Tuesday, September 22, 2009

Emerging Markets Index Reaches New Yearly High

The MSCI Emerging Markets Index closed today at 922.31, reaching the highest level since September 2, 2008. Many of the emerging markets like Argentina, Brazil, India, Hong Kong and Taiwan are trading at the highest levels in more than a year.

Did You Know?

Watch the full video below (may take some time to load).



Link.

HT: Richard.

Volatility Index Falls to 1-Yr. Low, Bloomberg Financial Conditions Index Reaches New 2-Yr. High

The CBOE Volatility Index (^VIX) closed at 23.08 today, the lowest level in more than a year, since September 5, 2009 (see chart above).

The Bloomberg U.S. Financial Conditions Index reached a new record high for 2009, and closed at the highest level (-.50) since August 2007, more than two years ago (see chart below).


Real Lesson from Great Depression: Tax Damage


Arthur Laffer in today's Wall Street Journal ("Taxes, Depression, and Our Current Troubles") writes:

In 1930-31, during the Hoover administration and in the midst of an economic collapse, there was a very slight increase in tax rates on personal income at both the lowest and highest brackets. The corporate tax rate was also slightly increased to 12% from 11%. But beginning in 1932 the lowest personal income tax rate was raised to 4% from less than one-half of 1% while the highest rate was raised to 63% from 25% (see charts above). (That's not a misprint!) The corporate rate was raised to 13.75% from 12%. All sorts of Federal excise taxes too numerous to list were raised as well. The highest inheritance tax rate was also raised in 1932 to 45% from 20% and the gift tax was reinstituted with the highest rate set at 33.5%.

But the tax hikes didn't stop there. In 1934, during the Roosevelt administration, the highest estate tax rate was raised to 60% from 45% and raised again to 70% in 1935. The highest gift tax rate was raised to 45% in 1934 from 33.5% in 1933 and raised again to 52.5% in 1935. The highest corporate tax rate was raised to 15% in 1936 with a surtax on undistributed profits up to 27%. In 1936 the highest personal income tax rate was raised yet again to 79% from 63%—a stifling 216% increase in four years. Finally, in 1937 a 1% employer and a 1% employee tax was placed on all wages up to $3,000.

Because of the number of states and their diversity I'm going to aggregate all state and local taxes and express them as a percentage of GDP. This measure of state tax policy truly understates the state and local tax contribution to the tragedy we call the Great Depression, but I'm sure the reader will get the picture. In 1929, state and local taxes were 7.2% of GDP and then rose to 8.5%, 9.7% and 12.3% for the years 1930, '31 and '32 respectively.

The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I'd give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s. Net legislated state-tax increases as a percentage of previous year tax receipts are at 3.1%, their highest level since 1991; the Bush tax cuts are set to expire in 2011; and additional taxes to pay for health-care and the proposed cap-and-trade scheme are on the horizon.

Richmond Fed Index: It's Over

Manufacturing activity in the central Atlantic region expanded for the fifth straight month in September, according to the Richmond Fed’s latest survey. All broad indicators—shipments, new orders and employment—landed in positive territory, with manufacturers noting their first increase in worker numbers since December 2007. Other indicators were mixed, however. Capacity utilization grew more slowly, while backlogs and vendor delivery times shrank. In addition, manufacturers reported slower growth in inventories.

Looking ahead, assessments for business prospects for the next six months were also generally more positive. Contacts at more firms anticipated that their new orders, backlogs, capacity utilization and capital expenditures would grow more quickly in the months ahead than they expected in August.


MP: The Richmond Fed Index been in positive territory for five consecutive months for the first time in three years (since April to September 2006).

History of Leading Indicators: The Recession's Over

Here's a long-term view of the monthly Index of Leading Economic Indicators back to 1972, covering the last six recessions. As the chart shows, each of the last five recessions has ended when the Leading Indicators have increased five months in a row, and history now suggests that the Great Recession is either ending, or is already over.

Quote of the Day: Thomas Sowell on Underdogs

One of the problems with trying to help underdogs, especially with government programs, is that they and everyone else start to think of them as underdogs, focusing on their problems rather than their opportunities. Thinking of themselves as underdogs can also dissipate their energies in resentments of others, rather than spending that energy making the most of their own possibilities.

~Thomas Sowell

The Distortionary Effects of Taxes and Regulations

Several times a month, Transit Connect vans from a Ford Motor Co. factory in Turkey roll off a ship here shiny and new, rear side windows gleaming, back seats firmly bolted to the floor. Their first stop in America is a low-slung, brick warehouse in Baltimore where those same windows, never squeegeed at a gas station, and seats, never touched by human backsides, are promptly ripped out. The fabric is shredded, the steel parts are broken down, and everything is sent off along with the glass to be recycled.

Workers cut out the rubber window seal with a special knife and popped out the glass using suction cups. The space is plugged with a metal panel that cures for 15 minutes before being tested outside for waterproofing. Another worker unhooked a rear seat belt as easily as he would pop the top off a soda bottle. Using a drill, he quickly unscrewed six bolts to free the seats. Workers at the other end dump the seats into cardboard boxes, which are hoisted onto an open tractor-trailer and shipped to Ohio. Ford says the shredded seat fabric and foam become landfill cover, while the steel is processed for other uses.

Reason? Find out here in the WSJ article "
To Outfox the Chicken Tax, Ford Strips Its Own Vans," although you probably guess that it has nothing to do with economics and everything to do with politics. Thanks to Michael Kelly.

