Sunday, February 27, 2011

The Media Myth of Japan's "Lost Decades"

The chart above shows annual real GDP per capita for Japan and the U.S. (data here) from 1980 to 2010, where each series has been converted to an index, with a value of 100 for the year 1980.   Compared to 1980, Japan's real GDP per capita in 2010 was nearly 70% higher, vs. a 66% increase for US real GDP per capita over the last 30 years.  Japan had higher economic growth than the U.S. during the 1980s, slightly lower growth during the 1990s, about the same growth during the 2000s, and slightly higher overall growth during the entire  30-year period from 1980 to 2010. 

So what about Japan's "Lost Decades" and economic failure and stagnation that we hear so much about from the media? According to Tokyo-based Eamonn Fingleton writing in The Atlantic:

"After studying the facts on the ground in Tokyo for decades I find it hard to avoid the conclusion that the story of Japan's stagnation is a media myth.

Certainly anyone who visits Japan these days is struck by the obvious affluence even among average citizens. The cars on the roads, for instance, are generally much larger and better equipped than in the 1980s (indeed state of the art navigation devices, for instance, are more or less standard on many models).  Overseas vacation travel has more than doubled since the 1980s. The Japanese boast the world's most advanced cell phones, and the biggest and best high-definition television screens. Japan's already long life expectancy has increased by nearly two years. Its Internet connections are some of the world's fastest -- something like ten times faster on average than American speeds.

At the heart of my analysis is a story of extraordinary progress by Japanese manufacturing. The reason you don't hear much about Japanese manufacturers these days is that the best of them have moved from making consumer goods to concentrate on so-called producers' goods -- items that though invisible to the consumer happen to be critical to the world economy. Such goods include the highly miniaturized components, advanced materials, and super-precise machines that less sophisticated nations such as China need to make final consumer goods. The label on everything from cell phones to laptop computers may say "Made in China" but actually, via producers' goods, highly capital-intensive and knowhow-intensive manufacturers in Japan have quietly done much of the most technologically demanding work.

In the early years after World War II the United States utterly dominated the higher reaches of the producers' goods business. Under pressure from foreign competition, however, American players one by one have closed down or outsourced in the last quarter of a century. The competition has come principally from Japan, which now enjoys broadly as dominant and geopolitically important a position as the United States did in the 1960s."

MP: The writer feels so strongly about the "lost decades" myth that he has issued a challenge to numerous myth proponents to debate him this year on the 20th anniversary of the great Tokyo stock market crash (details here). 

On a Per-Capita Basis, China's GDP = U.S. in 1878

There have been reports lately like this one that predict that the U.S. will be the third largest economy by 2050, after falling behind China's GDP in 2020 and India's by 2050. But of course one of the main reasons for the rise in economic output for China and India will be because their populations are so much larger than the U.S. (China: 1.3 billion and  India: 1.15 billion).  The chart above shows real GDP on a per capita basis for the U.S. from 1800 to 1880 (data from Global Financial Data), and for China from 1969 to 2010.  

Bottom Line: While China's exponential economic growth over the last 40 years is pretty impressive, from wretched, abject poverty and only $128 of per capita real GDP in 1969, to per-capita output of $2,800 in 2010, China's economic output on a per capita basis is still about the same as the U.S. in 1878 ($2,800), 132 years ago. 

Warren Buffett: America's Best Days Lie Ahead










From Warren Buffett's annual letter (2/26/2011):

"Last year – in the face of widespread pessimism about our economy – we demonstrated our enthusiasm for capital investment at Berkshire by spending $6 billion on property and equipment. Of this amount, $5.4 billion – or 90% of the total – was spent in the United States. Certainly our businesses will expand abroad in the future, but an overwhelming part of their future investments will be at home. In 2011, we will set a new record for capital spending – $8 billion – and spend all of the $2 billion increase in the United States.

Money will always flow toward opportunity, and there is an abundance of that in America Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born (see chart above). The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.
 

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead."

