Saturday, March 27, 2010

Paul Ryan on Fixing Entitlements

Rep. Paul Ryan: "We’re really on the cusp of trading our free market democracy, the American idea, for a cradle-to-grave social welfare state that will bankrupt us."

100-Point Increase in SAT = $2,350 for Egg Donors

Top Students Earn Big Money for Egg Donations

"Holding all else equal, such as demand for in vitro fertilization within a state and donor agency variables, Levine found that each increase of 100 SAT points in the average for a university increased the compensation offered to egg donors at that school by $2,350."

Friday, March 26, 2010

There Are No Other Major Retailers Willing to Come to the South Side of Chicago, Except One

CHICAGO — "Wal-Mart Stores Inc. has won the support of dozens of church ministers in its long-running battle to expand in Chicago, a sign of how the recession has softened skepticism of the retailer in a community desperate for jobs. The ministers, most of them African-Americans together representing thousands of congregants, are pressuring the city council to grant approval for a Wal-Mart "supercenter"—a store with a full grocery that also sells general merchandise—on the city's South Side. The ministers who support Wal-Mart say that if the city council doesn't act favorably on an ordinance that would allow the Chatham Wal-Mart, they will campaign against elected officials.

"The reality of the day is that there's no other retailer willing to come to the community," said Alderman Howard Brookins, a Democrat whose ward includes the development. "As the economy has faltered, there has been a renewed appreciation among customers for the Wal-Mart brand," said Julie Murphy, a Wal-Mart regional general manager involved in the company's recent effort to build support in the city."

Thursday, March 25, 2010

Why Inflation Concerns Are Overblown: Annual M2 Growth Falls Below 1%, Lowest Rate Since 1995

Federal Reserve data show that the M2 growth rate on an annual basis fell in the week ending March 15 to 0.85%, the lowest money growth rate since May 1995 (see graph above). Notice also in the graph above that M2 growth in 2001 was actually above 10% for a longer period of time, than the money supply growth in early 2009. Further, there has been a much sharper decline in money growth in the last year than the decline between 2002 and 2005, when the growth rate fell but never went below 2.5%. In each of the last 10 weeks, M2 growth has been below 2.5%. Considering that average annual inflation never got higher than 3.4% in 2005 following the 10% M2 increase in 2001, so it just doesn't seem like there's enough money growth to create inflationary pressure now, at least nothing higher than maybe 3%.

Dallas Fed President Robert McTeer seems to agree in his Forbes article "Why Inflation Worries Are Overblown":

"It will no doubt come as a surprise to many that money growth has been moderate since its initial explosion at the end of 2008 (see chart above). That’s because they hear so much about the expansion of the Fed’s balance sheet, which would normally imply an expansion of bank reserves and money. Fed assets have more than doubled with virtually all the increase taking place in late 2008. The asset expansion has produced a sharp rise in bank reserves, and hence the monetary base, which is composed of bank reserves and currency outside the banking system.

However, banks have not used those reserves to expand loans and investments at a rate large enough to produce rapid money expansion. Instead, banks have accumulated reserves far in excess of the amount required to back their deposit liabilities. This accumulation of “excess reserves” is no doubt the result of banker uncertainty and fear about their viability during the period of crisis. In particular, banks are remaining more liquid than regulations require to protect their remaining capital. Virtually all of the expansion in the Fed’s assets are matched by an expansion of excess reserves—excess from a regulatory standpoint, but obviously not excess to the bankers themselves since they are holding them voluntarily."

Updates: Thanks to Scott Grannis for his most recent M2 post here from earlier today, and for adding one additional week of money supply data that doesn't appear at the St. Louis Fed website, but does appear here at the Fed. The growth rate in M2 in the week ending March 15 was 0.85%, the first time since May 1995 of M2 growth below 1%.

Markets in Everything: Lost iPod Touch Bidding War

Thanks to Mary Ritenour.

3 Reasons Healthcare Reform Won't Cut Deficit


Jobless Claims (4-wk. Avg.) Fall to 18-Month Low

WASHINGTON, March 25 (Reuters) - "The number of U.S. workers filing new applications for unemployment insurance fell sharply last week, while the number of those on continued benefits was the lowest since December 2008, a government report showed on Thursday.

The decline in initial claims last week pushed them into a range that analysts reckon signals labor market stability. The labor market has lagged the economy's recovery from its worst downturn since the 1930s, but payrolls are expected to grow this month as the government steps up hiring for the 2010 census.

The four-week moving average of new claims, which irons out week-to-week volatility, fell 11,000 to 453,750."

MP: Based on the new revised jobless claims data, the four-week moving average fell to its lowest level last week (543,750) since September 13, 2008, and has now fallen by 175,500 from the peak last April of 643,000. Although there are many predictions of continuing weakness in the labor market, the worst is definitely behind us, and the trend in jobless claims over the last year suggests a gradual return to labor market stability, as the Reuters article reports.

Adjusted for the size of the labor market, jobless claims (4-week average) have now fallen to around 0.30% of the labor force. During the last two recessions (1990-1991 and 2001), that level of jobless claims (as a share of the labor force) was reached when the recessions had definitely ended, and in both cases signalled the beginning of the end to the two "jobless recoveries" that followed those two recessions. More analysis to follow on this topic.

Markets in Everything: Market-Based Beer and Food Pricing at NYC Restaurant

NEW YORK (Reuters) - "What's the value of a pint of beer? Let the market decide, says a new restaurant in Manhattan where prices for food and beverages will fluctuate like stock prices in increments according to demand."

"The Exchange Bar & Grill, set amid the bustling shops and pubs of the Grammercy Park neighborhood, is replete with a ticker tape flashing menu prices in red lettering as demand forces them to fluctuate."

