Saturday, March 05, 2011

Tea Party Cleans Up $7.5m Protest Mess in Madison

HT: Paul, who comments "Could the symbolism here be any more obvious that the Tea Partiers are busy cleaning up after the protester slobs in Madison?"

Huge Benefit of the Recession: World's Largest Jailer Rethinks Drug Laws at the State Level

Here's another potentially significant, long-term benefit of the 2007-2009 recession and the "rise of arithmetic as a player in the drama" at the state level as states face huge budget deficits: it's causing states to rethink draconian drug laws, and opt for lower-cost treatment options instead of long, higher-cost jail sentences for the "victimless crime" of drug possession.  Even if the main motivation is to save money, it's still a big step in the right direction of more sensible, humane and sane drug policy (see charts above).  

Here are some excerpts from today's WSJ article "States Rethink Drug Laws":

"A growing number of states are renouncing some of the long prison sentences that have been a hallmark of the war on drugs and instead focusing on treatment, which once-skeptical lawmakers now say is proven to be less expensive and more effective.

Kentucky on Thursday became the latest to make the shift when Gov. Steve Beshear signed into law a measure increasing spending on rehabilitation programs and intensive drug testing. The law also reduces penalties for many drug offenses and may allow some traffickers and users of smaller amounts of drugs to avoid prison.

Delaware, Florida, Indiana, Massachusetts and Pennsylvania are among those that have pending bills to reduce penalties for drug offenders, in some cases by directing defendants into treatment programs. Similar laws have taken effect in South Carolina, Colorado and New York in recent years. States have maintained stiff penalties for more-serious drug crimes. 

Although some states started rethinking drug punishment before the recession, many more states have come on board in the past two years."

Public Unions: The Rise of Arithmetic and How Taxpayers and the Little Guy Are Left Behind

Two excellent points from Peggy Noonan's editorial in today's WSJ:

1. It's All About the Math: "The seemingly small thing is that the battles in the states, while summoning emotions from all sides, are not at their heart emotional. Yes, a lot of people are waving placards, but it's also true that suddenly everyone's talking about numbers; the numbers are being reported in the press and dissected on talk radio.

The very force of the math has the heartening effect of squeezing ideology right out of the story. It doesn't matter if you're a liberal or a conservative, it's all about the numbers, and numbers are sobering things. The rise of arithmetic as a player in the drama is politically promising because when people argue over data and hard facts, and not over ideological loyalties and impulses, progress is more possible. Governors can take their stand, their opponents can take theirs, and if they happen to argue the budget problem doesn't really exist, they'll have to prove it. With numbers.

2. Taxpayers and The Little Guy Aren't Even in the Room: "Unions have been respected in America forever, and public-employee unions have reaped that respect. There are two great reasons for this. One is that unions always stood for the little guy. The other is that Americans like balance. We have management over here and the union over here, they'll talk and find balance, it'll turn out fine. But with the public-employee unions, the balance has been off for decades. And when they lost their balance they fell off their pedestal.

When union leaders negotiate with a politician, they're negotiating with someone they can hire and fire. Public unions have numbers and money, and politicians need both. And politicians fear strikes because the public hates them. When governors negotiate with unions, it's not collective bargaining, it's more like collusion. Someone said last week the taxpayers aren't at the table. The taxpayers aren't even in the room.

As for unions looking out for the little guy, that's not how it's looking right now. Right now the little guy is the public school pupil whose daily rounds take him from a neglectful family to an indifferent teacher who can't be removed. The little guy is the beleaguered administrator whose attempts at improvement are thwarted by unions. The little guy is the private-sector worker who doesn't have a good health-care plan, who barely has a pension, who lacks job security, and who is paying everyone else's bills."

State Dept. Awards Cuban Blogger Yoani Sanchez

HAVANA TIMES -- "Award winning Cuban blogger Yoani Sanchez has been chosen to receive yet another prize this week, this time from the US State Department. The “International Women of Courage” award will go to nine women worldwide and goes to Sanchez “for her work on behalf of freedom of expression in Cuba.”

Secretary of State Hillary Clinton and first lady Michelle Obama will head up the awards ceremony set for Tuesday March 8, on International Women’s Day. Sanchez was invited to attend the ceremony but, as on other occasions when she has won international prizes, the Cuban government keeps her grounded, refusing to grant the required exit visa."

