Tuesday, February 23, 2010

Quote of the Day: "My Heart, My Choice"

"I did not sign away my right to get the best possible health care for myself when I entered politics."

Canadian Premier of Newfoundland and Labrador Danny Williams

HT: John Goodman

NY Fed Treasury Spread Model: Probability of Recession Falls to Lowest Level Since 1983

Today the New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" with data through January 2010, and the Fed's recession probability forecast through January 2011 (see top chart above). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (3.67% spread in January, the highest since May 2004) to calculate the probability of a recession in the U.S. twelve months ahead (see details here).

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 January 2010, the recession probability is only 0.82% (less than 1%) and by a year from now in January 2011 the recession probability is only .043%, the lowest reading in more than 26 years (since September 1983).

Further, the Treasury spread has been above 3% for the last nine months (since May), a pattern consistent with the economic recoveries following the last two recessions (see bottom chart above), and the 3.67% spread in December is the highest since May 2004, five-and-a-half years ago. Finally, the pattern of the recession probability index last 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 2010 or 2011? Zero.

Case-Shiller Home Index Improves for 12th Month

"In December, the 10-City and 20-City S&P/Case-Shiller Home Price Indices recorded annual declines of 2.4% and 3.1%, respectively. These two indices, which are reported at a monthly frequency, have seen improvements in their annual rates of return every month since the beginning of the year (see chart above)."

Women Earn Almost 50% of College Math Degrees

We hear a lot about how women are underrepresented in STEM (science, technology, engineering and mathematics) fields and careers, and "Nationwide, there is a push for more women to choose STEM fields." There is a special National Science Foundation program called ADVANCE, whose goal is to:

"Increase the representation and advancement of women in academic science and engineering careers, thereby contributing to the development of a more diverse science and engineering workforce. ADVANCE encourages institutions of higher education and the broader science, technology, engineering and mathematics (STEM) community, including professional societies and other STEM-related not-for-profit organizations, to address various aspects of STEM academic culture and institutional structure that may differentially affect women faculty and academic administrators. As such, ADVANCE is an integral part of the NSF’s multifaceted strategy to broaden participation in the STEM workforce, and supports the critical role of the Foundation in advancing the status of women in academic science and engineering."

Although it did not specifically address the STEM issue,
an editorial in Sunday's Washington Post talked about the "epidemic of sexism" in the U.S., and how "for women in America, equality is still an illusion."

Given that background, it was somewhat surprising to find that women earn almost half of the bachelor's and master's college degrees in mathematics, according to data through 2006 from the Department of Education (see chart above). Women have actually earned more than 40% of college undergraduate math degrees since 1972 and more than 40% of master's degrees since 1989.
In 1998, women earned 48.35% of all undergraduate degrees in mathematics compared to 51.65% for men. In 1999, women earned 45.5% of all Master's degrees in math compared to 54.5% for men. Since those peak years, the female shares of math degrees have fallen slightly, but were above 44% for bachelor's degrees and above 41% for master's degrees in 2006 (most recent year available).

What makes these results even more interesting is that men on average score about 35 points higher on the math portion of the SAT exam than women, so we might expect men to be much more overrepresented than the data for math degrees show. There are many sex imbalances for college degrees by academic field, and most of them favor women, as does the overall college degree imbalance. The fact that women earned more than 44% of all bachelor's degrees in math, and more than 41% of all master's degrees in math in 2006, suggests that there is no "epidemic of sexism" in college math departments, and equality in higher education is more than an illusion.

Quote of the Day

"Take Wall Street "greed." Is there any evidence that people on Wall Street were any less interested in making money during all the decades and generations when investments in housing were among the safest investments around? If their greed did not bring on an economic disaster before, why would it bring it on now? As for lenders, how could they have expected to satisfy their greed by lending to people who were not likely to repay them?"

Thomas Sowell

Monday, February 22, 2010

3X Inc. in Charge-Off Rate for Credit Cards Since '06 to Record High; Don't Issuers Deserve Protection?

The Credit Card Act of 2009 provides a lot of protection for cardholders:

Cardholders Deserve Protections against Arbitrary Interest Rate Increases
Cardholders Should Be Protected from Due Date Gimmicks
Cardholders Who Pay on Time Should Not Be Penalized
Cardholders Should Be Protected from Misleading Terms
Cardholders Deserve the Right to Set Limits on Their Credit
Card Companies Should Fairly Credit and Allocate Payments
Card Companies Should Not Impose Excessive Fees on Cardholders
Vulnerable Consumers Should Be Protected From Fee-Heavy Subprime Credit Cards

But given the fact that the charge-off rates for credit card loans (
data here) have more than tripled from about 3% in early 2006 to 10.24% in the third quarter of 2009 to a record high 10.24% (see graph above), don't the banks and credit card issuers deserve some protection against reckless, irresponsible cardholders and record-high delinquencies, defaults and charge-off rates?

Distortionary Effects of Regulations and the Law of Unintended Consequences: Annual Fees Are Back

WASH POST -- "A law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.

It wasn't supposed to be this way. The law that President Barack Obama signed last May shields card users from sudden interest rate hikes, excessive fees and other gimmicks that card companies have used to drive up profits. Consumers will save at least $10 billion a year from curbs on interest rate increases alone, according to the Pew Charitable Trust, which tracks credit card issues.

