Tuesday, April 21, 2009

Earth Day 2009: Air Quality's Better Than Ever




Data Source for graphs: EPA

From the first
Earth Day in 1970:

“Air pollution is certainly going to take hundreds of thousands of lives in the next few years alone,” Paul Ehrlich in an interview in Mademoiselle magazine, April 1970.

Ehrlich also predicted that in 1973, 200,000 Americans would die from air pollution, and that by 1980 the life expectancy of Americans would be 42 years.

“By 1985, air pollution will have reduced the amount of sunlight reaching earth by one half...” Life magazine, January 1970.

Most Earth Day predictions turned out to be stunningly wrong. In 1970, environmentalists said there would soon be a new ice age and massive deaths from air pollution. The New York Times foresaw the extinction of the human race. Widely-quoted biologist Paul Ehrlich predicted worldwide starvation by 1975.

MP: Consider that since the first Earth Day in 1970, U.S. population has increased by 50.25%, miles driven has increased by 159% and real GDP has increased 203%; and yet air quality is better than ever.

Richer is Greener

The richer everyone gets, the greener the planet will be in the long run. I realize this prediction seems hard to believe when you consider the carbon being dumped into the atmosphere today by Americans, and the projections for increasing emissions from India and China as they get richer.

Those projections make it easy to assume that affluence and technology inflict more harm on the environment. But while pollution can increase when a country starts industrializing, as people get wealthier they can afford cleaner water and air. They start using sources of energy that are less carbon-intensive — and not just because they’re worried about global warming. The process of “decarbonization” started long before Al Gore was born.

In general, richer is eventually greener. As incomes go up, people often focus first on cleaning up their drinking water, and then later on air pollutants like sulfur dioxide.

As their wealth grows, people consume more energy, but they move to more efficient and cleaner sources — from wood to coal and oil, and then to natural gas and nuclear power, progressively emitting less carbon per unit of energy. This global decarbonization trend has been proceeding at a remarkably steady rate since 1850, according to Jesse Ausubel of Rockefeller University and Paul Waggoner of the Connecticut Agricultural Experiment Station.

~John Tierney in today's NY Times article "Use Energy, Get Rich and Save the Planet"

The Great Driving Reduction Continues

According to data released today from the Federal Highway Administration, travel on all roads and streets in the United States fell by -0.9% in February 2009 compared to February 2008. This marks the 16th consecutive month of traffic volume decline (starting in Nov. 2007) compared to the same month in the previous year. The moving 12-month total for traffic volume has fallen for 15 consecutive months, going back to December 2007 (see chart above).

The 12-month moving total for January is the lowest traffic volume (2,917 billion miles) in any month since February 2004. Further, the 107 billion mile reduction in the 12-month moving total since February 2008 (3,024 billion), represents about a $14 billion reduction in fuel costs for American drivers, at an average fuel efficiency of 23 m.p.g., and an average fuel cost of $3 in 2008.

Thanks to John Thacker, who recently commented that "As the great driving reduction proceeds in its second year, it shows no particular signs of slowing. The 12-month moving total of vehicle miles traveled (2,917 billion) is now below that of March 2004 (2,918 billion), with a larger population and more vehicles."

How NIMBYs Can Make the Planet Worse Off

From "How Environmentalism Misses the Forest for the Trees," by Edward L. Glaeser in the NY Times Economix blog:

Homes in coastal California use much less energy than homes in most other places in the country. New building in California, as opposed to Texas, reduces America’s carbon emissions. Yet, instead of fighting to make it easier to build in California, environmentalists have played a significant role stemming the growth of America’s greenest cities.

Why is California so green?

The primary reason is climate. January temperature does a terrific job of explaining carbon emissions from home heating and July temperature does almost as well at explaining electricity usage. California has the most temperate climate in the country and as a result, homes use less heat in the winter and less electricity in the summer. In hot, humid
Houston or frigid Minneapolis, people use plenty of energy to artificially recreate what California has naturally.


Environmentalists should, presumably, be out there lobbying for more homes in coastal California, but instead, for more than four decades, California environmental groups, such as
Save the Bay, have fought new construction in the most temperate, lowest carbon-emission area of the country.

This anti-growth movement has achieved enormous successes, and the growth rate of California has plummeted. In the 20 years that ended in 1970, California’s population increased by 88%. Between 2000 and 2007, the population of California grew by less than 8%, which is slightly more than the growth of the United States population. California’s low growth doesn’t reflect lack of demand (prices remain quite high) or lack of land (densities are low), but instead one of the most regulated building environments in the country.

The local opponents of construction don’t have the ability to stop building in the United States as a whole, which hums along at roughly the rate of new household formation. When California’s anti-growth activists restrict building in California, then construction increases in Atlanta, Dallas and Houston. These three areas are both among the nation’s five most carbon-intensive living areas and among the four fastest-growing metropolitan areas. To be complete, California’s mandated environmental-impact reviews should ask not only about the impact on the local environment if a project proceeds, but also about the impact on global environment if the project gets moved elsewhere.

MP: Charles Krauthammer made a similar point about how the "drill-there-not-here" mentality simply exports environment damage overseas:

Does Nancy Pelosi imagine that with so much of America declared off-limits to oil production, the planet is less injured as drilling shifts to Kazakhstan and Venezuela and Equatorial Guinea? That Russia will be more environmentally scrupulous than we in drilling in its Arctic?

The net environmental effect of Pelosi's no-drilling willfulness is negative. Outsourcing U.S. oil production does nothing to lessen worldwide environmental despoliation. It simply exports it to more corrupt, less efficient, more unstable parts of the world -- thereby increasing net planetary damage.

Purdue to Offer 2-year Bachelor's Degree

KOKOMO, Ind. - Beginning in June, the Purdue College of Technology at Kokomo will offer a two-year accelerated bachelor's degree program, targeted toward displaced workers in the automotive and manufacturing sectors.

