Tuesday, November 03, 2009

Markets in Everything: Pay-By-The Mile Insurance

A first-of-its-kind plan is MileMeter, available only in Texas, which last year began offering six-month policies with chunks of insured miles ranging from 1,000 to 6,000 miles. When the "tank" runs dry, motorists buy more.

"We absolutely anticipate coming to California," said Chris Gay, MileMeter founder and chief executive officer. "Our take is that half the market out there is being overcharged and underserved – and that's who we aim to address."

HT: Economics 101

Quattro Robot Breaks 300 Cycle Per Minute Barrier

Adept Technology has just broken the “300 cycle per minute barrier” with their Quattro robot. The secret, they say, is that using four arms instead of three enables higher speeds and faster accelerations. If you want to see what 300 cycles per minute looks like, pay attention at about 1:30 in the video and remind yourself that you’re not watching it on super fast forward.

Via Botjunkie.

Even Michigan's Showing Signs of Recovery: 4th Monthly Increase in Economic Activity Index

Comerica Bank's Michigan Economic Activity Index improved two points in September, to a level of 79. September's reading marks the fourth consecutive monthly increase in the Index, which moved to its highest level since December 2008. Compared to its May low, the Index is now up 10 points, or 14.5 percent. August's level was revised from 78 to 77.

As expected, the Michigan car sales component of our Index declined sharply in September due to the expiration of the cash-for-clunkers program, however, surging auto and steel production fully offset the drop in vehicle sales," said Dana Johnson, Chief Economist at Comerica Bank. "Overall, five components were up, two were unchanged, and two were down in September. Over the next several months, as other sectors of the Michigan economy are bolstered by improving national trends, our Index will likely continue to trend higher."

Related WSJ article:

U.S. auto sales last month delivered more concrete signs the economy is on the mend. Excluding July and August, when sales were boosted by cash-for clunkers rebates, October sales hit the highest rate of 2009—the mid 10-million range on a seasonally adjusted basis.

Replenished inventories helped car makers deliver better results than September's anemic 9.2 million rate. Many cars and trucks were in short supply in September due to the clunkers sales and major production cuts earlier in 2009 by many auto makers.

"The economy is in transition from recession to recovery," Ford chief economist Emily Kolinski Morris said on a conference call with analysts and reporters.

The Wal-Mart Effect

Foreign Policy --Wal-Mart's debut in a country is a bellwether for future growth. Indeed, Wal-Mart has started operations in 15 countries since 1991, and 13 of them have had boom economies, with an average of 4.4 percent annual growth since Wal-Mart arrived. Over the last five years, the economies of Wal-Mart countries outside the United States have grown 40 percent faster than the world average. So what's going on?

Does the ability to buy giant bags of Froot Loops at cut-rate prices inspire economic growth? More likely, Wal-Mart is simply a smart, cautious investor. "Wal-Mart chooses to go places with a sizable middle class," says Nelson Lichtenstein, a historian who just published a book on Wal-Mart's rise. And Wal-Mart's attention to middle-class growth could pay off for the company in the future. Next up for the Wal-Mart effect, Lichtenstein says: Russia and Eastern Europe.

Economic Lessons from Cigar Taxes

TAMPA - Last spring, the cigar industry fretted that the government might tax so-called "little cigars" into oblivion. Several months later, though, it appears the makers of cigarette-shaped little cigars have found a way to escape the high taxes. The cigar makers have added more weight to their cigars, reclassified them as large cigars and now are subject to a lower tax rate, said Norman Sharp, president of the Cigar Association of America.

Under the new tax rates, little cigars and large cigars are taxed differently, which apparently has given rise to some major changes in cigar production. For example, factories in the United States and Puerto Rico produced about 743 million large cigars in August, according to data from the U.S. Department of the Treasury. That's up 85 percent from August 2008, when they made 402 million large cigars (see chart above).

Meanwhile, production of little cigars plummeted. In August, factories in the United States and Puerto Rico produced about 145 million little cigars, down from about 480 million little cigars in August 2008. Cigars made outside of the United States and Puerto Rico saw a similar rise in large cigar production and decline in production of little cigars (see chart).

What's going on? Sharp, the cigar association president, said it appears cigar makers changed their production techniques to factor in the SCHIP tax. Cigar makers began adding enough extra weight to their little cigars so they exceeded the 3-pounds-per-1,000 threshold. So they could be classified now as large cigars.

Two important economic lessons here.

Lesson 1: If you tax something you get less of it.

Lesson 2: Taxes are always distortionary, because taxpayers can change their behavior to avoid or minimize the taxes. (One possible exception: A "head tax.")

We Shouldn't Copy Europe's Mistakes on Healthcare

In this video released today by the Center for Freedom and Prosperity Foundation (CF&P), Eline van den Broek of the European Independent Institute warns that European-style healthcare is the wrong approach and that problems in the U.S. healthcare system are the result of too much government intervention already.

In "Don't Copy Europe's Mistakes: Less Government Is the Right Way to Fix Healthcare," Ms. van den Broek specifically notes that universal health coverage is not the same as universal healthcare, that insurance mandates mean more government control, and that price controls simply do not work. Ms. van den Broek explains that the "right to healthcare" in Europe often really means the "right to get in a waiting line."

College Tuition Sticker Shock: $50k Is New Normal

Chronicle for Higher Education -- For the nation's elite private colleges, $50,000 is fast becoming the new normal. Fifty-eight private colleges now charge at least that much for tuition, fees, room, and board, a Chronicle analysis of College Board data shows (see chart above of the top 15). Last year only five colleges did.

Six years ago, only two colleges set their tuition, fees, room, and board above $40,000, according to a Chronicle analysis of unranked data provided by the College Board. This year, the analysis shows, 224 are above that mark.

Generous aid packages on some campuses mean that many students pay far less than those prices, which do not include textbooks and travel expenses. But a number of students do pay full freight.

The Chronicle analyzed College Board data to calculate the average grant offered in 2008-9 by 42 colleges whose list price for tuition, fees, room, and board was more than $50,000 this year. Among the 42, the average grant per full-time student was just over $13,000. That means that the average bill last year for tuition, fees, room, and board, after grants, was about $36,000.

