Tuesday, January 05, 2010

John Mackey: Food Fighter

Mackey, an outspoken critic of executive overcompensation, pays himself $1 a year. No one at the company can have a salary more than nineteen times what the average team member makes. (On average, an S&P 500 CEO makes 319 times what a production worker does.) Last year, the highest salary went to Walter Robb, the co-president and chief operating officer, who made just over $400,000 (supplemented by a bonus and stock options). The average hourly wage was $16.50.

Whole Foods has made Mackey a wealthy man. He owns roughly $30 million in stock—less than one per cent of the company—and has sold millions more over the years. Still, he flies commercial and drives a Honda Civic hybrid.

NY Fed Treasury Spread Model: Recession Is Over and There's NO Chance of a Double-Dip Recession

Today the New York Federal Reserve released its updated "Probability of U.S. Recession Predicted by Treasury Spread" with data through December 2009, and the Fed's recession probability forecast through December 2010 (see top chart above). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (3.54% spread in December) to calculate the probability of a recession in the U.S. twelve months ahead.

The Fed's model (
data here) shows 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. For December 2009, the recession probability is only 0.82% (less than 1%) and by a year from now in December 2010 the recession probability is only .061%, or about 1/16 of one percent.

Further, the Treasury spread has been above 3% for the last eight months (since May), a pattern consistent with the economic recoveries following the last two recessions (see bottom chart above), and the 3.54% spread in December is the highest since May 2004, five-and-a-half years ago. Finally, the pattern of the recession probability index so far this year (going below double-digits and declining monthly) is very similar to the patterns that signalled the end of the 1990-1991 and 2001 recessions.

According to the NY Fed model, the chances of a double-dip recession in 2011? Zero.

This Is Going To Be A Barnburner Of A Recovery: Recovery Will Be 2X Bigger Than Experts Predict

The Great Panic of 2008 may have destroyed blind optimism. But if excessive optimism was the near-fatal pose in 2008, blind pessimism has emerged as the reflexive post-bust crouch. And it has led the economic establishment to miss yet another inflection point. While we were wringing our hands about America's financial and industrial crisis, we ignored a parallel narrative that was emerging: the repairing of balance sheets, an embrace of reality, a nascent recovery. The same folks who chased the recession down now are likely to chase the recovery up.

For all the advances of information technology, big economic turns always take us unawares. In 2007, all indicators flashed green—until the bottom suddenly fell out. In this environment, things can look awful, until a new order unexpectedly comes in or a few deals break in your firm's favor. All of a sudden, things seem much better. We're in a Missouri economy now, one in which recovery has to be shown, not told. Economic conditions may be improving, but it still may take more than a few quarters of growth before people fully commit to recovery, both financially and psychologically. If credit means belief, since the credit crisis began two years ago, belief has been in short supply. Maybe it's time for a little blind faith.

~Daniel Gross in Slate Magazine

Markets In Everything. Or Not. At Least Not Without the $1/Gallon Tax Credit for Biodiesel

DAILY TECH -- Now another nail has been placed in the commercial biofuel industry' coffin -- the government $1/gallon federal tax credit will expire this Friday. And for many businesses in the industry, it may be the last; amid a frustrating market, many biodiesel makers across the U.S. say they will likely call it quits and cease production when the credit ends. Without the $1/gallon federal tax credit, the biodiesel industry no longer appears commercially viable.

Nations Don't Trade With Each Other;Individuals Do

WASHINGTON (Reuters) -- The United States imported $2.74 billion of "oil country tubular goods" from China in 2008, more than triple the previous year, as a surge in oil prices led to increased demand for the oil well tubing and casing.

MP: The statement above perpetuates a common misconception about international trade that clouds clear thinking about the topic. Technically, the United States did NOT import $2.74 billion of steel pipe from China, at least not as a "country." It was dozens, if not hundreds, of American-owned companies that voluntarily placed hundreds, if not thousands, of individual purchase orders in 2008 to purchase Chinese steel from dozens, if not hundreds, of steel-producing companies in China who filled the orders totalling $2.72 billion, and shipped the steel.

It might be a subtle point, but it's important to realize that countries don't trade with each other as countries - rather it's individual consumers and individual companies that are doing the buying and selling. The confusion gets reinforced when we constantly hear about the "U.S. trade deficit with Japan" or China, which might again imply that the "unit of analysis" for international trade is the country, when in fact the unit of analysis is the individual U.S. company that engages in trade with other individual companies on the other side of an imaginary line called a national border.

It's possible that some of the confusion about international trade can be traced to confusion about the "trade deficit" and the "budget deficit." The relevant unit of analysis for the budget deficit is indeed the country, since it's the entire country via elected officials that is responsible for the "budget deficit." By conflating these two distinctly different deficits, it's then easy to assume that the relevant unit of analysis for both is the "country" when in fact that only applies to the "budget deficit" and not the "trade deficit."

Once one understands that it's individual companies, not countries, that are doing the trading, then it's not so easy to get fooled by statements or headlines like "Punitive tariffs are being imposed on China," or "Obama to hit China with tough tariff on tires." Since China doesn't actually trade with the United States at the national level, tariffs cannot be imposed on the country of China - it's not like the United States government sends a tax bill to the Chinese government.

Rather, since it is companies that are trading, it's companies that have to pay the taxes (tariffs) TO their OWN government. In the case of U.S. tariffs on Chinese tires or steel, the tariffs (taxes) are being imposed not on the Chinese government or even the Chinese steel-producers, but on American companies who now are taxed for buying tires or steel from China, and then those taxes are ultimately passed along to the individual Americans who purchase the tires and purchase the consumer products like automobiles that contain Chinese steel.

