Tuesday, January 18, 2011

Architecture Billings Index Continues Positive Momentum, Reaches Pre-Recession Level in Dec.

Washington, D.C. – January 19, 2011 – "On the heels of its highest mark since 2007, the Architecture Billings Index (ABI) jumped more than two points in December. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the December ABI score was 54.2, up from a reading of 52.0 the previous month. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 62.6, up slightly from a mark of 61.4 in November."

“This is more promising news that the design and construction industry is continuing to move toward a recovery,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. However, historically December is the most unpredictable month from a business standpoint, and therefore the most difficult month from which to interpret a trend. The coming quarter will give us a much better sense of the strength of the apparent upturn in design activity.”

MP: The New Project Inquiries Index is at the highest level since July 2007 and the Billings Index is the highest level since November 2007, so both indexes are now above their pre-recession levels. 

Markets in Everything: "Invasivore" Dinner Menu

Let Them Eat Carp.

HT: Matt Peer

Empire Index Shows High Level of Optimism

The New York Federal Reserve reported today that "the Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved in January. The general business conditions index rose 2 points to 11.9 (see chart above). The new orders index moved up 10 points to 12.4, and the shipments index surged 18 points to 25.4. After a sharp decline last month, the inventories index rose above zero. Employment indexes also climbed into positive territory. Both the prices paid and prices received indexes rose, pointing to an acceleration in both input prices and selling prices. 

Future indexes conveyed a high level of optimism, with the future general business conditions index advancing to a level not seen since early 2010, while future price indexes climbed to multiyear highs. Future indexes were at relatively high levels, suggesting that manufacturers widely expected conditions to continue improving over the next six months. The future general business conditions index rose 10 points to 59.0, with 61 percent of respondents expecting conditions to be better in six months."
MP: Actually, according to the New York Fed's historical data, the Future Conditions Index in January at 58.95 was the highest level since early 2004 (see chart above). 

Monday, January 17, 2011

U.S. Schools Are Still Ahead—Way Ahead

From Duke/Harvard/Berkeley professor Vivek Wahwa, writing in Bloomberg;

"The independence and social skills American children develop give them a huge advantage when they join the workforce. They learn to experiment, challenge norms, and take risks. They can think for themselves, and they can innovate. This is why America remains the world leader in innovation; why Chinese and Indians invest their life savings to send their children to expensive U.S. schools when they can. India and China are changing, and as the next generations of students become like American ones, they too are beginning to innovate. So far, their education systems have held them back.

My research team at Duke looked in depth at the engineering education of China and India. We documented that these countries now graduate four to seven times as many engineers as does the U.S. The quality of these engineers, however, is so poor that most are not fit to work as engineers; their system of rote learning handicaps those who do get jobs, so it takes two to three years for them to achieve the same productivity as fresh American graduates.As a result, significant proportions of China's engineering graduates end up working on factory floors and Indian industry has to spend large sums of money retraining its employees. After four or five years in the workforce, Indians do become innovative and produce, overall, at the same quality as Americans, but they lose a valuable two to three years in their retraining.

Let's keep improving our education system and focus, in particular, on disadvantaged groups. Education is the future of our nation. But let's get over our inferiority complex. America is second to none. Rather than in mastery of facts learned by rote and great numbers of accomplished martinets, its strength lies in the diversity and innovation that arise in an open, creative society."

Markets in Everything: Cars As Virtual Piggy Banks

GLOBAL POST -- Argentines are buying cars in record-breaking numbers this year, but not necessarily because they're burning to drive. With currency markets uncertain and inflation expected to reach 30 percent in 2011, Argentines are trying to find places to park their savings.

"Those who can buy property, but those who can't buy cars," said Hernan Valdez, who bought a new Peugot. He said many of his friends bought cars this year, too.

Fueled by record soy and corn harvests last year as well as strong Brazilian demand for Argentine-made cars and manufactured goods, Argentina is one of Latin America's fastest growing economies. Its GDP is forecast to grow between 7 and 9 percent this year. Yet Argentina also has Latin America's second highest inflation rate, next to Venezuela. The national statistics agency reports annual inflation at 11.1 percent (see chart above), but private analysts say Argentina's actual inflation rate is closer to 26 percent and set to increase with government spending ahead of next year's presidential election.

