Tuesday, February 22, 2011

As a Share of Income, Americans Have the Most Affordable Food in World & It's Never Been Better

Inspired by an item in today's "The Gartman Letter," the chart below displays data from the USDA comparing household spending on food as a share of final consumption expenditures for 84 countries around the world.  Dennis Gartman comments:

"Everyone knows that the price of food is rising fast, and nearly as many know that the price of rising food falls most harshly upon the poor. It is the poor in any country that have to use the greatest percentage of their disposable income to buy this most basic of all requirements for life. Full bellies, as they say, tend not to make revolutions and once this percentage gets upward of 35% bellies are less and less full and regime change more and more likely."

Share of Household Spending on Food, 2008%
United States6.9
United Arab Emirates8.7
United Kingdom8.8
New Zealand12.1
Hong Kong, China12.2
South Korea15.1
Czech Republic15.6
South Africa19.8
Saudi Arabia23.7
Costa Rica25.7
Dominican Republic29.2
Source: USDA

MP: As much as Americans might complain about rising food prices in the U.S. (even though annual CPI food inflation hasn't been above 2% for almost two years), we've got the most affordable food on the planet as a share of income (see chart above).  And compared to previous years, today's Americans have the most affordable food in U.S. history (see chart below).

Monday, February 21, 2011

Intrade Introduces Inflation Futures Contracts

Inflation has been getting lots of attention lately.  For example, do a Google News search for terms like "rising inflation," "inflationary pressures" or "rising food prices" and you'll find almost 3,000 results each.  Interestingly, you'll get about the same number of results for the word "deflation."  

According to the most recent WSJ Economic Forecasting Survey, the consensus of more than 50 economists and analysts is that CPI inflation will be 2.1% in December 2011.  But with all of the talk lately about rising food and commodity prices, there are many guests on CNBC, Bloomberg, and FOX Business News who think the inflationary pressures will push the rate up much higher than 2.1% by the end of the year.  

With all of the incredible divergence of opinions about future inflation, it seemed natural for Intrade to introduce inflation futures contracts, and that's exactly what just happened following my suggestion to them.  Here's the link to the six new futures contracts that allow you to take a position on the U.S. inflation rate in December 2011, based on the 12-month percentage change in the CPI-U.  

Intrade Odds on Gaddafi Jump as He Flees

Price for Muammar al-Gaddafi (Leader of Libya) at intrade.com
Intrade Odds for Muammar al-Gaddafi to no longer be leader of Libya by December 2011 just shot up to 79% (see chart above), as news reports are saying he is fleeing to Venezuela. 

Oregon Must Win the National Competition for Jobs

Imagine if Obama had delivered the revised speech below last week.  If it sounds silly to hear the president talking about Oregon "winning the national competition for new jobs and industries," that's because it is pretty silly.  But it's equally silly to talk about the county "winning the global competition for new jobs and industries," because it's based on flawed "zero-sum," "fixed pie" thinking, i.e. there's only a fixed number of jobs and for us to "win jobs," some other country has to "lose jobs."  Here it is:

Weekly Address: To Win the Future, America Oregon Must Win the Global National Competition in Education

PORTLAND – In this week’s address, President Obama said that the United States Oregon needs the best trained and best skilled workforce in the world country to win the global national competition for new jobs and industries.  

I’m speaking to you from just outside Portland, Oregon where I’m visiting Intel, a company that helped pioneer the digital age.  I just came from a tour of an assembly line where highly-skilled technicians are building microprocessors that run everything from desktop computers to smartphones.  But these workers aren’t just manufacturing high-tech computer chips.  They’re showing us how America Oregon will win the future.

For decades, Intel has led the world nation in developing new technologies.  But even as global national competition has intensified, this company has invested, built, and hired in America Oregon.  Three-quarters of Intel’s products are made by American Oregonian workers.  And as the company expands operations in Oregon and builds outsources a new plant in to Arizona, it plans to hire another 4,000 people this year.

Companies like Intel are proving that we Oregon can compete – that instead of just being a nation state that buys what’s made overseas in other states, we can make things in America Oregon and sell them around the globe country.  Winning this competition among the states depends on the ingenuity and creativity of our private sector in Oregon – which was on display in my visit today.  But it’s also going to depend on what we do as a nation state to make America Oregon the best place on earth in America to do business.

If we want to win the global national competition for new jobs and industries in Oregon, we’ve got to win the global national competition to educate our people in Oregon.  We’ve got to have the best trained, best skilled workforce in the world country. That’s how we’ll ensure that the next Intel, the next Google, or the next Microsoft is created in America Oregon and hires American Oregonian workers.

The truth is, we have everything we need to compete in Oregon: bold entrepreneurs, bright new ideas, and world-class colleges and universities.  And, most of all, we have young people in Oregon just brimming with promise and ready to help us Oregon succeed.  All we have Oregon has to do is tap that Oregonian potential. That’s the lesson on display at Intel.  And that’s how America Oregon will win the future.

Thank you.

Sunday, February 20, 2011

Seattle Times Editorial Board Says "Legalize It"

"Prohibition has not worked. It might work in North Korea. But in America, prohibition is the pursuit of the impossible.  Marijuana should be legalized, regulated and taxed. The push to repeal federal prohibition should come from the states, and it should begin with the state of Washington."

