Tuesday, January 06, 2009

Banks Don't Need To Be Forced to Lend

Banks are in the lending business: They do not need to be forced to lend. And contrary to popular and political opinion, banks have not stopped lending. Despite the recent financial market turmoil, a declining GDP, and an increase in loan-loss reserves, commercial bank lending actually grew $336 billion, or 4.9%, from August to Dec. 24, according to Federal Reserve data (see chart above). While lending dictates or other restrictions may be tempting, the Obama administration must discourage Congress from imposing them on recipients of TARP investments.

~Bert Ely in today's WSJ: "Banks Don't Need to Be Forced to Lend"

The Credit Crunch That Isn't

The media and the political interventionists have insisted that a huge credit crunch is going on that "proves" the failure of financial capitalism and the free market in general. What is a work is another political "fast one" to rationalize and justify the growth of the interventionist-welfare state.

The Federal Reserve's own data shows this to be another big government lie. Throughout 2008 bank loans have been increasing compared to a year earlier, both in absolute dollar terms and as a percentage increase over a year ago (see chart above, data here).

In addition, the Fed's survey of bank lending practices found that in October (the last month for which the data is available), only 25% of loan officers said they had "tightened considerably" on extending such loans, while 28% said their practices had not changed at all. About 47% said they had "tightened somewhat."

What is at work is the creation of a new version of the "myth of the failure of capitalism" to serve as the justification for why the straightjacket of even more government controls and regulations must be extended over what remains of the market economy.

~Richard Ebeling

MP: The chart above shows the volume of business loans, real estate loans and consumer loan volume, based on an index that is equal to 100 in January of 2004 for each series (data here).

Spending on "Infrastructure"

Washington Post: The package Congress is compiling is expected to include fresh investments in infrastructure.

Bloomberg: Obama is working on a package combining tax cuts and spending on infrastructure, such as roads, bridges and transit systems, to boost growth.

Thomas Sowell: Take the idea that much of this money will be spent on "infrastructure." This certainly sounds good-- until you stop and think about it. So do most political notions.
Does spending on infrastructure mean that the money is going to be spent filling potholes and repairing bridges? Or will it be spent creating new things?

One of the key reasons why infrastructure gets neglected in the first place, is that there is very little political pay-off to filling potholes and repairing bridges, compared to spending that same money creating community centers, bike paths and other things. These new things create opportunities for ribbon-cutting ceremonies that give politicians favorable free publicity in the media. But nobody holds ribbon-cutting ceremonies for filling in potholes or repairing bridges.

The whole process is biased toward doing new things, even if the repair and maintenance of existing infrastructure would serve the public interest better. But, even in the unlikely event that the public interest triumphs over special interests, there is another very important difference between repair and maintenance activities, on the one hand, versus building new things on the other.

New things require long delays before they can get started, especially when they have to be done by politicians. Someone once said that Congress would take 30 days to make instant coffee-- and Congress is just the beginning of the delays, as all sorts of competing interests jockey for position at the public trough. Just putting together an environmental impact report for something new to be built can be a long process, especially if its findings are challenged by environmental extremists, who pay very little price for challenging, even if the delays caused by their challenges cost others millions of dollars.

In short, it can be years before the money that is supposed to stimulate the economy actually gets into the economy. And nobody knows what the economy will be like when that money finally gets into circulation. A common problem with government economic policies in general is that it is very hard to predict how long it will be before the policy actually affects the economy. An economic stimulus policy created during a contraction in demand can take effect during an inflationary expansion of demand-- and fuel still more inflation.

Monday, January 05, 2009

Should Govt. Reduce Life-Expectancy Inequality?

In 2005, life expectancy at birth was 7% higher for American women (80.4 yrs.) than for American men (75.2 yrs.). Governments could certainly reduce this life-expectancy inequality by redistributing medical research funding on women's health to research on men's health, and general medical care funding from women to men. Consider that men are more likely to die from prostate cancer than women are from breast cancer. Yet in 2005 federal expenditures for prostate cancer research were $390 million compared to $698 million for breast cancer research (see chart above), and the American Cancer Society contributed almost three times as much for breast cancer research ($98 million) as for prostate cancer research ($36 million).

I find that people generally agree with, and rarely strongly oppose, forcible government transfers of income from the rich to the poor to reduce income inequality. But when I suggest that the government transfer medical expenditures from women to men to reduce life-expectancy inequality, I get a very different reaction. Often, the listener will simply give me a strange look and quickly depart. Those who do respond verbally, however, typically say that I couldn't possibly be serious because my idea is outrageously silly. I agree. It is silly. But I am completely serious in suggesting it.

When we seriously consider an attempt to use government power to reduce the gender inequality in life expectancy, the problems that we have always faced when government uses its power to reduce income inequality suddenly become crystal clear. Government transfers to reduce the gender gap in life expectancy would do little more than reduce improvements in both women's and men's life expectancies. For similar reasons, government transfers have done little more than reduce the income growth of both the rich and the poor. So government attempts to reduce life-expectancy inequality by transferring medical expenditures would be silly, but no sillier than its attempts to reduce income inequality by transferring money.

There are several reasons why redistributing medical expenditures to reduce gender inequality in life expectancies would not work. And there are parallel reasons for the failure of redistributing money to reduce income inequality.

Read more here of economist Dwight Lee's article "Should Government Reduce Inequality in Life Spans?"

Extinction Timeline

Timeline to 2050 of what will disappear from our lives, including video rental stores, fax machines, letter writing, physical newspapers, coins, keys, trade unions, ties, telephone directories, national currencies, desktop computers, and blogging (but not until 2025).

