Saturday, March 14, 2009

Lake Wobegon at UM: B+ Is Now The Average Grade

Inside Higher Ed article: "Grade Inflation Seen Rising"

A professor who has crusaded against grade inflation by gathering and publicizing data has released his largest analysis to date -- and it suggests that grade inflation continues to be a broad problem across much of higher education. The figures may embarrass some colleges and renew a debate over whether students experience enough rigor.

The new analysis found that the average grade-point average at private colleges rose from 3.09 in 1991 to 3.30 in 2006 (see bottom chart above). At public colleges and universities, the increase was from 2.85 to 3.01 over the same time period. The study also examines -- and seeks to refute -- the idea that students are earning better grades simply because they are better prepared. The greatest increases in grades appear to be coming at flagship public universities in the South and at selective liberal arts colleges.

The study was done by Stuart Rojstaczer, a retired Duke University professor who created to document these trends. For this study, he significantly expanded the numbers of institutions examined, and the time frame.

From the Chronicle of Higher Education, Aug. 11, 2006 (subscription may be required):

Faculty members have not fulfilled the responsibilities associated with their proclaimed right to be the final judges of student performance. In shirking that duty, they have also neglected their broader obligations to society: Teachers weaken rather than bolster the commonweal when they fail to award meaningful grades. Grading laxness at all levels of American education has contributed directly or indirectly to a variety of problems, including declining scores on the SAT, decreases in the ability of American undergraduate and graduate students to understand prose, and poor training in mathematics and science, which puts American students behind their peers in many European and Asian countries.

~Michael Gordon, professor of management at Rutgers University

MP: Using annual GPA data back to 1951 for the University of Michigan (data here), the top chart above shows that the average GPA increased from 2.57 in 1951 (letter grade of B-/C+) to 3.27 in 2009 (about B+).

George Mason: Comparative Blogging Advantage

THE ECONOMIST -- Compared to other economics departments, George Mason appears to have developed a comparative advantage in blogging. Lots of top departments produce good research and competition for talent (both new professors and graduate students) is fierce. Anecdotally, it sounds as if George Mason may actually be attracting more quality students and faculty because of the higher profile it gained from blogging.

AMERICAN SPECTATOR -- What is clear, though, is that not only does George Mason have a comparative advantage in blogging, but also that it's to everyone's advantage to have these economists sharing their thoughts in an approachable format. In fact, I'm almost tempted to say that I've learned more reading Marginal Revolution, Econlog, Cafe Hayek, and Overcoming Bias than I did getting a degree in economics from a top-20 university. By maintaining these blogs GMU economists have raised the level of discourse with non-economists from basically zero.

Carpe Diem on the Mark Levin Radio Show

Carpe Diem was discussed on yesterday's Mark Levin Radio Show (starts at 10:15), about this CD post.

Consumer Sovereignty: Wal-Mart Gets Gold Medal

About a year ago, Wal-Mart opened a customized store in Dearborn, Michigan targeted to the large Arab-American community there (CD post here) as part of a corporate strategy to tailor stores to local demographics. At the time, Wal-Mart said it also planned to target six other groups: Hispanics, blacks, empty-nesters/boomers, affluent, suburban and rural shoppers.

Now, Wal-Mart announces that it will open its first Hispanic-focused supermarkets this summer in Arizona and Texas

The pilot stores, named Supermercado de Walmart, will open in Phoenix and Houston in remodelled 39,000 sq. ft. locations occupied previously by two of Wal-Mart’s Neighborhood Market stores. The retailer said that the stores were in “strongly Hispanic neighborhoods” and would feature a “new layout, signing and product assortment designed to make them even more relevant to local Hispanic customers”. The staff will also be bilingual.

MP: When it comes to
consumer sovereignty, nobody is better than Wal-Mart.

Natural Gas Futures Prices Hit 6.5 Year Low

According to data from the NYMEX via the EIA, the price for natural gas futures hit a 6.5 year low of $3.84 (per Mil. BTUs) this week, the lowest level since September 2002 (see chart above).

Friday, March 13, 2009

The Real Bank Bailout: Upward Sloping Yield Curve

Larry Kudlow -- Out of the blue, bank stocks mounted an impressive rally this week, jumping nearly 40% on the S&P financial list. One after another, big-bank CEOs like Vikram Pandit of Citi, Ken Lewis of BofA, and Jamie Dimon of JPMorgan are telling investors they will turn a handsome profit in the first quarter, their best money gain since 2007. This is big news. And it triggered the first weekly stock gain for the Obama administration.

But this anticipated-profits turnaround doesn’t seem to have anything to do with the TARP. It’s about something called the Treasury yield curve — a medical diagnostic chart for banks and the economy. When the Fed loosens money, and short-term rates are pulled well below long rates, banks profit enormously from the upward-sloping yield curve. This is principally because banks borrow short in order to lend long. If bankers can buy money for near zero cost, and loan it for 2, 3, or 4%, they’re in fat city. Their broker-dealer operations make money, as do all their lending divisions.
So the upward-sloped yield curve is the real bailout for the banking system.