But there was a catch. Card companies had nine months to prepare while certain rules were clarified by the Federal Reserve. They used that time to take actions that ended up hurting the same customers who were supposed to be helped."

Exhibit A: "Annual fees, common until about 10 years ago, have made a comeback. During the final three months of last year, 43% of new offers for credit cards contained annual fees, versus 25% in the same period a year earlier, according to Mintel International, which tracks marketing data. Several banks also added these fees to existing accounts. One example: Many Citigroup customers will start paying a $60 annual fee on April 1."

MP: This story clearly illustrates the Law of Unintended Consequences ("Any intervention in a complex system may or may not have the intended result, but will inevitably create unanticipated and often undesirable outcomes.") and why regulations are distortionary - because companies can change their behavior to avoid or circumvent them.

Other examples include free food on airlines to circumvent ticket price-fixing by the government in the old days, employer-sponsored health insurance to circumvent price/wage controls during WWII, free "stuff" (toasters, etc.) at banks in the 1960s and 1970s to avoid interest rate controls on savings accounts, charging points on a mortgage to circumvent interest rate maximums on mortgage loans, or in this current case a resurrection of annual fees, etc.

HT: Lee Coppock

Update: Reason article on this topic (thanks to Colin).

Another V-Sign of Economic Recovery: Chicago Fed National Activity Index Reaches 30-Month High

"Led by improvements in production- and employment-related indicators, the Chicago Fed National Activity Index in January was slightly positive for the second time in the past three months. From June 2007 through October 2009, the index had been consistently negative. The index increased to +0.02 in January from –0.58 in December, with all four categories of indicators having improved.

The index’s three-month moving average, CFNAI-MA3, increased to –0.16 in January from –0.47 in December, reaching its highest level since July 2007 (see chart above). January’s CFNAI-MA3 suggests that, consistent with the early stages of a recovery following a recession, growth in national economic activity is beginning to near its historical trend."

Sunday, February 21, 2010

One Year Later: Complete Reversal for Health Care

Click for details.

More on Public School Spending: D.C. vs. U.S.A.

Nationally, inflation-adjusted public school spending per pupil has more than doubled since the late 1960s (see graph above, data here).

Since the late 1950s, real spending per pupil in D.C. has grown much faster than the national average, having increased by 6.6 times while the national average increased only four times (see chart below, data

More on D.C. Public School Spending

There's been a lively discussion about this CD post on D.C. public school spending. Whether the per pupil public spending in D.C. is $15,000 or $25,000, and whether certain capital expenditures should be included or not, probably aren't as important as some of the bigger issues that should get more attention than the minor details (although I also provide clarification of the details below):

1. The growth in public school spending at the national level has been staggering. According to the Department of Education (
data here), "Total expenditures per pupil in public elementary and secondary schools" increased 234 times between 1919 ($48) and 2006 ($11,257), and current expenditures per pupil has increased 245 times ($40 to $9,683). Over that same period, the CPI (All Items, data here) increased only about 12 times (see graph above).

Back to the details:

2. According to data from the Department of Education (data here, Table 186) for "Current expenditure per pupil in average daily attendance in public elementary and secondary schools," spending per pupil in the D.C. schools was $20,596 in 2006-2007 (measured in constant 2007-2008 dollars), and that was the highest amount in the country and almost twice the national average of $10,720. Whether spending was $20,000 or $25,000 isn't as important as the fact that D.C. public school spending leads the country, when everything is calculated on a consistent basis.

3. From the same table, real spending per D.C. pupil in 1959 was only 15% above the national average and by 2006-2007 D.C. spending was 92% above the national average. Over the last fifty years, real spending per student in D.C. has increased by 6.63 times (from $3,106 to $20,596) since 1959, and that increase is the highest in the country, and compares to an average real increase in spending of 4.37 times between 1959 and 2006.

4. Department of Education data (
Table 178) for "Total Expenditures for public elementary and secondary education" shows that the D.C. public schools spent $1,389,995,000 (almost $1.4 billion) for the 2006-2007 school year, which is even higher than the $1.29 billion reported in my last post (based on Andrew Coulson's data).

5. Department of Education
data also show that the D.C. schools have one of the lowest high school graduation rates of 65.4% for 2005-2006, a full eight percentage points below the national average of 73.4%.

Bottom Line: The important issues to me should be: a) the significant increase in real spending over time for public schools in general, b) the fact that D.C. public schools spend more than $1 billion per year and lead the country in per pupil spending, c) D.C. schools have had the greatest spending increases over the last 50 years, d) D.C. schools have one of the lowest graduation rates in the country, and e) the resistance by teachers' unions, Democrats (usually) and labor unions to school choice in D.C. and around the country, like the Opportunity Scholarship Program in D.C.

Saturday, February 20, 2010

Julian Simon: More Right Than Lucky

Paul Kedrosky re-visits the famous Simon-Erlich bet. Alex Tabarrok responds here. Paul wrote:

"It will surprise no-one that the bet’s payoff was highly dependent on its start date. Simon famously offered to bet comers on any timeline longer than a year, and on any commodity, but the bet itself was over a decade, from 1980-1990. If you started the bet any year during the 1980s Simon won eight of the ten decadal start years. During the 1990s things changed, however, with Simon the decadal winners in four start years and Ehrlich winning six – 60% of the time. And if we extend the bet into the current decade, taking Simon at his word that he was happy to bet on any period from a year on up, then Ehrlich won every start-year bet in the 2000s. He looks like he’ll be a perfect Simon/Ehrlich ten-for-ten."