Wednesday, March 24, 2010

Durable Goods Orders Increase for Third Month

WASHINGTON (MarketWatch) - "Demand for U.S.-made durable goods rose a seasonally adjusted 0.5% to $178.1 billion in February, the third straight increase in a key forward-looking indicator, according to Commerce Department data released today. New orders for machinery and civilian aircraft were strong in February, while new orders for autos, defense goods and electronics declined. The 0.5% increase in durable goods orders was weaker than the 1.7% gain expected by economists surveyed by MarketWatch. However, January's orders were revised higher, from a 2.6% gain to 3.9%. December's orders were also revised higher."

MP: New orders for durable manufactured goods in February reached the highest level ($178.1 billion) since November 2008 (see top chart above). The 12-month percentage change in February of 10.9% followed an 11.9% increase in January, which was the highest annual increase in new orders for durable goods and equipment from U.S. manufacturers since September 2006, more than three years ago (see bottom chart). The last time there were two consecutive double-digit monthly increases in durable goods orders was four years ago in the spring of 2006.

Add this to the growing list of V-shaped signs of economic recovery, especially in the U.S. manufacturing sector.

Tuesday, March 23, 2010

Job Approval of the 111th Congress: Only 17.4%

Real Clear Politics.

U.S. Financial Markets Return to Pre-Crisis Levels

The CBOE Volatility Index (^VIX) closed at 16.35 today, the lowest closing value since May 15, 2008 and the second lowest closing value since July 2007, more than two-and-a-half years ago (see top chart above). The VIX has closed at or below 17.0 for five consecutive days, for the first time since July 2007.

The Bloomberg U.S. Financial Conditions Index (BFCIUS) has closed above or close to 0.50 for the last nine days, for the first time since June 2007 (see bottom chart above).

Taken together, the return of these two important market indicators of: a) stock market volatility (VIX), and b) the overall conditions in U.S. financial and credit markets (BFCIUS), to their pre-crisis levels of the summer of 2007 provide further evidence that the worst is far behind us, and U.S. financial markets are once again stable and healthy.

Milton Friedman in 1978 Discussing Equal Pay Act

"The free market, by enabling people to compete openly, is the most effective device that has ever been invented for making people pay for their prejudices, and thus for making it costly for them to exercise it. What you do when you impose equal pay for equal work law, is that you make the expression of prejudice costless, and as a result you harm the people you intend to help."

Thanks to Matt Bixler.

Health Care Reform Will Raise, Not Lower, Deficits

"Last Thursday, the Congressional Budget Office reported that health care reform legislation would, over the next 10 years, cost about $950 billion, but because it would raise some revenues and lower some costs, it would also lower federal deficits by $138 billion. In other words, a bill that would set up two new entitlement spending programs — health insurance subsidies and long-term health care benefits — would actually improve the nation’s bottom line.

Could this really be true? How can the budget office give a green light to a bill that commits the federal government to spending nearly $1 trillion more over the next 10 years?

The answer, unfortunately, is that the budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed. So fantasy in, fantasy out.

In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The health care reform legislation would raise, not lower, federal deficits, by $562 billion."

~Former CBO Director Douglas Holz-Eakins (and currently president of the American Action Forum),
writing in the NY Times

Food, Clothing, Housing Costs at All-Time Lows?

Median priced existing single-family home in the Midwest (January 2010): $127,200

Monthly payment with 20% down payment and 5.1% mortgage: $553

Qualifying annual income required to buy a $127,200 home: $26,544

Median annual family income in Midwest: $59,961

Midwest Housing Affordability Index: 225.9%

MP: I'm not sure if that's a record high for Midwest home affordability (most recent data here), but it seems pretty amazing that: a) the typical Midwest family has more than twice the income necessary to purchase a median priced home, b) the median priced home in the Midwest is so low ($127,200), and c) it's possible to purchase a median-priced Midwest home with less than $27,000 of household income (assuming a 20% down payment of $25,440).

That would mean that a married couple both working at Wal-Mart full-time (34 hours per week), at an average hourly wage of $9.68, would have household income of about $33,000, almost $6,000 more income than the $27,000 required to buy a median-priced house in the Midwest. Of course, the Wal-Mart couple very likely wouldn't have the $25,000 down payment, but they wouldn't necessarily have to buy the median priced home and they wouldn't necessarily have to put 20% down.

With all of the talk about stagnant or declining wages, increasing income inequality, the disappearing middle class, etc. the fact that the typical household in the Midwest has more than twice the income necessary to buy a typical house suggests that it really can't be all that bad. As I reported recently, clothing is cheaper than ever before in history (less than 3% of disposable income in 2009), and food is cheaper than ever before (9.6% of disposable income in 2008). With home prices and mortgage rates so low, it's also likely that housing costs as a share of disposable income are also at historical lows (update to follow).

Monday, March 22, 2010

Children, Our Most Precious Commodity and Unions

"Gallup has been polling public opinion about unions since the 1930's. Last year, for the first time, less than half (48 percent) of those surveyed approved of unions. Fifty one percent said unions "mostly hurt" the U.S. economy and 39 percent said they "mostly help." The percentage of the nation's private sector work force that belongs to a union has dropped precipitously. In the 1950's, over 30 percent belonged to unions. Today it's a little over seven percent.

But in our public schools, the direction is completely opposite. In 1960, about 35 percent of public school teachers belonged to unions and today it's twice that at 70 percent.

Is it not counterintuitive that most Americans feel unions hurt us, that we allow increasingly fewer goods and services produced in our private sector to be controlled by unions, but we turn increasingly more of our most precious commodity -- our children and their education -- over to a union-controlled workforce?"

~Star Parker

Almost All of the Gender Wage Gap Can Be Fully Explained and Yet Legislation is Pending to "Make Real Progress"

In 2007, the ratio of the median earnings of women and the median earnings of men was 79.6 percent, reflecting a raw gender wage gap of 20.4 percent.