MP: This story perfectly illustrates why taxes and regulations are almost always distortionary: because people and companies can change their behavior to avoid or circumvent them. Other examples include free food on airlines to circumvent ticket price-fixing by the government, employer-sponsored health insurance to circumvent price/wage controls during WWII, free "stuff" (toasters, etc.) at banks in the 1960s and 1970s to avoid interest rate controls, etc.

Update: As Greg Mankiw points out, this story also illustrates the "deadweight loss" (loss of economic efficiency) of a tariff.

Lists

1. 10 Uncommonly clever economic indicators, from Forbes, e.g. the size of restaurant garbage piles.

2. The 15 Strangest Buildings of the World, including the one pictured above. Thanks to Joyce Howe.

Monday, September 21, 2009

LA Shipping Volume Increases 5 of the Last 6 Months for the First TIme Since Mid-2007

According to container statistics just released by the Port of Los Angeles, August shipping volume reached a 9-month high of 612,581 TEUs (20 foot equivalent units), the highest level since November of 2008 (see graph above). Additionally, the shipping volume from Los Angeles has increased in 5 out of the last six months, for the first time since the six-month period from April to September in 2007 (see shaded areas above).

Climate Reversal: Global Warming is Cooling Off

Calgary Herald - When a leading proponent for one point of view suddenly starts batting for the other side, it's usually newsworthy. So why was a speech last week by Professor Mojib Latif of Germany's Leibniz Institute not given more prominence?

Latif is one of the leading climate modellers in the world. He is the recipient of several international climate-study prizes and a lead author for the United Nations Intergovernmental Panel on Climate Change (IPCC). He has contributed significantly to the IPCC's last two five-year reports that have stated unequivocally that man-made greenhouse emissions are causing the planet to warm dangerously.

Yet last week in Geneva, at the UN's World Climate Conference--an annual gathering of the so-called "scientific consensus" on man-made climate change --Latif conceded the Earth has not warmed for nearly a decade and that we are likely entering "one or even two decades during which temperatures cool."

The global warming theory has been based all along on the idea that the Atlantic and Pacific Oceans would absorb much of the greenhouse warming caused by a rise in man-made carbon dioxide, then they would let off that heat and warm the atmosphere and the land. But as Latif pointed out, the Atlantic, and particularly the North Atlantic, has been cooling instead. And it looks set to continue a cooling phase for 10 to 20 more years.

But it is increasingly clear that global warming is on hiatus for the time being. And that is not what the UN, the alarmist scientists or environmentalists predicted. For the past dozen years, since the Kyoto accords were signed in 1997, it has been beaten into our heads with the force and repetition of the rowing drum on a slave galley that the Earth is warming and will continue to warm rapidly through this century until we reach deadly temperatures around 2100.

Power to the People? Not In Chicago, It's Power to the Unions; Chicago Alderman vs. The People


Wal-Mart's plans to build a second store in Chicago remain bottled up in the Chicago City Council. The store that Wal-Mart would like to build on the South Side at 83rd Street and Stewart Avenue, is going nowhere because the aldermen live in fear of organized labor and organized labor despises Wal-Mart.

We know organized labor wants to keep Wal-Mart from expanding in Chicago. But what do the aldermen's constituents want? The answer is clear: They want the opportunity to work or shop at Wal-Mart. A new Tribune/WGN poll found that 68% of city residents would like to see a new Wal-Mart store in Chicago, and 72% say Wal-Mart would be good for the community. The support is even higher with African-Americans, who stand to gain the most economic benefit from the proposed South Side store. The poll found 72% of African-Americans want Wal-Mart in the city and 81% say it would be good for the community.

The Tribune poll, conducted in late August, mirrors polls taken this summer for Wal-Mart and for the Chicagoland Chamber of Commerce that showed strong public support for the retailer. But the aldermen aren't listening to their constituents. The unions provide money and troops at election time. Apparently the aldermen have decided that keeping the labor bosses happy is more critical than following the wishes of their citizens.

Two hundred construction jobs -- union jobs, by the way -- and up to 500 retail jobs. But City Council leaders won't even allow a vote on an ordinance that would clear the way for Wal-Mart to build and open on the South Side. They're in step with the union bosses, but they're out of step with the people.

~Chicago Tribune editorial

MP: When's the next election? November maybe? If so, it might be a good time for Chicago voters to express their opinion about their aldermen and alderwomen.

Amazon: The Digital Wal-Mart of the Web

Amazon vs. Wal-Mart, YTD Returns
NY TIMES -- Fifteen years after Jeffrey P. Bezos founded the company as an online bookstore, Amazon is set to cross a significant threshold. Sometime later this year, if current trends continue, worldwide sales of media products — the books, movies and music that Amazon started with — will be surpassed for the first time by sales of other merchandise on the site. (That transition already occurred this year in its North American business.)

In other words, in an increasingly digital age, Amazon is quickly becoming the world’s general store. Alongside the books and CDs and DVDs are diapers, Legos and power drills, not to mention replacement car clutches and more arcane items like the Jackalope Buck taxidermy mount ($69.97).

“Amazon has gone from ‘that bookstore’ in people’s mind to a general online retailer, and that is a great place to be,” said Scot Wingo, chief executive of ChannelAdvisor, an eBay-backed company that helps stores like Wal-Mart and J.C. Penney sell online. Mr. Wingo envisions e-commerce growing to 15% of overall retail in the next decade from around 7%.

MP: Year-to-date (YTD), Amazon stock is up by about 80% vs. Wal-Mart, which has declined by about 10%.

