Carter vs. Obama in December of First Year

In December of their first year in office, according to Gallup:

Approve:
Carter: 57%
Obama: 49%

Disapprove:
Carter: 27%
Obama: 46%

Approve - Disapprove Spread:
Carter: +30%
Obama: +3%

Bypass the Doctor and Go Straight to the Lab

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NEWSCHIEF -- While Washington is deep in the throes of trying to overhaul the nation's health-care system, another development is fast gathering momentum that shows the lawmakers in many ways are pursuing a moving target.

A growing number of Americans are bypassing doctors and going directly to online and storefront labs for diagnostic testing. Most often they pay for these tests out of their own pocket. The results may persuade the consumer to pursue the matter further with a personal physician but, in any case, the consumer is in charge of who sees the results.

The name of one fast-growing chain of walk-in labs encapsulates the field's business model, Any Lab Test Now. The company says it can generally have testing results within 24 hours and at a cost that is as much as 80% less than going through a doctor. The lab franchises offer up to 1,500 tests, from a simple cholesterol check to more sophisticated packages of tests that address complex medical issues.

The medical profession views this development with some skepticism, fearing that consumers will order the wrong kinds of tests or misdiagnose the results. Major physicians organizations like the American Medical Association have cautioned against any kind of clinical or genetic testing done without a doctor's consultation. There is no federal oversight over medical testing, other than requiring that the labs that do the actual testing for the storefronts be properly certified. State regulations vary widely. As so often happens, the consumers seem to be far out in front of the lawmakers and regulators.

From the Any Lab Test Now website:

No Insurance Needed.

Doctor's Order Provided.

No Appointment Necessary.

Confidential and Anonymous.

Most Results in 24-48 Hours.

And here's the full, transparent price list for all of the procedures offered, and here's a list of the 22 tests available for $49 (cholesterol, drug test, hepatitis, herpes, pregnancy, etc.).

MP: Another affordable, convenient market-based solution to rising health care costs and an alternative to a government overhaul of the health care system.

HT: John Goodman

M2 Growth Falls Below 3%, Lowest Rate Since 1995

M2 growth (data here) fell to 2.65% (on an annual basis) in the week ending December 28, 2009 (updated at 9 p.m.), the first time since the summer of 1995 that annual M2 growth was below 3%, and the lowest growth rate since a 2.4% reading in late July 1995 (see chart above).

The growth rate of the monetary base (data here) has also been falling, and is now below 20% for the first time since early October 2008 (see graph below):

MP: For those worried about inflation, I think you better tell the money supply to start growing a little faster for your fears to be realized, because deflation looks more likely now than inflation, based on the monetary aggregates? Doesn't it?

Fierce, Cutthroat Competition Is Best Regulator

Click to enlarge.

From an interesting article in today's Wall Street Journal "Rivals Explore Amazon's Territory" about the intense "cutthroat" competition among Amazon, Google and Apple (see stock return data above for the 3 companies vs. the S&P500 over the last six months):

All three companies are butting heads after long inhabiting different markets.

1. Google will launch a phone that it will sell online directly to consumers, and take direct aim at Apple's iPhone. Given that Amazon already sells cellphones online, that could hurt the retailer as well.

2. Apple's expected unveiling of a tablet computer, likely to have an e-reading function, threatens Amazon's Kindle. Amazon said its e-reader was its biggest-selling product in 2009. The tablet also is expected to offer film and TV shows, strengthening Apple's iTunes as a video service. That could hurt Amazon's video-on-demand service.

3. Google plans to start an e-book store this year, called Google Editions. Consumers will be able to buy digital books that can be read on a range of devices. More important, Google plans to let independent bookstores sell e-books through the service, buttressing their ability to compete with Amazon.

MP: It's exactly the type of intense market competition described in the cases above (and the threat of potential competition from some kids in a basement or dorm room writing code right now to start the next challenger to Google or Apple), and not government bureaucrats at the Department of Justice or Federal Trade Commission, that is usually the best regulator of all, and the most effective protection for consumers against the potential anti-market, anti-consumer behavior of producers.