According to the College Board, tuition, fees, room, and board at private nonprofit four-year institutions increased 4.3 percent this year, to an average of $35,636. At public four-year institutions, average in-state list prices increased 5.9 percent, to $15,213, while out-of-state prices increased 6.0 percent, to $26,741.

Monday, November 02, 2009

The Most Ridiculous Comparison Since.....??

The chart above shows annual real GDP growth (BEA data here) from: 1) 1930 to 1932 (-25.7% cumulative decline) and 2) 2007 to 2010, assuming: a) fourth quarter growth this year of 3.5% and no revisions to the Q3 estimate of 3.5%, and b) real GDP growth next year of 2.5% (WSJ consensus forecast).

Under those fairly realistic assumptions there would be a decline in real GDP over the "Great Recession" in only one year (2009), preceded by one year of below average growth of 0.40% (2008), and followed by a return to average growth of 2.8% in the next year (2010). This of course also assumes no "double dip recession" next year.

But assuming the assumptions above hold, wouldn't the endless comparisons of recent economic conditions to the conditions of the Great Depression seem kind of silly? After all, the three annual consecutive declines in real GDP growth of -8.62% in 1930, -6.50% in 1931 and -13.1% in 1932 were far, far worse than a single one-year decline in real economic output of -2.4% in 2009.

Update: Just to be really optimistic for a change, if Brian Wesbury is right and Q3 real GDP is later revised up to 4% (from 3.5%), and if Scott Grannis is correct that today's ISM rebound results in Q4 real GDP being as high as 5%, the annual decline for 2009 real GDP would be -2.25% instead of -2.4% as shown in the graph.

ISM Index: Strong V-Shaped Recovery Underway

NEW YORK (AP)A private measure of U.S. manufacturing activity grew in October at the fastest pace in more than three years, helped by government spending and higher demand from overseas. The better-than-expected reading is a positive signal for the fledgling economic recovery.

The Institute for Supply Management, a trade group of purchasing executives, says its
manufacturing index read 55.7 last month, compared with 52.6 in September. It's the third straight reading above 50, which indicates growth.

MP: This is the strongest level for the ISM index in three and one-half years, since April 2006, and is now at a higher level during the current economic expansion than during the 2002 economic recovery (see chart above).

Update 1: Graph has been updated with explanation of the shaded recession areas.

Update 2: According to Scott Grannis, the ISM rebound suggests we'll have Q4 real GDP growth of 4-5%.

Cash for Clunkers: Here Comes The Hangover

"Cash for clunkers" might have "juiced up" new vehicle sales and provided some initial and temporary stimulus to the economy, but there are some secondary costs now surfacing in the "hangover" period:

1. Shortage of cheap used vehicles and rising prices (see chart above).

In his 20 years in the business, salesman Mark Sauer has never had a tougher time finding inexpensive used cars. "It's never been this bad," said Sauer, buyer and sales manager of Vaccaro's Auto Buyers of Reading, PA. "Customers used to be able to find a good car for their son or daughter to take to college for $2,000 or $3,000, but now that same car may cost $5,000," said another dealer. "It's sad."

2. Some small car dealers are now going out of business.

Having the toughest time, though, are smaller dealers who focus on vehicles in the low-price to midprice range, and some have closed as a result, according to the Pennsylvania Independent Automobile Dealers Association.

3. Financing issues resulting from the rising prices.

Another problem is that used-vehicle prices have quickly risen above their book values, making it tougher for customers to secure financing.

Jobs Saved? What About the Jobs Destroyed?

Washington Post -- The White House on Friday embraced reports showing that the $159 billion in grants and loans made so far under the economic stimulus package has created or saved about 640,000 jobs, even as Republicans and government watchdogs questioned the reliability of the figures.

White House officials said the reports -- the first batch of filings by states, cities and other recipients of stimulus grants and loans -- buttressed their calculation that the full $787 billion package passed in February has saved or created 1 million jobs.

From Henry Hazlitt's "
Economics in One Lesson" (originally published in 1946), Chapter 4 "Public Works Mean Taxes:"

There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. An enormous literature is based on this fallacy, and, as so often happens with doctrines of this sort, it has become part of an intricate network of fallacies that mutually support each other.

A certain amount of public spending is necessary to perform essential government functions. A certain amount of public works — of streets and roads and bridges and tunnels, of armories and navy yards, of buildings to house legislatures, police and fire departments—is necessary to supply essential public services. With such public works, necessary for their own sake, and defended on that ground alone, I am not here concerned. I am here concerned with public works considered as a means of “providing employment” or of adding wealth to the community that it would not otherwise have had.

A bridge is built. If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money had it had not been taxed away from them, there can be no objection. But a bridge built primarily “to provide employment” is a different kind of bridge.

The bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

Thanks to Dennis Gartman, who featured a quote from this chapter of Economics in One Lesson in today's The Gartman Letter.

Sunday, November 01, 2009

Long-Awaited Housing Recovery Finally Under Way

This BusinessWeek article makes the case that:

Even if policy supports are ended, home affordability and shrinking inventory point to a sector on the mend. The broad improvement in the housing indicators in recent months leaves no doubt that the long-awaited housing recovery is finally under way. In fact, homebuilding added solidly to third-quarter economic growth, its first positive contribution in 3 1/2 years.

MP: The top chart above shows the 23.4% annual growth in third quarter Real Private Residential Fixed Investment (data), the biggest quarterly gain since the second quarter of 1986, more than 23 years ago, and the first quarter since the fourth quarter of 2005 of positive growth in homebuilding.

The supply of existing homes in September fell to 7.8 months, down from a peak of 11.3 months in April 2008 and the lowest in 2 1/2 years (see second chart above). Given this year's trends, inventories will drop below seven months by yearend. A level consistently below seven months would indicate a better balance between supply and demand, further bolstering the pricing outlook.

