Tuesday, September 08, 2009

U-Haul Truck Rental Rates Reflect Relative Demand

U-Haul rates for a one-way 26 foot truck rental:

Detroit, MI to Houston, TX: $2,215

Houston, TX to Detroit, MI: $617

this previous post, there seems to be some disagreement about whether U-Haul's one-way rental rates reflect relative demand for truck rentals. Although there certainly could be other factors (tax differences, etc.), I would argue that one-way U-Haul truck rental rates reflect primarily differences in relative demand.

The rates above illustrate the significant differences in demand for trucks going from Detroit to Houston (high demand) compared to the low demand for trucks going from Houston to Detroit. From U-Haul's standpoint, it will have shortages of trucks in Detroit due to the high demand for one-way rentals, and surpluses of trucks in Houston due to the low demand for trucks in the opposite direction. Therefore, U-Haul uses dynamic pricing to reflect relative differences in supply and demand for one-way rentals between Detroit and Houston. In an ideal world for U-Haul, it would like to have equal demand for truck rental in both directions for each pair of cities, to equalize the distribution of trucks around the country. Since that never happens, it prices one-way truck rentals based on relative demand: high prices for high demand one-way rentals and low prices for low demand one-way rentals.

In the previous example of Los Angeles and Las Vegas the price differentials weren't nearly as great, but perhaps this more striking example of Detroit-Houston will help illustrate how market forces determine pricing. Based on the differences in one-way truck rental rates, there is almost 4x as much demand for 26 foot trucks going from Detroit-Houston as for trucks going from Houston-Detroit.

Truck Rental 28% Higher for LA to LV than LV to LA

I posted a few days ago about TV ads sponsored by the Nevada Development Authority encouraging California businesses to move to Las Vegas for lower taxes and less red tape. The chart above (click to enlarge) of U-Haul rates for one-way truck rentals provides some interesting evidence that the ad campaign might be working, since the demand for trucks leaving LA for Las Vegas is much higher than for trucks in the opposite direction, based on the differences in rental rates for the same equipment (26-foot truck).

Bottom Line: The rental rate is $364 for a one-way truck rental from LA to Las Vegas, which is 28.7% higher than for a one-way rental from Las Vegas to L.A., suggesting there is a net outmigration from LA to Las Vegas.

Amazing Video of High-Speed Robot Hand

Watch as the robot hand dribbles a ping-pong ball, spins a pen at high speed, throws a ball, ties knots in a string, grasps a small grain of rice with a pair of tweezers, and then tosses and catches a cellphone!

Thanks to Bob Wright.

Bloomberg U.S. Financial Conditions Index Reaches A 22-Month High, Highest Level Since Oct. 2007

The Bloomberg U.S. Financial Conditions Index provides a daily measure of the relative strength/weakness of the U.S. money, bond and equity markets, and is considered a useful gauge of bank lending conditions and the overall availability of credit. The Financial Conditions Index reached -0.821 last Friday, the highest since October 31, 2007 and is now at a 22-month high (see chart above).

8th Monthly Increase in Used Vehicle Price Index

Wholesale used vehicle prices rose for the eighth consecutive month in August (see chart above). The Manheim Used Vehicle Value Index for August was 116.4, an increase of 5.1% from a year ago.

The driving force pushing wholesale used vehicle values to ever-lofty levels has been primarily inventories - or, more precisely, the lack thereof. The reduced number of vehicles entering the wholesale market (as a result of declining dealer consignment and off-rental volumes) has been an ongoing story all year. More recently, new vehicle inventories have fallen to extremely low levels as a result of plant shutdowns and the increase in sales created by Cash-for-Clunkers.

From a previous Manheim Consulting report:

Some analysts have suggested that the rapid rise in wholesale used vehicle pricing is a precursor to an improvement in new vehicle sales and may even point to a recovery in the overall economy.

MP: The 1 point August increase in the Manheim Used Vehicle Value Index marks the 8th consecutive monthly increase (every month this year), following decreases in 10 out of the previous 14 months (from October 2007 to December 2008). The year-to-year increases in May (1.5%), June (5.8%), July (5%) and August (5.1%) for the index follow 17 consecutive months of consecutive year-to-year decreases (Nov. 2007 to April 2009). Further, the August 2009 reading of 116.4 was the highest since March 2001, and higher than the pre-recession level.

Certainly, the Cash-for-Clunker factor might have created a temporary upward bias in the used vehicle index over the last couple months, but there was already a strong upward trend in place, and the 18.4 point 8-month increase from November-August could reflect the momentum of an economic recovery.

Textbook Prices Have Risen Faster Than Medical Care Costs, This Could Be the Year of e-Textbooks?

College students frequently complain about the high cost of textbooks, and they have a point. As the top chart above shows, the cost of college textbooks (BLS category "educational books and supplies") has risen much higher than the overall CPI since 1978, almost 7% annually on average for textbooks versus less than 4% for all goods and services. Although not quite as high as the average annual inflation rate for college tuition (almost 8%), textbook prices have increased faster than even the cost of medical care (6%).

The bottom chart above shows annual inflation rates for tuition and textbooks since 2000, and they have been increasing in a range of about 4-10% annually, compared to the overall average inflation rate of 2.67% over that period (not shown in chart). And since January 2007 the inflation rate for textbooks has exceeded the inflation rate for tuition for 30 consecutive months, confirming the general consensus among students (and faculty) that the affordability of textbooks has noticeably worsened over the last several years. And I suppose it's also the case that rising tuition is partly offset with financial aid, whereas rising textbook prices have to be absorbed more directly by students and their parents.