With banks only providing 8 percent annual interest rates, Argentines are turning to cars as virtual savings banks. In most places in the world, a new car depreciates in value as soon as it leaves the lot, but not in Argentina.  For example, an Argentine consumer can buy a car for 50,000 pesos, use it for one year, and sell it the next year for almost the same price or more. In Europe or the United States, cars leave about 20 percent of their value when they leave the lot, said Hernan Dietrich, owner of one of Argentina's largest car dealerships.

"Here the loss is absorbed by inflation and the equation balances out," Dietrich said. "So many people have decided to buy a car if they don't have another way to save."

Top Ten Best Selling Cars and Trucks, 2010

From Ward's Automotive, the Top Ten Best Selling Cars and Trucks for 2010:

1Toyota Camry327,804Ford F Series528,349
2Honda Accord282,530Chevy Silverado370,135
3Toyota Corolla/Matrix266,082Honda CR-V203,714
4Honda Civic260,218Dodge Ram Pickup199,652
5Nissan Altima229,263Ford Escape191,026
6Ford Fusion219,219Toyota RAV4170,877
7Chevy Malibu198,770Chevy Equinox149,979
8Hyundai Sonata196,623GMC Sierra129,794
9Ford Focus172,421Ford Edge118,637
10Chevy Impala172,078Chrysler Town & Country112,275

Sunday, January 16, 2011

Don't Blame Greed for the Housing Bubble; That Would Be Like Blaming Gravity for Plane Crashes

 From "The House That Uncle Sam Built: The Untold Story of the Great Recession," by Pete Boetke and Steve Horwitz:

"The Fed’s low interest rates, combined with Fannie and Freddie’s government-sponsored purchases of mortgages, made it highly and artificially profitable to lend to anyone and everyone. The banks and mortgage companies didn’t need to be any greedier than they already were. When banks saw that Fannie and Freddie were willing to buy virtually any loan made to under-qualified borrowers, they made a lot more of them.

Greed is no more to blame for these bad mortgages than gravity is to blame for plane crashes.  Gravity is always present, just like greed. Only the Federal Reserve’s easy money policy and Congress’ housing policy can explain why the bubble happened when it did, where it did.

Of further significance is the fact that Fannie and Freddie were under great political pressure to keep housing increasingly affordable (while at the same time promoting instruments that depended on the constantly rising price of housing) and to extend opportunities to historically “under-served” groups. Many of the new mortgages with low or even zero-down payments were designed in response to this pressure (see chart above). Not only were lots of funds available to lend, and not only was government implicitly subsidizing the purchase of mortgages, but it was also encouraging lenders to find more borrowers who previously were thought unable to afford a mortgage."

Test Your Civics IQ

Are you more knowledgeable than the average citizen? The average score for all 2,508 Americans taking the following Civics test was 49%; college educators scored 55%. Can you do better?  The 33 questions on this Civics Quiz were taken from the 2008 Civic Literacy exam.

HT: Mike Munger

Update: See Mike Munger's explanation of question #33 at the link above.   

The Changing Meaning of Medical Insurance, and How 3rd Party Payments Distorted U.S. Medicine

From Milton Friedman's excellent 2001 article "How to Cure Health Care": 

"We have become so accustomed to employer-provided medical care that we regard it as part of the natural order. Yet it is thoroughly illogical. Why single out medical care? Food is more essential to life than medical care. Why not exempt the cost of food from taxes if provided by the employer?

Employer financing of medical care has caused the term insurance to acquire a rather different meaning in medicine than in most other contexts. We generally rely on insurance to protect us against events that are highly unlikely to occur but that involve large losses if they do occur—major catastrophes, not minor, regularly recurring expenses. We insure our houses against loss from fire, not against the cost of having to cut the lawn. We insure our cars against liability to others or major damage, not against having to pay for gasoline. Yet in medicine, it has become common to rely on insurance to pay for regular medical examinations and often for prescriptions.