It's a basic law of economics (Perry's Law) that "market competition breeds competence" (and lower-priced, higher-quality products), and government restrictions on competition and market forces breed incompetence (and higher-priced, lower-quality products), so the more the competition, and the more cutthroat the competition is, the better the outcome for consumers. It's also the case that the "smell of profits" attracts competition, and Amazon, Google and Apple all have stock returns double the 30% market return over the last six months measured by the S&P500, so that redolent attractive odor of profits might be churning up some potentially significant competition right now.

Markets In Everything: San Francisco Goodwill Industries Sells 26,000 Used CDs on Amazon.com

Click to enlarge.

Note: 26,348 lifetime ratings.

Bull Market Rally in Mexico Sets Record Highs

Mexico's IPC Stock Market Index keeps soaring to new record highs, and the IPC has doubled since early 2008 (see chart above).

Updated: Top chart is using log scale.

Appealing to Consumer Greed: Target vs. Costco

WALLETPOP -- The aisles of Target are rarely, if ever, criticized for their diminutive nature. But until recently, shoppers who prefer to buy in packages so large that they can't help but save money had to wander the even bigger aisles of warehouse stores like Costco and Sam's Club. Not anymore. For the next seven weeks, Target will offer big bulk items like extremely large packages of paper towels in its seasonal aisles (typically used for post-holiday merchandise markdowns in January and February). Target is calling it the Great Save Event, which will go through February 21 at all of the company's 1,740 stores.

According to retail analyst Mike Duff, the move makes perfect sense, and is consistent with Target's "Expect More. Pay Less" strategy: "It all adds up to an attempt to create more reasons for consumers to visit the store more often, which is important at a time when shoppers remain reluctant to spend on things other than necessities unless they believe they're getting significant bargains," he says.

It will also be great for Target's bottom line. The sort of savvy [MP: greedy and ruthless?] shopper who has been shopping at Costco will be easily convinced to switch those dollars to Target; especially given the chain's reputation for its trendy fashion offerings.

MP: We hear a lot more about how corporations are disloyal to their communities and employees and about "corporate greed" (553,000 Google hits) than we hear about "consumer greed" (19,700 hits), but consumers can be pretty disloyal, ruthless and cost-conscious themselves, as this story demonstrates. In fact, there's a marketing aphorism that sums it up pretty well: "There's no brand loyalty that the offer of a "penny off" can't overcome it."

HT: James Vanke

Jobless Claims (Four-Week Moving Average) Fall for 18th Consecutive Week to a New 16-Month Low

Updated chart.

Jan. 7 (Bloomberg) -- The number of Americans filing first- time claims for unemployment benefits rose less than forecast last week from the lowest level in more than a year, indicating jobs cuts are waning as companies become more confident in the economy.

Initial jobless applications increased by 1,000 to 434,000 in the week ended Jan. 2, fewer than the 439,000 claims economists anticipated, Labor Department figures showed today. The number of people receiving unemployment insurance dropped in the prior week to 4.8 million, and those receiving extended benefits increased. Improving sales and production gains are prompting companies to slow the pace of firings as the economy recovers from the worst recession since the 1930s.

“This is clearly a strong number,” said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, who forecast claims at 435,000. “Looking forward, you should see slow and steady improvement and a return to positive payroll numbers.” The four-week moving average of initial claims, a less volatile measure, fell to 450,250 last week, the lowest since the Sept. 13, 2008, from 460,500 the prior one (see chart above). Claims have fallen 36% since reaching a 26-year high of 674,000 in the week ended March 27.

Phoenix Home Sales Increase for 11th Month

DQNews -- Phoenix-area November home sales fell from October but jumped 62% above the unusually low levels of a year earlier, largely because of strong demand from first-time buyers and investors (see chart above). The median price paid edged above the prior month for the seventh consecutive month as foreclosure resales continued to play a large but fading role in the market, a real estate information service reported. November’s total sales were the highest for that month since November 2006, when 10,482 homes sold. Total home sales have increased on a year-over-year basis for 11 consecutive months, while total resales (no new homes) have risen on an annual basis for 17 consecutive months.