Bottom Line: Starting with the fallacy that countries, not individuals, engage in international trade, it's then much harder to realize that it's individual American companies and consumers who are penalized, taxed and disadvantaged by trade protection. By understanding that only individuals ultimately trade, it's then much easier to see that trade barriers typically protect a concentrated, small but well-organized group of inefficient domestic producers from more efficient foreign competition, while imposing huge and significant costs on other Americans - domestic companies that buy imported inputs and ultimately millions of U.S. consumers.

Last Decade Was a Big Success for Global Economy

From Tyler Cowen's NY Times article "Fruitful Decade for Many in the World":

It may not feel that way right now, but the last 10 years may go down in world history as a big success. That idea may be hard to accept in the United States. After all, it was the decade of 9/11, the wars in Iraq and Afghanistan, and the financial crisis, all dramatic and painful events. But in economic terms, at least, the decade was a remarkably good one for many people around the globe. If we look beneath the surface just a bit, the picture is a good deal rosier than we might otherwise think.

One lesson from all of this is that steady economic growth is an underreported news story — and to our own detriment. As human beings, we are prone to focus on very dramatic, visible events, such as confrontations with political enemies or the personal qualities of leaders, whether good or bad. We turn information about politics and economics into stories of good guys versus bad guys and identify progress with the triumph of the good guys. In the process, it’s easy to neglect the underlying forces that improve life in small, hard-to-observe ways, culminating in important changes.

In a given year, an extra percentage point of economic growth may not seem to matter much. But, over time, the difference between annual growth of 1% and 2% determines whether you can double your standard of living every 35 years or every 70 years. At 5% annual economic growth, living standards double about every 14 years.

MP: The charts above appeared recently on this CD post, and it seemed appropriate to feature them again to accompany Tyler Cowen's article. If the IMF's forecasts for world real GDP through 2014 are accurate, and if we consider the 12 years from 2003-2014, it will be a period of 5 years of above-trend growth (2003 - 2007), followed by a three-year period of below-trend growth including one year of negative growth (2009), followed by a four-year period of above-trend growth from 2011-2014. Looking at a longer period from 1990 through 2014, the world economy will add a full percentage point of real economic growth in less than 25 years, going from about 3% in 1990 to 4% by 2014. That will mean that output and living standards will double every 18 years very soon, a 25% improvement from the 24 years it takes for living standards to double with the 3% growth of the early 1990s.

The bottom chart shows world real GDP per capita in 2009 dollars, from 1981 to 2014, using IMF data for world GDP and U.S. Census Bureau data for world population. Following a 2.2% decline in per-capita real GDP in 2009, positive growth is expected to resume in 2010, as the long-term upward trend continues so that by 2014 real per-capita GDP will be almost $10,000, almost double the level of the early 1980s.

If we "look beneath the surface just a bit" as Tyler suggests and consider a long enough time period for some perspective, the recent financial and economic troubles will probably look rather insignificant in comparison to the long-term positive trends in global output and the resulting significant increases in living standards around the world.

Monday, January 04, 2010

Female Veterinarians (77%) Now Dominate Male Engineers (75%); Why Is Only One a National Crisis?

1. From the NY Times article "Math, Tech and the Women Who Don’t Love Them":

It’s no secret to anyone in Silicon Valley that math, science and technology fields remain dominated by men, despite some progress by women in recent years. Women make up 46% of the American workforce but hold just 25% of the jobs in engineering, technology and science, according to the National Science Foundation. To Sally K. Ride, a former astronaut, that persistent gender gap is a national crisis that will prove to be deeply detrimental to America’s global competitiveness.

2. From the WSJ article "Harvard Prof Wonders: Why Are There So Many Women Veterinarians?:"

Why are there so many women veterinarians? In part because educated women are drawn to professions that are providing flexibility to combine work and careers, Harvard University economist Claudia Goldin said in a lecture at the American Economic Association in Atlanta.

The increase of women in various professions since 1970 has been spectacular. But why do highly educated women enter some professions and fields more than others? “Women are 77% of all newly minted veterinarians, but they were a trivial fraction 30 years ago,” she noted.

MP: Using the "logic" of the first article above to re-write the second article:

It’s no secret to anyone in Silicon Valley that math, science and technology fields remain the veterinary field is increasingly being dominated by men women, despite some reflecting progress a significant relapse by women men in recent years. Women Men make up 46% 54% of the American workforce but hold just 25% 23% of the jobs in engineering, technology and science,veterinary science according to the National Science Foundation. To Sally K. Ride, a former astronaut, that persistent growing gender gap in favor of women is a national crisis success that will prove to be deeply detrimental beneficial to America’s global competitiveness.

Detroit Links: Can Farming Save the Motor City?

1. Video: Detroit in RUINS!

On the city's east side, where auto workers once assembled cars by the millions, nature is taking back the land.  Cottonwood trees grow through the collapsed roofs of homes stripped clean for scrap metal (see photo above and there's more here). Wild grasses carpet the rusty shells of empty factories, now home to pheasants and wild turkeys.

This green veil is proof of how far this city has fallen from its industrial heyday and, to a small group of investors, a clear sign. Detroit, they say, needs to get back to what it was before Henry Ford moved to town: farmland.

"There's so much land available and it's begging to be used," said Michael Score, president of the Hantz Farms, which is buying up abandoned sections of the city's 139-square-mile landscape and plans to transform them into a large-scale commercial farm enterprise."Farming is how Detroit started," Score said, "and farming is how Detroit can be saved."

3. Front page story from yesterday's (Sunday) Washington Post, "A Hard Downshift in Detroit: Poll of Detroit residents finds grim conditions but optimistic outlooks."

ISM Manufacturing Index Reaches 44-Month High

WALL STREET JOURNAL -- The U.S. manufacturing sector finished 2009 on a high note, helped by improving production and ordering activity, according to data released Monday by the Institute for Supply Management.The ISM's manufacturing purchasing managers' index rose to 55.9 last month, from 53.6 in November. December's reading was above the 54.0 forecasted by economists surveyed by Dow Jones Newswires. Readings above 50 indicate expanding activity.