Now, turn the clock back to 2006 and 2007. In those days the Treasury curve was upside down. Due to the Federal Reserve’s extremely tight credit policies, short-term rates moved well above long-term rates for an extended period, and that played a major role in producing the credit crunch. Since interest margins turned negative, the banks had to turn off the credit spigot, and all those exotic securities — like mortgage-backed bonds and various credit derivatives — could no longer be financed.

The Fed’s long-lived credit-tightening also wreaked havoc on home prices and was directly responsible for the recession that began in late 2007. At the time, Fed head Ben Bernanke said the inverted yield curve wouldn’t matter. Gosh was he wrong.

Today, however, after about a year of a positively sloped yield curve, bank interest margins and profits are turning up. In fact, despite the perpetual pessimism, the normalized yield curve is a leading indicator of economic recovery, according to models created by the New York Fed and others.

MP: The charts above illustrate Larry Kudlow's analysis.

The top chart shows the 30-year mortgage rate and the 1-month CD rate over the last five years, and the bottom chart shows the difference between those two rates as an estimate of a typical bank's net interest margin (a slightly different measure of interest rate spreads than the 3-month to 10-year Treasury spread). The current net interest margin for banks is close to a five-year high of almost 5%, explaining the recent bank stock rally. And the historically narrow 1% spread between 30-year and 1-month rates in 2006 and 2007 reflects the credit crunch that Larry describes.

Penn: Let's Stop Putting People in Jail for Drugs

Why Immigration is Good for America's Business

For all its current economic woes, America remains a beacon of entrepreneurialism. Between 1996 and 2004 an average of 550,000 small businesses were created every month. One factor is a fairly open immigration policy. Vivek Wadhwa of Duke University notes that 52% of Silicon Valley start-ups were founded by immigrants, up from around a quarter ten years ago. But since 2001 the threat of terrorism and rising xenophobia has made immigration harder. Today more than 1m people are waiting to be granted legal status as permanent residents. Yet only 85,000 visas a year are allocated to the sort of skilled workers that might go on to found sucessful businesses of their own.

The Economist

Young Americans: Luckiest Generation in History

To illustrate how material abundance increases for each generation under free market capitalism, W. Michael Cox, chief economist at the Federal Reserve Bank of Dallas, has done several studies comparing the purchases that teenagers could make from a summer job at the minimum wage, in various years. Here's a summary of his 2000 article in the IBD.

Here's my own updated version of the Cox analysis. In 1949, the minimum wage was $0.40 per hour, and a full-time summer job (40 hours per week for 12 weeks) would have generated $192 in total summer earnings (ignoring taxes). Using a Sears catalog for retail prices, $192 would have only purchased the following 4 items in 1949:

Now contrast that with 2009. At the 2009 minimum wage of $7.25 per hour, a full-time summer job will generate about $3,500 this year, which would be enough to purchase the following list of 28 items (click to enlarge):

What a difference 60 years of free market capitalism makes!

According to Cox: "Add it all up. When it comes to their economic prospects, today’s young Americans are the Luckiest Generation in history—at least until their children grow up and forge an even luckier one. And even if real wages are flat, the explosion of new products over time at lower and lower prices translates into a rising standard of living for all income groups, even minimum wage workers."

MP: Teenagers today can afford things like cell phones with cameras, digital cameras, GPS systems, CD players, DVD players, laptop computers, and iPods that even a billionaire couldn't have purchased 20 years ago. As much as we might complain, just by being alive in the 21st century America, even if you're earning the minimum wage, you've "won first prize in the lottery of life."

First Time in 20 Years: Fed Chair Gives Interview

60 Minutes begins its Sunday broadcast (7 p.m. ET) with an exclusive look into a governmental process normally kept private. For the first time in 20 years, a sitting Federal Reserve chairman gives an interview. One of the government's leaders in the battle to save America's economy, Ben Bernanke, tells 60 Minutes what he thinks went wrong with America's financial system, how it caused our economic crisis, what the Federal Reserve is doing to help fix it and when he expects the crippling recession to end.

Chairman Bernanke talks about the failure of Lehman Brothers, the rescue plan for AIG and the Fed's extraordinary actions taken since the beginning of the economic crisis. The Fed chairman also discusses how regulation might change in the future in this double-length segment.

The Market Resists Discrimination: Streetcar Story

From the "discrimination" entry in "The Concise Encyclopedia of Economics"

The resistance of southern streetcar companies to ordinances requiring them to segregate black passengers vividly illustrates how the market motivates businesses to avoid unfair discrimination. Before the segregation laws were enacted, most streetcar companies voluntarily segregated tobacco users, not black people. Nonsmokers of either race were free to ride where they wished, but smokers were relegated to the rear of the car or to the outside platform. The revenue gains from pleased nonsmokers apparently outweighed any losses from disgruntled smokers.