From the 2009 study "
An Analysis of the Reasons for the Disparity in Wages Between Men and Women," prepared by the Consad Research Corporation for the Department of Labor:

"In the political domain, the values calculated for the raw gap have been interpreted by many people as a clear indication of overt wage discrimination against women, and have been advanced as a justification for proposed policies mandating equal pay or comparable worth
. In the economic domain, the values calculated for the raw gap have been the stimulus for a substantial amount of scholarly research that has attempted to identify the sources of the observed differences in earnings, and to evaluate their relative importance.

There are observable differences in the attributes of men and women that account for most of the wage gap. Statistical analysis that includes those variables has produced results that collectively account for between 65.1 and 76.4 percent of a raw gender wage gap of 20.4 percent, and thereby leave an adjusted gender wage gap that is between 4.8 and 7.1 percent. These variables include:

1. A greater percentage of women than men tend to work part-time. Part-time work tends to pay less than full-time work.

2. A greater percentage of women than men tend to leave the labor force for child birth, child care and elder care. Some of the wage gap is explained by the percentage of women who were not in the labor force during previous years, the age of women, and the number of children in the home.

3. Women, especially working mothers, tend to value “family friendly” workplace policies more than men. Some of the wage gap is explained by industry and occupation, particularly, the percentage of women who work in the industry and occupation.

4. Research indicates that women may value non-wage benefits more than men do, and as a result prefer to take a greater portion of their compensation in the form of health insurance and other fringe benefits.

5. More of the raw wage gap could be explained by including some additional variables within a single comprehensive analysis that considers all of the factors simultaneously; however, such an analysis is not feasible to conduct with available data bases.

6. This study leads to the unambiguous conclusion that the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers."

MP: And yet the House passed the Paycheck Fairness Act in 2009, and the Senate recently held hearings on an identical version of the bill, which is described here by the AAUW:

"A much needed update of the 45-year-old Equal Pay Act, the Paycheck Fairness Act is a comprehensive bill that would create stronger incentives for employers to follow the law, empower women to negotiate for equal pay, and strengthen federal outreach, education and enforcement efforts. Championed by longtime AAUW friend Rep. Rosa DeLauro (D-CT), the bill would also deter wage discrimination by strengthening penalties for equal pay violations and by prohibiting retaliation against workers who ask about employers' wage practices or disclose their own wages. Together with the Ledbetter bill, this critical piece of legislation can help create a climate where pay discrimination is not tolerated, and give the new administration the enforcement tools it needs to make real progress on pay equity."

Real progress on pay equity? According to the Department of Labor study, pay equity is a reality already and there is no wage discrimination once all relevants factors are considered.

Thanks to Christina Sommers.

Sunday, March 21, 2010

Why Obamacare Won't Work: It Will Be Rational for People and Companies to Drop Insurance, Pay Fine

Last November, Martin Feldstein pointed out a fatal flaw of Obamacare in the Washington Post: It will be rational for individuals and companies to drop their current health insurance, pay the penalties, and wait to purchase insurance when they get sick:

A key feature of the House and Senate health bills would prevent insurance companies from denying coverage to anyone with preexisting conditions. The new coverage would start immediately, and the premium could not reflect the individual's health condition.

This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums. (Separate accident policies might develop to deal with the risk of high-cost care after accidents when there is insufficient time to buy insurance.)

In an attempt to prevent this, the draft legislation provides penalties for individuals who choose not to buy insurance and for employers that do not offer health insurance. But the levels of these fines are generally too low to cause a rational individual to insure.

Consider: 27 million people are covered by health insurance purchased directly, i.e. outside employer-based plans. The average cost of an insurance policy with family coverage in 2009 is $13,375. A married couple with a median family income of $75,000 who choose not to insure would be subject to a fine of 2.5 percent of that $75,000, or $1,875. So the family would save a net $11,500 by not insuring. If a serious illness occurs--a chronic condition or a condition that requires surgery--they could then buy insurance. Since fewer than one family in four has annual health-care costs that exceed $10,000, the decision to drop coverage looks like a good bet. For a lower-income family, the fine is smaller, and the incentive to be uninsured is even greater.

The story is similar for single people. The average cost of an individual policy is $4,800. An individual with earnings of $50,000 would face a fine of $1,250 and would therefore save $3,550 by not insuring.

In short, for those who are now privately insured through employers or by direct purchase, there would be substantial incentives to become uninsured until they become sick. The resulting rise in the cost to insurance companies as the insured population becomes sicker would raise the average premium, strengthening that incentive.

MP: What would make this choice to drop insurance and pay the penalty even more rational is the convenient, low-cost availability of basic health care from 1,200 retail clinics around the country for basic, routine health care.

America's Weak Dollar Policy Amounts to the Biggest Currency Manipulation in Human History

The US Dollar depreciated by 37% between 2002 and 2008 (data here), see graph above.

Tough talk from abroad, an editorial in the
London Telegraph:

"Obama has called on China to adopt a more "market-oriented exchange rate." The US Treasury Department, meanwhile, has set a mid-April deadline to decide whether China truly is a "currency manipulator," warning that America could impose new levies on Chinese products if that's judged to be the case.

The president is playing with fire. For one thing, his country is being kept afloat by China's willingness to keep buying U.S. government debt. Obama really should tread carefully. At the same time, the US is now at risk of sparking what could be an all-out trade war.

The reality is that America's "weak dollar" policy – its long-standing practice of allowing its currency to depreciate in order to lower the value of its foreign debts – amounts to the biggest currency manipulation in human history. At the same time, the U.S. has, for years, shamefully stalled on various rulings passed by the World Trade Organisation that show America to be breaching global trade rules.

