Tuesday, January 27, 2009

Luxury 50 Yardline Suite Superbowl Tickets: $150k

Luxury Suite on the 50 yard line offered by owner of suite-- 8 tickets, 3 parking passes, 6 flat screen TVs, private restroom, private bar & lounge area, & full catering. Tickets may be purchased in pairs for $37,500.00 per pair - or best offer.

"Buy it Now" price on Ebay: $150,000

See more Superbowl 2009 listings here on Ebay.

Sowell Makes The Case For Tax Cuts

Out of $355 billion newly appropriated, the Congressional Budget Office estimates that only $26 billion will be spent this fiscal year and only $110 billion by the end of 2010. Using long, drawn-out processes to put money into circulation to meet an emergency is like mailing a letter to the fire department to tell them that your house is on fire.

If you cut taxes tomorrow, people would have more money in their next paycheck, and it would probably be spent by the time they got that paycheck, through increased credit card purchases beforehand. If all this sound and fury in Washington was about getting an economic crisis behind us, tax cuts could do that a lot faster.

~Thomas Sowell

Pimp My Farm: Lusting After Taxpayer Money

Members of Congress are less like whores than they are like pimps for persons unwillingly conscripted to perform unpleasant services.

Consider, for example, agricultural subsidies. Each year a handful of farmers and agribusinesses receive billions of taxpayer dollars. These are dollars that government forcibly takes from the pockets of taxpayers and then transfers to farmers.

The customers, in this case, are the farmers and agribusinesses. The suppliers of the services performed for these customers are taxpayers, for it's the taxpayers who possess the ultimate asset -- money -- that farmers and agribusinesses lust after. And the intermediaries who oblige the suppliers to satisfy the base lusts of the customers are politicians. Just as pimps facilitate their customers' access to prostitutes' assets, politicians facilitate their customers' access to taxpayers' assets.

~Donald Boudreaux, chairman of the Department of Economics at George Mason University

The Central Defect of Bailouts and Stimulus Plans

The central defect of government bailouts and stimulus packages is that the money is allocated through a political process. It goes to recipients who have the most political influence. Private entrepreneurs and even big business, by contrast, employ investment to earn a profit. The record shows that the latter yields greater economic efficiency, and hence creates real jobs.

The new stimulus package pays lip service to aiding the private sector with various tax incentives for hiring and investing capital. It acknowledges, just barely, that the private sector will be the engine for recovery if recovery is to be had. But the record for such measures is about as dismal as the one for short-term supplements to consumer income. They do very little to change the decisions or behavior of the recipient. If the recipient is wary and uncertain about the future, he or she will probably remain so.

Socialist economies, where governments decide how to allocate resources, are notoriously less efficient than market-capitalist economies. As in Washington, every politician demands his share. The late Abram Bergson of Harvard concluded that the old Soviet Union -- the ultimate in socialism -- employed capital only about half as efficiently as the U.S. That is one reason the Soviets collapsed from economic exhaustion.

Democrats are putting a lot of faith, to the tune of over $1.5 trillion, in economic policies with dodgy track records. At this time of a new president and great expectations, one hopes the political class will succeed better with massive spending than it has in the past. But don't bet the farm.

~George Melloan in yesterday's WSJ

Harvesting Cash: Corporate Welfare for Farmers

Consider these facts. Ninety percent of all subsidies go to just five crops: corn, rice, cotton, wheat, and soybeans. Two thirds of all farm products—including perishable fruits and vegetables—receive almost no subsidies. And just 10% of recipients receive 75% of all subsidies. A program intended to be a “temporary solution” has become one of our government’s most glaring examples of corporate welfare.

U.S. taxpayers aren’t the only ones who pay the price. Cotton subsidies, for example, encourage overproduction which lowers the world price of cotton. That’s great for people who buy cotton, but it’s disastrous for already impoverished cotton farmers in places such as West Africa.

U.S. farm programs cost taxpayers billions each year, significantly raise the price of commodities such as sugar (which is protected from competition from other producers in other countries), undermine world trade agreements, and contribute to the suffering of poor farmers around the world. It’s bad public policy, especially in these troubled economic times.

From a new report and video from Reason "Agricultural Subsidies: Corporate Welfare for Farmers," (link here).

MP: As the chart above shows, another fact to consider is that average 2007 household farm income ($86,223) was 27.5% higher than U.S. average household income ($67,609), according to the USDA.

Monday, January 26, 2009

Is China Manipulating the Yuan? Should We Care?

According to Treasury Secretary Timothy Geithner (in his testimony before the Senate Finance Committee):

President Obama - backed by the conclusions of a broad range of economists - believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices. While in the U.S. Senate he cosponsored tough legislation to overhaul the U.S. process for determining currency manipulation and authorizing new enforcement measures so countries like China cannot continue to get a free pass for undermining fair trade principles. The question is how and when to broach the subject in order to do more good than harm.

Q1: Why does everybody complain that China "manipulates" its currency, but nobody complains that Hong Kong "manipulates" its currency, even though Hong Kong has used a currency board to fix the Hong Kong dollar at the same level for the last 25 years (see chart above back to 2000 - Hong Kong dollar has been at the same level since 1984)?

Q2: Is it fair to accuse China of "manipulating" its currency when the yuan has appreciated by -17% since 2005 (see chart above)?

Q3: If China is "manipulating" its currency, the manipulation is to keep the dollar artificially high. Why should we complain about a strong dollar, when that translates into lower dollar prices for American consumers and businesses buying Chinese products? What if China sent us its goods for free, as a form of foreign aid? That would be even better than an artificially strong dollar, but an artificially high dollar and "everyday low prices" for China's products aren't so bad.

Global Internet Users Now Top 1 Billion, China's #1

LONDON, U.K., January 23, 2009comScore, Inc. (NASDAQ: SCOR), a leader in measuring the digital world, today reported that total global Internet audience (age 15 and older from home and work computers) has surpassed 1 billion visitors in December 2008, based on data from the comScore World Metrix audience measurement service.