Phoenix-area November home sales fell from October but jumped 62 percent above the unusually low levels of a year earlier, largely because of strong demand from first-time buyers and investors. The median price paid edged above the prior month for the seventh consecutive month as foreclosure resales continued to play a large but fading role in the market.

The median price paid in November for all new and resale houses and condos combined was $142,700, up 3.4% from $138,000 in October but down 12.4% from $162,984 a year ago. It was the smallest year-over-year decline in the median sale price since January 2008, when the median fell 11.8% below the prior year to $225,000.

Rationing: Is This Where US Health Care is Headed?

The new [Cuban] ration book surprised us at the end of December, just when speculation was growing about the demise of this booklet with its grid-paper pages. It arrived, like every year, surrounded by anxiety and annoyance, submerging us in that avoidance-approximation conflict generated by the subsidized. In its little pages I notice the absence of many products that once made up the monthly quota, now reduced to just a monotonous repertoire with insufficient nutritional values and rising costs.

For the first time in our house we are all in the same age bracket among the five defined by the Ministry of Internal Commerce. Exactly in the box for 14 to 64 years my son Teo appears, together with Reinaldo and me, but at least three generations of Cubans have seen the store clerks mark down what we can put in our mouths. Trapped in poverty, millions of compatriots depend on price assistance to survive. Rationing is a trampoline and falling is certain, a dependency we all wish would end, but that almost no one can let go.

I see my name written next to my son Teo’s and I’m afraid that his children, too, will receive milk only until the age of 7, be allotted washing soap every 2 months or a tasteless toothpaste to clean their teeth. I shudder imagining that in 30 years we will still have to prove, with a doctor’s certificate, that we have an ulcer to have the right to a few ounces of meat or a container of soy yogurt.

With its minimal quantities and doubtful quality, the ration market has also instilled in us an unhealthy gratitude and a guilt complex that cannot be our legacy to those yet to come. If another December arrives and we receive a new ration book, it will not be because we have avoided the economic cuts, but rather because we have fallen another step lower in our citizen autonomy.

~Cuban blogger Yoani Sanchez

MP: As much as Americans might complain about greedy corporations, excessive CEO compensation, low non-union wages at Wal-Mart, high gas prices, income inequality, stagnant real wages, the disappearing middle class, etc. or whatever the current whining du jour is, just imagine what it would be like to live in a country like Cuba where your daily purchases of food were restricted and controlled by bureaucrat-determined quotas, and you actually had to present a rationing book to a civil servant (an inaccurate description, since they're rarely civil or servile in reality) clerk at a government-operated grocery store as a pre-requisite to buy food for you and your family.

I'll glady live with excessive CEO pay for Oprah, Bill Gates and Warren Buffet in a market economy any day over having to present a rationing book to a government bureaucrat to buy food like the citizens of Cuba are required to do daily.

How Chile Got Amazingly Rich: Free Trade

INVESTOR'S BUSINESS DAILY -- Chile was formally invited to OECD's club of developed countries on Dec. 15 — a great affirmation for a once-poor nation that pulled itself up by trusting markets. One thing that stands out here is free trade.

Chile is the first country in South America to win the honor, and in a symbolic way its OECD membership card seals its exit from the ranks of the Third World to the First. For the rest of us, it's a stunning example of how embracing free markets and free trade brings prosperity.

It's not like Chile was born lucky. Only 30 years ago, it was an impoverished country with per capita GDP of $1,300. Its distant geography, irresponsible neighbors and tiny population were significant obstacles to investment and growth. And its economy, dominated by labor unions, wasn't just closed, but sealed tight. In the Cato Institute's 1975 Economic Freedom of the World Report it ranked a wretched 71 out of 72 countries evaluated.

Today it's a different country altogether. Embracing markets has made it one of the most open economies in the world, ranking third on Cato's index, just behind Hong Kong and Singapore. Per capita GDP has soared to $15,000. Besides its embrace of free trade, other reforms — including pension privatization, tax cuts, respect for property rights and cutting of red tape helped the country grow not only richer but more democratic, says Cato Institute trade expert Daniel Griswold. "Chile's economy is set apart from its neighbors, because they have pursued market policies consistently over a long period," he said. "Free trade has been a central part of Chile's success."

