Tuesday, January 11, 2011

Photos: Detroit in Ruins

Some awesome pictures of abandoned buildings in Detroit, by photographer Geoffrey George.

HT: Coyote Blog

See related CD post here on Detroit's "feral houses."

Federal Tax Revenues Rising: 23% for Individuals

From today's (tomorrow?) Wall Street Journal (1/12/2011):

"It hasn't received much, if any, media attention, but there's some good budget news to report for a change. Federal tax revenues are rising briskly again, which should allow progress against deficits if the politicians can control their spending appetites.

The Congressional Budget Office reported last week that federal tax receipts climbed in December by $18 billion, following somewhat smaller gains in the previous two months. For the first quarter of fiscal 2011, revenues have climbed by $44 billion, or nearly 9%, to $531 billion. Especially encouraging is that these revenue gains came predominantly from individual income taxes, which rose 23% in the first three months to $256 billion (see chart above). Individual tax receipts continued to fall in 2010 even as corporate receipts rose, so the current increase is a sign that wages and bonuses are rising again for workers who have a job. 

If Republicans in Congress can whittle away at spending while the economy throws off more revenue, the deficit should begin to decline again after the record chasms under Nancy Pelosi's Democrats. The keys are to cut spending and keep growth alive."

Thanks to Bob Wright for the tip. 

Update: Many states are also reporting rising tax revenues in December including Oklahoma, Kentucky, Nebraska, Georgia, Arkansas, and Massachusetts

Medical School Acceptance Rates, 2008-2010

The chart above (click to enlarge) is an update of this CD post from last summer, showing medical school acceptance rates for Asians, whites, Hispanics and blacks based on data from the Association of American Medical Colleges for the years 2008-2010 (aggregated).

For 2010, the average GPA of students applying to medical schools was 3.53 and the average total MCAT score was 28.3, and those averages are highlighted above in blue.  Therefore, the chart above shows the acceptance rates for students applying to medical schools with average GPAs and MCAT scores, and the acceptance rates for those students with slightly higher and slightly lower than average GPAs and test scores.  In other words, this selected sample displayed above would represent students in the middle range of the distribution of those applying to medical school.  Here are some observations:

1. For those students applying to medical school with average GPAs and MCAT scores, black applicants are almost three times more likely to be admitted than their Asian counterparts, and more than twice as likely than their white counterparts.  

2. For students applying to medical school with slightly below average GPAs of 3.20-3.40 and slightly below average MCAT scores of 24-26, black applicants are more than 8 times as likely to be admitted as Asians, and more than 5 times as likely as whites. 

Bottom Line: There are apparently ongoing affirmative action policies for admission to U.S. medical schools that favor blacks and Hispanics over Asian and white students.  For example, a black applicant with average grades and a below average MCAT score is slightly more likely to be admitted to medical school (78.1%) than an Asian student with both higher than average grades and higher than average MCAT score (73.7%).  Further, an Hispanic student with a below average GPA and a below average MCAT score is only slightly less likely to be admitted to medical school (38.3%) than a white student with both above average GPA and MCAT score (40.3%). 

Miscellaneous Links

1. Offshore Gold Rush: "AngloGold Ashanti and De Beers, two of the world’s largest metals and minerals mining companies, are searching for gold deposits under the Atlantic sea.  Both companies are currently carrying out lots of research into the technical feasibilities of carrying out gold exploration under the seas." Just as Julian Simon and ECON 101 would have predicted - higher commodity prices stimulate exploration and discovery, often then leading to greater supply and lower prices, i.e. high prices today frequently lead to lower prices tomorrow. 

2. The Monster Employment Index Europe showed that online recruitment in Europe increased 22% in December.

3. Book review in today's WSJ of Amy Chua's book "Battle Hymn of the Tiger Mother," featured recently on CD (generating 56 comments so far). 

4. Roads battered by heavy truck traffic in western North Dakota's oil country are hampering development and driving up shipping costs, but hey, they've got a $1 billion surplus. (HT: Buddy Pacifico)

N.D. Tops 350,000 Bbls/Day, Could Double by 2015

North Dakota pumped another record amount of oil in November, at an average daily rate of 355,038 barrels, which is double the amount of oil produced as recently as the summer of 2008, and 44% higher than a year ago (data here).  Experts predict that production could double to 700,000 barrels per day within four to seven years in the Peace Garden State, which would put North Dakota ahead of both Alaska and California, and second only to Texas in oil production for American states. 

Markets in Everything: Traffic Jam Rescue

BEIJING - "With more Chinese people getting behind the wheel every day, traffic jams are a major headache in most cities but the gridlock has become an opportunity for some entrepreneurs who are offering an escape route - for a price.  Drivers who get stuck in traffic in some cities can now get on their mobile phones and call for a substitute to take their cars to their destinations while the frustrated drivers are whisked away on the back of a motorcycle."

The Flat Earth Society: Economist Version

From Investor's Business Daily last week, an editorial by Rick Berman of the Employment Policies Institute:

"Liberal advocacy groups who argue in favor of a higher minimum wage have a tough job: Faced with mountains of data countering their argument that wage mandates don't cost jobs, they struggle to find their intellectual footing.

They often display a Potemkin village of 665 economists who subscribe to a theory that suggests labor costs don't factor into hiring decisions. First compiled and promoted by the union-backed Economic Policy Institute, this list of 665 economists is the default appeal to authority the pro-hike activist groups rely on. The list was even inserted into the Congressional Record by Congressman George Miller, D-Calif., during the last debate over raising the federal minimum wage.

Most recently, the list was cited in a report released jointly by the Fiscal Policy Institute and the National Employment Law Project arguing in favor of a new wage mandate in New York City.  An examination of the list by the Employment Policies Institute (EPI) reveals that many of the "experts" supporting wage hikes don't specialize in labor economics. Some aren't even economists at all.

