Saturday, March 07, 2009

Record Crowds Pack Detroit's Autorama

DETROIT -- The crowds were continual for the 57th annual Murray's/O'Reilly's Autorama presented by Meguiars Saturday as models in tattered clothing mingled with gear heads, casual fans and dads looking to bond with their children.

The three-day show usually draws about 100,000 visitors to the Cobo Convention Center, but this year the numbers could jump by as much as 30,000 because of a few days of warm weather, organizers said. "The weather helps," said Bob Larivee Jr., CEO of Championship Auto Shows, which organizes the Autorama. "You can't control mother nature."

Larivee said 20 buses, each containing 50 people came from the Upper Peninsula, Canada and Ohio, helping to jam the hotels affiliated with the show. "That by far is a record," he said. "They are staying the night and making it a weekend."

The Autorama is a traveling show that highlights custom-built or customized vehicles that are worth tens of thousands of dollars. Detroit's show, with more than 1,000 vehicles, is considered the granddaddy of the circuit, organizers, attendees and exhibitors said.

MP: How bad can "Great Depression II" be with record numbers like this attending an auto show in Michigan?

An Entrepreneur Stimulus Plan

"The president must include entrepreneurs on his advisory council to help stimulate the economy," writes Sramana Mitra, a technology entrepreneur and strategy consultant, in her most recent Forbes column. "As the government tries to assess what might stimulate entrepreneurship, I don't see many "practitioners" of true entrepreneurship represented on President Obama's advisory council."

"Who represents the voice of the bootstrapped entrepreneur in the government? Who understands the extreme cash-strapped conditions under which entrepreneurs operate? Without understanding, how can they design an effective system?"

Excellent questions from one of the bloggers who attended the Kauffman Foundation Economics Blogger Forum with me last week in Kansas City.

Peru's Recession Proof Economy is Booming

THE ECONOMIST -- Despite a global bust and slowing domestic growth, Peru's economy remains in good shape Peru had one of the best-performing economies in Latin America last year, with GDPgrowth of 9.8% (see chart above)—higher even than that of China (9%). Despite a severe global economic bust and sharply decelerating domestic growth, the Andean country is likely to remain, relatively speaking, a star performer in 2009.

Peru’s growth has exceeded that of most other countries in the region during the last seven years, driven by high global minerals prices and expanding output from the natural-resources sector, including from the huge Camisea natural-gas field. In 2008 only Uruguay’s spectacular rate of growth of 11% eclipsed that of Peru. Yet all economies have been slowing since the latter months of last year in response to deteriorating external conditions, a tightening of credit, and more cautious consumers and investors. Many will slip into recession this year. Peru will not be one of them.

Company Layoff Plans Expected to Decline

WASHINGTON, D.C., February 25, 2009As the recession continues, companies are looking ahead and expecting to experience a long period of economic hardship. A new update to an ongoing series of surveys conducted by Watson Wyatt, a leading global consulting firm, shows that most companies have already made most of their intended sweeping changes. However, many expect to make further cost-cutting changes this year, such as salary and hiring freezes, and reduced 401(k) matching contributions.

“Companies have come to terms with the fact that this recession is going to last and that they can’t slash their way out of it,” said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. “Many companies are putting the drastic cuts behind them and are now focusing on smaller, more sustainable cost-cutting actions.”

According to the survey of 245 large U.S. employers conducted last week, 52% have made layoffs, up from 39% two months ago. However, the number of companies planning layoffs has fallen 10 percentage points from 23% to 13% (see chart above).

HT: Andrew Greene

Have Job Layoffs Peaked in January?

According to Penny Herscher at the Market Mine blog:

There's a turn in the U.S. employment market happening - there's evidence that the number of layoff announcements and reported layoff events has started to drop (see chart above of the monthly volume of unique stories on layoffs). This does not mean the number of job losses will drop yet since announcements precede the actual elimination of jobs, but it is a leading indicator of the turn in the employment market.

For the last few months it has seemed as if the bad news on layoff announcements just kept growing and as I watched the web news flow on U.S. Layoffs specifically - as you can do too both in the free FirstRain newsletter Eye on the Storm - or on the front page of - it has been like watching a train wreck every day.

But I've also been watching the statistics to look for a turnaround in the trend - and it's started. There is no way to know if this is the turn or a turn in the trend but it is a compelling change in the data and could be a leading indicator of a change in the way companies are dealing with the crisis.

The report published by Watson Wyatt last week "Company Layoff Plans Expected to Decline" also corroborates that companies have made the sweeping deep cuts and the majority are now focusing are local management measures such as salary freezes and cutting 401(k) contributions to further manage costs (see related post above).

MP: A Google Trends analysis over the last 12 months of "layoffs" provides some additional evidence of a January peak in layoffs (see chart below). Notice that both the search volume index (top line) and the news reference volume (bottom line) for "layoffs" peaked in mid-January, and have been declining ever since.

Thanks to CD reader Andrew Greene, who alerted me to Paul Kedrosky's posting about this at his excellent blog Infectious Greed (I met Paul at Kauffman Foundation's Economics Blogger Forum, and just added his blog to my blogroll).

Friday, March 06, 2009

Lincoln and Obama

Avg. Size New Home Falls for First Time Since '94

According to annual Census Bureau data from 1978 to 2007, and quarterly data through 2008:Q3 (source here), the average size of a new home fell in 2008, the first annual decrease in new home size since 1994 (see chart above). Over the last 15 years, the average new home size increased by 21% from 2,050 square feet in 1994 to a peak of 2,479 square feet in 2007, before falling to 2,438 square feet in the third quarter of 2008. The 2008 decrease in home size was the largest annual decrease since 1980.

"Energy Tax Cut" Boosts Feb. Sales at Wal-Mart

Wal-Mart Stores reported net sales for the four-week period ending Feb. 27, 2009. Walmart U.S. had strong sales performance during the four-week February period. Comparable store sales increased 5.0%, driven largely by an acceleration of traffic (see chart above, click to enlarge). Average ticket also increased.

