Saturday, September 12, 2009

Quote of the Day II

If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it. Each dollar so transferred, in Krugman’s world, generates an additional dollar and a half of national income. The analogy is even closer. Madoff didn’t just take money from his savers, he essentially borrowed it from them, giving them phony accounts with promises of great profits to come. This looks a lot like government debt.

If you believe the Keynesian argument for stimulus, you don’t care how the money is spent. All this puffery about “infrastructure,” monitoring, wise investment, jobs “created” and so on is pointless. Keynes thought the government should pay people to dig ditches and fill them up.

If you believe in Keynesian stimulus, you don’t even care if the government spending money is stolen. Actually, that would be better. Thieves have notoriously high propensities to consume.


~
John Cochrane

Quote of the Day

The case for free markets never was that markets are perfect. The case for free markets is that government control of markets, especially asset markets, has always been much worse.


Remember, the SEC couldn’t even find Bernie Madoff when he was handed to them on a silver platter. Think of the great job Fannie, Freddie, and Congress did in the mortgage market. Is this system going to regulate Citigroup, guide financial markets to the right price, replace the stock market, and tell our society which new products are worth investment? As David Wessel’s excellent "In Fed We Trust" makes perfectly clear, government regulators failed just as abysmally as private investors and economists to see the storm coming.

~U. of Chicago professor John Cochrane

Samuel Johnson: Entrepreneurial Genius

This month marks the 300th anniversary of the birth of Samuel Johnson (1709-1784), the greatest British writer of the second half of the 18th century, and the Wall Street Journal featured two articles on him yesterday:

1. "On the Quest for Happiness" and

2. "Samuel Johnson and the Virtue of Capitalism"

In addition to remembering him as a great writer, we should remember him as an entrepreneurial genius, for his work to single-handedly produce the first English language dictionary in 1755 after "only" seven years of work. In contrast, the first French dictionary was completed in 1694 after 55 years of work by the 40-member French Academy (they spent six years just on the letter G).

As this Freeman article "A Tale of Two Dictionaries" suggests:

Yes, Samuel Johnson was a genius, but the French Academy also had its share of geniuses; even if we were to make the wild assumption that Samuel Johnson had the mental powers of ten Academicians, Johnson would still have been outnumbered by four to one; so surely genius alone cannot explain the vast anomaly. I suggest that much of the contrast can be explained by the ineluctable differences inherent in a collective, government-sponsored effort and in one that is individual and profit-making (emphais added).

Update: Samuel Johnson might have also had four or five times more English words to catalog than the French, making his solo effort even more impressive.

The statistics of English are astonishing. Of all the world's languages (which now number some 2,700), it is arguably the richest in vocabulary. The compendious Oxford English Dictionary lists about 500,000 words; and a further half-million technical and scientific terms remain uncatalogued. According to traditional estimates, neighboring German has a vocabulary of about 185,000 and French fewer than 100,000.

Flint's Dramatic Shift: Manufacturing to Service

The chart above (click to enlarge) shows the manufacturing share of total employment in Michigan's 12 major metro areas in both 1990 and 2009 (data available here), and also for the state of Michigan and the entire U.S. What's most interesting is that despite the decline in the manufacturing job share in all 12 metro areas, the relative ranking of the 12 Michigan metro areas stayed almost exactly the same between 1990 and 2009, except for Flint, which fell from #2 in 1990 (30.5%) to #12 in 2009 (only 5.3%).

Holland, Battle Creek, Benton Harbor, Muskegon, Grand Rapids and Kalamazoo were in exactly the same place and Jackson and Saginaw switched places. Ann Arbor, Detroit and Lansing each move up or down one or two places, but Flint was the only Michigan metro to move up or down more than 2 places, and actually moved down by 10 full places (#2 to #12). Flint (at 5.3% manufacturing share) is now remarkably less of a manufacturing town that its neighbor Ann Arbor at 6.5%. As much as everybody thinks of Flint as a blue-collar, manufacturing town, it's gradually become a service-based economy (see a related discussion here on the Flint Expatriates blog).