Streetcar companies refused, however, to discriminate against black people because separate cars would have reduced their profits. They resisted even after the passage of turn-of-the-century laws requiring the segregation of black people. One railroad manager complained that racial discrimination increased costs because it required the company to “haul around a good deal of empty space that is assigned to the colored people and not available to both races.” Racial discrimination also upset some paying customers. Black customers boycotted the streetcar lines and formed competing hack (horsedrawn carriage) companies, and many white customers refused to move to the white section.

In Augusta, Savannah, Atlanta, Mobile, and Jacksonville, streetcar companies responded by refusing to enforce segregation laws for as long as fifteen years after their passage. The Memphis Street Railway “contested bitterly,” and the Houston Electric Railway petitioned the Houston City Council for repeal. A black attorney leading a court battle against the laws provided an ironic measure of the strength of the streetcar companies’ resistance by publicly denying that his group “was in cahoots with the railroad lines in Jacksonville.” As pressure from the government grew, however, the cost of defiance began to outweigh the market penalty on profits. One by one, the streetcar companies succumbed, and the United States stumbled further into the infamous morass of racial segregation.

From Jennifer Roback, “The Political Economy of Segregation: The Case of Segregated Streetcars.” Journal of Economic History 56, no. 4 (December 1986): 893–917.

HT: Rvturnage

Business Writing Quizzes: Test Your Writing Skills

From, a series of quizzes on business writing:

Commonly Misspelled Word Quiz on the most often misspelled words in business writing.

Thanks to Newmark's Door.

Here are some more business writing quizzes:

Subject and Verb Agreement Quiz: This quiz will help you learn whether you have a problem with subject and verb agreement.

Active and Passive Voice Quiz: This interactive quiz allows you to rewrite sentences to make them active.

The 26 Most Common Business Writing Errors Quiz: The quiz covers common errors in commas, "that" and "which," quotation marks, colons, semicolons, dashes, capitalization, and other areas in business writing.

Commonly Confused Word Pairs Quiz of the 25 word pairs often confused in business writing.

MP: Somebody said "Sloppy writing reflects (and advertises) sloppy thinking." I guess the corollary would be that "Careful, clear writing reflects (and advertises) clear thinking."

Becoming a more effective and careful writer, like becoming better at golf, is a never-ending, life-long project; there's always room for improvement. I plan to take all of these quizzes and improve my writing.

Related: NY Times article "What Corporate America Can't Build: A Sentence."

Thursday, March 12, 2009

Wholesale Used Vehicle Prices Rise in February

MANHEIM CONSULTING -- Wholesale used vehicle prices increased significantly again in February. Seasonally adjusted, February’s rise was 3.7%, which came on the heels of a 3.8% increase in January. The Manheim Used Vehicle Value Index now stands at 105.5, which represents a year-over-year decline of 2.4%.

Some analysts have suggested that the rapid rise in wholesale used vehicle pricing is a precursor to an improvement in new vehicle sales and may even point to a recovery in the overall economy. It’s more likely, however, that the turnaround in wholesale used vehicle values is a necessary, but not a sufficient, condition for a better new vehicle market. That’s especially true given that the recent rise in auction pricing has been driven in large part by supply dynamics that were created by the unprecedented slowdown in new vehicle sales.

HT: Scott Grannis,
Calafia Beach Pundit, mentioned tonight on CNBC's The Kudlow Report.

The Increasing Tax Share vs. Income Share Gap

A previous CD post showed the rising income tax share of the top 1% vs. the declining tax share of the bottom 50% based on the most recent IRS data through 2006. The chart above shows the income share of the top 1% vs. the tax share of the top 1% from 1986 to 2006.

The chart shows that the difference between the top 1%'s tax share (about 25% in the late 1980s) and that group's income share (about 14% in the late 1980s), which increased from 11% in the earlier period to 18% by 2006, when the tax share had increased to about 40% for the top 1% compared to that group's income share of 22%. Stated differently, the income share of the top 1% increased by about .55% per year from 1986 to 2006, compared to the tax share of the top 1%, which increased by about .75% per year.

An Oil Boom in Switzerland, A Country With No Oil

ZUG, Switzerland, March 12 (Reuters) - The tidy towns and mountain vistas of Switzerland are an unlikely setting for an oil boom. Yet a wave of energy companies has in the last few months announced plans to move to Switzerland -- mainly for its appeal as a low-tax corporate domicile that looks relatively likely to stay out of reach of Barack Obama's tax-seeking administration.

Over the past six months companies including offshore drilling contractors Noble Corp (NYSE:RE) and Transocean (NYSE: RIG), energy-focused engineering group Foster Wheeler (NASDAQ: FWLT) and oilfield services company Weatherfield International have all announced plans to shift domicile to Switzerland.