Policy alone cannot explain the 24% gain in existing home sales since January, nor the 22% increase in new-home purchases, the 40% rise in single-family housing starts, and the recent upturn in home prices. The primary driver is historically high affordability. Fixed 30-year mortgage rates are at 5%, a multi-decade low, and prices have plunged a total of 30% since May 2006, based on the Standard & Poor's Case-Shiller Home Price Index. By that price gauge, homes are well undervalued relative to both rents and aftertax income.

MP: The bottom chart above shows the monthly Housing Affordability Index through September, using the data from this last week's report from the National Association of Realtors. Because of falling interest rates over the summer, and slightly lower existing-home prices in September compared to the summer months, September housing affordability rose to 162.7, the highest reading since May.

An affordability index of 162.7 means that a household with median family income of $60,288 has 162.7% of the qualifying income needed ($37,056) to purchase a median-priced existing single-family home of $174,900, financing the purchase at the 5.24% average mortgage rate in September, with a 20% down payment. The September index of 162.7 is almost 38 points above the average affordability index of 124.8 since 1989.

Recent CD posts have provided additional evidence of a real estate recovery taking place in states like Florida (13 straight months of sales gains) and California (15 monthly sales increases).

Sen. Reid on Health Insurance Profits

As for insurance companies, “There isn’t anything we could do to satisfy them in this health care bill. Nothing,” Senate Majority Leader Harry Reid (D-Nev.) said. “They are so anti-competitive. Why? Because they make more money than any other business in America today. . . .What a sweet deal they have.”

From Jeff Jacoby's new column "Hyperbole and the Health-care Debate," where he cites the 3.3% profit margin for "health care plans" and its industry ranking of #86 that I have previously posted about.

Update: In response to a comment that return on capital is more important than profit margin, here are the industry rankings by "Return on Equity," showing that "Health Care Plans" ranks #52 with a 13% ROE.

New Study Shows Significant Drop in World Poverty

Some really interesting results from a new NBER working paper "Parametric Estimations of the World Distribution of Income," by Maxim Pinkovskiy and Xavier Sala-i-Martin (Columbia University):

Abstract: We use a parametric method to estimate the income distribution for 191 countries between 1970 and 2006. We estimate the World Distribution of Income and estimate poverty rates, poverty counts and various measures of income inequality and welfare. Using the official $1/day line, we estimate that world poverty rates have fallen by 80% from 0.268 in 1970 to 0.054 in 2006 (see chart above). The corresponding total number of poor has fallen from 403 million in 1970 to 152 million in 2006. Our estimates of the global poverty count in 2006 are much smaller than found by other researchers. We also find similar reductions in poverty if we use other poverty lines. We find that various measures of global inequality have declined substantially and measures of global welfare increased by somewhere between 128% and 145%. We analyze poverty in various regions.

MP: The bottom chart above shows poverty rates for the five regions analyzed in the paper, with some pretty amazing results for East Asia (includes mainland China, Taiwan and S. Korea), which in 1960 had the highest regional poverty rate in the world by far, at 58.8%, compared to 39.9% for Africa, 11.6% for Latin America, 8.4% for MENA (Middle East, N. Africa) and South Asia (20.1%). In the 36-year period between 1970 and 2006, the poverty rate in East Asia fell to only 1.7% by 2006, which was below any of the other four regions: Africa (31.8%), Latin America (3.1%), MENA (5.2%) and South Asia (2.6%).

Both graphs are based on a poverty measure of $1/day, but the authors obtain similar results using four other measures of poverty from $2 to $10 per day, both for the overall reduction in world poverty (top graph) and the regional differences (bottom graph).

Bottom Line: Assuming these estimates are accurate, the 80% reduction in poverty between 1970 and 2006 has to be the greatest reduction in world poverty in such a short time span in the history of the world, and the 97% reduction in East Asia has to be the most significant improvement in regional standard of living in history as well. The authors don't explore the reasons for the record reduction in world poverty, but some likely candidates might be: globalization, market-based reforms, liberalization, Information Age technology, productivity gains in agriculture, the collapse of central planning in China and India, etc.

Update: The middle graph now shows the world poverty rate adjusted for inflation, using the authors' "One 2006 Dollar Per Day" data. The inflation-adjusted data also shows a 79.5% reduction, from 11.2% in 1970 to 2.3% in 2006.

Saturday, October 31, 2009

Natural Food Fight: Obamacare vs. Mackeycare

In August, Whole Foods CEO John Mackey argued in the pages of the Wall Street Journal that the solution to America's health care crisis was to be found in "less government control and more individual empowerment." His own company's unique health care plan, Mackey wrote, covers 90 percent of employees, costs less than health insurance plans, aned provides a "very high degree of worker satisfaction." But for the sin of not supporting a government take over of health care, labor unions and left-wing activists called for a boycott of Whole Foods, claiming that Mackey's solutions were unworkable and his employees were unhappy.

Reason.tv talked to protesters, Mackey, and employees about "the Whole Foods alternative to ObamaCare."

Thanks to Art Little.

Barefoot Brick Mover: What Would OSHA Say?

Amazing video of a barefoot brick mover loading 22 bricks on his head. What would OSHA say? This guy has to be more talented than the stagehands at Carnegie Hall making $430,000 per year.

HT: Art Little.

Piano Movers at Carnegie Hall Make More Money Than the Piano Players? Where's The Pay Czar?

METRO US -- The guys who push the piano onto the stage at Carnegie Hall make more than the guy who plays it. Dennis O’Connell, who oversees props at the legendary concert hall, made $530,044 in the fiscal year that ended in June. A concert pianist making $20,000 a night would have to give 27 performances to beat him.

The four other members of the full-time stage crew — two carpenters and two electricians — had an average income of $430,543 during the same period, according to Carnegie Hall’s
tax return (see a portion above). Only theater director Clive Gillinson earns more with his $946,581 in salary and benefits.

The stagehands have a powerful union: Local One of the International Alliance of Theatrical Stage Employees shut down 26 Broadway shows for nearly three weeks in November 2007. Its strike cost the city $40 million, the city comptroller said at the time. Stagehands and producers agreed on a five-year contract that both sides called a compromise.

Labor historian Joshua Freeman said the union’s power to shut down a vital part of the city’s entertainment industry gives it leverage.