This is partly a question of the size of the deductible and the copayment, but it goes beyond that. "Without medical insurance" and "without access to medical care" have come to be treated as nearly synonymous. Moreover, the states and the federal government have increasingly specified the coverage of insurance for medical care to a detail not common in other areas. The effect has been to raise the cost of insurance and to limit the options open to individuals. Many, if not most, of the "medically uninsured" are persons who for one reason or another do not have access to employer-provided medical care and are unable or unwilling to pay the cost of the only kinds of insurance contracts available to them.

If the tax exemption for employer-provided medical care and Medicare and Medicaid had never been enacted, the insurance market for medical care would probably have developed as other insurance markets have. The typical form of medical insurance would have been catastrophic insurance (i.e., insurance with a very high deductible)."

From the conclusion:

"The high cost and inequitable character of our medical care system are the direct result of our steady movement toward reliance on third-party payment. A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes.

The ideal way to do that would be to reverse past actions: repeal the tax exemption of employer-provided medical care; terminate Medicare and Medicaid; deregulate most insurance; and restrict the role of the government, preferably state and local rather than federal, to financing care for the hard cases. However, the vested interests that have grown up around the existing system, and the tyranny of the status quo, clearly make that solution not feasible politically. Yet it is worth stating the ideal as a guide to judging whether proposed incremental changes are in the right direction."

Crazy Behavior in Winter

People in DC do some crazy things in the winter, see the picture above of a car parked in the building behind my apartment building, with its windshield wipers propped up in the air, allegedly to prevent the wipers from freezing on the windshield when it snows. I wrote about this last winter, see the post and picture here, I am still not at all convinced that this is an effective method to deal with winter snow.   And it hasn't even really snowed yet in DC this winter, and yet I have seen many cars like this one, with the windshield wipers up in the air.

I have also seen numerous people in the last few weeks walking around in shorts, even when the weather has been quite frigid, and I saw the same thing in Michigan in December.   

The City of Houston Puts a Stop to Private Charity: It's Illegal to Feed the Homeless Without a Permit

HOUSTON CHRONICLE --Bobby and Amanda Herring spent more than a year providing food to homeless people in downtown Houston every day. They fed them, left behind no trash and doled out warm meals peacefully without a single crime being committed. That ended two weeks ago when the city of Houston shut down their "Feed a Friend" effort for lack of a permit. And city officials say the couple most likely will not be able to obtain one.

Anyone serving food for public consumption, whether for the homeless or for sale, must have a permit, said Kathy Barton, a spokeswoman for the Health and Human Services Department. To get that permit, the food must be prepared in a certified kitchen with a certified food manager.  The regulations are all the more essential in the case of the homeless, Barton said, because "poor people are the most vulnerable to foodborne illness and also are the least likely to have access to health care."

HT: Pete Friedlander

Update: As West points out so perfectly in the comments, the homeless and poor people of Houston are also the least likely to have "access to, ya know, FOOD."

The Economics of Anti-Consumer, Protectionist Taxi Cartels: $624-850,000 for a NYC Medallion

The "priciest piece of aluminum in NYC" - a taxi medallion that is required to operate a single cab in NYC - reached a new record-high of $624,000 in December for an individual medallion (see chart above, data here), more than double the average price for a medallion in 2004. The average price for a corporate-owned taxi medallion reached a new record high of $850,000 at the end of last year. Here's a classic article about taxi regulation from Jeff Jacoby, written back in 1995 when the NYC medallions were selling for only $140,000:
The taxi business, after all, ought to be a model of free enterprise. There are plenty of buyers (passengers), plenty of sellers (drivers), and no barriers to entry beyond the price of a car. If it weren’t for government interference, the laws of supply and demand would govern the taxi trade with almost frictionless efficiency: Cabs would be plentiful, fares would be reasonable, and service would be available nearly everywhere it was wanted.

But governments do interfere. Taxi owners routinely get the state to kill their competition. “London’s first recorded taxi war, in 1636, did just that,” the Economist recalled some years ago. “Sparked by the resentment of Thames water taxis at growing competition from coaches on land, it led to a proclamation from King Charles I restricting the number of coaches to 50. Lucky coachmen were happy. Watermen were happy.” But customers got gypped.

