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"

Are Fear, Uncertainty and Volatility Declining?

The chart above shows Google's search volume index for the phrase "Great Depression" over the last 12 months. Despite a recent uptick, the overall trend since October is downward. Interestingly, notice the same overall pattern over the last year, and the downward trend since October in the CBOE Volatility Index:


Friday, January 16, 2009

Real Earnings Increase in December By 2.9%

Although it seems to have gone largely unreported, the BLS reported today that real average weekly earnings increased in December 2008 by 2.9% compared to December 2007. This follows a 2.25% increase in November earnings, and the 2.9% December increase represents the second largest increase in real earnings in more than ten years (see chart above).

Markets In Everything: Free Shipping

UK TELEGRAPH -- Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October. Shipping journal Lloyd's List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal "bunker" costs. Offering slots for free is akin to an airline giving away spare seats for nothing in the hope of making something from meals and fees.

Container fees from North Asia have dropped $200, taking them below operating cost. Industry sources said they have never seen rates fall so low. "This is a whole new ball game," said one trader.

Natural Gas Prices Have Fallen By 54% Since June

It's not just oil and gasoline prices that have been plunging since last summer. The December natural gas price ($5.81 per million BTUs) was less than half of the June price of $12.69 (see chart above). The 54% drop from the June 2008 peak brings natural gas prices to the lowest levels since 2006.

Quote of the Day: Treating Incompetent As Victims

The current economic strategy is right out of "Atlas Shrugged":

The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers.

With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

~Stephen Moore in the Wall Street Journal

Thursday, January 15, 2009

Mortgage Rates Fall to Record Low of 4.96%, Housing Affordability Surges to Record High

Mortgage rates fell today to an historic record-low of 4.96% (see chart above), "the lowest mark since Freddie Mac started tracking the data in 1971." That should help push the Housing Affordability Index (HAI) to a new estimated record high level of 163.1 in January (see chart below). The National Association of Realtors (NAR) has HAI data through October 2008, and I have estimated the HAI for November, December and January using the NAR methodology.

A HAI of 163.1 would mean that the typical household earning the median family income of $60,840 (estimated) in January would have 163.1% of the qualifying income to purchase a median-priced existing single-family house ($181,000 - estimated for January) with a 20% down payment, which would be the highest level of housing affordability in history.

Stated differently, the annual qualifying income required to purchase a median-price house (with a 20% down payment) is only $37,296, with monthly payments based on a 4.96%, 30-year fixed-rate mortgage ($777 per month for principal and interest). Given the median family income of about $60,840 (est.), the typical family would have 163.1% of the income required to qualify for the mortgage to purchase the $181,000 home.

New Ice Age? New Evidence Earth is Cooling Off

What Happened To Global Warming?

GENESEE COUNTY, Michigan -- Here's the bad news: Flint broke a 95-year-old record early Wednesday morning when the temperature plummeted to a frigid 19 below zero. The previous record? Minus 10, set in 1914, according to the National Weather Service. Here's the even worse news: We won't be seeing relief in the next few days.

52% of 2008 Foreclosures Were In Only 5 States

RealtyTrac, the leading online marketplace for foreclosure properties, today released its 2008 U.S. Foreclosure Market Report, which shows a total of 3,157,806 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 2,330,483 U.S. properties during the year, an 81% increase in total properties from 2007 and a 225% increase in total properties from 2006. The report also shows that 1.84% of all U.S. housing units (one in 54) received at least one foreclosure filing during the year, up from 1.03% in 2007.

MP: If you take out the six states with the highest foreclosure rates (CA, FL, NV, AZ, MI and OH), the 1.84% foreclosure filing rate drops to only 1.1%. Further and probably more importantly (although not reported by RealtyTrac), my analysis of the RealtyTrac data shows that more than half (52%) of the 2008 foreclosures were concentrated in just five states: Arizona, Florida, California, Michigan and Nevada.