"The manufacturing sector grew for the fifth consecutive month in December as the PMI rose to 55.9, its highest reading since April 2006 when it registered 56," said Norbert Ore, who directs the survey for the ISM.

The ISM's new orders index increased to 65.5 last month, from 60.3 in November, while the production index rose to 61.8 from 59.9. Both indexes suggest orders and output were increasing strongly in December.

From the ISM report:
A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the eighth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the fifth consecutive month.
Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through December (46.3 percent) corresponds to a 1.6 percent increase in real gross domestic product (GDP). However, if the PMI for December (55.9 percent) is annualized, it corresponds to a 4.6 percent increase in real GDP annually."

MP: Add this to a long list of indicators pointing to a V-shaped economic recovery.

If Economists Wrote the News on Protectionism

WASHINGTON POST (Reuters) - A U.S. trade panel gave final approval on Wednesday to duties taxes ranging from 10 to 16 percent on cost-conscious firms in the U.S. who purchase low-priced Chinese-made steel pipe rather than high-price domestic pipe, in the biggest U.S. trade case to date against China American companies (and their shareholders, employees, and customers) who shop globally for their inputs and find the best value in China.

Read more here at the Enterprise Blog.

There Are Innate Gender Differences in Abilities, But It Probably Won't Be So Controversial This Time

The Chronicle of Higher Education summarizes some papers presented at the AEA meetings in Atlanta over the weekend, including "Explaining The Worldwide Boom in Higher Education of Women," by Gary Becker, William Hubbard and Kevin Murphy (University of Chicago). The authors show that in 67 of 120 countries more women than men hold college degrees. And the degree gap is not restricted to high-income countries: The 67 countries include 17 where per-capita income is below the global median. For the U.S., about 36% of women aged 30-34 years have college degrees, compared to only 28% of men.

The authors argue that the economic and noneconomic benefits of completing college have been increasing, and that those benefits are still generally larger for men than for women. So why haven't men been flooding into college at the same rates as women? One central answer, according to the authors, is that women generally have stronger "noncognitive skills"—that is, self-discipline and focus—than do men, and that they are therefore more likely to complete college.

From the

Gender differences in the distributions of cognitive and non-cognitive abilities might be important in explaining gender differences in the propensities to go to and graduate from college. Gender differences in the means of cognitive measures like IQ are minor, but the degree of variability in cognitive abilities appear to be greater among men than women.

However, the main ability differences between men and women are in the non-cognitive arena. Non-cognitive abilities affect grades and test scores by affecting how much attention students pay to instruction from their teachers, how organized they are in doing homework and preparing for exams, whether they get disciplined for inappropriate behavior at school, and in various other ways.

Table 2a and 2b above present several measures of the mean and variability in the non-cognitive abilities of boys and girls. They show that girls have both higher average levels and smaller variances of non-cognitive abilities than boys do. Importantly, non-cognitive abilities are at least as important as cognitive abilities in determining academic success and life outcomes. Heckman, Stixrud, and Urzua (2006) find that non-cognitive skills are as important as, if not more important than, cognitive skills in determining many aspects of social and economic success including the probability of being a 4-year-college graduate at age 30.

MP: What's interesting and troubling at the same time is that these results showing significant gender differences in non-cognitive abilities will probably be accepted (embraced?) as completely non-controversial, for one main reason: the gender differences for non-cognitive abilities show that women are superior to men, and suggest that there are innate gender differences favoring women that explain why they outnumber men in higher education.

Contrast that to the reception Larry Summers got when he suggested that innate differences in the variability of male and female cognitive abilities might be one reason fewer women succeed in science and math careers. And if you look at Figure 19 in the Becker et al. paper, you'll find empirical support for what Summers said - there is significantly greater variability of male test scores vs. female test scores, and that finding is consistent across almost all countries and all four tests (math, reading, science and problem solving).

Sunday, January 03, 2010

Meet The Lipstick Entrepreneurs and "Femterprise"

1. THE ECONOMIST -- The Rich World’s Quiet Revolution: Women are Gradually Taking over the Workplace

Today women are marching into the workplace in ever larger numbers and taking a sledgehammer to the remaining glass ceilings.

Women’s economic empowerment is arguably the biggest social change of our times. Just a generation ago, women were largely confined to repetitive, menial jobs. They were routinely subjected to casual sexism and were expected to abandon their careers when they married and had children. Today they are running some of the organisations that once treated them as second-class citizens. Millions of women have been given more control over their own lives. And millions of brains have been put to more productive use. Societies that try to resist this trend—most notably the Arab countries, but also Japan and some southern European countries—will pay a heavy price in the form of wasted talent and frustrated citizens.

TIMES ONLINE -- Meet the Lipstick Entrepreneurs

At a recent Avon-commissioned discussion on the rise of “lipstick entrepreneurs” (otherwise known as independent businesswomen), there was breathless talk of female boards and millionaires, of a rise in househusbands and of the end of the pay gap and the glass ceiling. Shiny new names addressed a brand-new vision: “femterprise”, “domestecutives” and, of course, the “lipstick entrepreneur”. According to the Future Laboratory’s accompanying report, we are right at the tipping point of “femterprise”.

And the catalyst for this progress? The “mancession”, obviously (so named because it was men who were bitten hardest). With a nothing-to-lose attitude, women have been rolling up their sleeves and jumping in to bail out the boys. “Women deliver on a call to action,” says the UK president of Avon, Anna Segatti.

Sonic Boom: Dramatic Global Economic Growth

WALL STREET JOURNAL -- The big idea behind [Greg Easterbrook's new book] "Sonic Boom: Globalization at Mach Speed" is that globalization—celebrated, reviled and analyzed for at least a decade now—has hardly begun. The world, Mr. Easterbrook believes, is on the verge of a period of pell-mell integration that will dwarf anything before now, and a good thing too: The coming age of global integration, he argues, will produce riches that none of us can imagine and scatter them more widely than ever before.