Visit her blog Generacion Y here, where there is a petition for Yoani to be allowed to leave Cuba for Spain, where she is scheduled to receive yet another international prize.   

Gender Differences in Ability vs. Achievement

Here's an interesting explanation for gender differences in ability vs. achievement,  from "The Trouble With Bright Girls" in the Huffington Post:

"Psychologist Carol Dweck (author of "Mindset") conducted a series of studies in the 1980s, looking at how Bright Girls and boys in the fifth grade handled new, difficult and confusing material.

She found that Bright Girls, when given something to learn that was particularly foreign or complex, were quick to give up; the higher the girls' IQ, the more likely they were to throw in the towel. In fact, the straight-A girls showed the most helpless responses. Bright boys, on the other hand, saw the difficult material as a challenge, and found it energizing. They were more likely to redouble their efforts rather than give up.

Why does this happen? What makes smart girls more vulnerable and less confident when they should be the most confident kids in the room? At the 5th grade level, girls routinely outperform boys in every subject, including math and science. So there were no differences between these boys and girls in ability, nor in past history of success. The only difference was how bright boys and girls interpreted difficulty -- what it meant to them when material seemed hard to learn. Bright Girls were much quicker to doubt their ability, to lose confidence and to become less effective learners as a result.

Researchers have uncovered the reason for this difference in how difficulty is interpreted, and it is simply this: More often than not, Bright Girls believe that their abilities are innate and unchangeable, while bright boys believe that they can develop ability through effort and practice."

HT: Norman Berger

$1 Coin Would Save $5.5 Billion, Let's Do It

According to this new government (GAO) study:

"Replacing the $1 note with a $1 coin could save the government approximately $5.5 billion over 30 years. This would amount to an average yearly discounted net benefit—that is, the present value of future net benefits—of about $184 million. However, GAO’s analysis, which assumes a 4-year transition period beginning in 2011, indicates that the benefit would vary over the 30 years.  The government would incur a net loss in the first 4 years and then realize a net benefit in the remaining years. The early net loss is due in part to the up-front costs to the U.S. Mint of increasing its coin production during the transition.

GAO has noted in past reports that efforts to increase the circulation and public acceptance of the $1 coin have not succeeded, in part, because the $1 note has remained in circulation. Other countries that have replaced a low-denomination note with a coin, such as Canada and the United Kingdom, stopped producing the note. Officials from both countries told GAO that this step was essential to the success of their transition and that, with no alternative to the note, public resistance dissipated within a few years."

MP: It seems obvious that the key to a successful transition to a $1 coin is the elimination of the $1 note, to overcome the "tyranny of the status quo." 

HT: Paul Kedrosky

Friday, March 04, 2011

"White House Council on Boys and Men"?

From the foreword of the report "WOMEN IN AMERICA: Indicators of Social and Economic Well-Being" released this week by the White House:

"The White House Council on Women and Girls was created by President Obama in early 2009 to enhance, support and coordinate the efforts of existing programs for women and girls. The Council’s mission is to provide a coordinated Federal response to the challenges confronted by women and girls and to ensure that all Cabinet and Cabinet-level agencies consider how their policies and programs impact women and families. 

The Council also serves as a resource for each agency and the White House so that there is a comprehensive approach to the Federal government’s policy on women and girls. In support of the Council on Women and Girls, the Office of Management and Budget and the Economics and Statistics Administration within the Department of Commerce worked together to create this report, which for the first time pulls together information from across the Federal statistical agencies to compile baseline information on how women are faring in the United States today and how these trends have changed over time."

From the Table of Contents, here are some chapter titles:

1. Women’s gains in educational attainment have significantly outpaced those of men over the last 40 years.

2. Female students score higher than males on reading assessments and lower than males on mathematics assessments.

3. Higher percentages of women than men age 25–34 have earned a college degree.

4. More women than men have received a graduate education. 

5. Women earn the majority of conferred degrees overall but earn fewer degrees than men in science and technology.

6. Higher percentages of women than men participate in adult education. 

7. Unemployment rates for women have risen less than for men in recent recessions.

8. Women have longer life expectancy than men, but the gap is decreasing.  

Question: Shouldn't there also be a "White House Council on Boys and Men" for the obvious challenges confronted by boys and men in terms of falling behind in educational attainment most obviously, and also for bearing a disproportionate share of job losses during the "mancession," and experiencing higher unemployment rates?  