Chinese inflation is now at 2.7% – close to the official 3% target. Beijing will eventually allow the yuan to rise, but in its own time and in order to tackle inflation and not because of US pressure. America needs to act smarter and get its own economic house in order. Obama has decided instead to lash out at China in a desperate attempt to placate a U.S. electorate increasingly mindful of their president's failings."

MP: The U.S. has also stalled the free trade agreements with Panama, Colombia and South Korea, which were passed in 2007 and are now languishing into a fourth year.

China and U.S.: There Really Is NO Trade Imbalance

Click to enlarge.
Don Boudreaux picks a nit about "trade imbalances" with Jeremy Warner, who writes an otherwise excellent article in the London Telegraph about Paul Krugman's misguided suggestion of a 25% surcharge tax on China's imports American consumers and U.S. companies who buy goods from China for their low prices and great value:

"You write as if the alleged trade imbalances between the U.S. and China are real. They are not. The Chinese sell Americans goods; we pay with dollars; the Chinese then use many of these dollars to buy IOUs issued by Uncle Sam. Although the result is a measured U.S. current-account deficit with China, there’s no more any economically meaningful “imbalance” in such a result than there would be if, say, Texans lent a lot more of their dollars to Uncle Sam.

Talk of imbalances in trade diverts attention from the real problem: Uncle Sam’s gargantuan debt. That fast-accumulating debt is a huge problem. It is caused, though, not by trade with China but, rather, by Washington’s lack of fiscal discipline. Unless you believe that protectionism (and only protectionism) would induce Congress to be more fiscally disciplined, you should avoid all talk of imbalances in trade and instead talk of imbalances in political institutions that encourage politicians to give disproportionate weight to the demands of current voters and to ignore the resulting ill-consequences that will curse future generations."

MP: The graph above illustrates Don's point that there is no "trade imbalance" once all international transactions are accounted for:

1. In 2009, the U.S. imported more from China ($354 billion) than it exported ($93 billion), resulting in a "trade deficit" of -$263 billion on our "current account" (data here).

But that is only part of the international trade story, since there are also financial transactions that have to be accounted for, and that deficit on the current account has to be offset somehow, since all international trade has to balance (it's based on double-entry bookkeeping).

2. The offsetting balance came from the $263 billion capital account surplus in 2009, as a result of $263 billion of net capital inflow to the U.S. from China to buy our Treasury bonds and other financial assets.

3. The $263 billion capital account surplus exactly offsets the current account deficit.

Bottom Line: As Don correctly points out, there really is NO trade imbalance, when we account for: a) exports and imports of goods and services, AND b) capital inflows/outflows. Stated differently, the balance of payments is always ZERO. We buy more of China's goods than they buy of ours, but then China buys more of our financial assets (bonds and stocks) than we buy of theirs. So in the end, international trade with China, is balanced, not imbalanced.

Obamacare Odds on Intrade: 84%

Link. (Odds at 10:16 a.m.: 84%)

From 100-1 to 18-1: Improved Disparity for Double-Standard, Racist, Minimum Drug Sentencing?

"Last week by voice vote, the Senate unanimously approved a measure to reduce the infamous 100-1 disparity in federal mandatory minimum prison sentences for possession of crack versus powder cocaine. The new, improved disparity would be 18-1.

If the Fair Sentencing Act of 2009, authored by Sen. Dick Durbin, D-Ill., becomes law, there will be a five-year mandatory minimum prison term for 28 grams of crack cocaine -- instead of 5 grams today -- while the amount of powder cocaine that triggers five years would remain 500 grams (see top chart above, data here).

There is no logical reason for the sentence disparity. Whether in crack or powder form, it's still cocaine. But about 4 in 5 federal crack offenders are black (see bottom chart above). Last year, Asa Hutchinson, who was head of the Drug Enforcement Administration under President George W. Bush, righteously testified that the "disparate racial impact" of the cocaine-powder disparity undermines "the integrity of our judicial system.""

MP: Debra Saunders is exactly correct that there is nothing logical or sensible about the huge sentence disparity, it's nonsensical hysteria that is part of an insane War on Drugs. Keep in mind that crack cocaine is made by adding baking soda to powder cocaine, so that's a lot of extra jail time for a little Arm and Hammer.

Well, it now looks like there's a possibility that some sanity might actually prevail in Congress. No, let me rephrase that. There's a distinct possibility that the amount of insanity might be significantly lowered. If the Fair Sentencing Act of 2009 passes, it will lower the sentencing disparity from 100-1 to 18-1, which is an improvement, but still nothing close to parity or true fairness. Only in politics would a remaining sentencing disparity of 18-1 be called "fair," but I guess it's a step in the right direction.

Nobel economist Milton Friedman once called the minimum wage "the most anti-black law on the books," but I now disagree - the Anti-Drug Abuse Act of 1986 is the most anti-black law on the books, for its huge and disproportionate effect on blacks.

90 Seconds to Government Run Healthcare

From (via Cafe Hayek).

Saturday, March 20, 2010

Health Insurance Monopoly: Myths vs. Facts

Fact #1: "America’s Health Insurance Plans (AHIP) is the national association representing nearly 1,300 member companies providing health insurance coverage to more than 200 million Americans. Our member companies offer medical insurance, long-term care insurance, disability income insurance, dental insurance, supplemental insurance, stop-loss insurance and reinsurance to consumers, employers and public purchasers."

Fact #2: "About 55% of those insured receive their insurance from a “self-insured” employer, where the employer acts as the insurer, rather than from a traditional insurance company. These "self-insured" employers often hire other firms, including insurance companies, to help administer the plans (they handle paperwork and form networks with doctors and hospitals). While employees often naturally think that the insurance company named on their insurance cards is providing the coverage, employers determine the details of coverage – from benefits to what premium the employee contributes – and they are responsible for putting aside money to cover employee medical costs.