AMAZON.COM REVIEW -- Probably the international recession is ending--so what comes next? A Sonic Boom is what comes next. Dramatic global economy growth is likely to resume, especially in the developing world, where growth is needed most. Prosperity should start back upward. Goods and service will continue getting better and cheaper. That’s the boom part. But job anxiety and economic insecurity will accelerate, too. Even as the global economy recovers, we may not feel especially good, because economic change will keep coming faster. That’s the sonic part. A sonic boom is powerful, but also nerve-shattering.

History teaches that when some crisis interrupts larger trends, as soon as the crisis concludes, the larger trends resume. Before the international economic crisis that began in late 2007, the larger trends were robust global growth and rising economic insecurity. Look for both trends to resume in a Sonic Boom world.

Many aspects of a Sonic Boom world will be wonderful. Faster, cheaper communication; easy global access to information and knowledge; rapid innovation, including for green energy; increasing freedom, especially women’s freedom; greater awareness of other cultures. Women’s freedom will itself double the world’s supply of ideas! And the more we know about each other, the less nations and cultures will fear each other, meaning militarism should decline.

MP: The top chart above shows actual, annual real GDP growth for the world from 1981 to 2008, and projected real GDP growth from 2009 to 2014, using
data from the International Monetary Fund (IMF). Following three years of below-trend growth in 2008 (3%), 2009 (-1.06%) and 2010 (3.10%), above-trend growth is expected for years 2011-2014. Also, the trend line shows that the world economy will add a full percentage point of real economic growth in less than 25 years, going from about 3% in 1990 to 4% by 2014.

The bottom chart above shows world real GDP per capita in 2009 dollars, from 1981 to 2014, using IMF data for world GDP and
U.S. Census Bureau data for world population. Following a 2.2% decline in per-capita real GDP in 2009, positive growth is expected to resume in 2010, as the long-term upward trend continues so that by 2014 real per-capita GDP will be almost $10,000, almost double the level of the early 1980s.

Bottom Line: Given a long enough time period for some perspective, the recent financial and economic troubles will probably look rather insignificant in comparison to the long-term positive trends in global output, measured by world real GDP growth rates and real world GDP per-capita. It's been said that "the media constantly dwell on minor problems without celebrating the broader, more upbeat context in which they exist." The trends outlined by Easterbrook and those shown in the graphs above are definitely part of the broader, more upbeat context of an unprecedented period of global wealth creation, increased prosperity, and significant reductions in poverty.

The Nanny State and The Complacent Citizenry

DAVID BROOKS -- People should be grateful for whatever assistance that government can provide and had better do what they can to be responsible for their own fates. That mature attitude seems to have largely vanished. Now we seem to expect perfection from government and then throw temper tantrums when it is not achieved. We seem to be in the position of young adolescents — who believe mommy and daddy can take care of everything, and then grow angry and cynical when it becomes clear they can’t.

It’s worth pointing out that it wasn’t the centralized system that stopped terrorism in this instance. As with the shoe bomber, as with the plane that went down in Shanksville, Pa., it was decentralized citizen action. The plot was foiled by nonexpert civilians who had the advantage of the concrete information right in front of them — and the spirit to take the initiative.

For better or worse, over the past 50 years we have concentrated authority in centralized agencies and reduced the role of decentralized citizen action. We’ve done this in many spheres of life. Maybe that’s wise, maybe it’s not. But we shouldn’t imagine that these centralized institutions are going to work perfectly or even well most of the time. It would be nice if we reacted to their inevitable failures not with rabid denunciation and cynicism, but with a little resiliency, an awareness that human systems fail and bad things will happen and we don’t have to lose our heads every time they do.

GLENN GREENWALD -- The citizenry has been trained to expect that our Powerful Daddies and Mommies in government will -- in that most cringe-inducing, child-like formulation -- Keep Us Safe. Whenever the Government fails to do so, the reaction -- just as we saw this week -- is an ugly combination of petulant, adolescent rage and increasingly unhinged cries that More Be Done to ensure that nothing bad in the world ever happens. Demands that genuinely inept government officials be held accountable are necessary and wise, but demands that political leaders ensure that we can live in womb-like Absolute Safety are delusional and destructive. Yet this is what the citizenry screams out every time something threatening happens: please, take more of our privacy away; monitor more of our communications; ban more of us from flying; engage in rituals to create the illusion of Strength; imprison more people without charges; take more and more control and power so you can Keep Us Safe.

What makes all of this most ironic is that the American Founding was predicated on exactly the opposite mindset. The Constitution is grounded in the premise that there are other values and priorities more important than mere Safety. Even though they knew that doing so would help murderers and other dangerous and vile criminals evade capture, the Framers banned the Government from searching homes without probable cause, prohibited compelled self-incrimination, double jeopardy and convictions based on hearsay, and outlawed cruel and unusual punishment. That's because certain values -- privacy, due process, limiting the potential for abuse of government power -- were more important than mere survival and safety.

HT: Suzanne Perry

Canada, Not China, Is U.S.'s Largest Trade Partner

In a recent post, I linked to a WSJ article that referred to China as the "U.S.'s largest trading partner." A Canadian, Carl Clarke, wrote an email suggesting that the WSJ got it wrong about China, and observes "that same statement is repeated frequently by various American news media." I checked U.S. trade data, and Mr. Clarke is exactly right - Canada has been, and continues to be, the U.S.'s largest trading partner, not China. For the WSJ, America's premier business paper, to get it so wrong is particularly troubling.

Census Bureau regularly (monthly) tracks the U.S.'s top ten trading partners, going back for at least twelve years, and there has never been a single month, nor a total year since 1998, when Canada has not been the largest trading partner of the United States. (Note: Trade volume is measured by the sum of exports and imports.)

