Tuesday, January 13, 2009

Despite Current Economic Slowdown, Consumers Have Never Had It So Good. Ever. Anywhere.

I have been purchasing some old Sears and Montgomery Wards catalogs on Ebay to have accurate, historical retail price data on typical consumer goods in various years, and then be able to compare the prices consumers pay today for various household goods to prices in previous periods, measured in the number of minutes or hours worked at the average wage to earn enough money to purchase the items. Here is the first in a series of CD posts comparing today's prices to a previous year:

Pictured below is a 9.2 cubic foot Sears Coldspot Spacemaster Refrigerator, available on sale in the 1949 Sears catalog for $224.75:

The average hourly manufacturing wage in 1949 was $1.26, meaning that the average worker had to work for 178.4 hours (22.3 days or 4.5 weeks) in 1949 to earn enough money (before tax) to purchase the refrigerator.

Pictured below is a current Sears model 9.5 cubic feet
refrigerator, available on sale for $339.99. At the current average hourly manufacturing wage of $18.03, the average worker would have to work today for only 18.9 hours (only 2.4 days) to purchase the refrigerator.

The difference in hours worked to purchase a 9 cu. foot (approx.) Sears refrigerator in the two years is displayed graphically below:

Bottom Line: We hear a lot of comparisons of today's economic conditions to the 1930s and the Great Depression, as if we're about to slip back to the living conditions of the 1930s and enter Great Depression II. Hopefully some of these comparisons will serve as an antidote to all of the daily gloom and doom.

A comparison of the price of a typical household appliance in 1949 (178.4 hours of work to purchase a refrigerator) to the price today (only 18.9 hours of work) is just one of hundreds of examples that demonstrate the significant increase in the average American's standard of living over time.

If consumers were paying the same price for a refrigerator today as consumers did in 1949 (178.4 hours of work at the average wage), the retail price today would be about $3,200 for a basic 9.5 cubic feet refrigerator (178.4 hours X $18.03 per hour). For a more deluxe Sears model refrigerator (retail price of $1,757 or 5.2 times more expensive than the basic model), the cost today would be about $17,000.

Despite the current economic slowdown, consumers have never had it so good. Ever. Anywhere.

New Feature: Receive Carpe Diem Daily By Email

You can now sign up for daily emails of new Carpe Diem posts, with the full text, all of the graphs, charts, tables and photos, etc. Just go to the bottom of the right sidebar (in the Links section) and enter your email address. I have used this feature to receive daily updates of the excellent Cafe Hayek blog for about the last year, and I really like it so I just figured out how to add it Carpe Diem. Try it out if you want, you can unsubscribe at any time.

Exodus From Forced-Unionism States Continues

The eight states enjoying the greatest net in-migration of people from other states between 2000-2008 all have Right to Work laws. But of the eight states suffering the worst out-migration, only Katrina-hit Louisiana has such a law (see chart below).

"Study after study has shown that forced unionism eliminates job opportunities and cuts employees' real incomes. Apparently, ordinary citizens know these studies are right. A new U.S. Census Bureau report shows that the massive 1990s exodus of employees and their families from forced-unionism states is accelerating during the current decade.

According to the report, between April 1, 2000 and July 1, 2008, a net total of 4.7 million Americans moved from forced-unionism states to Right to Work states. That's on top of a net population transfer of nearly five million Americans to Right to Work states during the 1990s."

National Right to Work Newsletter – January 2009. Thanks to editor Stan Green for providing it.

Humor of the Day: Check Your Kid's Homework

HT: Jesse Sievers

Why Keynesian Stimulus Plans Don't Work

1. At the national level (Cato's Dan Mitchell explains, see longer version here):

2. Or at the state level, watch a video of the Mackinac Center's investigation of the Michigan Film Incentive program, a state-level Keynesian stimulus program being implemented in Michigan.

RTW States Gain, Forced Union States Lose in '08

According to United Van Lines' 2008 Migration Study (raw data here), there were nine states with high outbound shipments (MI, ND, NJ, PA, RI, IL, IN, ME, and NY) in 2008, and seven states with high inbound shipments (NV, NC, AL, WY, SD, SC and OR). What do these two groups of states have in common?

At first glance (and I admit this is not based on a statistical test or a scientific study), we can see that 8 out of 9 states (all except ND) with high outbound shipments are Forced-Unionism states, and 6 out of 7 states (all except OR) with high inbound shipments are Right to Work states (see map above from the National Right to Work Legal Defense Foundation).