There must be something pretty unique about Flint compared to the rest of Michigan's metro areas, to explain such a dramatic change in manufacturing employment relative to the rest of the state. Here are a few ideas, please feel free to add more (Walt G?):

1. Flint was more heavily dependent on just one major employer (GM) than the rest of the state, and as GM has reduced its workforce over the last twenty years it has affected Flint more than other Michigan cities.

2. Flint's reputation as being a militant union stronghold may have led to more GM plant closings and job losses here than elsewhere in the state?

Don't Forget the Firestone Recall of US-Made Tires

There has been some lively discussion about the punitive, 35% tariff on Chinese tires on several recent CD posts (here and here), and the safety and quality of tires from China has been debated. But as one anonymous commenter points out, there have been major safety concerns in the past with American-made tires, e.g. Firestone:

The Firestone tire recall is perhaps the most deadly auto safety crisis in American history. US regulators in October 2000 raised the death count to 119 (the death count has steadily risen from 62, later to 88 and 101 deaths reported on 9/20/2000). Experts believe there may be as many as 250 deaths and more than 3000 catastrophic injuries associated with the defective tires. Most of the deaths occur in accidents involving the Ford Explorer which tends to rollover when one of the tires blows out.

UK Pensioner Stockpiles 1,000 Banned Lightbulbs

UK Daily Mail -- A pensioner has defied an EU ban by hoarding more than 1,000 traditional light bulbs - enough to see her "into the grave." Valerie Hemsley-Flint, 62, has spent more than £500 ($835) of her pension money stockpiling the old-style 100-watt bulbs. From September 1, EU countries were banned from producing or importing incandescent bulbs and shops can sell only energy-efficient ones.

But Miss Hemsley-Flint said the light from them is not good enough for her to read by and the flickering sets off her epilepsy. So she has bought 1,100 old-style bulbs and is calling on the Government to scrap the ban.

Simple Economic Analysis of the Tire Tariff: Americans Will Be Punished By the Punitive Tariffs

Economic analysis of the tire tariff:

1. Pw is the tire price in the U.S. before the tariff and Pw+t is the higher tire price after the tariff.

2. As a direct result of the tariff protection for inefficient domestic producers, their output expands from Q1 to Q3, and imported tires decrease from Q2 to Q4.

3. As a result of higher tire prices and fewer tires purchased, American consumers as a group will be worse off by the area (-a, -b, -c, and -d), which represents the loss of "consumer surplus" from the tire tariff.

4. American tire manufacturers will be better off by an amount represented by the area +a, because they have both increased sales (to Q3) and raised prices (to Pw+t) as a result of their protection from more efficient Chinese tire producers.

5. The U.S. government will collect tariff (tax) revenue on imported Chinese tires by an amount represented by the area c, which is the product of tire imports (Q4-Q3) times the tariff (t). If we can assume that the tariff revenue in area c will be redistributed efficiently to the economy, we can treat that as a net gain to the economy (this could obviously be argued).

So when you add it all up:

Costs of Tire Tariffs: American consumers are made worse by the area (-a + -b + -c + -d). (Note: This area could be quantified as a specific dollar amount if we had information about the supply and demand for tires.)

Benefits of Tire Tariffs: U.S. producers are better off by area +a, and the government is better off by area +c.

Net Loss: The costs of the tire tariff (-a + -b + -c + -d) are greater than the benefits of the tire tariff (+a + +c), for a net welfare loss of (-b + -d), which will be the "deadweight loss" of the tire tariff (costs to the economy that are NOT offset by benefits).

Bottom Line: America will be worse off with the tire tariff, not better, and we will suffer from higher tire prices, a net loss of jobs, lower economic growth, and a reduction in our country's standard of living. That is why economists almost universally support free trade and oppose tariffs and trade protection - economic analysis and empirical evidence clearly show that there are always net welfare losses from tariffs. Therefore, it will be Americans in the end who will be punished with the punitive tire tariffs.

Punitive Tariff Update: Costs vs. Benefits

CHINA VIEW -- Obama's decision came amidst enormous pressure from the United Steelworkers and other unions, which claim that tires imported from China have cost at least 5,000 American workers their jobs. However, the stiff 35% tariff, which will ultimately raise tire prices in the U.S., could affect 100,000 tire-related jobs in America, including such sectors as imports, distribution and retail.