Want Less Corruption? Shrink Size of Government


Washington is riddled with both legal and illegal corruption because government is too big and has too much power. The federal budget redistributes $3.5 trillion through more than 1,800 subsidy programs. The regulatory burden is $1.2 trillion and there have been 51,000 new regulations since 1995. And there are more than 70,000 pages of tax law and regulations. These are the reasons why Washington is a hornet's nest of deal-making, influence-peddling, and back-scratching.

The Center for Freedom and Prosperity's new video, featuring Cato Institutes's Dan Mitchell, argues that reducing the size and scope of government is the only effective way to control Washington corruption.

Related:
The Ten Most Corrupt Politicians in U.S. History


Wayback Machine

1. The WABAC (pronounced "wayback") machine (pictured above) was from the Peabody's Improbable History segment of the early 1960s cartoon series The Rocky and Bullwinkle Show. The machine was constructed by Mr. Peabody, a professorial, bow tie-wearing dog, to be able to visit famous historical events. At the request of Mr. Peabody, Sherman, Peabody's "pet boy" assistant, would set the WABAC machine to a time and place of historical importance, and the two would be instantly transported there. The machine apparently later returned Mr. Peabody and Sherman to the present, although the return trip was never shown in the cartoon segment. The machine was little more than a plot device to allow the characters to visit the past.

The name WABAC is a play on computer names such as UNIVAC and ENIAC that were contemporary to the Rocky and Bullwinkle Show, and the WABAC machine was similar in size to those early computers.

2. The Internet Archive uses the term "Wayback Machine" as the name for its service that makes archives of the World Wide Web. This service allows users to see archived versions of web pages of the past. The use of the term "Wayback Machine" in the context of the Internet Archive has become so common that "Wayback Machine" and "Internet Archive" are almost synonymous.

The Internet Archive has millions of website source code saved in a gigantic database. You can use the service to see what your favorite sites used to look like, grab source code from sites that you changed the code for and want to get back a cached version, or visit sites from the past that are no longer around today.

For example, here's the first archived homepage of the NY Times, from December 30, 1996:


Here's Yahoo's first homepage in 1996:


And Google's first archived homepage in 1998:


The Real Pirates


The Economist's Green-Shoots Index


THE ECONOMIST -- The world has been suffering a bleak economic winter. Yet some say that they see early signs that the chill of recession is giving way to spring. For many commentators, a hunt for the green shoots of recovery is on. Search among a selection of British and American newspapers, for example, and mentions of “green shoots” in articles about the economy have increased enormously in the past couple of months. The earth was barren in the six months or so after the collapse of Lehman Brothers, but newspapers have, with the onset of northern hemisphere spring, started to find the confidence to discuss recovery. In the past, mentions of the word recession (as mapped in an “R-word” index) have been a useful indicator of the likelihood of the real thing. Could the same be true of a green-shoots index and the likelihood of economic recovery?


MP: Likewise, the news reference volume for the terms "Great Depression" and "worst economy" have both dropped to almost zero recently, according to
Google Trends:



Fact of the Day

American shoppers could have saved more than $21 billion last year by purchasing the same categories of packaged food at Walmart. This is far greater than the $2.6 billion Americans saved last year using coupons in all retail stores.

~Wal-Mart website


The Fifth Estate: Bloggers

Excerpts from the Wall Street Journal article "America's Newest Profession: Bloggers for Hire"

The Information Age has spawned many new professions, but blogging could well be the one with the most profound effect on our culture. If journalists were the Fourth Estate, bloggers are becoming the Fifth Estate. In America today, there are almost as many people making their living as bloggers as there are lawyers (see chart above). Already more Americans are making their primary income from posting their opinions than Americans working as computer programmers, firefighters or even bartenders.

As a job with zero commuting, blogging could be one of the most environmentally friendly jobs around -- but it can also be quite profitable. For sites at the top, the returns can be substantial. At some point the value of the Huffington Post will no doubt pass the value of the Washington Post.

As bloggers have increased in numbers, the number of journalists has significantly declined. In Washington alone, there are now 79% fewer DC-based employees of major newspapers than there were just few years ago. At the same time, Washington is easily the most blogged-about city in America, if not the world.

It is hard to think of another job category that has grown so quickly and become such a force in society without having any tests, degrees, or regulation of virtually any kind. Courses on blogging are now cropping up, and we can't be far away from the Columbia School of Bloggerism.

Monday, April 20, 2009

World's Last Gulag, N. Korea: The Land of No Smiles

Renowned documentary photographer Tomas van Houtryve entered North Korea by posing as a businessman looking to open a chocolate factory. Despite 24-hour surveillance by North Korean minders, he took arresting photographs of Pyongyang and its people—images rarely captured and even more rarely distributed in the West. They show stark glimmers of everyday life in the world’s last gulag.

When van Houtryve approached North Koreans, they walked off or averted their eyes. He never once photographed a smile. Even children ran away from him. “They’d turn and notice me and immediately bolt off—as if a wolf had come up to them."

~Foreign Policy

Ticket Scalping Is Easy to Eliminate: Raise Ticket Prices or Increase the Number of Shows


Tickets for my Edinburgh show are changing hands for £200 (almost $300). Please don't buy them. The people selling them are scum. I have tried to stop this happening but I can't. I've tried holding tickets back for sale on the night. I've tried putting gigs on sale at the last minute so people don't have time to put them on eBay, but nothing works. I'm flattered that anyone would want to see me that much but it breaks my heart that people spend their hard-earned money because of someone's greed. On my last tour one theatre manager excitedly told me that he'd just seen someone pay a thousand pounds for two tickets right by the ticket office. I think he thought I'd be pleased. I was horrified. Anyway please get a ticket but don't pay too much. That's all I'm saying.

