Saturday, March 07, 2009

Record Crowds Pack Detroit's Autorama

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

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

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

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

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

An Entrepreneur Stimulus Plan

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

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

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

Peru's Recession Proof Economy is Booming

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

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

Company Layoff Plans Expected to Decline

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

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

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

HT: Andrew Greene

Have Job Layoffs Peaked in January?

According to Penny Herscher at the Market Mine blog:

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

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

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

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

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

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

Friday, March 06, 2009

Lincoln and Obama

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

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

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

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

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

Nation Instinctively Forms Breadline

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

Some recession humor from "The Onion."

Thursday, March 05, 2009

Map of Legal Drinking Age Around the World

Click to enlarge.

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

U.S. Dollar Reaches 4.5 Year High

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

The Economist Says: Legalize It

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

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

Florida Home Sales Increase for 5th Month in a Row

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

Now Is The Time To Buy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Quote of the Day

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

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

Monster Employment Index Increases in Feb.

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

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

Geography of the Recession

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

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

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

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

Wednesday, March 04, 2009

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

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

NY Fed's Model Predicts End of Recession in 2009

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

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

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

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

The Miracle of the Market

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

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

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

Tuesday, March 03, 2009

Everything is Amazing, But Nobody is Happy

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

The Forgotten Daily Miracles of the Market

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

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

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

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

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

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

Cartoons of the Day

IBD's Michael Ramirez.

Detroit News' Henry Payne.

Foreclosures Concentrated in Four States

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

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

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

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

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

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

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

Monday, March 02, 2009

Problem Banks in 2008: Nowhere Close to 1990-91

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

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

Bank Deliquency Rates for 2008:QIV

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

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

Grade Inflation: University of Michigan Law School

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

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

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

Corporate Income Tax = $3,190 Per Household

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

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

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

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

Why Skilled Immigrants Are Leaving the U.S.

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

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

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

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

Get To Work and Bail Yourself Out

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

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

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

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

~Ben Stein

Real Disposable Personal Income Grows by 3.3%

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

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

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

Bankruptcy Could Actually Save GM

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

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

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

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

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

Harvard Law Professor Mark Roe in today's WSJ

Sunday, March 01, 2009

Chart of the Day

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

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

Despite Downturn, The Movie Industry is Booming

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

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

Undergraduate Economics Sees Popularity Surge

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

How Does Your State Compare?

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

Chinese Scoop Up SoCal Foreclosures

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

Quote of the Day: Becker on China-Bashing

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

~Nobel economist Gary Becker