How Government-Employee Unions Bankrupted Most States, and Why The Charade is Now Over

Some excerpts from the excellent article "The Political Economy of Government Employee Unions" by economist Thomas DiLorenzo:

"The main reason why so many state and local governments are bankrupt, or on the verge of bankruptcy, is the combination of government-run monopolies and government-employee unions. Government-employee unions have vastly more power than do private-sector unions because the entities they work for are typically monopolies.

The enormous power of government-employee unions effectively transfers the power to tax from voters to the unions. Because government-employee unions can so easily force elected officials to raise taxes to meet their "demands," it is they, not the voters, who control the rate of taxation within a political jurisdiction. They are the beneficiaries of a particular form of taxation without representation (not that taxation with representation is much better). This is why some states have laws prohibiting strikes by government-employee unions. (The unions often strike anyway.)

Politicians are caught in a political bind by government-employee unions: if they cave in to their wage demands and raise taxes to finance them, then they increase the chances of being kicked out of office themselves in the next election. The "solution" to this dilemma has been to offer government-employee unions moderate wage increases but spectacular pension promises. This allows politicians to pander to the unions but defer the costs to the future, long after the panderers are retired from politics.

As taxpayers in California, Wisconsin, Indiana, and many other states are realizing, the future has arrived. The Wall Street Journal reports that state and local governments in the United States currently have $3.5 trillion in unfunded pension liabilities. They must either raise taxes dramatically to fund these liabilities, as some have already done, or drastically cut back or eliminate government-employee pensions.

Every government-employee union is a political machine that lobbies relentlessly for higher taxes, increased government spending, more featherbedding, and more pension promises – while demonizing hesitant taxpayers as uncaring enemies of children, the elderly, and the poor (who are purportedly "served" by the government bureaucrats the unions represent).

This charade is over. American taxpayers finally seem to be aware that they are the servants, not the masters, of government at all levels. Government-employee unions have played a key role in causing bankruptcy in most American states, and their pleas for more bailouts financed by endless tax increases are finally ringing hollow."


Intrade Odds: Academy Award Leaders

From Intrade, at 9:00 a.m. Sunday:  

Best Picture:
The Kings Speech (79.7%)

Best Actor:
Colin Firth (94.1%)

Best Actress:
Natalie Portman (89.9%)

Best Support Actor:
Christian Bale (88.9%)

Supporting Actress:
Mellisa Leo (64.9%)


Best Director:
 

David Fincher, The Social Network (63.5%)

Kings Speech to Win Over 4.5 Academy Awards: (54%)

Las Vegas January Home Sales Highest Since 2007

From DQ News, some interesting facts about January homes sales in Las Vegas:

1. A total of 3,669 new and resale houses and condos sold in the Las Vegas metro area last month – the highest for the month of January since 2007, and almost 10% above January last year.

2. The median price paid last month for resale single-family detached houses – the region’s largest home-type category – was $125,000, down 3.8% from December and down 7.4% from $135,000 a year earlier. Last month’s resale house median stood 60% below its peak of $312,250 in June 2006.

3.  Sales of homes priced below $100,000 rose to 38.6 percent of all transactions last month, up from 36.6 percent in December and 35.1 percent a year ago. Last month’s figure was the highest for sub-$100,000 sales since the housing downturn began.

4. Absentee buyers (mainly investors) purchased 49.2 percent of all Las Vegas–area homes sold in January – the highest level since at least 2000. Last month’s figure was up from 45.9 percent in December and 43.0 percent a year ago. Absentee buyers paid a median $100,000 last month, down from $102,819 in December and $101,000 a year earlier. 

5. Those who used cash to purchase their homes accounted for 54.5 percent of total January sales since at least 1994. Last month’s level of all-cash purchases was up from 50.6 percent in December and 50.4 percent a year ago. The median price paid in these cash deals was $92,250 last month, up a bit from $89,250 in December but down from $96,000 a year earlier.

6. Foreclosure resales – homes that had been foreclosed on in the prior 12 months – dipped slightly to 54.7 percent of the Las Vegas resale market last month. That was down from 56.3 percent in December and down from 62.0 percent a year earlier. Foreclosure resales peaked at 73.7 percent of the resale market in April 2009. 

