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.