UAW-Ford Master Contracts: 2007 vs. 1941

Ever wondered what a modern UAW contract looks like? Pictured below is all 22 pounds of Ford’s 2,215 page 2007 master contract with the UAW.
What a difference sixty years makes. Pictured below is the 1941 Ford-UAW contract, which easily fits in the palm of your hand.

It measures about 3.5 inches by 5 inches, and is shown below with a 5-inch pen and 2-inch paper clip.

Here's a side shot to show its thickness - only 24 pages long.

Do You Speak 2009? Have You Read a Wovel Yet?

Check out the 2009 Buzzword Glossary including words and phrases like junior moment, BlackBerry prayer, staycation, upcycling, instapreneur and negawatts.

Thanks to Ben Cunningham.

Related: In 2009, we also have the "wovel," short for "web novel." There's an installment every Monday. At the end of every installment, there's a binary plot branch point with a vote button at the end.

99.65% of Commercial Banks Survived 2008

According to FDIC data, 25 commercial banks failed in 2008, out of 7,146 banks in the U.S. The failed banks represent about 1/3 of 1% of all banks, meaning that 99.65% of banks survived the 2008 recession. The chart above displays annual bank failures back to 1970 (data here), showing the S&L crisis (shaded) when almost 3,000 U.S. banks failed.

Before we make comparisons to the Great Depression, we might want to first compare today's financial troubles to the S&L crisis of the 1980s and 1990s, when almost 3,000 banks failed.

Sunday, January 04, 2009

Top 10 Reasons Life Is Getting Better All The Time

Be prepared to see a lot of doom and gloom this week. Those year-end video and photo montages, year-in-review summaries, and "a look back" reflections are inevitably gloomy even in boom times. That's likely to be especially true in 2008, a year that, admittedly, wasn't particularly filled with hope.

The last 12 months may prove not to be the most fondly recalled in recent American history, but things aren't all that bad. Most social indicators are still moving in the right direction. In general, our standard of living continues to improve. Advances in technology are helping us beat the diseases most likely to kill us; giving us more leisure time; making us more comfortable; giving us more convenience; and with the Internet, putting much of the world—quite literally—at our fingertips.

So here's the good news:

1. Crime rates are falling.

2. Sex crimes are down.

3. The divorce rate is at its lowest point in four decades.

4. Life expectancy is up.

5. Mortality rates for eight of the 10 leading causes of death in America are dropping. Deaths from the two biggest killers—cancer and heart disease—have been in decline for a decade. Deaths from the third leading cause of death, stroke, are also down.

6. For six years, both incidence of and deaths from cancer have been in decline.

7. Since 1991, fewer teens are having sex, fewer are having sex with multiple partners, and more are using condoms when they do engage in intercourse.

8. The abortion rate is also at its lowest point in 30 years.

9. Juvenile violent crime is still 40% lower than it was in 1994. The juvenile murder rate is a whopping 73% below its high in 1993.

10. We have more leisure time. Americans work on average eight fewer hours per week than we did in the 1960s.

Source: Randy Balko at Reason Magazine

Quote of the Day: As Likely As Anthrax on Cheerios

Beginning this week, US representatives and senators will be paid $174,000 a year. That represents an increase of $4,700 and the 10th time since 1998 that congressional pay has been given a boost.

As has become routine, this salary hike is taking place automatically - there were no hearings, no vote, no debate. No members of Congress stepped before the microphones to explain why their performance over the past year entitles them to a fatter paycheck. Or to make the case for helping themselves to more money at a time when so many Americans are out of work, the economy is in recession, and financial distress is spreading.

Hard as it may be to believe, there was a time when members of Congress didn't make it an annual priority to pad their pay envelopes. In 1932, during the Great Depression, the House and Senate even cut their pay by 10%, then cut it by another 5.5% in 1933. Today's lawmakers, save for a handful of honorable exceptions, are about as likely to follow that precedent as they are to sprinkle anthrax on their Cheerios.

~Jeff Jacoby

Google Custom Search Added to Carpe Diem

In response to several requests and inquiries about improving the search function of CD, I have added a "Google Custom Search" feature that allows comprehensive searches of Carpe Diem. You'll find it on the right hand side of the blog, scroll down and you'll see it right below the SiteMeter. I might try putting it up higher on the screen later, but for now it's available in its current location.

Nice Non-Work, If You Can Get It; Union Bosses Get +$100,000 Per Year for Beer, Bowling and Haircuts

WDIV-TV News 4 in Detroit did an expose of two union bosses who routinely rip off the UAW and Ford Motor Co. with fake time cards that allow them to get paid for not working, including unworked overtime hours (see Part 1 here and Part 2 here).

One of the bosses, Ron Seroka, a union job security officer, takes off half a day nearly everyday to go home to lounge around the house while he is on the clock. Seroka punches in at the plant at 6 a.m. every single day and is home by 11:30 a.m. for some nice leisure time at home. Yet he gets a steady 10 hours pay every single day despite the fact that he is rarely at work.

Seroka’s union boss is even worse. Union chairman Jim Modzelewski buys beer on a daily basis while on the clock and clocks himself in for overtime pay hours before he even wakes up to go into the plant. TV 4 found that after he punches in, he typically leaves for a beer run mere hours later. Again, all this is on a daily basis. He is also paid overtime pay on a daily basis as he sits home drinking his daily beer. With over 2,500 hours of overtime, Modzelewski made a six-figure salary last year. TV 4 also discovered that Modzelewski even played in a bowling tournament while on the clock — at overtime pay, too!

Together, just these two union chiefs clocked in over 3,500 hours of overtime pay for the year. Makes one wonder how many union bosses are abusing their positions this way, doesn’t it?