Seamus McCauley of the Virtual Economics blog responds:

Want the after-sale ticket price to fall below £200? Put on more shows. You'll know you're doing enough shows when the price on eBay falls to the face value.

MP: Performers and their agents and promoters frequently complain about ticket scalping, and yet as Seamus points out above, they themselves have several potent weapons that would eliminate ticket scalping immediately. First, they could increase the number of tickets available by either: a) increasing the number of shows in a given city until the excess demand for tickets is eliminated, or b) move the show to a larger venue. Second, they could increase ticket prices closer to the market-clearing level and eliminate the re-selling of tickets at prices above the face value.

In other words the artists and promoters are themselves guilty of creating the market for ticket scalping, by not providing enough shows or tickets to meet the market demand and by under-pricing the tickets. Since Ricky Gervais' single Edinburgh show obviously sold out, he should either move the show to a larger venue or add additional shows in Edinburgh (assuming he is unwilling to raise ticket prices).

It seems disingenuous for musicians, artists and promoters like Ricky Gervais to constantly complain about ticket scalping when they have direct control over the two most important factors contributing to ticket scalping: a) the ticket price, and b) the number of tickets for sale. Eliminating ticket scalping should be extremely easy for them, by either a) raising ticket prices and/or b) increasing the supply of tickets.

Example: Eric Clapton is playing 11 shows in London during May at the Royal Albert Hall.

New From Reason.tv

1. Salon columnist and bestselling author Glenn Greenwald is the author of a new Cato Institute policy paper on Portugal's pathbreaking and hugely successful drug decriminalization program. Greenwald sat down with Reason.tv's Nick Gillespie to talk about the lessons from Portugal—and Barack Obama's decidedly disappointing performance so far on drug policy, executive power, and civil liberties. Video link.

2. George Mason economist Peter Leeson, author of The Invisible Hook: The Hidden Economics of Pirates, sits down with Reason.tv's Nick Gillespie to discuss self-interested pirates, the myths of piracy, and the intersection of modern economic policy and the hidden economics of pirates. Video link.

Sunday, April 19, 2009

Competition Breeds Competence: Good Grub and The Spirit of Capitalism; Why NY Food is So Good

New Yorkers are, and always have been, more demanding than any other Americans when it comes to what they eat.


New Yorkers tend to order food as if they are spoiled children dining in their mothers' kitchens. They demand excellent service, which includes accommodation for their idiosyncrasies (that pickle on the separate plate). If they do not get what they want, they howl, return food, do not return to the restaurant, and verbally torch the place. If you open a restaurant in New York, you had better be good, or you will soon be gone.

If you are going to start a restaurant in Manhattan, you had better have something extraordinary in mind: Food of a kind not available elsewhere, or done better than anyone else is currently doing it. I don't know if Thurman Arnold or Joseph Schumpeter or any of the other theorists of the inner mechanics of capitalism have hitherto spoken of it, but there is, in capitalism, operating at a sufficiently intense level, a spirit of competition that can bring out the best in everyone, at least in those realms where you cannot fake it. Something similar operates in professional sports -- the Major Leagues, the NBA and the NFL. Room exists only for the best. What is operating here is the reverse of Gresham's Law, with the good driving out the bad, and in the gastronomic realm the result is splendid food.

~Joseph Epstein in the Wall Street Journal


Oregon's 12.1% Unemployment, 2nd Highest in US: Is The $8.40 Per Hour Minimum Wage to Blame?

Is Oregon's high minimum wage partially to blame for the state's 12.1% unemployment rate, second highest in the nation (only Michigan is higher at 12.6%, see chart above of Oregon's jobless rate in blue vs. US rate in red)? The major business organizations in Oregon think so, and so do some members of the Legislature: Lawmakers are considering a bill that would override a 2002 citizen initiative and block future minimum wage increases indexed to inflation.

Representatives of the Oregon Restaurant Association, the National Federation of Independent Businesses, the Oregon Farm Bureau and the Oregon Association of Nurseries all argued in a public hearing on Friday that the high minimum wage is hurting Oregon business and contributing to the state's high unemployment rate.

The business leaders noted that Oregon's minimum wage rose by 45 cents an hour, to $8.40 on Jan. 1, even as the state's jobless rate was rocketing up 1% a month. On its face, requiring a substantial jump in wages at the same time the economy is crumbling seems certain to force businesses to cut more and more employees.

MP: Minimum wage, maximum folly (link and link). Demand curves slope downward, whether it's the demand for unskilled labor, skilled labor, aluminum, soybeans or lobster. Reason? There are substitutes for everything, whether it's unskilled labor, skilled labor, aluminum, soybeans or lobster.

Related from BBC: UK Business leaders have called for a minimum wage freeze as part of measures to help private industry drive the economy out of recession.


How to Smoke Smarties; Just Say No to Smarties?



Via Reason Magazine.

Wall Street Journal article, Just Say No....to Smarties? Faux Smoking Has Parents Fuming

Obama's Hypocrisy on DC Voucher Program

According to Shikha Dalmia writing in Forbes, Obama nixed D.C.'s successful school voucher program just as positive results were coming in.

The most blatant hypocrisy involves Obama's personal parental decisions. He chose to send his own daughters to Sidwell Friends, a private school among D.C.'s most exclusive institutions whose annual tuition runs around $30,000. If he felt so strongly that offering children an exit route would stymie the reform of public schools, then why not put his own daughters in one? Jimmy Carter did. This would not only please unions--prompting them to open up their war chest even more in the next elections--but also signal his resolve about reform. If he didn't, that's presumably because his daughters' futures are too precious to be sacrificed on the altar of politics. But, evidently, the futures of other children are not.