Chile has signed no fewer than 20 trade pacts with 56 countries, giving its 19 million citizens access to more than 3 billion customers worldwide. When no pact was in force, Chile unilaterally dropped tariffs. This paid off handsomely.

You've heard of flat taxes? Chile has a flat tariff — only 5% on any item not exempted by a free-trade treaty. But almost nobody has signed off on free-trade treaties like Chile. "What free trade has done is it's allowed Chile to specialize," Griswold says. "Copper, salmon and fresh fruit are some of its strengths that have drawn foreign investment. Free trade has allowed resources to shift to where they have the highest return. The result has been a more disciplined private sector that has made itself efficient enough to compete globally."

The success belies claims, made mostly by protectionist unions, that free trade is a job killer and source of misery. It's also a reminder of how the U.S. has lagged on trade agreements, signing just 11 with 17 countries since 1993 — one reason why its ranks just 17th on Cato's 2009 Index of Economic Freedom.

Despite the recession, American trade pacts with Colombia, Panama and Korea are languishing into a fourth year. By contrast, Chile got to where it is by embracing trade. Its example is a shining lesson of how prosperity can be achieved no matter what the challenges — a lesson the U.S. would do well to relearn as our recovery tries to get traction.

MP: The charts above document Chile's stunning economic success. Following four decades of economic stagnation and flat real GDP per capita from 1950 to 1990, output per capita has more than doubled since 1990. And Chile's economic growth has been accompanied by a roaring bull market rally that has lifted the MSCI Chile Stock Market Index by an amazing 400% since 2002, from less than 400 points in September of 2002 to currently above 2,000 points. That translates into an average return of 24% per year for the last seven years, despite an 800 point drop in 2008.

HT: The Plaidpundit, Matt B.

Young Adults Are Key to Health Care Reform; But There Are Strong Incentives to Not Buy Insurance

FOX NEWS -- Young adults are in for a wake-up call if health care reform passes.

For the first time ever, the federal government is going to require that everybody obtain health insurance coverage. For those who have insurance through their employers, the so-called individual mandate may have very little impact. But for young adults, many of whom are not currently covered, the health care bill will add a new and costly expense to their budgets.

"The Census Bureau tells us there are 18 million people between the ages of 18 and 35 who are uninsured -- roughly half of the uninsured population are younger people in that age group," said Anne Kim, with the non-profit think tank Third Way.

MP: Actually for the age group below 35 years, there are 26.3 million uninsured Americans and that represents 57% of the 46.3 million uninsured (data here), see chart above. For the 18-34 year age group, there are almost 19 million uninsured, which is 41% of the total number of uninsured.

The federal government wants to require young, healthy people to buy insurance because if they don't, premiums for everyone else will go up. Insurance companies need low-maintenance, young customers on their rolls so they can raise money to cover benefits for less-healthy people the health care bill will require them to insure.

"If you don't have a mandate that gets in the young people who are cheaper, you're going to see average premiums rise," said Jim Kessler, vice president for policy with Third Way. "There's no way around that." But both houses passed two other reforms that create an incentive not to buy insurance.

1. The bills allow patients to basically purchase insurance whenever they want.

"You can literally buy an insurance policy in the ambulance on the way to the hospital," said Douglas Holtz-Eakin, former director of the Congressional Budget Office. "You could imagine a situation in which you would pay the fines, stay out of the insurance pool, and at the moment when you need it, you go out and buy it."

2. The other disincentive is that both houses change how much older customers can be charged relative to younger customers. Analysts agree this will drive up the cost for young people, though it's not clear by how much.

"If you charge people a fair price, then a 50-to-60-year-old should pay about six times as much as a 20-year-old," said John Goodman, president of the National Center for Policy Analysis. But he noted that the Senate bill says older people can be charged only three times as much; the House bill says they can be charged two times as much. "So we're going to penalize low-income young people in order to lower the premiums for older wealthier people."