CD Milestone

Just passed 4,000 posts on Carpe Diem since the start on September 20, 2006. That's 904 days (using HP-12C's awesome calendar function), and an average of 4.42 CD posts per day.

List of the Day: World's 50 Safest Banks

The World’s 50 Safest Banks 2009 were selected through a comparison of the long-term credit ratings and total assets of the 500 largest banks around the world. Ratings from Moody’s, Standard & Poor’s and Fitch were used.

Note (corrected): Only four U.S. banks are on the list: #21 Wells Fargo, #26 US Bancorp, #35 NY Mellon, and #47 JPMorgan Chase.

Wal-Mart: Leader in Affordable Healthcare Options

WASHINGTON (Reuters) - Wal-Mart Inc, which has moved into low-cost healthcare with walk-in clinics and cheap prescriptions, said on Wednesday its Sam's Club unit would sell a package including software and Dell computers directly to doctors for electronic medical records.

"We are trying to help the small practice doctor have access to medical records and practice management software re as well as the hardware at an affordable cost," said Sam's Club spokeswoman Susan Koehler.

The discount retail giant said it would offer a package deal with hardware, software and installation for electronic medical records and e-prescribing. "We will be a single point of contact to help with training, installation, maintenance," Koehler said.

Wal-Mart also has walk-in medical clinics called "The Clinic at Wal-Mart" and aims to open 2,000 nationwide in five to seven years. Wal-Mart also offers more than 1,000 over-the-counter items for $4 or less, a move that forced retailers from Target Corp to grocery stores and stand-alone pharmacies to offer similar discounts.

MP: The last sentence highlights an often-overlooked benefit that Wal-Mart provides for non-Wal-Mart consumers. Even shoppers at Target who might not have ever shopped at Wal-Mart benefit indirectly from the lower prices offered at Target to remain competitive with its main discount retail rival - Wal-Mart. That is, Wal-Mart indirectly forces Target and its other competitors to offer lower prices than they would in the absence of Wal-Mart.

Markets in Everything: Selling Stimulus Cash

Pasadena Star-News: A few California cities have found an alternate way to use their federal stimulus money: selling it to other cities for cash. (MP: At a pretty steep 30-35% discount.)

Metropolitan Transportation Authority has allocated a minimum of $500,000 in federal stimulus funds to each of the 88 cities in the county for transportation-related projects. Several smaller cities, some without shovel-ready projects, are making deals with others to sell or swap such funds and replenish their general funds.

The city of Bradbury is working on a deal to sell its $500,000 share of federal funding doled out by the MTA to the city of Torrance for $315,000 in cash for its general fund. La Habra Heights has sold its $500,000 in federal funds to the city of Westlake Village for $310,000 cash. Irwindale sold its $500,000 to Westlake Village, for $325,000 cash.

HT: Club for Growth

Take 2 Aspirin and Tweet Me in the Morning: How Twitter and Facebook Are Reshaping Health Care

HEALTH AFFAIRS -- If you want a glimpse of what health care could look like a few years from now, consider "Hello Health," the Brooklyn-based primary care practice that is fast becoming an emblem of modern medicine. A paperless, concierge practice that eschews the limitations of insurance-based medicine, Hello Health is popular and successful, largely because of the powerful and cost-effective communication tools it employs: Web-based social media. Indeed, across the health care industry, from large hospital networks to patient support groups, new media tools like weblogs, instant messaging platforms, video chat, and social networks are reengineering the way doctors and patients interact.

Let’s say you’re one of the 300 patients who’ve so far signed up to be part of Hello Health’s practice, for a basic "enrollment" fee of $35 a month. You’ve also developed a fever and wheezing that haven’t gone away for several days. You could send internist Dr. Sean Khozin an IM over the Hello Health network describing your symptoms and asking him for advice. A quick e-mail from Dr. Khozin would be free, but if a "cyber-visit" like this takes longer, that will be $50 to $100, please. If you need to come in to the office for a consultation, you’re guaranteed one within twenty-four hours. For as little as $150, a doctor will even come and see you at your home. Generic medications for acute problems, as well as lab tests that can be done in the clinic’s offices, are free. In effect, Hello Health is operating as a kind of "concierge" practice.

MP: While politicians and bureaucrats in Washington dream up the next grandiose government health care reform that would take years to implement, the most effective, affordable and convenient healthcare solution might be already available through your Web-based social media, email, video chat and IM.

Discrimination:The Market Always Pushes Against It

Sometimes the comments on a blog post are interesting enough to warrant a new, separate post. Here's an example.

1. A comment on yesterday's CD post "Market Forces Prevent Widespread Discrimination":

The U.S. market paid blacks far less than whites up until 50 years ago. The market clearly did not correct that inequality for many decades. The author is putting an ivory tower theory of how the market should work ahead of reality.

2. In response, Tom McMahon posted this comment:

From David Halberstam's book "October 1964":

"It was now seventeen years since Jackie Robinson had broken in with the Dodgers, and had done it so brilliantly that he had not only helped lead Brooklyn to a pennant but had also won the Rookie of the Year award. That there was a great new talent pool of black athletes was hardly a secret among the white players themselves.