Assuming that household migration is largely based on Americans moving from states with declining or poor job opportunities to states with better job opportunities, one could argue that the states with the best employment opportunities are currently in RTW states.

Monday, January 12, 2009

Smackdown: Michael Moore vs. Dr. Sanjay Gupta

Washington Post -- President-elect Barack Obama has offered the job of surgeon general to Dr. Sanjay Gupta, the neurosurgeon and correspondent for CNN and CBS, according to two sources with knowledge of the situation. Gupta has told administration officials that he wants the job, and the final vetting process is under way. He has asked for a few days to figure out the financial and logistical details of moving his family from Atlanta to Washington but is expected to accept the offer.

MP: Good choice, President-elect Obama. Reason? Dr. Gupta exposed many of the distortions in Michael Moore's movie "Sicko":

Sanjay Gupta responds

Moore complains some more

Dr. Gupta vs. Moore on Larry King Live

John Goodman

"Big Farm" Is Not in Recession

Farm equity has increased by almost 50% since 2004, to a record $2.13 trillion, see top chart above (data here). And the debt to asset ratio for farms is at a five-year low of only 9.2% (down from 11.3% in 2004, see bottom chart), since farmers are carrying only $215 billion in debt on $2.13 trillion of farm assets.

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

Markets in Everything: Beer, Rats, Smaller Homes

1. Beer delivery service in Florida.

2. Rat meat in Cambodia.

3. Rat farming in India.

4. Smaller homes in US, as recession shrinks the "American Dream."

HTs: Craig Summers for #1, Ben Cunningham for #2 - #4.

Crime: Good News in US, Bad News in Mexico

Good News: Crime is declining in the U.S., see chart above.

Bad News: Crime is increasing dramatically in Mexico, especially for murders related to drug trafficking (5,637), which more than doubled in 2008 from the previous year. To put Mexico's murders in perspective, consider that there have been "only" 4,224 American war causalities in Iraq during the almost six years since the war began in 2003 (see chart below). Becoming the "Murder Capital of the World" is the price Mexico is paying for the U.S. "war on drugs" (see WSJ journal article here).

Update: QT and Misterjosh object to the graph above comparing Mexican murders in 2008 to American deaths in Iraq since 2003, see the comments section of this post. Here's an alternative graph below to illustrate how serious the murder problem is in Mexico, showing the 117% increase in murders from 2007 (2,477) to 2008 (5,367).

There are certainly differences in population between Mexico (approx. 108m) and the U.S. (approx. 300m) that distort a comparison, and there is also a difference in time periods: one year for murders in Mexico (2008) vs. 5 years of American deaths in Iraq, but the point was to make a comparison to put 5,367 murders in some context (see CSM story here that makes the same comparison).

The graph below is another way to put 5,367 Mexican murders in a single year (2008) in context, by comparing it to the previous year. Not sure, but I would bet that the +117% increase might make Mexico #1 for 2008, in terms of the greatest percentage increase from 2007?

Thanks to James Hohman for the FBI link.

Active Management Strategies Are Generally An Expensive and Losing Proposition vs. Index Funds

From Vanguard founder John Bogle's WSJ article last week "Six Lessons for Investors":

"Owning the market remains the strategy of choice. Such a strategy guarantees a return that lags the market return by a minuscule amount, and exceeds the return captured by active equity-fund managers as a group by a substantial amount. Why? Because the heavy costs incurred by investors in actively managed equity funds can easily amount to 2% to 3% annually. Typical expense ratios run from 1% to 1.5%; the hidden costs of portfolio turnover often come to 0.5% to 1.0%; a 5% front-end sales load, amortized over a holding period of five to 10 years, adds another 0.5% to 1.0% per year in costs.

As a group, investors are by definition indexers. (That is, they own the entire market.) So indexing wins, not because markets are efficient (sometimes they are, sometimes they are not), but because its all-in annual costs amount to as little as 0.1% to 0.2%.

Indexing won in 2008 by an especially wide margin. Low-cost, low-turnover, no-load S&P 500 index funds outpaced nearly 70% of all equity funds, and (admittedly a fairer comparison) more than 60% of all funds focused on large-cap U.S. stocks. This continues the pattern -- with some variations -- that goes back to the start of the first index fund 33 years ago. The bond index fund did even better. Its return of 5% for 2008 outpaced more than 80% of all taxable bond funds.

In sum, active management strategies as a group lose because they are expensive. Passive indexing strategies win because they are cheap."