The TOTAL Volume of Trade is Most Important

From Cato's Dan Griswold post "Rising Exports—and Imports—Are Good News for U.S. Economy":

"Politicians and commentators love to focus on the deficit, as though it were a scorecard of who is winning in global trade, but the real measure is the total volume of trade. As economies expand, so does trade, both imports and exports. Exports help us reach new markets and expand economies of scale, while imports bless consumers with lower prices and more choices, while stoking competition, innovation, and efficiency gains among producers.

By this measure the BEA's recent trade report for December was good news all around, and one more sign that the U.S. and global economies continue to recover from the Great Recession. Last year, U.S. exports of goods were up 21 percent from 2009, while imports were up 23 percent. In contrast, in the recession year of 2009, exports of goods dropped 18 percent from the year before while imports plunged 26 percent. (Unemployment soared in 2009, but, hey, at least the trade deficit was “improving”!)"

MP: I've made this point before about the importance of adding exports and imports to report total trade, see posts here and here.  As the top chart above illustrates, total trade plummeted by $120 billion due to the global recession from mid-2008 through the summer of 2009, and this was at a time when our monthly trade deficits were "improving," from almost -$70 billion to less than -$30 billion.  Obviously, the declining volume of total trade in 2008-2009 was a much better indicator of the deteriorating economic conditions than the "improving trade deficit."

As Dan points out, when it comes to measuring economic performance of the U.S. economy, the most meaningful and relevant measure is "total trade" and not the relatively meaningless current account "trade deficit" for goods and services (which is exactly offset by a capital account surplus).   It's unfortunate that the total volume of international trade doesn't get more attention.  Thanks for Dan Griswold for making the case. 

Mackinac Center Exposes Hypocrisy and Waste

1. The Mackinac Center for Public Policy discovers that the Michigan Regional Council of Carpenters uses non-union labor to protest a Grand Rapids area businessman. What's worse, the union has even recruited demonstrators who frequent local homeless shelters, including a shelter which gets help from the very same businessman targeted by the union (see video).  (HT: Newsalert)

2.The University of California at Berkeley, facing a new round of state budget cuts this year, announced in January that it will eliminate 280 positions, 150 of them through layoffs and the rest through retirements or other means.

But at the same time the university was laying off hundreds of employees due to budget cuts, it was able to come up with $300,000 to hire former Michigan Gov. Jennifer Granholm and her husband to teach two classes each at UC-Berkeley in 2011, according to documents released by the school to the Mackinac Center through a Freedom of Information Act request. In the offer letter to the couple, they were informed that "University policies will permit you to devote substantial time to outside consulting or other compensated activity, as well as your summers.”

Three Charts Tell The Story

1. Chart 1: As "payments to individuals" becomes a greater and greater share of the federal budget...... see chart above

2. Chart 2: The percent of taxpayers with zero or negative tax liability goes up....  see chart below....

3. Chart 3: And the share of taxes paid by the top 1% of taxpayers goes up and the share of taxes paid by the bottom 95% goes down...  see chart above...

As John Merline points out in his excellent editorial:

"When you put these two trends together, what you find is that the federal government has over the years essentially turned into a gigantic wealth-transfer machine -- taking money from a shrinking pool of taxpayers and giving it out to a growing list of favored groups."

Saturday, February 19, 2011

Entitlement Nation: What Does Government Do? Mostly Cut Checks to Beneficiaries, $2.3T in 2010

AOL Opinion Editor John Merline asks a great question (via Instapundit with h/t to Pete Friedlander): "What's the biggest single job the federal government undertakes?" and here's his answer:

"National defense? Nope.
Homeland security? Wrong.
Transportation? Not even close.
Law enforcement? No way.
Education? Getting colder.
Foreign aid? Are you kidding?

Nope, the biggest single thing the federal government does these days is ... cut checks.

Lots and lots and lots and lots of checks that go to individual citizens -- $2.3 trillion worth last year alone. In fact, according to a table buried deep inside the little-noticed Historical Tables volume of the White House's 2012 budget, these "direct payments to individuals" accounted for more than two-thirds of federal spending in 2010 (see chart above). That's a post-war high.

And that share has been steadily climbing. Payments to individuals accounted for 2.4 percent of all federal spending in 1945. By 1980 it has risen to 47 percent, and in 1992 it crossed the 50 percent mark. (See  chart above.)

Where does all this money go? More than half goes to seniors through Social Security and Medicare. Only about 38 percent goes to the poor. And the rest of the payments end up with farmers, students, the unemployed, those looking for retraining help, veterans and other select groups."

And the biggest of these direct payment programs -- Social Security, Medicare and Medicaid -- are also the fastest growing in the federal budget."

MP:  The chart below displays a breakdown of the $2.3 trillion in payments to individuals in 2010 (from Table 11.3), and shows that more than 68% of payment are for Social Security and Medicare/Medicaid.  

In John's article, he points out that at the same time that payments to individuals are rising, both in absolute terms and a share of total federal outlays, "the federal government increasingly relies on fewer and fewer taxpayers to cover its costs."

His conclusion:

"When you put these two trends together, what you find is that the federal government has over the years essentially turned into a gigantic wealth-transfer machine -- taking money from a shrinking pool of taxpayers and giving it out to a growing list of favored groups.