Update: Those six states have 28% of the U.S. population, and 52% of the 2008 foreclosures.

Scientific Calculator: 1.5 days ('75) vs. 33 Min. ('09)

Cost of a rechargeable scientific calculator from Wards in 1975: $58.95, or 12.5 hours of work (1.5 days) at the average hourly wage of $4.72 (total private industries).

Cost of an HP 10s Scientific Calculator in 2009: $9.99 or .54 hours of work (33 minutes) at today's average hourly wage of $18.36.

Bottom Line: If we paid the same price today as in 1975 (12.5 hours, at the average hourly wage today of $18.36), the 2009 HP calculator above would cost us $230 today. Or equivalently, consumers in 1975 actually did pay the equivalent of $230 in today's dollars for a scientific calculator.

Or we could say that the typical consumer today would earn enough money in about one-half hour (33 minutes) to purchase a brand new HP scientific calculator, whereas the typical consumer in 1975 had to work full-time for 1.5 days to earn enough money to purchase a scientific calculator then.

Chart of the Day: Jobless Rate in Different Decades

From University of Virginia economics professor Lee Coppock's blog Long Run Equilibrium.

We still have a long way to go before the jobless rate equals the levels of the early 1980s. So before we make comparisons to the 1930s and declare that we are in Great Depression II, how about first making comparisons to the 1980s?

Wednesday, January 14, 2009

Market-Based Health Care Reform

WALL STREET JOURNAL -- Walgreen's will market a network of pharmacies, in-store clinics and company health centers to corporate and government employers nationwide. Under the drugstore chain's "Complete Care and Well-Being" program, participating employees at work would be able to get checkups, preventive care and other services, such as dentistry and optometry. Walgreen's Take Care health clinics would be available for basic services outside of business hours, and the chain would offer discounted prescriptions at Walgreen pharmacies. Retirees and employees' family members also would be eligible for the services. In addition, the customers would receive a 15% discount on Walgreen's private-label products such as toothpaste and diapers.

Walgreen is targeting employers for its new program, having gained the largest market share of work-site health centers with acquisitions last year. Its services at those health centers often extend beyond the basic care that in-store clinics provide.

"Everyone today is looking to control health-care costs," and the Walgreen program "can be a big part of helping to reform health care in this country," company President Gregory Wasso.

Microwave: 63.2 Hours in 1981 vs. 6.5 Hours Today

Cost of a Sears 1.5 cubic foot microwave in 1981: $469.88, or 63.2 hours of work (about 8 days) at the average hourly wage of $7.42 (total private industries).

Cost of a Sears 1.8 cubic foot microwave in 2009: $119 or 6.5 hours of work at today's average hourly wage of $18.36.

Bottom Line: If we paid the same price today as in 1981 (63.2 hours, at the average hourly wage of $18.36), the 2009 Sears microwave above would cost us $1,160 today. Or equivalently, consumers in 1981 actually paid the equivalent of $1,160 in today's dollars for a microwave oven. Or we could say that the typical consumer today would earn enough money in one day by mid-afternoon (6.5 hours) to earn enough money to purchase a brand new 1.8 cubic foot microwave oven, whereas the typical consumer in 1981 had to work full-time for almost 8 days to earn enough money to purchase an equivalent microwave then.

19-Inch TV: 71.3 Hours in 1981 vs. 9.2 Hours Today

Cost of a Sears 19-inch portable TV in 1981: $529.88, or 71.3 hours of work (9 days) at the average hourly wage of $7.42 (total private industries).

Cost of a Sears 20-inch TV in 2009: $169 or 9.2 hours of work at today's average hourly wage of $18.36.

Bottom Line: If we paid the same price today as in 1981 (71.3 hours, at the average hourly wage of $18.36), the 2009 Sears TV above would cost us more than $1,300. Or equivalently, consumers in 1981 actually paid the equivalent of $1,300 in today's dollars for a 19-inch TV. Or we could say that the typical consumer today would earn enough money in about one day (9.2 hours) to earn enough money to purchase a brand new 19-inch TV, whereas the typical consumer in 1981 had to work full-time for almost two weeks to earn enough money to purchase an equivalent TV then.