The self-insured market consists of thousands of employers acting as insurance providers and competing for workers based on the salary they pay and the benefits they offer. Over 900 companies handle the administration of self-insured plans, with fees typically running three to eight percent of the total cost of insurance, depending on the employer’s size."

Fact #3: Definition of Monopoly: "A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition. In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare."

Myth #1, From the White House: "The health insurers’ monopoly is so strong that they can continue to jack up rates as much as they like – even if it means losing customers – and their profits will continue to soar under the status quo."

Myth #2, from President Obama: "Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, just one company controls almost 90% of the market. Without competition, the price of insurance goes up and the quality goes down."

Fact #4: "Given that self-insured firms cover over half of the people insured in those states, the total market share for the largest five insurers would average closer to 30% than 75%."

Conclusion: How can an industry with 1,300 firms possibly be described as a "monopoly" (one seller)?

Quotes of the Day: Libertarians

1. "Libertarians are conservatives who still get high."
~Drew Carey

2. "Libertarians are liberals who like markets."
~Will Wilkinson

Cartoon of the Day: Self-Execution

Gary Garvel, on the possible, pending Pyrrhic Victory.

Words of Wisdom on Markets

"The market is not perfect. It is run by humans who make mistakes. But the same humans run government where they make different, often more costly, mistakes for which the public pays.

Capitalists make errors, but left alone, markets punish such errors."

Economist Alan Meltzer writing in the Wall Street Journal, via Scott Grannis

Fact of the Day: 200 Million Transactions Per Week

Wal-Mart serves customers and members more than 200 million times per week at 8,400 retail units under 53 different banners in 15 countries, and employs more than 2 million associates worldwide.

Why Canada Avoided a Mortgage Meltdown

From my AEI colleague Alex Pollock writing in yesterday's WSJ about America's "homeownership mantra," and how government intervention and public policy contributed to our housing troubles and mortgage meltdown, and why Canada was able to avoid both and achieve a higher rate of homeownership in the process:

"Suppose we agree that we would like our society to have widespread home ownership and a property-owning citizenry. Does it take government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac with implied taxpayer guarantees, tax advantages for the interest paid on home mortgages, and government pressure for "creative" mortgage lending to achieve this?

The Canadian experience shows that it doesn't."

See my related article "
Due North: Canada’s Marvelous Mortgage and Banking System."

Friday, March 19, 2010

Spending on Clothing and Footwear Falls Below 3% of Disposable Income for First Time in U.S. History

Americans spent almost $326 billion on clothing and footwear in 2009 (data here), which as a share of disposable personal income (data here), was the lowest ever in U.S. history, at only 2.98%. Spending on clothing as a share of income has fallen in 20 out of the last 22 years, from 4.78% in 1988 to less than 3% in 2009. Compared to 1950 when spending on clothing was 9% of income, spending last year was less than one-third that amount, and compared to spending on clothing of 6% of income in 1970, spending last year was half of that share.

In other words, clothing is now cheaper than at any time in history, when measured as a share of disposable income. And there's a better selection of clothing now, at higher quality, and with options available today like no-iron fabrics and washable silk that have become increasingly available in recent years. And when it comes to footwear, I don't think anybody would argue that the selection and quality today are far ahead of past decades - just think of the athletic footwear options today vs. Chuck Taylor Converse All-Stars, which were at one time "state-of-the-art" and were only available in two colors (black and white) until 1966.

The chart below explains the falling cost of clothing and footwear as a share of disposable income, by displaying the CPI for Clothing (data here) and the CPI for All Items (data here). Since 1992, prices in general have risen by 57%, while prices for clothing have fallen by 8.5%. With significantly falling prices in real terms, clothing has become more and more affordable almost every year, requiring smaller shares of our income, which has freed up disposable income that can now be spent on other consumer goods (think electronics, travel, entertainment, etc.).

Bottom Line: As a direct result of increased global competition, advances in technology, and increased worker productivity, clothing is cheaper today both in inflation-adjusted prices and as a share of disposable income. We have more clothing today per person than any previous generation (think of the number and size of closets in a typical 1930s, 1940s or 1950s era home), and the clothing and footwear are cheaper and better than ever, contributing to a gradually rising standard of living for the average American.

Famous American Brands No Longer Made in USA

Newsweek slideshow, including Chuck Taylors, Fenders, Etch-a-Sketch, Levis, some American flags (only 1.5% due to protectionism), NBA uniforms, etc.

Thursday, March 18, 2010

Silicon Valley Guilty of "Technology Manipulation"

Congressman Mike Michaud urges Treasury Secretary Tim Geithner and Commerce Secretary Gary Locke "to immediately address the growing problems associated with China’s continued currency manipulation."

Don Boudreaux responds:

"After you’ve succeeded in denying Americans access to the lower prices and larger quantities of goods made possible by Beijing’s current monetary policy, will you and your colleagues take similar action against Silicon Valley? After all, firms there famously engage in technology manipulation, which – by improving the productivity of nearly every industry in the economy – essentially (as you would say) subsidizes production of countless industries and imposes tariffs on the outputs of workers who compete with these advanced techniques. Such advanced techniques present an insurmountable barrier to the ability of many such workers to continue in their old jobs."

Congressional Approval Close to Record-Low of 16%

Gallup -- "Americans hold Congress in far less esteem than they do the president -- 16% approve and 80% disapprove of the job Congress is doing, according to the latest update from a March 4-7 Gallup poll. That is just two points off the record-low 14% Gallup measured in July 2008. Gallup has been measuring congressional approval since 1974."

Obama Gallup Approval Rating Below Jimmy Carter

Gallup Poll: Jimmy Carter, March 10-13, 1978 (Source).

Gallup Poll: Barack Obama, March 18, 2010 (Source).