MP: It should also surprise no one that a commodity bet's payoff is not only highly dependent on the starting and ending dates, but also on the specific commodities chosen. In the famous bet, Ehrlich chose the five commodities that he thought would become scarcer, but a more complete analysis of commodity scarcity and prices over time shouldn't be restricted to only those five commodities, and the time periods evaluated shouldn't be restricted to just decades.

The chart above shows the monthly, inflation-adjusted Dow Jones-AIG Commodity Index back to January of 1934 (data from
Global Financial Data, paid subscription required, adjusted for inflation using BLS data). The DJ-AIG index is composed of futures contracts on 19 physical commodities (e.g. natural gas, live cattle, zinc, nickel, copper, silver, cotton, etc., see the full list and current weights here). (Note: According to Global Financial Data, data in the index from 1933 to 1989 are from the Dow Jones Futures Index, and data from 1990 are from the Dow Jones-AIG Commodity Index.)

The red line in the graph shows the statistically significant (p = .0000) downward trend in inflation-adjusted commodity prices since the 1930s.

Paul Kedrosky: So, what does all this mean? A few things. First, and most importantly, it means Simon was right but fairly lucky. There is nothing wrong with being lucky, of course, but compulsive Simon/Ehrlich-citers need to be reminded that it is no law of nature (let alone of rickety old economics) that commodity prices (inflation-adjusted or otherwise) trend inexorably downward, even over a decade.

MP: I'm not so sure that Simon was just lucky. If Simon's position was that natural resources and commodities become generally more abundant over long periods time, reflected in falling real prices, I think he was more right than lucky, as the graph above demonstrates.

Stated differently, if Simon was really betting that inflation-adjusted prices of a basket of commodity prices have a significantly negative slope over long periods of time, and Ehrlich was betting that the slope of that line was significantly positive, I think Simon wins the bet.

Update: By request, data available here.

DC Public Schools: $1.29 Billion, $28,170 per Pupil

The Cato Institutes's Andrew Coulson had crunched the numbers and finds that the District of Columbia public school system spent almost $1.3 billion educating 45,858 students for the 2008-2009 school year (data here).

That works out to spending of $28,169 per student (and that's for last year, spending is probably higher this year), which is almost as much as Harvard tuition of $32,550 for the 2009 academic year (data here), see chart above. And the D.C. district's annual budget for 2008-2009 of $1.29 billion places it just slightly below the annual GDP of the entire country of Belize (data here) in 2008, see chart above.

Median CPI Inflation Falls 16th Month: Record Low

According to a report released Friday by the Federal Reserve Bank of Cleveland, the median Consumer Price Index was virtually unchanged at 0.0% (0.5% annualized rate) in January. The "median CPI" is a measure of core inflation calculated by the Federal Reserve Bank of Cleveland based on data in the monthly CPI report from the Bureau of Labor Statistics' (BLS).

Earlier Friday, the BLS reported that the seasonally adjusted CPI for all urban consumers was increased 0.2% (1.6% annualized rate) in January. The CPI less food and energy decreased 0.1% in January. Over the last 12 months, median CPI inflation was 1.0% compared to CPI inflation of 2.6% (see chart above).

According to the Cleveland Fed:

"Federal Reserve policymakers are always on the lookout for inflation (i.e., a general increase in prices), and they use a variety of measures to gauge inflation trends. One such measure is the Consumer Price Index (CPI) published by the BLS.

The CPI measures changes in the prices of a number of goods and services—things like gas, rent, groceries, and clothing. However, the prices of some of these items—such as food and energy—are volatile; they can change a lot from month to month, based on supply and demand. So the BLS also publishes a measure of “core” prices that excludes food and energy prices. Researchers at the Federal Reserve Bank of Cleveland and Ohio State University devised a different way to get a “core CPI” measure—or a measure of underlying inflation trends. It’s called the Median CPI.

To calculate the median CPI, the Federal Reserve Bank of Cleveland looks at the prices of the goods and services published by the BLS. But instead of calculating a weighted average of all of the prices, as the BLS does, the Cleveland Fed looks at the median price change—or the price change that’s right in the middle of the long list of all of the price changes. According to research from the Cleveland Fed, the median CPI provides a better signal of the inflation trend than either the all-items CPI or the CPI excluding food and energy." (emphasis added)

MP: Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the Cleveland Fed's research), and the median CPI is certainly not now showing any signs of inflationary pressures.

In fact, the decrease in January's median CPI to 1.0% from 1.20% in December was the 16th consecutive monthly drop in median CPI inflation, and the lowest year-to-year inflation rate in the history of the Cleveland Fed's series back to 1984 (historical data here). Therefore, as I reported a month ago, it would seem that a stronger case could be made right now for deflation, than making a case for inflation.

Friday, February 19, 2010

Scalpers Selling Olympic Tickets for Less Than Face Value: Is That Predatory Pricing or Ticket Dumping?

SEATTLE TIMES -- "Jeff Antush, left, and his wife, Heidi, third from left, bought four tickets from a scalper for the U.S. vs. Norway men's hockey game. They paid only $100 but face value totaled $560. Daughters Allison, 7, left, and Lauren, 9, enjoy the game."