The names of such great black players as Josh Gibson, Satchel Paige, and Judy Johnson had been well known to the many big league players who had often barnstormed with them after the regular season was over (and who often made more money barnstorming on the all-white major league all-star teams than their colleagues had made playing in the World Series): they knew that the Negro leagues were filled with players who could hit and pitch, and, above all, who had speed.

In the years since Robinson's historic arrival in the big leagues, certain teams had moved quickly to sign up the best black players. It was the equivalent of a bargain-basement sale at Tiffany's -- great players available at discount prices, even as the price of young, untried white players was going up very quickly."

Tom concludes: Yes, discrimination can last a long, long time. But the market is always pushing against it.

MP: Employers and businesses are often simultaneously accused of being both: a) guilty of greed and profit-seeking, and b) guilty of discrimination (gender, race, age). But you can't have it both ways.

If employers were blinded by greed and profits, they would hire only the cheapest labor group. If women or blacks make 20% less than men or whites for the same work, greedy employers would hire ONLY women and blacks, and achieve an immediate 20% labor cost savings, raising profits significantly. On the other hand, if employers are blinded by discrimination and hire only men or whites, they can't possibly be accused of being blinded by greed and profit-seeking, because they are overlooking huge labor costs savings of 20% (for example), and lowering profits significantly.

What Tom is saying (I think) is that employer greed and profit-seeking will always be a stronger force in the long-run than employer discrimination, and market forces (and greed) will work to counteract labor market discrimination.

John Stossel: "Give Me a Break!" on 20/20 Friday

On Friday (Mar. 13) ABC's "20/20" program will air John Stossel's special, "Bailouts and Bull," 10 p.m. ET. With the help of Drew Carey and Reason TV, they look at Big Government's promise to "fix" the economy and other bull:

The Conceit of the Ruling Class

Politicians and pundits say government must do "something." It sound like a Viagra ad: "Does your economy have performance issues? If it's hard to achieve and maintain growth, 'stimulus' is right for you!" But shouldn't "stimulus" come with a warning label? "Side effects may include hyper-inflation, dollar devaluation, horrible debt, growth of welfare state, and unrealized expectations. Stimulus has not been proven successful, so it should not be used in the hopes of achieving actual growth ..."

While politicians claim that "all" or a "consensus" of economists agree that something "big" must be done, more than 300 economists say that the government's action do more harm than good. John Stossel interviews some of the economists, calculates the amount the stimulus costs per taxpayer (about $16,000) and asks lawmakers: Where will you get the money? If too much debt was a problem, why is more debt now a solution?

Wednesday, March 11, 2009

Market Forces Prevent Widespread Discrimination

Myth: Women Earn Less than Men in America

Fact: It is true that women, on average, earn less per year than men do. It is also true that 22-year-olds earn less, on average, than 40-year-olds. Why is the latter not an example of age discrimination, while the former is seized upon as an example of gender discrimination? Because men are too afraid to challenge the false statement.

If women truly did earn 20% less for doing exactly the same job as a man, any non-sexist CEO could thrash his competition by hiring only women, thus saving 20% on employee salaries relative to his competitors. Are we to believe that every major CEO and Board of Directors is so sexist as to forego billions of dollars of profit? Women entrepreneurs could hire other women and out-compete any male-dominated business, but we don't see this happening. Individual cases of discrimination may exist, but it cannot possibly be a universal norm in a profit-driven economy. Market forces would correct such mispricings, if they actually existed.

~The Futurist

8 States With Lowest January Jobless Rates

What do the 8 states with the lowest January unemployment rates (see chart above, data here) have in common?

Find out here, check the map.

Income Tax Share: Top 1% vs. Bottom 50%

From an IBD editorial yesterday:

A study for the National Center for Policy Analysis shows that from 1986 to 2004, the total share of the income tax burden paid by the top 1% of income earners grew by nearly half, from 25.8% to 36.9%. Over that same time, wrote study author Michael Stroup, an economist and associate dean of the Nelson Rusche College of Business at Stephen F. Austin State University in Texas, the burden of the bottom 50% of earners was almost halved from 6.5% to 3.3%.

MP: The federal income tax share data are actually available from the IRS (
link here, see Table 5) through 2006, see chart above.

Keep An Eye on Baltic Dry Index, Not Your 401(k)

I suggest you watch an index that will tell you when the world economies are starting to perk up and when trade conditions are really starting to ease. It's called the Baltic Dry Index.

Essentially the Baltic Dry tracks the average daily price for shipping dry bulk like coal, iron ore, wheat and soybeans. There are three things that make it such a good leading indicator. One, the index looks at raw materials, so it captures activity at the very beginning of the production process. Two, it looks at ocean shipping, so it reveals what's happening to international trade -- the critical driver of global growth. And, three, the shipping business depends heavily on credit, so the Baltic Dry indicates whether credit is tight or loose.