“Surpassing one billion global users is a significant landmark in the history of the Internet,” said Magid Abraham, President and Chief Executive Officer, comScore, Inc. “It is a monument to the increasingly unified global community in which we live and reminds us that the world truly is becoming more flat. The second billion will be online before we know it, and the third billion will arrive even faster than that, until we have a truly global network of interconnected people and ideas that transcend borders and cultural boundaries.”

China represented the largest online audience in the world in December 2008 with 180 million Internet users (see chart above from The Economist), representing nearly 18% of the total worldwide Internet audience, followed by the U.S. (16.2% share), Japan (6.0%), Germany (3.7%) and the U.K. (3.6%).

Obama's Stimulus: George Bush On Steroids

Cato Institute's Dan Mitchell explains why Obama's so-called stimulus is good for the government, but bad for the economy:

The Big Mac Index: Law of One Price vs. PPP

From The Economist, "The Big Mac index (see chart above) is based on the idea of purchasing-power parity (PPP), which says currencies should trade at the rate that makes the price of goods the same in each country."

Technically, the Big Mac Index is more of a test of the Law of One Price, an economic law that says "In an efficient market all identical goods must have only one price." Purchasing Power Parity generally applies to a basket of goods.

Air Quality Today is Better Than a Decade Ago

Economist Steven Landsburg writes in The Altlanic that "The air is cleaner than it was a decade ago..." and provides this EPA link.

The charts above display the ambient air quality trends for particle pollution ("particulate matter" or PM), and show that average PM concentrations have decreased over the years by -28% since 1990 for the first measure (PM10) and by -11% since 2000 for the second measure (PM2.5).

Bottom Line: Landsburg is correct, the air today is cleaner than it was in the past (according to EPA data).

What Crisis? Why the Bush Years Weren't So Bad and Why It's Getting Better All The Time

Obama is already asking for an unprecedented increase in the size of the national debt. Before we go back down that road, maybe we should stop and ask: "What crisis?''

Start with this: You are better off than you were four years ago. After adjusting for inflation, the average American earns about $2500 a year more today than on the day of W's second inaugural. That same average American now spends a little less time at the office or on the assembly line, and a little more time on vacation or on the couch. He or she shops online for products that were unimaginable just four years ago. (How many of you read this morning's paper on your Kindle or iPhone?) The air is cleaner than it was a decade ago and life expectancy is up.

Not that the last president had much to do with any of this. He didn't. It's the way the modern world works. Things improve. Incomes rise, work hours fall, the quality of goods improves. Few things in economics are as consistent as the growth of real GDP per capita over the past 200 years (see chart above).

Today we're in a recession--a moment in time when the march of growth stalls and even gets set back by a couple of years. This happens every now and then. Really. But things pick up again and we move on. Some people get set back a little farther than others; some are unemployed for a while. But the pool of resources is still near an all-time high.

~Economist Steven E. Landsburg in The Atlantic Magazine

Sunday, January 25, 2009

Target: Why Not Just Lower Prices or Raise Wages?

From the Target Corporate Responsibility Report Overview 2007:

Since 1946, we have contributed 5% of our annual income to programs that serve our communities. Today, this long-standing tradition means that more than $3 million every week goes to education initiatives that inspire children to learn, make it possible for families to experience the arts and to partner with a variety of social service agencies, families and communities across the country.

You might have seen large signs in Target stores with that message, I think it has them in every store.

Q: Wouldn't it be a lot easier for Target to just lower its prices and/or increase wages for Target employees by $3 million weekly? Wouldn't that be a more direct, and just as effective, way to serve the communities where Target stores are located?

The Real Price of Lumber is The Lowest in History, Thanks To Advanced Time-Saving Technology

Watch the amazing video below, maybe this time-saving technology helps explain why the real price of lumber is the lowest in history (see chart above), at least back to 1891:

Thanks to Ben Cunningham for the video.

Chart of the Day: Percent Homes Using Wood, Coal

CENSUS BUREAU -- Tracing the history of heating fuels from 1940 to 2000 shows that 3-in-4 households used coal or wood in 1940, whereas only 1.8% of homes used these fuels in 2000. Homes using coal or coke for heating fuel dropped rapidly in each decade between 1940 (55%) and 1970 (2.9%); and the rate continued to drop until 0.1% of homes used these fuels in 2000. Wood, used as a major heating fuel in 1940 (23%), virtually disappeared by 1970 (only 1.3%). Since that time, it has shown a modest comeback in 1990 (3.9%), but dropped in 2000 (1.7%). It was the dominant fuel in the Pacific Northwest and South in 1940.

Update: Here's maybe one interesting way to look at the data in the chart above. It took thousands and thousands of years before fewer than half of all American households in 1950 needed either wood or coal to heat their homes (counting the long history of Native Americans), and then it took only 50 years for almost all of the rest of the households to eliminate wood and coal as their main source of home heating fuel. In other words, what first took thousands of years to accomplish was then next accomplished in only 50 years.

14 Businesses That Started in a Recession; and Why A Recession Is Good Time To Start Business

Including FedEx, Microsoft, CNN, Wikipedia, HP, etc. Pre-existing companies can also make incredible gains in years where the economy is down, like Google, PayPal and Salesforce.com Inc.
From 2000 to 2001 each of these companies thrived, leading PayPal to go public in 2002, followed by Google and Salesforce.com in 2004.

Five reasons why a recession is actually a great time to nurture and incubate a small company.

Saturday, January 24, 2009

Another Reason Fiscal Stimulus Won't Work: LAGS

WASHINGTON POST -- Less than half the money dedicated to highways, school construction and other infrastructure projects in a massive economic stimulus package unveiled by House Democrats is likely to be spent within the next two years, according to congressional budget analysts, meaning most of the spending would come too late to lift the nation out of recession.