The biggest hit would be felt by American consumers who now buy $50 Chinese-made tires and can't afford U.S. brands that cost as much as $150, many distributors warned.

MP: In other words, we're imposing a 35% punitive tariff on ourselves, and making thousands of American consumers worse off (especially the poor and middle class), along with making thousands of Americans with tire-related jobs worse off, possibly causing job losses. Those are the inevitable, significant costs of this trade protectionism, which will far outweigh the benefits to the U.S. domestic tire industry (as economic theory and empirical evidence of protectionism clearly show). But of course there's also a huge political payoff for Obama, who has bought union support for his health care plan by imposing huge costs on American tire consumers and workers in tire-related industries.

Friday, September 11, 2009

Punitive Tariffs Are On Americans, NOT the Chinese

WASHINGTON (AP) -- President Barack Obama has slapped punitive tariffs on all car and light truck tires entering the United States from China in a decision that could anger the strategically important Asian powerhouse but placate union supporters important to his health care push at home. The federal trade panel recommended a 55 percent tariff in the first year, 45 percent in the second year and 35 percent in the third year. Obama settled on slightly lower penalties -- an extra 35 percent in the first year, 30 percent in the second, and 25 percent in the third.

Translation: President Barack Obama has slapped punitive 35% TAXES on AMERICAN CONSUMERS (including the poor and middle-class) for all car and light truck tires VOLUNTARILY PURCHASED from Chinese producers, in a decision that could anger the strategically important Asian powerhouse but placate ANTI-AMERICAN CONSUMER union supporters important to his health care push at home.

Infographic: U.S. vs. India

Click to enlarge.
Mint.com -- India’s history, geography, religious and ethnic makeup, and culture are vastly different to the US and yet the two countries maintain a close relationship. Our infographic is designed to provide an at-a-glance view of the most important economic dimensions of the US and India and a few less important but fun ones too. Hence the lack of scale or numbers. In order to help compare and contrast the economic differences, we have simplified the data from the CIA World Factbook and Nationmaster.com . For the exact numbers in any category, check here and here.

Nurse-Run Health Centers: Real Healthcare Reform

Philadelphia Business Journal -- Nurse-managed health centers are one solution to the growing shortage of family medical practitioners. They are community-based, nonprofit clinics run by advanced practice nurses capable of delivering primary and preventive care more affordably than a larger health system, especially for low-income and vulnerable populations.

“Their true potential remains untapped,” said Tine Hansen-Turton, executive director of the Philadelphia-based National Nursing Centers Consortium. “These centers can provide the foundation for real health-care reform that will work, serving tens of millions of additional families across the United States.”

Cartoon of the Day: Grad Student Etiquette


Markets in Everything: College Classes at Midnight

In June, I reported about college classes at midnight, and they just started this term at Bunker Hill Community College in Boston. One English professor's class is full, but he's not too happy about midnight classes and says this is part of a national nightmare.

No American Should Have to Choose Between Health Insurance and Protein Powder or Alcohol



From Reason.tv.

As an example of how affordable basic medical insurance plans can be, there are various individual and family Blue Cross Blue Shield plans available in Michigan (rates in other states will vary) starting at $173.18 per month for the Individual Care Blue Plus plan, $52.82 per month for the Flexible Blue II plan, and $49.30 per month for the Young Adult Blue plan.

Of course, the rates for these plans vary based on age, number of family members covered, deductibles, co-pays, procedures and services covered, annual out-of-pocket maximums, etc., and the rates above are the minimum monthly premiums. But for many Americans, maybe that is all they need is the most basic coverage available. As I have pointed out before, basic medical insurance is currently available right now for millions of Americans at about the same monthly cost of a cell phone.


The Promise of Something for Nothing

Even those who can believe that Obama can conjure up the money [to insure millions more people] through eliminating "waste, fraud and abuse" should ask themselves where he is going to conjure up the additional doctors, nurses, and hospitals needed to take care of millions more patients.

If he can't pull off that miracle, then government-run medical care in the United States can be expected to produce what government-run medical care in Canada, Britain, and other countries has produced-- delays of weeks or months to get many treatments, not to mention arbitrary rationing decisions by bureaucrats.