As Michelle Malkin asks: "At least the groveling Big Three CEOs gave up their corporate jets. Where's the public flogging for the greed-infested UAW fat cats reaching into our pockets to keep them afloat?"

First, By Golly, Sarah Palin; Now, You Know, Caroline Kennedy, You Know

Is it really possible to say "you know" 30 times in 2 minutes? Find out here:

Saturday, January 03, 2009

Killing a Toyota

The Top Gear team attempts to destroy a Toyota pick up truck. Are they successful? Find out in these amazing videos from the BBC Worldwide.

Killing a Toyota, Part 1, click here

Killing a Toyota, Part 2 below, click arrow:

HT: Sanil Kori

Friday, January 02, 2009

Markets In Everything: One Joke for Sale

On Ebay, current bid is $365.

HT: Ben Cunningham

Google's Advanced Search

To clarify some discussion in the comments section of a previous post, you can go to Google's Advanced Search here, and use the "Search within a site or domain" option to conduct a comprehensive Google search of Carpe Diem or any other blog or website. It has been my experience that Blogger's "Search Blog" function (top left corner of the blog) will only return the most recent 20 postings with a keyword. The Google Advanced search (available on the right side of the Google home page) will do a comprehensive search of all posts with a keyword.

Thursday, January 01, 2009

No Bailout Necessary, Just Reduce Punitive Tariffs to Save and Create More U.S. Jobs

Tariffs are usually used to protect domestic industries from more efficient foreign competitors. But domestic firms also buy inputs, raw materials, supplies, parts and inventory FROM foreign producers, and in fact more than half of U.S. imports are industrial supplies and parts, and NOT finished consumer goods. In that case, tariffs are a tax on the inputs of domestic businesses and can put them at a significant competitive disadvantage.

Case in point: There is a punitive tariff of up to 17.2% on an imported specific micro-denier suede fabric used extensively by Mississippi furniture manufacturers Lane, Bauhaus, and H.M. Richards. This tariff is about to be removed, saving each of these three firms more than $1 million annually, and saving close to 1,000 jobs in NE Mississippi.

Read about it here, here and here.

HT: Taxing Tennessee

Mortgage Rates Fall to Record Low Level

30-year fixed rate mortgages closed out the year at 5.14% (data here, see graph above), the lowest rate on record (data back to 1964 here). Falling mortgage rates and falling home prices will be important factors in the real estate market's recovery in 2009.

Top Earners Are the Vital, Economic Activists

It’s not Obama’s middle-class tax cut that’s going to get us out of this economic jam. At best his vision is incomplete. But at worst his aversion to successful earners and investors is a real obstacle to full economic recovery.

Social historian and early supply-side activist Irving Kristol taught us three decades ago that the top earners are the economic activists. They’re the ones with the highest propensity to consume and invest. They’re the ones who buy the yachts, which are built by blue-collar workers. And they’re the ones who run the small businesses and provide the capital for the new entrepreneurial start-ups that are the lifeblood of the economy. It is they who energize free-market capitalism.

If we had an economy without rich people we wouldn’t have much of an economy. That’s why lower tax rates to reward the economic activists — the most prominent capitalists — are so essential.

~Larry Kudlow

MP: The economic activists who energize the economy also pay most of our income taxes: the top 1% pay about 40% of all income taxes paid, the top 10% pay about 71%, and the top 25% pay more than 86% (2006 data here).

Wednesday, December 31, 2008

Capitalists On The Way Up; Socialists on Way Down. During Crises, Balance Always Tilts Toward Gov't.

Many are finding it hard to make merry in the aftermath of this year’s financial crisis. Collateral damage from the crisis is extensive—unemployment is rising in the US, exporters are hurting in emerging markets, global stock markets are depressed, and each day seemingly brings new cries for government help from struggling industries.

Some see these effects as proof of capitalism’s failure. After all, this year saw the crumbling of a financial nucleus under its own weight, necessitating the US government to rescue the few straggling survivors. Capitalism, it’s argued, encourages greed and self-interests above the public good (Madoff is a “shining” example), and the solution is government and regulation.

But will larger government and more regulation help? History shows regulation does little to curb excesses. This is because excesses exist not because of the capitalist system, but because they are perpetuated by the participants. No amount of tinkering can regulate innate human characteristics.

There’s an old saying: “Everyone’s a capitalist on the way up and a socialist on the way down.” People want it all—to reap the benefits of free markets, but be protected against any downside. Capitalism won’t abide. And that’s a good thing. It’s a system of inherent checks and balances, which can be swift and brutal during the pruning process. In rough times, we seem willing to sacrifice free markets’ benefits for perceived security from this process (investors accepting 0% return on Treasuries is a recent example). Still, if free markets were restricted, what would happen to those checks? Subprime problems (or Madoff’s) were not revealed by regulators, but by markets. Note, politicians are human, too.

Capitalism and free markets are not ever-stable. They work precisely because they compel folks to take risks and seek to create excess value out of existing capital, in whatever form that might be. They’re examples of constant change and innovation. Change isn’t always comfortable—and much of it will fail—but when it moves society in a more efficient direction, society certainly becomes more profitable.

During crises, the balance always tilts toward government and away from capitalism. This doesn’t mean capitalism is done. But such things are always said in times like these. For months now we’ve applauded coordinated government efforts to provide monetary and fiscal liquidity and stimulus to the shocked financial system and to provide much-needed confidence. We tend to draw the line, however, at government “ownership” of assets and/or direction of those funds. Government “solutions” can only carry the economy so far—it’s up to capitalism to drive real, sustained growth. That is, it’s up to the people who make an economy, not its turgid overseers.