A report by the Congressional Budget Office found that only about $136 billion of the $355 billion that House leaders want to allocate to infrastructure and other so-called discretionary programs would be spent by Oct. 1, 2010. The rest would come in future years, long after the CBO and other economists predict the recession will have ended.

For example, of $30 billion in highway spending, less than $4 billion would occur over the next two years. Of $18.5 billion proposed for renewable energy, less than $3 billion would be spent by 2011. And of $14 billion for school construction, less than $7 billion would be spent in the first two years.

From Bruce Bartlett's Wall Street Journal article "If It Ain't Broke, Don't Fix It" (12/2/1992):

This follows the pattern of postwar countercyclical programs: All were enacted well after the end of the recession. They exacerbated inflation, raised interest rates and made the next recession worse.

Bartlett documents the fiscal stimulus plans that were passed in response to the recessions 1948-49, 1957-58, 1960-91, 1969-70, 1973-75, and 1981-82, and shows that: a) in each of the six recessions, the fiscal stimulus legislation wasn't even signed into law until the end of the recession at the earliest, and in some cases wasn't passed until a year after the recession ended, and b) in all cases the fiscal stimulus plans took effect well after the recessions had ended.

MP: There has been a lot of debate lately about the effectiveness of stimulus plans, and the size of the multipliers, etc., and most of that debate probably assumes that the timing of the stimulus is perfect. But what if the timing isn't perfect, due to the long legislative lags designing the policy and the long lags before the policies actually take effect? In that case, even if some of the multiplier effects work as intended, it's still possible the policy will fail, and will actually destabilize an economy that has already recovered from a recession.

In other words, unless fiscal stimulus is timed perfectly, it will fail to stimulate the economy. Given the reality of legislative and effectiveness lags, perfect timing is impossible. Given that reality, fiscal stimulus policy won't work due to the problem of lags, regardless of any multiplier effects.

See Greg Mankiw's related post about fiscal policy lags here.

When You Can't Count On the Market for Success...

GM is not counting on market success for its comeback. It has neither the cash reserves nor the brilliant product line needed for that in a down economy, when sales are expected to be 40% lower than two years ago (the lowest volume since the 1973 Arab oil embargo).

GM is counting on the government to stay alive.

~"Detroit Bets Its Future on Washington" in today's WSJ by Detroit News cartoonist Henry Payne (see his latest cartoon here) and Shikha Dalmia

Cartoons of the Day

IBD's Michael Ramirez:
Detroit News' Henry Payne:

It's Deja Vu All Over Again: 1992 vs. 2009

The July 1990 to March 1991 recession was one of the shortest in U.S. history (8 months according to the NBER) and relatively mild: the jobless rate averaged only 6.1% during the recession and reached a high of only 6.8% by the end of the recession (although it continued to rise after the recession ended, see chart above). I think there is a general consensus that the 1990-91 recession was nowhere near as severe as the three previous recessions of the 1970s and 1980s, and it's a fact that the 1973-75 and 1981-82 recessions were twice as long (16 months) as the 1990-91 recession. And yet, as a follow up to yesterday's CD post, here is what the media were reporting about the 1990-91 recession:

"In 1991 the average American expressed more pessimism about the future than at any time since the Great Depression."

"There is no question but this is the worst economic time since the Great Depression.”

"Sluggish economic growth this year will cap the worst three-year period centered on a recession since the Great Depression."

"Forecasts for a weak recovery in 1992 suggest the period since 1990 will be the worst for the economy since the Great Depression."

“.....the worst plunge since the Great Depression.”

"The banking industry has plunged to its lowest point since the Great Depression."

"This is the most severe economic dislocation we've had since the 1930s. Few are immune."

"Mr. Barry, a past president of the Chamber of Commerce, said 50 For Sale signs are just the tip of the iceberg, since many bank foreclosures and repossessions do not carry signs. "It's not a recession, it's a depression," he said."

“….with the US economy locked in a recession and more people out of work since the Great Depression.”

"....the worst (retail) sales period on record since the Great Depression."

"This recession is hitting white-collar workers more heavily than any since the Great Depression of the 1930s."

More On $71 Per Hour vs. $49 Per Hour

What do employees of the United Auto Workers cost auto makers in salary and benefits?

About $71 an hour, significantly more than the $49 paid by nonunionized counterparts at Japanese, German and other so-called "transplant" factories in the U.S. But most of that gap is in how much GM, Chrysler and Ford shell out for workers who long ago clocked out for retirement.

According to documents submitted by Ford to Congress, the auto maker pays its current workers $29 an hour. Wages and other labor costs are generally the same for GM and Chrysler, according to company officials and labor experts. The equivalent wage on the nonunion side is a bit less at the older foreign-owned auto plants. Toyota pays workers in Kentucky about $26 an hour.

The gap widens because United Auto Workers get more holidays and vacation pay. The Big Three also have to continue paying workers who have been laid off. For that, Detroit's three auto makers pony up an additional $14 an hour, compared with $9 for the transplants. The big difference comes in the cost of health care and pensions for retired workers. Over the decades, the number of retired Big Three workers has risen into the hundreds of thousands. Their health care and pension costs add $16 to the hourly labor costs the Detroit companies pay.

~Wall Street Journal

Update: Chart above added.

Friday, January 23, 2009

Time Magazine Cover Story: Why We're So Gloomy

Some selected excerpts from the Time Magazine Cover Story "Why We're So Gloomy":

"I haven't really been able to sort out exactly why there has been this degree of pessimism."

~Former President Bush

Well, why are Americans so gloomy, fearful and even panicked about the current economic slump?

In one of history's most painful paradoxes, U.S. consumers seem suddenly disillusioned with the American Dream of rising prosperity even as capitalism and democracy have consigned the Soviet Union to history's trash heap. Hard times are forcing some people to turn their back on the American Dream.