VCRs: 187.3 Hours in 1981 vs. 3.8 Hours Today

Cost of a Sears VCR in 1981: $1389.88, or 187.3 hours of work (23.4 days or 4.7 weeks) at the average hourly wage of $7.42 (total private industries).

Cost of a Sears VCR/DVD combo in 2009: $69.99 or 3.8 hours of work at the average hourly
wage of $18.36.

Bottom Line: If we paid the same price today as in 1981 (187.3 hours, at the average hourly wage of $18.36), the 2009 Sears VCR/DVD above would cost us almost $3,500. Or equivalently, consumers in 1981 actually paid the equivalent of $3,500 in today's dollars. Or we could say that the typical consumer today would earn enough money on a single day before lunch (3.8 hours) to purchase a brand new VCR/DVD player, and the typical consumer in 1981 had to work full-time for almost five weeks to earn enough money to purchase a VCR then.

The Recession Will Be Over Sooner Than You Think

Two Stanford economists (Nicholas Bloom and Max Floetotto) make the case for strong economic growth by mid-year:

"The heightened uncertainty after the credit crunch led firms to postpone investment and hiring decisions. Mistakes can be costly, so if conditions are unpredictable the best course of action is often to wait. Of course, if every firm in the economy waits, economic activity slows down.

But now that uncertainty is falling, growth should start to rebound. Firms will start to invest and hire again to make up for lost time. Figure 2 above shows our predicted impact of the spike in uncertainty following the credit crunch, based on our detailed analysis of 16 previous financial, economic and politically driven uncertainty shocks. After falling by 3% between October 2008 and June 2009, we forecast real GDP will rapidly rebound from July 2009 onwards.

Many economists make the case for a stronger policy response. That might be right, but policy makers need to act fast. Any additional economic stimulus – be it a spending package, quantitative easing or a couple of rounds of liquidity injections – has to be enacted quickly. Dithering over different courses of policy will actually make things worse by adding uncertainty. Delaying the stimulus package until the summer may mean that it is too late. The economic medicine will be administered just as the patient is trying to leave the hospital!"

HT: Paul Sebastian

Great Website for Old Catalogs

WishbookWeb was created in October 2006 to be a place to come and freely view the Christmas catalogs of the past. We've gone out and purchased catalogs, mostly on Ebay. Once we get them, they are carefully disassembled and scanned. This process destroys the binding, but leaves each page free to be scanned as flat as possible. As an example, a 400 page catalog takes roughly eight or nine hours to scan and crop. Most of our catalogs have been scanned at 300dpi and permanently stored as tiff files, although the viewable jpegs on the site are lower resolution than that. Once a catalog is scanned, the loose pages are stored, in case they are needed at a later date.

Catalogs start with the 1940 Sears Christmas catalog, and cover every decade through the 1980s. Guess I can stop buying old catalogs on Ebay, and just use this website.

HT: Ben Cunningham

More Choice, Better Selection, Much Lower Prices

Cost of a Sears Washer in 1949: $104.95 or 83.3 hours of work (10.5 days or 2.1 weeks) at the average hourly manufacturing wage of $1.26.

Cost of a Sears washer in 2009: $322.99 or 17.9 hours of work (2.2 days) at the average hourly manufacturing wage of $18.03.

Bottom Line: If we paid the same price today as in 1949 (83.3 hours at the average hourly wage of $18.03), the 2009 Sears washer above would cost us $1,502.

Several commenters on this CD post about toasters suggested that the 1949 toaster is of better quality than today's toasters. Maybe. I don't think anybody would make the same claim about the 1949 washer. Would anybody really trade their current washer for the one pictured above from 1949 that requires manual wringing?