MP: Total compensation for the five stagehands at Carnegie Hall totalled $2.175 million. And musicians and promoters are worried about "ticket scalping?" Seems like they should be more concerned about "stagehand scalping."

Thanks to Art Little.

Update: As OA points out in a comment, "Direct and indirect public support ($37.7 million) is more than program revenues ($28 million). So more than half of Carnegie's funding (56%) isn't from selling tickets, but handouts of taxpayer money."

Markets In Everything: La-Z-Boy DWI Chair on Ebay

There are 91 bids so far on Ebay for the "World Famous DWI Motorized La-Z-Boy Style Chair," with 2 days left to go. Current high bid is $38,100 for the infamous vehicle seized by the Proctor, MN police department, after previous owner Dennis Leroy Anderson accidentally crashed his now-famous home-made lawn mower powered La-Z-Boy chair into a parked car after leaving a local tavern.

Dennis won't receive any of the proceeds from the sale of his vehicle, but is trying to cash in on his notoriety by selling autographed pictures of himself sitting in his motorized La-Z-Boy chair, also on Ebay, check it out here.

Tip of the hat to J. Howe.

Tragedy of the Commons: French Bicycle-Sharing Program Goes Flat; 80% of Bikes Stolen or Damaged

NY TIMES -- The latest French utopia (Vélib’, Paris’s bicycle rental system) has met a prosaic reality: Many of the specially designed bikes, which cost $3,500 each, are showing up on black markets in Eastern Europe and northern Africa. Many others are being spirited away for urban joy rides, then ditched by roadsides, their wheels bent and tires stripped.

With 80 percent of the initial 20,600 bicycles stolen or damaged, the program’s organizers have had to hire several hundred people just to fix them. And along with the dent in the city-subsidized budget has been a blow to the Parisian psyche, as not everyone shares the spirit of joint public property promoted by Paris’s Socialist mayor, Bertrand Delanoë.

At least 8,000 bikes have been stolen and 8,000 damaged so badly that they had to be replaced — nearly 80 percent of the initial stock. JCDecaux must repair some 1,500 bicycles a day. The company maintains 10 repair shops and a workshop on a boat that moves up and down the Seine.

It is commonplace now to see the bikes at docking stations in Paris with flat tires, punctured wheels or missing baskets. Some Vélib’s have been found hanging from lampposts, dumped in the Seine, used on the streets of Bucharest or resting in shipping containers on their way to North Africa. Some are simply appropriated and repainted.

Friday, October 30, 2009

Rx: The Cure of Market-Based Health Care Reform, Like Retail Clinics Partnering With Hospitals

From the Minneapolis-St. Paul StarTribune:

In a marriage of giants, Allina Hospitals and Clinics is teaming up with MinuteClinic to coordinate care for patients and expand medical services down the road. Allina is the biggest hospital and clinic group in the Twin Cities, with 11 hospitals and 90 clinics. MinuteClinic, the pioneer of bare-bones retail kiosks staffed by nurse practitioners, has 24 locations in the Twin Cities and 500 nationwide. This is the second such partnership for MinuteClinic, coming after a similar deal with the Cleveland Clinic in Ohio.

"By coordinating care between the retail clinic setting and our clinics and hospitals, patients can feel confident that they will be well taken care of, whether they have a minor illness or something more serious," Kenneth Paulus, Allina's chief executive, said in a statement.

Allina doctors will offer medical oversight to MinuteClinic nurse practitioners in Minnesota, and the two organizations will share electronic medical records. An Allina patient who visits a MinuteClinic, for example, will get that visit recorded in her Allina record.

The Allina/MinuteClinic deal comes at a time of uncertainty in health care. Health care legislation in Congress contemplates ways to both cut payments and shift from paying for procedures to paying for outcomes. That would pressure medical providers to be more efficient -- for example, patients with less serious conditions may be seen by nurse practitioners instead of doctors, at lower cost. That is already happening in some areas, with retail clinics the most obvious example.

Thursday, October 29, 2009

Low Prices Are Harmful to Consumers?

Click to enlarge.

From the American Booksellers Association letter to the Antitrust Division of the U.S. Department of Justice:

We ask that the Department of Justice investigate practices by Amazon.com, Wal-Mart, and Target that we believe constitute illegal predatory pricing that is damaging to the book industry and harmful to consumers.

As reported in the consumer and trade press this past week, Amazon.com, WalMart.com, and Target.com have engaged in a price war in the pre-sale of new hardcover bestsellers, including books from John Grisham, Stephen King, Barbara Kingsolver, Sarah Palin, and James Patterson. These books typically retail for between $25 and $35. As of writing of this letter, all three competitors are selling these and other titles for between $8.98 and $9.00.

The retailers are, in fact, taking orders for these books at prices far below cost. (In the case of Mr. King's book, these retailers are losing as much as $8.50 on each unit sold.) We believe that Amazon.com, Wal-Mart, and Target are using these predatory pricing practices to attempt to win control of the market for hardcover bestsellers.

Authors and publishers, and ultimately consumers, stand to lose a great deal if this practice continues and/or grows. If left unchecked, these predatory pricing policies will devastate not only the book industry, but our collective ability to maintain a society where the widest range of ideas are always made available to the public, and will allow the few remaining mega booksellers to raise prices to consumers unchecked.

We urge that the DOJ investigate and request an opportunity to come to Washington to discuss this at your earliest convenience.

MP: In other words, according to the booksellers, the "sky is falling," and the very foundations of our civilization are about to be destroyed by the rapacious book pricing policies of Amazon, Wal-Mart and Target. Where to start?

1. How exactly are low book prices "harmful to consumers?" Consumers love low prices, but have several remedies at their disposal to combat "predation" whenever they feel harmed by low prices: a) refuse to buy the book from Amazon or Wal-Mart for $9 and instead pay full price from an independent bookseller, b) refuse to buy the book at all, or c) offer to pay more than the "predatory" price from the "predator." That last option might not work so well at Amazon or Wal-Mart (if the book is priced at $9, it might be hard to actually pay $20 instead - how would the cashier ring it up?), but there might be some cases where a consumer could pay more than the listed price to combat "predation."