Incidentally, among the children who will have to return to public school once this program is scrapped are two of his daughter's schoolmates, who were using their vouchers to attend Sidwell. It's sad that Obama's message of hope and change doesn't include children like them.

Campus Leftists Don't Believe in Free Speech

Conservative speakers now need bodyguards when they visit our universities, according to....

~David Horowitz in the WSJ

Exposing the Ethanol Fantasy in Iowa

A town of 4,000, Dyersville, Iowa is best known as the location of the 1989 film "Field of Dreams." In the film, a voice urges Kevin Costner to create a baseball diamond in a cornfield and the ghosts of baseball past emerge from the ether to play ball. Audiences suspended disbelief as they were charmed by a story that blurred the lines between fantasy and reality.

That's pretty much the story of ethanol. Consumers were asked to suspend disbelief as policy makers blurred the lines between economic reality and a business model built on fantasies of a better environment and energy independence through ethanol. Notwithstanding federal subsidies and mandates that force-feed the biofuel to the driving public, ethanol is proving to be a bust.

~Wall Street editorial by Max Schulz, senior fellow at the Manhattan Institute

Econ 2009 Quiz

Test your knowledge of economic theory with this 18-question quiz, based on questions from past Advanced Placement exams, from the NY Times.

HT: Greg Mankiw

Antarctic Ice Growing, Not Shrinking

Ice is expanding in much of Antarctica, contrary to the widespread public belief that global warming is melting the continental ice cap. The results of ice-core drilling and sea ice monitoring indicate there is no large-scale melting of ice over most of Antarctica, although experts are concerned at ice losses on the continent's western coast.

Antarctica has 90% of the Earth's ice and 80% of its fresh water. Extensive melting of Antarctic ice sheets would be required to raise sea levels substantially, and ice is melting in parts of west Antarctica. The destabilisation of the Wilkins ice shelf generated international headlines this month. However, the picture is very different in east Antarctica, which includes the territory claimed by Australia.


East Antarctica is four times the size of west Antarctica and parts of it are cooling. The Scientific Committee on Antarctic Research report prepared for last week's meeting of Antarctic Treaty nations in Washington noted the South Pole had shown "significant cooling in recent decades." Australian Antarctic Division glaciology program head Ian Allison said sea ice losses in west Antarctica over the past 30 years had been more than offset by increases in the Ross Sea region, just one sector of east Antarctica.


A paper to be published soon by the British Antarctic Survey in the journal Geophysical Research Letters is expected to confirm that over the past 30 years, the area of sea ice around the continent has expanded.

From "The Australian"

Saturday, April 18, 2009

Virtual Clinic: The Doctor Will See You Now, Online

Starting this fall, Blue Cross and Blue Shield of Minnesota plans to offer its 10,000 employees and dependents the chance to use a "virtual clinic," an Internet site that can connect them with a doctor for a live 10-minute consultation for a flat fee.

When the system goes live this fall, doctors throughout Minnesota will be able to use a videocam or instant messaging to diagnose and treat anything from headaches to urinary infections in patients they've never met in person.


Blue Cross officials are betting that this kind of technology will play a pivotal role in transforming health care -- making it far more convenient than ever, and saving money in the process. In fact, many Twin Cities clinics are trying to reinvent the doctor visit, using the Internet and other technologies to deliver care in new ways.

Today, patients must go to the doctor's office because that's how doctors get paid, said Patrick Geraghty, president and CEO of Blue Cross and Blue Shield of Minnesota. "We want to change that model," he said. He argues that many doctor-patient encounters could be handled virtually, saving expensive trips to the clinic or emergency room.


~StarTribune article

Press release from American Well, provider of the technology


Currency Manipulation: China vs. Hong Kong

The chart above shows monthly ex-rates for China (red line) and Hong Kong (blue line) since 1995. Hong Kong has used a currency board to fix its exchange rate at about 7.8 Hong Kong dollars per USD since the mid-1980s. China was pegging its currency at about 8.3 Yuan per USD from 1995-2005, and now has allowed the Yuan to appreciate (and USD to depreciate) by about 18% to 6.8 Yuan to the USD over the last few years. And yet China frequently gets accused of "currency manipulation" but nobody ever criticizes Hong Kong for manipulating its currency.

What gives? If China had established a Hong Kong-like currency board to peg its rate at 8.3 Yuan/USD, would it have escaped the criticism of manipulating its currency? Should Hong Kong be criticized like China for "currency manipulation?" Are there any special or unique features of Hong Kong's currency board that differ significantly from China's policy of pegging the Yuan for many years, such that those differences would absolve Hong Kong of being a "currency manipulator"?

Privatize the USPS

Excerpts from a lengthy, but comprehesive and well worth-reading analysis of the USPS titled "Going Postal: The Imminent Death of the U.S. Postal Service?" in the May/June 2009 issue of The American Interest (thanks to Colin for the pointer):

USPS and General Motors have a lot in common these days. Both are currently generating multibillion dollar annual losses, pushing products that ever fewer people want, burdening themselves with bloated payrolls and huge fixed-cost infrastructures, continuing to roll up enormous unfunded pension obligations, and contending with some of the largest and most powerful labor unions on earth. Both, too, are expecting the American taxpayer to bail them out.

Just as General Motors has in effect subsidized Big Oil by continuing to build gas-guzzlers in recent years, so has the USPS continued to subsidize Big Mail by shaping its operations to encourage what it now calls, revealingly, “standard mail”—that is, advertising junk mail. Most American citizens are blissfully unaware of the degree to which USPS subsidizes large U.S. businesses ("Big Mail") by means of the fees it collects from ordinary postal customers. For example, if you wish to mail someone a large envelope weighing three ounces, you’ll pay $1.17 in postage. A business can bulk-mail a three-ounce catalog of the same size for as little as $0.14.

