Record Crowds Pack Detroit's Autorama
Professor Mark J. Perry's Blog for Economics and Finance
"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."
According to Penny Herscher at the Market Mine blog:
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.
Some recession humor from "The Onion."
The U.S. dollar index (broad) hit its highest level today since August 2004 (data here).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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."
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.
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.
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 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.
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.
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?
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.
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.
Real GDP growth, percent change from year ago, click to enlarge.
LOS ANGELES — Hollywood 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.
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.
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.
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.
Blogging today from the Kansas City airport, with some Missouri history trivia.
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.
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.
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.
From James Surowiecki's article in The Atlantic, "Nice Work If You Can Get It"
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.
For Do-It-Yourself brewers, Prohibition lasted until 1978. But once unleashed, they revolutionized the industry.
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.
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.
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.
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.
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."
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:
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:
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....
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.