Now, depending on your political perspective, you could view this is a good thing or a bad thing.

But whatever your view, this situation will make getting the federal budget under control increasingly difficult, since it will invariably involve pitting those writing checks against those cashing them."

Financial Stress Index Back to Nov. 2007 Level

The St. Louis Federal Reserve updated its Financial Stress Index on Thursday for the week ending February 11, see chart above (data here).  This index measure of the amount of financial stress affecting the markets (explanation here) based on 18 individual variables including seven different interest rates, six interest rate yield spreads, and five measures of market volatility.  According to the St. Louis Fed, each of the 18 component variables in the Financial Stress Index captures some aspect of financial stress in the markets, and the Financial Stress Index incorporates the 18 variables into a single, composite index measure that tracks the amount of overall financial stress in the markets.   

The chart above shows that the St. Louis Fed Financial Stress Index has now returned to the pre-recession, pre-financial crisis levels that prevailed back in the fall of 2007.  The reading for last week of -0.022 was only the second time since the recession started in December 2007 that the index was below zero (it was -0.003 in April 2010), and the lowest index value since early November 2007.  

Friday, February 18, 2011

DC's Best Food Trucks

"It's getting hard to keep track of DC's fleet of mobile food purveyors, which seems to get larger every month. Here are a few of the Washington Post's favorite curb-side kitchens." 

To find out where the DC food trucks are parked each day, check out the Food Truck Fiesta website. "Sauca," pictured above, is my favorite.

Intrade Contracts on Middle East Prospects

Intrade now offers contracts for whether the leaders of countries in the Middle East like Bahrain, Yemen, Libya, Iran will still hold those positions by December 31, 2011. Volume is somewhat light for these contracts, but the odds are running between 15-20 percent for these leaders losing their positions this year (see chart above, click to enlarge).

2012 Is Finally The Time to Prune Farm Subsidies

From the editorial "Pruning Farm Subsidies," by Victor Davis Hanson:

"We need a drastic reset of agricultural policy. The use of prime ag land to grow corn for ethanol biofuel makes no sense. Why divert farmland for fuels when the world’s poor are short of food, and there are millions of unfarmable areas in Alaska and the arid West, as well as off the American coast, that either are not being tapped for more efficient gas and oil or are only partially exploited?  

When North Americans do not fully utilize their own fossil-fuel resources, two very bad things usually follow: 

1. Someone in Africa, Asia, or Russia is far more likely to harm the environment in order to provide us with oil, and 

2. Precious farmland is diverted to growing less efficient biofuels instead of food — and billions worldwide pay the price.  

No supporter has ever been able to explain why the advent of massive subsidies over the last half-century coincided with the decline, not the renaissance, of “the family farm.” Nor has anyone offered reasons why cotton, wheat, soy, sugar, and corn are directly subsidized, but not, for example, nuts, peaches, or carrots.  

Finally, the United States is supposed to be the world’s premier free-market economy, based on the principles that competition is good and that entrepreneurs freely reacting to markets create more wealth when unfettered by government red tape. Why, then, would the conservative agribusiness community want government intrusion that warps world food markets, ends up hurting the global poor, and contributes to an unsustainable national debt?

2012 is finally the time to end the crop-subsidy business, with the annual budget deficit approaching $1.5 trillion in 2011, farmers receiving record prices on the open market, and the new conservative House of Representatives having been elected on the promise of fiscal responsibility."

MP: As the chart above shows (data from EWG), there is also massive "farm subsidy inequality" - the top 1% of farm subsidy recipients (13,186) got almost as much taxpayer-subsidized "pork" ($2.16 billion and 20% of the total payments) as the entire bottom 80% ($2.32 billion, and 21% of total payments).

Inflation for Services Is Only 1.25% vs. 3.64% Avg. Over Last 25 Years; It's Keeping Inflation Subdued

The chart above shows annual inflation rates for the service component of the CPI from January 1984 to January 2011, and helps to illustrate the point made in today's WSJ article that "Modest price increases for consumer services are keeping inflation subdued." 

MP: Indeed, the current inflation rate for consumer services is only 1.25%, which is only about 1/3 of the 3.64% average over the last quarter century (see chart).  Other key points from the WSJ article:

"For most of the last 30 years, goods prices had been held down, in part, by cheap imports from low-wage countries like China. But recently, China and other developing markets have become huge consumers of commodities, which is putting upward pressure on American prices for many globally traded goods. 

U.S. households spent $7 trillion on services last year, accounting for 67% of total consumer spending. Because the services sector is so immense, the U.S. economy is less exposed to the cost pressures imposed by global trade than many other countries.

Fed officials expect this factor to help hold down U.S. inflation in coming months. "The bulk of the increase in commodity prices is a global phenomenon," Mr. Bernanke told lawmakers earlier this month. "Inflation made here in the U.S. is very, very low."

[Compared to the goods sector], prices in the services sector are under much less pressure. The overall weakness of the domestic economy is restraining them. High unemployment, for example, is holding down wages."