MP: Hey, wait a minute. If they paid a ticket "scalper" less than face value for those tickets, wouldn't that be "predatory ticket pricing," "ticket dumping" or "reverse ticket scalping?" Didn't the ticket buyers kind of "scalp" the "scalper" in this transaction?

Update: The fact that the "ticket scalpers" were selling tickets below face value demonstrates that they too ultimately are at the mercy of the laws of supply and demand, which are not optional. That would suggest that it is more accurate to refer them as "ticket brokers," and not as "ticket scalpers."

The very existence of ticket brokers generally relies on an active secondary market for tickets that basically exists almost exclusively because tickets are so frequently underpriced, which creates an artificial ticket shortage. But there is risk involved for the ticket brokers,due to the uncertainties of the market, weather, etc. Although they most often sell tickets above face value, they also sometimes sell at face value or below face value, depending on market forces, i.e. supply and demand.

The New Age of Natural Gas

Click to enlarge.

A new technique being used to drill through a type of rock known as shale has led to a surge in domestic natural gas production over the last three years and enabled the United States to overtake Russia recently as the world's No. 1 producer of natural gas.

As a result, we are seeing a remarkable turnabout in energy geopolitics: as U.S. natural gas reserves have soared thanks to advanced drilling methods, Russia's goal of establishing a world gas cartel patterned on OPEC has collapsed.

How big of a development is this?

Find out here in Investor's Business Daily.

How Currency Manipulation Creates American Jobs

WSJ -- "President Obama and other administration officials argue that the Chinese currency is undervalued. That makes Chinese exports artificially cheap in terms of other foreign currencies, contributing to the U.S.'s large trade deficit with China and, they say, depriving Americans of jobs. Treasury Secretary Timothy Geithner said during his Senate confirmation hearings in early 2009 that Mr. Obama believed China was manipulating its currency.

Don Boudreaux responds
here and here. Here's my response:

1. It's a strange use of the word "manipulate,"
which means:

a. "To influence or manage shrewdly or deviously."

b. "To tamper with or falsify for personal gain."

In this case the "manipulation" is to America's advantage and China's disadvantage, because the undervalued yuan and overvalued dollar makes Chinese goods cheaper and more affordable for American consumers and companies, saving us billions of dollars, and making us wealthier and China poorer. It would be like accusing Wal-Mart of "manipulation" for offering "Everyday Low Prices," and saving Americans billions of dollars??

2. As the chart above shows, almost 60% of imported goods are: a) industrial supplies (chemicals, commodities, raw materials, etc.) and b) capital goods (machinery, equipment, parts, tools, etc.) which are mostly purchased by AMERICAN COMPANIES as inputs for production in the United States. Being able to purchase Chinese and other foreign inputs at the lowest possible price makes American companies MORE competitive, sell MORE of their products, and hire MORE American workers. Therefore, China's currency "manipulation" helps American companies and actually SAVES and CREATES jobs here.


3. For the artificially cheap consumer goods purchased from China with artificially overvalued dollars, thanks to the "manipulative" Chinese government and Chinese people, those cost savings don't somehow just evaporate or disappear. To the contrary, the money saved most likely gets spent on other goods and services, many of which are produced by American employees working for American companies, stimulating jobs in those sectors.

For example, the $100 saved by an American consumer purchasing artificially cheap Chinese tires, might spend that extra $100 taking his or her family out to dinner more often at local restaurants, helping to save or create jobs in the local restaurant industry. That is, some Americans working in the restaurant industry can thank the manipulative Chinese for their jobs.

40% of Canadians Will Pay, Travel for Health Care

Two-in-five Canadians would consider paying or going abroad to seek medical treatment, according to a poll by Angus Reid Public Opinion. 40 per cent of respondents would be willing to pay out of their own pocket to have quicker access to medical services that currently have long wait times, and 42 per cent would consider traveling to another country.

Thursday, February 18, 2010

Top 400 Taxpayers Paid 2% of All Income Taxes

According to new data from the IRS, the top 400 individual income taxpayers in 2007 (out of 143 million taxpayers) earned 1.59% of all Adjusted Gross Income in that year, and paid 2.05% of all individual income taxes collected (see chart).

Isn't it amazing that only 400 taxpayers out of 143 million total tax filers paid more than 2% of all income taxes collected?

More on this later.

Markets In Everything: Homemade Wood "Shovels"

Picture taken at a Home Depot in the DC area during the recent Snowpocalpyse when regular shovels were scarce, and these wood "shovels" were selling at the "low, low price of $4.01."

Another Sign Manufacturing Sector's Leading Recovery: Philly Fed Index Positive for 6th Month

PHILADELPHIA FED -- "Manufacturing conditions continue to improve in the region, according to firms polled for this month's Business Outlook Survey. Indexes for general activity, new orders, shipments, and employment all remained positive this month and increased from their readings in January. Firms reported a notable pickup in new orders this month. Overall, firms remain generally optimistic about growth for the manufacturing sector over the next six months.

The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of 15.2 in January to 17.6 this month. The index has now remained positive for six consecutive months (see chart above). There was a notable increase in the current new orders index suggesting an improvement in demand for manufactured goods - the new orders index increased 20 points. The current shipments index increased 9 points. The current inventory index increased 5 points, to its first positive reading since September 2007."

MP: Following 21 consecutive months of negative (or zero) readings from December 2007 to August 2009, the Philadelphia Manufacturing Index has been positive in every month since September 2009. Add this to the growing list of V-shaped signs of economic recovery.