Fundamental Shift: Transparent Hospital Pricing

"As out-of-pocket costs for health care increase, some of the most significant changes in decades are coming to hospitals to meet the demand for price information. Three Michigan hospital systems -- Ford, Dearborn's Oakwood Healthcare and Spectrum Health in Grand Rapids -- post average prices for common tests and procedures, from X-rays to back surgery. Ford and Oakwood have expanded financial counseling programs and give their best discounts to uninsured customers, as do a growing number of other hospitals.

In some of the most significant changes in decades, hospital systems are beginning to post their prices publicly and offer a range of help, including big discounts to uninsured and underinsured people with limited household incomes.

"It's a fundamental shift" in how health care prices are set and publicized, said Stephen Hathaway, chief revenue officer for the Detroit-based Henry Ford Health System.

The changes come as Michigan's uninsured population has grown to 1.35 million, an increase of 200,000 between 2007 and 2009, the latest year of information available from the state health department.

Interest in health care prices also comes from a growing number of people with high-deductible health insurance plans -- including 23,000 salaried General Motors workers who, starting in January 2010, were transferred into a Blue Cross Blue Shield of Michigan plan with a $3,000 annual deductible that families have to pay first before their insurance covers most costs. GM also gave employees $1,000 to create a health savings account, plus an additional $500 credit for those who quit smoking or make other lifestyle changes -- money that workers can put towards their deductible or use for another health purchase. The number of Michigan employers offering such high-deductible plans or health savings accounts rose from 16% to 23% from 2008 to 2010." 

MP: The chart above is from the Henry Ford Hospital website for its "Pricing Information," showing a 40% discount for being uninsured, and I assume paying in cash.  The Ford hospital website also has a section for "Canadian Patient Information."

HTs: Steve Bartin and Ben Cunningham

Today's Employment Report

From today's BLS employment report:

1. Payroll employment increased for the fifth straight month, as the U.S. economy added 192,000 payroll jobs in February, bringing the total increase to 671,000 jobs added since last October.   Total employment according to the household survey (including self-employed and agriculture workers) increased by 250,000 jobs in February, following increases of 117,000 in January and 297,000 jobs in December. 

2. The jobless rate fell to 8.9% in February, the lowest monthly rate since March 2009, and the third consecutive monthly decline.  The last time the U.S. jobless rate decreased three straight months was in late 2003.  

3. Employment in temporary help services continued to grow by 15,500 jobs in February, which is the 15th increase during the last 18 months.  Since the cyclical low of 1.724 million jobs in September 2009, there has been an increase of almost half-a-million jobs in the temporary sector to 2.218 million jobs in February.  That level of temporary and contract employment jobs is the highest since September of 2008, 28 months ago (see chart above).

4. Overtime hours for the manufacturing sector, at an average of 4.2 hours per week, reached a 3-1/2 year high in February, the highest level of manufacturing overtime hours since June 2007 (see chart above). 

5. Manufacturing employment increased by 15,500 jobs in February, which brings the total number of new manufacturing jobs over the last year to 189,000, the largest 12-month increase in factory jobs since 1998.  Compared to the peak manufacturing jobless rate of 13% in January 2010, the February rate was down by more than three percent to 9.9%.   

Taken together, these employment trends suggest that many U.S. companies are meeting the increasing demand for their products and services by: a) continuing to rely on temporary and contract employees, and b) using existing employees more intensely with increased overtime hours in the manufacturing sector, but c) starting to hire more permanent workers as well.  Further, the manufacturing sector of the U.S. economy continues to register some of the strongest signs of economic recovery, but we're starting to see positive signs of gradual, but ongoing improvements in the labor market overall (ongoing decreases in jobless claim, rising employment levels and a falling jobless rate).  

Photo of the Day

The photo above was featured in today's The Gartman Letter, and is also featured here.