Con men understand that their job is not to use facts to convince skeptics but to use words to help the gullible to believe what they want to believe. No message has been more welcomed by the gullible, in countries around the world, than the promise of something for nothing. That is the core of Barack Obama's medical care plan.

~Thomas Sowell

Calculus in 20 Minutes



Part 2 here.

Thursday, September 10, 2009

102,000 Disciplined Health Care Professionals Are In A National Registry. But Nobody Can See It?

NPR -- Twenty-two years ago, the federal government started keeping a list of nurses, nurse aides, pharmacists and pharmacy aides who've been disciplined by state licensing boards. It's called the Healthcare Integrity and Protection Data Bank.

There are more than 102,000 nurses, nurse aides, pharmacists and pharmacy assistants who've been disciplined and included in the registry. But hospitals and nursing homes aren't allowed to see the database.

By law, it was supposed to be open to hospitals and nursing homes when they hire staff and want to run a background check. But the Department of Health and Human Services never completed the regulation implementing the law. Turns out, slow-moving bureaucracy is the main culprit.

"Until the government makes these data available, patients are going to be injured in hospitals by nurses, nurse's aides who shouldn't be on the staff of the hospital. The only reason they're on the staff is: when the hospital hired them they didn't know what their past records was," says Dr. Sidney Wolfe, who runs the consumer advocacy organization Public Citizen's Health Research Group.

MP: And we are now considering allowing major increases in government bureaucracy and government control of health care?

Traditional Universities May Be Irrelevant by 2020

How Web-Savvy Edupunks Are Transforming American Higher Education

"The Internet disrupts any industry whose core product can be reduced to ones and zeros," says Jose Ferreira, founder and CEO of education startup Knewton. Education, he says, "is the biggest virgin forest out there." Ferreira is among a loose-knit band of education 2.0 architects sharpening their saws for that forest.

The edupunks are on the march. From VC-funded startups to the ivied walls of Harvard, new experiments and business models are springing up from entrepreneurs, professors, and students alike. Want a class that's structured like a role-playing game? An accredited bachelor's degree for a few thousand dollars? A free, peer-to-peer Wiki university? These all exist today, the overture to a complete educational remix.

The architects of education 2.0 predict that traditional universities that cling to the string-quartet model will find themselves on the wrong side of history, alongside newspaper chains and record stores. "If universities can't find the will to innovate and adapt to changes in the world around them," professor David Wiley of Brigham Young University has written, "universities will be irrelevant by 2020."

HT: Paul Kedrosky via Mark Dodson

Retail Health Clinics Expand Services, MDs Protest

WSJ -- Retail health clinics are adding treatments for chronic diseases such as asthma to their repertoire, hoping to find steadier revenue, but putting the clinics into greater competition with doctors' groups and hospitals.

Walgreen Co.'s Take Care retail clinic recently started a pilot program in Tampa and Orlando offering injected and infused drugs for asthma and osteoporosis to Medicare patients. At some MinuteClinics run by CVS Caremark Corp., nurse practitioners now counsel teenagers about acne, recommend over-the-counter products and sometimes prescribe antibiotics.

Walgreen, the second-largest pharmacy chain by stores, plans to start a pilot program for managing diabetes in coming months. CVS's MinuteClinic is piloting a rapid test for conjunctivitis, or pinkeye, at its Atlanta clinics and working with the Cleveland Clinic to provide care to asthma patients.

MP: So how are the MDs responding to the increased competition from retail clinics? First of all, they don't like the competition:

Such moves (expansion of services at retail clinics) are raising the ire of physicians' groups that see the in-store clinics as inappropriate venues for treating complex illnesses. In May, the Massachusetts Medical Society urged its members to press insurance companies on co-payments to eliminate any financial incentive to use retail clinics.

But second of all, they are responding to the competition from retail clinics by acting more competitively themselves:

The clinics are helping alter the practice of medicine. Doctors are expanding office hours to evenings and weekends. Hospitals are opening more urgent-care centers to treat relatively minor health problems.

The Beatles: A Triumph of Capitalism

It was Brian Epstein's (pictured above) commercial flair that turned four musicians into a global phenomenon.