Another commenter quibbled about the difference between a basic toaster and a more deluxe model. Well, here's something to consider: The 1949 Sears catalog offered 2 or 3 models of toasters, 5-6 different refrigerators, and 2 or 3 different models of washers, so there really wasn't much of a difference back then between basic and deluxe. The 2009 Sears website offers something like 167 different washing machines, more than 100 different toasters, and more than 1,000 different refrigerators. So not only are today's household appliances much, much cheaper than in 1949, we have significantly more choice today.

And for many, many items (like washers or refrigerators) today's basic model was yesteryear's deluxe model, and in many, many cases today's basic model is far better than yesteryear's deluxe model (washing machines).

Congress' and The Fed's Roles In The Crisis

George Mason economist Walter Williams: The Federal Register, which lists new regulations, annually averaged 72,844 pages between 1977 and 1980. During the Reagan years, the average fell to 54,335. During the Bush I years, they rose to 59,527, to 71,590 during the Clinton years and rose to a record of 75,526 during the Bush II years. Employees in government regulatory agencies grew from 146,139 in 1980 to 238,351 in 2007, a 63 percent increase. In the banking and finance industries, regulatory spending between 1980 and 2007 almost tripled, rising from $725 million to $2.07 billion.

So here are my questions: What are we to make of congressmen, talking heads and news media people who tell us the financial meltdown is a result of deregulation and free markets? Are they ignorant, stupid or venal? What kind of assumptions do politicians and news media make about the intelligence of Americans to expect us to buy the idea that our current mess results from deregulation and free markets? I do not find that assumption flattering.

Stanford economist John Taylor (NBER paper "The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong," $5 cost to download):

What caused the financial crisis? What prolonged it? Why did it worsen so dramatically more than a year after it began? Rarely in economics is there a single answer to such questions, but the empirical research I present in this paper strongly suggests that specific government actions and interventions should be first on the list of answers to all three. I focus on the period from the start of the crisis through October 2008 when market conditions deteriorated precipitously and rapidly. I draw on research papers, speeches at central banks, and congressional testimony I have given on the crisis during the past two years.

In this paper I provide empirical evidence that government actions and interventions caused, prolonged, and worsened the financial crisis. They caused it by deviating from historical precedents and principles for setting interest rates, which had worked well for 20 years. They prolonged it by misdiagnosing the problems in the bank credit markets and thereby responding inappropriately by focusing on liquidity rather than risk. They made it worse by providing support for certain financial institutions and their creditors but not others in an ad hoc way without a clear and understandable framework. While other factors were certainly at play, these government actions should be first on the list of answers to the question of what went wrong.

According to Taylor, what specifically started the financial crisis?

The classic explanation of financial crises, going back hundreds of years, is that they are caused by excesses—frequently monetary excesses—which lead to a boom and an inevitable bust. In the recent crisis we had a housing boom and bust which in turn led to financial turmoil in the United States and other countries. I begin by showing that monetary excesses were the main cause of that boom and the resulting bust.

MP: Taylor uses a different graph in his paper, but the St. Louis Fed graph above illustrates his point that the 27% increase in the money supply from 2001 to 2005, along with an unprecedented 5.5% reduction in the Fed Funds rate from 6.5% in 2001 to only 1% in 2003, created the monetary excesses that fueled the real estate boom and bust, and then started the financial crisis.

Toasters Were 12X More Costly in 1949 vs. Today

Cost of Sears Toaster in 1949: $16.95 or 13.5 hours of work at the average hourly manufacturing wage of $1.26:

Cost of Sears toaster in 2009: $19.99 or 1.1 hours of work at the average hourly manufacturing wage of $18.03:

Bottom Line: The price of a toaster in 1940 was 12.3 times more expensive in 1949 (13.5 hours) than in 2009 (1.1 hours), when the price is measured in the number of hours worked at the average manufacturing wage. If we paid the same price today as in 1949 (13.5 hours at the average hourly wage of $18.03), a toaster today would cost $243.40. See related post below.

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."