5th Straight Monthly Increase in Leading Indicators

Sept. 21 (Bloomberg) -- The index of U.S. leading economic indicators in August rose for the fifth straight time, capping the longest stretch of gains since 2004 and signaling a recovery is under way (see chart above). The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.6 percent, in line with forecasts, after a revised 0.9% rise in July, according to data that the New York-based group released today.

The gains in stock prices, consumer confidence and homebuilding that are buoying the leading index bolster Federal Reserve Chairman Ben S. Bernanke’s view that the worst recession since the Great Depression has probably ended.

How America's Trade Policies Cost 585,000 Jobs

From the summary of a new study from the Chamber of Commerce, "Trade Action or Inaction: The Cost for American Workers and Companies:"

In recent months, the United States has taken a number of trade actions – and refused to take others – that have a negative impact on U.S. companies, their workers, and the economy. We examine three of these:

1. The failure to implement the U.S.-Colombia and the U.S.-Korea free trade agreements,

2. The “Buy American” provisions in the American Recovery and Reinvestment Act of 2009 (“Recovery Act”), and

3. The failure to implement the trucking provisions of the North American Free Trade Agreement and Mexico’s resulting retaliation against U.S. exports.

At the request of the United States Chamber of Commerce, we estimate these three trade actions/inactions would have a negative effect on U.S. companies and their workers, and that employment losses could total as much as 585,800 jobs (see chart above).

The Global Reach of America's Tort Lawyers

Zurich University Hospital has stopped treating North American "medical tourists," fearing million-dollar claims from litigious patients if operations go wrong. Hospitals in canton Valais have also adopted measures to protect themselves against visitors from the United States, Canada and Britain.

"The directive applies only to patients from the US and Canada who come to Zurich for elective, non-essential health treatments," said Zurich University Hospital spokeswoman Petra Seeburger.

"It is not because treatment is not financed; it is because of different legal systems." In a statement the hospital said it was "not prepared to risk astronomical damages or a massive increase in premiums." Seeburger emphasised that the restrictions only affected people not domiciled in Switzerland.

Sunday, September 20, 2009

Markets In Everything: 99% Medical Savings

The chart above (click to enlarge) shows surgery costs in the U.S. compared to other countries that promote medical tourism, data are from the Medical Tourism Association. Note that savings are as high as 99%, e.g. for a heart value replacement in India for $1,200 versus $170,000.

Employer-Sponsored Health Insurance Insulates Employees From Full Cost, Promotes Overspending

Ezra Klein in today's Washington Post article "You Have No Idea What Health Costs" writes that "The average health-care coverage for the average family now costs $13,375, according to the the Kaiser Family Foundation's 2009 Employer Benefits Survey."

Actually that's not exactly accurate, since
Kaiser actually reported that "In 2009, the average annual premiums for employer-sponsored health insurance are $4,824 for single coverage and $13,375 for family coverage. Premiums for family coverage are 5% higher than last year ($12,680), but there was no statistically significant growth in the single premiums."

According to
America's Health Insurance Plans (AHIP), the Average Annual Health Insurance Premiums in 2007 were $2,613 for "individual market single coverage," and $5,799 for individual family coverage," or about half of the employer-sponsored health insurance costs quoted by Kaiser. The huge difference in premiums is likely because the AHIP data includes insurance for those not covered by employer-sponsored health insurance, including those who are self-employed or retired.

This difference in health care insurance premiums between Kaiser and AHIP highlights some of the major problems associated with employer-sponsored health insurance: a) it's a tax deductible expense for the business, b) it's non-taxable compensation for the employee, and c) employees are insulated from the full cost of medical insurance because they pay only 26% of the full cost, all of which serve to result in overspending on more expensive health care coverage, ceteris paribus.

As
Jeffrey Flier, Dean of the Harvard Medical School recently wrote:

There is our inefficient and inequitable system of tax-advantaged, employer-based health insurance. While the federal tax code promotes overspending by making the majority unaware of the true cost of their insurance and care, the code is grossly unfair to the self-employed, small businesses, workers who stick with a bad job because they need the coverage, and workers who lose their jobs after getting sick.

"Titillating Bleak Media Reports on the State of the Economic Collapse"

If America's economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years. Even the economists do not have a name for the present condition, though one has described it as "suspended animation" and "never-never land."

The outward sign of the change is an economy that stubbornly refuses to recover from the recession. The current slump already ranks as the longest period of sustained weakness since the Great Depression. That was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults represent once-in-a-lifetime dislocations that will take years to work out.

Among them: the job drought, the debt hangover, the banking crisis, the real estate depression, the health-care cost explosion and the runaway federal deficit. "This is a sick economy that won't respond to traditional remedies," said Bank of New York Mellon economist Norman Robertson. "There's going to be a lot of trauma before it's over."

~Time Magazine cover story "
The Long Haul" (click to see the date of the article, excerpts above were modified slightly).

(Originally posted on
June 14, 2009.)

Here's a previous CD post about "pessimism porn" and the "titillating bleak media reports on the state of the economic collapse."

Drug Decriminalization in Portugal is Working

The evidence from Portugal since 2001 is that its decriminalization of drug use and possession has produced many significant benefits and almost no harmful side-effects. Ten facts about Portugal's experience:

1. There is little evidence of drug tourism: 95% of those cited for drug misdemeanours since 2001 have been Portuguese.

2. The level of drug trafficking, measured by numbers convicted, has declined.

3. The incidence of other drug-related sexually transmitted diseases has decreased dramatically.

4. Deaths from drug overdoses have also decreased dramatically.

5. The number of addicts registered in drug-substitution programs has risen from 6,000 in 1999 to over 24,000 in 2008, reflecting a big rise in treatment (but not in drug use).