"Whining" hardly captures the extent of the gloom Americans feel as the current downturn enters its 14th month. The slump is the longest, if not the deepest, since the Great Depression. Traumatized by layoffs that have cost more than 1.2 million jobs during the slump, U.S. consumers have fallen into their deepest funk in years.

While some economists have described the current slump as a near depression, that phrase overstates the case if it is taken as a comparison with the period 1929-33, when the U.S. economy contracted by nearly a third. The D word becomes more valid, especially with a small d, when it is used to compare the growth rate of the 1930s, which averaged 0.5% a year, with the expected sluggishness of the next decade, which some economists predict will see an average growth rate of 2%.

"I'm worried if my kids can earn a decent living and buy a house," says Tony Lentini, vice president of public affairs for Mitchell Energy in Houston. "I wonder if this will be the first generation that didn't do better than their parents. There's a genuine feeling that the country has gotten way off track, and neither political party has any answers. Americans don't see any solutions."

The deeper tremors emanate from the kind of change that occurs only once every few decades. America is going through a historic transition from a heedless borrow-and-spend society to one that stresses savings and investment. When this recession is over, America will not simply go back to business as usual.

The underlying change in the way American consumers and business leaders think about saving and spending will make the recovery one of the slowest in history and the next decade one of lowered expectations. Many economists agree that the U.S. will face at least several years of very modest growth as consumers and companies work off the vast debt they assumed in the last decade.

The conditions that led to today's transition economy go back several decades. Americans have suffered a long-term stagnation of their earnings. The median income of U.S. families has virtually stood still since 1973, showing an annual gain of just 0.3% a year.

The recent debt binge took place on a colossal scale in every sector of the economy. Runaway federal deficits have more than tripled the national debt. Meanwhile, consumers increased their IOUs from $1.4 trillion to $3.7 trillion last year. And U.S. industry raised its debt from $1.4 trillion to $3.5 trillion over the same period. The reckless borrowing made a reckoning inevitable.

So far, though, no reprieve from layoffs is anywhere in sight. Economists say U.S. companies will shed more than 1 million jobs in fields ranging from banking to aerospace, a pace even faster than last year's. "It's become almost like a poker game to see who can cut the most," says employment analyst Lacey. "There's a kind of corporate frenzy."

GM's plans to close 25 plants and cut 74,000 jobs, or 19% of its work force, scarcely addresses such problems as why it takes the company up to a year longer than the Japanese to redesign its cars.

MP: This was from the January 13, 1992 edition of Time Magazine, and the opening quote was from President George H.W. Bush, and the article was about the relatively mild 1990-1991 recession. Note: I altered some of the text above so that the specific time period was not obvious. Notice the distinct similarities to the reporting about today's economy.

Alex Tabarrok at Marginal Revolution

Update: The 1990-91 recession started in July of 1990 and ended in March of 1991, but the end of the recession wasn't announced by the NBER until December 1992, so the Time Magazine article was actually written ten months after the 1990-1991 recession ended.

Thursday, January 22, 2009

Jobless Claims Would Have to Top 900,000 To Reach the Same Levels of the 1970s and 1980s

Update: I found a longer dataset for jobless claims and was able to update the post below.

A Google News search for the two phrases "unemployment claims" and "26 years" results in more than 100 news items that report some version of this story: "The number of new U.S. unemployment claims rose to 589,000 in the past week, matching the highest level in more than 26 years." But what most news reports failed to mention is that today's labor force (154.4 million) is almost 40% higher than in 1983 (110.7 million), see chart above (click to enlarge), meaning that unadjusted comparisons of jobless claims today to 1983 are relatively meaningless.

The chart below shows monthly jobless claims as a percentage of the total labor force, from Jan. 1973 to December 2008 (should be approximately the same in January 2009). The current level of jobless claims as a percent of the labor force (0.355%) is above the 2001 recession, but below the four previous recessions (1973-1975, 1980, 1981-1982 and 1990-1991). To reach the same levels of jobless claims (as a percent of the labor force) as the recessions of the 1970s and 1980s (0.60%), we would have to see jobless claims today reach levels above 900,000.

Adjusted for the Growth in the Labor Force, Jobless Claims Are Below the 1990-91 Recession

ASSOCIATED PRESS -- The Labor Department reported today that initial jobless benefit claims rose to a seasonally adjusted 589,000 in the week ending Jan. 17, from an upwardly revised figure of 527,000 the previous week. The latest tally was well above Wall Street economists' expectations of 540,000 new claims. The total matches a 26-year high reached four weeks ago. The last time claims were higher was in November 1982, when the economy was emerging from a steep recession, though the work force has grown by about half since then.

MP: The chart above from 1987 to 2008 shows why comparisons of unemployment claims today to past years are meaningless, without adjusting for the change in labor force. In the last 22 years, the U.S. labor force (blue line) has increased by 30%, from about 119 million in 1987 to more than 154 million today.

The chart below shows initial jobless claims as a percent of the labor force, to adjust for the increase over time in the population and labor force. December's 0.355% level (549,000 average weekly claims / 154,447,000 labor force) is above the 0.333% peak at the end of the 2001 recession, but still way below the 0.3915% peak of the 1990-1991 recession. (Note: The January labor force number has not been released, but the average jobless claims so far in January (522,500 on a 4-week moving average basis) are actually lower than December's 549,000 number, so the January figure for jobless claims as a percent of labor force could be lower than December.)

Bottom Line: Adjusted for the size of the labor force, unemployment claims haven't even yet reached the level of 1990-1991 recession. So before we make exaggerated claims of the "worst economy since the Great Depression©" we might first make comparisons to the 1990-1991 recession, and it's still not yet as bad today as it was in the early 1990s. Calculated Risk uses a longer dataset that includes the 1970s and early 1980s, showing the same thing - we've got a long way to go before today's economic conditions come close to matching previous recessions of the 1970s and 1980s.