~Fisher Investments

Economically Possible? No. Politically Possible? Yes

Q: Is it economically possible to simultaneously demand low electricity prices but no new generating plants, while using ever increasing amounts of electricity.

Q: Is it economically possible to simultaneously have "open space" laws forbidding building while increasing "affordable housing"?

Q: Is it economically possible to add the costs of government bureaucracies to the costs of medications and medical treatment have the the total cost of medical care go down?

Q: Is it economically possible to have lower costs for medical care, or anything else, without sacrificing quality?

Although the answer to all of these questions is "No," because these tradeoffs are economically impossible to achieve simultaneously, Thomas Sowell explains in his latest column "The Art of the Impossible" why they are all politically possible:

"You want the impossible? You got it. Politicians don't get elected by saying "No" to voters. People can get the possible on their own. Politicians have to be able to offer the voters something that they cannot get on their own. The impossible fills that bill perfectly."

As Thomas Sowell reminds us: "The first lesson of economics is that we live in a universe of scarcity, and we face tradeoffs. The first lesson of politics is to ignore the first lesson of economics."

The 2012 Pelosi GTxi SS/RT Sport Edition

From Congressional Motors: All new for 2012, the Pelosi GTxi SS/Rt Sport Edition is the mandatory American car so advanced it took $100 billion and an entire Congress to design it.

HT: KauaiMark AND Anonymous (sorry I left this out before)

Tuesday, December 30, 2008

Why Detroit Has a Bad Union Problem; Entrenched Bargaining Structure Causes Many Inefficiencies

How is it that successful executives become so unsuccessful as soon as they move to Detroit? Also, how can we explain that whenever GM, Ford and Chrysler leave our shores, they compete well in Europe, South America and China? What makes them viable competitors as soon as they cross the border?

The most striking difference appears to be that the Detroit Three are unionized, and the foreign transplants are, overwhelmingly, not. Yet the issue can't just be about wage rates. The foreign transplants pay well, and the UAW has given significant concessions in recent bargaining.

It is perhaps the mode of doing business in a unionized company that remains a crippling disadvantage. The UAW is arguably the most successful industrial union of all time. But its very strength has allowed it to permeate into every aspect of manufacturing in the Detroit Three.

The collective bargaining agreement with the UAW is a heavily negotiated document the size of a small telephone book (see the Ford-UAW 2007 contract pictured above). It is virtually identical for each of the Detroit Three, but it doesn't exist at all in their U.S. competition, the nonunionized transplants.

Not only work rules, but fundamental business decisions to sell, close or spin-off plants are forbidden without permission. That permission may come, but only at a price, since everything that affects the workplace must be negotiated. Both the UAW and the Detroit Three maintain large staffs of lawyers, contract administrators, and financial and human-resources representatives whose principal job is to negotiate with the other side. These staffs are at all levels, from the factory floor to corporate headquarters and the UAW's "Solidarity House" in downtown Detroit.

The collective bargaining agreements are now renegotiated every four years; in each negotiation the power and penetration of the union grows. If the company asks to change the flow of work for any reason, from cost-savings to vehicle improvements, the local union president will listen politely, and then say something like, "We can help you with this, but what's in it for my guys?"

Typically, he will have a list of things he wants, some understandable (better cafeterias) some questionable (hire my nephew), but there is always a quid pro quo. These mutually sustaining bureaucracies exist to negotiate with each other.

In an environment of downsizing, the problem is exacerbated, as the entrenched bargaining structure causes innumerable inefficiencies. Typically each plant or warehouse is a "bargaining unit" and has a union president, who has a staff. If the company consolidates facilities, there will be no need for two presidents and two staffs. Since neither president wants to play musical chairs, they will both point to the bargaining agreement and resist consolidation. As a result, unnecessary facilities are not sold, but kept open, lit and heated, just to preserve a redundant bargaining-unit president and his team.

As the Obama administration takes the helm, the key political question is whether the Democratic Party, which has so benefited from union support, will have the courage to push the UAW into a more reasonable relationship with the Detroit Three. Namely, a relationship in which employee relations and entitlements approximate those found in the "financially viable" sector of the U.S. automotive industry -- i.e., the foreign transplants. If the Obama administration does not force the UAW to make further concessions, it will not be able to save the Detroit Three.

~Logan Robinson in today's Wall Street Journal

Markets In Everything: Sell/Exchange Gift Cards

Many consumers face a dilemma on what to do with unused gift cards. If you’ve ever received a gift card to a store you don’t particularly care for, you know this feeling. While there are options on the internet to sell or exchange gift cards with other gift card holders, many consumers are not comfortable with selling, exchanging, or buying gift cards from someone they don’t know. That is where GiftCardRescue.com comes in.

You can sell or exchange your unused gift card directly with us. What’s more, when you exchange your gift card with us, we will send you a brand new gift card of your choice (which you select from our list of popular gift cards). This makes re-gifting of gift cards easy and more exciting. We also sell gift cards at discounts of up to 20% off.

HT: Ben Cunningham

Volatility Index Coming Down From Oct-Nov Peaks

One of the most important but underreported financial indicators is the CBOE’s Volatility Index (^VIX), which measures the market’s expectation of future volatility in stock prices. (The CBOE has written a nice technical paper describing how it is calculated here.) Traditionally, the annualized volatility of the S&P 500 has been 20%, but in both October and November the VIX reached an apocalyptic 80%. The huge drop in stock prices is bad, but it would be a lot better if the market thought that the major gyrations were mostly in our past. So the good news is that the volatility index has retreated to 45% (see chart above).