Are There Gender Differences in Achievement? Yes

The answer is Yes, especially for reading, according to the Center on Education Policy's latest study, which found that:

1. In math, there was no consistent gender gap in 2008. Rather, there was rough parity in the percentages of boys and girls reaching proficiency at all three grade levels. The percentages of boys and girls scoring proficient in math tended to be similar, with boys edging out girls slightly in some states and girls doing slightly better in other states. No state had a difference in math between boys and girls of more than 10 percentage points.

MP: Actually, the authors might want to check their math on this finding. If you look at the
results by state for math proficiency at the high school level, you'll see that the percent of males with math proficiency exceeded females in 26 states, which is more than double the number of states in which females outperformed males (12). For the other states, there were either no gender differences (7 states) or data weren't available (5 states).

2. In reading,
girls outperformed boys in 2008 at the elementary, middle, and high school levels. Higher percentages of girls than boys scored at or above the proficient level on state reading tests at grade 4, grade 8, and high school; in some states, these gaps exceeded 10 percentage points.

MP: Actually, if you look at the
reading results here, you'll see that girls outperformed boys: a) in ALL states, and b) at EACH of the three levels (elementary, middle, and high school). In 30 different cases, the gender gaps in favor of females exceeded 10 percentage points!

From the conclusion:

"Consistent with other recent research, our analysis of state test results by gender suggests that the most pressing issue related to gender gaps is the lagging performance of boys in reading. In many states, the percentage proficient for girls is more than 10 points higher than the percentage proficient for boys. Researchers and state officials might investigate ways in which the school environment may be changed to better address the needs of boys."

MP: For some reason, and I could be wrong, but I just don't think this will get as much attention as the underrepresentation of women in engineering doctoral programs, even though this involves millions of boys in every state and at every level of education. And I doubt it will be described as "a persistent gender gap that is a national crisis and one that will prove to be deeply detrimental to America’s global competitiveness."

Am I wrong or too cynical?

Steve Forbes: We Have a Fixed Currency IN the US

Steve Forbes at about 2:46 talking about China's fixed ex-rate at 6.83 Yuan per dollar since the summer of 2008:

"Fixed currencies - we should be in favor of them, because it makes life easier. We have a fixed currency between California and New York, and it's a good thing."

Greg Mankiw's view on China's currency.

"Critics of China say it is keeping the yuan undervalued to gain an advantage in the international marketplace. A cheaper yuan makes Chinese goods less expensive in the United States and American goods more expensive in China. As a result, American producers find it harder to compete with Chinese imports in the United States and to sell their own exports in China.

There is, however, another side to the story. The loss to American producers comes with a gain to the many millions of American consumers who prefer to pay less for the goods they buy."

Median CPI Inflation Falls 17th Month: Record Low

According to a report released today by the Federal Reserve Bank of Cleveland, the median Consumer Price Index was virtually unchanged at 0.0% (0.5% annualized rate) in February. 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 today, the BLS reported that the seasonally adjusted CPI for all urban consumers was unchanged in February. The CPI less food and energy increased 0.1% in February. Over the last 12 months, median CPI inflation was 0.8% compared to CPI inflation of 2.1% (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 February's median CPI to 0.8% from 1.0% in January was the 17th 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 before, it would seem that a stronger case could be made right now for deflation, than making a case for inflation.

Scott Grannis looks at the Producer Price Index and makes the case here that "inflation is alive and well."

Leading Economic Index Increases for the 11th Consecutive Month, First Time in Almost Six Years

The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.1% in February, following a 0.3% gain in January, and a 1.2% rise in December.

Says Ataman Ozyildirim, Economist at The Conference Board: "The LEI for the U.S. has risen rapidly for almost a year now and it has reached its highest level. But, the sharp pick up in the LEI appears to be stabilizing. As the economy moves from recovery into early phases of an expansion, the leading economic index points to moderately improving economic conditions in the near term. Correspondingly, the coincident economic index has been rising since July 2009, albeit slightly because of continued weakness in employment."

MP: The LEI has increased now in every month since last April, marking 11 straight monthly increases in the index for the first time since mid-2003 to mid-2004, almost six years ago.

Wednesday, March 17, 2010

Steinem Laments Elusive Equality for Women

From Reuters: "As she turns 76 next week, a message to all those confident young American women from pioneering feminist Gloria Steinem: For all the advances in women's rights in the past 40 years, equality remains a distant hope."

Exhibit A:

The Gender Degree Gap and The Great Mancession

The chart above shows the dramatic gender shift over time in college degrees (data here). In 1949, men earned 76% of all college degrees, i.e. men earned 317 degrees for every 100 degrees earned by women. By 1981, women earned 50% of all college degrees, and in almost year every since then have increased their share of all degrees to the current level of 58.61%, which is down slightly from the peak of 59.06% in 2007. The 60-year trend may now have stabilized at 59% of all college degrees earned by women and 41% earned by men, or 144 degrees earned by women for every 100 degrees earned by men.

The chart below shows the difference in the monthly male unemployment rate and female unemployment rate back to January 1948. For all months above the red zero line, the male jobless rate was higher than the female rate, and for all months below the red line, the female rate was higher than the male rate. For 249 consecutive months between December 1959 and August 1980, the female jobless rate was below the male jobless rate. In other words, for more than ten years, there was never a single month when the male jobless rate was higher than then female jobless rate, and that's quite a record.

During the last four recessions, the male unemployment rate has always exceeded the female jobless rate, but only by about 1% in the recessions of 1982, 1990-1991 and 2001, which is nothing compared to the historic 2.7% peak male-female jobless rate gap in August 2009 (11% for males vs. 8.3% for females).