For Some Products, Prices Have Been Falling

Item% Change Last Year
Photographic Equipment, Supplies-10.50%
Sports Equipment-4.11%
Cell Phone Service-4.03%
Leased Cars-3.86%
Audio Disks-2.81%
Clothing: Infant and Toddler-2.78%
Video Audio-2.62%
Pets and Pet Supplies-2.54%
Tools and Hardware-2.12%
Video Disks-1.95%
Nonprescription Medical Supplies-1.43%
Clothing: Women and Girls-0.88%
New Cars-0.78%

Rising food and energy prices have received a lot of media attention lately, along with concerns about the threat of inflation. The chart above (using BLS data via Economagic) shows a sample of products that have experienced deflation in the last year (January 2010 to January 2011).   

One reason we don't pay much attention to these price decreases is probably that they happen so gradually and consistently over time, so we either: a) don't notice the falling prices, or b) take it for granted and don't appreciate the incredible savings over time in many of the products that we all buy. There are many, many products like computers, cameras, new cars, clothing, TVs, appliances, electronics, software, etc. that are significantly cheaper today than a year ago, and are probably cheaper today than five years ago and ten years ago in many cases.

Or maybe it's also because we buy computers, TVs, appliances, new cars INFREQUENTLY (every 5 year or more in some cases), and don't notice or appreciate the price decreases the same way we notice price changes for food and fuel that we purchase FREQUENTLY? But there does seem to be a certain degree of mis-perception among the general public and media that ALL prices are going up, which is clearly not the case. And since inflation is a period when most prices (and wages) are rising, I don't think we're anywhere close to meeting that situation yet.  Not as long as so many prices are declining, not rising.

Update: See today's front page WSJ article "Split in Economy Keeps Lid on Prices," here's a quote:

"The conflicting forces: Soaring commodities costs world-wide are pushing up prices for many goods, while a slowly recuperating U.S. economy, soft housing market and a persistently high unemployment rate are holding down prices for U.S. services.

Goods prices were up 2.2% from a year earlier, paced by jumps in food and energy prices, according to the Labor Department's January consumer-price index, and are rising faster than they did before the recession. But services prices were up only 1.2% from a year earlier, far below the 3.4% inflation rate registered for services between 2000 and 2008."

Thursday, February 17, 2011

The Unsustainable College Textbook Bubble

 Kevin "Angus" Grier points out that Greg Mankiw's new textbook (6th edition) has a list price of $238.95, but sells at a discount for "only" $191.16 on Amazon; same price as the Gwartney economics textbook.  Hey, isn't that "collusion" or "price fixing?"

As Angus comments: "These days, given that you could make yourself a pretty good free principles text just by downloading relevant Wikipedia entries, I don't see how these rents can be sustained over the long run (I am aware that not all or perhaps not even a majority of the rents are going to the authors)."

In other words, there's an unsustainable college tuition textbook bubble that makes the recent "housing bubble" almost unnoticeable by comparison (see chart above), and those rents, just like 2007 home prices or 1995 AT&T long distance charges, probably can't be sustained.   

Median CPI Inflation Below 1% for the 12th Month

According to a report released today by the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (0.5% annualized rate) in January. The "median CPI" is a measure of core inflation calculated by the Federal Reserve Bank of Cleveland based on data in the monthly CPI report from the Bureau of Labor Statistics (BLS).

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers was up by 0.4% in January. The CPI less food and energy increased 0.2% in January. Over the last 12 months, median CPI inflation was 0.8%, compared to CPI inflation of 1.6% (see chart above).

According to the Cleveland Fed:

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

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

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

MP: Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the Cleveland Fed's research), and the median CPI is not now showing any early signs of inflationary pressures.  Although the median CPI inflation rate increased to 0.8% in January from 0.6% in December, it's been below 1% in every month since last January, which is the lowest inflation over a 12-month period in the history of the median CPI index back to 1984 (see chart). 

Higher Education News: Test Optional, Tuition Cuts

1. "DePaul University will no longer require applicants to submit standardized-test scores for admission. The new policy, announced on Thursday morning, makes DePaul the largest private nonprofit university to go completely "test optional." Starting with applicants for the freshman class entering in 2012, students who choose not to submit ACT or SAT scores will write short responses to essay questions designed to measure "noncognitive" traits, such as leadership, commitment to service, and ability to meet long-term goals."

2. "College tuition tends to go in one direction—up. But on Wednesday, the University of the South took the unusual step of cutting its price for the coming year. Sewanee, as the university is known, will cut its tuition, fees, and room and board by 10 percent, or about $4,600, for the 2011-12 year."

Q: Does this signal that the "college tuition bubble" is starting to burst? 

World Stock Markets Continue to Rebound in January to Three-Year High of $57.2 Trillion

The total value of the world's stock markets increased by $2.4 trillion in January to $57.2 trillion, following a $3.1 trillion increase in December, according to data from the World Federation of Exchanges.  Over the last 12 months the world stock market capitalization has increased by 23.2%, and by almost $11 trillion, as stock markets around the world recovered as the global economic recovery took hold.  Compared to the cyclical, recession-low of $26.6 trillion in February 2009, world equities have more than doubled in value in slightly less than two years.  

The $57.2 trillion value of world stocks is less than 10% below the $63 trillion pre-recession peak in October 2007, and is at the highest monthly level since December 2007 when the U.S. recession started.  

