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.