Markets in Everything: California Edition

1. Virginity of a 22-year old California student who has a degree in Women's Studies and wants money for a master's degree in Family and Marriage therapy.

2. Proposed
undergraduate and medical degree at University of California-Merced in just five years.

HTs to
Jeff Lehner and Ben Cunningham for the links above, and Marginal Revolution for the category, see full Markets in Everything list here.

An Economist’s Mea Culpa

According to Princeton economist Uwe E. Reinhardt, writing in the NY Times:

1. Our entire 21st-century banking sector, managed as it is by graduates of the nation’s top business schools, supported by highly trained financial engineers, and monitored around the clock by thousands of allegedly bright financial analysts, immolated itself with highly toxic assets, purchased with borrowed money, and in the process infected the entire world economy.

2. The economics profession slept comfortably as Wall Street was imploding. Fewer than a dozen prominent economists saw this economic train wreck coming — and the Federal Reserve chairman, Ben Bernanke, an economist famous for his academic research on the Great Depression, was notably not among them.

Sunday, January 11, 2009

Michigan Leads U.S. Again for Outbound Migration

ST. LOUIS - The Mid-Atlantic and Western regions proved to be popular destinations in 2008 for those looking to change their places of residence. The findings are among the results of United Van Lines' 32nd annual "migration" study (data here), which tracks where its customers moved from and their most popular destinations over the past 12 months.

United has tracked shipment patterns annually on a state-by-state basis since 1977. For 2008, the study is based on the 198,962 interstate household moves handled by United among the 48 contiguous states and Washington, D.C. United classifies the states as "high inbound" (55% or more of moves going into a state), "high outbound" (55% or more of moves coming out of a state) or "balanced."

MOVING IN: Mid-Atlantic states came out ahead in 2008, with the District of Columbia (62.1%) reigning as the top destination, North Carolina (58.2%) capturing third place (dropping from the No. 1 spot in 2007) and South Carolina (56.4%) coming in as the seventh highest inbound state. And although it's not considered a high-inbound state, Delaware (54%) showed signs of growth in 2008.

MOVING OUT: The historical data pulled from United's migration study over the past 32 years shows an overall outbound trend for the Great Lakes region. Michigan (67.1%) again captured the top outbound spot, a title held since 2006 (see top chart above). Indiana (57%) also earned the distinction of being a high-outbound state, continuing a 15-year trend. Other Great Lakes states that made the high-outbound list were New York (55.1%) and Illinois (57.2%), both of which have been outbound states since the survey was established in 1977.

MP: The whopping 2:1 ratio of Michigan outbound moves (6,680) compared to Michigan inbound moves (3,277) in 2008 is also reflected in one-way rental rates for U-Haul trucks. For a 26-foot truck, the cost from Detroit to Charlotte, NC is $1,228, almost 5 times times higher than the $268 cost to rent the same truck from Charlotte to Detroit (see bottom chart above).

Where Goodness Lies: An Open Letter to Students

By Judith Cone, Vice President for Emerging Strategies at the Ewing Marion Kauffman Foundation:

"The world is hungry for what we often take for granted. I have been invited to visit countries around the world to speak with leaders on how to promote entrepreneurship as a way to create opportunity and hope for their young people. These leaders clearly understand that entrepreneurs create the net new jobs by bringing innovative products and services to customers. I experience the hunger in the world for the privilege of creating jobs through entrepreneurship, and then I return to the United States, where I see something that troubles me.

Some students and professors reject business as a morally responsible way to spend one's life. The issue I have is not that some people would rather work in the public sector (government) or the social sector (nonprofit work), but that they assign a higher moral calling to these two sectors than to the private sector (business).

As a college student, you are attempting to gain the knowledge, skills, networks, and inspiration to live a happy, productive, and meaningful life. I like to think of each of you as one unit of creative potential. Looking at it this way means that faculty members are more than dispensers of knowledge. They are guides along your journey, teaching the subjects, passing along beliefs and biases, hopefully inspiring you, and challenging you, to consider the types of people you will become.

Some professors attempt to influence you toward those biases. Some think dismissively of business, for instance, as if society would be better off without it, or they assign pernicious motivations to those who lead businesses. Throughout history, social experiments to this end have failed. Every day, these professors use and benefit from the products and services of business: Google, bookstores, clothing, transportation, and the local coffee shop. They fail to differentiate between business leaders and dismiss the whole sector as greedy, uncaring, and destructive. Yet, even with much evidence of greed and wrongdoing in the public and social sectors, that same categorical condemnation is not present.