A lot of medieval practices have been junked since 1636, but protectionist taxi regulations aren’t among them. Nearly every major US city (and thousands of smaller ones) chokes off access to the taxicab market. Exactly 11,797 taxicabs, for example, are permitted to operate in New York City — a figure that hasn’t budged since World War II. FDR was in his first term as president when Boston decreed that only 1,525 cabs would be permitted on its streets. Other than a few new medallions for wheelchair taxis, 1,525 remains the limit.

The results? Right out of Econ 101: The supply of taxi medallions is far lower than the demand, so their value long ago exploded to obscene levels. Today, the going rate is about $140,000 in New York; about $90,000 in Boston. Those who got medallions when the getting was cheap grew rich. Everyone else got shafted. Would-be cabbies are forced to choose between going deeply into debt to buy a medallion or paying murderous lease rates to somebody who owns one. “In essence,” write Chip Mellor and John Kramer of the Institute for Justice, “cab drivers become urban sharecroppers.”

Smackdown: John F. Kennedy vs. Milton Friedman

It's close to the 50th anniversary of President Kennedy's famous inaugural address on January 20, 1961, where he challenged Americans to "Ask not what your country can do for you - ask what you can do for your country."  In the following year, Milton Friedman challenged Kennedy's famous statement in the introduction of his 1962 book "Capitalism and Freedom," and suggested that Kennedy was wrong, because a "free man will ask neither what his country can do for him nor what he can do for his country."

"In a much quoted passage in his inaugural address, President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country." Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic "what your country can do for you" implies that government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny. The organismic, "what you can do for your 'country" implies the government is the master or the deity, the citizen, the servant or the votary. 

To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive.

The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather "What can I and my compatriots do through government" to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom?  And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect? 

Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp."

Saturday, January 15, 2011

Global Stock Markets Increase By 26% in 2010

The World Federation of Exchanges reported this week that the total value of equities trading on the world's major stock exchanges reached $54.9 trillion in December, the highest world stock market capitalization since May 2008 (see chart above).  During 2010 the world stock market value increased by 26%, or by $11.3 trillion over the 12-month period, from $43.6 trillion in December 2009. From the February 2009 cyclical low of $26.6 trillion, world equity values have more than doubled, and have gained back about $28.3 trillion of the $36.4 trillion lost during 2008 because of the global financial crisis.   

Further evidence of a global stock market recovery is shown in the chart below of the daily MSCI World Stock Market Index, which closed yesterday at 1308, the highest closing value since early September 2008.

Friday, January 14, 2011

Retail Sales Set New Record in Dec. of $381B

The Census Bureau reported today that U.S. consumers set a new all-time monthly record by spending $380.9 billion on retail and food services in December of last year.  Without adjusting for inflation, this was the first time since the recession started in December 2007 that consumer spending has surpassed the pre-recession, previous record-high retail sales volume of of $380.0 billion set back in November 2007.  The highest-ever retail spending amount in December was almost 8% higher than the year-earlier level, and spending in every category except department stores registered annual gains last month, with especially strong gains in sporting goods (7.1%), motor vehicles and parts (14.2%), building materials (13.1%), and clothing (7.4%).  The 12-month retail sales total through December 2010 of $4.405 trillion was 6.6% ahead of the previous year's total.

For additional commentary see First Trust and Scott Grannis. 

Other recent positive economic news includes:

1. The Port of Los Angeles reported the 11th straight monthly increase in December for total shipping volume at the port on a year-over-year basis.  The 8.82% increase in December's shipping from its year-ago level help to boost shipping activity for all of 2010 by 16% compared to the previous year. 

2. Rail traffic for the first week of the year continued last year's ongoing trend of weekly gains in the amount of freight moving around the country, according to yesterday's report from the American Association of Railroads. Carloads were up by 20.1% and intermodal units by 8.6% for the week ending January 8.  

3. The November Leading Economic Indicators increased for both Korea and China.  

America's Ridiculously Large $15T Economy

The Economist has a great interactive map that compares the economic output of American states to the economic output (GDP) of entire countries, which helps put the ridiculously large U.S. economy (GDP of about $15,000,000,000,000) into perspective.  The map also compares the population of U.S. states to comparable countries.  I featured a similar map on CD back in 2007, but it wasn't interactive. 