Now, 45% is still more than twice what it “should” be. But it’s at least moving in the right direction. When it drops below 30%, it will be a strong indication that the market correction is complete and we’re back to business as usual.

From Ian Ayres at the
Freakonomics Blog

Markets In Everything: Wearing A T-Shirt for Profit or "Selling the Shirt Right Off Your Back"

Hi, my name is Jason. In this up and down economy I’m outsourcing my wardrobe (namely shirts) to corporate america and you! I’m going to wear a different shirt for 365 days straight in 2009, take multiple pictures throughout my day and blog about it. Days are sold at “face value” so January 1 is $1 and December 31 is $365. Check it out at IWearYourShirt.com.

HT: Kevin Ellington

Monday, December 29, 2008

Real Gas Prices Approach 7-Year Low, Saving U.S. Consumers and Businesses $1 Billion Per Day

Gas prices reached a new 2008 low of $1.61 per gallon, which is the lowest inflation-adjusted price since March 2002 (using EIA data), as real gas prices approach a 7-year low. From the $4.12 per gallon peak in July, American consumers and businesses are now saving $357 billion on an annual basis from the cost savings of lower gas prices, or almost $1 billion per day.

Sunday, December 28, 2008

Notebook Computer Sales Beat Desktops in 2008:Q3, And Will Increase By +15.2% in 2009

NEW YORK (AP)Shipments of notebook computers edged past desktop sales in the third quarter for the first time, according to data from the research firm iSupply. Preliminary figures for the quarter show notebook PC shipments shot up 40% from the same period a year ago to 38.6 million. Meanwhile desktop shipments fell 1.3% to 38.5 million.

The numbers underscore a broader shift toward portable computing as more functions like e-mail and Web surfing migrate to mobile phones and the popularity of inexpensive "netbooks" used mainly for Internet access grows.

The research firm IDC also predicted this month that sales of laptops would fair better amid a deepening recession - portable PC shipments will grow by 15.2% in 2009, while expecting a 6.7% decline for desktops and servers using PC microprocessors.

Darwinian Effect of Recessions: Weak Companies Fail, Leaving The Survivors Bigger and Stronger

NEW YORK - Economic cycles are Darwinian, picking off weak companies and leaving survivors stronger. A year into the recession, solid retailers have their pick of mall space. Respected banks are getting an influx of deposits. Tech companies with money to spend are having an easier time hiring.

It has been a year of brutal losses. More than 1.2 million jobs have vanished. The broadest measure of the stock market, the Wilshire 5000, is down more than $7 trillion, a 40% slide. Corporate survivors, however, should benefit as competitors disappear.

Retailer Bed Bath & Beyond will not have to contend with Linens 'n Things, which is in liquidation. Best Buy may not be fighting price wars with Circuit City, which is reorganizing in Chapter 11 bankruptcy. FedEx will not scrap for market share against DHL Express, a German-owned company that is leaving the United States.

Staying in business will not be easy - sales declines are a given and job cuts are likely to continue. But the United States will not remain in the dumps forever, and the companies that will be best positioned when the economy eventually improves may include these examples: Kohl's, Wal-Mart, McDonald's, Wells Fargo, Delta, Google, AT&T, Verizon.

A Christmas Card From the Oil Market

Monthly oil prices in 2007 and 2008.
See alternative version here.

Great Depression II?

Great Depression II? We're still a long, long way away, see chart above of monthly unemployment rates, from 2007.1 to 2008.11 and 1931.12 to 1935.12.

Saturday, December 27, 2008

Great Depression II?

Great Depression II? We're still a long, long way away, see chart above of annual industrial production growth rates, monthly from 2007.1 to 2008.11 and 1930.1 to 1933.12.

Update: Data are available here, the annual growth rate is calculated as the percent change from the same month a year ago.

$1 Billion Daily Savings From Tumbling Gas Prices

MY WAY -- Retail gasoline prices tumbled Friday to the lowest level in nearly five years. And while crude futures rose, analysts believed it was a temporary pause in an extended, downward arc as the recession spreads.

"We're paying about a billion dollars per day less than we were in July" for gasoline, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. "We could probably bail out some banks and maybe even some of the auto companies with the savings."

At the pump, retail gas prices fell six-tenths of a penny overnight to a new national average of $1.642 a gallon Friday, well below the year-ago average of $2.981 a gallon, according to AAA and the Oil Price Information Service. The last time retail prices dipped this low was in February 2004, Kloza said.

Quote of the Day: Government Can't Create New Jobs or Wealth, It Merely Redirects Resources

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value of those already in circulation. Something cannot be effortlessly created from nothing.

Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.

~Peter Schiff in today's WSJ

Friday, December 26, 2008

Markets In Everything: Hostel in A Jumbo Jet

A new hostel in a converted jumbo jet means you can enjoy all the fun of flying without leaving the ground.

HT: Sanil Kori

Wednesday, December 24, 2008

David Friedman on $70 Per Hour UAW Labor Cost

David Friedman responds to Eric Boehlert's article "The Media Myth: Detroit's $70-an-hour Autoworker":

A good deal of Boehlert's indignation is based on the fact that labor costs as calculated include pension and medical benefits to retired workers. He regards this as obviously wrong, since the money isn't being paid to the current workers. But it isn't that simple. The cost of pensions is incurred when the worker is employed but paid when he retires. If labor costs only count what is currently paid to current workers, the cost of pensions will be left out, substantially understating both the benefit to the auto worker and the cost to the company.

Ideally, the calculation should be done using costs when incurred. But pension and medical costs are not known when they are incurred, since at that point the company does not know when the worker will retire, how long he will live thereafter or what his medical costs will be. So the choice is either to use a current estimate of the future cost of benefits to current employees or a current figure for current cost of benefits to past employees. Neither gives a reliable figure for the future cost currently being incurred and it is not obvious which is better.