Thursday, March 03, 2011

The Public Sector Premium for School Teachers

Full-time Elementary and Secondary School Teachers, by Experience and Education, Total School-Year and Summer Income

Average Salaries: 2007-2008
ExperiencePrivatePublicPublic Premium
 1 year or less$32,120$42,21031.41%
 2 to 4 years$34,220$43,49027.09%
 5 to 9 years$38,110$49,12028.89%
 10 to 14 years$41,310$54,15031.08%
 15 to 19 years$42,740$58,26036.31%
 20 to 24 years$43,880$61,21039.49%
 25 to 29 years$42,910$63,86048.82%
 30 or more years$50,560$65,47029.49%
Highest Degree Earned
 Less than bachelor's degree$26,670$53,880102.02%
 Bachelor's degree$36,880$47,06027.60%
 Master's degree$45,340$58,46028.94%
 Education specialist3 $50,880$62,41022.66%
 Doctor's degree$57,490$65,56014.04%

The chart above is based on Department of Education data available here for the 2007-2008 school year comparing average salaries for public and private school teachers at the elementary and secondary level.  Here are some interesting (shocking?) comparisons:

1. Overall, public school teachers make a 34.11% premium compared to their private school counterparts.

2. Controlling for experience, public school teachers make a premium that generally increases with the number of years teaching, reaching a maximum premium of 49% for public school teachers with 25-29 years of experience.

3. Public school teachers with one year of experience make about the same ($42,210) as private school teachers with 25-29 years of experience ($42,910). 

4. Comparing teachers with equal education, public school teachers earn large premiums over their private school counterparts, especially for public school teachers with less than a bachelor's degree, who earn more than twice the amount on average ($53,880) as private school teachers with the same level of education ($26,670).

Are Public School Teachers Overpaid? Only By 34%

The data in the chart above are featured in this video:

Recession's Over, Economy's in Recovery: It's Time for Some Gloom and Doom from Time Magazine

One thing you can always count on at (or towards) the end of a recession? An "end of the world," the "sky is falling," "it's never been this bad," "gloom and doom" article in Time Magazine, here are 4 examples:  

1. "The Recession: Gloomy Holidays--and Worse Ahead" (December 1974):  "Some consumers are so alarmed that they are muttering about a return of the Great Depression of the 1930s.  Are even harder times coming? Probably. The recession still has some way to go, and though economists fore see an upturn some tune by next year, it is difficult to pick its timing and predict how far down the economy will go before it turns back up. Indeed, the course of the recession so far is something of a lesson in the hazards of economic forecasting: its length and virulence have surprised almost everyone."

"Recession: Why We're So Gloomy" (January 1992):  "'Whining' hardly captures the extent of the gloom Americans feel about the current downturn. The slump is the longest, if not the deepest, since the Great Depression. Traumatized by layoffs that have cost millions of jobs during the slump, U.S. consumers have fallen into their deepest funk in years.

"Never in my adult life have I heard more deep-seated feelings of concern," says Howard Allen, retired chairman of Southern California Edison. "Many, many business leaders share this lack of confidence and recognize that we are in real economic trouble."

Says University of Michigan economist Paul McCracken: "This is more than just a recession in the conventional sense. What has happened has put the fear of God into people."

3. "
The Long Haul: the U.S. Economy" (September 1992) "If America's economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years. That may explain why so many polls reveal such ragged emotional edges, so much fear and misgiving. Even the economists do not have a name for the present condition, though one has described it as "suspended animation" and "never-never land."

4. "Are America's Best Days Behind Us?" (March 2011):  "It is now possible to produce more goods and services with fewer and fewer people, to shift work almost anywhere in the world and to do all this at warp speed. That is the world the U.S. now faces. Yet the country seems unready for the kind of radical adaptation it needs. The changes we are currently debating amount to rearranging the deck chairs on the Titanic."

New CPA Outlook Index: Highest Level Since 2007

Here's a brand new economic indicator - The CPA Outlook Index - just introduced jointly by the American Institute of CPAs (AICPA) and the UNC Business School and featured in today's WSJ.  From the report:

"This quarter the AICPA/UNC Kenan-Flagler Economic Outlook Survey introduces a new index – the CPA Outlook Index (CPAOI). The CPAOI is a broad-based composite index that captures the expectations that our members (CEOs, CFOs, Controllers, and other CPA executives) have about the prospects for their own organizations, their expectations for revenues and profits, and their plans for spending and employment.  It is a composite of nine survey measures at equal weights (see CPAOI inset for description).

