Tuesday, February 17, 2009

Who Are We To Judge?

Wal-Mart's Global Sales Top $400 Billion

FT.com -- Wal-Mart, the world’s largest retailer, beat expectations after its US discount stores accounted for about 50% of all US retail growth during 2008 – while its full-year global sales passed $400 billion for the first time (see chart above), and profits hit $13.4 billion.

Forecasters: Economic Recovery in Q3 2009

The U.S. economy is headed for two quarters of negative growth in the first half of 2009, according to 43 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters project that real GDP will contract at an annual rate of 5.2% in the first quarter and 1.8% in the second quarter of 2009. The survey participants expect economic recovery to begin in the third quarter of 2009. On a year-over-year basis, growth is expected to be -2.0% in 2009 and 2.2% in 2010. See chart above.

Monday, February 16, 2009

Julian Simon vs. President Obama's Science Man

Click to enlarge.

Data are from Global Financial Data.

In 1980 Paul Ehrlich, a Stanford scientist and environmental Cassandra who predicted calamitous food shortages by 1990, accepted a bet with economist Julian Simon. When Ehrlich predicted the imminent exhaustion of many nonrenewable natural resources, Simon challenged him: Pick a "basket" of any five such commodities, and I will wager that in a decade the price of the basket will decline, indicating decreased scarcity. Ehrlich picked five metals -- chrome, copper, nickel, tin and tungsten -- that he predicted would become more expensive. Not only did the price of the basket decline, the price of all five declined (see chart above, all prices are in 2000 dollars, data from Global Financial Data).

An expert Ehrlich consulted in picking the five was John Holdren, who today is President Obama's science adviser.

~George Will's column today

MP: Julian Simon wanted to enter into a second wager with Ehrlich, based on either the same commodities, or a different group of commodities, but the terms of a proposed second wager were never agreed upon. Simon died in February 1998.

Q: What if the original bet had been extended for another ten-year period, from 1990-2000? Simon would have won again (see chart above), since all of the metals declined in real price except for tungsten (which increased by 51.97%), and the average price decline of the 5-commodity group was -21.56%.

Early 1980s vs. Now

It could be a lot worse. It **WAS** a lot worse in the early 1980s.

Three Gems From George Will

1. Gregg Easterbrook's "Law of Doomsaying": Predict catastrophe no sooner than five years hence but no later than 10 years away, soon enough to terrify but distant enough that people will forget if you are wrong.

2. An unstated premise of eco-pessimism is that environmental conditions are, or recently were, optimal. The proclaimed faith of eco-pessimists is weirdly optimistic: These optimal conditions must and can be preserved or restored if government will make us minimize our carbon footprints, and if government will "remake" the economy.

3. According to the U.N.'s World Meteorological Organization, there has been no recorded global warming for more than a decade.

~George Will' s column today

Do-It-Yourself Dentistry in England

BBC NEWS -- Millions of people in England have resorted to do-it-yourself dentistry, a survey by consumer magazine Which? suggests. Since a new dental contract was introduced in 2006 there has been growing concern over access to care.

Mike Penning, the shadow health minister, said: "It is a scandal that millions of people are resorting to pulling out their own teeth as a result of Labour's disastrous mismanagement of National Health Service dentistry.

"These survey results are a direct consequence of the introduction of Labour's botched dental contract which has left millions without an National Health Service dentist."

MP: But at least pliers sales are booming.

Bustling Shopping Malls in Brazil Are A Far Cry from the Consumer Gloom in Europe and the U.S.

The Brazilian stock market (Bovespa Index) has increased 20% since late October to 41,674, during a period when the U.S. stock market (S&P 500) has dropped by more than 10% (see chart above, click to enlarge). The Bovespa is trading on the futures market at 48,795 for October 2010 settlement, or 17% above its current level.

REUTERS -- An opinion poll this month showed a majority of Brazilians expect their economy to recover shortly, with around 51% betting employment and salaries will improve over the next six months, up from around 47% in December. Car sales in January grew for the second consecutive month indicating consumer confidence. Chocolate makers say they are producing a record number of Easter Eggs in anticipation of stellar demand this year, and bustling shopping malls in major cities are a far cry from the consumer gloom in Europe or the United States.

The country is less exposed to the global economy than many others. Trade makes up only 22% of GDP, compared to nearly twice that in Mexico. The liquidity crunch has also been less severe than elsewhere because consumer credit, while expanding rapidly in recent years, is still relatively unused. Unemployment is rising only gradually and banks are relatively solid -- two important psychological crutches.

Sunday, February 15, 2009

Markets Are Working: CA Home Sales Increase +85% in December As Home Prices Fall By -41.5%

Home sales increased 85% in December in California compared with the same period a year ago, while the median price of an existing home fell 41.5%, the California Association of Realtors reported (CAR). Sales of existing, single-family detached homes in California totaled 544,580 in December at a seasonally adjusted annualized rate, according to information collected by CAR from more than 90 local REALTOR associations statewide. Statewide home resale activity increased 85% from the revised 294,520 sales pace recorded in December 2007 (see chart above).

The median price of an existing, single-family detached home in California during December 2008 was $281,100, a 41.5% decrease from the revised $480,820 median for December 2007, C.A.R. reported (see chart above).

MP: From what you hear in the media, it would seem like we are years away from a real estate recovery, when the statistical data suggest otherwise. Falling home prices and falling mortgage rates are fueling a real estate recovery in states like California. In other words, markets are working. As the Law of Demand predicts, demand curves slope downward, and when home prices fall, the number of homes sold increases.

Florida Home Sales Surge; Law of Demand Works

Florida’s existing home sales rose in December, making it the fourth consecutive month that sales activity demonstrated gains in the year-to-year comparison, according to the latest housing data released by the Florida Association of Realtors (FAR). December’s statewide sales also increased over November’s figures in both the existing home and existing condo markets. Existing home sales rose 27% last month with a total of 11,053 homes sold statewide compared to 8,712 homes sold in December 2007, according to FAR (see updated, corrected chart above). December’s statewide existing home sales were 28.9% higher than November’s statewide sales.