MP: The market appears to be working: falling home prices eventually start to stimulate sales, by attracting the all-cash bargain hunters who take advantage of "Everyday Low Discount Prices" for homes in Las Vegas, currently available at a 60% discount from the peak prices in 2006.   

Saturday, February 26, 2011

Who Owns Your Tickets: You or Ticketmaster?

Want to see the Phoenix Suns play the New Jersey Nets on Monday night at the Prudential Center in Newark? Worried about getting a ticket at the last minute? Worried about getting a ticket you can afford at the last minute? Well neither are a problem.  

In fact, you can get tickets for less than you'll pay for the gas to drive to the stadium, less than your parking and less than your beer or hot dog - go to StubHub and you can buy tickets starting at $1.98 in the upper corner. 

Want better seats? No problem, you can get 2 courtside tickets for $1,250 each. You can get tickets for $100, $40, $10; and other tickets every price range from $1.98 to $1,250.  Got a large group? No problem, you can 22 seats in the same row for $7 each. 

Worried about buying tickets online through StubHub? Well, don't, they offer a full guarantee

Have season tickets for the Nets, but can't attend the game on Monday night, and want to sell your tickets at the last minute for a competitive price?  No problem, sell it on StubHub.  Or if you don't like StubHub's pricing, selection, service, guarantee or fees, go to a competitor like SeatGeek, which offers tickets to the Nets-Sun game from $3 to $1,378.  Or go to TicketCity or TicketsNow (525 tickets listed between $6 and $310 for Monday's game) or one of the other many competitors in the online ticket marketplace.  

Seems great to have a liquid, safe, competitive, consumer-driven secondary market for tickets, doesn't it?  Sure does if you're a fan who wants to buy or sell tickets to sporting events or concerts, but probably not so great if you're a ticket monopolist like Ticketmaster, which has recently tried to introduce new paperless ticketing.  If successful, that would effectively kill the secondary market for ticket resales on websites like StubHub, and even possibly end ticket re-selling (or gifting) among individuals, including family members.   

You can find out more at the Fan Freedom Project website, which outlines some of the consequences of Ticketmaster's attempts to introduce restrictive paperless ticketing:

1. As a fan buying a restrictive paperless ticket, you cannot give your ticket to a friend if you suddenly cannot attend a game or concert.

2. If your grandmother buys you a restrictive paperless ticket to an event for your birthday, she’d have to meet you and stand in line with you at the venue or pay another service fee to transfer the ticket to you.

3. Season ticket holders for sporting events with restrictive paperless tickets would not be able to sell their extra tickets, nor could they give them to charity, without paying an additional fee.

Friday, February 25, 2011

U.S. Manufacturing: More Output, Fewer Workers


I have featured the graphs above before on CD, and they were the basis for this op-ed in today's WSJ, "The Truth About U.S. Manufacturing" (also available here). 

See Dan Ikenson's related post on the Cato blog, he's done some great work on this topic, here's what he says:

"It can’t be emphasized enough how important it is to present such illuminating, factual, compelling analyses to a public that is starved for the truth and routinely subject to lies, half-baked assertions, and irresponsibly outlandish claims about the state of American manufacturing."

Is It A Mancovery or a Mancession?


What does this woman pictured above have to do with the graph below? Find out here at the Enterprise Blog.



Great Interactive Map of China

Pictured above is map of China from The Economist (interactive version here), showing how the economic output of individual Chinese provinces would compare to the GDP of entire countries.  The interactive version also allows you to compare GDP per capita, population and exports.  

HTs: Robert Kuehl and Colin Grabow

Thursday, February 24, 2011

An Unsustainable Public Worker Gravy Train Bubble


Andrew Biggs (AEI) and Jason Richwine (Heritage) provide evidence in today's WSJ of the "public worker gravy train" in California, where government workers are compensated up to 30% more generously than their private-sector counterparts in large private companies.  Reasons for the huge public-sector premium?  They point to three sources:

1. Public-sector pension programs are more generous than those in the private-sector. 

2. Public-sector medical benefits, both while working and during retirement, are more generous for government workers than comparable workers in the private sector.

3. Government employees have much greater job security than workers in the private sector, equivalent to a 15% compensation premium. 