We believe falling gas prices significantly boosted household disposable income in February and therefore allowed for both more trips and more spending towards discretionary categories, ” said Eduardo Castro-Wright, vice chairman, Wal-Mart Stores.

Nation Instinctively Forms Breadline

NEW YORK -- Drawn by a strange force they could neither resist nor describe, millions of Americans reportedly dropped what they were doing Tuesday and, acting as if by instinct alone, gathered into one massive nationwide breadline.

Some recession humor from "The Onion."

Thursday, March 05, 2009

Map of Legal Drinking Age Around the World

Click to enlarge.

UPDATE: Catherine Rampell at the NY Times' Economix blog links to the map above, and provides some additional information, including a link to the underlying data, which addresses some of the concerns of the commenters on this post about possible inaccuracies. For example, Canada's drinking age varies by province: three provinces are apparently 18 years and the rest are 19 years.

U.S. Dollar Reaches 4.5 Year High

The U.S. dollar index (broad) hit its highest level today since August 2004 (data here).

The Economist Says: Legalize It

The Economist (1989): Drug prohibition cruelly compounds the problems it was meant to solve. So end it. Legalise, control, discourage: those are the weapons for U.S. Drug Czar Bill Bennett's war.

The Economist (2009): Next week ministers from around the world gather in Vienna to set international drug policy for the next decade. Like first-world-war generals, many will claim that all that is needed is more of the same. In fact the war on drugs has been a disaster, creating failed states in the developing world even as addiction has flourished in the rich world. By any sensible measure, this 100-year struggle has been illiberal, murderous and pointless. That is why The Economist continues to believe that the least bad policy is to legalise drugs.

Florida Home Sales Increase for 5th Month in a Row

ORLANDO, Fla. (Feb. 25, 2009)Florida’s existing home sales rose in January, making it the fifth month in a row that sales activity showed increases in the year-to-year comparison, according to the latest housing data released by the Florida Association of Realtors (FAR). Existing home sales rose 24% last month with a total of 8,450 homes sold statewide compared to 6,810 homes sold in January 2008, according to FAR (see chart above). Florida’s median sales price for existing homes last month was $139,500; a year ago, it was $206,900 for a 33% decrease.

Now Is The Time To Buy

March 4 (Bloomberg) -- Steve Leuthold, whose Grizzly Short Fund returned 74% last year betting against U.S. stocks, said now is the time to buy equities because investors are too fearful about the economy.

“These comparisons people make with the Great Depression are totally out of touch with reality, and pretty stupid,” he told Bloomberg Television in an interview today. “We’ve been in much worse, much more panicked and more scary situations in the U.S.”

The economy isn’t as bad as it was in 1974, when stocks began rebounding, said Leuthold, who oversees $3.2 billion at Leuthold Weeden Capital Management in Minneapolis. He predicted the Standard & Poor’s 500 Index will surge to at least 1,000 in 2009, representing a gain of 44% from yesterday’s 12-year low of 696.33.

If Your Goal is Wealth Maximization, You Can't Justify Active Management Over Indexed Funds

NY Times (Feb. 21, 2009) -- There's yet more evidence that it makes sense to invest in simple, plain-vanilla index funds, whose low fees often lead to better net returns than hedge funds and actively managed mutual funds with more impressive performance numbers.

That is the finding of a new study by Mark Kritzman, president and chief executive of Windham Capital Management of Boston. The study measured the long-term impact of all expenses involved in investing in a mutual or hedge fund including transaction costs, taxes, and management and performance fees.

Mr. Kritzman calculates that just to break even with an index fund, net of all expenses, an actively managed fund would have to outperform it by an average of 4.3 percentage points a year on a pre-expense basis. For the hedge fund, that margin would have to be 10 points a year.

The chances of finding such funds are next to zero, said Russell Wermers, a finance professor at the University of Maryland. Consider the 452 domestic equity mutual funds in the Morningstar database that existed for the 20 years through January of this year. Morningstar reports that just 13 of those funds beat the Standard & Poor’s 500-stock index by at least four percentage points a year, on average, over that period. That’s less than 3 out of every 100 funds.

But even that sobering statistic paints too rosy a picture, the professor said. That’s because it’s one thing to learn, after the fact, that a fund has done that well, and quite another to identify it in advance. Indeed, he said, he has found from his research that only a minority of funds that beat the market in a given year can outperform it the next year as well. “By definition, therefore, such a fund could not have been identified in advance,” he added.

The investment implication is clear, according to Mr. Kritzman. “It is very hard, if not impossible,” he wrote in his study, “to justify active management for most individual, taxable investors, if their goal is to grow wealth.” And he said that those who still insist on an actively managed fund are almost certainly “deluding themselves.”

Markets Are Working: CA Home Sales Increase +100% in January As Home Prices Fall By -40.5%

LOS ANGELES (Feb. 26)Home sales increased 100.8% in January in California compared with the same period a year ago, while the median price of an existing home fell 40.5%, the CALIFORNIA ASSOCIATION OF REALTORS (CAR) reported today.

“Statewide sales in January edged past the 600,000 threshold for the first time since October 2005,” said CAR President James Liptak. “The strength in California home sales in recent months signifies that the market is gradually working its way through the large numbers of distressed sales that have followed in the wake of the troubled mortgage problem. With favorable home prices and historically low mortgage rates, affordability in the California housing market is now at its highest since the start of the decade.”

Closed escrow sales of existing, single-family detached homes in California totaled 624,940 in January at a seasonally adjusted annualized rate, an increase of 100.8% from the revised 311,160 sales pace recorded in January 2008. Sales in January 2009 increased 14% compared with the previous month.

The Unsold Inventory Index was 6.7 months in January, compared with 16.6 months in January 2008 (a reduction of almost 10 months), and the median number of days it took to sell a single-family home was 49.9 days in January 2009, compared with 70.8 days in January 2008 (almost a 21 day reduction).

Bottom Line: The way the media reports it, you would think we were years away from a solid recovery in the real estate market, especially in states like California, when some of the housing data suggest otherwise. The 40.5% fall in California home prices is helping to stimulate home sales there, as the Law of Demand would predict.