~Economist Susan Lee on NPR's Marketplace, "Keep An Eye on Baltic Dry, Not 401(k)"

MP: The Baltic Dry Index has increased for the last 8 days in a row, to a 5-month high of 2298 yesterday, see chart above.

Tuesday, March 10, 2009

Markets in Everything: Currency Symbol Design

BBC NEWS -- The Indian finance ministry has begun a public competition to select a design for the symbol of the rupee. Unlike the major currencies of the world like the dollar, the pound, the yen and the euro, the rupee does not have a globally recognised symbol.

The contest, which closes on 15 April, is open only to resident Indians. Five shortlisted entries for the final selection will be awarded a prize of 25,000 rupees ($500) and the winner will take 250,000 rupees ($5,000).

Baltic Dry Index Reaches 5-Month High: Does This Signal a Commodities Bottm?

March 9 (Bloomberg) -- The Baltic Dry Index, a measure of shipping costs for commodities, rose to its highest level since Oct. 9 on demand to ship South American grains (see chart above). The index advanced 37 points, or 1.7 percent, to 2,262 points, according to the Baltic Exchange today. Rates to hire so- called panamax vessels, used to haul grain, climbed 3.9% and have jumped 59% on a nine-day run to $18,562 a day.

Monster Employment Index Europe: Bottom?

• The Monster Employment Index Europe rose by nine points or eight percent in February, as online recruitment activity edged up for the first time since July, reflecting a typical seasonal pattern seen during February.

• The Index reported a negative annual growth rate for the fourth consecutive month, falling short of year-ago levels by 50 points, or 30 percent.

• Most key European markets – including Belgium, France, Germany, Italy, Sweden and the UK – saw more online recruitment activity; the Netherlands saw a slight decline.

• Industry sectors reporting strong upswings in online recruitment activity included marketing, PR and media; healthcare and social work; hospitality and tourism; and environment, architecture and urbanism.

• All occupational groups saw increased online recruitment activity throughout February, with skilled agricultural and fishery workers; and service and sales workers registering the steepest rises.

MP: Online recruitment is still down from a year ago, but could this improvement in February signal a bottom?

Affordable Housing in CA, Thanks to Market Forces

The current political stampede to stop mortgage foreclosures proceeds as if foreclosures are just something that strikes people like a bolt of lightning from the blue-- and as if the people facing foreclosures are the only people that matter.

What if the foreclosures are not stopped? Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices-- prices perhaps more within the means of the new occupants?

The same politicians who have been talking about a need for "affordable housing" for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of "affordable housing" is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit. Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

In the wake of the housing debacle in California, more people are buying less expensive homes, making bigger down payments, and staying away from "creative" and risky financing (see chart above). It is amazing how fast people learn when they are not insulated from the consequences of their decisions.

Thomas Sowell's latest column "
Subsidizing Bad Decisions"

Monday, March 09, 2009

Even In A Recession, Some Companies Are Hiring

Help Wanted: Pharmacists, mortgage servicing companies, nuclear power workers, discount retail workers, engineers (rock-bottom jobless rate of 3%), veterinarians, liquidators and nurses. Believe it or not, even some banks are hiring, at least for their technology teams. While the recession has claimed 4.4 million jobs, the economy has created others, many of them for highly trained and specialized professionals. More than 2 million jobs openings now exist across a range of industries, according to government data.

Human resources executives say companies that are hiring are benefiting from a top-notch talent pool as applications pour in from a larger base of job seekers. Broadly, jobs are being added in education, health care and the federal government, the Labor Department said, with the government adding 9,000 new jobs last month alone.

But beyond those areas, jobs can be found in a variety of sectors. Some places that are hiring, such as companies that make nuclear power equipment, haven't been hit that hard by the recession. Others, such as discount retailers, are actually benefiting from the downturn as shoppers turn thriftier.

HT: 1

Rising Interest in Ayn Rand's "Atlas Shrugged"

Book sales for "Atlas Shrugged" (2007-2009):

Google Trend search volume for "Atlas Shrugged" (2005-2009):

THE ECONOMIST -- Reviled in some circles and mocked in others, Rand’s 1957 novel of embattled capitalism is a favourite of libertarians and college students. Lately, though, its appeal has been growing. According to data from TitleZ, a firm that tracks bestseller rankings on Amazon, an online retailer, the book’s 30-day average Amazon rank was 127 on February 21st, well above its average over the past two years of 542. On January 13th the book’s ranking was 33, briefly besting President Barack Obama’s popular tome, “The Audacity of Hope.”

See related
Freakonomics post.