Berman concludes:

You can believe decades of consensus. Or you can choose to believe the 665 "experts" who say that the minimum wage has no impact on employment. As the White Queen said to Alice, "Why, sometimes I've believed as many as six impossible things before breakfast."

Monday, January 10, 2011

The Logical Conclusion of Protectionism

From Don Boudreaux:

Reductios work so well when arguing against proponents of economic nationalism (that is, “protectionists”) because, economically and morally speaking, there is absolutely no difference between Suzy trading with Joe her next-door neighbor and Suzy trading with Jose in Mexico, Josef in Austria, or Javu in China.  None.

So when any protectionist argues, based on reason X, for restrictions on trade drawn along national political borders, it’s always enlightening to apply the same argument X to trade restrictions drawn more locally – even as locally as the individual.

Fritz Machlup said in class at NYU back in 1981 that arguments for protectionism, when followed through to their logical conclusion, always ‘prove’ that a person’s right hand should not trade with that person’s left hand."

Chinese Rote Repetition vs. American Self-Esteem

From the WSJ article "Why Chinese Mothers Are Superior" by Yale law professor Amy Chua:

"A lot of people wonder how Chinese parents raise such stereotypically successful kids. They wonder what these parents do to produce so many math whizzes and music prodigies, what it's like inside the family, and whether they could do it too. Well, I can tell them, because I've done it. Here are some things my daughters, Sophia and Louisa, were never allowed to do:

• attend a sleepover
• have a playdate
• be in a school play
• complain about not being in a school play
• watch TV or play computer games
• choose their own extracurricular activities
• get any grade less than an A
• not be the No. 1 student in every subject except gym and drama
• play any instrument other than the piano or violin
• not play the piano or violin.

What Chinese parents understand is that nothing is fun until you're good at it. To get good at anything you have to work, and children on their own never want to work, which is why it is crucial to override their preferences. This often requires fortitude on the part of the parents because the child will resist; things are always hardest at the beginning, which is where Western parents tend to give up. But if done properly, the Chinese strategy produces a virtuous circle. Tenacious practice, practice, practice is crucial for excellence; rote repetition is underrated in America. Once a child starts to excel at something—whether it's math, piano, pitching or ballet—he or she gets praise, admiration and satisfaction. This builds confidence and makes the once not-fun activity fun. This in turn makes it easier for the parent to get the child to work even more.

Western parents are extremely anxious about their children's self-esteem. They worry about how their children will feel if they fail at something, and they constantly try to reassure their children about how good they are notwithstanding a mediocre performance on a test or at a recital. In other words, Western parents are concerned about their children's psyches. Chinese parents aren't. They assume strength, not fragility, and as a result they behave very differently."

Sunday, January 09, 2011

Impressive Improvement in Dec. Tax Revenues

(Reuters) - "Tax collections in most U.S. states continued to grow at the close of 2010 as employment conditions improved, a survey released on Thursday showed.

In December, 76 percent of the states surveyed by economic newsletter The Liscio Report met or exceeded their forecasted withheld income tax collections, up from 66 percent in November and in line with October. Also, 85 percent of the states said their collections had grown from December 2009."

Classic Milton Friedman: Free Trade, Protectionism

Milton Friedman gives a concise and lucid lecture in favor of international free trade at Utah State University in 1978.

International and Intranational Free Trade and Protectism, Are There Really Any Differences?

Here's an excerpt from an excellent post from Cafe Hayek's Don Boudreaux, arguing in favor of free trade, both international and intra-national, and against protectionism, both international and intra-national:

"If it’s true that theory and evidence in favor of protectionism are sufficiently strong to warrant economists abandoning their conclusion that free-trade policy is generally sound, then why shouldn’t economists — led by [free trade skeptic] Dani Rodrik — also start exploring the potential benefits of intra-national protectionism?  Surely a scholar not benighted with the free-trade "faith" ought to take seriously the possibility that, say, Tennesseeans could be made wealthier if their government in Nashville restricts their ability to trade with people in Kentucky, Texas, Rhode Island, and other states?

Indeed, such an objective scholar should be open also to the possibility that residents of Nashville can be made wealthier if their leaders restrict their ability to trade with people in Knoxville, Memphis, Chattanooga, and other locales in that state.

I suspect that if someone proposed to Dani Rodrik [or Ian Fletcher] that he explore the wealth-creating potential of state-level protectionism, he would refuse.  He would likely (and correctly) say that it’s ridiculous on its face to suppose that such protectionism would make the people of Tennessee as a group wealthier over time.  If my suspicion is correct, then to what would Rodrik himself attribute his out-of-hand dismissal of the notion that Tennessee tariffs might well make Tennesseeans richer?  

Would he realize to his chagrin that he is a benighted, faith-based non-scholar?  Or would he instead understand that the case for an extensive, market-driven division of labor is so strong — and that the political border that separates Tennessee from other states is so economically meaningless — that it would be as pointless for a serious economist to explore the economic potential of Tennessee protectionism as it would be for a serious oncologist to try to cure a patient of cancer by bleeding that patient with leeches."

Saturday, January 08, 2011

10 Problems With Free Trade Among U.S. States

DaveinHackensack says he would like to see me debate Ian Fletcher on free trade, based on Fletcher's article "Ten Problems With Free Trade."

Well, let me start the debate by doing some editing of the Fletcher article (starting with a new title "Ten Problems With Free Trade Among American States"), my additions appear in bold below to illustrate my position as follows:  The same arguments against free trade among nations should logically follow as arguments against free trade among American states, counties, cities, or individuals.  That is, there is nothing really special or unique about an imaginary line called a national border that makes it economically different than an artificial line called a state border.  The economic benefits of free trade have nothing to do with whether a buyer and seller are on the same side, or different sides, of imaginary lines called national, state or county borders.  