Overall sales volume has increased in California by 20.5%, from $1.32 billion a year ago to $1.58 billion in January this year, the Inventory Index has decreased by almost 10 months, and the median number of day to sell a home decreased by almost 21 days. In other words, market forces are working in the California real estate market.

Quote of the Day

The film-star or the crooner is not grudged the income that is grudged to the oil magnate, because the people appreciate the entertainer's accomplishment and not the entrepreneur's, and because the former's personality is liked and the latter's is not. They feel that consumption of the entertainer's income is itself an entertainment, while the capitalist's is not, and somehow think that what the entertainer enjoys is deliberately given by them while the capitalist's income is somehow filched from them.

~Bertrand de Jouvenel, writing in 1951 about popular attitudes toward income inequality in "The Ethics of Redistribution"

Monster Employment Index Increases in Feb.

NEW YORK, March 5th, 2009 - The Monster Employment Index rose moderately in February, adding four points, as a majority of industries, occupations and regions registered increased online job availability. During February, online job availability rose in 17 of the Index's 20 industry categories and in 18 of the 23 occupational categories measured. Online demand for workers grew in 25 of the 28 major metro markets, led by Pittsburgh and Houston. However, on a year-over-year basis, the Index remained down 26%, the same annual pace observed in January.

“The gain in the February Index is the first since October of 2008, but is a typical pattern seen historically as we move from January to February and companies start their recruiting efforts in earnest. Most industries and occupations showed an increase in online recruitment activity in February as did the majority of geographical regions and major metropolitan markets. All of this suggests that traditional annual hiring cycles remain somewhat intact,” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “The annual growth rate for the Index is still negative year-over-year, suggesting that labor market conditions remain well below the hiring demand of 2007 and early 2008.”

Geography of the Recession

NY Times link. Job losses have been most severe in the areas that experienced a big boom in housing, those that depend on manufacturing and those that already had the highest unemployment rates. Related Article.

MP: Note the lighter shaded area that streches all the way from North Dakota (unemployment rate is 3.5%) and Wyoming (3.4%), all the way down through the middle of the country in states like Nebraska (4.0%), Oklahoma (4.9%), Kansas (5.2%), to Texas (6%), where unemployment rates are relatively low.

The Four Bubble States: AZ, CA, FL and NV

A previous CD post discussed the concentration of foreclosures in four states: AZ, CA, FL and NV. The chart above helps explain the foreclosure concentration: all four of those states had huge house price bubbles, and subsequent corrections/crashes. In contrast, states like Texas and South Dakota did not experience real estate bubbles, and do not have the foreclosure problems today of AZ, CA, FL and NV.

Wednesday, March 04, 2009

Home Prices: CA vs. SD, TX, OK, MO, AL and AR

The chart above shows the quarterly OFHEO home price indexes from 1999:Q1 to 2008:Q4 for California vs. Texas, South Dakota Oklahoma, Missouri, Alabama and Arkansas (data here). Notice that only the state of California had a huge 2006-2007 real estate bubble followed by a subsequent correction. All other states have had steady increases in home prices, without any bubble, and without any subsequent correction/crash.

NY Fed's Model Predicts End of Recession in 2009

According to the New York Fed, "Research beginning in the late 1980s documents the empirical regularity that the slope of the yield curve is a reliable predictor of future real economic activity."

On Monday, the
New York Fed released its latest "Probability of U.S. Recession Predicted by Treasury Spread," with data through February 2009 and its recession probability forecast through February 2010 (see chart above, click to enlarge). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (currently at 2.57%) to calculate the probability of a recession in the United States twelve months ahead (see chart below of the Treasury spread).

The Fed's data show that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then to less than 10% for December 2008 and January 2009. Looking forward through 2009, the Fed's model shows a recession probability of less than 1% on average through the next 12 months, below 1% by the end of the year, and only 0.57% by February 2010. The Treasury spread has been above 2% for the last 12 months, a pattern consistent with the economic recoveries after the 1990-1991 and 2001 recessions.

Bottom Line: The New York Fed's Treasury spread model predicts the end of the recession in 2009.

The Miracle of the Market

With some help from the Student Entrepreneur Society at the University of Michigan-Flint (especially Jennifer Moore), and an old 1950 Sears catalog purchased from Ebay, we were able to compare the costs of 16 typical household items in 1950 to the costs of those same items today, measured in the cost of our time to purchase those household items. Using the average hourly manufacturing wage of $1.30 in 1950 and $18.01 today, the hours of work to purchase those 16 household items in both 1950 and 2009 are displayed above (click to enlarge). In all cases, we tried to match the size and quality of the items as closely as possible in both years.

Bottom Line: In 1950, it would have taken almost 8 months of full-time work at the average manufacturing wage to earn the $1,650 needed to purchase the 16 items above at the retail prices in 1950 (or 31.7 weeks, 158.4 days, or 1,267 hours). Today, it would take only 1.6 months of work at the current average hourly wage of $18.01 to earn the $4,580 necessary to purchase those same items at today's retail prices (or 6.4 weeks, 31.8 days or 254.5 hours).

To what do we owe this significant 80% reduction in the time cost of household goods over time? It's all part of the miracle of the market economy.

Tuesday, March 03, 2009

Everything is Amazing, But Nobody is Happy

I featured this clip last November on CD, but it's making the rounds again recently, and worthy of another viewing.

The Forgotten Daily Miracles of the Market

Don Boudreaux: It's become an article of faith among lots of people that recent events prove (or at least suggest) that markets don't work very well.

But the vast majority of market exchanges and relationships work smoothly and to the advantage of all participants. Indeed, the market works so well and so consistently that it creates ever-higher expectations among the broad populace. When these expectations are dashed, if only for a handful of persons and if only rarely, the market is deemed to have failed.