Happy Holidays From Sunny Florida

Happy Holidays from sunny Jacksonville Beach, Florida. Thanks for your support over the last year and the 1.25 million visits to Carpe Diem this year. Special greetings to any Cretin-Derham Hall alumni directed here from the "Traditions" article.

Fierce Competition + Invisible Hand = $1B Savings

BLOOMBERG -- American consumers and health insurers saved about $1 billion on generic drugs this year as “fierce” competition among drugmakers and pressure from insurers lowered prices.

Total spending on generic drugs fell 2.7% to $33 billion in the 12 months ended in September, the biggest decline in at least a decade, the health research firm IMS Health reported. The average price manufacturers charged wholesalers for the copycat pills fell 8% while demand increased 5.4%, IMS said.

The surge in use was driven by a flood of new generic drugs that entered the market this year after patents expired on $16 billion worth of medicines. At the same time, insurers and retail pharmacies are pressuring generics makers to cut prices as they compete against each other. The trends are likely to accelerate through 2012 as half the current 20 top-selling pills get competition from generic copies, which can cost 70% less than their brand-name counterparts.

HT: Ben Cunningham

Monday, December 22, 2008

Real Gas Prices Hit 6-Year Low = $350B Savings

CAMARILLO, Calif. (AP) - The average national price of gasoline fell 9 cents in the past two weeks, bringing it to its lowest point in nearly five years, according to a national survey released Sunday. The average price of regular gasoline Friday was $1.66 a gallon, oil industry analyst Trilby Lundberg said. The last time gas prices dipped so low was in February 2004, Lundberg said, when the national average for regular was also around $1.66 a gallon. The all-time high was on July 11, 2008, when the price peaked at $4.11 a gallon.

MP: In inflation-adjusted dollars, real gas prices are at a six-year low, reaching the lowest level since December 2002 (see chart above), according to real gas price data from the EIA. The $2.45 per gallon decline to the current $1.66 from the $4.11 July peak represents annual savings for American consumers and businesses of almost $350 billion (each penny decrease saves consumers about $4 million per day, or $1.4235 billion annually).

Top 10 Reasons 'Bama is Better Off Than Michigan

From the Birmingham (AL) News

HT: Joseph Rich

Sunday, December 21, 2008

Why Bubbles Are Perfectly Rational & Unavoidable

Most bubbles are the product of more than just bad faith, or incompetence, or rank stupidity; the interaction of human psychology with a market economy practically ensures that they will form. In this sense, bubbles are perfectly rational—or at least they’re a rational and unavoidable by-product of capitalism (which, as Winston Churchill might have said, is the worst economic system on the planet except for all the others). Technology and circumstances change, but the human animal doesn’t. And markets are ultimately about people.

Here are three thoughts about bubbles that I hope we all can keep in mind.

1. Bubbles are to free-market capitalism as hurricanes are to weather: regular, natural, and unavoidable. They have happened since the dawn of economic history, and they’ll keep happening for as long as humans walk the Earth, no matter how we try to stop them. We can’t legislate away the business cycle, just as we can’t eliminate the self-interest that makes the whole capitalist system work. We would do ourselves a favor if we stopped pretending we can.

2. Bubbles and their aftermaths aren’t all bad: the tech and Internet bubble, for example, helped fund the development of a global medium that will eventually be as central to society as electricity. Likewise, the latest bust will almost certainly lead to a smaller, poorer financial industry, meaning that many talented workers will go instead into other careers—that’s probably a healthy rebalancing for the economy as a whole. The current bust will also lead to at least some regulatory improvements that endure; the carnage of 1933, for example, gave rise to many of our securities laws and to the SEC, without which this bust would have been worse.

3. We who have had the misfortune of learning firsthand from this experience—and in a bust this big, that group includes just about everyone—can take pains to make sure that we, personally, never make similar mistakes again. Specifically, we can save more, spend less, diversify our investments, and avoid buying things we can’t afford. Most of all, a few decades down the road, we can raise an eyebrow when our children explain that we really should get in on the new new new thing because, yes, it’s different this time.

~Henry Blodget in the December issue of "The Atlantic"

Smokin' West Coast Blues via Brazil's Igor Prado

"The blues" goes global.

Self-taught and left-handed, Igor Prado learned to play the guitar upside down and backwards (with the thinnest string on top), like blues legend Albert King.

$1 Average Retail Gasoline in 2009

According to Alaron energy analyst Phil Flynn.

Finding Good News in Falling Prices

NY TIMES -- So amid all the legitimate worries about deflation, it’s worth considering what may be the one silver lining in the incredibly bad run of recent economic news: The cost of living is falling. The cost of fruits, vegetables, clothing and vehicles are all dropping. Housing prices have been falling for more than two years, and a barrel of oil costs about $45, down from $145 in July.

Jobs are disappearing, bonuses are shrinking and raises will be hard to come by. But the drop in prices, which isn’t over yet, will make life easier on millions of people. It’s possible, in fact, that the current recession will do less harm to the typical family’s income than it does to many other parts of the economy. Strange as it sounds, the drop in prices will keep real incomes — inflation-adjusted incomes — from dropping too much.

MP: The graph above shows annual CPI inflation, which fell to a 43-year low of 1% in November.

Saturday, December 20, 2008

Cartoon of the Day

Lessons From the U.K. in the 1980s: And the Triumph of Thatcherism Over Keynesianism

When she came to power in May 1979, the British economy, by every measure, was in worse shape than the U.S. economy is today. Inflation was out of control. Unemployment was high and rising rapidly. Job creation had been at a total standstill for almost a decade and a half.