6. Between 2001 and 2007 the number of Portuguese who say they have taken heroin at least once in their lives increased from just 1% to 1.1%.

7. Portugal has one of Europe’s lowest lifetime usage rates for cannabis.

8. Heroin and other drug abuse has decreased among vulnerable younger age-groups.

9. The share of heroin users who inject the drug has also fallen, from 45% before decriminalisation to 17%.

10. Drug addicts now account for only 20% of Portugal’s HIV cases, down from 56% before.

Bottom Line: In contrast to the dire consequences that critics predicted, a Cato Institute study concluded that "none of the nightmare scenarios initially painted, from rampant increases in drug usage among the young to the transformation of Lisbon into a haven for drug tourists has occurred.”

~The Economist

Cartoon, Graph of the Day

From Henry Payne, Detroit News

Exhibit A:


Saturday, September 19, 2009

Markets In Everything: Farm-Fresh Fish

By the end of this year, the world is projected to reach an unheralded but historic milestone: Half of the fish and shellfish we consume will be raised by humans, rather than caught in the wild.

~Washington Post, Page 1 Sunday edition

The Deeper the Slump, The Zippier the Recovery

The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant.

~English economist Arthur C. Pigou, quoted in today's WSJ by James Grant in his article "
From Bear to Bull," where he argues that the latest gloomy forecasts ignore an important lesson of history: The deeper the slump, the zippier the recovery.

TIPS Derived Expected Inflation: Only 1.75%


The top chart shows the weekly, bond market-based 10-year TIPS-derived expected inflation back to 2003, calculated as the difference between 10-year regular, nominal Treasury yields and 10-year Treasury inflation-indexed yields (measure of the real interest rate), both on a constant maturity basis (St. Louis Fed data here for 10-year TIPS and here for regular 10-year Treasuries); see the bottom chart for those yields graphed separately.

After an unusual period in late 2008 resulting in a narrowing spread when the TIPS 10-year yields were unusually high and approaching 3%, and regular Treasury yields were unusually low and approaching 2%, the Treasury market seems to have stabilized, and the bond market's 10-year expectation of inflation is now around 1.75%, lower than the inflationary expectations from 2003-2007 of around 2.5%.

Many analysts and economists seem to be worried about future inflation, resulting from the easy Fed monetary policy in 2008. Why doesn't the bond mark share those concerns? According to the inflationary expectations derived from the bond market, future inflation is less of concern now in 2009 than it was in 2007 before the increase in liquidity. What gives?

MSCI Emerging Markets Index Hits 12-Month High

The MSCI Emerging Markets Index went above 900 on Wednesday for the first time in more than a year, and reached a new 12-month high on Thursday of 919.89, before falling slightly on Friday to 918.9. From the March low of 475.08, the Emerging Markets Index has almost doubled, rising by 93.4% in the last six months.

Friday, September 18, 2009

Philadelphia Fed Survey: All Broad Indicators Positive for the First Time Since November 2007

Philadelphia Fed -- The region’s manufacturing sector is showing some signs of stabilizing, according to firms polled for this month’s Business Outlook Survey. Indexes for general activity, new orders, and shipments all registered slightly positive readings this month. For the first time since November 2007, all of the survey’s broad indicators were positive.

Although firms reported continued declines in employment and work hours this month, losses were not as widespread. Most of the survey’s broad indicators of future activity continued to suggest that the region’s manufacturing executives expect business activity to increase over the next six months.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from ‐7.5 in July to 4.2 this month. This is the highest reading of the index since November 2007 (see chart above). The percentage of firms reporting increases in activity (27%) was slightly higher than the percentage reporting decreases (23%). Other broad indicators also suggested improvement. The current new orders index edged six points higher, from ‐2.2 to 4.2, also its highest reading since November 2007. The current shipments index increased 10 points, to a slightly positive reading.

Thursday, September 17, 2009

Men Underrepresented: 7 of 10 Grad School Fields

The Council of Graduate Schools just released data on graduate schools for 2008, and total graduate student enrollment by gender is displayed in the chart above (based on Table 2.13). Women represented 58.9% of all graduate students in 2008, meaning that there were 143 women enrolled in graduate school for every 100 men. Further, women were overrepresented in 7 out the 10 fields of graduate study and underrepresented in three fields (business, engineering and physical sciences).

Q: Why does the underrepresentation of women in engineering, math and science get so much more attention than the underrepresentation of men in arts and humanities, biology, education, health sciences, public administration, and social sciences? After all, male graduate students are about as underrepresented in fields like health sciences (20.1% male, and 398 women per 100 men), education (24.8% male) and public administration (25.5% male) as women are underrepresented in engineering (22% female).

Heading Out East to American Enterprise Institute

I'm heading out today on a road trip for The American Enterprise Institute (AEI) in Washington, D.C., where I'll be working for the rest of the fall semester during my sabbatical. Blogging might be light for the next few days, but I'll continue blogging on Carpe Diem and will also be writing and blogging for AEI for the next three months, more specific details to follow! For now, I invite all CD readers to become familiar with AEI if you are not already, it's a great organization:

American Enterprise Institute
main website.

American Enterprise Institutes's
Enterprise Blog.

American Enterprise Institute's journal
The American.

Bank Stocks Hit 9-Month High, +162% Since March

The KBW Bank Index reached a new 9-month high today, and is currently trading at 48.69, the highest level since December 8, 2008.

Chinese Girl Wants To Grow Up and Be a What???

Be sure to watch until the end and see what the last young girl wants to be when she grows up.