For the 32-year period between 1948 and 1979, the average male-female jobless rate gap was -1.21% in favor of men (lower male unemployment rate compared to female unemployment), and for the 30-year period from 1980 to 2010, the average jobless rate has been 0.187% in favor of women (lower female unemployment rate compared to male).

Hypothesis: As college degrees have shifted gradually in favor of women over the last sixty years, and especially since 1981 as women got a disproportionately higher and higher share of all college degrees year-by-year, women have become both better-educated than men on average, and also better protected against unemployment, especially during recessions (see chart above of jobless rates by education). In other words, the Great Mancession of 2008-2009 was directly related to men's decreasing share of college degrees, and therefore greater exposure to unemployment, especially during the Great Recession.

Comments welcome.

Intrade Odds for Obamacare Drop from 70% to 35%

Intrade. I'm not sure what's going on here, any ideas?

(HT: Matt Bixler)

Update: It's back up to 70% (2:33 p.m. EDT)?

Southern California Home Sales Increase for 20th Month, Median Prices Increase for Third Month

From DQNews:

"Southern California home sales in February were above year-ago levels for the 20th month in a row as buyers continued to snap up bargain properties with government-backed mortgages and tax incentives. The median price paid for a home rose on a year-over-year basis for the third consecutive month.

A total of 15,359 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was virtually unchanged from 15,361 in January, and up 0.8% from 15,231 in February 2009.

“It’s possible the stars won’t line up this way again for many years. With prices and mortgage interest rates this low, the cost of ownership is about as low as we’ve seen it in decades,” said John Walsh, MDA DataQuick president.

The median price paid for a Southland home was $275,000 last month, up 1.3% from $271,500 in January, and up 10% from $250,000 for February 2009. Foreclosure resales accounted for 42.3% of the resale market last month, up from 42.1% in January, and down from 56.7% a year ago, which was the all-time high."

One Nation Over Gas: A Gasified U.S. Economy

From The Economist, an excellent article about how an unconventional glut of natural gas in America is shifting the balance of power in the world’s gas markets:

"North America now has an unforeseen surfeit of natural gas. The United States has enough gas under its soil to inspire dreams of self-sufficiency. Other parts of the world may also be sitting on lots of gas. Those in the vanguard of this global gas revolution say it will transform the battle against carbon, threaten coal’s domination of electricity generation and, by dramatically reducing the power of exporters of oil and conventional gas, turn the geopolitics of energy on its head.

A gasified American economy would have profound effects on both international politics and the battle against climate change. Displacement of oil by natural gas would strengthen a trend away from crude in rich countries, where the IEA believes demand has already peaked as a result of the recent spike in oil prices. Another consequence of the energy market’s bull run, the unearthing of vast new supplies of gas, could bring further upheaval. If the past decade was characterised by the energy-security concerns of consumers, the coming years could give even the world’s powerful oil producers reason to worry, as a subterranean revolution shifts the geopolitics of global energy supply again."

Tuesday, March 16, 2010

Almost 1 out of 3 Physicians May Leave Medicine

From a survey of physicians conducted by The Medicus Firm in December 2009, and appearing in the latest issue of the New England Journal of Medicine:

"If health reform passes without the public option, 7.4% of physicians stated that they would quit practicing medicine, unless they were nearing retirement, in which case an additional 21.8% of the responsdents said they would retire early,
bringing the total loss of physician workforce to nearly one-third of physicians leaving medicine.

"What many people may not realize is that health reform could impact physician supply in such a way that the quality of healthcare could suffer," states Jim Stone, Managing Partner at The Medicus Firm's Dallas office. "Based on the physicians' responses to the survey, health reform could significantly intensify the effects of the physician shortage. Depending upon which version of the health reform bill passes, the reality is that there may not be enough doctors to provide quality medical care to all of these newly insured people."

Over 50% of physicians who responded predict that health reform would cause the quality of medical care to deteriorate in America. When asked how health reform could affect the quality of medical care, 40.7% stated it would "decline or worsen somewhat," while another 14.4% stated that the quality of medical care would "decline or worsen dramatically". If a public option is implemented as part of health reform, 64.1% of physicians predict that the quality of medical care in general will decline."

Quote of the Day: Jellied Spines Are Easily Moved

"The average member of Congress – House and Senate – is first and foremost only a self-serving inconvenience-minimizer who doesn't have a lot of principle they stand on in the first place. It doesn't take much to move a jellied spine, so they'll probably get their votes."

~Dick Armey speaking to the National Press Club yesterday, where he predicted that Congress will pass health care reform.

Obamacare Odds: From 40% to 70% in 14 Days

Intrade odds for Obamacare.

KBW Bank Index Up by 175% from March Bottom

As another sign of increasing stability and strength in the U.S. banking sector, the KBW Bank Index (^BKX) has closed above 50 for the last four days, and is trading today above 51 for the first time since November 13, 2008. From the March 2009 bottom of 18.62, the KBW Bank Index has increased by 175%.

Monday, March 15, 2010

Markets in Everything: 1) The Coffee Inhaler, and 2) "Emotionally Activated" Lip Gloss: Read My Lips

1. The Le Whif Coffee Inhaler, a lipstick-sized tube that contains a "breathable coffee powder," gives you a nice caffeine fix without all that drinking and swallowing messiness.

2. A
new lipstick has gone on sale that shows when women are in the mood for sex. The lip product changes from clear to deep crimson as the wearer feels more and more frisky. It works by reacting with a woman’s body chemistry.Each $18.50 tube comes with a color chart so men can figure out how aroused their partner is feeling.

HTs: Phillip Miller and Tim Dodson

More on the Sickeningly Sweet Deal for Big Sugar

From today's WSJ front page:
The gap between what Americans and the rest of the world pay for sugar has hit its widest level in at least a decade, breathing life into the battle over U.S. import quotas that prop up the price of the sweet stuff. For years, U.S. prices have been artificially inflated by import restrictions designed to protect American farmers. That has kept the price well above the global market (see top chart above - the U.S. beet sugar price has averaged more than twice the world cane price, data here, Tables 2 and 5).