The CPA Outlook Index (CPAOI) increased by .07 this quarter to reach .69, its highest level since the 3rd quarter of 2007. A quarter of that improvement (26%) is attributable to the increase in optimism about the US economy which had lagged the improvement in organizational optimism which had occurred during 2010. Also contributing notably to this quarter’s improvement were expectations for revenue and for training and development spending." 

MP: One more piece of the mounting and  overwhelming evidence that this recovery "has legs," to quote finance blogger extraordinaire Scott Grannis. 

ISM Business Activity Index Surges To 7-Year High

The ISM Non-Manufacturing Business Activity Index increased to 66.9 in February, the highest level in seven years (see chart above).  Some of the categories in the index that are listed as "growing" for direction and "faster" for rate of change are: production, employment, backlog orders, and new export orders.  Prices are "increasing" at a "faster" rate.

There were 13 industries reporting business activity growth in February: Real Estate, Rental & Leasing; Accommodation & Food Services; Utilities; Educational Services; Professional, Scientific & Technical Services; Public Administration; Mining; Finance & Insurance; Wholesale Trade; Transportation & Warehousing; Management of Companies & Support Services; Other Services; and Information. The four industries reporting business activity declining in February are: Construction; Health Care & Social Assistance; Arts, Entertainment & Recreation; and Retail Trade.

Jobless Claims Fall to 2-1/2 Year Low

CNBC -- "New U.S. claims for unemployment benefits unexpectedly fell last week to touch their lowest level in more than 2-1/2 years, while nonfarm productivity rose as expected in the fourth quarter. The four-week moving average of unemployment claims—a better measure of underlying trends—dropped 12,750 to 388,500 last week, the lowest since July 2008 (see chart above).

Claims have now held below the 400,000 threshold for a second straight week. Claims below that level are widely viewed as signaling strong jobs growth and economists believe it is only a matter of time before this is reflected in the payrolls numbers."

MP: The chart below shows jobless claims over a longer period, back to 2000.  With the four-week average dropping consistently since the end of the recession, and now falling below 400,000 for the first time since mid-2008, jobless claims are now at a level consistent with the economic recovery period of 2002-2004.  The labor market is gradually stabilizing, and we can look for ongoing jobs gains this year and a gradual decrease in the jobless rate.  

Wednesday, March 02, 2011

Stifling Entrepreneurship in The Middle East

Here's an excellent economic and  political analysis of the situation in the Middle East, by James Surowiecki writing in the The New Yorker:

"Healthy economies need a thriving and independent private sector, where resources are allocated by markets and competition, and where small and medium-sized businesses can flourish. But in most of the Middle East the state and big business are so tightly intertwined as to be indistinguishable, and competition has been discouraged in favor of central planning and private monopolies. It’s hard for entrepreneurs to start and run a business. Minimum capital requirements tend to be high, so you can’t get started without lots of cash, and getting business licenses and registering property are frequently arduous. Political favoritism is rampant, and byzantine regulations are difficult for outsiders to navigate. It’s instructive that the young man whose self-immolation helped set off the protests in Tunisia had had his fruit cart confiscated for violating some government rule.

The stifling of entrepreneurship shrinks opportunity for the young. The state’s intrusive presence forces much economic activity off the books—in Egypt, eighty-five per cent of small businesses are in the “informal” sector—and this reduces growth, since informal businesses have a hard time getting credit or expanding beyond a certain size. Thus the region’s economies are growing more slowly than they should, and the benefits of economic growth tend to be concentrated in the hands of those lucky enough to work for, or own, companies favored by the state.

Since weak economies eventually give rise to discontent, one might have thought that self-interest would impel autocrats to embrace reform. But, while clinging to the status quo can be dangerous for autocrats, real reform comes with its own risks. After all, in a system of state-controlled capitalism without a large, independent private sector, huge numbers of citizens are dependent on the state for their livelihood in one way or another. In the Arab world, an estimated thirty per cent of the workforce is employed by the state. Strict regulations enable the government to protect its friends in the private sector from competition, and bureaucrats line their own pockets, becoming further indebted to the system. The reliance in most of these countries on food and fuel subsidies likewise increases people’s dependence on the state. The big risk of reforming the system is that it weakens the state’s economic hold over its citizens."