Sixteen of Florida’s twenty metropolitan statistical areas (MSAs) reported increased existing-home sales in December; 11 MSAs also showed gains in condo sales, marking the sixth month in a row that a number of markets have reported increased sales activity.

Among the state’s large to medium-size markets, the West Palm Beach-Boca Raton MSA reported a total of 638 homes sold in December compared to 467 homes a year ago for a 37% increase.

MP: From what you hear in the media, it would seem like we are years away from a real estate recovery, when the statistical data suggest otherwise. Falling home prices and falling mortgage rates are fueling a real estate recovery in states like Florida. In other words, markets are working. As the Law of Demand predicts, demand curves slope downward, and when home prices fall, the number of homes sold increases.

HT: Marketdoc

Sacramento Home Sales Doubled in 2008 vs. 2007

According to the Sacramento Association of Realtors, homes sales in 2008 (20,587) almost doubled compared to the previous year (10,620), fueled in part by falling prices (see chart above). Sales in 2008 were also 47% above sales in 2006 (13,970) and were the highest since the peak bubble years of 2005 (21,525 units sold) and 2004 (22,816 units).

The Sacramento home sales rebound continued last month, as sales of 1,542 homes were the most for a January this decade, the Sacramento Association of Realtors
reported Friday. Compared to January home sales last year (739), sales increased by 108.7% to 1,542 this year (data here). Thanks to anonymous CD reader for pointing this out that January sales this year were even higher "than the peak bubble years" of 2005 (1,256 January sales) and 2004 (1,234 sales).

As Marketdoc commented on a previous CD post, "Washington better hurry to find a solution to the "toxic asset problem" before market activities correct the problem on their own."

Flint Michigan's Housing Boom: Sales Up +21%

From today's Flint Journal (no link available yet):

Yes, you're reading this right: Flint-area realtors posted one of their best sales years in more than a decade last year. Sales skyrocketed 21% over 2007, giving the Flint Area Association of Realtors its third best year in the past 14. The tally: a staggering 5,744 sales - nearly 1,000 more than the previous year.

The Office of the US Czar Czar

The Federal Agency for Renaming Solutions (FARS), which is working overtime to find a more attractive title for the bank bailout program TARP, will also tackle the task of renaming the Czar Czar—the Czar that rules over all other Czars. The office of the US Czar Czar was recently created to oversee the exponentially growing army of czars appointed to control all aspects of existence.

The czars are being given distinctive names, such as Autocrat for the Car Czar, Munarch for the Municipal Bond Czar, Bail Boss for the Bank Czar and Morticia for the Mortgage Czarina. One possible new name for the Czar Czar has cropped up in the blogosphere, where several stories were posted to the effect that FARS has already decided on the new title, which is to be Cza Cza Gabor.


Let's Don't Forget the Forgotten People

Every day in the market, millions of products get made, shipped and sold, from the simplest pencil to the most complicated computer. Individuals, households, and companies use exchange, contracts, prices and the other institutions of the marketplace to coordinate their behavior without central direction.

All of those people are "doing something" to create wealth, but because they do it without a plan or package or program from Washington, they are often overlooked when the politicians take center stage.

When Obama asserts that only government has enough resources to get us out of the current situation, he conveniently overlooks the fact that the resources government makes use of are created by those same forgotten people.

From Steven Horwitz's article "The 'Forgotten People' Are Already Doing Something for Economic Recovery," in the DC Examiner

Real Career Opportunities at Wal-Mart Explain Why Wal-Mart Receives 20 Applications for Every Job

Several of my co-workers had relocated from other areas, where they had worked at other Wal-Marts. They wanted more of the same. Everyone agreed that Wal-Mart was preferable to the local Target, where the hourly pay was lower and workers were said to be treated with less respect (an opinion which I was unable to verify). Most of all, my coworkers wanted to avoid those “mom-and-pop” stores beloved by social commentators where, I was told, employees had to deal with quixotic management policies, while lacking the opportunities for promotion that exist in a large corporation.

~From Charles Platt's blog post "
Life at Wal-Mart"

More than three-quarters of store management started at Wal-Mart in hourly positions, demonstrating the real career opportunities available in the company.

~From Wal-Mart's
Economic Opportunities Fact Sheet

MP: That potential for career advancement probably explains why Wal-Mart typically has about 25-75 applicants per available job, and an acceptance rate of only 1-4%.

And yet we hear statements like this: "Jobs at Wal-Mart are a dead-end cycle that keeps people in poverty, "
from Wendell Chin, coalition director for the Central Labor Council of Alameda County in California.

Quote of the Day

How would Adam Smith fix the present mess? Sorry, but it is fixed already. The answer to a decline in the value of speculative assets is to pay less for them. Job done.

~P.J. O'Rourke in the Financial Times (free subscription may be required)

Saturday, February 14, 2009

Chart of the Day: The Jobless Rate Gap

We've still got a long way to go.

Cartoon of the Day

Another Bike-Sharing Program is Failing: Paris

50% of self service rental bikes in Paris have been stolen.
BBC NEWS - A popular bicycle rental scheme in Paris that has transformed travel in the city has run into problems just 18 months after its successful launch. Over half the original fleet of 15,000 specially made bicycles have disappeared, presumed stolen. Vandalism and theft are taking their toll and the company that runs the scheme, JCDecaux, says it can no longer afford to operate the city-wide network.

Making matters worse is a YouTube sensation/trend known as “Velib Extreme” where people are taking the bikes down staircases and on BMX courses just for kicks, see an example here.

MP: For other failed bike-sharing programs see "The Berry Bikes: A Lesson in Private Property," E. Frank Stephenson's Division of Labour blog post, and a previous CD post.