For example, Greg Mankiw's "Principles of Economics" (5th edition) has a list price of $210.95 and an online price of $175.79 at Barnes and Noble. In other words, a college student today could spend more than $1,000 on textbooks (at the list price) per semester for 5 courses! And the list price of today's textbooks are almost as much as the cost of tuition for a 3-credit course at a community college ($254 at Mott Community College), although Mankiw's "Principles of Macroeconomics" sold separately (without the micro chapters) has a list price of "only" $158.95, and sells online for $133.50.

Is there any hope to make college textbooks more affordable, or will they continue to skyrocket? Actually there is. From today's
Chronicle of Higher Education (paid subscription may be required):

Publishers say they just want to offer customers choices, and appeal to today's students, who have never known a world without laptops and the Internet. It's worth noting, though, that the publishers stand to benefit from the format switch. Today many students sell their books at the end of the semester, and publishers don't share in that revenue. They have designed their e-books so they cannot be resold; in many cases, the digital files self-destruct after a set period. (For CourseSmart books, most files vanish after 180 days.)

For example, the eTextbook version of Mankiw's "Principles of Economics" is available at
CourseSmart for $105.49 for a 180-day subscription (50% of the list price), and Principles of Macroeconomics is available for $79.49 (about 50% of the list price). There are two formats available: a) the online version which can be accessed from any computer with an Internet connection, or b) the downloadable version, which can be accessed from one computer only, without an Internet connection. In both cases, the subscription length is 180 days.

This seems like a sensible alternative, especially for students who sell their textbooks back at the end of the semester and end up without the textbook in either case (buying a textbook and selling it back, or buying an eTextbook). And for those students who would like to build a library of textbooks, they can buy older editions of any textbook for almost nothing on the used market. For example, there are currently 432 used copies of the 3rd edition of Mankiw's "Principles of Microeconomics" available for sale on Amazon starting at $2, which is 50% less than the shipping cost of $3.99!

Monday, September 07, 2009

College Tuition 2009-2010

Brown Tuition, room and board, and all fees: $51,476

Cornell Tuition, and room and board (non-resident): $50,114

Yale Tuition, and room and board: $47,500

Pennsylvania: Tuition, room and board, books, personal: $53,250

Mott Community College: Tuition $2,743.50

Quote of the Day

Feminism is the theory that men and women are equal in every respect--except for those in which women are superior. The trick is to interpret every social indicator as though it demonstrates arbitrary male privilege or genuine female superiority.

For example, when studies show that girls perform less well than boys at advanced math, it is due to systemic discrimination in favor of boys; but when the same studies show that boys’ under-performance in the language arts is four times as great as that of girls in math, well that is due to girls’ innate superiority.


MS Per Capita GDP (PPP) Higher Than EU, Japan

The chart above displays GDP at purchasing power parity (PPP) per capita in 2008 using data from the CIA World Factbook (data available here) for various European countries, the European Union as a group, Japan, and the U.S. The chart also shows an estimate of GDP per capita for America's poorest state of Mississippi ($34,968), adjusted for purchasing power by applying a factor of .7439 to U.S. per capita GDP adjusted for PPP of $47,000, based on Mississippi's unadjusted GDP per capita compared to the U.S. average (data here).

On a PPP basis, all European countries in the graph except the U.K. have per capita GDP below America's poorest state. In other words, if Italy, France, or Germany left the European Union and joined the U.S., they would be the poorest of the U.S. states, and the same would apply to the European Union as a group, and the same would apply to Japan.

Recent Contraction Has Been Little More A Than Hiccup in Decades of Sustained Economic Growth

The chart above shows annual real GDP per capita for the U.S. from 1929 to 2009 (estimated) using BEA data here for real GDP and Census data (here and here), and puts the current recession in some historical perspective (see a similar analysis here for UK). Despite a severe contraction, real GDP per capita will still be greater this year (about $42,000 in 2005 dollars) than any time before 2005, and that is based on second quarter real GDP, so the actual figure will likely be higher. It's also the case that:

1. Real GDP per capita this year ($42,000) will be more than 4 times the amount in 1940 ($8,832), and more than twice the amount in 1970 ($20,823) and almost 25% higher than just 15 years ago ($34,075 in 1994).

2. Nominal GDP per capita this year in the U.S. of about $47,000 (based on
2008 CIA data here) will be $13,600 per person higher than the European Union ($33,400), $12,800 per person higher than Japan ($34,200), $14,300 higher than France ($32,700), $10,400 higher than the U.K. ($36,600), $12,200 higher than Germany ($34,800) and $16,000 higher than Italy ($31,000).

As David Rawcliffe points out
on the Adam Smith blog (about the UK, but it applies equally to the U.S.):

The recent contraction has not been evenly spread across regions or industries, and the hardship for many has been terrible, but the bigger picture is clear: the recent crisis has been little more than a hiccup in decades of sustained growth.

We should maintain this sense of perspective not only in assessing the harm wrought by this recession, but in developing policy for the future. The living standards of the next generation will not be chiefly determined by the severity of cyclical fluctuations, but by the long-term rate of growth in the intervening years.

In responding to the current crisis, and to the wider ills of society, a brave and forward-thinking government will bear this in mind, and pursue goals that do not simply address the problems of today, but recognise that economic growth offers the best solutions to the problems of tomorrow. It will accept that short-term sacrifices are necessary for long-term gains. It will encourage competition and innovation; it will reduce taxation and spending, and eliminate subsidy. It will ensure a productive workforce by educating and training the workers of the future, liberalising the labour market, and demolishing the benefits trap. And it will stimulate investment through price stability and fiscal prudence.