2. Keep in mind that about 90% of antitrust investigations involve one firm or group of firms complaining about one of their more efficient, low-cost competitors, like in this case.

3. Assuming that the predation worked and Amazon, Target and Wal-Mart were able to successfully drive all of the independent booksellers out of the market, there would be two problems:

a) They would still have to compete against each other and it could remain an intensely competitive book market even without the independents, to the continued benefit to consumers and

b) if the three oligopolists (Amazon, Target and Wal-Mart) did conspire to raise book prices to "book scalping" or "book gouging" levels, they could then: i) face antitrust charges, this time for high anti-competitive "monopoly" prices, and/or ii) face new competition from firms re-entering the market from the attractive "smell of profits" emanating from the monopoly pricing.

4. Notice in the Amazon listing above (click to enlarge) that Amazon offers "free shipping" on orders over $25, which is obviously below its actual cost. Isn't that then "predatory shipping?" Should that be investigated by the Dept. of Justice?

5. Also notice in the Amazon listing that there are more than 30 new copies of the Grisham book available from small, private booksellers at prices starting at $4.25, or more than 50% below Amazon's price of $9.59. Aren't those small booksellers engaged in predatory pricing AGAINST Amazon?

Bottom Line: "Predatory pricing," as the ABA describes it, is a myth and fairy tale, with virtually no real-world examples of it ever being successful, harmful to consumers, or leading to anti-competitive behavior in the long run.

It's only in the bizarre world of antitrust that any price you charge can be considered illegal. If your price is lower than your competitors, you could be charged with being a "predator" for anti-competitive "predatory pricing." If your price is "too high" you could be charged with anti-competitive monopoly pricing, "price gouging," or "ticket scalping." And if your price is the same as your competitors, you could be charged with collusion and anti-competitive price-fixing.

See Jeff Jacoby's excellent column about this issue "
The War Against Affordable Books," which concludes that:

The ABA does its members no favors by painting them as helpless victims, undone because Amazon, Wal-Mart, and Target are discounting some popular books. The best neighborhood booksellers inspire affection and allegiance from customers that no online superstore can match. Prices are important, but they aren't all-important. And not everyone is looking for the latest Stephen King.

Jobless Claims (4-Wk. Avg.) Drop to Lowest Level in 40 Weeks, Down 132,500 (-20.1%) From April Peak

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits dipped by 1,000 last week, while the number collecting long-term aid fell to the lowest reading in seven months as the job market steadied. Another key gauge of underlying labor market health, the 4-week moving average for new claims, decreased by 6,000 to 526,250, which was the smallest reading since January.

MP: The 4-week moving average of 526,250 is now 132,500 below the early April peak of 658,750, and has dropped to the lowest level since January 17, a 40-week low.

Website of the Day

From Comcast.net via Rand Gerald.

Wednesday, October 28, 2009

Consumer Confidence is a Lagging Indicator: We Should Expect Post-Recession Gloom Through 2010

Scott Grannis: I've never paid much attention to surveys of confidence, mainly because they tend to be lagging indicators. As these charts show (one appears above), consumers are often quite happy until just before a recession starts, and quite depressed well after a recovery begins.

Brian Wesbury and Bob Stein: Meanwhile, the Conference Board’s measure of consumer confidence fell to 47.7 in October from 53.4 in September, as consumers’ assessment of the present situation dropped to the lowest level since 1983. It is not unusual for this measure to bottom after a recession is over and we are more pleased by evidence of actual spending increases than we are dismayed by consumers claiming discontent.

Exhibit A: "Whining" hardly captures the extent of the gloom Americans feel about the current downturn. The slump is the longest, if not the deepest, since the Great Depression. Traumatized by layoffs that have cost millions of jobs during the slump, U.S. consumers have fallen into their deepest funk in years.

"Never in my adult life have I heard more deep-seated feelings of concern," says Howard Allen, retired chairman of Southern California Edison. "Many, many business leaders share this lack of confidence and recognize that we are in real economic trouble."

Says University of Michigan economist Paul McCracken: "This is more than just a recession in the conventional sense. What has happened has put the fear of God into people."

Exhibit B:
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. That may explain why so many polls reveal such ragged emotional edges, so much fear and misgiving. Even the economists do not have a name for the present condition, though one has described it as "suspended animation" and "never-never land."

Both excerpts above are from Time Magazine (altered slightly) articles written AFTER the July 1990 - March 1991 recession had ended, the first was from
January 13, 1992 (ten months after the recession) and the second from September 28, 1992 (21 months following the recession). As the circled area on Scott's chart above indicates, consumer confidence remained low for two years following the end of the 1990-1991 recession and it took about three years for consumer confidence to rise to the pre-recession level. The circled pattern following the 2001 recession was similar.

Bottom Line: Even though there is general consensus that the recession ended this summer (probably in June), consumer confidence will likely remain choppy and low through next year, and we'll get reports like these Time Magazine articles about how bad everything is for at least another year as well.

Wal-Mart's Tough New Global Rival: AUCHAN; Everyday Low Prices Backfire in China

BusinessWeek -- Quick, what's France's answer to Wal-Mart? Until now, it has been Paris-based Carrefour, the global No. 2 retail chain. But increasingly, another French retailer, Auchan, is giving both Carrefour (CARR.PA) and Wal-Mart (WMT) a run for their money.

Auchan now has 132 big-box hypermarkets in China, including 110 operating under the brand name RT Mart in a joint venture with a Taiwanese partner. That puts it neck-and-neck with Carrefour, but behind Wal-Mart, which has 146 stores and owns a stake in a joint venture that has another 104 outlets.

Auchan also is thriving in Russia, where it has built or acquired a total of 34 outlets since entering the country in 2002 and is now the top Western operator of big-box superstores. Carrefour, which opened its first two Russian stores this year, abruptly reversed course this month and announced it was pulling out of the country. Wal-Mart and British retail giant Tesco (TSCO.L), another big discounter, have no stores in Russia.

At the same time, Auchan is pushing into locales ranging from Ukraine, where it plans to open three new stores by the end of the year, to Dubai, where it signed a deal with a local partner in 2008 to develop outlets across the Persian Gulf.