Traffic Volume Continues To Drop in November; New Record: An Annual Decline of -112B Miles

The Federal Highway Administration reported today (direct link here) that travel during November 2008 on all U.S. roads and streets fell by -5.3% compared to November 2007. This drop marks the thirteenth consecutive month of traffic volume decline compared to the same month in the previous year. Travel YTD through November 2008 also fell by -3.7% compared to 2007.

The thirteen consecutive monthly declines (November 2007 through November 2008) in miles driven compared to the same month in the previous year represents one of the most significant adjustments to driving behavior in American history.

On a moving 12-month total basis, traffic volume in November fell to 2,894 billion miles, the lowest level in almost five years - since January of 2004 (see chart above), and this measure of traffic volume fell in every month of 2008.

Bottom Line: The moving 12-month total traffic volume in November 2008 (2,894 billion miles) is below the November 2007 level (3,006 billion miles) by 112 billion annual miles driven, the largest annual decline in FHA history (data go back to 1971). At an average fuel efficiency of 20 m.p.g., and an average gas price of $3.39 per gallon over that period (data here), that reduction in miles driven represents an annual savings of almost $19 billion for American consumers and businesses.

That's in addition to the much larger $325 billion estimated annual savings for consumers and businesses from the drop in gas prices from $4.12 per gallon to $1.82 since July (
gas price data here), since American consumers and businesses save about $1.42 billion annually for every penny decrease in gas prices (see calculation here).

GM: Borrowing at 8%, Lending at 0%

ASSOCIATED PRESS (12/30/2008)General Motors said it will offer financing as low as 0% for several 2008 and 2009 models as the automaker makes a big year-end push to improve sales.

The news comes a day after its troubled lending unit, GMAC Financial Services, agreed to take a $5 billion loan from the Treasury Department. GM said it will offer 0% financing for up to 60 months on the 2008 Chevrolet TrailBlazer, GMC Envoy and Saab 9-7X sport utility vehicles through GMAC. The Saab 9-3 and 9-5 sedans also qualify for zero-percent financing. The carmaker is also offering financing between 0.9% and 5.9% on more than three dozen other 2008 and 2009 models, including many trucks and SUVs.

Separately, GMAC said Tuesday that it will offer auto loans to customers with credit scores as low as 621, eliminating restrictions put in place two months ago that required a minimum score of 700.

Quote of the day from Jeff Macke (CNBC Fast Money contributor) via Dennis Gartman's "The Gartman Letter":

"GM has become a company that borrowed money from the U.S. government at 8% and lent it to the American public at 0%. This is not a model we would like to build upon.”

MP: And GMAC lowered credit standards at the same time it offered 0% financing.

Wednesday, January 21, 2009

The Model of the Future: Convenient, Affordable Healthcare and Plenty of Jobs

The chart above (click to enlarge) shows the annual percent growth in monthly employment (from the same month in the previous year) since 2004, comparing growth in the health care sector to the growth in overall total employment. Even during the recession, health care employment continues to grow at almost 3% annually, and there was an increase of 371,600 health care jobs in 2008. In contrast, overall job growth has been negative and falling since mid-2008, with a total job loss in 2008 of almost 2.6 million.

One reason for the continuing growth in health care employment might be provided in this story: "As Retail-Based Clinics Grow, So Do Jobs for Specialty Nurses":

The proliferation of health clinics in retail stores has created hundreds of job opportunities for advanced nurse practitioners — a primary-care specialty whose ranks are growing at a time when the number of family doctors continues to decline.

“I love the concept,” said advanced nurse practitioner Marina Ordiner said. “I think it’s the model of the future. It’s convenient, it’s affordable.” What she likes best is having the ability to spend more time with patients.

Interesting Charts of the Day

The chart above shows the monthly employment levels since 1969 in: a) the construction and manufacturing sectors combined, and b) government. Back in 1969, there were almost 2 manufacturing and construction jobs for every government employee. Since then, government employment almost doubled from 12 million in 1969 to almost 24 million today, as manufacturing and construction jobs have remained flat and have recently fallen, to the point that there are now more workers employed by government than are employed in the manufacturing and construction sectors. A version of this graph was posted here and here (thanks to Tim Wise).

But before getting too depressed about that trend, I decided to check something else: Government employees as a percent of total nonfarm employment, and the interesting results are presented here:

As the chart shows, there has been a general downward trend in government employees as a percent of total payrolls since the mid-1970s, from more than 19% in 1975 to below 16% by 1998, with a slight reversal of the trend since 2000.

As much as we hear about the growth in government, it seems like the jobs data tell a different story. Comment welcome.

One explanation for the top chart is that there have been so many productivity gains in manufacturing that we can produce increasingly higher levels of output over time with fewer and fewer manufacturing workers?

Trends: Laptops and Cellphones Dominate

About a month ago, it was reported that in the third quarter of 2008, sales of laptop computers exceeded desktop sales for the first time ever. A similar phenomenon has been taking place for phone preferences, as the BLS now reports that:
In 2001, the ratio of spending on residential phone services to spending on cellular phone services was greater than 3 to 1 (see chart above). In 2007, cellular phone expenditures accounted for 55% of total telephone expenditures compared to 43% for residential phone expenditures.
HT: Ben Cunningham

Tuesday, January 20, 2009

The Economy Is Bad, but 1982 Was Worse

I thought it would make sense to get some clearer historical perspective, and the economists at the Bureau of Labor Statistics (BLS) were nice enough to help me do so. In the last week, they helped me put together a broad measure of the job market — one including both official unemployment and more subtle kinds — stretching back to 1970. Since the job market covers the entire economy and affects families in tangible ways, it seems to be the single best yardstick.

And it shows, for starters, that the economy is not yet as bad as it was in the early 1980s. It’s not even that close to being as bad. The ranks of unemployed and underemployed, controlling for the size of the population, were much larger in 1982 than today.