HT: Robert Kuehl

Thursday, January 13, 2011

U.S. is Still the World's #1 Manufacturer

We hear a lot about the "decline of U.S. manufacturing" (84,000 Google hits) or even more drastically, about "the death of American manufacturing" (15,400 Google hits).

The chart above shows the U.S. share of world manufacturing output, annually from 1970 to 2009, based on data from the United Nations.  There has been a recent decline in America's share of world manufacturing output, from 25.3% a decade ago in 1999 to 16.82% in 2008, but note several important facts about the chart:

1. The U.S. share of world manufacturing output was amazingly constant between 1970 and the early part of this decade, and as recently as 2006 was above 20%.  It sure seems like we've been hearing about the "decline of U.S. manufacturing" for the last several decades or longer, when the factual evidence suggests that it's actually only a very recent phenomenon - and that's only when measured by our share of rising global manufacturing output.  Given the recent phenomenal economic and manufacturing growth in places like China, Brazil, India, Russia, and Korea, among others, it would only make sense that our share of world factory output has declined in recent years (but notice it did jump up a bit 2009). 

2. In terms of the total amount of manufacturing produced in a year, the United States still leads the world in annual manufacturing, see chart below for the 2009 rankings of the top seven countries in the world for factory output.
In 2009, the United States produced almost 14% more manufacturing output than second place China, and produced almost as much ($2,334 billion) as Japan, Germany, Italy, France and the U.K. combined ($2,762 billion). 

3. Although it's true that the U.S. has lost more than 7 million manufacturing jobs, from an employment level of more than 19 million manufacturing jobs in the late 1970s to fewer than 12 million jobs today, that's happened at the same time that U.S. manufacturing output has continued to expand and grow.  In 2009, the U.S. produced more manufacturing output, $2.334 trillion, than ever before in history (nominal dollars), see chart: 
Bottom Line: The many stories about the "death of America's manufacturing sector" have been greatly exaggerated.

UCLA Commerce Index Hits 30-Month High in Dec.

Here's another pretty new index for Carpe Diem, I've only reported on this once before, it's the Ceridian-UCLA Pulse of Commerce Index," here's a description: 

"The Ceridian-UCLA Pulse of Commerce Index (PCI) by UCLA Anderson School of Management is based on real-time fuel consumption data for over the road trucking and serves as an indicator of the current state and possible future direction of the U.S. economy. By tracking the volume and location of diesel fuel being purchased, the index closely monitors the over the road movement of produce, raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers."

From today's report on the December PCI:

"The Ceridian-UCLA Pulse of Commerce Index (PCI), a real-time measure of the flow of goods to U.S. factories, retailers and consumers, surged 2.4 percent in December and pushed the PCI above its previous 2010 peak established in May. This performance, combined with November’s 0.4 percent increase, was enough to offset three previous consecutive months of decline.

“The latest PCI data further evidences the positive economic sentiment felt since the start of the New Year,” explained Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “However, we have not entirely escaped the summer doldrums as the three-month moving average is still below its July 2010 level.”

On a year-over-year basis, the PCI increased 4.1 percent in December, in line with the November and October year-over-year comparisons. Importantly, growth in December comes on top of a very strong year-ago performance whereas the previous eleven months of year-over-year growth in 2010 were up against relatively weak prior year comparisons. It should be noted, however, that the 4.1 percent growth figure is only slightly higher than the 3 percent growth characteristic of a normal economy."

MP: The PCI reached a 30-month high in December at 111.87, the highest index level since June 2008, providing additional evidence of an ongoing economic expansion and recovery. 

Total U.S. Trade Reaches Two-Year High in Nov.; Get Ready for "Blowout Real GDP Growth" for Q4

According to today's BEA report, total U.S. trade with the rest of the world (sales of U.S. products to consumers and firms in other countries PLUS purchases of foreign production by American consumers and businesses) reached $357.6 billion in November, the highest level in more than two years.   Total trade in November was the highest level of total U.S. trade since October 2008, and is more than $100 billion and 45.4% above the April 2009 cyclical low of $246 billion (see chart above).  This also makes the fourth consecutive month of total international trade above the $350 billion level in December 2007, when the recession started.