In fact, you can make a vital contribution in any of the three sectors, because all three are needed for a society to function well. If just one sector is weak or absent, the result is usually a failed state. Think of the former communist states that tried doing away with private business, or the chaotic warlord states without effective government.

More to the point, in each sector there are models of virtue and there are scoundrels. Goodness has nothing to do with the sector. Where goodness lies is in the heart of the individual, and the choices that matter are the moral choices made in conducting the work.

Morality, ethics, and the ability to make the world a better place are not the domain of any one sector. It is individuals, and how they conduct themselves in the world, that matter. As you complete your college work, I hope you will take at least one course in entrepreneurship to learn how to translate your creative ideas into enterprises that create value for society. I hope you remember the many young people around the world who seek the opportunities afforded by entrepreneurship. And, I hope your story is told one day as an example of how you placed opportunity and choice in the hands of others. I hope people know through your actions that you used your unit of potential for good---whether in the private, public, or social sector."

HT: Ben Cunningham

Blogger Formatting Issue: Blockquote vs. Italics

A reader comments:

Here is one comment on how you might improve your blog. I find many times that I am not sure when you are quoting others and when it is your own commentary. You use italics a lot, but I am not sure if you are doing this to indicate a quote, or if you use italics in general. I bet that other readers notice the same thing.

Response: When I started Carpe Diem in the fall of 2006, I tried very hard to use the "blockquote" feature of Blogger to offset/indent direct quotes and clearly separate and distinguish my commentary from the quotes of others. I finally gave up because it was too difficult and time-consuming to get the spacing and layout of the post to look right. As the next best alternative, I started using italics for direct quotes, and non-italics for my own comments.

I'll experiment again with the blockquote feature of Blogger for quotes. I notice that Greg Mankiw seems to be able to effectively use the blockquote feature on his blog, so I'll try it again. One complication might be that I use a non-default font style (Georgia) and color (brown), which complicates the HTML formatting of the blog posts before adding the blockquote formatting. And I'm using the original version of Blogger, not the newer updated version, so I might have some issues there.

For now, just assume that any italic text is a direct quote and any non-italic text is my own commentary, and I'll start experimenting with the blockquote feature again (see above, the comment is in blockquote format).

By the way, any comments, suggestions, and tips/ideas for posts are always very much appreciated.

Legal Minefields, Using State Power for Private Aggrandizement, and The Death of Common Sense

In his column today George Will discusses America's increasingly perverse legal culture, and reviews what he considers to be 2009's most needed book on public affairs -- Philip Howard's "Life Without Lawyers: Liberating Americans from Too Much Law." Will talks about the "bubble wrap approach to child rearing" produced by the "cult of safety," and by trial lawyers "congregating at the intersection of human tragedy and human greed."

Some excerpts:

"A nation in which the proportion of lawyers in the work force almost doubled between 1970 and 2000 has become ludicrously dense with laws. Now legal self-consciousness is stifling the exercise of judgment. Today's entitlement culture inculcates the idea that everyone is entitled to a life without danger, disappointment or aggravation. Any disagreement or annoyance can be aggressively "framed in the language of legal deprivation."

Law is essential to, but can stifle, freedom. Today, Howard writes, "Americans increasingly go through the day looking over their shoulders instead of where they want to go." The land of the free and the home of the brave has become "a legal minefield" through which we timidly tiptoe lest we trigger a legal claim. What should be routine daily choices and interactions are fraught with legal risk.

Time was, rights were defensive. They were to prevent government from doing things to you. Today, rights increasingly are offensive weapons wielded to inflict demands on other people, using state power for private aggrandizement. The multiplication of rights, each lacking limiting principles, multiplies nonnegotiable conflicts conducted with the inherent extremism of rights rhetoric, on the assumption, Howard says, "that society will somehow achieve equilibrium if it placates whomever is complaining."

But in such a society, dazed by what Howard calls "rule stupor" and victimized by litigious "victims," the incentives are for intensified complaining. Read Howard's book, and weep for the death of common sense."

Saturday, January 10, 2009

How Minimum Wage Caused 200 Jobs to Evaporate

ST. LOUIS POST-DISPATCH -- A young St. Louis mother who hand-painted barrettes to tame her daughter's unruly locks, turned the hair accessories into a $6 million dollar business (WeeOnes.com) that sold 2 million hairbows in 2007 and employed 250 workers in Missouri. It's a success story that could only happen in America, right?