Sunday, September 06, 2009

MI Rep. Rogers' Opening Statement on Health Care

U.S. Representative Mike Rogers of Michigan's 8th district asks "Why should we punish the 85% of Americans who have earned health care benefits as part of their employment, and punish the employers who give it to them, to try to cover the 15% of Americans who don't have it?"

First Time Ever: < 50% Approve of Labor Unions

PRINCETON, NJ -- Gallup finds organized labor taking a significant image hit in the past year. While 66% of Americans continue to believe unions are beneficial to their own members, a slight majority now say unions hurt the nation's economy. More broadly, fewer than half of Americans -- 48%, an all-time low -- approve of labor unions, down from 59% a year ago (see top chart above). These results are from the 2009 installment of Gallup's annual Work and Education survey, conducted Aug. 6-9.

The 48% of Americans now approving of unions represents the first sub-50% approval since Gallup first asked the question in the 1930s. The previous low was 55%, found in both 1979 and 1981. While approval of unions has declined since 2008 among most major demographic and political groups, the biggest drop has been among political independents (see bottom chart above).

Markets in Everything:$14k Internet Addiction Cure

Associated Press -- The first Internet addiction treatment center is now open. The center, called ReSTART, is somewhat ironically located near Redmond, headquarters of Microsoft and a world center of the computer industry. It opened in July and for $14,000 offers a 45-day program intended to help people wean themselves from pathological computer use, which can include obsessive use of video games, texting, Facebook, eBay, Twitter and any other time-killers brought courtesy of technology.

Here's a link for ReSTART's "2009 Tuition and Rates," and here's a test to see if you're "Internet or Technology addicted."

MA Politician Caught Avoiding Taxes He Approved

Boston Herald -- A Massachusetts lawmaker who voted to hike the state sales and alcohol taxes was spotted brazenly piling booze in his car - adorned with his State House license plate - in the parking lot of a tax-free New Hampshire liquor store. Rep. Michael J. Rodrigues’ blue Ford Crown Victoria, emblazoned with his “House 29” Massachusetts license plate, was parked outside a Granite State liquor store on I-95 South over the weekend, according to a witness who provided pictures to the Herald.

The Westport Democrat, whose family owns a rug business, was among the lawmakers who voted in an unpopular 25% sales tax hike for Bay Staters. The increase pushed the sales tax to 6.25% and slapped that same levy on booze - the first time alcohol has been subject to retail sales tax. The hike has been blasted by business owners, especially those on the New Hampshire border, who say the increase has driven business north.

Mike Cimini, owner of three Yankee Spirits liquor stores, said he’s lost about 10% of his business since the booze tax went into effect Aug. 1. "It’s absolutely unbelievable that a Massachusetts state representative would be that hypocritical, let alone be that bold to actually drive his car with political plates to a New Hampshire liquor store,” said Cimini, noting Rodrigues represents communities close to his stores. “He’s up in New Hampshire to avoid the very taxes he approved.”

HT: Art Little

CA Businesses: Relocate to Las Vegas (TV Ads)

To California businesses: "Get the monkey off your back. Move to Las Vegas and kiss California red tape and taxes goodbye." Vote with your feet! Here's another one:

Thanks to Art Little.

Correcting Unfairness With Govt. Policy Increases It

In a previous CD post, I suggested that the words "fair" (or "unfair" or "unfairly") and "fairness" are two of the most dangerous words in the English language, for reasons including:

As surely as night follows day, people who insist on using those words (e.g. "fair trade," "fair wages") almost always follow with some proposal for government intervention, government regulation, or government force of some kind to correct some perceived "unfairness" and impose their notion of "fairness." And Thomas Sowell has pointed out another danger - "fair" and "fairness" are two words that can mean virtually anything to anybody.

Here's a case in point from today's Parade Magazine:

Billions of dollars in textiles are legally imported each year. But some rogue producers are smuggling their goods into the market, thereby avoiding the tariffs and quotas designed to keep foreign-made goods from unfairly competing against U.S. products.

Notice how the assumption of "unfair foreign competition" has been followed by protectionist trade policy to correct the "unfairness" by favoring domestic producers with tariffs and quotas on foreign textiles. But what about the inevitable unfairness now for domestic consumers, who are forced to pay higher prices because of the protectionism?

Here's an alternative version of the last sentence:

But some rogue producers are smuggling their goods into the market, thereby avoiding the tariffs and quotas designed to unfairly protect domestic textile producers from more efficient foreign competitors, and unfairly force Americans (millions of consumers and hundreds of clothing-producing companies) to pay higher prices for textiles and clothing.

By using government force to correct the "unfairness" suffered by domestic producers, we have created an even greater level of "unfairness" for domestic consumers, since economic theory and empirical evidence show that the cost of trade protection are almost always greater than the benefits, leaving the country worse off. That's why "fair" and "unfair" are dangerous - the public policies designed to correct the "unfairness" actually increase the overall amount of "unfairness" and lower our standard of living. How can that be "fair?"

Interactive Chart for GDP Per Capita

Interesting interactive chart for GDP per capita in each country. You can sort by religion (Muslim vs. Buddhist vs. Christian countries), language (English vs. French vs. Spanish-speaking countries), area size, population, etc.

HT: Andy Roth

Real Estate Recovery in the Twin Cities

As I reported previously based on the June report, it's still looking like the real estate market in the Twin Cities reached bottom earlier this year and is in a period of solid recovery, according to the July report from the Minneapolis Area Association of Realtors. Consider the following:

1. After falling pretty consistently during almost every month during the last two years, the median home price in the Twin Cities area has increased by almost 17% since February, and by almost $25,000 in dollar terms (see chart above, click to enlarge). Despite a small decrease in the median home price for July, there has been a definite positive trend this year since the bottom in February.