The top chart above displays annual trade volumes (exports + imports) for Canada and China from 2000 through 2009 (estimated), showing that trade with Canada is typically about $200 billion greater than trade with China. The table above shows that trade with Canada in 2008 ($596.5B) was 46% greater than trade with China ($409.3B). And consider that U.S. trade with Canada was more than our trade with Germany, U.K., France, S. Korea, Netherlands and Brazil COMBINED ($545.5B).

Saturday, January 02, 2010

Cracks Emerge in North Korea's Communist Regime; Capitalism, Market Economy Slowly Take Root

WASHINGTON POST -- Kim's government in the past two years has closed some large markets, shifted Chinese-made goods to state-run shops and ordered that only middle-aged and older women can sell goods in open-air markets, to try to limit the number of North Koreans who abandon government jobs for the private sector. But capitalism seems to have already taken root. U.N. officials estimate that half the calories consumed in North Korea come from food bought in private markets, and that nearly 80 percent of household income derives from buying and selling in the markets, according to a study last year in the Seoul Journal of Economics.

Private markets are flooding the country with electronics from China and elsewhere. Cheap radios, televisions, MP3 devices, DVD players, video cameras and cellphones are seeping into a semi-feudal society, where a trusted elite lives in the capital Pyongyang. Surrounding the elite is a suspect peasantry that is poor, stunted by hunger and spied upon by layers of state security.

In the past year, the elites in Pyongyang have been granted authorized access to mobile phones -- the number is soon expected to reach 120,000. In the border regions with China, unauthorized mobile phone use has also increased among the trading classes. And unlike most of the mobile phones in Pyongyang, the illegal phones are set up to make international calls. Chinese telecom companies have built relay towers near the border, providing strong mobile signals in many nearby North Korean towns. Those phones have become a new source of real-time reporting to the outside world on events inside North Korea, as networks of informants call in news to Web sites such as the Seoul-based Daily NK and the Buddhist aid group Good Friends.

Affordable electronics are also cracking open the government's decades-old seal on incoming information. Imported radios -- and televisions in border areas -- are enabling a substantial proportion of the North Korean populations to tune in to Chinese and South Korean stations, as well as to Radio Free Asia and Voice of America, according to an unpublished survey of newly arrived defectors in South Korea. It found that two-thirds of them listened regularly to foreign broadcasts.

Thanks to Art Little.

Markets in Everything: Cosmetic House Calls

DALLAS, Texas -- Kim Welch and Sally Bradley are two of the best at what they do. They are ... Injectors! And today, they are making a house call.

Patient Shannon Samberson, is one of the first people ever to receive an authorized cosmetic house call, because
Cosmetic Care Concierge says it's the first company ever licensed to make them. Shannon is getting a new Botox alternative called Dysport injected. But what's most important to Shannon is the convenience of being at home and the skill of these women.

Random Roundup

1. Wall Street Journal -- U.S. trade laws aren't about "fair trade" or "leveling the playing field," or the other cliches of protectionists. They have become tools of political income redistribution, protecting certain industries at the expense of others and the larger U.S. economy.

2. Fisher Investments -- The U.S. didn’t achieve its economic strength through fear and resignation—rather, innovation has been and will continue to be a chief driver, spurring recovery and driving us to new heights. While many say capitalism was dealt a blow in recent years, this isn’t so. Capitalism requires busts as well as booms—this is normal. Creative destruction is and will be a vital part of helping capital flow to the most productive areas. But with recession finally behind us, we can enjoy the potential of the decade ahead.

3. Michael Barone -- About one-third of the $787 billion stimulus package was directed at state and local governments, which have been facing declining revenues and are, mostly, required to balance their budgets. The policy aim, Democrats say, was to maintain public services and aid. The political aim, although Democrats don't say so, was to maintain public-sector jobs -- and the flow of union dues to the public employees unions that represent almost 40% of public-sector workers.

Those unions in turn have contributed generously to Democrats. SEIU head Andy Stern, the most frequent nongovernment visitor to the Obama White House, has boasted that his union steered $60 million to Democrats in the 2008 cycle. The total union contribution to Democrats has been estimated at $400 million. In effect, some significant portion of the stimulus package can be regarded as taxpayer funding of the Democratic Party. Needless to say, no Republicans need apply.

Dec. 31 (Bloomberg) -- The Mayo Clinic, praised by President Barack Obama as a national model for efficient health care, will stop accepting Medicare patients as of tomorrow at one of its primary-care clinics in Arizona, saying the U.S. government pays too little. More than 3,000 patients eligible for Medicare, the government’s largest health-insurance program, will be forced to pay cash if they want to continue seeing their doctors at a Mayo family clinic in Glendale, northwest of Phoenix. Mayo’s move to drop Medicare patients may be copied by family doctors, some of whom have stopped accepting new patients from the program.

Humor: Why Men Shouldn't Write Advice Columns

Click to enlarge.
HT: R_Adams

Green Technology is a Scarce Resource Hog; And Moves Dependence from Saudi Arabia to China

Rare Earth Element (RRE): Neodymium

William Jacobsen at the Legal Insurrection blog writes:

The whole "green" revolution is based on the false assumption that the technology does not use scarce resources. In fact, "green" technology is a "scarce resource hog," and he points to an article in UK's
The Independent:

Britain and other Western countries risk running out of supplies of certain highly sought-after rare metals that are vital to a host of green technologies, amid growing evidence that China, which has a monopoly on global production, is set to choke off exports of valuable compounds. Failure to secure alternative long-term sources of rare earth elements (REEs) would affect the manufacturing and development of low-carbon technology, which relies on the unique properties of the 17 metals to mass-produce eco-friendly innovations such as wind turbines and low-energy light bulbs.

After decades in which they were considered little more than geological oddities, rare earths have recently become a boom industry after the invention of a succession of devices, including iPhones and X-ray machines, which rely on their specific properties. Global demand has tripled from 40,000 tons to 120,000 tons over the past 10 years, during which time China has steadily cut annual exports from 48,500 tons to 31,310 tons.