But despite the current downturn, the market continues to work well in its typical silence. Do you have trouble today finding gasoline to buy? Are your local supermarket's shelves not stocked with food, wine, and (watch for it soon!) Easter candy? If your cat eats your socks, will you have trouble buying several new pair? If your car's battery dies this afternoon, must you resort to bicycling or public transportation because you can't replace your dead battery? If you're bored this evening with nothing to do, is there no movie you can go to or no DVD you can rent? If you miss your mom in Minneapolis or your boyfriend in Boston, can you not call them on your cell-phone -- or even buy a plane ticket and go visit them?

Robert Higgs: I am writing this post on Sunday evening, and I have just finished my supper. For dessert, I had a fresh nectarine with vanilla ice cream. It was heavenly. The one I consumed this evening came close to perfection: It had just recently ripened fully and had gorgeous colors, inside and outside; its flesh was firm, yet juicy, very sweet, but with enough fruity tanginess that its taste still lingers lovingly on my tongue.

As I enjoyed this heaven-sent delight, I thought to myself: This fruit was grown in Chile. Here I sit, in my home in southeast Louisiana, in a rural area, fifty miles from the nearest big city. Yet I am enjoying the fruit (literally in this case) of someone’s labors in a land many thousands of miles away. It’s not the first time I’ve done so, either, and I fully expect to repeat this experience many times in the future, should fortune decree that my life continue. Indeed, this kind of consumption is a daily occurrence for me, as it is for nearly everyone else in this country.

Yet, how often do we pause to reflect on the near-miraculousness of this manner of living? Fresh fruits delivered in the middle of winter even to remote places all over this country! Who arranges this vast and complex distribution so successfully? How is it even possible to organize all the people who had to cooperate peacefully in order to make my splendid dessert possible. I have no idea who planted the fruit trees, tended them for years until they matured, picked the fruit, packaged and transported it through successive stages until it was ultimately placed on display in the grocery store I patronize. Of course, every one of these unknown people had to have the cooperation, directly or indirectly, of thousands of others, who manufactured the equipment and materials they used, produced the necessary fuels and lubricants, kept the accounts, insured the properties, arranged the payments, and so on and on and on.

Cartoons of the Day

IBD's Michael Ramirez.

Detroit News' Henry Payne.

Foreclosures Concentrated in Four States

I have posted many times (here, here, here and here) about how foreclosures are mostly concentrated in only four states: AZ, CA, FL and NV (see map above), despite the media coverage that would suggest it's a much more widespread phenomenon.

Now comes confirmation of those observations of highly concentrated foreclosures from a new study recently released by the University of Virginia (
press release and full study here):

National housing price declines and foreclosures have not been as severe as some analyses have indicated, and they are not as important as financial manipulations in bringing on the global recession, according to a new analysis of foreclosures in 50 states, 35 metropolitan areas and 236 counties by University of Virginia professor William Lucy and graduate student Jeff Herlitz.

Their analysis shows that most foreclosures have been concentrated in California, Florida, Nevada, Arizona and a modest number of metropolitan counties in other states. In fact, they claim that "66% of potential housing value losses in 2008 and subsequent years may be in California, with another 21% in Florida, Nevada and Arizona, for a total of 87% of national declines."

"California had only 10% of the nation's housing units, but it had 34% of foreclosures in 2008," Lucy and Herlitz reported.

California was vulnerable to foreclosures because the median value of owner-occupied housing in 2007 was 8.3 times the median family income, while the 2007 national average was only 3.2 times higher than median family income (and in 2000, it was lower still at 2.4).

HT: NY Times columnist
Catherine Rampell's article "Foreclosure Rates Aren’t Really That High … Unless You live in Arizona, California, Florida or Nevada."

Monday, March 02, 2009

Problem Banks in 2008: Nowhere Close to 1990-91

The FDIC recently released data through the fourth quarter 2008 on the number of "problem institutions," and the assets of those problem banks. The chart above shows that there were 252 problem banks in 2008, out of a total of about 8,300 banks. In contrast, there were almost 1,500 problem banks in 1990, or about 6 times the number in 2008.

The chart below shows the inflation-adjusted value of bank assets at problem banks from 1990-2008. Compared to the $156 billion of problem bank assets in 2008, there were more than 8 times that amount in 1991 ($1,298 billion, or almost $1.3 trillion).

Bank Deliquency Rates for 2008:QIV

The Federal Reserve recently released bank data for the fourth quarter of 2008 on bank loan delinquency rates and bank loan charge-off rates. The graph above shows quarterly delinquency rates for agriculture loans and business loans back to 1987 through the fourth quarter of 2008. Note that the delinquency rates in 2008:Q4 for ag and business loans were only about half the rates during the 2001 recession, and about 1/3 the rates during the 1990-1991 recession.

The chart below shows delinquency rates for all loans at all commercial banks, and although the deliquent loan rate in 2008 was higher than the 2001 recession, it's still 1.55% lower than the peak during the 1990-1991 recesssion (4.59% vs. 6.14%).

Grade Inflation: University of Michigan Law School

From the always-interesting TaxProf Blog (just added to my "Blogs I Like" list), the graph and table above show the significant grade inflation at the University of Michigan Law School over the last 50 years or so. The most amazing statistic to me is that half of Michigan law students in the 1950s had GPAs less than 2.50 compared to only 1% in 2000-2001.

See previous CD post here on significant grade inflation at the Flint campus of the University of Michigan from 1986-2005.

Your school may have done away with winners and losers. Life hasn't. In some schools, they'll give you as many times as you want to get the right answer. Failing grades have been abolished and class valedictorians scrapped, lest anyone's feelings be hurt. Effort is as important as results. This, of course, bears not the slightest resemblance to anything in real life.

Corporate Income Tax = $3,190 Per Household

Washington, DC- Today, The Tax Foundation started running a 30 second television ad (click the arrow above) and a 60 second radio ad in the Washington, D.C. market to educate Americans about the burden that American families bear from the corporate income tax.

Most people think that corporate income taxes are paid by wealthy, anonymous companies," said Scott Hodge, President of the Tax Foundation. "But as economists have been teaching for years, people bear the burden of corporate taxes, not companies."