Obama's Fearmongering: Bad History, Bad Economics; Historically Inaccurate and Dangerous

President Barack Obama has turned fearmongering into an art form. This fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don't come close to those of the 1930s. Mr. Obama's analogies to the Great Depression are not only historically inaccurate, they're also dangerous.

At worst, a comparison to the 1981-82 recession might be appropriate. Consider the job losses that Mr. Obama always cites. In the last year, the U.S. economy shed 3.4 million jobs. That's a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost -- fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.

Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82 (see chart above).

~Economist Bradley Schiller in
yesterday's WSJ

60 Minutes: CEO Making $2.77 Million Wants Protectionism for His Company Nucor and Big Steel

Click on the arrow above, and watch Nucor CEO Dan DiMicco argue why his company and his industry need protection with "Buy American" provisions in the stimulus bill.

Won't that lead to retaliation from countries around the world asks reporter Leslie Stahl? "No, not true, that's garbage," says DiMicco. Watch the full 60 Minutes episode tomorrow night.

Update from Reuters: The final version of the economic stimulus bill requires public works and building projects funded by the stimulus package to use only U.S.-made goods, including iron and steel.

Question: If Big Steel gets protection with "Buy American" provisions, would Mr. DiMicco and his top Nucor executives agree to a $500,000 pay cap instead of their current salaries, e.g. $2.77 million plus an additional $435,000 in options for Mr. DiMicco, and similar multi-million dollar amounts for his VPs?

Friday, February 13, 2009

China Looks Set to Be the First Major Economy to Recover from the Global Meltdown

Since the first of the year, China's Shanghai SE Composite Index is up by 23.5%, and is up 36% from the early November bottom (see chart above).

Dennis Gartman discussed China's stock market in today's The Gartman Letter, and wrote:

We’ve included a chart of the Shanghai Composite Index, for since the start of this year China’s markets have led the way higher. We are convinced that this trade in China’s favor has only just begun, for China, as we have said many, many times in the course of the past two or three months, is doing more things right and more things “capitalist” than nearly any other country in the world. When it was clear that the economy was softening, and when it was clear that share prices had become too over-sold, the Bank of China moved not only to reduce interest rates, but it moved swiftly and materially to reduce reserve requirements. Other central banks moved at the edges of their money markets to push rates lower; the BOC took a 2x4 and chose to hit the mule in the centre of its forehead to get its undivided attention. That has paid off handsomely. It shall continue to pay off in the weeks and months ahead.

Bloomberg: The benchmark Shanghai Composite Index has surged 24% this year, the world’s best performer. The rally in Chinese stocks should improve domestic consumer sentiment and encourage spending on big-ticket items such as cars and stimulate the property market.

More from
Bloomberg, "China looks set to be the first major economy to recover from the current global meltdown,” said Lu Ting, an economist with Merrill Lynch & Co. in Hong Kong. “China is the only economy in the world to see significant growth in credit to corporate and household sectors after September 2008, when the financial crisis worsened to a near collapse.”

Some commodity prices signal a tentative recovery may be under way, as Chinese companies rebuild inventories. China’s imported iron ore has climbed 28% to 690 yuan per metric ton since the end of October. Hot-rolled steel has surged 41% from Nov. 13 to 4,027 yuan per metric ton. The Baltic Dry Index, a measure of shipping costs for commodities, has more than doubled since Jan. 28.

Thursday, February 12, 2009

First Time in History: 50% of World is Middle-Class

For the first time in history more than half the world is middle-class—thanks to rapid growth in emerging countries (see chart above). Read about it in The Economist article "Burgeoning Bourgeoisie."

The Only Real Stimulus: Real Tax Cuts

Global Economic Activity On the Rebound?

December trade data released yesterday showed continued outright declines in both imports and exports. That's old news, of course. We know that global economic activity almost ground to a halt in the last three months of 2008. Since then, it looks like activity is on the rebound, and the chart above is the best indicator I've seen of that. This measure of shipping costs has risen 337% from its early December low, and in percentage terms (i.e., using a log scale for the y-axis) has recovered about half of its losses.

This may be purely due to the Chinese making aggressive purchases of raw materials from other countries, but nevertheless it is a sign of a significant reversal of the weakness that prevailed late last year. Meanwhile, the more inclusive Baltic Dry Index is up 200% from its lows (see chart below). Fascinating!

~Scott Grannis

Will Stimulus Become a $3 Trillion Nightmare?

From comments in the Reason.com Stimulus Symposium:

Like all fiscal stimulus packages in the past, the current one will not impact the economy at the right time for the intended stimulus effect, due to the inevitable problems of long lags. Much of the intended expansionary fiscal effects won't happen until next year and even 2011, and it's likely the economy will have recovered sufficiently by then so that the fiscal stimulus will be unnecessary, and might actually be destabilizing.

The graph below from the
Cato Institute (using CBO data) illustrates the problem of long lags for expansionary fiscal policy. Only about 21% of the increased spending would take place in 2009, and 38% would be spent in 2010 and 41% in 2011 and after. Let's be optimistic and assume an economic recovery sometime in 2009. There are two conclusions from that outlook:

1. The stimulus package would not be responsible for much of the economic recovery because almost 80% of the spending would take place after the economy has recovered.

2. The majority of the fiscal stimulus would impact the economy in 2010 and after, at a time when the economy no longer needs a stimulus. Stimulating an economy already in recovery would be potentially destablizing.

Chris Edwards at Cato suggests an alternative and even more pessimistic outcome:

What if special interest groups successfully lobby to extend all the new benefits and subsidies? One possibility would be that the 2010 funding level of $206 billion is extended permanently, as shown in the chart below. Rather than the stimulus bill costing $546 billion through 2019, it would trigger spending totaling $2.2 trillion over the period.

