yet many today seem to assume that if things are bad, "change" will make them better. Specifics don't interest them nearly as much as inspiring rhetoric and a confident style. But many 20th century leaders with inspiring rhetoric and great self-confidence led their followers or their countries into utter disasters.

These ranged from Jim Jones who led hundreds to their deaths in Jonestown to Hitler and Mao who led millions to their deaths.

~Thomas Sowell's column today

Monday, October 20, 2008

Life in the Blogosphere: The Feedback Can Be Instant, Personal, Emotionally Unstable, and Brutal

Some excerpts from the article "Why I Blog" by Andrew Sullivan in the new issue of The Atlantic:

A reporter can wait—must wait—until every source has confirmed. A novelist can spend months or years before committing words to the world. For bloggers, the deadline is always now. Blogging is therefore to writing what extreme sports are to athletics: more free-form, more accident-prone, less formal, more alive. It is, in many ways, writing out loud.

It was obvious from the start that it was revolutionary. Every writer since the printing press has longed for a means to publish himself and reach—instantly—any reader on Earth.

Within minutes of my posting something, even in the earliest days, readers responded. E-mail seemed to unleash their inner beast. They were more brutal than any editor, more persnickety than any copy editor, and more emotionally unstable than any colleague.

Again, it’s hard to overrate how different this is. Writers can be sensitive, vain souls, requiring gentle nurturing from editors, and oddly susceptible to the blows delivered by reviewers. They survive, for the most part, but the thinness of their skins is legendary. Moreover, before the blogosphere, reporters and columnists were largely shielded from this kind of direct hazing. Yes, letters to the editor would arrive in due course and subscriptions would be canceled.

But reporters and columnists tended to operate in a relative sanctuary, answerable mainly to their editors, not readers. For a long time, columns were essentially monologues published to applause, muffled murmurs, silence, or a distant heckle. I’d gotten blowback from pieces before—but in an amorphous, time-delayed, distant way. Now the feedback was instant, personal, and brutal.

Some e-mailers, unsurprisingly, know more about a subject than the blogger does. They will send links, stories, and facts, challenging the blogger’s view of the world, sometimes outright refuting it, but more frequently adding context and nuance and complexity to an idea. The role of a blogger is not to defend against this but to embrace it. He is similar in this way to the host of a dinner party. He can provoke discussion or take a position, even passionately, but he also must create an atmosphere in which others want to participate.

For all the intense gloom surrounding the news-paper and magazine business, this is actually a golden era for journalism. The blogosphere has added a whole new idiom to the act of writing and has introduced an entirely new generation to nonfiction. It has enabled writers to write out loud in ways never seen or understood before. And yet it has exposed a hunger and need for traditional writing that, in the age of television’s dominance, had seemed on the wane. Words, of all sorts, have never seemed so now.

Environmental Heresy, Parts I and II

1. Disposable diapers are more green than reusable diapers, according to a recent U.K. report that concluded that disposable diapers have a global warming impact of 550 kg of CO2 over 2.5 years, while reusable diapers produced 570 kg of CO2.

2. The number of climate change skeptics is growing rapidly. Because a funny thing is happening to global temperatures -- they're going down, not up. Don Easterbrook, a geologist at Western Washington University, says, "It's practically a slam dunk that we are in for about 30 years of global cooling," as the sun enters a particularly inactive phase.

Markets In Everything: Paperless Coupons

Coupons are going paperless. Here's how it works: Electronic coupons are posted online. Shoppers point and click to select the ones they want, and link them with their loyalty cards from their grocery store. When their card is presented at check out, the coupon discounts get applied to the bill.

Cell-phone-based coupons are also gaining some steam. In that model, customers receive the coupon codes on their handsets, which can be used at the checkout for savings.

Thanks to Clover Aguayo.

Colorado and Nebraska Attempt to End State-Sponsored Race and Gender Preferences

While choosing between tickets featuring Barack Obama or Sarah Palin this November, voters in Colorado and Nebraska will also be able to bury the idea that blacks and women in America still need special help to get ahead. In those states, the ballot will carry civil rights initiatives to end race and gender preferences in public hiring and education.

If passing laws to ban discrimination sounds like a triumph for civil rights, you wouldn't know it from the heckling of opponents, who have spent hundreds of thousands of dollars to keep the measures off ballots around the country, using tactics from lawsuits to voter deception to defeat the plans.

Defenders of group-based preferences have long warned that minorities couldn't succeed in a system that doesn't give them special advantages. But far from turning back the clock for African-Americans and women, ending preferences will allow minorities and women to take the full credit for their accomplishments. Barack Obama and Sarah Palin have shown the roads are open.