MP: Yes, it's a perfect example of starting a business from nothing, and "living the American Dream," except that in October, the company told workers they were closing the plant in Missouri and contracting the work out to a factory in Mexico. One of the main reasons?

High and rising labor costs, primarily from the 37% increase in Missouri's minimum wage from $5.15 per hour in 2006 to $7.05 starting January 1, 2009 (see chart above), which contributed significantly to losses for the company over the last few years. The market for their products is so competitive that the company couldn't increase the price of the bows to offset the higher labor costs without losing sales, so the company was forced to move production to Mexico, and now more than 200 Missouri jobs have evaporated - largely thanks to the minimum wage.

Bottom Line: The workers of Missouri need jobs in today's tough economy more than they need the "compassion" of their state legislators. Unfortunately, for purely political reasons (not economic reasons), Missouri's elected officials have priced some of its unskilled workers right out of the labor market into the unemployment line, and helped ship jobs to Mexico, all because of their "compassionate" annual increases in the minimum wage (now mandated in Missouri).

Question: Which option is better for the Wee Ones workers: Continued employment at $5.15 per hour, or being now unemployed at $0.00 per hour? I bet if they had a choice, they'd take the first option. Unfortunately, that would be illegal.

HT: Kevin Murphy

Funniest Thing I Heard Today: Chicago Politics

Speaking as a Chicagoan, the notion that people in Illinois actually enjoy political corruption is a vicious stereotype. Illinois is the heartland. It is the most American of states.

When I was a boy, growing up in Chicago, we had a roadside stand in front of my beloved alma mater, Al Capone Jr. High School, named for an esteemed local philanthropist. We sold lemonade, chocolate chip cookies, zoning permits and seats on the Chicago City Council.

In Illinois, we don't dismiss governors selling favors, or public officials getting tailored for prison jump suits, with a single, tired, overworked cliché like corruption. In our little village of Chicago, we call it something else: Tradition.

Universal Healthcare And The Waistline Police

Imagine a country where the government regularly checks the waistlines of citizens over age 40. Anyone deemed too fat would be required to undergo diet counseling. Those who fail to lose sufficient weight could face further "reeducation" and their communities subject to stiff fines.

Is this some nightmarish dystopia? No, this is contemporary Japan. The Japanese government argues that it must regulate citizens' lifestyles because it is paying their health costs.

This highlights one of the greatly underappreciated dangers of "universal healthcare." Any government that attempts to guarantee healthcare must also control its costs. The inevitable next step will be to seek to control citizens' health and their behavior. Hence, Americans should beware that if we adopt universal healthcare, we also risk creating a "nanny state on steroids" antithetical to core American principles.

~Dr. Paul Hsieh writing in the Christian Science Monitor

Thanks to Ben Cunningham.

Market Competition Drives Down Drug Prices

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. 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.

USA Today -- Spending on prescription drugs in 2007 showed the smallest increase in more than four decades, driven by rising use of low-cost generic drugs, and chain stores offering $4 prescriptions.

NY Times -- National health spending grew in 2007 at the lowest rate in nine years, mainly because prescription drug spending increased at the slowest pace since 1963, the government reported Monday. Prescription drug prices rose 1.4% in 2007, much less than the 3.5% growth recorded in 2006 (and also much less than the overall rates of inflation in both 2007 and 2008, see chart above). The slower growth results, in part, from generic drug discount programs offered by large retail chains like Walmart.

MP: Maybe if the rest of the health care industry was exposed to as much intense market competition as the prescription drug market, we'd also see price declines for physician services, etc.?

See a good timeline here at FMPolitics of the trend toward lower drug prices that began in 2006 when Wal-Mart started offering $4 prescriptions.

The Downsides of Widespread Homeownership; Have Americans Overinvested in Housing? Probably

From the Richmond Fed article "House Bias: The Economic Consequences of Subsidizing Homeownership":

The homeownership rate is about 68% now (see chart above). Perhaps the best policy question is no longer why the homeownership rate in the United States is so low. A question that economists might ponder instead is: Why should we want the homeownership rate to be so high?

The Downsides of Widespread Homeownership

1. The current policies produce an economy in which housing investment is generally higher than it would be if government didn’t favor it. Simply put, Americans may have overinvested in housing. And every dollar that is invested in housing stock is a dollar not invested in a more productive use elsewhere. That results in a net reduction in overall economic efficiency.