In sum, here are the budget effects through 2019 of the stimulus nightmare scenario:

Temporary tax cuts in the Senate bill: $292 billion
+ Spending continued permanently at 2010 level: $2.2 trillion
+ Estimated additional federal interest costs: $500 billion
= Total increase in federal debt under nightmare scenario: $3 trillion

Extending the (mainly useless) tax cuts in the stimulus package would make deficits even larger. And, of course, all this increase in debt would come on top of the debt piling up from financial industry bailouts and regular budget spending. It’s madness.

Thanks to Paul Sebastian for the Cato tip

Monopoly Unionism = Economic Anti-Stimulant

For years, scientific opinion polls have shown that Americans overwhelmingly oppose federal labor laws that empower union officials to represent all employees in a company unit and deny union nonmembers the right to bargain for themselves. But Organized Labor’s top priority in the 2009-2010 Congress, the inaptly named “Employee Free Choice” Act, would rewrite federal labor law to make it even easier for union officials to secure monopoly-bargaining privileges over employees.

Well aware that the American people oppose monopoly unionism, union officials are citing as the key reason for passing it its alleged value as an economic stimulant as the nation seeks to pull itself out of a recession. However, even a cursory look at the contrasting economic track records of states in which a relatively high share of employees are under union monopoly bargaining and states in which monopoly bargaining is relatively rare shows this case is phony.

The record shows that the prevalence of union monopoly bargaining is correlated with lower real incomes, higher living costs, slower growth in jobs and job benefits, and higher unemployment. The evidence is overwhelming that enactment of federal legislation that is designed to put millions of additional workers under union monopoly-bargaining control would be economically harmful, not beneficial.

If Congress really wants to help the U.S. economy recover and restore opportunities for employees and businesses, it should instead revise federal labor law to ensure that it respects the ability of each individual employee to choose whether or not to be represented by and furnish financial support for a labor union.

For the full study "Helping Big Labor Corral More Workers Into Unions: An Economic Anti-Stimulant," from the National Institute for Labor Relations Research, click here

Dismal Job Market for the Dismal Science

The dismal economy has claimed yet another victim: jobs for the economists who study it. Economists are facing a grim job market. Here's why:

1. Top universities have seen their endowments shrink and government funding slashed, leaving less cash for jobs.

2. Economics-department budgets are particularly vulnerable to cuts, especially since the professors are costly compared to their counterparts in other departments. The average annual salary schools paid new economist hires was $86,292 for the 2008-09 academic year.

3. Private-sector jobs -- at investment banks and hedge funds -- are drying up, too.

Columbia University's economics department, for example, isn't making any new hires this year. That's in stark contrast to last year, when Columbia poached eight economics professors from other schools, and hired one economist out of graduate school. The University of North Carolina at Chapel Hill, Amherst College and the University of Minnesota all have suspended their searches for economics professors. And Harvard University has gotten permission to hire just one person -- only after "many rounds of negotiation," according to Harvard economist Lawrence Katz, who is handling recruiting this year. Typically, Harvard hires two or three economics professors out of graduate school.

~Wall Street Journal

(HT: Division of Labour)

Fall in Foreclosures: Glimmer of Hope for Housing?

NEW YORK (Reuters) - U.S. home foreclosure filings in January decreased from December, an indication that an array of efforts to curb the process may be making an impact, real estate data firm RealtyTrac said on Thursday.

Foreclosure activity was still 18% higher than a year earlier, the 37th consecutive month with a year-over-year increase. Nevertheless, the fall in foreclosure filings last month provides a glimmer of hope for the hard-hit U.S. housing market.

Home foreclosure filings in January totaled 274,399, down 10 percent from December, RealtyTrac, an online market of foreclosure properties, said in its U.S. Foreclosure Market Report. The figure is a total of default notices, auction sale notices and bank repossessions.

MP: If you crunch the raw data, and take out the four states with the worst foreclosure problems (AZ, CA, FL and NV), foreclosures actually fell by -2.12% in January 2009 compared to January 2008. With those four states, foreclosures rose by 17.77% over the same period.

Also, all four of those states had declines in January foreclosures (compared to December): AZ (-8.1%), CA (-14.2%), FL (-19.8%) and NV (-4.0%), which helped bring down overall foreclosures in January by -9.6% vs. December.

Wal-Mart's Everyday FREE Prices: Free Tax Prep

BENTONVILLE, Ark., February 10, 2009The Wal-Mart Foundation today announced its commitment to bring free tax preparation and filing services to eligible taxpayers nationwide. Working with United Way and One Economy Corporation, a non-profit organization that helps low-income Americans enter the economic mainstream, the Foundation’s $3.6 million grant will launch the first-ever free mobile tax filing tour funded by a national retailer and fund more than 90 United Way-supported Volunteer Income Tax Assistance (VITA) campaigns.

Mobile Tax Center vans equipped with One Economy’s online tax filing technology and IRS-certified tax professionals will set-up in Walmart parking lots or at the offices of One Economy’s community partners for two to three weeks at a time between February 10 and April 11. Individuals earning less than $56,000 per year will be able to visit the vans and file their taxes free of charge. Visit www.myfreetaxes.com for van locations.

HT: Tax Prof

Cartoons of the Day

U.S. War on Drugs is Failing

As drug violence spirals out of control in Mexico, a commission led by three former Latin American heads of state blasted the U.S.-led drug war as a failure that is pushing Latin American societies to the breaking point. "The available evidence indicates that the war on drugs is a failed war," said former Brazilian President Fernando Henrique Cardoso. "We have to move from this approach to another one."

The commission, headed by Mr. Cardoso and former presidents Ernesto Zedillo of Mexico and César Gaviria of Colombia, says Latin American governments as well as the U.S. must break what they say is a policy "taboo" and re-examine U.S.-inspired antidrugs efforts. The panel recommends that governments consider measures including decriminalizing the use of marijuana.

The report, by the Latin American Commission on Drugs and Democracy, is the latest to question the U.S.'s emphasis on punitive measures to deal with illegal drug use and the criminal violence that accompanies it. A recent Brookings Institution study concluded that despite interdiction and eradication efforts, the world's governments haven't been able to significantly decrease the supply of drugs, while punitive methods haven't succeeded in lowering drug use.