Top 5 Medical Tourism Destinations

Guess who made the list? United States is #5.

Jobless Claims Have Fallen 17 of Last 23 Weeks

WASHINGTONThe number of newly laid-off workers seeking unemployment benefits fell last week to the lowest level since early July, evidence that job cuts are slowing. The Labor Department said Thursday that initial claims for unemployment insurance dropped to a seasonally adjusted 545,000 from an upwardly revised 557,000 the previous week.

The decline is the third in the past four weeks. The four-week average, which smooths out fluctuations, dropped 8,750 to 563,000 (see chart above).

MP: Since the early April peak, the weekly jobless claims (4-week moving average) have fallen in 17 out of the last 23 weeks.

U.S. Income Taxes: Headed in the Wrong Direction

The chart above is based on global personal income tax data (highest marginal rate) just released in KPMG' study "Individual Income Tax and Social Security Rate Survey 2009." The trend globally over the last six years is towards reductions in the highest personal income tax rates, which have fallen from 31.2% in 2003 (average of 86 countries) to 28.9% in 2009. The highest marginal tax rate in the U.S. has been 35% since 2003.

As Chris Edwards at the Cato Institute points out:

The Obama administration plans to let the U.S. rate jump to 39.6% in 2011, which would be almost 11 points higher than the international average. Worse still, the United States has state income taxes with rates up to 10% that are piled on top of the federal tax. Some of the nations in the survey (e.g. Canada) also have subnational income taxes, but many, or most, of them do not.

HT: Cato Institute

World Stock Market Rally Continues, Bloomberg US Financial Conditions Index Reaches Two-Year High

The MSCI World Stock Market Index reached a new 11-month high yesterday, rising to the highest level since early last October. From the March bottom, the index is up by 65% (see chart above).

The Bloomberg U.S. Financial Conditions Index reached a two-year high yesterday, closing at the highest level since August 8, 2007 (see chart below).

Wednesday, September 16, 2009

Chart of the Day: Median CPI vs. BLS CPI

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.8% annualized rate) in August. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Over the last 12 months, the median CPI rose 1.8%, the 16% trimmed-mean CPI rose 1.1%, the CPI decreased 1.5%, and the CPI less food and energy rose 1.4%.

Kudlow 101: Perfect Sunshine of Econ. Recovery




CNBC's Larry Kudlow looks at indicators of an economic recovery, including the TED spread as featured yesterday on Carpe Diem.

First Two Month Increase in Industrial Production Since 2007, Highest Two-Month Gain Since 2005

The Federal Reserve reported today that industrial production increased by .80% in August, following a 1% increase in July, the first back-to-back monthly increase in U.S. manufacturing production since the end of 2007 (see shaded area above), and the largest percentage increase for a two-month period since November-December 2005.

According to an
Associated Press story:

Industrial companies boosted production more than expected in August, making more cars, clothing and other goods in the early stages of a broad economic recovery. Factories boosted production of cars, machinery, food products, clothing and other goods in a fairly broad-based pickup in August.

Markets in Everything: A New 19 Year Light Bulb

Panasonic is touting a new LED bulb that will last a whopping 19 years. Can you imagine putting new bulbs in your infant’s room and not having to change them until they’re already in college? What’s even better is that this 60-watt equivalent bulb will only cost around $3 per year (as opposed to around $26 for a standard incandescent bulb) to operate. Even at $40 a pop, these things will definitely pay for themselves in the long-run. Unfortunately they’ve only been announced for Japan, hopefully we’ll be getting them over here before long.

Tuesday, September 15, 2009

Dr. Milton Friedman Argues for No Licensure of MDs to a Group of MDs at the Mayo Clinic in 1978



Speaking to a group of medical professionals at the Mayo Clinic in 1978, economist Milton Friedman argues for "no licensure of physicians," because that would help to "reduce and elmininate the monopoloy power of the Amercian Medical Association. That monopoly power is derived almost entirely from the fact that the practice of medicine is an activity which can be engaged in by only those who have licenses from government. And the control over that licensure procedure is what has enabled the AMA to exercise its monopoly power for these many decades."

In addition to being an excellent economist, Milton Friedman was a brave and fearless man.


Milton Friedman Speech At the Mayo Clinic in 1978

Government's Health Care Role



Rising Cost of Health Care

The genius of Milton Friedman is that his economic insights are as powerful as they are timeless. Despite the fact that these comments were made more than thirty years ago in 1978 at the Mayo Clinic in Minnesota, they ring as true today as they did then.

Walmart’s Ongoing Commitment To Drive Unnecessary Costs Out of the Health Care System

BENTONVILLE, AK, Sept. 15, 2009 While the debate over health care reform continues, Walmart remains committed to doing its part to reduce the cost of health care for everyone. Walmart announced today it is expanding its prescription mail delivery program nationwide, making it easier to receive prescriptions regardless of whether or not customers live close to a pharmacy. From Cromberg, California, to Rockleigh, New Jersey, Americans can order, with a valid prescription, a 90-day supply of eligible prescriptions for only $10 and receive them via free mail delivery, simply by visiting walmart.com/pharmacy or by by calling 1-800-2REFILL. Further, Walmart’s free mail delivery program has no gimmicks, no memberships and no enrollment fees.

Walmart’s $4 generic drug program has helped so many patients afford their medication needs, but unfortunately we’ve found there are still too many patients unable to take advantage of our low prices because they are home-bound or live too far from a Walmart or Sam's Club pharmacy,” said Dr. John Agwunobi, president of Walmart’s health and wellness division.