Brazil: One Country That Might Avoid A Recession

TIME -- According to a recent study by the Paris-based Organization for Economic Cooperation & Development (OECD), Brazil may be the only one of 34 major economies that avoids recession in 2009. While the U.S. debates whether to nationalize its crippled banks, Brazil's remain comparatively sound. Oil companies worldwide are slashing investment, but Brazil's state-run Petrobras is going ahead with a four-year, $174 billion expansion plan. "Brazil," Lula boasted to TIME, "is riding the current crisis better than many developed countries."

"Lula" is President Luiz Inácio Lula da Silva, and most Brazilians believe he's the reason their country is surviving the current downturn better than other places.

Beer: An American Revolution

From, comes a new video on how the microbrew movement in America gave rise to massive consumer choice.

In 1920, the National Prohibition Act destroyed the beer industry in the United States, putting some 1,500 breweries out of business. When the "noble experiment" was repealed in 1933, beer lovers rejoiced, and the beer industry staggered back to its feet. The industry had lost much of its diversity, however, and the emergence of national brands in the 1950s and 1960s led to industry consolidation and fewer choices for American beer drinkers. By 1980, there were less than 50 breweries in the U.S.

By the 1980s, American beer had an international reputation as weak and watery as a case of Hamm's. Most breweries only produced American-style lagers, a light and inexpensive style of beer typically made with rice or corn adjuncts in addition to barley, hops, yeast and water.

What American beer lovers didn’t know at the time was that a revolution was imminent. In 1979, a clerical error in the 21st Amendment was corrected, and for the first time in nearly 50 years it became legal to brew small batches of beer at home. Home brewers who had little interest in cutting costs or making beer with mass appeal began brewing big, flavorful beers in a wide range of styles. Many of these home brewers decided to turn their passion into small businesses, and microbreweries began popping up all over the country.

Today, although mainstream beers still dominate the market, more than 14,00 breweries in the U.S. produce more styles of beer than anywhere else in the world, and American beers routinely dominate international beer competitions. So the next time you’re at your favorite brewpub, hold your glass up high and celebrate the American beer revolution.

Detroit Becomes Landlord Nation, Homes for $1

DETROITWelcome to Landlord Nation, where foreclosure notices are plentiful and for-sale signs offer at least 1,800 homes for under $10,000 that once were worth at least 10 times more. In extreme cases, homes are on sale for $1 or less (home pictured above is listed for $1 here), which has enticed investors to Detroit from as far away as the United Kingdom and Australia.

"In the past few months, I've picked up 10 new clients from out of state that are buying in bulk," said Mike Shannon, a suburban Detroit real estate agent. His office specializes in foreclosures in a city that's among the national leaders.

"They're coming to us, saying `Look, I want to buy 50, 100, 1,000.' They want to own every decent and cheap house they can find."

Despite a stagnant retail housing market, real estate sales of foreclosed homes are booming. Shannon regularly fields calls from eager prospects, and recently sold 30 homes in one day to one buyer. A trio of U.K. investors has bought a half-dozen and plans many more.

HT: Clover Aguayo

Point-Counterpoint: Keynesian vs. Market Solutions

A U.S. economist argues in favor of Keynesian-style government intervention in response to the recession:

The role of government is to ensure a “wise laisser faire”. This is not the free-for-all capitalism that has been recommended by the current economic theory, and seems to have been accepted as gospel by economic planners, and also many economists, since the Thatcher and Reagan governments. But it also is a significant middle way between those who see the economic disasters and unemployment of unfettered capitalism, on the one hand, and those who believe that the government should play no role at all.

The idea that unfettered, unregulated capitalism would invariably produce the good outcomes was a wrong economic theory regarding how capitalist societies behave and what causes their crises. That wrong economic theory fails to take account of how the animal spirits affect economic behaviour. It fails to take into account the roles of confidence, stories and snake oil in economic fluctuation.

~Yale economist Robert Shiller, "A Failure to Control the Animal Spirits," in today's Financial Times

A New Zealand politician argues in favor of market-based solutions to the global recession:

"We don't tell New Zealanders we can stop the global recession, because we can't," says Prime Minister John Key. "What we do tell them is we can use this time to transform the economy to make us stronger so that when the world starts growing again we can be running faster than other countries we compete with."

That idea -- growing a nation out of recession by improving productivity -- puts Mr. Key and his conservative National Party at odds with Washington, Tokyo and Canberra. Those capitals are rolling out billions of dollars in stimulus packages -- with taxpayers' money -- to try to prop up growth. That's "risky," Mr. Key says. "You've saddled future generations with an enormous amount of debt that then they have to repay," he explains. "There is actually a limit to what governments can do."

Mr. Key's coalition government has moved fast to implement a program of tax cuts, regulatory reform and government retooling. He won't label it supply-side economics and smiles when asked if he's a Milton Friedman or Friedrich Hayek acolyte. "I'm not deeply ideologically driven," he says. "I believe in good center right politics."