Mr. Gaviria said the U.S. approach to narcotics -- based on treating drug consumption as a crime -- had failed. Latin America, he said, should adapt a more European approach, based on treating drug addiction as a health problem.

~Wall Street Journal

Off the Deep End

We aren't deficit scolds, but these levels are uncharted territory, especially if any economic recovery is weak because the spending doesn't stimulate. The new spending means new federal debt in the trillions of dollars over the next few years, which will test the limits of America's credit-worthiness. To the extent that taxes rise to pay for it all, the U.S. will become less desirable as a destination for the world's capital. Perhaps the Federal Reserve will try to inflate away this growing debt, but the world's bond vigilantes will get a vote on that.

We recognize this bill is going to pass as early as today. But Americans need to understand the vast expansion of government they are getting -- and who voted to pass it.

Wednesday, February 11, 2009

Attack Financial Crisis With Green Cards, Not Just Greenbacks, and With Start-ups Not Just Bailouts

Leave it to a brainy Indian to come up with the cheapest and surest way to stimulate our economy: immigration.

“All you need to do is grant visas to two million Indians, Chinese and Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper. “We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate — no Indian bank today has more than 2% nonperforming loans because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans.”

While his tongue was slightly in cheek, Gupta and many other Indian business people I spoke to this week were trying to make a point that sometimes non-Americans can make best:

“Dear America, please remember how you got to be the wealthiest country in history. It wasn’t through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: build this really flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat.”

When the best brains in the world are on sale, you don’t shut them out. You open your doors wider. We need to attack this financial crisis with green cards not just greenbacks, and with start-ups not just bailouts. One Detroit is enough.

~Thomas Friedman in yesterday's NY Times

Henry Hazlitt Predicted Housing Crisis in 1946

Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in they long run they do not increase overall national production but encourage malinvestment.

~From Chapter VI "Credit Diverts Production" in Henry Hazlitt's "Economics in One Lesson," first published in 1946

HT: Ayn Rand Center for Individual Rights

The Reason.com Stimulus Symposium

Yesterday, the United States Senate passed a sweeping $800 billion stimulus plan that President Barack Obama says he would like to sign into law as soon as possible. “There is no disagreement,” Obama has declared, “that we need action by our government, a recovery plan that will help jump-start the economy.”

Reason.com asked a panel of 10 leading economists for their response to the stimulus package.

Bush, Greenspan, Snow, and McCain Warned of Financial and Housing Crisis Starting in 2001

The Bush Administration, Alan Greenspan, Treasury Secretary John Snow, and Senator McCain warned repeatedly about Fannie Mae and Freddie Mac and what thus became the 2008 financial crisis -- starting in 2001. Democrats like Barney Frank resisted.

HT: Dallas Walton

1930s: Our Nation's First Stimulus Package

In 1893, there was a depression; we got out of it without a stimulus package. There was a major recession of 1920-21; though sharp, it quickly reversed itself into what has been call the "Roaring Twenties."

In 1929, there was an economic downturn, most notably featured by the stock market collapse, after which came massive government intervention -- you might call it the nation's first stimulus package. President Hoover and Congress responded to what might have been a two- or three-year sharp downturn with many of the policies President Obama and Congress are urging today. They raised tariffs, propped up wage rates, bailed out farmers, banks and other businesses, and financed state relief efforts.

When Roosevelt came to office, he became even more interventionist than Hoover and presided over protracted depression where the economy didn't fully recover until 1946.

~George Mason economist
Walter Williams

Quotes of the Day

Our economic problems worry me much less than our political solutions, which have a far worse track record.

~Thomas Sowell

The market economy has created unfathomable prosperity and, decade by decade, century by century, miraculous feats of innovation, production, distribution and social coordination.
To the free market, we owe all material prosperity, all our leisure time, our health and longevity, our huge and growing population, nearly everything we call life itself. Capitalism and capitalism alone has rescued the human race from degrading poverty, rampant sickness, and early death.

~Lew Rockwell, via today's The Gartman Letter

The transition to capitalism is thus accompanied by two phenomena: a decline both in fertility rates and in mortality rates. The average duration of life is prolonged.

~Ludwig von Mises in Human Action

Important Health Care Lessons from Canada: Patients Stuck on Waiting Lists With Nowhere to Go

Health-care resources are not unlimited in any country, even rich ones like Canada and the U.S., and must be rationed either by price or time. When individuals bear no direct responsibility for paying for their care, as in Canada, that care is rationed by waiting.

Canadians often wait months or even years for necessary care. For some, the status quo has become so dire that they have turned to the courts for recourse. Several cases currently before provincial courts provide studies in what Americans could expect from government-run health insurance.

In Ontario, Lindsay McCreith was suffering from headaches and seizures yet faced a four and a half month wait for an MRI scan in January of 2006. Deciding that the wait was untenable, Mr. McCreith did what a lot of Canadians do: He went south, and paid for an MRI scan across the border in Buffalo. The MRI revealed a malignant brain tumor.

Ontario's government system still refused to provide timely treatment, offering instead a months-long wait for surgery. In the end, Mr. McCreith returned to Buffalo and paid for surgery that may have saved his life. He's challenging Ontario's government-run monopoly health-insurance system, claiming it violates the right to life and security of the person guaranteed by the Canadian Charter of Rights and Freedoms.

Canada's system comes at the cost of pain and suffering for patients who find themselves stuck on waiting lists with nowhere to go. Americans can only hope that Barack Obama heeds the lessons that can be learned from Canadian hardships.

~Nadeem Esmail in the WSJ

HT: Bob Wright

Tuesday, February 10, 2009

Rents Falling in New York’s Garment District

NY TIMES -- It may seem counterintuitive that some New York fashion industry workers see a silver lining to the economic downturn — it helps them preserve their toehold in the city’s garment district.