But the difference between the two has ballooned recently, giving new impetus to U.S. sugar processors and confectioners to step up their long campaign to pressure the government to increase import limits.

About 85% of the sugar consumed in the U.S. grows domestically, with the rest imported from about 40 countries under a quota system and Mexico, which isn't bound by the program under a free-trade treaty. Within the quota, exporters get higher prices paid by U.S. buyers but are subject to stiff tariffs once that limit is exceeded.

Sugar growers have used their lobbying muscle to fend off any increase in quotas for decades. The efforts by big brands to ease imports are just an attempt to "boost profits," according to Phillip Hayes, a spokesman for the American Sugar Alliance, a trade group of cane and sugar-beet farmers.
MP: Oh, and the efforts by the American Sugar Alliance to be protected against more efficient foreign sugar producers with government price supports, domestic marketing allotments, and tariff-rate quotas are NOT an attempt to boost profits for the U.S. sugar growers?

The bottom chart above illustrates one of the major motivations behind the protectionism for U.S. sugar growers. According to the USDA (data here), more than half of U.S. sugar has historically come from sugar beets, which is almost 40% more costly to produce ($38.91 per short ton) than U.S. cane sugar ($28.28).

Bottom Line: The major source of inefficiency for producing domestic sugar in the U.S. is that a majority of our sugar is produced from sugar beets grown in Michigan, Minnesota and North Dakota, and beet sugar is twice as expensive as producing sugar from sugarcane, the standard method of producing sugar throughout the rest of the world.

If you're producing a standard globally-traded commodity using production methods that are twice as costly as your foreign competitors, you normally won't survive, or would have a pretty small share of the market. Unless of course, your industry has hijacked the political process and erected protectionist trade barriers like the U.S. sugar growers, getting a guaranteed 85% market share, along with other sweeteners like price supports. It's a sickeningly sweet deal for Big Sugar and its 4,000 domestic sugar beet producers, but a pretty sour deal for the rest of us - it cost us about $2.5 billion last year in higher sugar prices,
see CD post.

Talk is Cheap; Retail Clinics Already DO Bend the Cost Curve Down; Latest Example: $35 Physicals

From CPAC's 2010 Blogger of the Year, Ed Morrissey of Hot Air, "Retail Health Care and Reform":
With the ObamaCare bill approaching a final vote, this seems like a good time to remind readers that other options are available for reforming the cost structure of American medical care.

What are “retail health clinics”? Chances are, you’ve already seen them. These clinics have begun rapidly spreading to malls, big-box retail stores such as Wal-Mart and Target as concessionaires, and drug stores like Walgreens. Instead of hiding behind insurance co-pays, the clinics offer pricing up front to consumers, so that they can decide for themselves what to “buy” and how much they want to pay for service.

This is the same mechanism that works to keep prices down and supply consistent in other areas of health care that insurance plans do not traditionally cover. For instance, cosmetic surgery and Lasik rely entirely on consumer compensation. There are no third-party payers to get in the way of rationally allocating resources to demand. In those markets, producers and consumers find each other in the normal manner, advertising, discounts, and price competition, and the market attracts new providers when scarcity appears and prices rise.

If we want to reform care, bend the cost curve downward, and promote supply in the health-care industry, we need to learn the lesson from retail health clinics. The top-down reform proposed by Congress threatens to stop real reform and amplify everything that’s currently wrong with the system.
Bending the Cost Curve Downward, EXHIBIT A:

DRUG STORE NEWS -- Take Care Health Systems, which is owned by Walgreens, has announced that it now is offering camp and sports physicals at all Take Care Clinics nationwide. The clinics, located within nearly 360 Walgreens stores nationwide, are offering physicals for $35 through the end of September. The physicals are administered by nurse practitioners and, in select markets, physician assistants.

HT to Wright Truesdell for the Ed Morrissey link.

The Illusion of Reform

Robert Samuelson nails it in his column today, here are some excerpts:

WASHINGTON -- "One job of presidents is to educate Americans about crucial national problems. On health care, Barack Obama has failed. Almost everything you think you know about health care is probably wrong or, at least, half wrong. Great simplicities and distortions have been peddled in the name of achieving "universal health coverage." The miseducation has worsened as the debate approaches its climax.

Though it seems compelling, covering the uninsured is not the health care system's major problem. The big problem is uncontrolled spending, which prices people out of the market and burdens government budgets. Obama claims his proposal checks spending. Just the opposite. When people get insurance, they use more health services. Spending rises. By the government's latest forecast, health spending goes from 17% of the economy in 2009 to 19% in 2019. Health "reform" would likely increase that.

Obama's telling people what they want to hear, not what they need to know. Whatever their sins, insurers are mainly intermediaries; they pass along the costs of the delivery system. In 2009, the largest 14 insurers had profits of roughly $9 billion; that approached 0.4 percent of total health spending of $2.472 trillion. This hardly explains high health costs. What people need to know is that Obama's plan evades health care's major problems and would worsen the budget outlook. It's a big new spending program when government hasn't paid for the spending programs it already has."

MP: If total health spending is $2.472 trillion per year, that's about $6.8 billion per day and $283 million per hour. So the profits from last year of $9 billion of the 14 largest insurers account for about 32 hours of annual spending on health care or less than two days of the total spending. It's then all of the other costs that account for the rest of the 99.6% of spending and the other 363 days.

As I pointed out in a previous CD post, insurance companies are the messengers of higher health care costs, not the source of higher costs. Focusing on health insurance profits as a source of higher health care costs is a diversion from the real factors that lead to higher costs.