Bottom Line: To argue against free trade among countries, one would also have to object to free trade among American states, counties, cities and individuals, see my edits below of Fletcher's article that hopefully make this point. 

"There is a myth in wide circulation that the superiority of free trade among American states is simply a settled question on which all serious economists agree. The flip side of this myth, of course, is that anyone who criticizes free trade among states must either be ignorant of economics, or the spokesman of some special interest which hopes to benefit from trade restrictions. Such critics are not only wrong, the story continues with admittedly impeccable logic, but profoundly worthy of public contempt, as they are necessarily either dumb or corrupt.

Unfortunately, this myth is just that: a myth, promoted by special interests (and millions of consumers) which benefit from free trade among American states, whatever the harm to the rest of the economy. Serious economists actually recognize a number of very serious criticisms of free trade among U.S. states -- even economists who ultimately decide that free trade is better than the alternatives, e.g. total self-sufficiency at the state level. They generally don't talk about the flaws of free trade among our states too loudly, for fear of provoking the public into supporting stupid forms of protectionism, but they certainly know they are there.

Thanks to recent developments in economics (most visibly signaled by Paul Krugman's winning the 2009 Nobel Prize posthumously), these criticisms are becoming more serious every day. There is, in fact, an inexorable erosion of the credibility of free trade among American states going on in the academy, not that you'd know it from watching the economists who show up on TV.

The rest of this article is just a wee bit technical. The point is not to baffle the reader, but to pry open the mysterious "black box" of free trade economics a little, and let non-economists in on the big secret that economists regard as dangerous to talk about too loudly: free trade economics is a package of mechanisms that, like any piece of machinery, can and do break down all the time. And when they break down, free trade among our 50 American states ceases to be a good idea.

Free trade among American states has roughly ten very serious problems (see article for the ten problems).

Conclusion: Hopefully, the above list should convince the reader that free trade among U.S. states is, at the very least, an extremely complicated question, and by no means something that anyone is entitled to consider simply settled. Therefore it is high time that critics of free trade among American states, and those who advocate economic self-sufficiency at the state-level, were given the serious hearing that they deserve."

2010 Was a Very Good Year for New Oil Finds

Last year was a really good year for new oil discoveries, there were at least 14 major oil discoveries in Brazil alone totaling 13.5 to 26.7 billion barrels, here's a list below:

1. Well OGX-4-RUS: 100-200 million barrels – February

2. Well 1-OGX-3-RJS: 500-900 million barrels - February

3. Well 4-PM-53: 25 million barrels – February

4. Additions to Barracuda: 65 million barrels - February

5. Maastrichtian section of Well OGX-5:  30-90 million barrels February

6. Piranema: 15 million barrels - March

7. Wahoo: 300 million barrels - April

8. Franco: 4.5 billion barrels - May

9. Pipeline and Etna: - 1.4-2.6 billion barrels - May

10. Waimea and Fuji: 600 million-1.1 billion barrels - May

11. Carimbe: 105 million barrels - May

12. Brava: 380 million barrels - June

13. Libra: 3.7-15 billion barrels - October

14. Cernambi field at Iracema: 1.8 billion barrels -December

In addition, there were more than 30 billion barrels discovered in other parts of the world in 2010, including Iran, Russia, Norway (more), Mexico, Ghana, Iraq, U.S. (Texas, ND and Montana and Colorado), Falkland Islands, U.K., Angola (more) and Oman, bringing the total of new recoverable oil discoveries in 2010 to around 50 billion barrels.  Brazil was the clear leader in 2010, with the oil found there representing up to half of all new global oil discoveries in 2010.  With oil now selling now at close to $90 per barrel, we can expect even more discoveries in 2011.  

Friday, January 07, 2011

Time Cost of Gas Is Less Than Half the Cost in 1940

A comment by Gale Pooley on this CD post suggested adjusting the cost of gas to account for increases in worker productivity over time, and the chart above does just that.  It shows the time cost of a gallon of gas, measured by the number of minutes of work at the average hourly manufacturing wage (BLS data here) required to purchase a gallon of gas at the nominal, retail price in each year between 1939 and 2010 (EIA data here).  

It took just slightly less than 9 minutes of work at the average hourly wage of $18.56 last year to purchase a gallon of gas at the average price of $2.77 per gallon in 2010.  That's a lower time cost than in all of the years between 1939 and 1958, and less than half the time cost of gas in the 1939-1941 period. 

Bright Spots: Temp Help and Mfg. Overtime Hours

Several bright spots in today's jobs report include:

1. Employment in temporary help services continued to grow by 15,900 jobs in December, which is the 14th increase during the last 15 months.  Since the cyclical low of 1.724 million jobs in September 2009, there has been an increase of 495,000 jobs in the temporary sector to 2.219 million jobs in December.  That level of temporary and contract employment jobs is the highest since September of 2008, 27 months ago. 

2. Average overtime hours for the manufacturing sector in December matched the 31-month high of 4.0 hours per week in November, the highest level since April 2008. 

Taken together, these two trends suggest that many U.S. companies are meeting the increasing demand for their products and services by:  a) using temporary and contract employees instead of hiring permanent, full-time employees, and b) using existing employees more intensely with increased overtime hours in the manufacturing sectors.  Both of those factors would be characteristic of an economy that is in recovery measured by production, income and sales, but is not yet creating enough full-time, permanent jobs to bring down the overall jobless rate to 9% or lower.  