2. Pending sales in July are up by 16% from the same month last year, and by 23.1% from two years ago (see middle chart above).

3. Closed sales in July were almost 26% higher than July 2008, and almost 16% higher than July two years ago.

4. The average sales price in the Twin Cities area increased in each of the last three months.

5. The current 7.2 months supply of inventory is more than 3 months lower than last year at this time (10.5 months).

6. The current Supply-Demand Ratio (SDR) of 4.88 homes for sale per buyer is 35% lower than last year's SDR of 7.48 homes per buyer (see bottom chart above). (Note: The SDR is calculated by comparing the number of homes for sale at the beginning of each month with the number of total pending sales for the month. The higher the SDR, the more supply there is relative to demand.)

Markets in Everything: Life Insurance Securitization

NY Times -- Bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die. The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.

Defenders of life settlements argue that creating a market to allow the ill or elderly to sell their policies for cash is a public service. Insurance companies, they note, offer only a “cash surrender value,” typically at a small fraction of the death benefit, when a policyholder wants to cash out, even after paying large premiums for many years. Enter life settlement companies. Depending on various factors, they will pay 20 to 200 percent more than the surrender value an insurer would pay.

Securitized life policies have big potential for investors who want to spread their risks and are constantly looking for new investments that do not move in tandem with their other investments. Some academics who have studied life settlement securitization agree it is a good idea. One difference, they concur, is that death is not correlated to the rise and fall of stocks.

The insurance industry is girding for a fight. “Just as all mortgage providers have been tarred by subprime mortgages, so too is the concern that all life insurance companies would be tarred with the brush of subprime life insurance settlements,” said Michael Lovendusky, vice president and associate general counsel of the American Council of Life Insurers, a trade group that represents life insurance companies.

And the industry may find allies in government. Among those expressing concern about life settlements at the Senate committee hearing in April were insurance regulators from Florida and Illinois, who argued that regulation was inadequate.

Thanks to Jeff Lehner.

Saturday, September 05, 2009

The Top 4 Lessons Learned in Business School

#1 is "Always Consider Opportunity Costs." Read more here.

Retail Health Care Clinics: "A Model for the Future"

Never underestimate the power of the profit motive and competitive market forces to bring about real health care reform. The 1,200 retail health clinics across the country are providing high quality care at lower costs than emergency rooms or physician offices, and they offer better, faster service, with longer and more convenient hours than a traditional medical office (watch MSNBC video above).

While politicians sit around and have endless debates about how to bring down health care costs and expand access to medical care through various grandiose government interventions and programs, the private marketplace is already doing it - lowering costs and expanding access at more than 1,000 retail clinics. And unlike government-based health care reform, the explosion of affordable, convenient retail health clinics across the country didn't require any tax increases, government spending or funding, or special legislation.

Retail clinics truly could be the "model for the future" for health care reform. When it comes to lowering costs and improving quality and service, government enterprises have a miserable track record, and competitive markets have a proven, excellent record. Retail clinics are just one example of thousands of cases of how market competition results in bringing down costs and improving customer service.

Adjusted Jobless Claims Suggest Recession Ended

August employment data was released yesterday, and the graph above of Initial Jobless Claims as a Percent of the Labor Force (1974-2009) has been updated to reflect the August labor force of 154,577,000 and the August average for initial unemployment claims (568,900 for the 4-week moving weekly average). This measure of initial jobless claims, adjusted for the size of the U.S. labor force, shows that jobless claims peaked during this recession above the levels of the last two recessions (1990-1991 and 2001), but were never anywhere close the levels of the previous three recessions in the mid-1970s and early 1980s (see chart above).

In other words, this recession was worse than the last two, but not nearly as severe as the previous three, using this adjusted measure of jobless claims. Additionally, the sharp .056% reduction in adjusted jobless claims from the March 2009 high of 0.4226% to 0.3662% in August follows the same pattern of .05% reductions in adjusted claims at the end of the 2001 recession (a .052% reduction from .3318% in October 2001 to February 2002) and at the end of the 1990-1991 recession (a .058% reduction from .3915% in March 1991 to .3327% in July 1991).

Finally, the current level of 0.3662% for jobless claims as a share of the August labor force is above the level at the end of the 2001 recession, but is very close to the levels that marked the ends of the four previous recessions (see dashed blue line in graph above).

As Scott Grannis reported last month, this type of reduction in job losses as a percent of the workforce suggest that the recession probably ended in June.

Markets In Everything: Portable Toilet for Women

A German company is marketing a mobile toilet for women that fits into their handbags and can be used whenever they are caught short. The disposable portable lavatory consists of a plastic bag fitted with absorbent polymers that turn urine into a gel. The size of a chocolate bar when folded, it has a wide opening and can be used squatting, sitting or standing. The Ladybag is recommended for one-time use and comes in a bag of three for $16.00 including packaging.

Adam Smith blog

Real Estate Recovery

Exhibit A: Portland home sales jumped in July, marking the first year-over-year increase in sales for any month since early 2006. A total of 3,375 new and resale houses and condos closed escrow last month in the Portland metro area. That was up 9.3% from June and up 5.8% from a year earlier. The number of homes sold in July was the highest for any month since August 2007, when 4,242 sold.

Exhibit B: Seattle home sales rose above last year's level for the first time in more than three years last month amid relatively robust sales below $300,000. The median sale price fell, ending its three-month streak of month-to-month gains. A total of 4,221 new and resale houses and condos closed escrow last month in the Seattle area. Last month's sales rose 2.5% from the prior month and were 8.8% higher than a year earlier. July's sales total was the highest for any month since October 2007, when 4,434 homes sold. Last month's annual gain for total sales ended 37 consecutive months of year-over-year declines.