MP: Taken together, those additional, and very generous non-wage benefits for government workers in California translate into a whopping 30% compensation premium, i.e. "gravy" (paid for by Golden State taxpayers of course), compared to total compensation at private firms (controlling for age, education, experience, etc.).    

The chart above compares jobless rates between private and public sector employees nationally, on an annual basis back to 1976, and shows that private sector workers face an average unemployment rate (6.6%) that is almost twice as high as the average rate for government workers (3.4%).  The fact that government workers are 50% less likely to be unemployed in any given year than private sector employees (because they work in a "recession-proof industry") is part of the reason that Biggs and Richwine find a 15% compensation premium for government workers.  

Commentator Mike Rosen describes the "public worker gravy train" as "unsustainable bubble" in today's Denver Post:

"Several financial and economic bubbles have popped in recent years. Now, the bubble of unsustainable compensation levels for federal, state and local government employees is bursting.

Once upon a time, those who opted for a career in what used to be called "public service" did so understanding they'd trade off lower pay for more job security and less performance pressure than in the private sector. Nowadays, government employees are not only better paid than the private sector average but also enjoy far better health insurance at lower costs along with lavish retirement benefits, the product of rapidly expanding and aggressive public sector unions that have formed an incestuous relationship with the politicians they fund and elect.

The problem is particularly acute at the state and local level, since those governments have to balance spending against current revenues. They can't run deficits like the feds. And in this economy, the spending gaps are way too large to be closed with tax increases without making the economy even worse, resulting in yet lower revenues."

Government and Private Unions Are Not the Same

Private-sector unions have been losing both membership and power, while government, public-sector unions have been gaining political muscle and membership.  In 2009, for the first time in history, there were more members of public-sector unions than private-sector union members, and unionized government workers outnumbered their private-sector counterparts by more than half a million (see chart above).  

Jonah Goldberg makes some excellent points in his LA Times editorial today ("Public Unions Must Go") about some critical differences between public- and private-sector unions:

"Traditional, private sector unions were born out of an often bloody adversarial relationship between labor and management. Mine disasters were frequent; hazardous conditions were the norm. In 1907, the Monongah mine explosion claimed the lives of 362 West Virginia miners. Day-to-day life often resembled serfdom, with management controlling vast swaths of the miners' lives. And before unionization and many New Deal-era reforms, Washington had little power to reform conditions by legislation.

Meanwhile, government unions have no such narrative on their side. Do you recall the Great DMV cave-in of 1959? How about the travails of second-grade teachers recounted in Upton Sinclair's famous schoolhouse sequel to "The Jungle"? No? Don't feel bad, because no such horror stories exist.


Government workers were making good salaries in 1962 when President Kennedy lifted, by executive order, the federal ban on government unions. Civil service regulations and similar laws had guaranteed good working conditions for generations. The argument for public unionization wasn't moral, economic or intellectual. It was rankly political.

Private sector unions fight with management over an equitable distribution of profits. Government unions negotiate with politicians over taxpayer money, putting the public interest at odds with union interests and, as we've seen in states such as California and Wisconsin, exploding the cost of government. The labor-politician negotiations can't be fair when the unions can put so much money into campaign spending.

This is why FDR believed that "the process of collective bargaining, as usually understood, cannot be transplanted into the public service," and why even George Meany, the first head of the AFL-CIO, held that it was "impossible to bargain collectively with the government."

Banking Reform: More Equity, Less Government

From my article at the American.com (with Robert Dell),"More Equity, Less Government: Rethinking Bank Regulation":

History’s two most influential advocates for economic liberty, Adam Smith and Milton Friedman, nevertheless turned away from “free banking” to support some financial regulation and legislative reform in the wake of financial crises. Yet their proposed reforms would have limited government discretionary power and systemic micromanagement. What would they have concluded from the recent crisis and the policy responses embodied in the Dodd-Frank Act, which expands these powers without addressing the policy failures that largely produced the crisis?