We're still in a "jobless recovery" like the last two post-recession periods, but labor market conditions continue to improve week-by-week for jobless claims, and on a monthly basis for employment growth and the jobless rate.  Even though we would all like job creation to accelerate, we can definitely look forward to a better year in 2011 for the U.S. employment situation. 

Update on the "Stupidest Man Alive" Kerfuffle; We'll Never Run Out of the Ultimate Resource

Here are the latest posts from Brad DeLong and Don Boudreaux on the "Stupidest Man Alive" kerfuffle.  While Brad and Don work out the terms of their possible upcoming bet on the future trends in the inflation-adjusted prices of natural resources or petroleum products, let's do a quick review of the historical record of real gas prices over the last 92 years (this series goes back to 1919, which is the longest historical price record I could find for oil or gas). 

The chart above shows the inflation-adjusted retail price of regular gasoline on an annual basis back to 1919, using data from the EIA. Here's what we know for sure:

1. The real price of gas is cheaper today in the U.S. than in the early 1920s, even though:
a. The U.S. population has increased by about three times from 104 million to 308 million.
b. We produce about 17 times more output today (real GDP) than in the early 1920s.
c. There are more than 30 times as many automobiles today (250 million) in the U.S. compared to 1920 (7.5 million).  

2. Despite the OPEC-induced artificial shortages around 1980, the 2008 spike, and the recent upturn, the long-term trend in real gas prices going back to 1919 has been significantly downward (see trend line in graph). 

Bottom Line: The significant downward trend in real gas prices over the last century seems to generally support Julian Simon's cornucopian view that the human resources of innovation, discovery, and substitution will always be strong enough to overcome and offset increases in population and the accompanying rising demand for natural resources like oil and gas, which will be reflected in stable or falling real prices of natural resources over time, e.g. gasoline since 1919.  

And even if the downward trend has now reversed, and real oil and gas prices are headed upward in the near future, that will certainly lead to: a) increased exploration and discovery to find more oil (e.g. North Dakota) , b) increased substitution to alternative fuels like natural gas and nuclear, and c) reduced demand.  In other words, supply will increase and/or demand will decrease, which will moderate price increases, or lead eventually to falling prices.  This is just basic ECON 101, and is why "peak oil" is "peak idiocy."

If we look beyond the Ehrlich-Simon, Tierney-Simmons and DeLong-Boudreaux bets on resource prices, the bigger Simonesque lesson is clear: the "ultimate resource," i.e. the human mind, human capital, human ingenuity, and human innovation, are infinitely abundant, and will meet, address and overcome any scarcity in natural resources.  The bottom line as I understand Julian Simon is this: we'll never run out of the ultimate resource.  And that is why limited or finite supplies of natural resources have never, and will never, result in any significant binding constraints or limits on human progress, economic growth, or the continual increases in our standard of living, wealth and abundance.  

Thursday, January 06, 2011

Top Ten Reasons Trade is Good for America

From John Murphy's original Chamber post, supplemented by Cato's Dan Ikenson (in bold):

1. The United States is the number one manufacturing nation in the world, and that success depends on exports. And since over half of the total value of U.S. imports consists of “intermediate goods” (products that are used as inputs for further value-added activity), manufacturing success also depends on imports.

2. The United States is the world’s number one services exporter and has been since services trade data have been tracked. And one of the reasons that foreigners are able to purchase American services is because they have been able to earn dollars by selling goods to American businesses and consumers.

3. U.S. agricultural exports support nearly a million jobs in the United States. And, agricultural and manufactured imports have made life’s necessities and conveniences more affordable to hundreds of millions of Americans.

4. 95 percent of the world’s consumers lives outside the United States…as do 95 percent of the world’s workers, who produce many of the goods Americans consume as imports less expensively than Americans can, freeing up U.S. resources for investment, innovation, and consumption of the higher value products and services that Americans produce.

5. FTA countries purchased more than 40 percent of U.S. exports in 2009. And imports from those countries have helped extend families’ budgets and reduced the costs of production for U.S. business relying on inputs from those countries.

6. Since the creation of the WTO in 1994, U.S. exports of goods and services have doubled to more than $1.5 trillion. And real U.S. GDP has increased by 50 percent.

7. Imports support millions of U.S. jobs in retail, research, design, sourcing, transportation, warehousing, marketing and sales…and in manufacturing.

8. U.S. exports to China have quadrupled over the past 15 years, and China is now the 3rd largest market for U.S. exports. And U.S. imports from China, too often wrongly portrayed as evidence of U.S. profligacy or decline, have enabled U.S. industries that require access to lower-cost labor for economic viability to be born, to blossom, and to spark the advent of new products and industries.

9. U.S. companies with overseas investments account for 45 percent of all U.S. exports. And foreign companies operating in the United States employ 5.6 million Americans, support a payroll of $408.5 billion, provide compensation that is 33% higher than the U.S. average, account for 18% of U.S. exports, pay U.S. taxes, support local charities, and act as investment magnets in communities across the country.

10. Trade supports 38 million jobs in the United States–more than one in five American jobs. And most Americans enjoy the fruits of international trade and globalization every day: driving to work in vehicles containing at least some foreign content; talking on foreign-made mobile telephones; having extra disposable income because retailers like Wal-Mart, Best Buy, and Home Depot are able to pass on cost savings made possible by their own access to thousands of foreign producers; eating healthier because they now can enjoy fresh imported produce that was once unavailable out-of-season, etc.

HT: Mike Munger, who summarizes it well: "More trade is more good. Restricting trade is bad. It's not complicated."