2. It's not clear that using a home purchase as a primary vehicle for a family’s investment is sound financial advice. Robert Shiller, an economist at Yale University and an expert on national housing markets, has estimated that “from 1890 through 1990, the return on residential real estate was just about zero after inflation.” Throw in the costs of maintenance of the property and it’s easy to see how renting could certainly be cheaper than owning, even if you include the tax advantages. Yet the opportunity cost of those home investments — the foregone investment opportunities elsewhere — go largely unseen.

3. The costs of owning a home go beyond the financial commitments too. Being tied down to a house tends to make people less likely to leave an area in which employment prospects are deteriorating. After all, terminating a lease is much less costly and time-consuming than foreclosing on a house or selling a home, even if the owner breaks even on the transaction. Economists predict this would lead to a decline in “labor mobility,” the ability for people to move to where the jobs are.

4. Homeownership also tends to contribute to adverse political incentives. Incumbent homeowners have an interest in keeping their property values high and have been shown statistically to have a bias in favor of land-use regulations. These restrictions limit the number of houses that can be built in any geographic area and, consequently, keep housing inventory low and property values artificially inflated.

Friday, January 09, 2009

Top 7 Phone Irritations

Are these phone behaviors as irritating to others as they are to me?

1. The Auctioneer Speedup. Somebody is leaving you a voicemail message, and no matter how fast they might be talking already, they do an "auctioneer speedup" when they leave their callback number, and you have to listen repeatedly to the message to get the whole phone number. How about speaking really, really slowly when leaving your phone number? Or at least repeat it.

2. The Generic Message. You're driving in your car, or are otherwise trying to multi-task without your reading glasses, and you dial somebody's number and then get a generic, machine-voice message that only mentions the number and not the person's name. Now you're not sure if you have reached the correct person, or have reached one of your other irritating friends with a generic message. What's so hard about taking 30 seconds to put a personalized message on your phone, so that others will know with 100% certainty that they have reached the correct number?

3. The Expected Callback from a Hangup. Somebody calls and hangs up without leaving a message. Then the next time you talk to them, they ask why you didn't call back. Calling and hanging up without leaving a message is called a "hangup," not a "phone call with a message." How are we supposed to know it wasn't a mistake?

4. The Callback Before Listening to the Message. You call somebody and leave a detailed message with all of the relevant information. They see that you called, and call you back before listening to the message. In many cases, a callback is not even required, because you have already left all of the relevant information in the message. At the very least, you now have to repeat the same information that was left on the message.

5. The Unexpected, Unwanted Handoff. You are talking to somebody on their cellphone, and they suddenly hand off the phone to somebody else, possibly somebody you are not that interested in talking to.

6. The Un-businesslike Answer. Somebody answers the phone with a greeting of "Hello," instead of identifying themselves by name, or identifying the company. Besides being un-businesslike, it now requires unnecessary conversation establishing that the caller has reached the correct person.

7. Reverse Order Talking. You answer the phone, and the caller is already talking before you have even had a chance to identify yourself or open with a greeting.

Comments welcome, I'm sure this list can be increased to 10.

Hyundai Offers New "Economic Return Policy"

Want to purchase a new car, but you're worried about losing your job? No problem, with Hyundai's new "economic return policy," which allows buyers to return a new car for free if they lose their job or lose their driver's license due to medical reasons.

Thanks to Sanil Kori.

The "Man-Cession" Continues to Worsen

According to today's BLS report (Table A-1, Household Data), the U.S. economy lost 2.956 million jobs in the last year (Dec. 2007 to Dec. 2008). Further analysis shows that 82% of the job losses (2.413 million) were jobs held by males, and 18% of the jobs losses (460,000) were jobs held by females (see top chart above). Of the 806,000 decline in December employment (household data), 91% of the job losses were male jobs (730,000), compared to a 76,000 job loss for females (9% of total).

Further, the December unemployment rate for men is 7.9% vs. only 6.4% for women, and the gap in jobless rates between men and women has been increasing for the last eight months (see bottom chart above).

See previous CD posts on this topic here and here.

Chart of the Day

I'm not sure what to say about this.

Thursday, January 08, 2009

Free: The Best Price Anybody Can Ask For

WASHINGTON POST -- Giant Food stores will give free generic antibiotics to customers with a prescription for the next three months in what retail experts called an aggressive move in supermarkets' heated battle for shoppers. The pharmacy business has become increasingly competitive since Wal-Mart began offering nearly 300 generic prescription drugs for just $4 in 2006. Its rivals were forced to follow suit, with Giant lowering 90-day supplies of popular drugs to $9.99 this summer.