Appreciating the role of manager Brian Epstein, allows one to appreciate that the Beatles are as much a triumph of commerce as of art. They were not merely brilliant musicians fusing avant-garde influences with rhythm and blues music. They were a showbiz act managed by an inspired entrepreneur. They weren’t simply class rebels against the Establishment, they were the brilliant product of capitalist enterprise, the early pioneers of globalization.

The reason why the influence of the 1960s endures is because it was the dawn of modern consumer capitalism. It was this culture — of commerce and consumption — rather than the counter-culture that made the era and now shapes out time. And of this era, Brian Epstein was a symbol.

~Daniel Finkelstein in the UK Times

Almost 4 Out of 10 Uninsured Americans Live in Households Making More Than $50,000 Per Year

According to this Census Bureau report "Income, Poverty, and Health Insurance Coverage in the United States: 2008" (released today), there were 46.34 million uninsured Americans in 2008, up from 45.6 million in 2007.

The chart above shows the household income levels of those 46.34 million uninsured Americans. There are 9.725 million uninsured Americans living in households making $75,000 per year or more, and this represents more than 1 out every 5 uninsured (21% of the total). There are about 8 million Americans without health insurance in households making between $50,000 and $75,000, representing 17.3% of the uninsured. With those two groups combined, 38.3% of Americans without health insurance (17.75 million people) lived in households with $50,000 or more of household income in 2008 (see Table 7 for these data).

Update: According to The Kaiser Family Foundation, the average annual premiums for employer-sponsored health insurance were $4,704 for single coverage ($392 per month) and $12,680 for family coverage in 2008 ($1,056 per month). And various individual Blue Cross Blue Shield plans are available in Michigan (other states may vary) starting at $173.18 per month for the Individual Care Blue Plus plan, $52.82 per month for the Flexible Blue II plan, and $49.30 per month for the Young Adult Blue plan.

Q: With $50,000 or more in household income, wouldn't many or most of those 17.75 million uninsured households be without insurance voluntarily? That is, couldn't most of those households afford health insurance? Alternatively, with those income levels (especially the 9.725 million with household income above $75,000), couldn't many of those households choose to forego health insurance in favor of being "self-insured," at least for routine health procedures? Given the widespread availability of more than a thousand convenient and affordable retail health clinics around the country at Wal-Marts, Meijers, CVSs and Walgreens, these households could easily be on the "pay-as-you-go" model of self-insurance for health care, at least for routine medical services.


As for those uninsured Americans who are supposedly the reason for all this sound and fury, there is remarkably little interest in why they are uninsured, despite the incessant repetition of the fact that they are. The endless repetition serves a political purpose but digging into the underlying facts might undermine that purpose. Many find it sufficient to say that the uninsured cannot "afford" medical insurance. But what you can afford depends not only on how much money you have but also on what your priorities are. Many people who are uninsured have incomes from which medical insurance premiums could readily be paid without any undue strain (see chart above).

Soft Consumer Spending? Not At Outlet Store in MN

WSJ/WASHINGTON -- The U.S. economy continued to stabilize in July and August, but soft consumer spending amid a weak job market suggested that recovery will remain subdued. Consumer spending drives much of the economy. People are afraid to spend much because they have lost or are afraid of losing their jobs.

We keep hearing reports like the one above about "soft consumer spending." But then how do we explain this line of consumers standing in line waiting to shop at the Opitz Outlet in St. Louis Park, MN? The store had already been open for more than an hour and was already so crowded bargain-seeking shoppers had to wait in a long line to go in and spend money:

At least the bargain hunters apparently aren't afraid to spend money. It's great to see that "consumer greed" is alive and well in Minnesota. The smell of 90% savings must have a very strong, attractive, irresistible odor.

Thanks to Matt B for the photo.


Minnesota State Fair Sets New Attendance Record

Recession must be over?
WSJ/WASHINGTON -- The U.S. economy continued to stabilize in July and August, but soft consumer spending amid a weak job market suggested that recovery will remain subdued. Consumer spending drives much of the economy. People are afraid to spend much because they have lost or are afraid of losing their jobs.