To Complain About Limited Resources is Like a Trillionaire's Child Complaining About Allowance; The Case for Optimism from the Ocean Floor

Here's some new support for economist Julian Simon's optimistic view that resource scarcity wouldn't ever be a problem, even with a growing world population, because of the power of innovation, discovery, human ingenuity, entrepreneurship, substitutes, and technological progress to overcome any resource shortages:  the ocean floor might contain reserves of minerals vastly greater than those on land. 

"It's easy to be a pessimist in a world full of calamities. But for those worried about the continuing availability of natural resources, data from the ocean makes a good case for optimism, says economic geologist Lawrence Cathles.  

In a review paper published June 23 online in the journal Mineralium Deposita, Cathles, Cornell professor of earth and atmospheric sciences, writes that while land-based deposits may be a dwindling source of valuable minerals, deposits on the ocean floor could power humanity for centuries.

The minerals, including sulfur, copper, zinc, iron and precious metals, are contained in volcanogenic massive sulfide (VMS) deposits that form on the ocean floor where tectonic plates pull apart and allow magma (molten rock) to invade the Earth's 3.7-mile- (6 kilometer-) thick crust. The magma heats seawater to 662 degrees Fahrenheit (350 degrees Celsius) and moves it through the ocean crust via convection; and the seawater deposits the minerals where it discharges along the ridge axis.

"We are not resource limited on planet Earth. For a human on Earth to complain about resources is like a trillionaire's child complaining about his allowance or inheritance. It just doesn't have much credibility in my view," he said.  "I think there's real risk if we don't really carefully, and in a credible way, articulate that there are enough resources for everybody," he added. "We don't have to fight over these things."

HT: "Che is Dead"

Africa: One of the World’s Fastest-Growing Regions

From The Economist:

"Much has been written about the rise of the BRICs and Asia’s impressive economic performance. But an analysis by The Economist finds that over the ten years to 2010, six of the world’s ten fastest-growing economies were in sub-Saharan Africa. The IMF forecasts that Africa will grab seven of the top ten places over the next five years (our ranking excludes countries with a population of less than 10 million as well as Iraq and Afghanistan, which could both rebound strongly in the years ahead). Over the past decade the simple unweighted average of countries’ growth rates was virtually identical in Africa and Asia. Over the next five years Africa is likely to take the lead. In other words, the average African economy will outpace its Asian counterpart."

HT: Colin

Almost Unimaginable: Africans and Afghans Will Have Same Income as Today's Americans by 2050

The Rational Optimist Matt Ridley asks the question: "With one tenth – well, 11% -- of the twenty-first century now consigned to history, what is the verdict so far?"

"According to the IMF, away from Europe and North America, the world was booming this year. Asia has grown by 7.9%, South America by 6.3%, Africa by 5% and the Middle-east and North Africa by 4.1%. China and India, with 40% of the world’s population, achieved roughly 10% growth between them. Moreover, this boom, because it is happening in poor countries, is rapidly reducing both poverty and inequality.

Despite the Great Recession, the per capita GDP of the average human being – that is to say, the value of goods and services that she consumes in a year – is now just over $11,000, up from about $8,500 (in today’s dollars) at the start of the century. If it continues to increase at this rate of just under 3% a year – as it has more than done for 60 years – then by the year 2050 the average citizen of Earth will be earning and spending over $30,000 a year in today’s money, roughly the same as the average American spends today. By 2100 she will be spending nearly $150,000 a year, or five times what an American now consumes (see chart above).

This is almost unimaginable. Try to get your heads round the prospect of Africans and Afghans having the disposable income of today’s Americans within the lifetime of your own children, let alone grandchildren. If it seems fanciful, consider this. If my great grandfather had made a similar forecast in 1910, based on the then growth rate of the world economy, then even assuming he would not have predicted two world wars and a Great Depression, he would still have hugely underestimated the average income of today.

The economic growth of the past decade took a century to achieve in 1810 and took a millennium to achieve in 810. That acceleration shows no signs of stopping, indeed it may be about to redouble. The root cause of economic growth is the mixing of ideas: ideas on how to recombine the atoms and electrons of the world in such a way as to supply people’s needs and wants more efficiently. Bring down barriers to the mixing of ideas (barriers in trade, energy, communication and education) and you will cause faster growth whether you want to or not. Nothing has brought down barriers to the mixing of ideas faster than the Internet. Today a man in Shanghai and a woman in San Francisco can spark each other’s thoughts in seconds, where two decades ago they needed books or airplanes to have such mental sex."

More on Ending the 30-Year Fixed-Rate Mortgage

Last May, I had a post asking "Should We End the 30-Year Fixed-Rate Mortgage?" That post featured the graph above illustrating how the significant interest rate risk of 30-year mortgages contributed to the 3,000 bank failures during the S&L crisis.  Because S&L's were borrowing deposits at short-term, variable interest rates and lending mortgage money long at 30-year fixed rates, many banks became insolvent by the early 1980s when rising interest rates resulted in S&L's paying short-term rates on deposits as high as 10-15% to finance 30-year fixed rate mortgage assets at rates as low as 5-7%. When a bank is paying 15% variable-rates on deposits and receiving only 5% on fixed-rate assets, that's a sure prescription for bank failure. 

A related article appeared in yesterday's NY Times by Bethany McLean who asks "Who Wants a 30-Year Mortgage?"  Here are some excerpts:

"The fact is that federal involvement in housing has been a constant since the 1930s. A market without government support would almost certainly involve the demise (for most of middle-class America) of that populist favorite, the low-cost 30-year fixed-rate mortgage. 

For a homeowner, a mortgage with a 30-year fixed rate (especially one that he can pay off early without a penalty) is a wonderful thing. For lenders and investors, however, it is a financial Frankenstein’s monster, an unnatural product filled with the potential for losses. Absorbing some of the risk of those losses is a large part of what the government does in the housing market.