And here's the most interesting part of the article:

Wal-Mart's "everyday low price" strategy has backfired with Chinese shoppers, who often assume cheaper products are unsafe or counterfeit. And while Carrefour has a reputation for high quality, its stores have a "ruckus atmosphere," resembling Chinese street markets, which is a turnoff to middle-class shoppers, he says. In China, people are trading up. Auchan is positioned better than Carrefour and Wal-Mart to be able to grab that.

Fourth Monthly Increase in Canadian Home Prices, Largest Four-Month Gain in More Than Two Years

Canadian home prices in August were down 3.4% from their pre-correction peak of August 2008, 12 months earlier, according to the Teranet-National Bank National Composite House Price Index. It was the eighth consecutive 12-month decline, but the 12-month decline has been diminishing steadily since it peaked at 6.9% in May. The reason is that August is the fourth straight month in which the index reading for Canada as a whole has been up from the month before. The August rise of 2.0% was particularly vigorous. It was the second month in a row in which prices were up from the month before in all six of the metropolitan markets represented in the index. This turnaround is consistent with an improvement in market conditions in the first half of 2009 - more homes have been selling and fewer have been coming on the market.

MP: Canadian home prices have now increased in each of the last four months (May, June, July, Aug.) after falling for 8 consecutive months starting in September 2008, and this marks the first four-month increase in a year, and the largest four-month increase in two years. Like the U.S. real estate market, the Canadian real estate market is showing positive signs of recovery (see previous CD
post here).

106 Bank Failures In Perspective

So far this year 106 banks have failed out of 8,195 FDIC-insured institutions, or slightly more than 1% of all banks. How does that compare to previous periods of financial stress and episodes of bank failures, and is there anything positive about bank failures?

The graph above displays annual bank failures (
data here) from 1930 to 2009, showing the two most serious banking crises in U.S. history, the Great Depression (9,146 banks failed from 1930-1933) and the S&L Crisis (2,935 banks failed from 1980-1994). Compared to those two periods, 106 bank failures in a single year out of more than 8,000 banks in total, does appear pretty inconsequential.

The graph below shows annual bank failures since 1970 only, and puts some further perspective on the 106 bank failures this year, compared to the S&L crisis when almost 3,000 banks failed in total, and there was an entire decade when banks were failing at a rate of more 100 per year.

Further analysis shows that the assets of the 106 failed banks in 2009 totaled $106 billion (
FDIC data here), which represents only 8/10 of one percent of the total U.S. bank assets, currently $13.301 trillion (data here). During the peak of the S&L crisis in 1989, failed bank assets were 3.5% of total bank assets, or more than four times the current level.

Certainly we can expect some more bank failures to follow this year, considering that there were 416 “problem institutions” listed by the FDIC in June. But by comparison, there were almost 1,500 banks on that same list in 1990, and more than 1,000 in both 1991 and 1992 during the S&L crisis.

Read more of my bank failure analysis here at The Enterprise Blog.

The Wal-Mart Economic Stimulus Plan

1. In just a three-week period from October 7-27, Wal-Mart announced the opening of 22 new stores and expansions of existing stores that have added 5,340 new jobs to the local communities in 18 different states.

2. Wal-Mart recently announced
Hundreds of Millions of Dollars in Price Reductions, with unprecedented savings each week this Holiday season.

Wal-Mart also recently announced that total capital spending for the fiscal year ending Jan. 2010, is projected to be between $12.5 to $13.1 billion, up from $11.5 billion in fiscal year 2009. Total capital spending for the fiscal year ending Jan. 2011 is projected to be $13.0 to $15.0 billion. Note: More than 50% of Wal-Mart's capital spending is for its U.S. operations.

Call it The Wal-Mart Economic Stimulus Plan: Thousands of new jobs for American workers, millions of dollars of savings for U.S. consumers, and billions of dollars of investment in local communities around the country. And it all happens in the private sector, without any new legislation and without adding a dollar to the U.S. deficit.

Tuesday, October 27, 2009

Supply and Demand in Action: 1-Way Truck Rentals

I've posted numerous times (here, here, here and here) about how one-way U-Haul truck rental rates reflect supply and demand in action and measure household migration patterns, resulting in high one-way rental prices that reflect high outbound demand (and low inbound demand), and low prices that reflect low outbound demand (and high inbound demand).

Now MSN Money reports on this phenomenon in an article "
Where Jobs Are: The U-Haul Indicator"

One measure of a region's economic health is the relative price of moving-truck rentals. It has been said that people vote with their feet. They pick up and go to where the jobs and opportunities are. The hard part is that it costs more -- a lot more -- to move to where the jobs and opportunities are than to move to where jobs and opportunities are limited. My favorite measure for this doesn't come from the Bureau of Labor Statistics. Nor does it come from any other agency of the federal government.

It comes from U-Haul, the truck and trailer rental company. It has on-the-ground evidence and prices its rentals accordingly. Go to its Web site, and you can learn quickly where people are going. You can also learn where they are leaving. How will you know this? Simple.

If lots of people are trying to go where you want to go, it will cost a lot more than renting equipment to go to the place everyone is trying to leave. Just as there is a law of supply and demand, there is a law of arrivals and departures.

MP: The U-Haul analysis has been circulating around the blogosphere for more than four years now, see Club for Growth (Andy Roth in Aug. 2005 was the first), Marginal Revolution (Sept. 2009) and Freakonomics (Sept. 2009). So you heard it first in the blogosphere, and four years later in the MSM.

Airport Passenger Travel Stages a Comeback?

1. AIRPORTS COUNCIL INTERNATIONAL -- World passenger traffic posted a positive growth rate in August for the first time since June 2008. Passenger demand finally registered a modest positive growth rate in August 2009 with the world airports reporting a 0.1 percent increase compared to August 2008. International passenger traffic declined slightly by 2 percent while domestic traffic increased dramatically by 3 percent in 2009.

Traffic is up at Nashville International Airport. The one month reversal follows 18 straight months of declines. Since February of 2008, passenger numbers have fallen every month until now. September figures climbed roughly 3 percent over the same period last year.