We keep hearing reports like the one above about "soft consumer spending." But then how do we explain this:

StarTribune -- Minnesota State Fair officials reported Tuesday that attendance hit an all-time record by the time the gates closed Monday night (September 7). A total of 1,790,497 people made their way to the fairgrounds during the 12-day run (see photo above). That exceeded the old record, set in 2001, by 27,521. Those bumper crowds spent $25.2 million on food and drink (not including beer) during the fair's run, $1.1 million more than last year.

The Gender Wage Gap and Occupational Injury Risk

Given the huge gender gap for occupational deaths (see chart above, BLS data here), it's a little surprising that this gap has not received more attention as a contributing factor to the gender wage gap (see bold text below, emphasis added). If anyone is aware of research in this area, please let me know. Here is the abstract from one such study "Gender Wage Differentials and the Occupational Injury Risk: Evidence from Germany and the U.S.":

Numerous studies, in particular for the U.S., have shown that individuals in occupations with high injury risk are compensated for that risk by corresponding bonus payments. At the same time, male workers are overrepresented in the most dangerous occupations like scaffolders or miners, while females typically work in relatively safe occupations with respect to occupational injuries. It is therefore remarkable that almost all studies analyzing the gender wage gap have disregarded different occupational injury risks as a potential explanatory variable for observed gender wage differentials.

By merging data on occupational injury risks to German and US panel data on individual workers, this study analyzes gender wage differentials in Germany and the US considering fatal occupational injury risk. The Blinder-Oaxaca method for Tobit models is used to decompose the gender wage gap with and without consideration of the fatal injury risk. Our results indicate that the compensating wage differentials for risky jobs are reflected in the resulting gender wage gap, which is caused by the unequal distribution of occupational injury risks among men and women.

Male-Female Occupational Death Gap Is 13 to 1

According to the Institute for Women's Policy Research, "The ratio of women’s to men’s median weekly earnings for full-time workers was 79.9 in 2008, the third consecutive decline since the historical high of 81.0 in 2005."

Rep. Carol Maloney (D-NY) wrote earlier this year in an article titled "Still Not Equal" that:

In the aftermath of the September 11th attacks on the World Trade Center, the daunting and complicated task of distributing victim compensation began to take shape. The compensation plan, as it was originally proposed, was based on outdated government formulas which assumed that women victims would have worked for less of their lives than their male counterparts. In effect, the proposed system of compensation was providing less for the families of women victims simply because they were the families of women victims.

It was a sobering reminder of how institutionalized gender discrimination can be. This isn't from a history book - it is not an example of how difficult it was for women of our grandmothers' generation. This is an example of how women as young as our daughters, in this decade, are still facing the same obstacles we vowed to eradicate. I am proud to have successfully fought for equal compensation after September 11th, but know that there are many battles yet to be won.

Male-female wage differentials are frequently explained by women's group as the direct consequence of "instititutionalized gender discrimination," as Rep. Maloney claims. One other explanation for wage differentials could also be that men tend to work in higher-risk, less safe occupations, with a greater chance of injury or death (e.g. coal mining), at a higher rate than women, and are therefore compensated with higher wages for the greater exposure to risk (e.g. a window washer hanging off the top of the Sears tower washing windows outside 1,000 feet from the ground will make more than a window washer working inside the building.)


The chart above provides evidence that men suffered from fatal occupational injuries (4,703) at a much higher rate than women (368), by a factor of almost 13 to 1 (BLS data here) in 2008. For certain types of occupational deaths like "Contact with objects and equipment," the male-female gender death gap is even greater (41 to 1), and for "Fires and explosions" the gap is 24 to 1.

Occupational deaths are probably concentrated in male-dominated industries like construction (90% male) and manufacturing (70% male), and are probably almost non-existent in female-dominated professions like education and health care (75% female) and government (57% female). Notice also in the chart below that the male-dominated industries have suffered from much higher unemployment rates (19.2% for construction and 12.6% for manufacturing, in May) compared to significantly below-average jobless rates for female-dominated industries (4.9% for education and health services and 3.1% for government).


Men are also currently facing the greatest male-female jobless rate gap on record of 2.7% as I reported here, with the male unemployment rate reaching 10.9% in August compared to the female rate of 8.2%.