The average asking rents for office space in the district soared 78% in the three years from the end of 2004, peaking at almost $55 a square foot a year in November 2007. But asking rents have fallen back 23% since then, to around $42. That is still much higher than the rents of around $30 that prevailed four years ago.

But current rents are low relative to many other office areas, in part because most of the buildings are old, unrenovated factories. For example, in Times Square, which borders the garment district, the average annual asking rent is $76 a square foot. But Colliers estimates that 85% of the office space in Times Square is in modern well-equipped buildings — classified as Class A space — while only 16% of the garment district is Class A.

Driving Down Healthcare Costs for Truck Drivers

LAS VEGAS, Feb 10, 2009 (BUSINESS WIRE) -- Roadside Medical Clinic + Lab is pleased to select TeleMedExperts and their network of medical providers to launch Roadside Medical Clinic + Lab's national franchise and licensing network of medical clinics located at Pilot Travel Centers. Roadside Medical Clinic + Lab has also chosen TeleMedExperts as their exclusive provider of customized electronic medical health records technology equipping each of the Roadside Medical Clinics and providing over-the-road drivers with a travelling health record. As a leader in the emerging field of tele-medicine, TeleMedExperts has the ability to source specialty doctors throughout their national network and will be providing this service through Roadside Medical Clinics + Labs.

Designed specifically for over-the-road truck drivers, Roadside Medical Clinic + Lab is the nation's first recognized network of retail health clinics built to meet the growing demand of America's 3.4 million drivers while driving down healthcare costs. Through an exclusive partnership with Pilot Travel Centers, Roadside Medical provides cost-effective and professional medical services including DOT physicals, wellness programs, sleep apnea studies, and nutritional products in a convenient location for drivers. Pilot is the largest operator of travel centers in the U.S. with more than 300 locations in 41 states.

A Hidden Cost of Health Care: Patient Time

Any student of Econ 101 knows that economists measure costs by opportunity costs, meaning everything that is given up to get something else. Time spent interacting with the medical system could be used for other activities, like work and leisure. Moreover, spending time getting medical care is not fun. This time should be counted as part of the cost of health care.

Using the
American Time Use Survey, I calculate that Americans age 15 and older collectively spent 847 million hours waiting for medical services to be provided in 2007. If we value all people’s time at the average hourly wage of production and nonsupervisory workers ($17.43 in 2007), Americans spent the equivalent of $240 billion on health care in 2007. Put another way, omitting patients’ time caused national health care expenditures to be undercounted by 11% in 2007.

Alan Krueger, Princeton economics professor, in The NY Times

No Recession for Dollar General Stores: Sales Are Up 11.2%, 450 New Stores Set to Open In 2009

BUSINESS WIRE--Dollar General Corporation today reported total sales of $2.85 billion for its fiscal fourth quarter ended January 30, 2009, an 11.2% increase from 2007 fourth quarter sales of $2.56 billion. Same-store sales for the quarter increased 9.4%. Sales in the quarter continued to benefit from strategic operating initiatives implemented during the year to increase both customer traffic and average ticket, while facing a difficult economic environment for the consumer. Sales of seasonal merchandise and other discretionary items were impacted by the weak economy as well as a shorter holiday selling season.

During the fiscal year, the Company opened 207 new stores, relocated or remodeled 404 stores and closed 39 stores, ending the year with 8,362 neighborhood stores. The Company intends to accelerate its new store openings with plans to open approximately 450 new stores and to remodel or relocate approximately 400 stores in 2009.

There's No Stimulus Free Lunch

The increased federal debt caused by this stimulus package has to be paid for eventually by higher taxes on households and businesses. Higher income and business taxes generally discourage effort and investments, and result in a larger social burden than the actual level of the tax revenue needed to finance the greater debt. The burden from higher taxes down the road has to be deducted both from any short-term stimulus provided by the spending program, and from its long-run effects on the economy.

Our own view is that the short-term stimulus from the legislation before Congress will be smaller per dollar spent than is expected by many others because the package tries to combine short-term stimulus with long-term benefits to the economy. Unfortunately, short-term and long-term gains are in considerable conflict with each other. Moreover, it is very hard to spend wisely large sums in short periods of time. Nor can one ever forget that spending is not free, and ultimately it has to be financed by higher taxes.

~Chicago economists Gary Becker and Kevin Murphy, today's WSJ

Sun, Beaches and Laser Eye Surgery in Turkey

ISTANBUL -- In 2007, the number of foreign patients in Turkey was 150,000. Last year, the number of foreigners treated in Turkey increased by 40% to total 200,000. Foreigners choose Turkey not just for lower medical costs, but also for vacation opportunities available following recovery.

"Europeans prefer Turkey mostly for plastic surgery, in vitro fertilization, dental treatment and laser eye surgery. These surgeries cost an average of 5,000 euros in Europe. In Turkey, the average cost for such surgeries varies between 500 to 900 euros.

Medical tourism in the country is growing like a snowball. Hospitals gravitating toward health tourism have been quite happy with the growing business and they foresee this year to be even brighter than last year.

Monday, February 09, 2009

The Female-Male Higher Education "Degree Gap"

I posted before about the growing "degree gap" between females and males in U.S. higher education, showing charts for bachelor's degrees, master's degrees and doctoral degrees, using Department of Education data (actual data through 2005-2006 and projected data through 2016-2017). The Department of Education also tracks associate's degrees at community colleges, and "first-professional degrees" (M.D., D.D.S. and law degrees), and those female and male percentages of total degrees are displayed above.

As the top chart shows, the female-male "degree gap" for associate's degrees started in 1977, and is projected to be 64.17% female vs. 35.83% male by 2016. That would mean that in 2016, more than 179 women will receive associate's degrees for every 100 men.

The bottom charts shows the female-male "degree gap" for professional degrees started in 2006 when women earned more of those degrees (50.48%) for the first time. By 2016, women are projected to receive 53.44% of professional degrees, or almost 115 degrees for women for every 100 degrees for men.