The problem with 30-year fixed rate mortgages is “interest-rate risk, the danger that interest rates will rise sharply after the mortgage has been made, thereby burdening the bank with money-losing loans. (Interest-rate risk was the root cause of the savings and loan crisis - see chart above.) The longer a mortgage lasts, the more difficult it is to manage both of these risks. And 30 years is an awfully long time.

Wouldn’t a better solution be for banks and other financial institutions to offer mortgage products that they actually want to keep on their own books? Maybe these would take the form of 15-year mortgages with a rate that would be adjusted after five years so that the banks wouldn’t have to worry about long-term interest-rate risk. This might not even mean the disappearance of 30-year fixed-rate mortgages — the private market has historically provided them to consumers whose mortgages are too big to qualify for a Fannie and Freddie guarantee. But these are usually issued only to the wealthiest, most credit-worthy consumers.

And therein lies the rub. Almost certainly, any 30-year product would be offered on a more limited basis and at a higher price than it is today. How much higher, it’s hard to say. In the pre-crisis days, Fannie used to argue that its guarantee enabled consumers to pay one quarter to one half of a percentage point less in annual interest on their mortgages; today, mortgages without a government guarantee would cost at least several percentage points more according to PIMCO’s Williams Gross. If his numbers are right, then mortgages — and 30-year mortgages in particular — would be far more expensive, and the pool of American homebuyers would shrink.

This may well be the right long-term answer. After all, other countries manage fine without the widespread availability of 30-year fixed-rate mortgages. But is there an American politician alive who would accept responsibility for depressing the housing market further?"

HT: Paul Kedrosky on Twitter

Monster Employment Index Increases by 13% in December: 11th Straight Month of Annual Growth

The Monster Employment Index for the U.S. was released today with the following highlights:

1. Compared to December 2009, online job demand was up by 13% last month, and December 2010 marked the eleventh consecutive month of a positive annual growth rate in the index, and the ninth straight month of double-digit growth (see chart above).   

2. Sixteen of the 20 industries monitored by the Index showed positive annual growth trends in December, with the strongest job gains in mining, oil and gas extraction (55%), utilities (28%), transportation (21%), health care (18%) and retail (15%).

3. All 28 metro markets recorded positive annual growth in December, with especially strong gains in Detroit (44%), Philadelphia (44%), Orlando (38%) and Minneapolis (36%).

4. “The Monster Employment Index has recorded a stable annual growth rate for three consecutive months, underscoring a trend of moderate labor market improvement,” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “There are signs of momentum in pockets of the private sector as the economy continues to gradually improve. However, state and local government hiring continues to show signs of a slowdown, with recruitment activity softening year-on-year.”

Wednesday, January 05, 2011

Let's Double Down: Will Brad DeLong Accept?

I had the distinction of recently being nominated by UC-Berkeley economist Brad DeLong as the "stupidest man alive," but I'm in pretty good company with fellow c0-nominees NY Times science writer John Tierney and George Mason economist Don Boudreaux.  It should be noted that John Tierney might be "stupid," but he is now a little richer thanks to his "stupidity," having just won a $5,000 bet on the price of oil.  Perhaps my stupidity will pay off that handsomely someday?

It should also be noted that the first comment on Brad DeLong's post is "It would be cruel of me to note that Boudreaux, Perry, and Tierney are at least looking at data. Stupidly, but they're looking at data."    

And perhaps also stupidly, Don Boudreaux proposes the following wager to Professor DeLong:
"Let’s make a bet very much like the famous bet that Julian Simon and Paul Ehrlich made in September 1980. Because of inflation, I propose that the wager be larger than the Simon-Ehrlich amount.  How about $2,500?  And I offer to you terms similar to those that Julian offered to Ehrlich.  Like Ehrlich, you can choose whichever bundle of five or more raw materials you like, and choose which (professionally respected) means to be employed for adjusting nominal prices for inflation.

The bet will be for a duration of at least ten years, but no longer than 15 years.  (You choose.) If I win (fat chance, I know, given the pinto beans I have for brains) you will contribute $2,500 (tax-deductible!) to the Department of Economics at George Mason University.  If – er, when – you win, I’ll mail you a check for $2,500. Shall we wager?!"

MP: I'll stupidly also agree to this bet for an additional $2,500 if Professor DeLong accepts, and will also donate my winnings to the GMU Department of Economics, or send him a check for $2,500.  

ASA Staffing Index Ends Year at Record High

The American Staffing Association reported that its weekly Staffing Index of contract and temporary employment demand ended the year at 92 for the week ending 12/26/2010, which is 19.5% higher than the same week last year, 26% higher than the comparable week in 2008, 6% higher than the same week in 2007 and 11% higher than 2006. 

ISM Business Activity Index for Services Expands for 13th Straight Month to Highest Level Since 2005

"ISM's Non-Manufacturing Business Activity Index in December registered 63.5 percent, an increase of 6.5 percentage points when compared to the 57 percent registered in November (see graph above). Fourteen industries reported increased business activity, and two industries reported decreased activity for the month of December. Two industries reported no change from November. Comments from respondents include: "Consumer optimism increasing" and "More end-of-year budget releases."

The industries reporting growth of business activity in December — listed in order — are: Real Estate, Rental & Leasing; Retail Trade; Information; Professional, Scientific & Technical Services; Accommodation & Food Services; Mining; Arts, Entertainment & Recreation; Transportation & Warehousing; Management of Companies & Support Services; Utilities; Construction; Finance & Insurance; Health Care & Social Assistance; and Wholesale Trade. The industries reporting decreased business activity in December are: Public Administration and Educational Services."

MP: The 63.5 percent reading for the ISM Non-Manufacturing Business Activity Index in December was the highest monthly level since August 2005, more than five years ago. 