Research from the Congressional Budget Office shows that in a global economy where capital is highly mobile but workers can't easily move abroad, workers end up bearing the brunt of corporate taxes. In 2007, Economist William Randolph found that 70% of corporate tax burdens fall on employees through lower wages and productivity, while the remaining 30% fall on company shareholders. A recent Tax Foundation study shows the federal corporate income tax alone collected $370 billion in 2007. That's an average household burden of $3,190 per year - more than the average household spends on restaurant food, gasoline or home electricity in a year.

"Typically, the argument for cutting the U.S. corporate tax rate centers on improving the ability of American companies to compete globally," said Hodge. "While true, those arguments overlook the fact that individual households bear the corporate tax burden, and their pocketbooks will benefit most from reform."

Why Skilled Immigrants Are Leaving the U.S.

As the debate over H-1B workers and skilled immigrants intensifies, we are losing sight of one important fact: The U.S. is no longer the only land of opportunity. If we don't want the immigrants who have fueled our innovation and economic growth, they now have options elsewhere. Immigrants are returning home in greater numbers. And new research shows they are returning to enjoy a better quality of life, better career prospects, and the comfort of being close to family and friends.

Earlier research by my team suggested that a crisis was brewing because of a burgeoning immigration backlog. At the end of 2006, more than 1 million skilled professionals (engineers, scientists, doctors, researchers) and their families were in line for a yearly allotment of only 120,000 permanent resident visas. The wait time for some people ran longer than a decade. In the meantime, these workers were trapped in "immigration limbo." If they changed jobs or even took a promotion, they risked being pushed to the back of the permanent residency queue. We predicted that skilled foreign workers would increasingly get fed up and return to countries like India and China where the economies were booming.

Why should we care? Because immigrants are critical to the country's long-term economic health. Despite the fact that they constitute only 12% of the U.S. population, immigrants have started 52% of Silicon Valley's technology companies and contributed to more than 25% of our global patents. They make up 24% of the U.S. science and engineering workforce holding bachelor's degrees and 47% of science and engineering workers who have PhDs. Immigrants have co-founded firms such as Google, Intel, eBay, and Yahoo!

~From a Business Week article by Vivek Wadhwa, Executive in Residence at the Pratt School of Engineering, Duke University, and co-author of the study released today by the Kauffman Foundation titled "America’s Loss is the World’s Gain."

Get To Work and Bail Yourself Out

You have been -- you are now -- bombarded every day with TV shows, radio news, and newspapers telling you of this government support plan and that government support plan and how they are going to rescue you. To which I can only say, when you hear the word ‘government,' in your mind, substitute the words ‘Department of Motor Vehicles.' When was the last time they rescued you? When was the last time they bailed you out of anything at all?

To expect that ‘government' is a fairy godmother who will rescue you from your problems over any long period is just fantasy. Here's the good news: This country will be rescued by each of us doing what we can do in our own individual sphere of action as government works in its sphere of action. There are roughly 142 million men and women in the labor force. Their ingenuity, flexibility, energy, and confidence will make more difference than anything government does on an individual basis -- which is not to take away a thing from the effects of good policy. In the free society, we rescue ourselves.

If you spend the day reading about how bad things are, you will never get out of bed. If you put down the paper and get to work, and then work twice as hard and twice as smart as you used to, and maybe take less pay right up front, you will get ahead. In every economic era, there is always a shortage of talented, creative, well-educated workers. Be one of those workers.

Imagination, hard work, and persistence can conquer any phase of the business cycle. Let other people get depressed by the headlines. Let other people wait around for Mr. Obama to rescue them. You go out and go to work, using every resource of energy and imagination you have. The DMV is not going to bail you out. By and large, and with a few exceptions, you have to bail yourself out. Get to work.

~Ben Stein

Real Disposable Personal Income Grows by 3.3%

From Table 10 in today's BEA report on Personal Income and Outlays, real disposable personal income increased by 3.3% in January, compared to the same month a year ago. This is highest growth in real disposable income since last May, and the second highest growth rate in the last 18 months. It's also a full percentage point above the 2.3% average during the last four years.

Savings Rate Rises to 14-year High in January: 5%

WASHINGTON (MarketWatch) - U.S. households socked away most of the extra income they got in January from annual cost-of-living raises, boosting the personal savings rate to 5%, a 14-year high (since March 1995, see chart above, ), the Commerce Department reported today.

Bankruptcy Could Actually Save GM

GM continues to argue that it couldn't survive a Chapter 11 proceeding, but the truth is that bankruptcy could boost its ability to survive. As the Obama administration considers its response to GM's request for more cash, it should be mindful of the advantages of bankruptcy that haven't been highlighted -- certainly not by GM's management.

GM executives have been saying that in Chapter 11 its network of suppliers would collapse, dragging down the rest of the auto industry with their company. But Chapter 11 has well-established procedures to deal with this concern.

Bankruptcy may be the only way for GM to fully confront its operational problems, deal with its legacy costs, reconfigure its dealer network, and achieve a viable labor agreement.

But one issue that has not been discussed much is that bankruptcy usually leads to a sharp change in management. There are turnaround teams expert at restructuring troubled companies, and they may well be more effective than GM's current management. It's no surprise GM's management isn't advertising this fact, but taxpayers and the government should know about it.

In the end, the administration needs to keep in mind that vital elements in GM's restructuring -- recapitalizing its large bond debt and keeping what cash it has flowing to key suppliers -- are often dealt with successfully by bankruptcy courts. A bankruptcy could save GM -- though maybe not its management.

Harvard Law Professor Mark Roe in today's WSJ

Sunday, March 01, 2009

Chart of the Day

Real GDP growth, percent change from year ago, click to enlarge.

MP: Calculating real GDP growth from the same quarter a year ago, the fourth quarter of 2008 isn't as bad as most other post-WWII recessions.