3. After 18 consecutive months of declines, Los Angeles International Airport finally reported a slight uptick in passenger traffic in September, according to figures released Wednesday.
More than 4.5 million airline passengers traveled through LAX last month, a 1 percent increase from September 2008, airport officials said.

4. Kansas City International Airport had 792,533 passengers in September, up 1.1 percent from 783,872 in the same month last year, the Kansas City Aviation Department said.

5. After more than a year of declining passenger numbers, the count of travelers using
Salt Lake City International Airport turned upward this summer as airlines added or restored service. June, July and August showed a promising reversal of a downward trend that began in April 2007, airport officials said Monday.

6. Denver International Airport said Wednesday it recorded 4,877,212 passengers in August, below July's all-time record of 5,109,342 but up 2.3 percent from last August's tally of 4,768,799. It was the busiest August on record for DIA and the second month of year-over-year traffic increases following recession-driven passenger declines dating back to last December.

Odds for Health Care Reform Fall From 50% to 7%

Intrade odds for the contract "Health Care Reform - Will a federal government run health insurance plan (a public option) be approved in the US?" (by December 2009) have fallen to 7.1%, from almost 50% in August (see chart above, click to enlarge).

Biggest 3-Month Gain Since 2005 for Case-Shiller

Oct. 27 (Bloomberg) -- Home prices in 20 U.S. cities rose in August for a third consecutive month, bolstering the case that an economic recovery is at hand (see top chart above). The S&P/Case-Shiller home-price index climbed 1% from the prior month, seasonally adjusted, after a 1.2% increase in July, the group said today in New York. From a year earlier, the gauge fell 11.3%, less than forecast. The gains over the last three months have been the strongest since the three months ended in December 2005 (see bottom chart above).

Selective Concern on Sex Imbalances

In Stuart Taylor’s recent National Journal article “Selective Concern On Sex Imbalances” he writes:

It is an article of faith in the Obama administration, Congress, and much of the academic establishment that there are no innate differences between females and males in interests or cognitive capacities. From this dubious premise, they conclude that only pervasive, ongoing sexism and stereotypes can explain the huge gender disparities in academic fields -- hard sciences, engineering, and mathematics -- that are still male-dominated.

But advocates of this disparity-proves-discrimination dogma apply it quite selectively. They have shown virtually no concern about the small and shrinking percentages of males in colleges generally and in most academic fields.

Taylor concludes that amid the alleged "crisis" of gender bias in math and science departments, “The academic and political establishments treat as a non problem a real crisis that affects far more people: the ever-more-dramatic shrinkage in the percentage of males who graduate from college at all.”

The graph and table above are based on recently released data that provide new statistical support of the shrinking percentage of men graduating from college in general, and the female dominance in higher education for almost all academic fields at the graduate level that Taylor discusses in his article.

Read the entire post here at
The Enterprise Blog.

Monday, October 26, 2009

CA Real Estate Recovery: Home Sales Increase for 15th Straight Month, Median Prices for 7th Month

LOS ANGELES (Oct. 26)Home sales increased 2.1% in September in California compared with the same period a year ago, while the median price of an existing home declined 7.3%, the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) reported today.

Closed escrow sales of existing, single-family detached homes in California totaled 530,520 in September at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR associations statewide. Statewide home resale activity increased 2.1% from the revised 519,530 sales pace recorded in September 2008 (see chart above). Sales in September 2009 increased 0.6% compared with the previous month.

The median price of an existing, single-family detached home in California during September 2009 was $296,090, a 7.3% decrease from the revised $319,310 median for September 2008, C.A.R. reported. The September 2009 median price rose 1.1 percent compared with August’s $292,960 median price.

“A new milestone was reached in September, when five C.A.R. regions reported positive year-to-year increases in the median price, the first such increase since January 2008,” said C.A.R. Vice President and Chief Economist Leslie-Appleton-Young. “September also marked the seventh consecutive month of month-to-month increases in the statewide median price and the first single-digit decline in the year-to-year median price since October 2007, after 22 consecutive months of double-digit decreases.

C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in September 2009 was 4.2 months, compared with 6.5 months for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

MP: Now that year-over-year unit sales have increased for 15 consecutive months, median prices have increased for 7 straight months, and unsold inventory has dropped by more than two months over the last year, can we now declare that the California real estate market is in a full state of recovery? And if this isn't a full recovery, how would it be any different than the current conditions?

The Health Care Debate is Part of a Moral Struggle

Arthur Brooks, president of the American Enterprise Institute, writing in today's WSJ, suggests that the health-care debate is part of a larger moral struggle over the free-enterprise system, here's an excerpt:

We will continue to hear both sides of the health-care debate argue about particulars of insurance markets, the deficit impacts of reform, and the minutiae of budgetary assumptions. These arguments, while important, do not address the deeper issues involved.

The health-care debate is part of a moral struggle currently being played out over the free enterprise system. It will be replayed in every major policy debate in the coming months, from financial regulatory reform to a cap-and-trade system for limiting carbon emissions. The choices will ultimately always come down to competing visions of America's future. Will we strengthen freedom, individual opportunity and enterprise? Or will we expand the role of the state and its power?

Chicago Fed Index Increases for 8th Straight Month and Suggests That The Recession is Over

CHICAGO FED -- At –0.63 in September (up from –0.96 in the previous month), the index’s three-month moving average, CFNAI-MA3, suggests that growth in national economic activity was below its historical trend. However, the CFNAI-MA3 in September improved to a level greater than –0.70 for the first time since the early months of this recession. For the four previous recessions, the first month when the CFNAI-MA3 was above –0.70 coincided closely with the end of each recession as eventually determined by the National Bureau of Economic Research (see top chart above showing the last three recessions).

MP: The bottom chart above shows the monthly change in the CFNAI-MA3, which has been positive for the last eight months (February through September), the first time since 1975 of eight consecutive monthly increases, and similar to the seven consecutive monthly increases from December 2001 to June 2002 that marked the end of the 2001 recession (see shaded areas).