USPS management claims that “standard” mail makes lots of money, that the USPS makes a better margin delivering a “standard” mail package for $0.14 than it does a first-class one for $1.17. Why? Supposedly because of efficiencies produced by bulk-mail, machinable, zip-plus-four and zip-plus-nine standardization schemes. If you look at the revenue stream from advertising mail, it does look impressive, and it has been growing. But when you juxtapose next to that revenue stream the enormous transactional costs of maintaining a riotously complex rate structure to service it, you quickly reach a different conclusion: Standard mail, the costs of which are also generally tax-deductible for businesses, does not make money. It amounts to a corporate subsidy, which helps to explain why Congress, insofar as its members understand this, typically doesn’t object to the status quo. After all, these corporations have been known to contribute to electoral campaigns.

As with many failed and failing government organizations, the team that got you into a mess isn’t likely to be the team that gets you out. The USPS needs to be torn down to the studs and re-invented. The Obama Administration and Congress must practice what Austrian economist Joseph Schumpeter termed “creative destruction” in order to save the USPS from itself. Here is what to do, and the order in which to do it:

1. Replace the USPS senior management team with proven corporate executives who know how to run a $76 billion company with vision and accountability to stakeholders.

2. Negotiate with the unions to gain the concessions necessary to get the USPS’s labor costs in line. To be competitive with private competitors, the USPS will need to pay its workforce less than the $42 average hourly wage they receive today. Between layoffs and renegotiated compensation and benefits, drop the payroll costs from 80 percent of USPS’s expenses to 60 percent.

3. Invest in modernization of the sorting centers to gain long-term efficiencies, but tighten up the network so that unprofitable centers and unprofitable post office branches are closed.

4. Normalize the pricing differences between first-class, second-class (publications) and standard mail (advertising) to reflect actual delivery costs, and end the ratepayer and taxpayer subsidization of Big Mail.

5. Redefine the Universal Service Obligation so that it makes sense in the 21st century. Use available online technology that enables the Postal Service to know when customers don’t need delivery or would forego a default delivery option to have their mail delivered electronically, redirected elsewhere or destroyed.

6. As consumers switch to all-electronic delivery of postal mail, modify the USPS’s delivery fleet with in-vehicle dynamic routing systems like the ones that UPS and FedEx use, so that USPS vehicles don’t have to stop at every house, every day.

7. Follow the international model for liberalization. Having competitors in the marketplace will force the USPS to become more efficient and truly competitive. Customers will have a choice, just as they do today with phone-service providers. Better yet, move to privatize the USPS before the option disappears.

MN Auditor: Pull the Plug on Ethanol Subsidies

The office of the legislative auditor released a report Friday urging the Minnesota Legislature to end producer payment programs for corn-based ethanol. It further recommends ending use of the Job Opportunity Building Zones program for assisting with the construction of new corn-based ethanol plants.

The auditor's report finds that while corn-based ethanol and soy biodiesel reduce dependence on fossil fuels, the land resources required to produce them constrain their economic benefit.

According to the report summary, "To achieve nationwide use of E20 and B5 by 2020 would require about two-thirds of all land planted with corn in 2008 and slightly more than half of all the land planted with soybeans."

With the rising cost of food prices and demand, the auditor's office believes biofuels need to be more efficient than corn-based ethanol and soy-based biodiesel has proven to be.

Link.

Also controversial is the fact that "In the past five years, the state has awarded $93 million to privately run Minnesota ethanol operations, which together had $619 million in profits."

First-Class Post Office Inefficiency

There is simply no economic reason to continue this monopoly over the mail.

Forbes.com

Reminds me of an old one.....

Q: How many people work at the Post Office?

A: About half.

Friday, April 17, 2009

100% Gain in KBW Bank Index Since Early March

The KBW Bank Index (^BKX) closed today at 37.91, reaching its highest level in three months, since it closed at 38.1 on January 13, and it's up by 100% since the March 6 bottom of 18.62.

MDs Opting Out: Health Insurance ≠ Health Care

Here's something that has gotten lost in the drive to institute universal health insurance: Health insurance doesn't automatically lead to health care. And with more and more doctors dropping out of one insurance plan or another, especially government plans, there is no guarantee that you will be able to see a physician no matter what coverage you have.

Consider that the Medicare Payment Advisory Commission reported in 2008 that 28% of Medicare beneficiaries looking for a primary care physician had trouble finding one, up from 24% the year before. The reasons are clear: A 2008 survey by the Texas Medical Association, for example, found that only 38% of primary-care doctors in Texas took new Medicare patients. The statistics are similar in New York state, where I practice medicine.

More and more of my fellow doctors are turning away Medicare patients because of the diminished reimbursements and the growing delay in payments. I've had several new Medicare patients come to my office in the last few months with multiple diseases and long lists of medications simply because their longtime provider -- who they liked -- abruptly stopped taking Medicare.

~"When Doctors Opt Out" by Marc Siegel, MD, in today's WSJ

TANSTAAFL: Renewable Energy Edition

WASHINGTON POST -- "Renewable Energy's Environmental Paradox: Wind and Solar Projects May Carry Costs for Wildlife":

As the push for renewable-energy development intensifies across the United States, scientists and activists have begun to voice concern that policymakers have underestimated the environmental impact of projects that are otherwise "green."

"Everybody in New Mexico loves the sandhill cranes," said Ned Farquhar, a former aide to New Mexico Gov. Bill Richardson (D). "We also love our renewable energy. So we have to figure this out."

"There is no free lunch when it comes to meeting our energy needs," said Johanna Wald, a senior lawyer at the Natural Resources Defense Council.

Emerging Markets Rebound to Six-Month High

The MSCI Emerging Markets Index closed yesterday at its highest level since Oct. 14, 2008 (see graph above), and is heading for its sixth-consecutive weekly gain. The MSCI Emerging Markets Index has advanced in 22 out of the last 28 trading sessions, and is up by 36.5% from its early March low.