I took estimates from the Labor Department and created a measure of unemployment that goes back to 1970.
Including discouraged workers, the measure shows that the unemployment rate was 7.6%. Another 5.2% of the labor force was involuntarily working part time. These two groups bring the combined rate to 12.8%.

Even this is an understatement, because the Labor Department’s definition of discouraged workers is a little narrow. To be counted, somebody must have looked for a job in the last year. And there appear to be several fhundred thousand people — mostly men — who stopped looking for work more than a year ago but would gladly take a good-paying job if one came along. They would lift the rate above 13%.

As bad as the number is, it is still not that close to its 1982 peak of 16.32% (or anywhere near its Depression levels, which were probably above 30%). The early 1980s really were that bad.

~David Leonhardt in today's NY Times

MP: As I reported earlier, some of the other key differences between today and the early 1980s are:

Prime Rate
1981: 20.5%
2009: 3.25% (Current)

1980: 14.8%
2008: 0% (December)

Unemployment Rate
1982: 10.8%
2008: 7.2% (December)

30-Year Mortgage Rate
1981: 18.5%
2009: 4.96% (Current)

Real Gas Price (2008 dollars)
$3.45 per gallon
2009: $1.82 (Current)

Wheels Falling Off Global Warming Bandwagon

Over the past decade the global average temperature has fallen to its lowest levels in 30 years:

1. International Falls, Minnesota -- the coldest location in the continental United States -- set a new record in January with a low temperature of minus 40 degrees and snowfall records have recently been set in 63 U.S. locations.

2. After two years of ice-cap melting in the Arctic, an abrupt turnaround occurred in 2008, with ice forming at a record pace.

3. More and more scientists are paying attention to the evidence and rejecting the link between human actions and the recent warming trend.

"The wheels are falling off the global warming bandwagon," says H. Sterling Burnett, senior fellow with the National Center for Policy Analysis. "While climate action boosters continue to call for politicians to ignore reality -- even in the face of mounting contrary evidence against catastrophic warming -- scientists, the public and politicians are wising up."

To Prevent Great Depression II, Cut Taxes to 0%

When Barack Obama takes office today, his first order of business will be a stimulus package estimated to be close to $1 trillion, including $300 million in tax cuts and the largest new government spending program for infrastructure since Franklin Delano Roosevelt. Sages nod that replicating aspects of FDR's New Deal will help pull the country out of a recession. But the experience under FDR largely provides a cautionary tale.

Mr. Obama's policy plans are driven by the conventional economic wisdom that the New Deal economic programs ended the Great Depression. Not so. In fact, thanks to New Deal policies and programs, the U.S. economy faltered for years longer than it might otherwise have done.

The quickest way to strengthen the credit system and begin the end of this crisis is to get money into the economy for true job creation, and not into government work programs. The way to do this is to slash taxes. The U.S. corporate tax rate, currently the highest in the world, should be cut to 0% (corporate income would still be taxed, of course, when distributed to shareholders as dividends). The capital-gains tax should be cut further.

The positive impact on corporate-credit markets, the stock market, the attractiveness of the U.S. to foreign investors, and the willingness to take business risk and create new jobs would be immediate. Capital-gains tax collections would rise. Capital flows would be in the hands of those who are driven to build businesses and permanent jobs efficiently instead of pushing that capital through a government pipeline with endless amounts of friction. If the U.S. is to lead the international economic community out of this crisis, this is the place to start.

~Mark Levey in the Wall Street Journal

Markets In Everything: Medical Tourism in the U.S.

WASHINGTON POST -- You've heard of medical patients traveling abroad to save on everything from hip replacements to nose jobs. But how about heading to Wichita or Oklahoma City? More Americans are discovering medical tourism right here in the United States.

Brokers such as Vancouver-based North American Surgery and traditional medical-tourism outfits, such as Healthbase, in Boston, are connecting patients with U.S. hospitals willing to compete on price with providers overseas and across town.

HT: Ben Cunningham

Thomas Sowell on "Affordable Housing"

Behind the housing boom and bust was one of those alluring but undefined phrases that are so popular in politics-- "affordable housing." In looking back over my own life, I find it hard to think of a time when I didn't live in affordable housing. While the specifics will differ from person to person, my general pattern was not unusual. Most people pay for what they can afford at the time.

What, then, is the "problem" that politicians claim to be solving when they talk about creating "affordable housing"? The ultimate irony is that increasing government intervention in the housing market over the years has generally made housing less affordable than before, by any standard.


Intrade Predictions for the Dec. 2009 Jobless Rate

Probabilities above are for the December 2009 U.S. jobless rate, from futures contracts traded on Intrade: The Prediction Market. Based on these contracts, there is only a 1 out of 8 chance of an unemployment rate above 9.50% in 2009, suggesting that there's probably almost no chance that in 2009 we would be anywhere even close to the 10.8% jobless rate of 1982, and zero chance of reaching the unemployment rates of the 1930s and the Great Depression.

And yet according to Obama, "I don't think that any economist disputes that we're in the worst economic crisis since the Great Depression." Trading on Intrade suggests otherwise.

Update: The WSJ consensus forecast for the December 2009 unemployment rate is 8.6%, based on the average forecast of 55 economists.

Monday, January 19, 2009

Chart of the Day: The Hope and Change Index

THE ECONOMIST -- How will Barack Obama measure up, compared with other presidents, in his inaugural address?

Barack Obama is fond of hope and change. By one tally, he said “hope” nearly 450 times in speeches delivered on the campaign trail. (By contrast, his rival John McCain only used the word 175 times.) “Change”, too, was a campaign buzzword. If Mr. Obama makes heavy use of both words in his inaugural speech he would be following in the footsteps of William Taft a century ago. Taft delivered the most “hopeful” inaugural speech of the past 100 years, and was keen on change, too. Only Bill Clinton, in his first speech in 1993, talked about change more (see chart above, click to enlarge).