Still, several experts said Giant's announcement yesterday was the first time they had heard of a retailer literally giving away prescription drugs.

"I think it's a gutsy move," said Ron Paul, president of food consulting firm Technomic. "Free is the best price anybody can ask for."

MP: I guess the only thing better would be a negative price, where you get the merchandise for free, along with some free cash.

If There's Life After Steel in Pittsburgh, There's Hope for Detroit

PITTSBURGH (NY TIMES)This is what life in one American city looks like after an industrial collapse: Unemployment is 5.5%, far below the national average (see chart above). While housing prices sank nearly everywhere in the last year, they rose here. Wages are also up. Foreclosures are comparatively uncommon.

A generation ago, the steel industry that built Pittsburgh and still dominated its economy entered its death throes. In the early 1980s, the city was being talked about the way Detroit is now. Its very survival was in question. Deindustrialization in Pittsburgh was a protracted and painful experience. Yet it set the stage for an economy that is the envy of many recession-plagued communities, particularly those where the automobile industry is struggling for its life.

“If people are looking for hope, it’s here,” said Sabina Deitrick, an urban studies expert at the University of Pittsburgh. “You can have a decent economy over a long period of restructuring.”

Yet the semisweet spot that Pittsburgh finds itself in was never inevitable. As recently as 2000, it had a higher unemployment rate than Detroit or Cleveland (see chart below). Just as Michigan has traditionally put all its chips on the auto industry, it took Pittsburgh a long time to come to terms with the end of the steel era.

MP: In the Big Three bailout discussions, there was a lot of hysteria about the significantly negative impact of a GM or Ford bankruptcy on the Michigan and national economies, almost as if Michigan could never fully recover from its long dependence on the auto industry. Pittsburgh's comeback from the decline of the domestic steel industry shows that Detroit and Michigan could survive even the unlikely demise of GM and Ford, and illustrates that there would be life in Michigan after the Big Three.

In a previous CD post, I documented the shift of Flint, Michigan (once the epicenter of both the UAW and GM) from a undiversified manufacturing-intensive, one-company town to a service sector economy. If a transition can happen in Pittsburgh and Flint, it could realistically happen anywhere.

New Blog

Observations, opinion, research and links from financial economists Eugene Fama and Kenneth French.

HT: Greg Mankiw

Quote of the Day: Socialized Medicine Can Kill You

New life-saving medications that go immediately into the market in the United States take a much longer time to become available to Canadian patients-- if they ever get approved by the bureaucrats.

No doubt that lowers the cost of medications-- if you count costs solely in money terms, rather than in terms of how many people literally pay with their lives when the bureaucrats are reluctant to buy new pharmaceutical drugs, while they can continue to approve obsolete and cheaper drugs for the same illnesses.

~Thomas Sowell

Welcome University of Michigan-Flint Students

To the finance students enrolled in BUS 466/MGT 566 International Finance for the winter term 2009:


Professor Perry

Commercial Bank Share of Consumer Credit > 32%

According to consumer credit data from the Federal Reserve, commercial banks' share of consumer credit is above 32% for the first time since 2000, mainly as a result of the declining share of consumer credit held as "pools of securitized assets" since 2002 (see chart below).
Does this trend signal a return to the more "traditional" banking of the past?

Thanks to Larry Kudlow for the idea for this post.

A Lowly Municipal Clerk Has More Life-and-death Power Over You Than Bill Gates or Warren Buffet

Warren Buffett and Bill Gates, with about $60 billion in assets each, are America's richest men. With all that money, what can they force us to do? Can they take our house to make room so that another person can build an auto dealership or a casino parking lot? Can they force us to pay money into the government-run retirement Ponzi scheme called Social Security? Can Buffett and Gates force us to bus our children to schools out of our neighborhood in the name of diversity? Unless they are granted power by politicians, rich people have little power to force us to do anything.

A GS-9, or a lowly municipal clerk, has far more life-and-death power over us. It's they to whom we must turn to for permission to build a house, ply a trade, open a restaurant and a myriad of other activities. It's government people, not rich people, who have the power to coerce and make our lives miserable. Coercive power goes a long way toward explaining political corruption.

~Walter Williams column "Rich People vs. Politicians"

Debt-Financed Consumer Spending Spree?