Supporters of the Dodd-Frank Wall Street Reform and Consumer Protection Act obviously believe expanded regulatory powers offer the best solution to reform, but they should consider that almost all previous major banking legislation has helped to create conditions that inevitably lead to the next banking crisis. A more market-based solution would be to simply regulate higher mandated equity standards in the range of 15 to 30 percent of total assets. In the tradition of Smith and Friedman, this approach would be a much more effective regulatory approach to curbing risk-taking, reducing systemic risk, and preventing a future banking crisis than 2,000 pages of Dodd-Frank.

Conversation and Perspective with Paul McCracken At 95 Yrs. Old, He Still Keeps Regular Office Hours

From a story and interview with Paul McCracken, from the Michigan Ross School of Business:

"Paul McCracken (pictured above at his 95th birthday party) arrived on the University of Michigan campus in 1948, and in 2011 he still keeps regular office hours. He is the Edmund Ezra Day Distinguished University Professor Emeritus of Business Administration, Economics, and Public Policy, and at age 95, he is one of the school’s most treasured resources." 

Here's an excerpt: 

You were chairman of the Council of Economic Advisors under President Nixon, and you and the president had a disagreement over price controls. Despite some of his own reservations and your recommendation against them, he enacted them. How did that dynamic work? 

McCracken: Well, that kind of thing can happen. I thought price controls were a bad idea for a very simple reason. You couldn't look back into history and point to a success story. At the time, the president and Congress were involved in a battle in the political domain. Political battles are often more important to them than hard, solid data. 

Interesting Fact (not mentioned in the article): Paul McCracken was interim president of The American Enterprise Institute in 1986, and was succeeded by Chris DeMuth. 

Jobless Claims Fall to Lowest Level Since July 2008

NEW YORK (CNNMoney) -- "In another sign that the job market is slowly recovering, the number of Americans filing first-time claims for unemployment benefits fell last week. There were 391,000 initial jobless claims filed in the week ended Feb. 19, according to the Labor Department said Thursday. That was down 22,000 from the week before, and better than the 410,000 claims economists surveyed by Briefing.com had expected. The 4-week moving average fell to 402,000 from 418,500 the previous week."

MP: The four-week moving average of 402,000 jobless claims is the lowest since July 2008, more than two and-a-half years ago (see chart above).  

Truck Tonnage Index Surges 3.8% in January; Trucking Activity Is Back to Pre-Recession Levels


"The American Trucking Associations’ seasonally adjusted For-Hire Truck Tonnage Index increased 3.8 percent in January after rising a revised 2.5 percent in December 2010. The latest jump put the SA index at 117.1 (2000=100) in January, which was the highest level since January 2008 (see chart above).  In December, the SA index equaled 112.7.  Compared with January 2010, SA tonnage climbed 8 percent, which was the largest year-over-year increase since April 2010. For all of 2010, tonnage was up 5.7 percent compared with 2009."

MP: Trucking activity in the U.S. has now returned to the pre-recession levels of late 2007-early 2008.   

Wednesday, February 23, 2011

Gas Prices in Europe, Japan and USA

From The Economist, an interactive chart on gas prices, click tabs to change:
Note: Gas in the Netherlands costs about $8 per gallon, and gas in the U.S. costs about half of the price in the next highest country - Bulgaria.

Now This Sure Seems Like a No-Brainer

"With the Texas state budget in crisis, is there anything beneficial the legislature can do that would not cost anything?  Yes, there sure is. Lawmakers can significantly improve access to health care and save their constituents money, at no cost to taxpayers.

All they have to do is add Texas to the list of 35 other states that allow advanced practice nurses to diagnose and prescribe without the oversight of doctors. The move would open the door to more retail health clinics in the state because clinic operators, such as the Walgreen Co. and CVS Caremark chains, no longer would have to pay a doctor a large fee to oversee each clinic."


Credit Card Delinquencies Fall to 2007 Level

The delinquency rate on credit cards at all commercial banks dropped for the sixth straight quarter to 4.17% during the October-December period last year, which is the lowest level since the second quarter of 2007 according to new data released by the Federal Reserve.  That's quite an improvement in credit card delinquencies over the last six quarters, especially when compared to the all-time high of 6.75% in the second quarter of 2009.  