"Car Scalping": Selling Chevy Volts Above List Price

AutoBlog -- "Even though some Chevrolet dealers were warned not to sell the Volt above the MSRP, there is a distinct trend around the country where some dealers are trying to make a few extra (thousand) bucks off the popular plug-in vehicle. In fact, Ward's Auto found a dealer in Florida that is listing a Volt at $65,590. That's a wee bit more than the car's $41,000 suggested retail price."

Here's an example of the "car scalping" taking place now on Ebay (selling a car above its "face value" or "list price") - a "Buy It Now" listing for a Chevy Volt, offered at $47,700.

HT: magilson

Note: The same kind of "car scalping" happened a few years ago for the 2010 Chevy Camaro; and "coin scalping" happens every day throughout the country when coin dealers sell rare coins above "face value."

Markets in Everything: But NOT for Bone Marrow

"Every year, 1,000 Americans die because they cannot find a matching bone marrow donor. Minorities are hit especially hard. Common sense suggests that offering modest incentives to attract more bone marrow donors would be worth pursuing, but federal law makes that a felony punishable by up to five years in prison.

That is why on October 28, 2009, adults with deadly blood diseases, the parents of sick children, a California nonprofit and a world-renowned medical doctor who specializes in bone marrow research joined with the Institute for Justice to launch a legal fight against the U.S. Attorney General to put an end to a ban on offering compensation for bone marrow donors."

Watch video above for more information.

Wednesday, February 16, 2011

Producer Price Inflation Is Really Pretty Average

There were a lot of reports today like this one from Barron's:

"The Producer Price Index report released by the Labor Department today is the latest sign of rising inflation pressures in the U.S. in early 2011."

The chart above shows the 12-month producer price inflation rates (data here) over the last 11 years from January of 2000 to January 2011.  Note the following:

1. Annual producer inflation in January of 3.7% was less than the inflation rates during the first half of 2010, and less than inflation from the fall of 2007 through the end of 2008.

2. The current producer price inflation is about the same as the inflation rate from 2003 through mid-2006, and the same as during 2000.   

Bottom Line: Maybe producer price inflation today seems higher than it really is because it's following a period of producer price deflation during most of 2009 (reaching -6.6% in July 2009).  But producer price inflation over the last ten months has been pretty normal, and it's not accelerating. 

Boston Mayor's Wal-Mart Jihad

“Wal-Mart does not suit the clientele we have in the city of Boston. I don’t need employers like that in our city.”
From Michael Graham in The Boston Herald:

"Will Mayor Tom Menino save Boston’s poorest families from the scourge of  . . . everyday low prices? Yes, the wolves of Wal-Mart are again at the city’s door. They want to spend millions building a store, hiring construction workers and creating hundreds of permanent jobs. No wonder the mayor hates them.

I’d love to hear the mayor explain to Boston’s blue-collar families why it’s better for them to stay unemployed than to let Wal-Mart come to town and hire them. I’d also like to hear the mayor explain to struggling families why the falling food prices that arrive with every Wal-Mart are a bad thing. Why they can’t enjoy the 20 percent to 30 percent drop in the cost of necessities that communities often experience when Wal-Mart arrives.

In 2008, when food costs surged, Wal-Mart dramatically cut its prices. In 2009, when unemployment spiked, Wal-Mart added more than 22,000 workers. Those mean-spirited bastards! 

If Wal-Mart opens in Boston, poor people will win. They will have access to new jobs, cheaper food and increased economic choices. But since when has helping poor people been Menino’s priority? In 2008 he turned down CVS’s request to open “minute clinics” here, providing cheap health care in some of Boston’s neediest communities. Why did Menino oppose it?

“Allowing retailers to make money off of sick people is wrong,” Menino told CVS — a company whose entire business is selling medicine to sick people.

Effete Boston liberals hate Wal-Mart, the unions hate Wal-Mart, and so Menino does, too. And if that means poor families struggle to find work or buy food, well .  .  ."

MP: Maybe Boston's mayor should pay closer attention to what happened in Chicago when Wal-Mart opened a store there - the neighborhood became safer, it attracted 22 new stores and businesses to the area, it created hundreds of new jobs at Wal-Mart, and also helped to generate a net increase of hundreds of new jobs in the neighborhood at other stores and businesses.  AND that's not even counting the fact that local consumers have saved thousands, if not millions, of dollars from Wal-Mart's "Everyday Low Prices." 

HT: Richard Spillane

Caplan, Lindsey, Boudreaux: The "Slight Stagnation" Using Machine-Age National Income Accounting

Brink Lindsey writes on the Growthology blog about Tyler Cowen's e-book "The Great Stagnation," and Bryan Caplan comments here on Econlog in a post titled "Lindsey on the Great Slight Stagnation." 

Brink provides some data on real GDP per-capita in different periods back to 1820, and Bryan reproduces those data in his post.  The charts above (unadjusted dollars and semi-log form) show annual real GDP per-capita back to the year 1800 using data from Global Financial Data (paid subscription required), and growth rates in real per-capita during different periods.  The chart helps to support Brink's comment that:

"From this broader perspective, what Tyler calls the Great Stagnation [the post-1973 period] looks like a return to normalcy after the "Great Boom" of the post-WWII decades. Indeed, recent growth rates are better than those of all other earlier periods. So yes, growth has cooled down since the postwar "Golden Age," and that fact poses real economic and political challenges. But the Golden Age was the outlier, not our present era; it just doesn't make sense to talk about the present period as stagnant after centuries of easy growth."