Once extracted and refined, the rare earth metals can be put to a dizzying range of hi-tech uses. Neodymium (pictured above), one of the most common rare earths, is a key part of neodymium-iron-boron magnets used in hyper-efficient motors and generators. Around two tons of neodymium are needed for each wind turbine. Lanthanum, another REE, is a major ingredient for hybrid car batteries (each Prius uses up to 33 lbs.), while terbium is vital for low-energy light bulbs and cerium is used in catalytic converters.

As William pointed out on another post:

The green revolution which is the centerpiece of Obama's economic plan essentially relies on substituting our dependence on Saudi oil with a dependence on Chinese metals.

Friday, January 01, 2010

2009 Bull Market: +20% Real Return Ranks #12

Click to enlarge.

The chart above shows annual, inflation-adjusted real returns for the Dow Jones Industrial Average (DJIA) over the last sixty years from 1950 to 2009 (data here and here). Some highlights:

1. The real return on the DJIA for 2009 was 20.62%, ranking #12 for annual returns over the last sixty years.

2. The 2009 return was the highest in five years, and the second highest over the last ten years behind the 23.02% real return in 2003.

3. The DJIA return in 2009 was almost 16% above the average real return over the last sixty years of 4.77%.

What makes the 2009 bull market even more interesting is that it seems to somewhat contradict all of the ongoing reports during 2009 about how we were in the "worst economy since ______" (fill in the blank) and many reports suggested we were almost on the verge of slipping into Great Depression II, etc.

Interestingly, if you do a Google search over the past year in the U.S., you'll find far more results for the term "2009 bear market" (11,800) than for "2009 bull market" (only 355); that's a bear to bull ratio of 33.2 to 1, despite the fact that 2009 obviously now qualifies as a bull market.

Likewise, the Google Trends chart below for the last year shows that the search volume for "bear market" in the United States was higher than the search volume for "bull market."

Bottom Line: The U.S. stock market performed better in 2009 than many people probably realize, and certainly better than most people expected - after all, a real return of more than 20% ranking 12th highest for the last 60 years is pretty good. And since stock markets and stock prices are forward-looking, 2010 might also be a much better year than many people are expecting.

Thursday, December 31, 2009

Trade Protection = Economic War on Yourself

The chart displays the volume of U.S. exports of goods and services, in inflation-adjusted dollars, annually from 1929 to 1945 (data from Global Financial Data, subscription required), showing that U.S. exports fell roughly the same percentage amount from the combined effects of the Great Depression and the Smoot-Hawley Tariff Act of 1930 (-46% from 1929 to 1932) as from the effects of WWII (-44.3%).

Protectionism is doing to ourselves in peacetime what our enemies do to us in wartime (cutting off trade and moving a country in the directon of self-sufficiency)."

The MSCI Emerging Markets Stock Index Closes Out the Year At 17-Month High, +108% from March Low

The Morgan Stanley Capital International (MSCI) Emerging Markets Index closed out the year today at a new 17-month high, going above 989 points for the first time since August 11, 2008.  From the early March low of 475.08, the Emerging Markets Index is up by 108.3%, and from the first of the year by 74.50%. 

Labor Market Turns a Corner: New Jobless Claims Fall to 18-Month Low, Lowest Since July 2008

1. The number of people filing new claims for unemployment benefits in the U.S. unexpectedly fell in the latest week to its lowest level in 18 months, a sign the labor market may be turning a corner. Initial claims for unemployment benefits fell by 22,000 to a seasonally adjusted 432,000 in the week ended Dec. 26, the lowest level since July 19, 2008. Economists surveyed by Dow Jones Newswires had forecast claims would rise by 3,000.

2. Meantime, the Labor Department said in its weekly report Thursday that the number of people collecting jobless benefits for more than a week also continued to decline.The tally of continuing claims, or those drawn by workers collecting benefits for more than one week, fell by 57,000 to 4,981,000 in the week ended Dec. 19.

3. The four-week average of new claims, which aims to smooth volatility in the data, dropped by 5,500 to 460,250 -- marking its 17th consecutive drop. That was the lowest level since Sep. 20, 2008 (see chart above).

Wall Street Journal

WSJ's "Chinese Slapped in Steel Dispute" Rewrite: "Americans Slapped in Steel Dispute"

WALL STREET JOURNAL -- U.S. steelmakers won U.S. consumers who purchase products made with steel and American companies (and their employees) that purchase steel as an input lost a case over Chinese steel imports, as the U.S. International Trade Commission voted that the domestic industry has been damaged industries that use steel have been subsidized too generously by cheap steel from China Chinese producers.

The ruling Wednesday will result in duties of taxes on American companies (and their shareholders, employees and consumers) of between 10% and 16% on future imports of Chinese steel pipes used to extract natural gas and oil. It is the latest in a string of trade decisions against China, the U.S.'s largest trading partner the American consumer and U.S. companies that voluntarily purchase products from China for their low cost and high quality.

On Tuesday, the U.S. imposed preliminary antidumping duties taxes on Americans who purchase steel-grate products imported from China, prompting strong reaction from the Chinese, who said it sent a "wrong, protectionist signal." Earlier this year, the Obama administration imposed tariffs taxes of 35% on middle- and lower-income American consumers who purchase tires from China, which was answered by a Chinese probe into whether U.S.-made autos were being dumped in China at unfairly low prices.

Wednesday, December 30, 2009

Markets in Everything: Refrigerators $69 to $15k

Possibly the world's cheapest refrigerator, the $69 ChotuKool refrigerator above is being taken for field testing in rural India (it's scheduled for release in March 2010). The portable, top-opening unit weighs only 17 pounds, uses high-end insulation to stay cool for hours without power and consumes half the energy used by regular refrigerators. To achieve its efficiency the ChotuKool doesn't use a compressor, instead running on a cooling chip and a fan similar to those used in computers, so like computers it can run on batteries. It's engineering credentials are further boosted by the fact that it has only 20 parts, as opposed to more than 200 parts in a normal refrigerator. The ChotuKool was co-designed with village women (a "reverse engineering of sorts,” according a spokesman for the manufacturer) to assure its acceptability.