Here's a timeline summary:

1977: First year women earned more associate's degrees than men. By 2016, women will receive 179 associate's degrees for every 100 men.

1981: First year women earned more bachelor's degrees than men. By 2016, 150 women will receive bachelor's degrees for every 100 men.

1985: First year women earned more master's degrees than men. By 2016, women will receive 170 master's degrees for every 100 men.

2006: First year women earned more doctoral degrees and more professional degrees. By 2016, women will receive almost 125 doctoral degrees, and almost 120 professional degrees for every 100 men.

Back on Uncle Sam's Plantation

I thought we were on the road to moving socialism out of our poor black communities and replacing it with wealth producing American capitalism. But, incredibly, we are going in the opposite direction.

Instead of poor America on socialism becoming more like rich American on capitalism, rich America on capitalism is becoming like poor America on socialism. Uncle Sam has welcomed our banks onto the plantation and they have said, "Thank you, Suh."

Now, instead of thinking about what creative things need to be done to serve customers, they are thinking about what they have to tell Massah in order to get their cash. There is some kind of irony that this is all happening under our first black president on the 200th anniversary of the birthday of Abraham Lincoln.

Worse, socialism seems to be the element of our new young president. And maybe even more troubling, our corporate executives seem happy to move onto the plantation.

~Star Parker

Congress: Don't Just Do Something; Stand There

The U.S. government has shown repeatedly that as an economic manager it is not to be trusted. What we need most are authorities wise enough to follow the dictum, "First, do no harm." The stimulus package will do enormous harm. The huge debt burden it entails, by itself, ought to condemn the measure. America is already drowning in debt. But the measure will also wreak harm in countless other directions by effectively reallocating resources on a grand scale according to political priorities, rather than according to individual preferences and economic rationality. As our history shows, the economy can recover strongly on its own, if only the politicians will stay out of the way.

~Economic historian Robert Higgs, in the CSM

HT: Cafe Hayek

Sunday, February 08, 2009

"Buy American"??

The Mazda 6 below is built in Flat Rock, MI by UAW workers. Does this qualify as an "American" car?
We've heard a lot lately about the “Buy American” provisions being debated in the economic stimulus bill, and that made me think about how increasingly difficult, and increasingly meaningless, it is to even determine what "Buy American" really means in an increasingly globalized world economy. Consider automobiles - how do you tell the difference any more between "American cars" and "foreign cars."

1. Here's a list of 8 "American-made" vehicles produced by American
UAW workers, in American factories, but for foreign-based car companies. If you purchased one of these vehicles, would that count as "buying American"?

American-made UAW vehicles:
Mazda 6
Mitsubishi Eclipse
Mitsubishi Galant
Toyota Corolla
Isuzu i-Series Truck
Mazda B-series Truck
Mitsubishi Raider Truck
Toyota Tacoma Truck

2. What about these nine Canadian-made vehicles, produced by
UAW brothers and sisters at factories in Canada, for the U.S.-based Detroit Three. They can't qualify as "American-Made" can they?:

Canadian-made UAW vehicles:
Buick Lacrosse
Chevrolet Impala
Chrysler 300
Dodge Challenger
Dodge Charger
Ford Crown Victoria
Lincoln Town Car
Mercury Grand Marquis
Pontiac Grand Prix

3. What about the Chevy Aveo, which is built by Korean automaker Daewoo for Detroit-based General Motors? Or the Chrysler PT Cruiser, built in Mexico?

4. What about the 2008 Honda Pilot and Honda Civics, built in the U.S. with
higher domestic content (70%) than the 2008 Dodge Ram (68%) and the Michigan-built Ford Mustang (65%).

5. What about the Toyota Tundra, Toyota Sienna and Honda Odyssey, which rank #5, #6 and #7 for the "Top American-Made Cars" in 2008 by Cars.com?

Poster Child for Enlightened Capitalism: Wal-Mart's Not The Enemy, But Best Friend We Could Ask For

I recently posted about Charles Platt (pictured above), former senior writer for Wired magazine who took a job at an Arizona Wal-Mart and blogged about it here. He now has a longer article in yesterday's NY Post titled "Fly on the Wall: Undercover at Wal-Mart, The Heartland Superstore That May Save the Economy." Here are some excerpts:

Some people, usually community activists, loath Wal-Mart. Others, like the family of four struggling to make ends meet, are in love with the chain. I, meanwhile, am in awe of it.

The company is rebuked and reviled by anyone claiming a social conscience, and is lambasted by legislators as if its bad behavior places it somewhere between investment bankers and the Taliban.

Considering this is a company that is helping families ride out the economic downturn, which is providing jobs and stimulus while Congress bickers, which had sales growth of 2% this last quarter while other companies struggled, you have to wonder why. At least, I wondered why. And in that spirit of curiosity, I applied for an entry-level position at my local Wal-Mart.

Getting hired turned out to be a challenge. The personnel manager told me she had received more than 100 applications during that month alone, chasing just a handful of jobs. Thus the mystery deepened. If Wal-Mart was such an exploiter of the working poor, why were the working poor so eager to be exploited? And after they were hired, why did they seem so happy to be there? Anytime I shopped at the store, blue-clad Walmartians encouraged me to "Have a nice day" with the sincerity of the pope issuing a benediction.

Despite its huge size, the corporation turned out to have an eerie resemblance to a Silicon Valley startup. There was the same gung-ho spirit, same lack of dogma, same lax dress code, same informality - and same interest in owning a piece of the company. All of my coworkers accepted the offer to buy Wal-Mart stock by setting aside $2 of every paycheck.

Almost all the employee rules devolved to the sacred principle of never, ever offending a customer - or "guest," in Wal-Mart terminology. The reason was clearly articulated. On average, anyone walking into Wal-Mart is likely to spend more than $200,000 at the store during the rest of his life. Therefore, any clueless employee who alienates that customer will cost the store around a quarter-million dollars. "If we don't remember that our customers are in charge," our trainer warned us, "we turn into Kmart." She made that sound like devolving into some lesser being - a toad, maybe, or an ameba.