Sunday, October 25, 2009

Florida Home Sales Increase 13th Straight Month

ORLANDO, Fla. – Oct. 23, 2009 -- Florida’s existing home sales rose in September, which marks more than a year (13 months) that sales activity has increased in the year-to-year comparison, according to the latest housing data released by Florida Realtors. September’s statewide sales also increased over sales activity in August in both the existing home and existing condominium markets.

Existing home sales rose 34% last month with a total of 14,419 homes sold statewide compared to 10,778 homes sold in September 2008, according to Florida Realtors (see chart above). Statewide existing home sales last month increased 4.1% over statewide sales activity in August. Florida’s median sales price for existing homes last month was $142,000; a year ago, it was $174,900 for a 19% decrease.

Legalize It, Part II

In America, 37% of adults have tried marijuana; in the Netherlands the figure is 17%. Heroin usage rates are three times higher in the United States than in the Netherlands. Crystal meth, so destructive here, is almost nonexistent there. By any standard -- drug usage rates, addiction, homicides, incarceration and dollars spent -- America has lost the war on drugs.

And just as escalating the drug war over the past three decades hasn't caused a decrease in supply and demand, there's no good reason to believe that regulating drugs instead of outlawing them would cause an increase. If it did, why are drug usage rates in the Netherlands lower? People start and stop taking drugs for many different reasons, but the law seems to be pretty low on the list. Ask yourself: Would you shoot up tomorrow if heroin were legal?

From today's Washington Post, by Peter Moskos, professor of criminal justice at John Jay College and the author of "Cop in the Hood: My Year Policing Baltimore's Eastern District." He is a former Baltimore City police officer.

Legalize It!

George Mason economist Don Boudreaux makes the case for legalizing (decriminalizing) insider trading, a potentially victimless "crime," in the Wall Street Journal. Here's an except:

Not only do insider-trading prohibitions slow economic growth, promote corporate mismanagement and discourage investment diversification, their application also is unavoidably biased.

These prohibitions are meant to prevent all insiders with non-public information from profiting from the use of such information before it becomes public. It follows that unbiased application of these prohibitions should target not only traders whose inside information prompts them to actively buy or sell assets, but also traders whose inside information prompts them not to make asset purchases or sales that they would have made were it not for their inside information.

The insider who learns that the Food and Drug Administration will approve a new blockbuster drug developed by a major drug company, for example, obviously profits from this information if it prompts him to buy 1,000 shares of the company that he otherwise wouldn't have bought. So, too, though, does the insider profit who, upon learning the same information, abandons her plans to sell 1,000 shares of the company. But because insider "nontrading" is undetectable, only the former insider is practically subject to prosecution and punishment.

And because opportunities to profit through insider "non-trading" might well occur with the same frequency as opportunities to profit through insider trading, as many as half of those investment decisions influenced by inside information might be undetectable.

This bias is not only a source of prosecutorial unfairness; its existence casts doubt on the assumption that insider trading is so harmful that it must be treated as a criminal offense. After all, if capital markets continue to function as well as they do given that many investment decisions potentially influenced by inside information are unstoppable because they are undetectable, why believe that the detectable portion of investment decisions influenced by inside information would be harmful if they were legal?

Brookings' MetroMonitor Now Tracks America's 100 Largest Metro Economies Quarterly

Alternative graph with California on the right axis:
BUSINESS WEEK ("The U.S. Metros Least Touched by Recession") - America's strongest economies have one thing in common -- home prices that never got too hot or too cold (see charts above comparing the home price index in California to Arkansas, Texas and Oklahoma over the last ten years).

Home prices in metros such as San Antonio, Oklahoma City, Pittsburgh, Rochester, Little Rock, Ark., and Baton Rouge, La., remained steady through boom and bust. Although no metropolitan area entirely avoided the economic downturn, the most resilient metros were protected by a potent mix of recession-resistant jobs.

The upstate New York areas of Syracuse, Rochester, Albany, and Buffalo suffered from declining jobs in manufacturing, but got significant boosts from sizable health-care, education, and government sectors. Construction is booming in Baton Rouge, Louisiana's capital, as firms take advantage of financing for post-Katrina hurricane recovery work and service-related companies expand to meet the needs of a growing population. Omaha and the state of Iowa have relatively strong insurance sectors.

Texas, the last state to enter recession, has been bolstered by its oil and gas industries -- which have also helped Oklahoma, North Dakota, and Louisiana. Texas also has many other things going for it, including affordable home prices and relatively low wages, which attract corporations.

MP: BusinessWeek then uses data from the
Brookings Institution's new MetroMonitor to identify the 40 strongest-performing metro areas. According to Brookings:

The MetroMonitor is a quarterly, interactive barometer of the health of America’s 100 largest metropolitan economies. It examines trends in metropolitan-level employment, output, and housing conditions to look “beneath the hood” of national economic statistics to portray the diverse metropolitan trajectories of recession and recovery across the country. The aim of the MetroMonitor is to enhance understanding of the particular places and industries that drive national economic trends, and to promote public- and private-sector responses to the downturn that take into account metro areas’ unique starting points for eventual recovery.

From the
MetroMonitor's September report:

The 100 largest metropolitan areas have varied greatly on changes in employment, unemployment rate, gross metropolitan product (GMP), and housing prices over the course of the recession. We rank all 100 metropolitan areas on measures of their changes in these indicators since their peak or over the past year, depending on the indicator. We then group the areas by their average rank across all four indicators. This overall performance index yields a striking illustration of disparate economic performance among the nation’s largest metro areas.

The chart below shows the top 20 strongest metro areas and the bottom 20 weakest metro areas during the recession, and the map shows the 100 metro areas ranked by quintiles:

It's pretty easy to see that California, Florida, Nevada and Arizona got hit the hardest by the recession, along with some Rust Belt areas like Michigan and Ohio. The entire middle of the country from Texas up through Iowa did much better (so did North and South Dakota but they must not have any cities in the top 100), as did areas along the east coast and New England.

Brookings also reports on each variable separately (employment, unemployment, gross metro product and real estate prices) and also reports Real Estate Owned (REO) data for each metro area in its 21 page report. The MetroMonitor is a new and rich source of data that tracks the economic performance of our metropolitan economies.