Thursday, April 16, 2009

Cheap Oil Forever: Why Prices Will Keep Falling

One idea still has the power to capture imaginations and markets: it is that commodities like oil, copper, grains and gold are all destined to rise over time. Lots of smart people believe that last year's swoon in commodities prices represented a short pause in a long-term bull market.

It's a view rooted in powerful and real trends, like the growth of China and India, the decline in global reserves (many of the world's biggest and best oilfields are tapped out), fears over resource nationalization (independent oil firms now control only 20 percent of global reserves) and long-term underinvestment in energy and agriculture, which hampers supply.

Yet the fact is that the world has faced all these issues before, and for the past 200 years, commodity prices have been trending downwards, thanks to new technologies, greater efficiency in extraction and the substitution of one commodity for another (which explains the high correlation between commodities prices).

Bank Credit Analyst, a research firm based in Montreal, has data showing major industrial commodity prices are 75% below where they were in the year 1800, after adjusting for inflation. Despite all the worries over "peak oil," the fact is that the major bear markets in oil have been demand, rather than supply led. And when demand eventually picks up, there's usually some new alternative (nuclear energy, natural gas, green technologies) waiting to pick up some of the slack.

The real price of oil today is now at the same level as in 1976 and, before that, in the 1870s, when oil was first put to mass use in the United States. This long-term price decline is due mainly to the constant discovery of new fields and greater energy efficiency, making nonsense of the idea that the world is rapidly running out of oil. The experience of the 1980s is instructive in the current context as well.

Japan and Europe continued to grow strongly in the 1980s, and yet oil consumption remained essentially flat through that decade as both the regions strived to achieve better fuel efficiency and switched to alternative sources of energy, such as nuclear power. Similarly, 90 percent of the growth in new oil capacity since 2004 has come from biofuels, synthetic oil and natural-gas liquids. As countries get richer, their per capita consumption of commodities declines. It's a myth, then, that the boom in China and India will inexorably drive up oil and other commodity prices.

At some point, of course, commodities will spike again, but only temporarily. To date, the centuries-old slide in prices has been marked by long bear markets and short bull runs. Data from CSFB shows that the average bull market in oil has lasted from four to nine years, and the average bear market from 11 to 27 years. The bull market that ended last summer saw prices rise tenfold over nine years, mirroring the duration and magnitude of the previous bull market, which ended in 1979 (see chart above). That was followed by a bear market that lasted 20 years. If history is any guide, we're only at the beginning of another long one.

~Newsweek article "If It's In the Ground, It Can Only Go Down"

Economy's Not A Problem; It's Those Bad Laws

A voter-approved measure that has Arizona's minimum wage above the federal requirement is forcing some restaurant owners to lay off and reduce health benefits for employees, industry leaders told state lawmakers Tuesday.

"Local restaurants support our communities, and right now we're in trouble," said Matt McMahon, owner of 19 Outback Steakhouse locations in Arizona. "The economy is not the problem; bad laws are the problem."

Link.

Change You Can Believe In, As Long As You're Using Someone Else's Money, And Not Your Own

Joe Biden's income and taxes 1999-2008, via TaxProf:


Also from TaxProf:

IRS statistics reveal that the average taxpayer with AGI over $200,000 makes over $20,000 of charitable contributions:

$15,000-$30,000 AGI: $1,916 average charitable deduction
$30,000-$50,000 AGI: $2,158 average charitable deduction
$50,000-$100,000 AGI: $2,703 average charitable deduction
$100,000-200,000 AGI: $4,057 average charitable deduction
$200,000+ AGI: $20,434 average charitable deduction

Bottom Line: VP Joe Biden makes $269,000 and contributes only $1,885 to charity, or less than 10% of the average amount for taxpayers in his income group ($20,434), and contributes even less to charity ($1,885) than the average taxpayer making only $15,000-$30,000 ($1,916). In fact, Biden's charitable contributions are less than all income groups.

Update: A comment by David Rotor criticized the chart above for including Biden in an "unbanded range" of $200,000 in AGI and above, which includes Bill Gates, Tiger Woods, Oprah, etc. But the analysis above also compared Biden to the lowest income group, showing that he was even less charitable than the lowest income group ($15,000 to $30,000). The graph below includes the charitable contributions for the income group below Joe Biden ($100-$200k), showing that those who made less than Biden gave more than twice as much to charity. No matter how you do the analysis the result is the same: penury.


$283M Lobbying Cost; $62B Benefit; ROI = 22,000%

From the paper "Measuring Rates of Return for Lobbying Expenditures: An Empirical Analysis Under the American Jobs Creation Act":

The tax law is, perhaps, the only legislation that can be used to quantify lobbying returns; a comparison of taxpayers’ tax liabilities prior to and after a tax law change demonstrates additional tax savings or tax expenditures. However, researchers outside the Internal Revenue Service cannot access this tax liability data because tax returns are confidential and, to date, no corporation publicly discloses tax return information. The dividend repatriation provision of the American Jobs Creation Act of 2004 (AJCA) provides a unique opportunity to quantify the returns to lobbying as the tax benefits were limited to a single taxable year and the benefits accruing to each company were publicly disclosed in financial statements.

The AJCA allowed U.S. multinationals a one-time opportunity to bring home foreign earnings and pay taxes on only 15% of this repatriated income. Because the amounts repatriated typically had a material effect on companies’ taxes, information about the repatriation is usually disclosed in the financial statements of publicly traded companies. Further, public accounting firms audit financial statements disclosures and attest to their accuracy. Thus, this is the first study to provide actual values of the financial savings arising from tax law changes, and the first to use data that has been audited by independent accounting firms.