Related: See today's WSJ article "Factories Get Set to Hire."

Recovery Strengthens: Leading Economic Index Rises in January for the 10th Straight Month

The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.3% in January, following a 1.2% gain in December, and a 1.1% rise in November. Says Ataman Ozyildirim, Economist at The Conference Board: “The U.S. LEI has risen steadily for nearly a year, led by an improvement in financial markets and a manufacturing upturn. Consumer expectations and housing permits have also contributed to these gains over this period, but to a lesser extent – especially in recent months. Current economic conditions, as measured by The Conference Board Coincident Economic Index (CEI), have also improved modestly since July 2009, helped by strengthening industrial production, despite continued weakness in employment.”

Adds Ken Goldstein, Economist at The Conference Board: “The cumulative change in the U.S. LEI over the past six months has been a strong 9.8%, annualized. This signals continued economic recovery at least through the spring.”

Ireland's Shift From Taxi Cartel to Deregulation

From the report about Ireland's taxi industry and the deregulation that took place in 2000, "Economic Review of the Small Public Service Vehicle Industry":

"For more than two decades prior to the year 2000 entry to the taxi market was substantially restricted. While some additional taxi licenses were granted by the licensing authorities, the increase in numbers was curtailed, especially during the 1980s. By the early 1990s, however, this restrictive policy was giving rise to a poor level of service, particularly in the Dublin area, and there was increasing public pressure to grant additional licenses .

Substantial economic growth and a recovery in the national population levels took place during the 1990s, and the supply of taxi services did not keep pace with the demand that arose. This was evidenced by the increasing market value ascribed to taxi licenses, with market values rising from £40,000–£50,000 in the early 1990s to £80,000 towards the end of the decade.

Following a ruling by the High Court, the Minister for the Environment and Local Government introduced regulations in late 2000 which provided that any suitably qualified person could obtain a license. The result was an immediate and full liberalization of entry to the taxi market.

Following these fundamental changes to the market, there was a sharp increase in the number of taxis. By the end of 2001, the number of taxis in the Dublin area had doubled from 2,700 pre-liberalization to 5,500. These trends continued, so that by the end of 2003, the number of taxis in the Dublin area had increased to 8,400. Similar trends were seen in the country as a whole. In 2000, there were a total of 4,200 taxis in the country and this had risen to 16,000 by end 2004."

MP: Deregulation also led to a significant reduction in waiting times for a taxi, from 11.5 minutes in 1997 to 6.2 minutes in 2008, resulting in an estimated value of time savings of more than $400 million annually for Irish consumers. This is a good example of how excessive regulation stifles competition, leading to high prices and poor service, and how deregulation restores competition (often the best "regulator" of all), resulting in lower prices and better service.

Health Insurance Companies Rank #88 by Industry Profit Margin, Earning $100-200 on Avg. per Policy

I've posted several times before about the profitability of the "Health Care Plans" industry, see posts here and here, and reported previously that the health insurance industry ranked #86 by profit margin out of 215 industries, at 3.3%.

Updated data are now available
for Q4 of 2009, and the Health Care Plan industry (includes Humana, Aetna, WellPoint, Magellan, Unitedhealth Group, etc.) slipped to #88 with a profit margin of 3.4%. Actually, that industry profit margin was boosted by WellPoint's 18% profit margin for Q4 2009, which was due largely to a one-time sale of its Pharmacy Benefit Management division. Without that sale, WellPoint's profit margin would have been only 3.9%, the industry average profit margin would have been closer to 3%, and the ranking for the industry would have fallen a few places down to #92.

America's Health Insurance Plans (
AHIP), the industry's trade association representing 1,300 members, reported last October that annual health insurance premiums averaged $2,985 for individual coverage and $6,328 for family plans in 2009. Using the industry average profit margin of 3.4% means that insurance companies make about $100 per policy in profits for individual coverage, and a little more than $200 in profits for each family policy.

So even if we could strip away 100% of the health insurance industry's profits, it would only save patients between $100 and 200 per year in health insurance costs.

Robot Solves Rubik's Cube in Less Than 12 Seconds

The World's Fastest Lego Mindstorms RCX Speedcubing Robot. Built entirely from lego elements now scanning and solving any 3x3x3 Rubik's cube combination in under 12 seconds.

HT: Mike Carlson

Wednesday, February 17, 2010

V-Shaped Rebound in Industrial Production Marks The End of Every Recession

For the last ten recessions, notice a similar V-shaped pattern for the year-to-year growth in industrial production rebounding at the end of each recession, and signalling the start of the next economic expansion.

Happy/Sad Money


You can do the same thing with Andrew Jackson, here's a low-quality photo taken with my cell phone - make the folds and then tilt the bill away from you, and then towards you.

Manufacturing At the Heart of V-Shaped Recovery

"The manufacturing sector is at the heart of the V-shaped economic recovery. After a weather-related dip in December, we said last month to expect a clear rebound in January and that’s exactly what we got, with manufacturing surging 0.9%. Auto production was particularly strong, spiking up 5%, but even excluding autos manufacturing was up 0.8%. Although another weather-related dip in February may be in the cards, we anticipate another quick rebound and continued strength in the year ahead.