Exhibit C: Phoenix-area home sales climbed above a year ago for the seventh consecutive month in July but dipped below June as purchases of foreclosed properties continued to wane. The region’s decreasing reliance on sales of heavily discounted, lender-owned homes helped the median sale price inch higher for the third consecutive month. A total of 10,288 new and resale houses and condos closed escrow in the Phoenix metropolitan area in July, down 4.1% from June but up 27.7% from a year ago. Total home sales were the highest for the month of July since 2006.

Exhibit D: Las Vegas home sales rose above a year ago for the 11th consecutive month in July as investors and first-time buyers continued to target lower-cost, post-foreclosure properties. A total of 5,311 new and resale houses and condos closed escrow in the Las Vegas metro area last month, down 3.8% from June but up 28.5% from a year ago. It was the highest sales total for any July since 6,530 homes sold in July 2006. July marked the 16th consecutive month in which sales of existing single-family detached houses rose on a year-over-year basis. The 3,925 single-family house resales last month were the highest for any July since 4,555 sold in July 2005. Resale condos have seen an annual sales gain for 13 straight months and in July sales were the highest for that month since 2005.

From DQNews.

Miami Home Sales Highest Since August 2007

DQNews -- Miami region July home sales rose to the highest level for any month in nearly two years as investors and first-time buyers continued to dominate the market. The median price paid for all new and resale homes combined held steady, marking the third consecutive month in which the median has not fallen from the previous month. In July, 7,942 new and resale houses and condos closed escrow in the region encompassing Miami-Dade, Palm Beach and Broward counties. That was up 2.8% from June (6,572 homes) and up 24.4% from 6,383 in July 2008, according to MDA DataQuick of San Diego (see chart above).

July marked the fifth consecutive month in which the region's sales have risen on a year-over-year basis. The July sales total was the highest for any month since 9,214 homes sold in August 2007. The number of (existing) single-family houses and condos that resold has risen on a year-over-year basis for eight straight months.

Friday, September 04, 2009

Unprecedented Gender Disparity in Labor Market

The two charts featured here further put the "mancession" into perspective, and demonstrate how men have been significantly and disproportionately adversely affected by the recession. The chart above shows that the August jobless rate for men of 10.9% is almost 5.5% above the post-WWII average of 5.43% for males, and is just 0.20% below the historical record high of 11.2% for men in 1982.

In contrast, women are doing much better compared to the historical average jobless rate for females and the post WW-II peak. The chart below shows that the 8.2% August unemployment rate for women is 2.2% above the 6% average since 1948, and a full 4.2 percentage points below the maximum jobless rate of 10.4% in 1982.

This analysis further demonstrates that the severity of the most recent recession fell disproportionately on men, who have experienced much greater job losses and significantly higher jobless rates than women. Futher, this gender disparity in favor of women is historically unprecedented.

Forget Everything You've Heard in the Media About Income Inequality and Income Mobility

From the study "Income Mobility in the United States: New Evidence from Income Tax Data," by Gerald Auten & Geoffrey Gee (both of the Office of Tax Analysis, U.S. Treasury Department), which was released previously here.

This study examines the income mobility of individuals over the last two decades using large panels of income tax returns that overcome many of the limitations of prior studies. The use of panel data means that the analysis tracks changes in the incomes of the same individual taxpayers over these time periods rather than comparing cross-sections at different points in time. Key findings include:

* There was considerable income mobility of individuals in the U.S. economy over the 1996-2005 period. More than half of taxpayers (57.5% by one measure and 55% by another measure) moved to a different income quintile over this period. About half (56% by one measure and 42% by another) of those in the bottom income quintile in 1996 moved to a higher income group by 2005.

* Median incomes of taxpayers in the sample increased by 24% after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. Furthermore, the median incomes of those initially in the lowest income groups increased more in percentage terms than the median incomes of those in the higher income groups. In contrast, the real median incomes of taxpayers who were in the highest income groups in 1996 declined by 2005.

* The composition of the very top income groups changed dramatically over time. Less than half (39% or 42% depending on the measure) of those in the top 1% in 1996 were still in the top 1% in 2005. Less than one-fourth of the individuals in the top 1/100th percent in 1996 remained in that group in 2005.

* The degree of relative income mobility among income groups over the 1996-2005 period was very similar to that over the prior decade (1987-1996). To the extent that increasing income inequality widened income gaps, this was offset by increased absolute income mobility so that relative income mobility neither increased nor decreased over the past 20 years.

* Upward and downward mobility is affected by many factors. Based on a regression analysis, we find that initial position in the income distribution and changes in marital status are among the more important factors associated with changing positions in the income distribution.

MP: In other words, almost everything we hear in the media about increasing income inequality, the disappearing middle class, the rich getting richer and the poor getting poorer, and the lack of income mobility is either flawed, deficient, incorrect, incomplete or wrong.

The data show that there is significant income mobility up and down the income quintiles over longer periods of time, e.g. 1996-2005. Many of today's poor are tomorrow's rich, and many of today's rich are tomorrow's middle class or poor. The top income quintiles are not private clubs closed to new members, but are shifting, dynamic quintiles composed of an ever-changing group of different individuals from year to year. Consider that 75% of the individuals in the richest group of Americans in 1996, the top 1/100th percent, moved down into a lower income group by 2005, making room for a completely different group of individuals in that super-rich category.

HT: TaxProf Blog

The Great Mancession Just Got Even Worse

Despite some recent signs that the recession probably ended this summer, the employment news for men sure hasn't gotten any better, and actually continued to worsen in August. The BLS employment report today shows that the Great Mancession deepened to an unprecedented level in August, as male unemployment jumped by almost a half percent to 10.9% (from 10.5% in July) compared to the .10% increase for women, from 8.1% in July to 8.2% in August.