By sticking to her policies of lightened regulation, reduced trade barriers, privatization of a raft of publicly owned companies, reduced taxation, and the adoption of laws to prevent abuses of union power, Mrs. Thatcher achieved something few if any of today's economists have begun to consider. She achieved a genuine, productivity-led recovery that transformed Britain from perennial basket case into the Europe's most improved and vibrant economy.

U.S. policy makers and professional economists should study her example in order to turn this time of crisis into useful and enduring change. As she herself said, "Economics is too important just to be left to the economists." Thatcherite principles remain as valid as ever. The freedom of the marketplace is still the only effective mechanism for eliminating poor business practices, identifying productive investment, and providing long-term growth.

~Andrew B. Wilson in today's Wall Street Journal

Friday, December 19, 2008

Ford's State-of-the-Art Factory in Brazil: A Model for the Big 3's Survival. But The UAW Hates It.

DETROIT NEWS--This state-of-the-art manufacturing complex in northeast Brazil is one of the most advanced automobile plants in the world. It is more automated than many of Ford's U.S. factories, and leaner and more flexible than any other Ford facility. It can produce five different vehicle platforms at the same time and on the same line.

At Camaçari, more than two dozen suppliers operate right inside the Ford complex, in many cases producing components alongside Ford's main production line. Having those supplier operations on-site allows Ford to take the concept of just-in-time manufacturing to a whole new level. Inventories are kept to a bare minimum, or dispensed with entirely. Components such as dashboard assemblies flow directly into the main Ford assembly line at the precise point and time they are needed.

"South America is kind of the global sandbox for a lot of automakers to try out new methods," said Michael Robinet, vice president of global vehicle forecasts for CSM Worldwide. "Ford was able to think out of the box, and it's paying off for them."

Unlike many U.S. auto plants, where workers' responsibilities are strictly limited to specific job classifications, workers are encouraged to learn as many different skills as possible.

Watch a
fascinating video here of Ford's Camaçari plant.

So who could possibly object to having the most advanced, leanest, most flexible, state-of-the-art Ford facilities like the Camaçari plant built here in the U.S., especially if it could help Ford and GM survive and become more profitable?

Ford sources said it is the sort of plant the company wants in the United States, were it not for the United Auto Workers, which has historically opposed such extensive supplier integration on the factory floor.

MP: It's not just above-market UAW wages and benefits, along with overly generous lifetime pensions and health care coverage that have all contributed to pushing the Big Three to the brink of bankruptcy. It's also the outdated work rules, multiple job classifications, and union inflexibility and resistance to greater efficiency that have crippled the Big Three (see the 22 pound, 2,215 page UAW-Ford contract here).

Isn't it sad that U.S. automakers like Ford have to go 5,000 miles away to "the global sandbox" Brazil to try out new production methods, instead of introducing cutting-edge, state-of-the-art technology here in the U.S.? Even if GM and Chrysler reduce wages and benefits to competitive levels as part of the $17.4 billion bailout, they still might not survive in the long run if they are prevented by the UAW from introducing lean, flexible, state-of-the-art technology inside the U.S., like Ford has been able to introduce outside of the U.S.

(A version of this post appeared on 5/11/08.)

5 Reasons Why Today is Not Great Depression II

From Fidelity (11/25/2008), see chart above (click to enlarge) of the 5 reasons; here's the summary:

The challenges faced today by the global economy and financial system are staggering. For the United States, all economic indicators point to an economic downturn that will at least rival any in the post-war period. However, all historical analogies are imperfect. The world changes too much over periods of decades, particularly economies powered by constantly changing technologies, to find a precise fit for any historical parallel. While there are admittedly some similarities between today’s environment and the 1930s, those similarities do not mandate that the world is predestined to follow a path into a decade-long depression.

The dramatic response by central banks and governments around the world faces challenges and potential ill side-effects of its own. But this response underscores that we are living today in very different times than the world experienced 80 years ago, and it may serve investors well to take those differences into account.

Like Detroit, Washington Has Lost Its Way; Let's Restructure Washington While We're at It

Congress has been suitably tough in its advice to Detroit, calling for "a complete restructuring" of our failing auto makers. But how about restructuring Washington? Like Detroit, Washington has lost its way. Congress should take its own advice and retool Washington. Here's how:

1. Cut "legacy obligations." Congress lectures Detroit about a one-time loan of $15 billion, yet year after year Congress hands $10 billion to corporate farmers. And that's only one of hundreds of institutionalized pork-barrel projects.

2. Overhaul civil service. Civil-service rules make hiring an ordeal and firing practically impossible. Rigid job classifications are far more onerous than UAW work rules, guaranteeing massive inefficiency. The federal government employs about 2.5 million civilians, about 10 times the number directly employed in the U.S. by Detroit. The bloat is legendary.

3. Impose change from the outside. Entrenched cultures rarely fix themselves. That's more true with Washington than with Detroit -- Washington does not have Toyota or Honda pushing it to compete and innovate. President-elect Barack Obama is committed to change, but, like his predecessors, he will find himself nibbled to exhaustion by thousands of special interests.

Philip Howard in today's Wall Street Journal

With Economy in Shambles, Congress Gets a Raise

THE HILL - A crumbling economy, more than 2 million constituents who have lost their jobs this year, and congressional demands of CEOs to work for free did not convince lawmakers to freeze their own pay. Instead, they will get a $4,700 pay increase (from $169,300 to $174,000), amounting to an additional $2.5 million that taxpayers will spend on congressional salaries, and watchdog groups are not happy about it.