The inventory-to sales ratio at businesses across the country has plummeted in the past year and may soon be at an all-time low. Meanwhile, inventories at car dealerships are already too low given the pace of sales and sales are likely to rise this year. That translates into continued increases in auto production. In other recent news, the Empire State Index, a measure of manufacturing in New York, jumped to 24.9 in February from 15.9 in January. In particular, the sub-index for employment was in positive territory for the fourth time in five months. As usual, better economic news will soon translate into a better job market."

~Brian Wesbury and Bob Stein

U.S. Manufacturing Productivity Soars to Record Level: Output per Worker of $300,000 in January!

According to Table 9 of today's Federal Reserve report, the Gross Value of U.S. Manufacturing Output reached $2,776.5 (almost $3 trillion in billions of 2000 dollars, and close to $3.5 trillion in today's dollars) in January, the highest level since December of 2008. According to BLS data, there were 11,540,000 manufacturing workers in January, which means that on a per-worker basis, U.S. manufacturing output per worker was more than $240,000 in January (measured in 2000 dollars). Converted to today's dollars, that's about $300,000 in manufacturing output per U.S. worker, and the productivity of America's factory workers has doubled in less than two decades.

U.S. manufacturing is surging again by every measure (industrial production, ISM manufacturing, Empire State index, etc.), and yet that increased manufacturing output is being produced with fewer workers - about a million fewer than a year ago - raising U.S. manufacturing output per worker to the eye-popping level of $300,000 in January! Perhaps that's one positive outcome of an economic slowdown - it motivates companies to produce "more with less" as they are forced to focus on cost-saving efficiencies, resulting in the soaring productivity numbers reported here.

First Annual Growth in Mfg. Output in 22 Months

From today's Federal Reserve release, U.S. industrial production grew in January by 0.9% compared to the same month last year, and posted the first year-to-year growth in manufacturing output in 22 months, going back to March of 2008. Any objections to calling this a V-shaped economic recovery?

Good News: A Surge in New U.S. Medical Schools

From the NY Times, "After Years of Quiet, Expecting a Boom in U.S. Medical Schools":

"Nearly two dozen medical schools have recently opened or might open across the country, the most at any time since the 1960s and ’70s. During the 1980s and ’90s only one new medical school was established. These new schools are seeking to address an imbalance in American medicine that has been growing for a quarter century.

The proliferation of new schools is also a market response to a rare convergence of forces: a growing population; the aging of the health-conscious baby-boom generation; the impending retirement of, by some counts, as many as a third of current doctors; and the expectation that, the present political climate notwithstanding, changes in health care policy will eventually bring a tide of newly insured patients into the American health care system.

If all the schools being proposed actually opened, they would amount to an 18 percent increase in the 131 medical schools across the country. (By comparison, there are 200 law schools approved by the American Bar Association.) And beyond the new schools, many existing schools are expanding enrollment, sometimes through branch campuses."

MP: Maybe we'll know we've got enough physicians when we see a proliferation of ads for doctors making house calls?

James Woodruff

Don't Forget Services: U.S. Ranks #1 in the World

From today's New York Times:

"President Obama called on America to “export more of our goods” in his State of the Union address last month, setting a goal of doubling what we sell abroad in five years. Good idea, but it would have been so much better if he had said “goods and services.”

Editing the president’s speeches isn’t my job, but the missing words suggest that the White House, like much of the rest of the country, hasn’t realized that exports of services are one of America’s 21st-century success stories. We still picture exports being loaded on ships or planes, but overseas sales are today increasingly delivered in person or sent across the Internet.

Exports of American services have jumped by 84% since 2000, while the growth rate among goods was 66% (see chart). America trails both China and Germany in sales of goods abroad, but ranks No. 1 in global services by a wide margin. And while trade deficits in goods have been enormous — $840 billion in 2008 — the country runs a large and growing surplus in services: we exported $144 billion more in services than we imported, dwarfing the surpluses of $75 billion in 2000 and $58 billion in 1992.

President Obama was right to place a new emphasis on exports, but the best thing the administration can do is reduce impediments to trade and then get out of the way so America’s resourceful companies and talented workers can increase their dominance in the global marketplace."

~W. Michael Cox, Director of the Center for Global Markets and Freedom at Southern Methodist University.

MP: A good place to start reducing impediments to trade would be for Obama to move forward on American free trade agreements with Colombia, Panama and Korea, which were signed in 2007, but are languishing into a fourth year awaiting Congressional approval.

Tuesday, February 16, 2010

Update: Texas vs. the Unionocracy of California

Update on this CD post:

The chart above displays employment levels in California compared to Texas, monthly from January 2000 to December 2009. The employment level in California fell below 16 million jobs in December for the first time since May 2000, 9 and-a-half years ago. From the peak employment level of more than 17 million in July 2007, California has lost more than one million jobs in the last two and-a-half years. In contrast, Texas has lost only about 100,000 jobs from the peak level in December 2008.

The chart below displays monthly government and private sector employment in California from January 2000, showing that most of the job losses have taken place in the private sector. From the 2007 peak, private sector employment has fallen by 1,133,000 jobs through December 2009 to the lowest level since November 1999, more than ten years ago, compared to a loss of only 57,000 government jobs from the peak in 2008.