The quality and quantity of power these people have access to is very poor and consequently the country has very little development happening in rural areas. The power situation in rural India cannot be fixed overnight and until it is, products like this are needed to make people's lives a little better. Effective refrigeration in rural areas can help people extend their access to not only food, but also essential drugs.


Possibly the world's most expensive refrigerators, the LG Internet Refrigerator pictured below has the coolest set of features ever seen in the kitchen. It is a 730 litre, stainless-steel, side-by-side fridge, with an in-built computer which can be accessed via a 15-inch touch-screen LCD monitor mounted on the fridge door. Users can watch TV, listen to MP3 music, take and store digital photos, make a video phone call, use the fridge as a message board or surf the web.

It also has VCR and DVD ports, a microphone and speakers. Information about food in the fridge can be stored and a map of the fridge allows the owner to keep an inventory of what foods are in each section and how long they have been there. It's biggest advantage will be its functionality as a food management system. It also has an inbuilt hard drive and modem, so that the appliance can be 'connected' by simply running a phone connection into it. $15,000 is the anticipated RRP when it's released later this year.

Bronze Age Orientation Day: Creative Destruction

The forces of Schumpeterian creative destruction have been around for thousands and thousands of years.....
HT: Lee Coppock

Everything's Amazing but Nobody's Happy

I've featured this before, but it's a classic and worth viewing again - comedian Louis C.K. on Conan O'Brien.

Markets in Everything: Free Econ/Bus. Textbooks

Free and Open Content Textbooks now available on the Internet:



2,000 Pages: Is it the New 25 Pages?

Nick Schulz at the Enterprise blog reports on the number of pages in various pieces of important U.S. legislation from the 1800s (Homestead Act with 9 pages) through the current heathcare bill (about 2,000 pages), see summary in the graph above.

By the way, here's what 2,000 pages looks like, it's Ford's 2007 master contract with the UAW and totals 2,215 pages:

Compare that to the 24 page 1941 Ford-UAW contract below, which coincidentally was about the same size as the National Labor Relations Act of 1935 (25 pages):

Tuesday, December 29, 2009

Nov. Trucking Volume Highest Level in a Year

ARLINGTON, VAThe American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.7% in November, following a 0.2% contraction in October. The latest gain boosted the SA index from 103.6 (2000=100) in October to 106.4, its highest level in a year. Compared with November 2008, SA tonnage fell 3.5%, which was the best year-over-year showing in twelve months. In October, the index was down 5.2% from a year earlier.

ATA Chief Economist Bob Costello said that tonnage is moving in the right direction. “Slowly, but surely, truck freight has started the recovery process and November’s solid increase is a very positive sign,” Costello noted. He said that November’s tonnage levels were pushed higher by improved economic activity, as well as by an inventory correction that is near completion. “Truck freight had been hurt by both slow economic output and bloated inventories; however, we now have evidence that the inventories are in much better shape, which will not be such a drag on truck freight volumes.”

Markets Fail. That's Why We Need Markets.

This seemingly paradoxical view is based on several overlapping strands of research in economics as it pertains to development, history, technology, business expansion, and new-firm formation. According to this view, entrepreneurs at work in the economy – in finance, high tech, manufacturing, services, and beyond – are constantly experimenting, creating new business models, techniques, and technologies that upend the established order of things.

Some new technologies and innovations are genuine improvements and are long-lasting welfare enhancers. But others are the basketball equivalent of pump fakes – they look like the real deal and prompt market actors to leap hastily into action, only to realize later that their bets were wrong.

Given this dynamic, markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight. But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation.

When innovation-driven excesses and imbalances are recognized in the marketplace, the system can correct itself quickly. This is less the case when government policy failure occurs. Because political failure is less publicly tolerable than market failure, the temptation becomes for policymakers to avoid acknowledging their role in creating or perpetuating problems. Or they double down on bad bets. So rather than recognize the government’s central role in the housing boom and bust and quickly changing its ways, we see the federal policy apparatus continuing to throw good money after bad in the mortgage market and on Wall Street.

Markets fail; but they learn from their failures. That’s why we need markets. Government can promise to guarantee our prosperity; but only markets can really deliver.

~Arnold Kling and Nick Schulz in the
Christian Science Monitor

Related: In today's WSJ,
Gregg Easterbrook reminds us that "capitalism is the only economic system in history that is rendered stronger by its own instability." In other words, markets fail; that's why we need markets.

Monday, December 28, 2009

Why We Have a Health Care Cost Problem and Why It Will Only Get Worse: Other People's Money

The chart above shows why we have a health care cost problem. Patients have little direct connection in paying for their care, and their role has fallen significantly. Meanwhile, the government's involvement has grown, as has that of the insurance industry.

Because so many Americans rely on an insurance policy or a government program to pay their health care bills, the internal governors that temper the rest of their purchases are turned off. When a visit to the doctor's office or a diagnostic test costs them a mere $10 or $20 co-payment out of pocket — or there is no charge at all — cost has little impact on their decision to see a doctor. "By not knowing the full costs associated with health care, consumers demand more and 'overuse' it," Kenneth E. Thorpe explained a few years back in Health Affairs.

Americans would be more judicious in seeking health care — they would self-ration — if the right incentives were in place. An effective way to cut overuse and bring down costs would be to encourage through public policy the use of health savings accounts. If consumers used HSAs to pay the full amount for medical care at the point of service rather than letting employer-funded insurance or a government program pay the bills, the demand would fall.

The Democrats' health care legislation, however, puts more distance between Americans and the payment process and promotes dependence on government. That will only drive down consumers' out-of-pocket expenses even further and force overall health care spending upward. Under such a regime, the system will be worse off than it is now.