MP: The 2% annual average growth in real per-capita GDP since 1973 is the same growth rate as the first half of the 20th century, higher than economic growth during the 19th century, and slightly higher than the 1.8% average since 1800. In that case, the description of the current period as one of economic "stagnation" does seem exaggerated, as Bryan's blog post title implies.

And perhaps the national income accounting developed during The Machine Age, doesn't even accurately capture economic well-being very well in the new Information Age, a point made by Don Boudreaux:

"I have a different hypothesis: what has stagnated isn't the economy but, rather, economists' and statisticians' capacity to measure economic activity and its contribution to human well-being. Rather than stagnating, our economy and our wealth continue to grow so impressively that they are outstripping last-century's economic categories and measurement techniques."

Update: If median income is the appropriate metric, there sure hasn't been any stagnation there, see chart below of "real median income per household member" from 1967 to 2007.  Between 1973 and 2007, median income per household member increased by almost 35% from $15,127 to $20,376 (in 2007 dollars).

Quote of the Day: If Economics Were a Hobby...

"Few [economists] intrinsically enjoy academic economics. Don't believe me? Ask yourself this: If economics were a hobby rather than a profession, how many leading economists would do conventional research in their spare time for free? If you can say "10%" with a straight face, let me know."

From Bryan's blog post yesterday: "Why Do So Many GMU Economists Blog?"

Wal-Mart Deserves the 2011 Nobel Peace Prize

Wal-Mart is frequently criticized for putting local merchants out of business when it opens a new store, but the video above shows a much different story of what happened in Chicago - the neighborhood became safer, it attracted 22 new stores and businesses to the area, it created hundreds of new jobs at Wal-Mart, and also helped to generate a net increase of hundreds of new jobs in the neighborhood at other stores and businesses.

Inspired by this Vancouver Sun article, I hereby nominate Wal-Mart for the 2011 Nobel Peace Prize for its significant contributions to society, for improving the U.S. and world economies, for directly creating more than two million jobs worldwide at its retail outlets and helping to support many thousands of jobs indirectly for all of the thousands of suppliers to Wal-Mart, and for its contributions to improving the lives of millions of lower-income consumers by offering "Everyday Low Prices."

Producer Price Food Inflation: Crude (High and Volatile) vs. Consumer Goods (Low and Stable)

The chart above shows the annual inflation rates for: a) crude foodstuffs and feedstuffs (e.g. wheat, corn, animals for slaughter, peanuts, cottonseed, and soybeans), and b) finished consumer foods (pasta products, processed meats, bakery products, fresh fruits and vegetables, tree nuts, and eggs), based on today's BLS report on Producer Price Indexes through January. 

It's interesting to note the following:

1. Inflation for crude foodstuffs and feedstuffs is much more volatile (monthly standard deviation of almost 14% over the last ten years) than inflation for finished consumer foods (standard deviation of 3%). 

2. Double-digit inflation (0r deflation) rates in crude food items (like we've had for the last 7 months now starting last July) never translate into double-digit inflation (deflation) rates for finished consumer food products. 

3. The current 12-month inflation rate for finished consumer foods in January of 3.8% is only slightly higher than the 3% average over the last ten years, and is lower than six of the months over the last year, e.g. 4% for November, 4.6% for September, 5.7% May, 6.6% March, etc. 

4. The average inflation rate for finished consumer foods over the last 12 months of 3.9% is lower than the 6.7% average from 2007-2008.   

MP: Perhaps this explains some of the disconnect between all of the news reports about rising wholesale and commodity food prices globally, but no signs yet of rising consumer food inflation (1.5% CPI food inflation through December 2010).   

Tuesday, February 15, 2011

NY Fed: Delinquent Loans Fall Back to 2007 Levels

The NY Federal Reserve recently released it "Quarterly Report on Household Debt and Credit," and here are some key points:

1. Aggregate consumer debt continued to decline in the fourth quarter, continuing its trend of the previous two years. As of December 31, 2010, total consumer indebtedness was $11.4 trillion, a reduction of $1.08 trillion (8.6%) from its peak level at the close of 2008Q3, and $155 billion (1.3%) below its September 30, 2010 level.  This was the lowest level of consumer debt in almost four years, since the first quarter of 2007 when household debt totaled $11.34 trillion. 

2. New delinquent loan balances dropped to $271 billion in the fourth quarter of 2010, the lowest level since the second quarter of 2007, three and-a-half years ago (see chart). 

3. New delinquent mortgage loan balances fell to $202.4 billion in the fourth quarter of 2010, the lowest level since $202 billion in the third quarter of 2007 (see chart). 

HT: Junkyard Hawg

Markets in Everything: $200 Concierge Medicine

The NY Times recently featured One Medical Group which is:

"A new model for primary care that aims to set a nationwide example. With 31 physicians in San Francisco and New York, it offers most of the same services provided by personalized “concierge” medical practices, but at a much lower price: $150 to $200 a year. 