“With this program, we’re able to provide consumers in every rural town or big city across America with more affordable prescription medicines through a convenient, free mail delivery system. Our $10 mail delivery prescription program is a true reflection of Walmart’s commitment to drive unnecessary costs out of the health care system so Americans can live healthier, better lives,” said Dr. Agwunobi.


Bottom Line: Wal-Mart deserves the 2009 Nobel Peace Prize for all its ongoing anti-poverty measures, including Everyday Low Prices and $10 prescription drugs.

The Empirical Evidence Against Big Government


The video above is Part II of a series on government spending, and this segment focuses on real-world evidence about the negative impact of government spending on economic performance, featuring Dan Mitchell of The Cato Institute. Part I is available here.


TED Spread Has Fallen 450 Bps in Last Year, Now At The Lowest Level in 5 Years, Since June 8, 2004

The TED spread is the difference between the risk-free three-month T-bill interest rate and three-month LIBOR (includes a credit risk premium), and is considered to be a good indicator of the overall amount of perceived credit risk in the economy. A year ago on September 15, 2009 the TED Spread jumped by 65.5 basis points (from 134.855 bps to 200.3588 bps) as Lehman Brothers filed for bankruptcy and fears about credit risk soared. Two days later on September 17 as fears about credit and financial risk intensified, the TED Spread jumped by another 82.6 basis points (bps) to more than 300 bps, setting a new record (back to at least 1990) for the largest one-day increase in the TED spread (that record still stands), and setting a new record for the highest TED Spread to date.

At the height of the financial crisis about a month later, the TED Spread hit 456.485 basis points on October 13, 2008, an all-time record. As the credit and financial markets have gradually healed, the TED Spread has fallen by more than 450 bps to the current level of about 15.75 bps, the lowest level in more than 5 years, since June 8, 2004 (see chart above). One more sign that the recession has ended.

Thomas Sowell's "Single Payer Plan": HIMSELF!

What did we do, back during the years when most Americans had no medical insurance? I did what most people did. I depended on a "single payer"-- myself. When I didn't have the money, I paid off my medical bills in installments. The birth of my first child was not covered by medical insurance. I paid off the bill, month by month, until the time finally came when I could tell my wife that the baby was now ours, free and clear.

In a country where everything imaginable is bought and paid for on credit, why is it suddenly a national crisis if some people cannot pay cash up front for medical treatment? That is not the best way to do things for all people and all medical treatments, which is why most Americans today choose to have medical insurance. But millions of other people choose not to-- often young and healthy people, sometimes deadbeats who use emergency rooms and don't pay at all.

Is this ideal? No. But if every deviation from the ideal is a reason to be panicked and stampeded into putting dangerous arbitrary powers into the hands of government, then go directly to totalitarianism, do not pass "Go", do not collect $200.

~Thomas Sowell

U.S. Tire Industry Opposed The Tire Tariffs

One of the most amazing and overlooked details about the "punitive tire tariffs" is that they were actually opposed by the domestic tire industry (Goodyear and Cooper). It was the United Steelworkers who filed the complaint, not domestic tire workers or the domestic tire industry.

From the NY Times:

Mr. Obama, responding to a complaint by the United Steelworkers, imposed a 35% tariff on Chinese tires for cars and light trucks. China has deplored the administration’s decision, suggesting it caved to domestic support for protectionism. The Tire Industry Association, which represents American tire retailers, said the decision was ill-advised and would lead to higher prices for consumers.

Retail Sales Increase By Largest Amount in 3 Years

WASHINGTON (MarketWatch) - U.S. retail sales rose a seasonally adjusted 2.7% in August, the biggest increase in more than three years (see chart above), boosted by government subsidies for cars, higher gas prices, and busy crowds at the malls, the Commerce Department estimated Tuesday. Sales were stronger than the 2.3% expected by economists surveyed by MarketWatch, largely because of widespread sales gains outside the gas stations and the auto lots.

The strong August sales will probably boost consumer spending in the third quarter, and help the economy grow for the first time in more than a year, economists say. Sales were strong at traditional mall stores. Sales at general-merchandise stores rose 1.6%, the most in more than two years. Sales at clothing stores rose 2.4%, while sales at stores catering to leisure-time activities, such as sports and reading, rose 2.3%, also a two-year high.

Empire State Manufacturing Survey: It's Beginning To Look A Lot Like The 2002 Recovery

NEW YORK FED -- In September, the Empire State general business conditions index posted its third consecutive monthly increase and its second consecutive positive reading (see chart above). Rising 7 points to 18.9, the index was at its highest level since November 2007, with nearly 40% of respondents reporting that conditions had improved in September and 20% reporting that conditions had worsened. Future indexes were generally positive and near last month’s levels. The future general business conditions index rose 4 points, to 52.3, a level last reached in October 2004.

MP: Both Empire indexes (general and future conditions) are pointing to an economy in recovery and both look a lot like the conditions in early 2002, in the post-2001 recession period.

Monday, September 14, 2009

Boeing Workers Vote 3 to 1 to Go "Union-Free"

Boeing Co. workers in North Charleston (SC) voted overwhelmingly to disband their union in a move that could give the region an edge in landing an aircraft plant the company is looking to build. Of the 267 ballots cast, 199 were in favor of decertifying the election that made them members of the International Association of Machinists. The company was pleased; the union was disappointed.

There's Really Only One Beneficiary of Tire Tariffs

You can probably guess who it is, but find out here for sure from The Cato Institute's Daniel Ikenson.