Another difficulty researchers encounter when calculating rates of return to lobbying is measuring lobbying expenditures. In this study we overcome this limitation by hand collecting lobbying data from the Senate database on lobbying expenditures, the Federal Election Commission, and from annual reports of all publicly traded firms. Our study identifies 496 firms reporting repatriating under the auspices of the ACJA. Of these, 476 provide information about the amount repatriated, the amount of tax paid because of the repatriation, or the taxes saved by repatriating. Based on these 476 firms’ information, we analyze $298 billion of repatriations under the AJCA.

We identify 93 firms engaged in lobbying for the rate reduction. Combined, they repatriated $208 billion (or 70% of the total). We estimate that the lobbying group spent $282.7 million on lobbying expenditures and received $62.5 billion in tax savings, or a 220:1 return on investment (22,000%). Using a statistical regression, we estimate that lobbying activity is highly associated with amount repatriated even after controlling for firm industry, size, profitability, liquidity and growth prospects. Surprisingly, this tax provision was so lucrative that several firms borrowed funds to repatriate the cash as earnings.

HT: Economix

Fighting Off the Somali Pirates


Solution #1: High-Tech Equipment -- The recent escalation in pirate attacks has highlighted the vulnerability of shipping off the coast of Somalia. Now many ships are taking their own precautions, using hi-tech equipment to keep pirates at bay.

Solution #2: Bounty Hunters -- Rep. Ron Paul (R-Texas) and a growing number of national security experts are calling on Congress to consider using letters of marque and reprisal, a power written into the Constitution that allows the United States to hire private citizens to keep international waters safe.

NoVA Home Sales Increase for 12th Straight Month


The Northern Virginia Association of Realtors reports that:

Sales activity in Greater Northern Virginia for March 2009 continues to show an increase from 2008. The number of Greater Northern Virginia region homes sold in March was 2,755, a 19.94% percent increase from March 2008’s total of 2,297 sales.

This marks the twelfth consecutive month of increased year-over-year sales totals for Greater Northern Virginia. The average sales price of $317,158 in March 2009 compares to a March 2008 average sales price of $409,294.

Across Greater Northern Virginia, the number of listings showed a decrease from 2008 numbers, with 15,508 listings active, which is 31.17% less than this time last year, when 22,531 homes were available. The average number of days on the market for a home sold in March 2009 was 95, compared with last year’s 121 days, a decrease of 21.01%.

MP: Seems a lot like a healthy real estate market in recovery: 12 consecutive months of year-over-year increases in home sales, a 31% decrease in active listings over the last year, and a 21% decrease in the average number of days to sell a home. Of course the average home price has fallen by 22.5% in Northern Virginia over the last year, but that's the way markets work - the falling home prices stimulate home sales.

The data suggest that the Northern Virginia real estate market is way past its bottom, and has been making a solid recovery and strong comeback for many months. And yet doesn't much of the national news suggest that real estate markets in most parts of the country are still years away from a recovery?

Wednesday, April 15, 2009

TANSTAAFL: Airline Seats for Obese Passengers

CHICAGO (CBS) -- Under new rules outlined by United Airlines, passengers who "are unable to fit into a single seat in the ticketed cabin; are unable to properly buckle the seatbelt using a single seatbelt extender; and/or are unable to put the seat's armrests down when seated" will be denied boarding unless they purchase an extra seat.

I guess this would actually be TANSTAAFAS.

Good News: At least for international flights when food is provided, wouldn't the overweight passengers have the advantage of getting two meals when purchasing two tickets?

Update: In the UK, the NHS is paying (bribing") people to lose weight.

Market Volatility Index (VIX) At Six-Month Lows

According to Freakonomics blogger and Yale professor Ian Ayres:

One of the most important but underreported financial indicators is the
CBOE’s Volatility Index (^VIX), which measures the market’s expectation of future volatility in stock prices (over the next 30 days). (The CBOE has written a nice technical white paper describing how it is calculated, here.) When it drops below 30 percent, it will be a strong indication that the market correction is complete and we’re back to business as usual.

Often referred to as the "fear index," the VIX represents one measure of the stock market's expectation of volatility over the next 30 day period (Wikipedia). The VIX is a widely used measure of market risk and it is often referred to as the "investor fear gauge" (Investopedia).

The chart above (click to enlarge) shows that the VIX Index is now trading below 40 for the first time since last September, and is less than half of the 80+ peaks in October and November. The general downward trend in the VIX over the last six months suggests that market volatility is moving back towards normal levels and that "investor fear" is gradually subsiding.

Taxpayers Are Really Tea-ed Off

Tax Revolt: The Boston Tea Party helped free us from an oppressive king. This week's nationwide anti-stimulus tea party demonstrations have a tougher goal: ending the tyranny of big-spending politicians.

"If you want to stimulate the economy, you just need to reduce the taxes and regulations," Kansas real estate agent John Todd told the Wichita Eagle, explaining in the clearest terms why he is organizing one of 500 anti-stimulus "tea parties" to take place in cities and towns across America today, April 15, Tax Day.

What the tea parties aim to accomplish is really a much taller order than gaining independence from a tyrannical monarch and far-away parliament two centuries ago. They are trying to persuade Congress and the states to reject what comes perfectly naturally to them: the opportunity to fritter away a fortune in other people's money, and the idea that we should spend our way out of this economic downturn.

~
IBD Editorial


See related WSJ editorial today "Tax Day Becomes Protest Day: How the tea parties could change American politics," by Glenn Reynolds, here's an excerpt:

What's most striking about the tea-party movement is that most of the organizers haven't ever organized, or even participated, in a protest rally before. General disgust has drawn a lot of people off the sidelines and into the political arena, and they are already planning for political action after today.

MP: Given the national taxpayer outrage and foul mood this week about big-spending politicians, imagine if they went to the voting polls this week, or even this month?