Despite Downturn, The Movie Industry is Booming

LOS ANGELESHollywood could get used to this recession thing. While much of the economy is teetering between bust and bailout, the movie industry has been startled by a box-office surge that has little precedent in the modern era. Suddenly it seems as if everyone is going to the movies, with ticket sales this year up 17.5%, to $1.7 billion, according to Media by Numbers, a box-office tracking company.

And it is not just because ticket prices are higher. Attendance has also jumped, by nearly 16%. If that pace continues through the year, it would amount to the biggest box-office surge in at least two decades.

Undergraduate Economics Sees Popularity Surge

National Public Radio -- At Ohio's Oberlin College, registration in undergrad economics classes is up 25% this year, and the chair of the department says he's never seen anything like it. Host Robert Smith finds a similar surge in the classrooms of American University and across the country. So is undergraduate economics getting sexier? In a word: yes.

How Does Your State Compare?

The Tax Foundation has released its 2009 version of Facts and Figures: How Does Your State Compare?, a pocket-size booklet comparing the 50 states on 38 different measures of taxing and spending, including individual and corporate income tax rates, business tax climates, excise taxes, tax burdens and state spending.

Chinese Scoop Up SoCal Foreclosures

Check out the America Is For Sale (AIFS) Expo 2009 website here.

Quote of the Day: Becker on China-Bashing

China bashing during the past decade is reminiscent of the Japan bashing that occurred during the 1980s. It turned out that Japan's substantial export surplus with the US, its extensive accumulation of US Treasury bonds, and its purchases of assets in the US did not hurt the United States, but were for the most part foolish actions on the part of the Japanese government and businesses. I believe that similar conclusions will be reached about the parallel Chinese practices.

~Nobel economist Gary Becker

Saturday, February 28, 2009

MO Trivia: The Politics of Fed District Banks

Blogging today from the Kansas City airport, with some Missouri history trivia.

Q: When the 12 Federal Reserve districts were configured in 1914, how did the one state of Missouri get two Federal Reserve district banks (St. Louis and Kansas City), while most states (e.g. Iowa, Florida, Arizona, Washington, Colorado, S. Carolina, Indiana, Wisconsin, etc.) got none (see map above of the 12 Fed districts, click to enlarge)?

A: Good old, good ol' boy politics explains it. Missouri had enormous political influence in the Democratic Wilson (1913-1921) Administration when the Fed was created, and the 12 districts were decided. The Speaker of the House, Champ Clark (D), was from Missouri. Senator James Reed (D), from Kansas City, was a very powerful member of the Senate Banking Committee and was originally opposed to the bill to create the Federal Reserve System. And the Secretary of Agriculture David F. Houston, one of the three members of the Federal Reserve Bank Organization Committee, was from St. Louis. With all of that political clout, Missouri was the only state in the country to get two Fed district banks.

Friday, February 27, 2009

Another Market-Based Healthcare Solution

The No Insurance Club is the creation of an Arizona physician. The annual individual membership fee is $480 for up to 12 physician visits ($680 covers up to 16 visits per family). Most services during the office visits are free, including immunizations. Generic prescriptions are $4 or less.

HT: John Goodman

Cartoon of the Day: Fiscal Child Abuse

Thursday, February 26, 2009

Goin' to Kansas City: Economics Blogger Forum

I'm blogging from the Minneapolis-St. Paul airport, which is getting hammered with a snowstorm that is supposed to be the biggest of the year. If the weather cooperates, I'll leave shortly for the Economics Blogger Forum in Kansas City, sponsored by the Kauffman Foundation.

According to the Kauffman Foundation:

Economic growth is a process of innovation and technological change. In the wake of the Internet revolution of the 1990s, blogging emerged as a booming phenomenon that is manifestly creative and destructive. Blogging is entrepreneurial, to be sure, driven by individuals with either expertise or strong opinions, sometimes both. Once castigated as people in pajamas, the broad wave of bloggers has disrupted print media and even—perhaps ironically—the art and science of economics itself.

In the span of a few years, a rich and incredibly timely discussion, debate, even tutorial about the economy has emerged through blogging techniques that were unknown a decade ago and probably unimaginable by almost everyone two decades ago. Opinions and advice are available from the brightest minds—available to schoolchildren of today in ways that would have been the envy of Presidents and Kings of generations past.

The Kauffman Foundation is dedicated to the idea that entrepreneurship and innovation drive economic growth. Naturally, this new technology is a fascinating one, both for its effect on the economic research frontier, but also as an innovation in its own right.

On February 27, 2009, the Kauffman Foundation is hosting the first ever physical conference for economics bloggers at the Foundation headquarters in Kansas City, Missouri. Participants include famous independent bloggers such as Matthew Yglesias, Tyler Cowen, Mike “Mish” Shedlock, Robert X. Cringely, and Mark Thoma as well as distinguished economics journalists such as Amity Shlaes, Steve Malanga, Michael Mandel, Brian Carney, and keynote speaker David Warsh.

Some of the topics to be discussed there include "Is Journalism Dead," "The 2009 Recession and Entrepreneurship," and "Internet Impact on Academic Scholarship: What is the Impact of a Wired World on Publishing and Research?"

In regard to the first topic, the WSJ reported today:

Denver's Rocky Mountain News will publish its final edition on Friday, E.W. Scripps said, illustrating the accelerating decline of the newspaper industry. Scripps said it was unable to find a buyer to preserve the 150-year-old daily.

Earlier this week, Hearst Corp. said it may close the San Francisco Chronicle unless it can quickly slash costs. Four newspaper owners have filed for bankruptcy protection since December: Tribune Co., owner of the Chicago Tribune and the Los Angeles Times; the closely held Star Tribune paper in Minneapolis; the parent company of the Philadelphia Inquirer and the Philadelphia Daily News; and New Haven Register owner Journal Register Co.

HT: Bob Wright for the WSJ story

Despite Slowdown, Productivity, Wages Are Rising

This is the Age of the Incredible Shrinking Everything. Home prices, the stock market, G.D.P., corporate profits, employment: they’re all a fraction of what they once were. Yet amid this carnage there is one thing that, surprisingly, has continued to grow: the paycheck of the average worker. Companies are slashing payrolls: 3.6 million people have lost their jobs since the recession started, with half of those getting laid off in just the past three months. Yet average hourly wages jumped almost four per cent in the past year. It’s harder and harder to find and keep a job, but if you’ve got one you may well be making more than you did twelve months ago.