As George Will wrote in January:

"California, a laboratory of liberalism, is spiraling downward, driven by a huge budget deficit. It took years for compassionate liberalism to make California's welfare menu contribute to the state becoming an importer of Mexico's poverty. It took years for servile liberalism to turn the state into a "unionocracy," run by and for unionized public employees, such as public safety employees who can retire at 50 and receive 90 percent of the final year's pay for life. California's economy is being suffocated by the weight of government."

Exhibit A: More than a million jobs lost in California's private sector, shrinking private sector employment to the lowest level since 1999. And those jobs disappeared fast - it took about nine years to add one million private-sector jobs in California, and only about two years for those million jobs to vanish.

The Unintended Consequences of New Flight Rules

The government announced in December it would fine airlines $27,500 per passenger for long tarmac delays (three hours or more) - or $2.75 million for a 100-passenger flight.

Easy question: Will that policy have any significant effect on flight cancellations? More? Fewer?

Find out here.

U.S. Homeownership Falls to 10-Yr. Low of 67.2%; Bad Homeowners Return to Being Good Renters

According to data released several weeks ago by the Census Bureau, the U.S. homeownership rate fell to 67.2% in the fourth quarter of 2009, the lowest rate since 67.1% in the first quarter of 2000, almost ten years ago. Compared to the peak of 69.2% in 2004, homeownership has fallen by two full percentage points.

Many would agree that the global financial crisis, mortgage tsunami, and housing bubble can all be traced to the political obsession to increase homeownership with easy credit and government housing policies, so in that case the significant decrease in the homeownership rate to a ten-year low is probably a good thing. The political infatuation with homeownership turned thousands of good renters into bad homeowners and consequently turned the American dream into the American nightmare. The fact that bad homeowners are now returning to once again being good renters is a sign of progress.

As Robert Samuelson wrote in Newsweek (August 2008):

"We think everyone should become a homeowner, when many families can't or shouldn't. The result is to encourage lending to weak borrowers who are likely to default. The avid pursuit of a few more percentage points on the homeownership rate has condoned enormously damaging policies."

Empire Index Signals Improvement for 7th Month

"The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved for a seventh consecutive month in February and at a relatively rapid pace. The general business conditions index for current conditions climbed 9 points, to 24.9 from 15.9 in January (see chart). The new orders index fell, though it remained positive, and the shipments index inched downward as well. The inventories index rose sharply, to 0.0, its highest reading in considerably more than a year.

Future indexes suggested that manufacturers in New York State were expecting conditions to improve further in the months ahead. The future general business conditions index was slightly lower than last month, but remained at a relatively high level of 52.8, with 60% of respondents expecting conditions to improve over the next six months (see chart)."

Monday, February 15, 2010

Five Ways to Reform Health Care

(1) Incentivize patients to be smart consumers

(2) Pay for performance

(3) Liability reform

(4) Interstate health-care insurance

(5) Modernize health insurance

~Minnesota Governor Tim Pawlenty writing in
yesterday's Washington Post.

HT: Ryan Stinson

Consumer Sentiment Stays Above 70 for 3 Months for the First Time Since the Start of the Recession

According to the University of Michigan, Consumer Sentiment fell slightly in February to 73.7 from 74.4 in January but has now remained above the 70 level for the last three months in a row (72.5, 74.4 and 73.7 in December, January and February), for the first time since the recession started during the three-month period from December 2007 to February 2008 (see chart above), signalling a gradual restoration of consumer confidence about the economy.

Compared to February a year ago, Consumer Sentiment is up by almost 31%, the greatest annual increase since the early 1990s (see chart below).

Health Care Updates

1. "Yes, the Uninsured Can Get Care" (WSJ)

"Lack of insurance doesn't have to mean going without needed health care. If you're uninsured and seeking stop-gap care until you find coverage, you can triage your way to better health by understanding the tradeoffs of several care options. A retail clinic or urgent-care center may be a suitable fit, depending on the severity of your medical need and personal preferences."

2. "Let Health Insurance Cross State Lines" (NYTimes)

"Arizona Representative John Shadegg, who sponsored legislation to allow insurance sales across state lines in 2005 and has championed the idea ever since, likes to illustrate the lack of competition by pointing to how different the market is for automobile insurance.

“If you turn on the television station at night,” he said, “you see Allstate and Geico and Progressive and State Farm pounding each other’s heads in. ‘Drop your policy and come get a policy from us, and we’ll do two things — we’ll save you money and give you better service.’ You never see that kind of advertisement for you and I to go out and buy health insurance.”

Other experts, like Stephen T. Parente, academic director of the Medical Industry Leadership Institute at the University of Minnesota’s Carlson School of Management, note that many insurers already operate across state lines in administering policies for large employers, and could easily do the same in the individual market.

Mr. Parente said his research had found that millions of uninsured people who now find coverage unaffordable in their home state might buy cheaper policies if they were available from other states. The competition would force insurers to provide better, cheaper service and might force low-performing companies out of business, while states with the most efficient regulatory framework could become regional “powerhouses” where insurers prefer to operate."

Size Matters: $30,000 Per Inch

CHARLOTTE OBSERVER -- "A forthcoming study by a Duke University researcher and several colleagues confirms what not-so-thin women and short, broke men have long suspected: They don't get nearly as much romantic attention as skinny women and tall, financially secure guys.

With the $1.1 billion online dating and matchmaking industry growing in popularity, researchers say dating sites' gigantic databases make fertile ground for study. The study, still under peer review before publication, analyzed 22,000 online daters and found that women put a premium on income and height when deciding which men to contact, said Dan Ariely, a Duke behavioral economist who worked with University of Chicago researchers on the project.