While hope has found a place in each of the 25 inaugural addresses, change is used more sparingly. Six inaugural speeches did not contain the word; six more made use of it just once. Presidents coming to office during economic booms, such as Calvin Coolidge and Warren Harding in the 1920s, Dwight Eisenhower and then George Bush junior, have been heavier users of hope than those who were inaugurated during leaner times. By that yardstick, expect more change and less hope when Mr. Obama speaks.

Who's Hot and Who's Not In a Slowdown?

HOT: Family Dollar Stores, Up by +60% over the last 12 months

NOT: Target Corporation, Down by -30% over the last 12 months

Serving Two Masters: Patient and Bureaucrat

Most doctors want to serve patients. But there is a conflict: the patient is not the one who pays the bills. Instead, the customer that health care providers must learn to serve is the private insurance company or the government program. If doctors want to get paid in today’s environment, they have to play by rigid third-party rules imposed by employers and government, not patients’ choices.

Reducing our reliance on third-party payments will not be easy. Our moral instinct tells us not to take advantage of someone in distress. That translates into a reluctance to have individual patients pay for their own health care services. Unfortunately, insulating consumers from the cost of what they buy is incompatible with efficiency. In health care, third-party payments force providers to serve two masters—the patient and the bureaucrat.

~From Cato Institute's Briefing Paper "Does the Doctor Need a Boss?" by Arnold Kling and Michael F. Cannon

Mpls. Fed: The Recession in Perspective

From the Minneapolis Fed:

The economy is in recession. But how bad is it? How does this recession compare to previous recessions? This page places the current economic downturn into historical (post-WWII) perspective. It compares output and employment changes during the present recession with the same data for the 10 previous recessions that have occurred since 1946.

This page provides a current assessment of “how bad" the recession is relative to past recessions. It will be updated as new data are released.

MP: Notice that the last graph shows that real GDP growth during the current recession is positive and the second highest (only the 1969 recession was higher) after three quarters, and the only recession showing positive economic growth overall. Of course, the recession has not ended so this will change moving forward. The Fed will update these charts as new data becomes available.

On several different measures of output and employment, the current recession hasn't yet come close to reaching the severity of many of the post-WWII recessions, suggesting that the comparisons to the 1930s and Great Depression might be premature.

Markets in Everything: Inaugural Parade Edition

Who says capitalism is failing in America?

Inaugural parade tickets on Ebay, $150 to $1400.

Inaugural parade tickets on Craigslist, average price $150-$200.

Sunday, January 18, 2009

Bailout Nation Goes Global

FRANKFURT (AFP) – German sex-shop owners and erotic film makers, badly hit by the economic crisis, are pushing for state aid that has also been requested by U.S. peers. "Economic aid would be judicious," said erotic trade federation official Uwe Kaltenberg.

Smackdown: Milton Friedman vs. John F. Kennedy

The upcoming inauguration has been getting a lot of attention, including many reviews of past inaugural speeches. Therefore, I thought it would be appropriate to post economist Milton Friedman's rebuttal to President Kennedy's famous 1961 inaugural address:

From the introduction to Milton Friedman's 1962 book "Capitalism and Freedom".

In a much quoted passage in his inaugural address, President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country."
Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic "what your country can do for you" implies that government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny. The organismic, "what you can do for your 'country" implies the government is the master or the deity, the citizen, the servant or the votary.

To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive.

The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather "What can I and my compatriots do through government" to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom?

And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect?

Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp.

Zimbabwe: Who Wants To Be A Trillionaire?

BBC NEWS -- On Tuesday, a 50 billion Zimbabwean dollar note was issued (see above), less than a month after a Z$500m bill was released. Prices can double every day, and food and fuel - for those without US dollars - are in short supply. Now Zimbabwe is introducing a new Z$100 trillion note, currently worth about US$30. Other notes in trillion-dollar denominations of 10, 20 and 50 are also being released to help Zimbabweans cope with hyperinflation.

However, the dollarization of the economy means that few products are available in the local currency.

BBC NEWS -- Increasingly it is only US dollars that are accepted in Zimbabwe's shops. Gas stations are among those now turning away people who offer fistfuls of local currency (see picture below). Even water bills - for what little clean water there is - have to be paid in hard US cash. And bread is now a dollar commodity in many parts of the country. John Makombe, professor of political science at the University of Zimbabwe, estimates that 80% of the population here has no access to US dollar bills.

HT: Greg Mankiw

Cartoon of the Day: Minnesota

Markets in Everything: California Edition II

An increasing number of recession-pinched Los Angeles homeowners are turning to Hollywood for help, offering their houses as sets for feature films, commercials and even adult movies.

HT: Jeff Lehner

Saturday, January 17, 2009

Growing Stocks of Unsold Cars Around The World

Ten pictures here. Pictured above is the build-up of imported cars at the port of Newark, New Jersey.

Could Be A Lot Worse. WAS A Lot Worse in 1980s.

Consider the following comparisons of key economic variables today to the peaks for those variable in the early 1980s (see graph above):

Prime Rate
1981: 20.5%
2009: 3.25% (Current)

1980: 14.8%
2008: 0% (December)

Unemployment Rate
1982: 10.8%
2008: 7.2% (December)

30-Year Mortgage Rate
1981: 18.5%
2009: 4.96% (Current)

Real Gas Price (2008 dollars)
$3.45 per gallon
2009: $1.82 (Current)

Bottom Line: When it comes to the current state of the economy, it could be a lot worse. It WAS a lot worse in the early 1980s, by the five key economic variables above: prime rate, inflation, jobless rate, 30-year mortgage rate and real gas prices.

Cartoon of the Day

How About A "Minimum Temperature Law"?