Today’s sticky wages aren’t just the result of custom, though. They’ve also stayed high because of the most unusual aspect of this recession: even as the economy has cratered, American workers have become more productive, not less. Productivity—how much output workers produce per hour of work—is the key to a healthy economy. Historically, productivity has been “procyclical”: it rose during booms and fell during recessions. But not this time. Even as the economy did a cliff dive in the last quarter, productivity rose an impressive 3.1 per cent. And since, in theory, workers get paid more the more productive they are, their increased productivity has helped them avoid pay cuts.

From James Surowiecki's article in The Atlantic, "Nice Work If You Can Get It"

Obama's School Choice

President Obama made education a big part of his speech Tuesday night, complete with a stirring call for reform. So we'll be curious to see how he handles the dismaying attempt by Democrats in Congress to crush education choice for 1,700 poor kids in the District of Columbia.

The omnibus spending bill now moving through the House includes language designed to kill the Opportunity Scholarship Program offering vouchers for poor students to opt out of rotten public schools. The legislation says no federal funds can be used on the program beyond 2010 unless Congress and the D.C. City Council reauthorize it. Given that Democrats control both bodies -- and that their union backers hate school choice -- this amounts to a death sentence

On Tuesday, Mr. Obama spoke of the "historic investment in education" in the stimulus bill, which included a staggering, few-strings-attached $140 billion to the Department of Education over two years. But he also noted that "our schools don't just need more resources; they need more reform," and he expressed support for charter schools and other policies that "open doors of opportunity for our children."

If he means what he says, Mr. Obama won't let his fellow Democrats consign 1,700 more poor kids to failing schools he'd never dream of letting his own daughters attend.

~WSJ Editorial

Wednesday, February 25, 2009

How Homebrewers Revolutionized American Beer

For Do-It-Yourself brewers, Prohibition lasted until 1978. But once unleashed, they revolutionized the industry.

If you’re looking for a textbook example of how government can stifle innovation and discourage productive activity, even when operating in Regulatory Lite mode, the story of home brewing in America should hit the spot.

Reason Magazine.

How Big is $787 Billion? What Would It Buy?

The latest estimates for the stimulus package are about $787 billion, a number so mind-numbing large it's hard to even imagine a number of that size.

Yesterday's "
The Gartman Letter" puts it in perspective for us:

$787 billion would buy 4.6 million homes here in the US at the most recent median price of $170,300 for January 2008.

$787 billion would send a check for $2,623 to every man, woman and child in the US.

$787 billion would fund 7.7 million four year scholarships to the average private university in the US at current tuition rates.

$787 billion would fund 30 million full four year scholarships to the nation’s public universities.

$787 billion would buy 27.7 million cars at the average price of an automobile sold last year in the US.

$787 billion would fund four full months of a tax holiday in the US.

Tuesday, February 24, 2009

Home Prices in Q4 2008: More than 50% of U.S. States Showed Positive Growth in Home Prices

The OFHEO Price Index data was just released for the fourth quarter of 2008 and my friend and co-author at the Mackinac Center for Public Policy, James Hohman, points out the following:

  • There were 28 states that had positive quarterly growth in house prices for the fourth quarter of 2008, including Michigan.

  • There were 17 states that had positive home price growth in 2008, and 14 of them were Right-to-Work states.

Signs of Life: Economy's Worst May Have Passed

PORT WASHINGTON, N.Y. (MarketWatch) -- Although you wouldn't know it from the behavior of the stock market, the economic outlook is turning just a bit less gloomy. Prosperity may not be just around the corner, but statistical evidence is mounting to suggest that the worst of this recession may soon be past.

Irwin Kellner, chief economist for MarketWatch, provides 21 reasons that the worst of the recession may be behind us.

HT: Mike LaFaive

Big Labor and The Ultimate Anti-Stimulus Plan

President Obama and his advisers insist that they place national economic recovery over every other policy objective. However, when it comes to labor policy, they support measures that economic history indicates would significantly hinder such recovery, like the Employee Free Choice Act, the Lilly Ledbetter Fair Pay Act and the Public Safety Employer-Employee Cooperation Act.

Experience shows the link between increased unionization and reduced job and income growth. The ten states with the highest rates of private-sector union membership in 1997 had two-thirds less aggregate private-sector job growth by 2007 than did the ten states with the lowest rates. The ten most unionized states had only half as much real personal income growth as the ten least. Also, businesses prefer to locate in right-to-work states, where unions cannot enforce “closed shops” — that is, where union membership can't be made a precondition for employment, and where fewer employees tend to fall under monopoly bargaining power. Similarly, if card check increases unions’ power through the whole country, many businesses would have no choice but to relocate to other countries whose policies are less tilted in favor of monopolistic unionism.

If the new president and his allies in Congress are to succeed in reviving the economy, they must first do no harm. This will mean abandoning all such Big Labor schemes. Otherwise, what the stimulus plan could give, labor legislation will take away — and the economy will stay in recession.

Mallory Factor writing in the National Review Online.

HT: Stan Greer

Labor Market Dynamism Brings Us Net Gains

From March 2008 to June 2008, the number of job gains from opening and expanding private sector establishments was 7.3 million, and the number of job losses from closing and contracting establishments was 7.8 million, according to data on Business Employment Dynamics released today by the Bureau of Labor Statistics.

Opening and expanding private sector business establishments gained 7.3 million jobs in the second quarter of 2008, an increase of 128,000 from the previous quarter. Over the quarter, expanding establishments added 5.9 million jobs while opening establishments added 1.4 million jobs.

Gross job losses totaled 7.8 million, an increase of 351,000 from the previous quarter. During the quarter, contracting establishments lost 6.3 million jobs, while closing establishments lost 1.5 million jobs. The difference between the number of gross jobs gained and the number of gross jobs lost yielded a net change of -493,000 jobs in the private sector for second quarter 2008.