HT: Stuart Anderson

U.S. Is Inundated With Natural Gas, Record Output in 2010, Residential Prices Fall to 7 Year Low

According to data just released by the EIA, natural gas production in the U.S. reached an annual record high of 26.85 trillion cubic feet in 2010.  That output was an increase of 3.22% above the previous record high last year, which pushed U.S. production in 2009 above Russia's, and made the U.S. the #1 producer of natural gas in the world.  

On a monthly basis, natural gas production in December surged to 2.386 trillion cubic feet, which was almost 9% above the year-ago level, and set a new all-time record for the most gas ever produced in a single month (see chart below):

The record high level of production in 2o1o and record monthly output in December helped drive the average residential gas price for the month of December down to $9.86 per 1,000 cubic feet, the lowest monthly average since February 2004, almost 7 years ago (data here), see graph below:   

"The U.S. is inundated in natural gas, and the glut may not ease any time soon. Domestic production last year hit its highest level in almost 40 years, and 2011 will likely see another year of strong production. That means another year of subdued electricity prices and pressure on drillers' bottom lines as well as a powerful incentive for companies and other consumers to switch to the heating fuel.

With no way to export large quantities of gas and a drilling boom fueled by easy availability of credit and widespread international interest in U.S. gas assets, the glut is seen continuing through 2011.

"Rising production will once again overwhelm demand, leading to yet another year of low prices," Credit Suisse analyst Stefan Revielle said in a research note.

In its latest outlook, the EIA saw U.S. production increasing by 0.8% this year, while deliveries to consumers are expected to rise by 0.3%. For consumers, that means cheaper electricity prices and inexpensive gas for heating and cooking in homes and businesses."

MP: At the same time that oil and gasoline prices in the U.S. are surging due to political unrest in the Middle East, prices for residential natural gas in the U.S. are falling to 7-year lows. Maybe one of the lessons here is that by opening up our domestic energy reserves to drilling for natural gas and oil, we get the multiple benefits of: a) reduced dependence on foreign oil, b) less exposure to what will likely be ongoing turmoil in the oil-rich Middle East, and c) lower energy prices.  

Traffic Volume Increases in Dec. for Seventh Month

The Federal Highway Administration reported today that travel on all roads and streets in the U.S. for the month of December was estimated at 243.4 billion vehicle miles, which is 0.6% above the same month last year, and almost 2.6% higher than the traffic volume in December 2008.  What makes those December traffic increases especially noteworthy is that the price of gas in December last year averaged $2.99 per gallon, which was almost 15% above the December 2009 price of $2.61, and 77% above the December 2008 price of $1.69 (data here). Consumers and commercial drivers appear to be able to absorb the higher gas prices and still continue to increase driving as the economic recovery strengthens.  In fact, traffic volume in December 2010 set a new record for monthly vehicle-miles of travel in that month.

The December traffic increase from its year ago level was the seventh consecutive monthly increase starting in June 2010, and the eighth increase in the last nine months starting in March 2010.

On a moving 12-month total basis (to smooth out the monthly seasonal variations), the annual vehicle-distance traveled through December 2010 was 3,000 billion miles, the highest 12-month total since July 2008, almost two and-a-half years ago (see chart above).

Following a sharp decline in U.S. traffic volume (moving 12-month basis) that started in late 2007 and ended at a cyclical low in May 2009, traffic volume has been gradually increasing as both personal and commercial travel on U.S. roads and highways have rebounded (see graph above and truck tonnage post here).  The ongoing improvements in traffic volume since the summer of 2009, which is taking place despite rising gas prices, indicate that the economic recovery is real, sustainable and gaining momentum.

Total Online Ads Slip, New Ads Reach 2.5 Yr. High

From The Conference Board: "Online advertised vacancies dipped by 27,400 in February to 4,245,600 according to The Help Wanted OnLine (HWOL) Data Series released today. Labor demand has risen 1.41 million since the series’ low point in April 2009. This increase offsets approximately 80 percent of the 1.76 million drop in ad volume during the 2-year downturn period from April 2007 through April 2009."