~Today's Wall Street Journal

From my Detroit Free Press article two years ago when Michigan voted to end racial double-standards here:

President John F. Kennedy said: "Simple justice requires that public funds, to which all taxpayers of all races and national origins contribute, not be spent in any fashion which encourages, entrenches, subsidizes or results in racial discrimination." Hopefully, Kennedy's vision will prevail this fall when Michigan (and now Colorado and Nebraska) voters have an opportunity to end state-sponsored racial discrimination in college admissions at Michigan (Colorado and Nebraska) public universities.

In 2006 when Michigan voters considered Proposal 2 to end racial and gender preferences, 80 out of 83 Michigan counties voted in favor of ending state-sponsored racial and gender discrimination.

Sunday, October 19, 2008

Healthcare Should Not Be Linked To Employment

An end to employer-based health insurance is exactly what the American healthcare market needs. Far from being a calamity, it would represent a giant step toward ending the current system's worst distortions: skyrocketing premiums, lack of insurance portability, widespread ignorance of medical prices, and overconsumption of health services.

With more than 90% of private healthcare plans in the United States obtained through employers, it might seem unnatural to get health insurance any other way. But what's unnatural is the link between healthcare and employment. After all, we don't rely on employers for auto, homeowners, or life insurance. Those policies we buy in an open market, where numerous insurers and agents compete for our business. Health insurance is different only because of an idiosyncrasy in the tax code dating back 60 years - a good example, to quote Milton Friedman, of how one bad government policy leads to another.

De-linking medical insurance from employment is the key to reforming healthcare in the United States.

~From Jeff Jacoby's most recent Boston Globe column

Doom and Gloom? Consider Hedging with Intrade

Has the late unpleasantness got you down? The perfect solution is right in front of you. Use Intrade as a hedge. Using money to offset real hardship is a time-honored trick. Insurance companies rely upon this approach to smooth over all manner of downers and upsets. So if you feel strongly about the election or the financial crisis, why not buy a little insurance of your own?

Hope the economy pulls through? We all do. But if it doesn't, owning a little US.RECESSION.08 will help smooth the rough ride. What better way to counter your own personal recession than a little extra return when it hits?

It doesn't end there. Why not hedge against higher taxes on "Highest Marginal Single-Filer Fed Income Tax Rate to be Equal or Greater than 36% in 2009 Tax Year"? Boy, higher income taxes. That doesn't sound fun. But if it happens, an investment of $41 on 2009.INCOME.TAXRATE.>36% today will be worth $100. You could even invest just enough to cover a tax hike. No, really. Why not?


Gas Prices Approaching $2 Per Gallon in Texas

OPEC Cheats: It Overproduces By 500,000 bpd

The chart above is from the Net Oil Exports blog, and shows the difference between: a) OPEC's official quotas and b) OPEC's typically higher actual production, demonstrating that "OPEC almost always cheats as a group. They over-produce by 500,000 barrels per day (bpd)."

Harvesting Cash: There's Sure No Farm Recession in the U.S., "Big Farm" is Having The Best Year Ever

There's sure no recession in U.S. agriculture - "Big Farm" is doing very, very well this year, according to data from the USDA:

1. Farm income in 2008 ($95.7 billion) is up by almost 64% compared to 2006 ($58.5 billion), see top chart above.

2. Farm real estate has increased in value by 53% during the last four years, from $1.34 trillion in 2004 to more than $2 trillion in 2008, see middle chart above.

3. Farm equity has increased by almost 50% since 2004, to a record $2.147 trillion, see bottom chart above. And the debt to asset ratio for farms is at a five-year low of only 9% (down from 11.3% in 2004), since farmers are carrying only $211 billion in debt on $2.359 trillion of farm assets.

Q1. What's next? "Windfall profits taxes" on Big Farm?

Q2. Does this wealthy group of agribusinesses ("Big Farm") really need taxpayer subsidies?

Quote of the Day

"The bottom of the bear market is where fear and greed come face to face."

~Connie Wright, via regular CD contributor Bob Wright (who commented on this CD post)

Just wondering, wouldn't it also be true that "the top of the bull market is where fear and greed come face to face?"

Saturday, October 18, 2008

The Perfect Storm: Three Trends and a Train Wreck

The three fundamental factors behind the financial crisis have been 1) an enormous growth in wealth that needed to be moved into investments, 2) the greater willingness of both individuals and financial institutions to take on risk, and 3) weak governance and oversight, with a blindness to new forms of systematic risk. All three were needed to bring about the scope of the current mess — so that means we’ve had some very bad luck on top of everything else.

We've already been through a savings and loan crisis, a junk bond crisis and a dot-com bubble, but today’s crisis is by far the worst of the lot — and will probably prove to be more than just a bump in the road. We can do better the next time around, but we have to start by seeing that the current failure is far-reaching and that we can blame many different things and many different people.

The real problem is not some particular villain but rather the very fact that we cannot help but put the evaluation of risk into all-too-human hands.