Coworkers assured me that the nearest Target paid its hourly full-timers less than Wal-Mart, while fast-food franchises were at the bottom of everyone's list.

I found myself reaching an inescapable conclusion. Low wages are not a Wal-Mart problem. They are an industry-wide problem, afflicting all unskilled entry-level jobs, and the reason should be obvious. In our free-enterprise system, employees are valued largely in terms of what they can do. This is why teenagers fresh out of high school often go to vocational training institutes to become auto mechanics or electricians. They understand a basic principle that seems to elude social commentators, politicians and union organizers. If you want better pay, you need to learn skills that are in demand.

The blunt tools of legislation or union power can force a corporation to pay higher wages, but if employees don't create an equal amount of additional value, there's no net gain. All other factors remaining equal, the store will have to charge higher prices for its merchandise, and its competitive position will suffer.

This is Economics 101, but no one wants to believe it, because it tells us that a legislative or unionized quick-fix is not going to work in the long term. If you want people to be wealthier, they have to create additional wealth.

To my mind, the real scandal is not that a large corporation doesn't pay people more. The scandal is that so many people have so little economic value. Despite (or because of) a free public school system, millions of teenagers enter the work force without marketable skills. So why would anyone expect them to be well paid?

You have to wonder, then, why the store has such a terrible reputation, and I have to tell you that so far as I can determine, trade unions have done most of the mudslinging. Web sites that serve as a source for negative stories are often affiliated with unions.

Cartoon of the Day

Fill-In-The-Blank Price Gouging Form

Last fall, Art Carden of the Mises Institute provided a "fill-in-the-blank" price gouging form, which was filled in below for the most recent disaster, the winter storm in Kentucky, using information this news report:

Fearing increases in the prices of basic items as a result of (disaster: MAJOR WINTER STORM), officials in (state or municipality: KENTUCKY) have declared a state of emergency whereby restrictions on "price gouging" are now in effect. According to (politician or law enforcement official: ATTORNEY GENERAL JACK CONWAY), the law is designed to protect innocent consumers from "unconscionable" increases in the prices of food, gasoline, ice, electric generators, and home-repair services.

Saturday, February 07, 2009

The "Fair Trade" Cringe

Like many economists, I cringe whenever I hear the term “fair trade.” It is not that I am against fairness — who is? — but the word “fair” is so amorphous in this context as to defy definition. Most often, the slogan “fair trade” is little more than a rallying cry for protectionism.

Critics of China say it is keeping the yuan undervalued to gain an advantage in the international marketplace. A cheaper yuan makes Chinese goods less expensive in the United States and American goods more expensive in China. As a result, American producers find it harder to compete with Chinese imports in the United States and to sell their own exports in China.

There is, however, another side to the story. The loss to American producers comes with a gain to the many millions of American consumers who prefer to pay less for the goods they buy.

~Harvard economist Greg Mankiw in
today's NY Times

MP: Mankiw is exactly correct. As surely as night follows day, what follows from someone's advocacy or support of "fair trade," is ALWAYS, ALWAYS, ALWAYS a proposal for some kind of government interference in the form of trade protectionism.

Netflix CEO To Congress: Please Raise My Taxes to 50%; Hey, He Can Pay That Higher Rate Right Now

I’m the chief executive of a publicly traded company and, like my peers, I’m very highly paid ($3.5 million in 2007 including options exercised). The difference between salaries like mine and those of average Americans creates a lot of tension, and I’d like to offer a suggestion. President Obama should celebrate our success, rather than trying to shame us or cap our pay. But he should also take half of our huge earnings in taxes, instead of the current one-third.

Then, the next time a chief executive earns an eye-popping amount of money, we can cheer that half of it is going to pay for our soldiers, schools and security. Higher taxes on huge pay days can finance opportunity for the next generation of Americans.

Another advantage is that it would also cover the sometimes huge earnings of hedge fund managers, star athletes, stunning movie stars, venture capitalists and the chief executives of private companies. Surely there is no reason to focus only on executives at publicly traded companies.

This week, President Obama proposed imposing a $500,000 compensation cap on companies seeking a bailout. It’s a terrible idea. We all want the taxpayers’ money returned, and capping compensation at bailout recipients will just make it that much harder for those boards to hire and hold on to the executives who can lead their companies to compete and thrive.

Perhaps a starting place for “tax, not shame” would be creating a top federal marginal tax rate of 50% on all income above $1 million per year.

~Reed Hastings, CEO of Netflix, in Thursday's NY Times

According to one writer at US News and World Report, in an article "One CEO Who Gets It":

The jury’s still out on whether there’s a modest CEO in the land. But there’s at least one very clever CEO: Reed Hastings of Netflix. In a New York Times op-ed, Hastings argues that President Obama’s proposal to limit certain CEO pay is “a terrible idea.” Most CEOs probably agree. But instead of the usual bromides about how CEOs are geniuses who deserve every penny they earn, Hastings proposes an alternative: Tax anybody who earns over $1 million – which includes most Fortune 500 CEOs – at 50%. Including him.

Dear Mr. Hastings:

If you think that you should pay more in taxes, you don't need to wait for Congress to increase the highest marginal tax rate to 50%. You can actually voluntarily pay more taxes right now, today by making a gift to the United States Government. Tax yourself for your 2008 earnings above $1 million at your proposed rate of 50%, and then simply write a check payable to the "United States Treasury" for your additional taxes owed, and mail to the address below. And if you think 50% is a good rate for earnings above $1 million now and in the future, please consider paying that rate on your earnings above $1m in 2007 and all previous years, and add that amount to your gift. You could not only be clever, you could also set a great example for other CEOs.

Gifts to the United States
U.S. Department of the Treasury
Credit Accounting Branch
3700 East-West Highway, Room 6D17
Hyattsville, MD 20782