One Medical Group doctors see at most 16 patients a day; the nationwide average for primary-care physicians is 25. They welcome e-mail communication with patients, for no extra charge. Same-day appointments are routine. And unlike most concierge practices, One Medical accepts a variety of insurance plans, including Medicare. 

But One Medical is the first to try to carry out such a model on a large scale. It now has several thousand patients and a growth rate of 50 percent a year, fueled largely by word of mouth. The group's founder Dr. Lee said he planned to open a third office in Manhattan next month and expand to a third large city next year."

MP: Add this to the growing list of market-driven innovations in U.S. health care including ZocDoc, retail clinics, the No Insurance Club, Deeply-Discounted Surgery for Cash, medical care using web-based social media, medical tourism, and Roadside Medical Clinics for over-the-road truck drivers.

Home Depot To Hire 60k Workers for Spring Rush

"The Home Depot, the world's largest home improvement retailer, today announced it will hire more than 60,000 seasonal associates in time for the Company's second annual Spring Black Friday event.

Like the traditional Black Friday that occurs the day after Thanksgiving to unofficially start the holiday shopping season, The Home Depot's Spring Black Friday marks the start of home improvement's busiest shopping season. In preparation, the Company will hire and train new seasonal associates in every market during the month of February and March. Additionally, The Home Depot will be adding net new permanent full-time and part-time positions to its stores for the second year in a row."

HT: Steve Bartin at Newsalert

Update: Note that Home Depot stock has risen about 20% over the last three months, or about twice the return on the S&P500 (10%) over the last three months (see chart above). 

LA Port Sets New Export Record for January

The Port of Los Angeles released shipping data today for the month of January. Here are some highlights:

1. Exports from the LA Port set a new record for the month of January, with 159,051 loaded outbound containers leaving the port last month.  That was 12.61% above January 2010, 52% above January 2009, and 7.5% above the previous record for January exports in 2008 (see chart above).  

2. The total volume of shipping at the port in January was 660,517 TEUs, which was above its year-earlier level by 15.3%, and 12.5% above the level in January 2009.   

California's Tech Boom and "Bifurcated Recovery"

1. "California's Silicon Valley is Hiring Again" -- "Silicon Valley is starting to pop again. Green tech is alive, as is anything in social networking. Venture capitalists are investing. Google is hiring 2,000 workers this year; Facebook is moving into new quarters with room for hundreds of additional employees.

"We've got a lot of recruiting to do," said Dena Quinn, facilities manager at Skype's Palo Alto office. The Internet phone company will hire 280 workers in Palo Alto this year, more than doubling its Silicon Valley employment."

2. San Diego Tech Companies Can't Fill Thousands of Jobs -- "Even though the jobless rate continues to hover in the double digits, there are literally thousands of high-paid job openings in San Diego County just waiting for the applicants with the right skills, according to the leaders of the local high-tech community.

But they say that finding those applicants can be a challenge, partly because of the area’s high cost of living and the lingering perception that San Diego’s more of a beach town than a Silicon Valley South."

3. "While overall California home sales declined last year, the number of homes that sold for $1 million or more in 2010 rose for the first time in five years as certain segments of the economy improved and high-end home shoppers went bargain hunting.  Last year 22,529 Golden State homes sold for $1 million or more. That was up 21.0 percent from 18,621 in 2009 and the highest since 2008, when 24,436 homes sold for $1 million-plus, according to San Diego-based DataQuick Information Systems. Million-dollar sales peaked in 2005 at 54,773, after which they declined each year through 2009."

HT: Steve Bartin at Newsalert for the first two stories. 

Retail Sales Reach Post-Recession High in January

The Census Bureau reported today that U.S. consumers set a new all-time monthly record by spending $381.5 billion on retail and food services in January.  Without adjusting for inflation, this was the second straight month 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 January was 7.8% higher than the year-earlier level, and spending in every category except electronics and appliance stores (-0.3%), and department stores (-0.8%) registered annual gains last month, with especially strong gains in motor vehicles and parts (15.7%), building materials (8.7%), miscellaneous stores (+10.2%) and nonstore retailers (13.5%).  The 3-month retail sales total through January 2011 of $1.14 trillion is running 7.6% ahead of the same period a year ago.

Monday, February 14, 2011

Japan's Per-Capita GDP is 10X Greater Than China's

The news media is making a big deal about the fact that China surpassed Japan in 2010 as the world's second largest economy, see WSJ article here.  But on a per-capita basis, China's GDP ranks #95 in the world, and is still lagging behind Ecuador and Iran. Japan's per-capita GDP is about 10 times greater than China's (see chart above). 

The Economics and Logic of Ticket Scalping

The economics of "ticket re-selling" aka "ticket scalping" is really pretty simple.  In general, there can only be a secondary market for tickets selling above face value if the following condition exists:

The quantity of tickets demanded by fans has to be greater than the quantity of tickets supplied by the band, promoter, arena, stadium, etc., which results in a sold-out show and a secondary market for tickets selling above face value.  Obviously, without that condition, the show is not sold out, and you can buy tickets at the box office on the night of the performance at face value.

Alternative ways to describe that condition are: a) an excess demand for tickets at face value, b) the number of tickets is being under-supplied relative to fan demand at face value, and c) the face value of the tickets is below the true market value of the tickets based on actual fan demand.  