From the Wall Street Journal article "Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes":

Rick and Noreen Capp recently reduced their credit-card debt, opened a savings account and stopped taking their two children to restaurants. Jessica and Alan Muir have started buying children's clothes at steep markdowns, splitting bulk-food purchases with other families and gathering their firewood instead of buying it for $200 a cord.

As layoffs and store closures grip Boise, these two local families hope their newfound frugality will see them through the economic downturn. But this same thriftiness, embraced by families across the U.S., is also a major reason the downturn may not soon end. Americans, fresh off a decadeslong buying spree, are finally saving more and spending less -- just as the economy needs their dollars the most.

MP: The "decadeslong buying spree" reported by the WSJ seems to be a commonly held belief; do a Google News Search of "consumer spending spree" and you get 600 results, and for "credit card nation" you get almost 400 results.

But the consumer debt data from the Federal Reserve suggest a slightly different story than the one reported by the media. The top chart above shows consumer credit outstanding as a percentage of GDP, which peaked in mid-2003 at 18.7%, and then declined a full percentage point by mid-2007 to 17.7% before increasing slightly to 17.9% by the third quarter of 2008. And 1% of GDP is a lot, about $140 billion.

The bottom chart above shows the growth rate in total consumer credit, which is at the lowest level since the early 1990s, and has been falling steadily since 2001.

What's going on here? It's possible that "consumer credit" reported by the Fed does not include mortgage debt, and homeowners started using home equity loans instead of bank loans around 2002?

Comments welcome.

Wednesday, January 07, 2009

Consumers Can Now Check Medical Prices

NASHVILLE, Tenn. -- Americans can't control the economy, but they can do a much better job of educating themselves about what they should pay for healthcare. Healthcarebluebook.com, the first national effort to provide free pricing data to consumers launches today, and is designed to give people the information they need to pay fair prices for healthcare.

Americans do price/value comparisons for their homes, cars, vacations and the majority of goods and services they buy. "Why not healthcare?" asks Dr. Jeff Rice, Healthcarebluebook.com founder.

HT: Ben Cunningham

Entrepreneurs Can Solve Health Care Problems

From Devon Herrick's (National Center for Policy Analysis) study "Health Care Entrepreneurs: The Changing Nature of Providers:"

The market for medical care does not work like other markets. Providers typically do not disclose prices prior to treatment because they do not compete for patients based on price. Payments are usually not made by patients themselves but by third parties — employers, insurance companies or government (only 12% of medical costs are paid directly by patients, see chart above). And the amounts paid are not really market-clearing prices; they are "reimbursement" rates negotiated with bureaucratic institutions and networks. Furthermore, when providers do not compete on price, they usually do not compete on quality either. In fact, in a very real sense, doctors and hospitals are not competing for patients at all — at least not in the way normal businesses compete in markets.

The lack of competition results in a highly artificial market plagued by problems of high costs, inconsistent quality and poor access, according to Devon Herrick at the National Center for Policy Analysis in his study "
Health Care Entrepreneurs: The Changing Nature of Providers."

But in health care markets where patients pay directly for all or most of their care, providers almost always compete on the basis of price and quality. Examples include:

Cosmetic surgery: Since it is rarely covered by insurance, patients pay out of pocket and are thus sensitive to prices; they can typically compare prices prior to surgery and pay a price that has been falling over time in real terms (see chart below).

Laser eye surgery: Competition is holding prices in check and improving quality in vision correction surgery, including accurate correction, faster healing, fewer side effects and an
expanded range of conditions that can be treated.

Price competition for drugs: Wal-Mart became the first national retailer to aggressively compete for buyers of generic drugs by charging a low, uniform price ($10 for a 90-day supply). Other chain stores have responded with their own pricing strategies.

Walk-in clinics in shopping malls and drug stores compete by offering low money costs and low time costs, and electronic prescribing improves quality using error-reducing software.

Telephone-based practices: TelaDoc, provides telephone consultations to 2 million customers. It allows patients access to a doctor any time of day from any location and also
uses electronic prescribing to reduce errors.

Medical tourism provides cash-paying patients health care outside of the United States in high-quality facilities that rival domestic facilities. Patients can save 30 to 50 percent by going abroad.

Bottom Line: In health care markets where third-party payers do not pay the bills, the behavior of providers and patients is radically different. In these markets, entrepreneurs compete for patients’ business by offering greater convenience, lower prices and innovative services unavailable in traditional clinical settings. What lesson can we learn from these examples of entrepreneurship in health care? The most important is that entrepreneurs can solve many of the health care problems that critics condemn. Public policy should encourage, not discourage, these efforts.

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