Unfortunately, taxpayer outrage about Big Government usually coincides closely with Tax Day in April, which is way far away from Voting Day in November. As the graphic above shows, it's been 162 days since we last voted in November 2008, and it will be 202 days before the next election, so Tax Day and Voting Day are almost as far apart as two recurring annual dates can be.

Here's an idea: Move Tax Day and Voting Day much closer together, like perhaps in the same month or same week, instead of being about 6 months apart. Couldn't we vote in April or pay taxes in November?

Live Piracy Maps




Live piracy maps (see samples above, click to enlarge) and live piracy reports are available from the ICC International Maritime Bureau, a specialised division of the International Chamber Of Commerce (ICC).

HT: Catherine Rampell at NY Times Economix blog

Cato Video on Heavy Burden of Today’s Tax Code


Timely Cato video for viewing today on Tax Day.


End the Gov't.- Created Oligopoly in Credit Analysis

Virtually everyone who has reviewed the causes of the meltdown has concluded that credit ratings were a major factor.

Instead of a free market judging the likelihood that a particular bond will be repaid, regulation by the SEC and Federal Reserve forces market participants to use the government's hand-picked experts at Standard and Poor's, Moody's and Fitch. Since 1975, the SEC has anointed a small group of firms as Nationally Recognized Statistical Rating Organizations (NRSROs), and money market funds and brokerages have no choice but to hold securities rated by them. To this day, the Fed will only accept assets as collateral if they carry high ratings from S&P, Moody's and Fitch.

We aren't urging the Big Three to yank the U.S. Government's AAA rating as a show of independence. But we are suggesting that the SEC and Fed get out of the business of dictating which firms may judge credit risk.

Peter Fisher at Blackrock argues that it's time to abolish the NRSRO designation for entire firms and instead allow individuals to become licensed to do credit analysis, like brokers and equity analysts. Law professor Mr. Partnoy (scheduled to address the SEC today) argues that instead of relying on the failed ratings agencies, regulators should harness the power of the bond and credit default swap markets, which yielded more accurate readings on the default risk of firms like Bear Stearns.

Those ideas deserve debate, but the starting point for reform must be ending the government-created oligopoly in credit analysis.

~WSJ Editorial

Tuesday, April 14, 2009

TNSTAAFL: Deadly Small Car Edition

WASHINGTONConsumers who buy minicars to economize on fuel are making a big tradeoff when it comes to safety in collisions, according to an insurance group that slammed three minimodels into midsize ones in tests.

The institute concludes that while driving smaller and lighter cars saves fuel, “downsizing and down-weighting is also associated with an increase in deaths on the highway,” said Adrian Lund, the institute’s president.

“It’s a big effect — it’s not small,” he said in a telephone interview.

Emerging Markets Rebound

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The MSCI Emerging Markets Index closed yesterday at 640.597, reaching a six-month high (see chart above) for the benchmark emerging markets stock index (data available here). The index has gained ground on 23 out of the last 30 days, and is up by 35% from its early March bottom.

Teardown of Apple's Tiny iPod Shuffle

BUSINESS WEEK -- There's not much on the inside of the iPod Shuffle, as a teardown analysis of the device by market research firm iSuppli has found. Privately held iSuppli takes consumer electronics apart in order to estimate how much they cost to build. And while a teardown doesn't account for the costs of design, software, manufacturing, or shipping, these cost estimates help fill in the blanks toward estimating the profit on each device sold.

All told, the cost of the shuffle's components, the headphones, and the packaging it ships in comes to $21.77, according to iSuppli's estimates. That's about 28% of the device's $79 retail price. The smaller the component cost as a percentage of price, the higher the potential profit. This suggests the per-unit profit margin on the shuffle is higher than on other iPod models.

The component cost for the first iPod touch released in 2007, for instance, amounted to about $147, or about 49% of its $299 retail price. The component cost of the third-generation iPod nano, also released in 2007, amounted to about 40% of its retail price.

Biggest supplier? Samsung


See previous CD post on the iPod teardown.

Monday, April 13, 2009

Bank Rebound: +20% Record Daily Gain in the KBW Bank Index Last Friday, Is The Banking Crisis Over?

The KBW Bank Sector (^BKX) is a capitalization-weighted index composed of 24 geographically diverse stocks representing national money center banks and leading regional institutions, including Bank of America, Citigroup, Wells Fargo, etc. (see list here). As Larry Kudlow reported tonight at the top of "The Kudlow Report," the banking sector is rebounding, and the KBW Index has almost doubled since the early March bottom (see chart above), rising 96% since March 6.


The Index gained almost 4% today, following a 20.11% increase on Friday, which set a new record for the largest single-day increase in the KBW Index since it originated in 1993.


The Jock Tax: Taxing Visitors Who Don't Vote

From the LA Times article "The Taxing Life of a Pro Athlete":

If opening day is the best day of the year for professional athletes, then April 15 -- tax day -- is probably the worst. Especially now that 20 of the 24 states with franchises in at least one of the four major pro leagues -- the NFL, NBA, NHL and Major League Baseball -- have laws that require visiting athletes to pay state income tax for each game they play there.

Considering that top-level athletes in football, basketball, hockey and baseball now make an annual average salary of $2.9 million, that means big bucks for states such as California. Home to 15 major professional teams, the state raked in $102 million in taxes from visiting athletes in 2006-07, the last year for which records are available.

As salaries have skyrocketed, the so-called "jock tax" has become widespread and controversial. Its imposition has raised questions of fairness and, for tax expert Joseph Henchman, has laid waste to the once-revolutionary prohibition on taxation without representation.

"Politicians are seeking to shift tax burdens to people that don't vote," he says. "It does create a rather disturbing trend because it essentially allows politicians to provide more government services than citizens are willing to pay for."

HT: TaxProf