The brutally cold weather (so cold that I saw a lawyer yesterday who actually had his hands in his own pockets) and all of the complaints about low temperatures got me to thinking about this.... Couldn't the government intervene in the market for temperature-reading equipment to counteract the unfair "excessively low" temperatures, just like it does in the unskilled labor market for unfair "excessively low" wages???

In Defense of the Minimum Wage Law:

Unskilled workers are at the mercy of greedy, cold-hearted, ruthless, profit-seeking employers. Without some kind of government intervention in the unskilled labor market, employers will continually and ruthlessly exploit and take advantage of unskilled workers, and pay them sub-standard wages (e.g. $5 per hour) that are so low that the wages could be considered unconscionable, unfair, unethical and unjust.

To counteract this inherent injustice in the labor market for unskilled workers, our collective sense of fairness and justice demands legislation that will force employers to pay a minimum wage of $6.55 per hour effective July 24, 2008, and $7.25 per hour effective July 24, 2009. Wages below those minimums (e.g. $5 per hour or $6 per hour) are unconscionably low, and will be illegal and outlawed by the minimum wage legislation, with violations subject to penalties, fines and possible jail time for employers paying less than the government-mandated minimum wage.

In Defense of the Minimum Temperature Law:

The frigid, cold, and harsh winter of 2008-2009, and the hardships it has caused for millions of Americans (including many deaths, an estimated 700 this year), firmly establishes that we are at the mercy of a very cruel, ruthless, merciless, cold-hearted, uncaring force: Mother Nature.

Something must be done about this unacceptable situation. Without some kind of government intervention in the market for low temperature readings being registered on existing thermometers and thermostats, Mother Nature will continually and ruthlessly expose Americans to harsh winter conditions of unconscionably low temperatures. And some experts are even now saying that we are entering a period of Global Cooling, so we can expect even colder winters in the future from Mother Nature. Who among us wouldn
’t agree that these excessively low winter temperatures are unfair, unreasonable and unjust?

To counteract this inherent injustice in cold winter weather, the possible trend towards Global Cooling, and Mother Nature’s ongoing lack of concern for cold Americans, our collective sense of fairness and justice requires legislation that will force all thermostats and thermometers sold in the United States to have a minimum, reasonable and fair temperature reading of 0 degrees Fahrenheit, effective immediately. As part of the new Minimum Temperature legislation, all existing thermometers and thermostats in homes, offices, and businesses should be immediately replaced with new temperature-reading equipment with a minimum reading of 0 degrees.

Any temperatures below that minimum (e.g. -10 degrees F. or -20 degrees F.) are considered to be unfair and unconscionably low, and will be illegal and outlawed by the Minimum Temperature Law, with violations subject to penalties, fines and possible jail time for thermostat manufacturers continuing to sell thermostats with temperature readings below the government-mandated minimum temperature. Further, all news and weather reports, all TV and radio stations, and all newspapers and websites are immediately prohibited from quoting any temperatures below the federally-mandated minimum of 0 degrees F, with violations punishable by fines, penalties and jail time.

Bottom Line: If the Minimum Temperature Law seems ridiculous, that's because it is totally ridiculous. And so is the Minimum Wage Law. Forcing employers to pay an unskilled worker $7.25 per hour doesn't change the reality that those workers are actually only worth $5 or $6 per hour. The artificially high minimum wage has to cause distortions and inefficiencies in the unskilled labor market because the minimum wage does not accurately and truthfully reflect the workers' true productivity, and it's like creating a government-mandated fantasy world. A disconnect is created between the true measure (e.g. $5 hour) and an artificial, government-mandated measure ($7.25), of a worker's value or productivity.

Likewise, imposing a minimum temperature law would create a government-mandated fantasy world about weather conditions, with a disconnect between the true temperature (e.g. -20 degrees F) and an artificial government-mandated temperature (0 degrees). And just like the minimum wage law creates havoc in the labor market, so would the minimum temperature law create havoc for Americans.

When it comes to the weather, what we want most are truthful and precise measures of temperatures, and we get those from accurate thermostats and thermometers, not from minimum temperature laws. When it comes to the labor market, what we want are accurate, truthful and precise measures of worker productivity, and we get those from market wages, not from minimum wage laws.

In Praise of the Maligned Sweatshop

I’m glad that many Americans are repulsed by the idea of importing products made by barely paid, barely legal workers in dangerous factories. Yet sweatshops are only a symptom of poverty, not a cause, and banning them closes off one route out of poverty. At a time of tremendous economic distress and protectionist pressures, there’s a special danger that tighter labor standards will be used as an excuse to curb trade.

Among people who work in development, many strongly believe (but few dare say very loudly) that one of the best hopes for the poorest countries would be to build their manufacturing industries. But global campaigns against sweatshops make that less likely. The best way to help people in the poorest countries isn’t to campaign against sweatshops but to promote manufacturing there.

~Nicholas Kristof in Wednesday's NY Times

Well-meaning American university students regularly campaign against sweatshops. But instead, anyone who cares about fighting poverty should campaign in favor of sweatshops, demanding that companies set up factories in Africa. If Africa could establish a clothing export industry, that would fight poverty far more effectively than any foreign aid program.
American students should stop trying to ban sweatshops, and instead campaign to bring them to the most desperately poor countries.

~Nicholas Kristof in the NY Times (6/6/2006)

Closing sweatshops and forcing Western labor and environmental standards down poor people's throats in the third world does nothing to elevate them out of poverty. Instead, it forces poor people to buy a lot of rich man's toys, like clean air, clean water, and leisure time. If clean air and leisure time don't strike you as extravagant luxuries, that's because Americans - even the poorest of us - are so rich these days that we've forgotten what true poverty is like. But chances are your great-great-grandparents could have told you what it's like: when you're truly poor, you can't afford things like clean air. Nobody in 1870 America worried about the environment.

~Steven Landsburg in "More Sex Is Safer Sex"