“As lawmakers make a big show of forcing auto executives to accept just $1 a year in salary, they are quietly raiding the vault for their own personal gain,” said Daniel O’Connell, chairman of The Senior Citizens League, a non-partisan group. “This money would be much better spent helping the millions of seniors who are living below the poverty line and struggling to keep their heat on this winter.”

HT: Ryan Stinson

HIV/AIDS Prevalence Rates: Top Ten Countries


Note that 7 out of these 10 countries are also in the bottom 10 countries for life expectancy, see CD post here.

Markets In Everything: Eyelid Advertising


HT: Ben Cunningham

Markets in Everything: Charity Porn


HT: Adam Smith Institute Blog

+259,000 Jobs Added in Six States Since Nov. '07

Here's one bright spot in today's State Employment Summary:

Wyoming recorded the largest over-the-year percentage increase in employment(+2.8%, +8,200 jobs), followed by Texas (+2.1%, +221,000 jobs), North Dakota (+1.4%, +4,900 jobs), and Oklahoma (+1.1%, +17,200 jobs), South Dakota (+1.1%, +4,300 jobs) and Alaska (+1.1%, +3,400 jobs), see chart above (click to enlarge).

Together, those six states have added 259,000 jobs in the last year (Nov. 2007 to Nov. 2008). One feature those states have in common is that they are all "Right to Work" states, except for Alaska which is a "Forced Unionism" state.

Life Expectancy: Bottom Ten, Top Ten

Bottom Ten:

Top Ten:


Thursday, December 18, 2008

30-Year Mortgage Rates Fall to Historic Low

The average 30-year fixed mortgage rate fell to an all-time historic low of 5.19% today, according to data available from the FHLMC (Freddie Mac), see news reports here and here. These historic low mortgage rates should be important "mustard seeds" that will help the real estate market recover and heal. Watch for the Housing Affordability Index to reach historical record highs in the coming months.

Update: Historical data to 1971 available here.

The Classic Story "I, Pencil" Turns 50

Eloquent. Extraordinary. Timeless. Paradigm-shifting. Classic. Half a century after it first appeared, Leonard Read’s 'I, Pencil' still evokes such adjectives of praise. Rightfully so, for this little essay opens eyes and minds among people of all ages. Many first-time readers never see the world quite the same again.

~Foundation for Economic Education president Lawrence Reed, on the 50th year anniversary of the free market classic "I, Pencil."

Leonard Read’s delightful story, “I, Pencil,” has become a classic, and deservedly so. I know of no other piece of literature that so succinctly, persuasively, and effectively illustrates the meaning of both Adam Smith’s invisible hand—the possibility of cooperation without coercion—and Friedrich Hayek’s emphasis on the importance of dispersed knowledge and the role of the price system in communicating information that “will make the individuals do the desirable things without anyone having to tell them what to do.”

~Nobel economist Milton Friedman

Wednesday, December 17, 2008

Markets In Everything: Naming Rights for Bats

INDIANAPOLIS - Searching for a truly original holiday gift, one that could bestow a bit of immortality on a loved one or a friend?

If so, Purdue University has the goods: The school is auctioning the naming rights to seven newly discovered bats and two turtles. Winning bidders will be able to link a relative, friend or themselves to an animal's scientific name for the ages.

Last year, Conservation International auctioned the naming rights to 10 new fish species during a gala "Blue Auction" in Monaco that raised more than $2 million for the Washington, D.C.-based conservation group. The highest winning bid was $500,000 for the honor of naming a new species of "walking" shark.

Thanks to Sanil Kori.

Ford Received $300m in 2007 To Lose MI Jobs

BBC (January 2007) -- Michigan agreed to give Ford Motor $300m to keep open six of its factories in the state. The move, which amounts to subsidies of about $23,000 per worker, could help safeguard 13,000 jobs in the state.

Ford cannot guarantee that it will create any new jobs, nor offer a guarantee that it will continue to employ all of its existing workforce. This is in contrast to similar deals where states offer car companies incentives to build car factories specifically to create new jobs.

MP: At least when the foreign transplants receive state subsidies, they usually create a net increase in jobs. It appears that Ford received $300 million in 2007 from the state of Michigan even though there's been a net loss of Ford jobs in Michigan over the last few years.

NY Times Flashback: Chrysler Got $232m in 1997

NY TIMES (August 12, 1997) -- The Chrysler Corporation has become the latest company to negotiate extensive tax breaks and other government incentives, winning concessions totaling $232 million (MP: $307 million in 2008 dollars), or about $47,000 for each job retained, for building a Jeep assembly plant in Toledo, Ohio.

Never mind that the new factory will have 600 fewer jobs than the one it replaces, that unemployment rates are at record lows and that Chrysler planned to stay within 15 miles of Toledo -- possibly somewhere in Michigan -- even if it had abandoned its downtown site. Cities, like workers themselves, remain eager to hold onto jobs in this era of downsizing. City and state tax revenues paid by Chrysler and its workers would have plummeted had Chrysler moved out.

This is not the first time Chrysler has gotten an incentive package to have a plant stay put. In 1992, Chrysler replaced an 85-year-old plant in Detroit with a $1 billion sophisticated factory where Jeep Grand Cherokees, the high end of the Jeep line, are built. Back then, the company received a package of financial incentives worth more than $250 million ($378 million in today's dollars).

The Minneapolis Federal Reserve Bank argued that while the competition for jobs among states might shuffle jobs from state to state, it created no new jobs nationally. The bank argues that Congress, which has the authority to regulate interstate commerce, should deter such competition by taxing as income the special deals offered to companies like Chrysler.

HT: Johnny