~Investor's Business Daily

Global Bull Market Rally: MSCI World Stock Market Closes at 15-Month High, Up 71% from March Low

The MSCI World Stock Market Index reached 1,176.35 today, the highest closing index value since October 1, 2008, almost 15 months ago. From the March low of 688.64, the benchmark world stock index is up by almost 71%, and from the first of the year by almost 28%.

VIX Below 20 for 3 Days, 1st Time Since May 2008

The CBOE Volatility Index (VIX) fell below 20 last week for the first time since August 28, 2008, almost sixteen months ago, and closed below 20 for three days in a row for the first time since late May 2008 (see chart above). See Forbes story below:

CHICAGO (Reuters) - The VIX, Wall Street's favorite measure of investor anxiety, ended last Tuesday (Dec. 22) at the lowest levels since before last year's implosion of Lehman Brothers sparked the worst financial crisis in more than 70 years.

The decline in the Chicago Board Options Exchange Volatility Index, which came as the Standard & Poor's 500 index hit a 14-month closing high, underscores how the fear that gripped markets throughout late 2008 and early 2009 has dissipated in favor of a sunny outlook for 2010. "As investors gear up for year-end, they only see good things for the first quarter of 2010 and, as such, see fewer swings in the stock market," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group.

Unwinnable War on Drugs: 6k Murders in Mexico

1. WALL STREET JOURNAL -- In the 40 years since U.S. President Richard Nixon declared a "war on drugs," the supply and use of drugs has not changed in any fundamental way. The only difference: a taxpayer bill of more than $1 trillion. A senior Mexican official who has spent more than two decades helping fight the government's war on drugs summed up recently what he's learned from his long career: "This war is not winnable."

Growing numbers of Mexican and U.S. officials say—at least privately—that the biggest step in hurting the business operations of Mexican cartels would be simply to legalize their main product: marijuana. Long the world's most popular illegal drug, marijuana accounts for more than half the revenues of Mexican cartels.

WASHINGTON POST -- Senior Mexican officials have begun a sweeping review of the military's two-year occupation of this dangerous border city (Ciudad Juarez), concluding that the U.S.-backed deployment of thousands of soldiers against drug traffickers has failed to control the violence and crime, according to officials in both countries. "The most terrifying question that everyone asks is, 'If the army comes in and can't control the situation, what happens to us now?'" asks sociology professor Hugo Almada.

With more than 2,500 homicides, Juarez accounts for more than one-third of the 6,000 drug-related murders in Mexico this year; since April, when a surge of federal troops brought a brief lull in the death toll, the city has resumed a pace of eight to 10 murders a day. The violence has also spilled over into the suburban neighborhoods of El Paso. In a macabre daily ritual, assassins now appear to time their killings so that they get play on the afternoon and evening television news shows. The city estimates that the violence has created 7,000 orphans and displaced 100,000 people, many of whom have fled across the Rio Grande to Texas.

EU Green Protectionism = Economic Madness

Click to enlarge.
Some excerpts from the new study "Green Protectionism in the European Union: How Europe’s Biofuels Policy and the Renewable Energy Directive Violate WTO Commitments" from the European Center for International Political Economy:

Biofuels production in Europe is heavily subsidized. Support has also been increasing in the past years and today stand at approximately EUR4 billion ($5.76B). Another way to look at subsidies is that every litre of ethanol consumed in Europe gets 0.74 EUR (about $4 per gallon) and every litre of biodiesel 0.5 EUR ($2.72 per gallon). The effective rate of assistance to biofuels (taking account of all measures of support) adds up to more than 250% for ethanol (see chart above). Biodiesel, and especially rapeseed crops, have lower effective rates of assistance (up to approximately 60%).

This structure of support and protection is not economically sustainable. It is rather close to economic madness to pursue the sort of self-sufficiency or industrial policy ambitions that have guided EU policy towards biofuels. The total cost of every unit of biofuel becomes far too high, which slows down the readiness to shift away from fossil fuels.

The biofuels policy in the European Union is a classic example of “green protectionism” – protectionism that is not motivated for the benefit of the environment, but which uses environmental concerns to pursue non-environmental objectives. The European Union runs an extensive policy for subsidies to biofuel production. Border protection increases the level of subsidy by giving a market support from consumers to producers. Standards are used to favour domestically produced biofuels. It is difficult to escape the picture of a policy driven by industrial ambitions rather than environmental concerns. The intention and/or the effect of Europe’s policy is associated with beliefs of self-sufficiency. Obviously, trade is not considered to be an integral part of an environmental ambition to shift from fossil fuels to biofuels.

A serious policy to move towards an increased share of biofuels in Europe’s energy mix needs to reconsider the role of trade in achieving this ambition. A shift dependent on domestic production would increase the welfare cost: expensive local biofuels are favored; cheaper foreign biofuels are restricted. Such a policy borders on economic madness; Europe simply does not have the resources to finance all the domestic production needed. Nor does it have comparative or competitive advantages in producing biofuels.

Sunday, December 27, 2009

2009 Global Stock Market Rebound

Year-to-date returns for the MSCI Emerging Markets (data here).

Saturday, December 26, 2009

M2 Growth Falls to 3.7%; Can That Signal Inflation?

Can this really be an inflationary environment with annual M2 money growth at close to the lowest level in 14 years, now at only 3.7% (data here)?

Compulsory Unionism Hits the Self-Employed in MI

Read an interesting WSJ editorial about an unbelievable new scheme in Michigan that forces compulsory union membership on self-employed child care providers to "essentially throw a cash lifeline to unions like the UAW, which are hemorrhaging members."

Consumer Sovereignty: What a Country!

Sherry's Wine & Liquor, Washington D.C.
Consumer sovereignty: People use this term to describe the consumer as the "king" (or "queen"), or ruler, of the market.