What Does $1Trillion Look Like?

From the CD archives, originally posted on March 8, 2009

$1 million ($100 bills):

$1 trillion (notice the guy in the lower left hand corner):

Featured today on Greg Mankiw's blog.

NY Fed Model: 1-in-175 Chance of 2011 Double-Dip

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" this week with treasury yield data through December 2010, and the Fed's recession probability forecast through December 2011. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (3.29% in December) and 3-month Treasury bills (0.14%) to calculate the probability of a U.S. recession up to 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 37-42% (see chart above), and has been declining since then in almost every month.  For  2010, the recession probability is only 0.28% and for December of next year the recession probability is slightly higher, but still less than 1% (0.57%). According to the NY Fed Treasury Spread model, the odds of a double-dip recession through December of next year are about 1 in 175.

ADP: +270k Jobs in Dec., Largest Gain on Record

NEW YORK (CNNMoney) -- "Private sector payrolls soared 297,000 in December, payroll processor ADP announced Wednesday.The gain marks the 11th consecutive month of increases, and was much larger than economists had expected. Economists surveyed by Briefing.com were forecasting an increase of 100,000 jobs.  

The increase in hiring was led by the services sector, with employers adding 270,000 jobs in December. That's the highest jump on record, ADP said. That's a positive sign for the economy, with the government's highly-anticipated monthly unemployment report due Friday."

Tuesday, January 04, 2011

Economic Sentiment Indicator Jumps in December

NEW YORK, January 3, 2011 – "Driven by a wide range of upbeat grassroots economic news, the Dow Jones Economic Sentiment Indicator (ESI) jumped 2.2 points to 46.1 in December, breaking out of its previous range and indicating the economy could be picking up momentum at the start of 2011. The ESI is determined by in-depth analysis of national news coverage across 15 daily newspapers. It held steady at 43.9 in October and November."

Dow Jones Newswires “Money Talks” columnist Alen Mattich said: “Improved sentiment about the U.S. economy is pointing to a solid, even if unspectacular, recovery in growth, including an upswing in job creation.”

Monday, January 03, 2011

Global Manufacturing: Strong Year-End Growth

Wall Street Journal -- "Global manufacturing ended the year on a strong note, according a global purchasing managers’ index released by J.P. Morgan Chase and Markit. The JPMorgan global PMI hit a six-month high of 55 in December from 53.9 the prior month. Any reading above 50 indicates expansion. The expansion was broad based led by the U.S. and the euro zone. China also continued to expand, though at a slightly slower rate. Only Japan and Greece were in contractionary territory."

MP: Note chart that accompanies the article showing that 21 of 23 countries listed were expanding in December, and only Greece and Japan were below 50 (contraction).  

Ph.D. Jobs: What's Hot (Econ), What's Not (History)

From today's Inside Higher Ed:

"During the 2009-10 academic year, the number of positions listed with the American Historical Association dropped by 29.4 percent, according to a study the group will release today. That follows a 23.8 percent drop the year before. Last year, the association announced that the number of listings it received -- 806 -- was the smallest in a decade; this year's total of 569 marks the smallest number in 25 years.

But in data also being released this week, the American Economic Association (AEA) is announcing that its job listings in 2010 recovered from a 21 percent decline in 2008. Further, the number of academic jobs exceeded the number in 2008. (Economics job listings include positions in the finance and consulting industries, in addition to academic slots.)

The total number of listings with the AEA rose to 2,842 in 2010, up from 2,285 in 2009, and only 43 jobs shy of the 2008 total. Because many of the 2008 openings that were listed were for searches that were subsequently called off, the AEA report -- prepared by John J. Siegfried, secretary-treasurer of the association -- says that it believes job openings are now above 2008 levels.

New academic jobs increased to 1,884 in 2010, up from 1,512 in 2009, and now exceed 2008 totals by 24. The vast majority of the academic jobs are at universities with graduate programs.  The top area of specialization in job listings, by far, was mathematical and quantitative methods, followed by microeconomics, macroeconomics and financial economics, international economics, and macroeconomics and monetary economics."

State Tax Revenues Increased by More Than 6% in 2010, The Largest Increase in More Than 10 Years

Last week, I featured the recent Census Bureau report showing that state and local tax revenues increased by 5.21% in the third quarter this year compared to 2009, which is the largest quarterly increase since the fourth quarter of 2007 (see chart above).  Dennis Cauchon now reports in today's USA Today that:

"Tax collections are surpassing projections, the clearest sign yet that state and local government finances are on the mend as the economy improves. Sharp rises in tax collections since July, especially in the last three months, have boosted tax revenues to levels not seen since 2008, a review of tax reports shows. Including federal aid, state and local government revenue is running at a record high.

Serious challenges remain: financing long-term pension obligations, rebuilding budget reserves and repaying funds raided for unrelated expenses.  In the short term, though, the outlook is brightening. Nearly every state is reporting tax collections above what it expected and higher than a year ago.

"We're getting revenue growth that you'd see in a reasonable expansion," says Wisconsin Department of Revenue chief economist John Koskinen.  State and local revenue rose more than 6% nationwide in the first nine months of 2010, the biggest increase over inflation since 1999, Bureau of Economic Analysis data show."

Sunday, January 02, 2011

Something Else to Watch in 2011: ND Oil Boom; Running Out of Superlatives As Estimates Double

BISMARCK, N.D. (AP) -- "Government and industry officials believe North Dakota's oil patch contains more than twice the amount of oil previously estimated and that the state's already record crude production will double within the decade.  If the forecast is correct, North Dakota could leapfrog in a few years from the fourth-biggest oil producing state to No. 2, trailing only Texas.