Further, the combined international trade volume for U.S. buyers and sellers has increased in 14 out of the last 18 months (following ten consecutive declines), providing further evidence that the economy started on a recovery path last summer and continues to make solid gains almost every month. Both the sales of U.S. goods and services produced by American firms and sold to the rest of the world, and the purchases of foreign-produced goods and services by American consumers and firms, have been on an upward trend as the U.S. and global economies recover.

First Trust economists Brian Wesbury and Bob Stein are now predicting that net exports alone in the fourth quarter will add more than three percentage points to real GDP growth, resulting in a "blowout real GDP report of 5% to 6%" for QIV 2010. 

Markets in Everything: Foreclosure Exorcisms

Wall Street Journal -- The foreclosure crisis has helped resurrect an ancient tradition: the house cleansing. Buyers are turning to witches, psychics, priests and feng shui consultants, among others, to bless or exorcise dwellings.Sellers, too, are adopting the trend to help move a property stuck on the market. 

In recent months, foreclosure and other distressed sales have represented about a third of all home sales, according to the National Association of Realtors. With so many foreclosures riddling the market, some buyers find that a coat of paint is hardly enough to rid a house of its creepy quotient. 

"It's not entities or ghosts that we're dealing with anymore," says Julie Belmont, a so-called intuitive who works in Orange County, Calif., where 40% of home sales last year were distress sales. "With foreclosures, a lot of it is energy imprints from past discussions, arguments, money problems. All of that is absorbed by the house."

Wednesday, January 12, 2011

KC Financial Stress Index: A Return to Normalcy

The Kansas City Federal Reserve Bank calculates and reports a monthly "Financial Stress Index" (KCFSI), and it's being featured here on Carpe Diem for the first time (see chart above, data here).  The index is described here by the K.C. Fed: 

"The KCFSI is a monthly composite index of 11 variables reflecting stress in the U.S. financial system. These variables fall into two broad categories--average yield spreads, and measures based on the actual or expected behavior of asset prices. The index is calculated using the principal components procedure. Under this procedure, the coefficients of the 11 variables are chosen so that the index explains the maximum possible amount of total variation in the variables from February 1990 through the current month.

A positive value of the KCSFI indicates that financial stress is above the long-run average, while a negative value signifies that financial stress is below the long-run average." 

From last week's press release about the December KCSFI

"The Kansas City Financial Stress Index (KCFSI) was -0.28 in December, down moderately from -0.12 in November. With the decrease, the index remained below its long-run average of zero and moved near its low for the year, reached in March." 

MP: As the chart shows, the KCFSI has now been below zero for the last two months, and was negative for six months in 2010 (March, April, August, September, November and December).  The December 2010 index reading of -0.28 was the lowest index level since July 2007, and the KCFSI has now returned to its pre-recession level, indicating the financial stress of the recession and financial crisis is becoming a fading memory.  From the KCFSI peak of 5.5 in October 2008 ("financial ground zero") we've made a lot of progress, and we've returned to a new period of below-average financial stress in the U.S. economy, i.e. a return to "normalcy" (see below).    

Although Scott Grannis was commenting today about the VIX peaking in October 2008, he could have just as easily been talking about the KCFSI, which peaked in the same month: 

"The near-collapse of the global financial industry in late 2008 sent a tsunami of fear throughout the global financial markets and temporarily paralyzed global economies. Activity in many areas ground to a halt as consumers hoarded cash, institutional investors scrambled to sell risky assets, and everyone tried to deleverage. Fear was the common denominator, as captured by the VIX Index (the implied volatility of equity options), and it peaked in late October 2008. 

Two years ago the financial markets were priced to an "end-of-the-world-as-we-know-it" scenario. Today financial markets are beginning to realize that a return to "normalcy" is possible and within reach. We should all breathe a great sigh of relief."

Economic Freedom is Advancing Around the World

The Heritage Foundation and WSJ released the 2011 Index of Economic Freedom today.  Here's the Top Ten (U.S. ranks #9, with a slight drop from last year's index level).  From the Executive Summary:

"Economic freedom advanced this year, regaining much of the momentum lost during the fiscal crisis and global recession. Many governments around the world have rededicated themselves to fiscal soundness, openness and reform, and the majority of countries are once again on a positive path to greater freedom."

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.