The new male-female jobless rate gap of 2.7% in August (10.9% male vs. 8.2% female) sets a new record for the highest gender jobless rate gap in either direction, as well a record for the highest male-female gap in BLS history back to 1948 (see chart below). There were some months in the 1960s and 1970s when the female jobless rate exceeded the male jobless rate by 2.5%, and there was a 2.5% male-female jobless rate gap in May, but the 2.7% male-female gap in August sets a new historical record.

The chart above shows how the male-female jobless rate gap during the most recent recession compares to the 1990-91 and 2001 recessions, and it's not even close. Following the 2001 recession the male-female jobless rate gap reached a peak of 0.9% in July 2003, and following the 1990-91 recession the maximum gap was 1.1% in January 1992. Therefore, the 2.7% gap in August is exactly 3 times the .90% gap in 2002, almost 3 times the 1992 gap.

Another way to see how bad the current employment situation is for men is that the August jobless rate of 10.9% is just slightly below the highest-ever male rate of 11.2% in December 1982 by only 0.30%. For women, the current rate of 8.2% isn't even close yet to the highest-ever female jobless rate of 10.4% in December 1982.

Thursday, September 03, 2009

Pelosi's Double Standard on the Minimum Wage

ECON 101: The Speaker of the House wants everyone to pay the minimum wage except herself and other politicians. Watch Pelosi demonstrate her resistance to economic logic, and how she finally becomes so frustrated that she has to call the guard to prevent any more questions.

Forget Top-Down Overhaul of Health Care, How About the Government Just Gets Out of the Way?

In the midst of all the talk about a top-down overhaul and reworking of the health-care industry, supposedly to fix the failures of the private sector, two new studies show that the private sector could do a better job of reform if government would just get out of the way. Time Magazine features two Rand Corporation reports on the rise of a new phenomenon, retail health clinics, and the impact that price awareness and competition have on the market. The studies focused on my state, Minnesota, which prides itself on health-care public policy – but private-sector care wins out.

Instead of hiding behind insurance co-pays, the clinics offer pricing up front to consumers, so that they can decide for themselves what to “buy” and how much they want to pay for service. This is the same mechanism that works to keep prices down and supply consistent in other areas of health care that insurance plans do not traditionally cover. For instance, cosmetic surgery and Lasik rely entirely on consumer compensation. There are no third-party payers to get in the way of rationally allocating resources to demand. In those markets, producers and consumers find each other in the normal manner, advertising, discounts, and price competition, and the market attracts new providers when scarcity appears and prices rise.

If we want to reform care, bend the cost curve downward, and promote supply in the health-care industry, we need to learn the lesson from retail health clinics. The top-down reform proposed by Congress threatens to stop real reform and amplify everything that's currently wrong with the system.

Edward Morrisey

Thanks to Wright Truesdell

Markets In Everything: Early Boarding for $10

CS Monitor -- Fans of Southwest Airlines’s folksy and egalitarian ways are in for a culture shock: From now on, customers who pay an extra $10 will get a head start on boarding.

B-School Entrance Test Smackdown: GRE vs. GMAT

Inside Higher Ed -- One of the hot battles in standardized testing these days is over the M.B.A. market. The Graduate Management Admission Test (GMAT) has long been dominant. In 2003, the Educational Testing Service lost its contract for the GMAT exam to ACT and a Pearson division, and a few years later, ETS was talking about encouraging business schools to consider the Graduate Record Examinations (GRE) as an alternative to the GMAT and a growing number of top business schools have agreed to accept either test (Wharton, Harvard, Stanford, MIT, NYU, and University of Virginia).

Here's a comparison of the GRE and GMAT, showing that the GRE has many advantages over the GMAT: faster score reporting time (10-15 days for GRE vs. 20 days for GMAT), available in more countries (165 vs. 110), GRE is both computer-based and paper-based and GMAT is computer-based only, GRE is slightly shorter (3 hours and 15 minutes vs. 4 hours), and probably the most important difference: $150 for the GRE ($180 in most foreign countries) vs. $250 for the GMAT.

Here's another link with comparison data of the test questions.

Monster Employment Index Rises Sharply in August

The Monster Employment Index rose in August, seeing its highest monthly rate of improvement in four years, as a majority of industries, occupations, and regions registered increased online job availability following the slow summer hiring activity. The Index’s annual rate of decline continued to moderate, indicating some signs of improvement in underlying demand for labor nationwide.

August 2009 Index Highlights:

• Index rises 7 points, or 6%, the highest monthly rate of increase since August 2005
• Year-over-year decline eases to 24%, the most moderate pace of slowdown so far this year
• Retail, administrative and financial industries demonstrate solid growth
• Arts, design, entertainment, sports and media rise among occupations, whereas healthcare, community and personal care and services show softening demand
• New England leads all regions while Portland, OR sees the highest rise on the month amongst the metro markets

“The significant jump in the Monster Employment Index in August offers encouraging signs of improvement in the US economy with the demand for managers and professionals as well as sales and office workers picking up in time for the fall hiring season,” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “The Index is now at its highest since February while showing the most moderate yearly rate of contraction since December 2008.”

Globalization is Good

Click arrow to start video.

The world is an unequal and unjust place, in which some are born into wealth and some into hunger and misery. To explore why, in this controversial Channel Four documentary the young Swedish writer Johan Norberg takes the viewers on a journey to Taiwan, Vietnam, Kenya and Brussels to see the impact of globalisation, and the consequences of its absence. It makes the case that the problem in the world is not too much capitalism, globalisation and multinationals, but too little.