That helps explain why we don't see "ticket scalping" for movie tickets - the number of movie tickets supplied to the market is adjusted based on consumer demand.  For popular movies, the number of movie tickets available is increased to meet demand, by showing the movie in more theaters, and showing the movie on multiple screens in individual theaters.  The length of time the movie remains in theaters is also increased for popular movies to increase the number of tickets available, and the ticket prices for popular new releases are also increased slightly by not allowing discounts or matinee pricing.       

For music concerts, if the goal is to eliminate ticket scalping, the solutions are easy: a) increase ticket prices to reduce the number of tickets demanded, and/or b) increase the number of tickets available, either by moving the show to a larger venue or by increasing the number of shows in a given location.   In other words, the band and/or promoter can simply increase the number of tickets supplied to meet the number of tickets demanded by the fans, especially if they are unwilling to raise ticket prices.  And since the number of tickets supplied is under direct control of the band and its promoter(s), there should be absolutely no excuse for any band or performer ever complaining about "ticket scalping."  For bands to complain about ticket scalping is really to acknowledge the band's faulty under-estimation of fan demand, and the blame should therefore be directed at the band for under-supplying tickets to its performances, not towards the greed of secondary ticket brokers. 

With that background in mind, consider what happened recently when the band LCD Soundsystem decided to retire and announced it would perform one last show for their fans at Madison Square Garden on April 2.  The band grossly under-estimated fan demand and therefore grossly under-supplied tickets - the show sold out as soon as tickets went on sale - which then created an active secondary market for the "ticket brokers," affectionately known as "ticket scalpers" (in a voluntary transaction for concert tickets, who's getting "scalped"?).  

So what did the band do?  They first got really mad at the ticket brokers (see the rambling, all-lower-case response on the band's website "fuck you, scalpers.") and then called their lawyer about the ticket scalping who told them “it’s legal." According to the band member james who wrote the letter on the band's website, "no joke. it’s fucking legal. i tramped around with friends and band getting insane. i wanted to buy some expensive tickets and then track the seller down to BEAT him. i acted stupid. i did some classic, shakespearean vain “fist shaking”, etc. i made angry tweets."

And then the band "found economic logic" and did what any rational movie theater owner does on a regular basis: The band added four shows at Terminal 5 in NYC from March 28-31, right before their farewell performance at MSG.  So the band will make more money, they will be better able to accommodate the demand of their fans, and in the process they will probably reduce the market for "ticket scalping." But they really still don't understand ECN 101, since the band's response concludes with:

"oh—and a small thing to scalpers: “it’s legal” is what people say when they don’t have ethics. the law is there to set the LIMIT of what is PUNISHABLE (aka where the state needs to intervene) but we are supposed to have ethics, and that should be the primary guiding force in our actions, you fucking fuck.  and to everyone else: thank you. you rule. don’t let the shitbags win."

HT: Armin Ghazi

The Growing Gender MD Pay Gap CAN Be Explained

Here's the abstract of the paper "The $16,819 Pay Gap For Newly Trained Physicians: The Unexplained Trend Of Men Earning More Than Women" in Health Affairs (Feb. 14, 2011): 
"Prior research has suggested that gender differences in physicians’ salaries can be accounted for by the tendency of women to enter primary care fields and work fewer hours. However, in examining starting salaries by gender of physicians leaving residency programs in New York State during 1999–2008, we found a significant gender gap that cannot be explained by specialty choice, practice setting, work hours, or other characteristics. The unexplained trend toward diverging salaries appears to be a recent development that is growing over time. In 2008, male physicians newly trained in New York State made on average $16,819 more than newly trained female physicians, compared to a $3,600 difference in 1999."
What's causing the growing pay gap?  The authors don't think it's driven by increasing gender discrimination and conclude that:
"It would be difficult to believe that discrimination, after a period of quiescence, has actually been on the rise in recent years. Moreover, our results indicate a trend toward diverging salaries not only in the traditionally male-dominated sub-specialty fields, which experienced an influx of women in our sample, but also in primary care fields."
Despite the title of the paper, the authors actually provide some very plausible explanations for the growing pay gap for MDs:
"It is possible that the continued influx of women into medicine has reached a tipping point, and physician practices may now be offering greater flexibility and family-friendly attributes that are more appealing to female practitioners but that come at the price of commensurately lower pay.

Such an explanation not only is consistent with the pattern observed in the data, but it also suggests that the continued integration of women into the physician workforce is reshaping the practice and business of medicine in ways that need to be measured by variables that are more subtle and comprehensive than salary.

If true, it also implies that female physicians respond to non-monetary elements in a given job offer and are willing to accept lower salaries in return for jobs that better reflect their broader employment preferences.

Thus, instead of being penalized because of their gender, female physicians may be seeking out employment arrangements that compensate them in other—non-financial—ways, and more employers may be beginning to offer such arrangements."
MP: In other words, the trend of male MDs earning more than female MDs is pretty easily explained: female (male) physicians put a higher (lower) priority on flexibility in work hours and family-friendly attributes of their employment arrangements, and are willing to accept lower (higher) financial compensation in return for greater (lower) non-monetary compensation.  That is, it's possible that male and female physicians are not true counterparts in the labor market for MDs, and it therefore could be expected that average starting salaries would reflect the significant gender differences in workplace priorities.