Believing in the "Magic of the Marketplace"

President Reagan’s visit to the NYSE in 1985 marked the first time a sitting president had visited the Exchange.
We who live in free market societies believe that growth, prosperity and, ultimately, human fulfillment are created from the bottom up, not the government down. Only when the human spirit is allowed to invent and create, only when individuals are given a personal stake in deciding economic policies and benefiting from their success – only then can societies remain alive, dynamic, prosperous, progressive and free.

Trust the people. This is the one irrefutable lesson of the entire post-war period, contradicting the notion that rigid government controls are essential to economic development. The societies that have achieved the most spectacular, broad-based progress are neither the most tightly controlled, nor the biggest in size, nor the wealthiest in natural resources. No, what unites them all is their willingness to believe in the magic of the marketplace.

~Ronald Reagan, quoted in the New York Stock Exchange's "A Tribute to President Ronald Reagan."

Wal-Mart Helps Many Small, Local Businesses

We have heard a lot of criticism of Wal-Mart by groups like Wake-Up Wal-Mart, which claims that Wal-Mart mistreats it workers with low wages, unpaid overtime, mandatory working off-the-clock, sub-standard benefits, etc. They also claim that Wal-Mart discriminates against women, it violates child labor and safety laws, and it destroys the environment and it even desecrates sacred grounds. Oh, and of course there is the claim that Wal-Mart hurts small, local businesses when it comes to town.

What you won't hear from the anti-Wal-Mart groups are stories like this from the
Idaho Falls Post Register, about how Wal-Mart actually provides significant benefits for local businesses:

Liberty Tomato Co.'s distinguishable gold bell label is likely a familiar sight to local Wal-Mart customers purchasing fresh herbs. For almost 10 years, the national chain has sold herbs grown by the Pingree (ID)-based business at Wal-Marts in Idaho, Utah, Wyoming and Montana.

Liberty owner Karen Reed said the partnership has been essential to the survival of her company, which opened in 1987. "We wouldn't be in business if we didn't have the partnership with Wal-Mart," she said. They are our biggest customer."

According to Mark Marvin, market manager of the Wal-Mart in Idaho Falls, Wal-Mart has partnered with several Idaho growers and producers over the years. These local suppliers will be highlighted during September at 16 Idaho Wal-Marts, including the Idaho Falls store, to promote the company's commitment to purchase from regional vendors.

Wal-Mart purchased $269 million in products from 316 suppliers located throughout Idaho in 2009, Marvin said.

The family-owned business, which was started by Wada's grandfather Frank in 1943, was among the first Idaho growers to partner with Wal-Mart 16 years ago, he said. Wal-Mart purchases about 12 percent of Wada's fresh potato crop for its regional stores, said Tom Barnes, Wada's Wal-Mart account manager. Specialty products made by Wada are also for sale in all of Wal-Mart's stores.

Gallup Index of Investor Optimism, U.S. Stock Market Capitalization Hit New Highs

PRINCETON, NJ -- Consistent with Gallup's Consumer Confidence measure and the continued strong performance of the equity market, the Gallup Index of Investor Optimism -- a broad measure of investor perceptions -- in August hit a new 2009 high of 9. This represents a 12-point increase from July and is the first time the Index has been positive since June 2008. The Index has improved by 73 points from February's -64 reading -- its lowest level since its inception in October 1996.


And as the chart below shows (using
World Federation of Exchanges data), investors have reason to be optimistic - the U.S. stock market capitalization has increased for the last six months, and by about $4 trillion since March, from $10 trillion to $14 trillion (estimate for September), the highest level since last September.


Tariffs Punish Our Own Consumers and Producers

From the WSJ article "Tariff on Tires to Cost Consumers":

1. Consumers who buy low-price Chinese tires -- the bulk of the tires China exports to the U.S. -- will be hit hardest by the new tariff, as shortages in this market segment cause retailers to scramble to find alternative sources in other countries.

2. The tariffs won't just hit Chinese producers. Both of the U.S.'s remaining domestic manufacturers -- Goodyear Tire & Rubber Co. and Cooper Tire & Rubber Co. -- make tires in China that they sell in the U.S. Cooper this year is on track to import 2.5 million tires that it made in China. It was planning to boost that to four million next year.

MP: In other words, the "punitive tariffs" on the Chinese will actually punitively penalize our own American consumers, especially poor and middle-class, the largest buyers of low-price Chinese tires, and we'll also punitively punish two of our own Ohio-based tire companies, which combined employ more than 88,000 full-time employees, many in the U.S.

Sunday, September 13, 2009

Greatest Human Being You Never Heard Of


Penn and Teller profile Norman Borlaug and his contributions to genetically engineered food (some strong language).

New York Times article today -- Norman E. Borlaug, the plant scientist who did more than anyone else in the 20th century to teach the world to feed itself and whose work was credited with saving hundreds of millions of lives, died Saturday night. He was 95 and lived in Dallas.

HT: Johan Norberg

Update: Reason Magazine interview with Norman Borlaug (Hat tip: HappyJuggler)


Obamacare: Suspending the Laws of Economics

In exchange for some bitter tax pills, Obama promised Americans would get eternal health care "security and stability." To deliver that, he would of course ban insurance companies from denying coverage to those with pre-existing conditions--tantamount to forcing fire insurance companies to write coverage on a burning building. He would also prohibit insurers from putting any limits on the coverage they offer and cap what they can require patients to pay out-of-pocket.

In other words, Obama would encourage unlimited health care consumption by patients while eliminating the last vestige of price consciousness. But the reason America is facing unsustainable health care cost increases is precisely because its third-party system of insurance doesn't encourage prudent consumption by patients. Indeed, if Obama really can tame health care costs by making patients even less cost-conscious, I have an even better idea for him: Simply pass a law banning anyone from falling sick and mandate good health for all. If he can suspend the laws of economics, perhaps he can also transcend the laws of physiology.