Just one more sign of economic recovery and evidence that the worst is far behind us. 

As a Share of Income, Clothing and Footwear in U.S. Are More Affordable Today Than Ever Before

Americans spent almost $338.1 billion on clothing and footwear in 2010 (data here), which as a share of disposable personal income (data here), was the lowest ever in U.S. history, at only 2.97%. Spending on clothing as a share of income has fallen in 21 out of the last 23 years, from 4.78% in 1988 to less than 3% in both 2009 and 2010. Compared to 1950 when spending on clothing was 9% of income, spending last year was less than one-third that amount, and compared to spending on clothing of 6% of income in 1970, spending last year was half of that share.

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

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

Two Dozen Bullish Charts: U.S. Economy is Strong

From Scott Grannis, who comments:  

"As we now face another source of concern with the political turmoil in the Middle East and rising oil prices, I thought it might be helpful to review those same charts plus a few others. As should be evident, the fundamentals of the U.S. economy remain strong, and this is good reason to expect that the economy will continue to push ahead in spite of the headwinds it faces."

Chart of the Day: Real Egg Prices, 1890-2011

The cost of wholesale eggs today (adjusted for inflation) is about 50% lower than during the 1970s, about 75% lower than during the 1940s and 1950s.   

Interesting Facts of the Day

1. Prime office space in Rio de Janeiro has overtaken that of New York for the first time as the most expensive in the Americas on the back of Brazil’s growing economy and strong currency. The cost of prime office rentals in downtown Rio shot up by 47% last year to $1,321 per square meter vs. $1,260 in midtown New York.

2. New research from the National Restaurant Association shows that nearly 50 percent of restaurants are now owned by women

3. Maine fishermen caught a record 93.4 million pounds of lobster in 2010 valued at more than $308 million. The Department of Marine Resources said the harvest of Maine's signature seafood broke the previous record of 81.2 million pounds, set in 2009.

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
Ireland7.2
Singapore8.0
United Arab Emirates8.7
United Kingdom8.8
Canada9.1
Switzerland10.2
Australia10.5
Austria11.1
Germany11.4
Sweden11.5
Denmark11.5
Netherlands11.5
Finland11.9
New Zealand12.1
Hong Kong, China12.2
Qatar12.7
Norway12.9
Belgium13.0
Spain13.2
France13.5
Greece14.0
Malaysia14.0
Japan14.2
Italy14.2
Kuwait14.5
Bahrain14.5
Estonia14.6
Slovenia15.0
South Korea15.1
Portugal15.6
Czech Republic15.6
Hungary16.3
Slovakia16.6
Israel17.7
Bulgaria18.2
Uruguay18.5
Ecuador19.0
Latvia19.0
South Africa19.8
Argentina20.3
Poland20.3
Lithuania21.8
Chile23.3
Saudi Arabia23.7
Mexico24.0
Taiwan24.0
Turkey24.4
Brazil24.7
Thailand24.8
Costa Rica25.7
Croatia25.8
Iran25.9
Turkmenistan27.1
Colombia27.6
Russia28.0
Bolivia28.2
Peru29.0
Venezuela29.1
Dominican Republic29.2
Bosnia-Herzegovina31.1
Macedonia31.5
China32.9
Romania34.3
Kazakhstan34.9
Uzbekistan35.1
India35.4
Guatemala35.5
Tunisia35.7
Philippines36.7
Vietnam38.1
Egypt38.1
Cameroon38.4
Nigeria39.9
Morocco40.4
Jordan40.7
Georgia40.7
Ukraine42.1
Indonesia43.0
Belarus43.2
Algeria43.8
Kenya44.9
Pakistan45.5
Azerbaijan46.9
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
TVs-17.81%
Photographic Equipment, Supplies-10.50%
Software-10.34%
Computers-6.86%
Toys-4.65%
Sports Equipment-4.11%
Cell Phone Service-4.03%
Leased Cars-3.86%
Appliances-3.39%
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%
Stationery-1.54%
Nonprescription Medical Supplies-1.43%
Clothing: Women and Girls-0.88%
New Cars-0.78%
Footwear-0.72%

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).