"Young people are going to bear a disproportionate cost in this reform," Holtz-Eakin said. The Senate tries to make it easier on the young by offering them a bare-bones insurance plan that would be less expensive than all the others. This is perhaps the keystone for the entire reform effort, because if young healthy people don't get into the insurance pool, everything else -- especially cost containment -- could fall apart.

MP: In other words, it seems like any real cost containment is pure fantasy, and will never happen under any conditions. Either you force 20-25 million young people to purchase insurance they aren't willing to buy now and overall costs go up, or the young people (and older people as well) pay the fine and remain uninsured until they need insurance (in the ambulance on the way to the hospital) and overall costs go up.

U.S. Manufacturing's Exaggerated Death

In 1790, farmers were 90% of the U.S. labor force. By 1900, only about 41% of our labor force was employed in agriculture. By 2008, less than 3% of Americans are employed in agriculture.

What would you have Congress do in the face of this precipitous loss of agricultural jobs? One thing Congress could do is outlaw all of the technological advances and machinery that have made our farmers the world's most productive. Our farmers are so productive that if needed, they could feed the entire world.

Let's look at manufacturing. According to Mark Perry's employment data in "Manufacturing's Death Greatly Exaggerated," U.S. manufacturing employment peaked in 1979 at 19.5 million jobs. Since 1979, the manufacturing work force has shrunk by 40%, and there's every indication that manufacturing employment will continue to shrink.

~Read more of Walter Williams in today's Investor's Business Daily

Mainstream Media’s Trade Gap

Dan Ikenson at Cato writes a great article about the mainstream media's "reporting deficit" when they cover trade issues and protectionism.

If You Think Healthcare Is Expensive Now.....

The Department of Health and Human Services released new data yesterday on healthcare spending and it reported that total health expenditures reached $2.3 trillion in 2008, or $7,681 per person. As a share of GDP, healthcare expenditures set a new record of 16.2%, which is double the 8.1% share of GDP in 1975, and more than three times the 5.2% share in 1960 (see chart above).

The chart below (data here) shows what might be the two most important reasons for rising healthcare costs over the last 50 years: a) declining out-of-pocket payments for medical expenses, which have fallen from 47% of total health spending in 1960 to a record low of only 11.9% in 2008, and b) expanding public funding of healthcare, which reached a record high of 47.3% in 2008. There’s now been a complete reversal—whereas consumers paid 47% of total medical costs in 1960, it’s now the government paying 47% of health spending, while consumers pay less than 12% out of pocket for healthcare. That reversal is a guaranteed prescription for rising healthcare expenditures.

Unfortunately, under the proposed healthcare overhaul we’ll likely see a continuation of the trends displayed in the graphs—more government funding of the nation’s healthcare expenditures, less out-of-pocket spending by consumers, and rising healthcare costs as a share of GDP. If you think healthcare is expensive now, just wait until you see what happens after 2,000 pages of healthcare “reform.”

Read more at The Enterprise Blog.

John Mackey: Food Fighter

From a long profile on the always quirky and eccentric John Mackey in The New Yorker:

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.

Whole Foods routinely ranks high on those lists of companies that are the best to work for. The health and retirement benefits are relatively generous. Mackey regards his blend of paternalism and sovereignty as a recipe for proper governance, an expression of both compassion and creativity. This view is not shared by unions, which have complained that Mackey prevents unionization among his employees, notably at a store in Madison, Wisconsin, where team members had voted to unionize. Unions have picketed store openings and, as activist investors in Whole Foods stock, have called for Mackey’s firing.

In the early eighties, Mackey told a reporter, “The union is like having herpes. It doesn’t kill you, but it’s unpleasant and inconvenient, and it stops a lot of people from becoming your lover.” (That quote, to Mackey’s dismay, won’t go away.) His disdain for contemporary unionism is ideological, as well as self-serving. Like many who have come before, he says that it was only when he started a business—when he had to meet payroll and deal with government red tape—that his political and economic views, fed on readings of Friedman, Rand, and the Austrians, veered to the right.

HT: Joy Pavelski

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.

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!

2. LA TIMES -- Investors See Farms as Way to Grow Detroit

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 paper:

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).

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.

2. 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.

The 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).

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.

4. 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.