Bottom Line: Closing the gender pay gap might also result in closing the gender occupational death gap (exposing more women to job-related death and injury), and closing the gender jobless rate gap (women would be less insulated from job losses during recessions). TNSTAAFL.


Wednesday, September 09, 2009

Cartoon of the Day

Michael Ramirez.

Education Spending Doubled, Stagnant Test Scores

Since 1970, inflation adjusted public school spending has more than doubled. Over the same period, achievement of students at the end of high school has stagnated according to the Department of Education’s own long term National Assessment of Educational Progress (see chart above). Meanwhile, the high school graduation rate has declined by 4 or 5%, according to Nobel laureate economist James Heckman.

So the only thing higher public school spending has accomplished is to raise taxes by about $300 billion annually, without improving outcomes. The fact that more schooling without more learning is not a recipe for economic growth is confirmed by the independent empirical work of economists Eric Hanushek and Ludger Woessmann. Their key finding is that
academic achievement, not schooling per se, is what matters to economic growth.

Based on this body of research, the president’s decision to pump $100 billion into existing public school systems is likely slowing the U.S. economic recovery.

~
Andrew Coulson, Director, Cato's Center for Educational Freedom

CD Milestone and Summary Statistics


CD Milestone: You are reading the 5,000th post on Carpe Diem, since its inception 1,085 days ago in September 20, 2006 (average of 4.61 posts per day). Here are some other statistics about Carpe Diem:

Palgrave Economics Blog Ranking: #7

Wikio Business Blog Ranking: #14

Gongol Business and Economics Websites: #12 by daily pageviews and #11 by daily visits

Total visits since 9/2006: 2,652,000

Average Posts per day (last 90 days): 5.82

Unique Visitors to Carpe Diem in August: 34,180 (see chart above)

Unique Visitors to University of Michigan-Flint in August: 36,437 (see chart above)

Thanks for all of your support! And special thanks go to Web researcher Ben Cunningham for all of his tips, and special thanks to my eagle-eyed, punctilious volunteer copy editor Mike Carlson.

NY Fed Treasury Spread Model: No Chance of Recession in 2010, Economic Recovery Has Started

The New York Fed just released its latest "Probability of U.S. Recession Predicted by Treasury Spread," with data through August 2009, and the Fed's recession probability forecast through August 2010 (see chart above, click to enlarge). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (3.42% spread in August, the second highest spread since May 2004, just slighly below the 3.54% spread in June) to calculate the probability of a recession in the United States twelve months ahead.

The Fed's data show that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month (see chart above and chart below). For August 2009, the recession probability is only 1.45% and by August next year the recession probability is only .08%, the second lowest level since May 2005.

Further, the Treasury spread has been above 2% for the last 18 months, a pattern consistent with the economic recoveries following the last six recessions (see chart above). The pattern of the recession probability index so far this year (going below double-digits and declining monthly) is very similar to the pattern starting in March 2002 that signalled the end of the 2001 recession (see chart below).


Emerging Markets Reach Pre-Lehman Bros. High


LONDON, Sept 8 (Reuters) - Emerging markets stocks hit a new year high on Tuesday, rising to levels last seen before the Lehman Brothers collapse, and world stocks headed firmly towards a new 2009 peak. MSCI's benchmark emerging market index was up around 1.2%, at its highest level since September 9 last year, a few days before Lehman's demise and a mass market sell-off triggered by fears for the financial system (see chart above).

MP: On a YTD basis, the MSCI Emerging Markets Index is now up by 55.3%, and up by 85.4% from the early March low (see chart above). Similarly, the MSCI World Stock Market Index reached an 11-month high yesterday, closing at its highest level since October 3 of last year. From the March low, the world index has increased almost 60%, and has recorded a 19.4% return YTD.


Wikipedia Contributor Gender Gap: 8 to 1

WSJ -- A broad new survey of Wikipedia users found that only 13% of the online encyclopedia’s contributors are women. Of the 53,888 respondents who said they contribute to Wikipedia, only 6,814 (12.6%) were women. The male/female ratio is closer among those who read entries but don’t write or edit them: 69% men to 31% women.

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

On
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.

Feckblog

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.