For example, the study showed a 5-foot-9-inch man needs to make $30,000 more than a 5-foot-10-inch one to be as successful in the dating pool."

MP: Life can be so unfair.

Sunday, February 14, 2010

No Significant Global Warming Since 1995

Climategate U-turn: Scientist at Center of Controversy Admits There Has Been No Statistically Significant Global Warming Since 1995.

HT: Drudge Report

DC: Some Cars Are Still Buried

Calvert Street NW in Washington DC near the Duke Ellington Bridge (yes, there is a car in there).

Same car from the back.

This wiper thing seems so wrong!

Top 20% of Countries Earn 82.7% (80.73%) of Global Income (Nobel Prizes)

Wikipedia: "The Pareto principle (also known as the 80-20 rule) states that, for many events, roughly 80% of the effects come from 20% of the causes."

The example provided in the Wikipedia entry is the distribution of global income in 1989 (see chart above). Interestingly, the distribution of the 1,820
Nobel prizes awarded from 1901-2009 to recipients in 57 different countries mirrors the global income distribution almost perfectly (see chart above).

No Contest: Russia Wins This Cold War

MOSCOW — "Even in Russia, the recent blizzards that have hit Washington have been noticed. Though not always sympathetically. Were Congress and other powerful institutions really closed, not to mention the schools? Did panicked residents actually strip stores of food, making the bare shelves resemble something from the Soviet era? All because of the snow?

Russia, mindful that it trails the United States in many measures, tends to leap at any chance to promote its supremacy, and when it comes to wintry hardiness, there is, of course, no contest. This is one cold war that Russia wins."

Avg. Michigan Home < $100k, 1st Time Since 1994

According to housing sale data from the Michigan Association of Realtors, the average price of a home sold in Michigan in 2009 was $99,121, a 16.3% decrease from the $118,388 average price in 2008, and 35% below the peak average price of $152,845 in 2006. The $99,121 average home price in 2009 marks the first year since 1994 (15 years ago) that the average Michigan home sold for below $100,000 (see chart).

Update: December 2009 stats are available here. If you take out Detroit, the statewide average (unweighted) home price rises to $101,286 for 2009, and if you take out both the Detroit and the Flint areas, the statewide average rises to $102,061.

Internet Usage Statistics

Detroit To End Child Abuse aka "Social Promotion"

DETROIT FREE PRESS (Feb. 5) -- "Amiya Olden remembers well the day she graduated from Denby High School in Detroit. She handed her diploma to her mother, Karen Olden, who read it to her. "Then when someone asked me to read it, I could remember the things that she read, and I knew what I had to say," recalled Amiya Olden, now 22. Amiya could not read her own diploma.

Amiya Olden, like many students in schools across Michigan, suffered a kind of child abuse that the state Legislature not only allows but supports: social promotion."

DETROIT FREE PRESS (Feb. 12) -- "Detroit Public Schools emergency financial manager Robert Bobb plans to sign an executive order today ending social promotions, the practice of advancing students to the next grade when they’re not really ready.

The district began, for the first time, quarterly assessments of student proficiency this week. The results will be used, along with MEAP scores, to chart student progress and determine who needs more help to go onto the next grade. Such assessments are standard in nearly every other school district in the country."

Day Care in Wonderland

Day Care in Wonderland from Mackinac Center on Vimeo.

Saturday, February 13, 2010

Quote of the Day: Ethanol Mandates Are Immoral

"There are lots of stupid federal programs. There are lots of wasteful federal programs. The corn ethanol mandates are immoral."

~Robert Bryce writing in the
Energy Tribune

HT: Nick Schulz

The Waning Power of Private Unions in the U.S.

In 2009, there were only five major strikes and lockouts involving 1,000 or more workers, the lowest number since the major work stoppages series began in 1947, the U.S. Bureau of Labor Statistics reported today (see chart above). The prior low for major work stoppages beginning in a calendar year was 14 in 2003. The decline in work stoppages over the last sixty years coincides with the ongoing decline in union membership as a share of all workers, from a high of 32.5% of all workers in 1953 (almost 1 in 3) to 12.3% in 2009 (fewer than 1 in 8).

See related links at Economix and The Economist.

On Sunday The Caracas Storeowners Had Small Business; 2 Seconds Later, They Were Gone

In the heart of Caracas's historical center, some shopkeepers are being bought out by the state -- whether they like it or not.

Watch the video.

Friday, February 12, 2010

China Surpasses Japan's Stock Market Value in 2009

The chart above shows 2009 year-end stock market capitalization for the 14 largest stock markets based on data available from the World Federation of Exchanges.

1. I'm pretty sure that this is the first time ever that China's stock market ($3.57 trillion) has surpassed Japan's ($3.31 trillion) by total market capitalization.

2. It's also interesting that China, India and Brazil now account for 16% of the world stock market value. It was not too long ago that those three countries accounted for less than 1% of world stock market value. In 2003, those countries represented only 4.2% of world stock market value.

3. The United States stock market has the same value ($15.08 trillion) of the next five stock markets combined: China, Japan, Euronext, U.K. and India, and accounts for 32% of total world stock market value.

4. China has the same stock market value ($3.57 trillion) as Germany, Australia and Switzerland combined.