~Shikha Dalmia in Forbes

HT: Scott Grannis

Intrade Odds for Obamacare Fall From 40% to 15%

In a little more than two weeks, the Intrade odds for the contract "A federal government run health insurance plan to be approved before Dec 31, 2009" have fallen to 15%, down from 30% odds only about a week ago, and down from 45% a little more than two weeks ago (see chart above).

Cartoon of the Day: A Classic from Henry Payne



Why Do Politicians Prefer Targeted Tax Breaks?

You've got to hand it to the folks at the Mackinac Center for Public Policy. The free-market think tank in Midland (MI) keeps churning out studies that criticize the effectiveness of Michigan's economic development incentives, even though those reports are met mostly with indifference in Lansing.

Its latest study, finds that between 1995 and 2004, the Michigan Economic Development Corp.'s main business tax credit program generated just 17,971 of the 61,043 jobs the credits were expected to produce.

As it has several times in the past, the Mackinac Center is calling for the state to eliminate the MEDC and its Michigan Economic Growth Authority (MEGA) tax credit program. "You could shut down the department itself and we would be no worse off than we are today," said study author Michael LaFaive, director of fiscal policy at the Mackinac Center.

A scathing Wall Street Journal editorial on Sept. 4, agreed. Citing the Mackinac Center study, the Journal asked if the MEGA tax credits might better be called "cash for clunkers." The Journal editorial, though, ignored the fact that every state employs some kind of economic development incentive.

The Mackinac Center's core belief is that Michigan should end targeted tax breaks and lower business costs across the board. But shuttering the MEDC is about as a likely to occur as the Detroit Lions winning the Super Bowl this year. Created by Republican Gov. John Engler in 1999, the MEDC enjoys wide bipartisan support and has been strongly endorsed by Democratic Gov. Jennifer Granholm.

~Michigan business writer Rick Haglund

MP: There's a very good reason: a) why every state including Michigan has targeted tax breaks for targeted economic development, b) why those targeted incentives enjoy wide bipartisan support, and c) why targeted tax breaks and incentives are preferred over non-targeted, across-the-board lower business costs.

Q: What is the reason? Hint: It has nothing to do with economics, and everything to do with pure politics and photo opportunities.

6th Consecutive Monthly Gain in World Stock Value

As stock markets around the world gained ground last month, the total world stock market capitalization increased by $2.26 trillion in August, according to preliminary data from the World Federation of Exchanges. The August gain follows increases of $1 trillion in March, $3.59 trillion in April, $3.82 trillion in May, $600 billion in June, and $2.84 billion in July and is the first time in two years of six consecutive monthly advances in world stock market value.

The cumulative six-month gain of $14.145 trillion in world stock market capitalization brings the value of world equities up to $42.815 trillion in August, the highest level since September 2008, and marks a 49% increase from the February bottom (see chart above).

Global "Green Shoot" Explosion

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The MSCI World Stock Market Index continued its six-month rally and reached a new 11-month high on Friday of 1119.23, the highest close since October 3 last year. From the March low, world stocks have now risen by 62.5% (see chart above).

Yesterday's (Saturday) Wall Street Journal was full of stories about positive economic news here and around the world, here's a sample below. Pretty amazing for so much positive news of economic "green shoots" in just a single issue of the WSJ (the last story below was from Friday).

1. Brazil Exits Recession in 1.9% Lift. Brazil pulled itself out of recession in the second quarter with strong performances by its industrial and service sectors. Gross domestic product expanded 1.9% in the second quarter compared with the first period, the Brazilian Census Bureau, or IBGE, said Friday.

2.
OECD Data Point to Broad Economic Recovery. There are increasingly strong indications that the world economy is on the path to recovery, with both the leading developed and the leading developing economies emerging from a downturn, according to figures released Friday by the OECD.

3.
China Industrial Output Rises, Bank Lending Picks Up. The Chinese economy continued to recover in August, official data showed Friday, as the expansion in industry accelerated and bank lending picked up.

4.
Economic Confidence Rebounds. Economists and consumers [in the U.S.] are feeling better about the economy a year after the most frightening moments of the financial crisis.

5.
Volkswagen to Boost Production in China. Volkswagen AG said Friday it will invest $5.83 billion in increasing production and capacity in China by 2011 in a bid to keep pace with soaring demand.

6.
"Fear Gauge" Is Showing Far Less of It. The stock market's "fear gauge" registered a 52-week low Friday, nearly a year after the market sank in the wake of Lehman Brothers' collapse. The Chicago Board Options Exchange's volatility index (VIX) hit as low as 22.5 before closing at 24.2, up 2.6% from Thursday.

7.
FedEx Raises Outlook, Stokes Hopes for Recovery. FedEx raised its earnings expectations in a further sign that the global economy is stabilizing, citing a recovery in international markets. The package-delivery giant is a bellwether for economic activity.

8.
Is the Recession Over? Wait Until 2010 for NBER’s Answer. The economy is pulling out of its downturn, but don’t expect an end-of-recession declaration anytime soon from the National Bureau of Economic Research. One member of its Business Cycle Dating Committee, Northwestern University economist Robert Gordon, said he believes June will mark the trough for the recession that started in December 2007 (MP: In that case, we are now in the third month of an economic expansion). But he expects the NBER’s recession-dating panel to wait six to eight more months before voting on an end date to ensure the economy doesn’t experience a double-dip recession.