~Tyler Cowen in today's NYTimes

Friday, October 17, 2008

Quote of the Day

"Be fearful when others are greedy, and greedy when others are fearful."

~Warren Buffet

Thursday, October 16, 2008

Falling Gas Prices Over The Last Month Will Save Consumers $156 to $188 Billion Annually

According to the most recent data from the Federal Highway Administration, the total traffic volume over the most recent 12-month period (through July 2008) was 2.944 trillion miles. According to data from the EIA, the average fuel efficiency for all vehicles in 2006 (most recent year reported) was 17.2 miles per gallon. That means that the amount of gasoline required for the traffic volume over the most recent 12-month period was 171,216,860,465 gallons (2.944 trillion miles driven divided by 17.2 miles per gallon).

Therefore, every penny decrease in the price of a gallon of gas would equal more than $1.71 billion in consumer savings over a year (171.216 billions of gallons X $0.01). In that case, the $1.10 per gallon decrease in gas prices from $4.12 in July to $3.02 today (see chart above, data here), would represent annual consumer savings of $188 billion from the fall in gas prices just so far over the last three months (compared to a scenario where gas stayed at $4.12 per gallon).

An alternative calculation is to use the EIA estimate of 390 million gallons consumed per day in the U.S. times 365 days per year, or 142,350,000,000 gallons annually. For each penny decrease in the price of gasoline, consumers would save $1.4235 billion annually according to this approach, and will save $156.6 billion over the next year from the $1.10 per gallon decrease in gas prices since July.

If gas prices continue to fall over the next month (which seems likely), it could be like a $200-$300 billion tax cut for the economy.

Bottom Line: For every one penny decrease in gas prices, consumers save between $1.42 billion and $1.71 billion annually.

US Dollar (v. Major Currencies) Hits 18-Month High

Update: Major currencies index includes the Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden (details here).

Rich Support McCain, Super-Rich Support Obama

More than three quarters of those worth $1 million to $10 million plan to vote for Sen. McCain. Only 15% plan to vote for Sen. Obama (the rest are undecided). Of those worth more than $30 million, two-thirds support Sen. Obama, while one third support Sen. McCain.

The reason? Find out here.

Don't Blame Capitalism: Government Policies Undermined Markets, Promoted Reckless Behavior

Amid the chaos of recent days, as the federal government has taken gargantuan steps to stabilize the financial markets, realigning the U.S. economic system in the process, comes a nearly universal consensus: This crisis resulted from government reluctance to regulate the unbridled greed of Wall Street. Many economists and market participants who were formerly averse to government interference agree that a more robust regulatory framework must be constructed to cage the destructive forces of capitalism.

For the political left, which has long championed the need for such limits, this crisis is the opportunity of a lifetime.

Absent from such conclusions is the central role the government played in creating the crisis. Yes, many Wall Street leaders were irresponsible, and they should pay. But they were playing the distorted hand dealt them by government policies. Our leaders irrationally promoted home-buying, discouraged savings, and recklessly encouraged borrowing and lending, which together undermined our markets.

~Peter Schiff in today's Washington Post

How Did The Dismal Science Become So Popular?

Hundreds of economic blogs have sprung up on the Internet, many written by academics. What gives? How did economics become so popular?

Read more here of the Federal Reserve Bank of Richmond's article on Economics Blogs, featured in this issue of its publication Region Focus.

HT: Marginal Revolution

Wednesday, October 15, 2008

Real Gasoline Prices Fall Below 1981 Levels

According to, the national average price for gas is now $3.05, which is below the previous (to 2008) inflation-adjusted peak price of $3.51 established in March 1981 (historic EIA data here for real gas prices).

Gas Prices Headed for $2 Per Gallon in Missouri

Detroit: Cheaper To Buy A House Than A New Car

The good news is that home sales in the city of Detroit through July are up by a whopping +44% (YTD) compared to last year (7,275 homes sold in 2008 YTD vs. 5,055 last year), but the bad news is that the average price for a home sold in Detroit has fallen by 55.7% to only $18,822 so far this this year, compared to an average price last year of $42,502 for the January-August period! Compared to the peak of $97,850 for the average Detroit home price in 2003, prices have fallen by almost 81% (see chart above, values are annual except for 2008, which is YTD, data available here).

Bottom Line: As I have reported before, the average priced house in Detroit ($18,822) is cheaper than the average price new car ($22,650).

CBOE Volatility Hits Record High in October

The CBOE Volatility Index (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility.

The chart above was created using VIX data back to January 1990 using monthly values (available here from Yahoo Finance, except that for October 2008 the highest daily VIX value was used) showing that the VIX reached an all-time record high of 69.95 on October 10 (it fell back to around 55 on Monday and Tuesday of this week).

Thanks to Seyed Mehdian.