"Globalisation is Good" tells a tale of two countries that were equally poor 50 years ago - Taiwan and Kenya. Today Taiwan is 20 times richer than Kenya. We meet the farmers and entrepreneurs that could develop Taiwan because it introduced a market economy and integrated into global trade. And we meet the Kenyan farmers and slum dwellers that are still desperately poor, because Kenya shut its door to globalisation. The Kenyans are suffering from regulations, corruption and the lack of property rights. The unequal distribution in the world is a result of the unequal distribution of capitalism - those who have capitalism grow rich, those who don't stay poor.

MP: This is from 2003, but the message is as relevant today as it was six years ago. Via the
Adam Smith Institute.

Wednesday, September 02, 2009

BP Discovers ‘Giant’ Oil Field in Gulf of Mexico

HOUSTON -- The British oil giant, BP, announced today the discovery of what it characterized as a “giant” oil field more than six miles under the Gulf of Mexico, but it may take years to assess how much crude can actually be recovered.

“This is big,” said Chris Ruppel, a senior energy analyst at Execution, a London-based investment bank. “It says we’re seeing that improved technology is unlocking resources that were before either undiscovered or too costly to exploit because of economics.”

Measuring Economic Growth From Outer Space

Click to enlarge.
GDP growth is poorly measured for many countries and rarely measured for cities at all. Given the low quality of GDP measures for countries and the almost total absence of GDP measures for sub-national units such as cities, we propose a readily available proxy: satellite data on lights at night. The best use of lights data is to examine growth in GDP rather than GDP levels, so that cross-country differences in how lights spatially and culturally reflect consumption are differenced out.

The figure above contrasts the big increase in lights from 1992 to 2002 in the Eastern European countries of Poland, Hungary, and Romania with the distinct dimming of lights to the east in the former Soviet Republics of Moldova and the Ukraine, which endured a harsh transition process.


Cancer Drugs and The Smell of Profits

NY TIMES -- About 860 cancer drugs are being tested in clinical trials, according to the pharmaceutical industry’s main trade group. That is more than twice the number of experimental drugs for heart disease and stroke combined, nearly twice as many as for AIDS and all other infectious diseases combined, and nearly twice as many as for Alzheimer’s and all other neurological diseases combined.

Pfizer has amassed about 1,000 researchers for an all-out effort to develop drugs for cancer, a disease the company once largely ignored. Virtually every large pharmaceutical company seems to have discovered cancer, and a substantial portion of the smaller biotechnology companies are focused on it as well. Together, the companies are pouring billions of dollars into developing cancer drugs.

But for all the industry’s spending and effort, only a trickle of new cancer drugs make it to market. Last year there were two, and this year there has been only one.

MP: Why all of the sudden interest and investments of billions of dollars in cancer drugs by private companies? Federal funding? Funding from charitable nonprofit foundations? Subsidies, grants or tax breaks from the government like for the ethanol industry? Corporate social responsibility? Love of mankind? Nope. It's the good old "smell of profits":

Two industry trends are driving the push. Recent scientific discoveries have suggested new targets for cancer drug researchers to attack. And as drug companies see profits beginning to wane from mainstays like Lipitor, the high prices that cancer drugs can command have become an irresistible lure. Cancer drugs have been the biggest category of drugs in terms of sales worldwide since 2006 and in the United States since 2008.

Thanks to Ben Cunningham and Ariel Goldring (
Free Market Mojo blog) who both pointed me to the article.

IMF: World Economic Growth To Resume in 2010

WSJ -- The IMF expects the global economy to expand at slightly less than 3% in 2010, said Jörg Decressin, a senior IMF economist, higher than the IMF's July estimate of 2.5%.

The chart above plots IMF data for real World GDP growth rates from 1980 to 2008 (actual) and 2009 to 2014 (projected). The IMF currently estimating that real world GDP will contract by 1.4% in 2009, with positive economic growth resuming in 2010 with a 2.5% expansion in world real GDP (data here).

Despite a global economic slowdown in 2009, the future looks pretty bright for world economic growth according to IMF forecasts of a resumption of 4-5% positive growth in the world economy starting in 2011 and continuing through 2014.

The chart above also shows the steep, upward trend line for world real GDP since 1980. Due to increased productivity, technological improvements, greater world trade, and the spread of free market capitalism around the world among other positive long-term trends, the trend in world economic output has increased by a full percentage point since 1980 (see trend line above), from less than 3% in 1980 to almost 4% today.

Bottom Line: One year of a global slowdown doesn't seem so bad during a 35-year period of unprecedented global expansion, characterized by a positive upward trend in the world economy that has boosted the annual growth in world output by a full 1% since 1980.

Grand Rapids, MI: The Days of Low-Ball Offers for Real Estate Are Over; Bidding Wars Are Back

Grand Rapids, MI -- The 22% increase in home sales last month was not the only good news being reported by the Grand Rapids Association of Realtors. The average home sale price, which has been tumbling down for 16 months, finally went up. The increase of 0.1% from August 2008 was slight, but it is a far cry from the double-digit drops recorded during the past 12 months

Real estate agents who have been engaging in bidding wars are not surprised. "All my offers have been multiple offers," said Bill Pearl, an agent with Bellabay Realty. "I've gotten outbid with three other buyers."

The struggle now is getting his buyers to understand the market is changing and low-ball offers won't be accepted, he said. "I'm having a hard time convincing them that those days are over," he said.

Intrade Odds for Q3 Positive GDP Growth: 92.5%

Update: In early March the odds for positive U.S. real GDP growth in the third quarter were only 25%, based on contracts trading at Intrade.com, the "Prediction Market." As the economy has improved and as economic indicators have grown increasingly positive over the last six months, the odds for positive third quarter growth have increased to 92.5% (see graph above, click to enlarge).