Mr. Key's program focuses first on personal income tax cuts, which -- given that the new top rate, as of April 1, will be 38% -- are still high, especially when compared to Hong Kong and Singapore. Cutting the corporate tax rate -- which is now 30% -- isn't as crucial just now as keeping liquidity flowing, Mr. Key argues. Why? Corporate money is "mobile." "If you really are out of whack with the prevailing corporate tax rates, and there's been a global shift toward countries lowering their corporate tax rate, then you're not likely to attract capital, or you're likely to lose capital."

For now, the prime minister is focusing on chipping away entrenched regulations that drive away foreign capital -- a contrast to the U.S. and Australia, which are reregulating their markets in the wake of the financial crisis. "Good regulatory reform can be an important catalyst toward driving economic growth and coming out of the recession faster," Mr. Key says.

Much of Mr. Key's reform agenda hinges on his belief that he has to prepare his country to compete in the global economy. "The world, whether we like it or not, will become more and more borderless." That means Wellington is planted firmly behind free trade. "The sooner Doha is completed," Mr. Key says, referring to stalled global trade talks, "the better from our point of view."

~From the WSJ interview of New Zealand Prime Minister John Key

Markets in Everything: Reused Building Materials

According to a story on NPR this morning (link not available yet), business is booming for Planet Reuse, the world's first free-to-use website focused on architects, designers, contractors and material reclaimers to connect, find and source reused building materials (current listings include structural steel, doors, wood flooring, limestone balconies (pictured above), columns, bricks, pine joists, mail boxes, silos, etc.).

The "Man-Cession" Continues

According to Friday's BLS report (Table A-1, Household Data), the U.S. economy has lost 4.464 million jobs since Dec. 2007. Further analysis shows that 78% of the job losses (3.483 million) were jobs held by males, and 22% of the jobs lost (981,000) were jobs held by females (see top chart above). Of the 351,000 decline in February employment (household data), 90% of the job losses were male jobs (315,000), compared to a 37,000 job loss for females (10% of total).

Further, the February unemployment rate for men was 8.8% vs. 7.3% for women, as the 1.5% male-female gap narrowed just slightly from the all-time historical record male-female jobless rate gap of 1.6% in January.

Sunday, March 08, 2009

Cartoon of the Day

Big Oil, Big Taxes

According to tax data just released by the IRS for 2006 (thanks to TaxProf), the entire bottom 50% of individual taxpayers (67.9 million tax returns) paid $30.6 billion in U.S. federal income taxes in 2006. According to tax data from the EIA, the 26 major energy producing companies (list here) paid $25.9 billion in U.S. federal taxes in 2006, in addition to about $55 billion in foreign income taxes.

In other words, Big Oil paid almost as much in federal income taxes in 2006 as the entire bottom half of individual U.S. taxpayers.

Free Trade: Hope Over Fear

Free trade is a child of economic confidence; protectionism is pessimism's progeny. In today's fearful economic climate, policy-makers have again cried "buy American," and embraced interventions that support domestic producers at the expense of our trading partners. Protectionism is bad economics and worse foreign policy, for many of our trading partners have only a tenuous link to peaceful democracy. To avoid the terrible path of the 1930s that led to prolonged depression and global conflict, the United States must maintain its commitment to globalization.

Other countries provide us with clothes, cars, markets for exports, and lending for the government and banks. Shutting our markets will make life more expensive for us and hurt the rest of the world. In the 1930s, legislators embraced high tariffs, but putting America first led to a devastating world war. Today, US lawmakers need to choose hope over fear, and stick with free trade.

~Ed Glaeser, Harvard economics professor,
in the Boston Globe

Cafe Hayek

Welcome Univ. of Michigan-Flint MBA Students

To the students in the NetPlus! MBA program at the University of Michigan, Flint campus, who are enrolled in MGT 551 (Business Economics) for the spring term 2009 (started yesterday):


Professor Perry

What Does $1 Trillion Look Like?

$1 million ($100 bills):

$1 trillion (notice the guy in the lower left hand corner):

Climate Change: Science vs. Religion

Considering how much attention would have been lavished on a comparable run of hot weather or on a warming trend that was plainly accelerating, shouldn't the recent cold phenomena and the absence of any global warming during the past 10 years be getting a little more notice? Isn't it possible that the most apocalyptic voices of global-warming alarmism might not be the only ones worth listening to?

There is no shame in conceding that science still has a long way to go before it fully understands the immense complexity of the Earth's ever-changing climate. It would be shameful not to concede it. The climate models on which so much global-warming alarmism rests "do not begin to describe the real world that we live in," says Freeman Dyson, the eminent physicist and futurist. "The real world is muddy and messy and full of things that we do not yet understand."

But for many people, the science of climate change is not nearly as important as the religion of climate change. When Al Gore insisted yet again at a conference last Thursday that there can be no debate about global warming, he was speaking not with the authority of a man of science, but with the closed-minded dogmatism of a religious zealot. Dogma and zealotry have their virtues, no doubt. But if we want to understand where global warming has gone, those aren't the tools we need.

From Jeff Jacoby's latest column "Where's Global Warming?"

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.