Note: Over this period, gross job gains exceeded gross job losses in five industry sectors: natural resources and mining, utilities, information, education and health services, and other services.

MP: The Business Employment Dynamics report reveals some interesting information about the constant churning of jobs and the dynamic nature of the market economy, even during recessions. We hear so much about the overall job losses in the economy, that one would almost think that there are no new jobs being created at all. The data tell a different story.

Consider that during the second quarter of 2008, despite the recession, there were almost 6 million new jobs added from existing companies expanding, and almost 1.5 million new jobs created from new businesses opening. Although it is true that there was a net loss of -493,000 jobs in the second quarter, we don't often hear about, or think about, the millions of new jobs that are continually created, even during an economic slowdown.

Recession or not, new jobs are being created all the time, while other jobs are being eliminated or destroyed, due to the dynamic nature of the economy, innovation, entrepreneurship, new technology, etc. Although those workers losing their jobs now won't be appreciating the dynamic nature of the job market, we shouldn't lose sight of the fact that without the dynamism of the market, and without the constant turnover of jobs, we wouldn't gain the significant benefits in the form of increased wealth, greater prosperity and a higher standard of living that market dynamism brings.

A Deficit in Clear Thinking About The Trade Deficit

There is a great deficiency in the way even otherwise well-informed pundits like Washington Post columnist Robert Samuelson think and write about the so-called "trade deficit."

Don Boudreaux explains.

Is A Van Produced in Alabama Really an Import?

The Honda Odyssey below is built in Lincoln, Alabama. Can this really qualify as an "imported" vehicle?

From the Detroit News comes this article "Auto Team Drives Imports: Fed Task Force Has Few New U.S. Cars,"

The vehicles owned by the Obama administration's auto team could reflect one reason why Detroit's Big Three automakers are in trouble: The list includes few new American cars.

Among the eight members named Friday to the Presidential Task Force on the Auto Industry and the 10 senior policy aides who will assist them in their work, two own American models. Add the Treasury Department's special adviser to the task force and the total jumps to three.

The Detroit News reviewed public records to discover what many of the task force and staff members drove, but information was not available on all of the officials, and records for some states were not complete.

MP: The article mentions that OMB Director Peter Orszag, EPA Administrator Lisa Jackson, and Jared Bernstein, Vice President Joe Biden's chief economist, all own Honda Odysseys. Rick Wade, a senior adviser at the Commerce Department previously owned a 1998 Toyota Corolla. OMB Director Orszag and Heather Zichal, deputy director of the White House Office of Energy and Climate Change, both own Volvos. Treasury Secretary Tim Geithner once owned a Honda Accord.

And those examples above illustrate the confusion about "imports" vs. "American" cars: Honda Odysseys (pictured above) are built in the USA (Alabama), the Toyota Corolla is built in California by UAW workers (that's not an import), Ford Motor Co. owns Volvo, and some Honda Accords are built in the USA (in addition to Mexico and Japan).

From a previous CD post, slightly revised:

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 an import"?

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. Wouldn't they qualify as an "import"?:

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? Aren't those imports despite the American-sounding names of Chevy and Chrysler?

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

Bottom Line: When it comes to cars, trying to define an "imported" or "American" car will drive you crazy! The Detroit News should know better....

Monday, February 23, 2009

America's Own 100 Year Failed War on Drugs

WSJ Letter: This year marks the 100th anniversary of the drug war, which started in 1909 with the prohibition of opium processed for smoking. Over the course of the past 100 years, more substances have been banned and enforcement has become more brutal. Despite these measures, the percentage of Americans addicted to drugs has increased.

WSJ Article: Much as Pakistan is fighting for survival against Islamic radicals, Mexico is waging a do-or-die battle with the world's most powerful drug cartels. Last year, some 6,000 people died in drug-related violence here, more than twice the number killed the previous year. The dead included several dozen who were beheaded, a chilling echo of the scare tactics used by Islamic radicals. Mexican drug gangs even have an unofficial religion: They worship La Santa Muerte, a Mexican version of the Grim Reaper.

In growing parts of the country, drug gangs now extort businesses, setting up a parallel tax system that threatens the government monopoly on raising tax money. In Ciudad Juarez, just across the border from El Paso, Texas, handwritten signs pasted on schools warned teachers to hand over their Christmas bonuses or die. A General Motors distributorship at a midsize Mexican city was extorted for months at a time, according to a high-ranking Mexican official. A GM spokeswoman in Mexico had no comment.

"We are at war," says Aldo Fasci, a good-looking lawyer who is the top police official for Nuevo Leon state, where Monterrey is the capital. "The gangs have taken over the border, our highways and our cops. And now, with these protests, they are trying to take over our cities."

WSJ Editorial: The war on drugs has failed. And it's high time to replace an ineffective strategy with more humane and efficient drug policies. This is the central message of the report by the Latin American Commission on Drugs and Democracy we presented to the public recently in Rio de Janeiro.

Prohibitionist policies based on eradication, interdiction and criminalization of consumption simply haven't worked. Violence and the organized crime associated with the narcotics trade remain critical problems in our countries. Latin America remains the world's largest exporter of cocaine and cannabis, and is fast becoming a major supplier of opium and heroin. Today, we are further than ever from the goal of eradicating drugs.

Over the last 30 years, Colombia implemented all conceivable measures to fight the drug trade in a massive effort where the benefits were not proportional to the resources invested. Despite the country's achievements in lowering levels of violence and crime, the areas of illegal cultivation are again expanding. In Mexico -- another epicenter of drug trafficking -- narcotics-related violence has claimed more than 5,000 lives in the past year alone.

The revision of U.S.-inspired drug policies is urgent in light of the rising levels of violence and corruption associated with narcotics. The alarming power of the drug cartels is leading to a criminalization of politics and a politicization of crime. And the corruption of the judicial and political system is undermining the foundations of democracy in several Latin American countries.