Tuesday, September 01, 2009

10 Worst Teaching Mistakes

Like most faculty members, we began our academic careers with zero prior instruction on college teaching and quickly made almost every possible blunder. We’ve also been peer reviewers and mentors to colleagues, and that experience on top of our own early stumbling has given us a good sense of the most common mistakes college teachers make. In this column and one to follow we present our top ten list, in roughly increasing order of badness. Doing some of the things on the list may occasionally be justified, so we’re not telling you to avoid all of them at all costs. We are suggesting that you avoid making a habit of any of them.

Top Ten Worst Teaching Mistakes.

The Government Can

Thanks to Pete Friedlander.

51.5% vs. 42.8%: The Gap is Narrowing

Source: Real Clear Politics (9/1/2009)

It's Still Not Great, But Even Michigan's Economy Is Starting To Show Some Signs of Improvement

Comerica Bank's Michigan EconomicActivity Index improved two points in July, to a level of 75. Compared to its cyclical low, the Index is now up five points, or 7%. Year-to-date, the Index averages 73, down 14 points from the 2008 average.

"Our Index got a big boost from auto production in July," said Dana Johnson, Chief Economist at Comerica Bank. "In all likelihood, gains in auto productionand auto sales will continue to push our Index higher in the next couple of months reflecting, in part, the highly successful cash-for-clunkers program. More generally, Michigan businesses should see stronger demands for their products as the national recovery takes hold."

The Michigan Economic Activity Index equally weights nine, seasonally-adjusted coincident indicators of real economic activity. These indicators reflectactivity in the construction, manufacturing and service sectors as well as job growth and consumer outlays.

Originally posted at Carpe Diem.

It's Over (The Recession)

(Tempe, Arizona) -- Economic activity in the manufacturing sector expanded in August, following 18 consecutive months of contraction, and the overall economy grew for the fourth consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business. The report was issued today by Norbert J. Ore, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

"The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July. While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth. The August index of 52.9 percent is the highest since June 2007. The 4 percentage point increase was driven by significant strength in the New Orders Index, which is up 9.6 points to 64.9 percent, the highest since December 2004. The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand."

MP: The 17.1 point increase in the ISM Manufacturing Index from February t0 August is the strongest six-month gain in more than 25 years, since July 1983. The August gain in the ISM Index to a level above 50 provides another piece of evidence that the recession has ended.

Originally posted at Carpe Diem.

Retail Clinics Save 32% vs. MDs & Urgent Care (81% vs. Emergency Depts.), With Higher Quality Care

US News Health Day -- Walk-in retail clinics staffed by nurse practitioners provide high-quality care for routine illnesses, a new study has found.

Writing in the Sept. 1 issue of the Annals of Internal Medicine, study author Dr. Ateev Mehrotra said that retail clinics -- which are typically staffed by nurse practitioners and found in drug stores and other retail chain stores such as Target and Wal-Mart -- provide a good standard of care for sore throat, ear infections and urinary tract infections. Mehrotra is an assistant professor at the University of Pittsburgh School of Medicine and a policy analyst at Rand Health.

"I'm interested in how we deliver new forms of health care," said Mehrotra, who compared data from retail clinics, doctors' offices, urgent care centers and hospital emergency departments. "There's been a lot of discussion about the quality and effectiveness of these clinics; I wanted to find out more. From the patients' perspective, their appeal is twofold. They're convenient and they provide significant cost savings."

Retail clinics have become increasingly widespread in recent years. One such operation is CVS's MinuteClinic, the focus of Mehrotra's research. MinuteClinic staffers treat minor illnesses and injuries, and provide vaccinations and various health and wellness services. Customers can walk in without an appointment, and the clinics are open seven days a week. Most visits take no more than 15 minutes, and costs vary from $30 to $110, according to the MinuteClinic Web site.

According to Mehrotra, one-third of Americans live within a 10-minute drive of a retail clinic, and more than 6,000 of these clinics are expected to open across the United States within five years. Surveys of patients who received care at retails clinics have been positive, he added.

From the results section of the full article:

Overall costs of care for episodes initiated at retail clinics were substantially lower than those of matched episodes initiated at physician offices, urgent care centers, and emergency departments ($110 vs. $166, $156, and $570, respectively. Aggregate quality scores were similar in retail clinics, physician offices, and urgent care centers (63.6%, 61.0%, and 62.6%).

MP: In other words, for some routine health care, retail clinic costs are 81% below emergency rooms, and about 32% below physician offices and urgent care centers, with slightly higher quality scores than physician offices and urgent care centers.

Could Obama and all members of Congress receive copies of this study?

Update from Time Magazine, "
Drive-Thru Medical: Retail Health Clinics' Good Marks":

There are roughly 1,000 clinics now operating in the U.S., offering acute care for such routine problems as throat infections and earaches as well as providing diabetes and cholesterol screenings, routine checkups and vaccinations. The fees are low — and conspicuously posted; nearly all of the clinics treat both the insured and uninsured, and there is little or no waiting time. With 50 million Americans lacking health insurance and family budgets collapsing under the weight of medical costs, what's not to like about the clinics?

Markets in Everything: Eye Candy Caddies

Eye Candy Caddies website, where they "make golf gorgeous." Packages start at about $275.

Not everybody likes the idea, the BBC reports that "An owner of a string of golf courses in south-east England has banned the all-female caddy service."

Originally posted at Carpe Diem.

Minimum Wage, Maximum Folly, Minimum Jobs

Milton Friedman: "The minimum wage is a law saying that employers must discriminate against workers with low skills."

New John Stossel video on the minimum wage here.