"It's a pretty rosy picture," said Lynn Helms, director of the North Dakota Department of Mineral Resources. "We have a huge amount of drilling still in front of us."

Record rig activity pushed by strong crude prices and refinements in drilling technology could result in North Dakota seeing a twofold increase in production. The drilling technology alone has cut the amount of time needed to complete a well from 65 days in 2008 to about 25 days. "We are now looking at the possibility of 700,000 barrels a day and we see that coming in the next four to seven years," Helms said.

At that rate, North Dakota would surpass California and Alaska based on those states' current production, said Steven Grape, the domestic reserves project manager for the U.S. Department of Energy's information administration.  "That would be pretty amazing in my book," Grape said.

Federal and state estimates had pegged North Dakota's portion of the Bakken shale and underlying Three Forks-Sanish oil formations in western North Dakota at about 5 billion barrels of oil, using current horizontal drilling technology. Helms said that estimate has more than doubled based on drilling success and current production rates." 

"We're starting to see indications that we could reasonably get 11 billion barrels," Helms said.  Helms said nothing surprises him anymore about the state's prolific oil patch. "I'm running out of superlatives," Helms said. "We're going to have to invent some new ones."

HT: Buddy Pacifico

Saturday, January 01, 2011

100 Things to Watch in 2011

From global advertising agency JWT, comes its list of "100 Things to Watch in 2011," including Africa's growing middle class, bamboo (as a building material, clothing, etc.), the rise of beer sommeliers and the rise of the city of Detroit, the decline of the cash register, digital etiquette and digital interventions, etc.

HT: Paul Kedrosky

World Stock Markets End 2010 at 27-Month High

The Morgan Stanley Capital International (MSCI) World Stock Market Index closed out the year by reaching a 27-month high of 1280.07 yesterday.  This was the highest closing index value for world stock markets since September 19, 2008 in the wake of Lehman Brothers' filing for bankruptcy on September 15, and the subsequent financial meltdown caused the MSCI World Index to drop below 700 by March 2009 (see chart). As I reported previously, it's a significant milestone that world stock markets have now returned to their pre-Lehman levels.

House Price Indexes: Case-Shiller vs. FHFA; Based on FHFA, There's No Threat to Economic Recovery

In a post yesterday, I discussed Alan Reynolds' recent editorial in the IBD titled "Do Falling Home Prices Imperil Recovery?, where he points out that house price declines in a "few troubled cities in a few states [based on the Case-Shiller 20-city composite house price index] do not represent the entire nation."  This was in response to a recent front-page Wall Street Journal article ("Housing Recovery Stalls") that fretted about how "A new bout of declining home prices (based on the October decline in the Case-Shiller house price index) is threatening to hamper the U.S. recovery, just as consumers and the overall economy have been showing signs of healing." 

Like the chart in the previous post, the chart above provides further evidence of the significant disconnect between the Case-Shiller Home Price Index (10-city composite above for Boston, Chicago, Denver, Las Vegas, LA, Miami, NYC, San Diego, San Francisco, and Washington D.C.) and the FHFA U.S. House Price Index.  As Alan Reynolds pointed out, the FHFA U.S. House Price Index based on 50 states increased by 1.07% in the third quarter of this year vs. the previous quarter, the largest quarterly gain since the 1.30% increase in the fourth quarter of 2006.  Based on the FHFA House Price Index, there's no threat to the U.S. economic recovery.  

Friday, December 31, 2010

Do Economists Need a Code of Ethics?

From the New York Times:

"Academic economists, particularly those active in policy debates in Washington and Wall Street, are facing greater scrutiny of their outside activities these days. Faced with a run of criticism, including a popular movie, leaders of the American Economic Association, the world’s largest professional society for economists, founded in 1885, are considering a step that most other professions took a long time ago — adopting a code of ethical standards.

Should economists be required merely to disclose who finances their research, as many academic journals already require? Should they have to reveal which corporate clients they advise, consult for or give speeches to? Should they even be allowed to serve as corporate directors and officers, as many business and finance professors do? Some scholars say the discussion is long overdue."

Many Parts of Country Won't Have Double-Dip In Home Prices Because They Never Had the FIrst Dip

Cato's Alan Reynolds writes in yesterday's IBD:

"A front-page Wall Street Journal feature, titled "Housing Recovery Stalls," worries that "a new bout of declining home prices is threatening to hamper the U.S. recovery." A dip in the Case-Shiller moving average of home prices in 20 cities for August to October is said to be "troublesome headwind" for the economy in 2011, and "markets such as Sacramento, Las Vegas and parts of Arizona and Florida are at risk of more declines."

Some of those cities may indeed account for a significant share of the Case-Shiller index, because that index covers only 20 cities (and Sacramento, the centerpiece of the story, is not one of them). However, a few troubled cities in a few states do not represent the entire nation."

Alan concludes that "anxiety about falling home prices is based on a limited sample of 20 cities," among several other factors. 

Reynolds also refers to a WSJ editorial from yesterday, where Peter Schiff  warns that "...third quarter 2010 declines in the Standard & Poor's Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a "double dip" in home prices is probable."

MP: The chart above of FHFA house price indexes in eight states (data here) helps to support Alan Reynold's position about falling home prices being heavily concentrated in large cities that are included in the Case-Shiller home price index.  While states like Arizona, Florida, Nevada and California have experienced housing bubbles and huge price declines in recent years, many other states like South Dakota, Iowa, Oklahoma and Texas have seen fairly steady, but very mild increases in home prices, with no bubbles and no house price corrections.  Especially in many states in the middle of the country stretching from Texas all the way up to the Dakotas, it will be hard to have a "double dip" in home prices because they haven't yet had the "first dip."