“Total labor demand (new ads and ads that are reposted from the previous month) paused in February, but the number of new, first-time advertised vacancies continued to rise and is an indication that employers are continuing to look for workers,” said June Shelp, Vice President at The Conference Board. “Nationally, new ads were up 86,100 in February, and that is a positive sign in contrast to the last few years when advertised vacancies either dropped or remained unchanged from January to February.” 

MP: Despite the drop in total online job ads, the 4.24 million advertised job openings is above the pre-recession levels in late 2007.  And the number of new ads in February, 2.62 million, is the highest level since July 2008. 

Tuesday, March 01, 2011

If Free Trade = Technological Progress, Then Restrictions on Trade = Restrictions on Technology

From Greg Mankiw's textbook:

"Trade is, in some ways, a form of technology. When a country exports wheat and imports textiles, it is as if it had invented a form of technology for turning wheat into textiles. A country that eliminates trade restrictions will, therefore, experience the same kind of economic growth that would occur after a major technological advance."

With that understanding that free trade = technological progress, here's some editing of Ian Fletcher's latest anti-trade tirade, which Don Boudreaux responds to here:

"It is sometimes argued that although free trade technological progress has some victims, its benefits exceed its costs, so it is possible for its winners to compensate its losers out of their gains, everyone thereby coming out ahead in the end.

This is, in fact, the usual fallback position of mainstream economists once they admit that free trade technological progress has drawbacks.

It is sometimes even mischievously argued that if such compensation doesn't happen, any problems are due to society's failure to arrange it, and are therefore not the fault of free trade technological progress per se.

Hmm... Sounds like a perfect excuse.

Now in theory, they might be right, but it also means that a bureaucratic deus ex machina is required to make free trade technological progress work as even its supporters admit that it should.  So free trade technological progress turns out to be laissez faire on life support from big government.

In any case, such compensation rarely occurs, because free trade's technological progress winners don't have to pay off its losers.

It is often impossible to identify who has lost a job due to free trade technological progress as changing technology and consumer tastes also cost jobs (and legitimately so).

The time is past for free-trade technology band-aids. We need to stop treating the defects of free trade technological progress as mere imperfections to a fundamentally sound policy and realize that free trade technological progress itself is the problem, and should be ended with public policy that freezes technology at its current level."

Intrade Predicted 11 out 12 Oscars in 2010-11

For the last two years, I've reported the Intrade odds for the leading contracts to win the top six Academy Awards (2010 and 2011), as of the day of the awards, and here is a summary of the odds and results:

Best Picture:
2009: Hurt Locker (53%) YES
2010: The Kings Speech (79.7%) YES

Best Actor:
2009: Jeff Bridges (92%) YES
2010: Colin Firth (94.1%) YES

Best Actress:
2009: Sandra Bullock (68%) YES
2010: Natalie Portman (89.9%) YES

Best Support Actor:
2009: Christoph Waltz (93.5%) YES
2010: Christian Bale (88.9%) YES

Supporting Actress:
2009: Mo'Nique (86%) YES
2010: Mellisa Leo (64.9%) YES

Best Director:
2009: Kathryn Bigelow, The Hurt Locker (85%) YES
2010: David Fincher, The Social Network (63.5%) NO

Bottom Line:  In 11 out of 12 cases, the Intrade contracts correctly predicted the Oscar winners. 

27% Increase in Feb. Car Sales, Highest Since 1988

Led by huge year-over-year sales gains from GM (+46.4%) and Toyota (+41.8%), U.S. auto sales increased in February by 27.3% compared to the same month last year, which is the highest annual gain in 23 years for auto sales, since a 29.7% increase in January 1988 9see bottom chart).  Except for the artificial increase in August 2009 due to "cash for clunkers," the 13.44 million units sold last month (at a seasonally adjusted annual rate) was the best month for car sales since August 2008, two and-a-half years ago (see top chart).  

Truck sales were also strong in February, with a 49% market share and a 31.7% increase over the year-ago level.  This is especially noteworthy because according to AutoNation Chairman and CEO Mike Jackson: "Pickup trucks are bought by small business entrepreneurs who have their finger on the pulse of the U.S. economy. It's an expression of confidence in the future of the economy. They don't buy until they see the prospects for business are brighter. This is small business America saying that the worst is over, I see opportunities in the future, I feel confident enough to go out and buy a new truck."

More evidence that the economic recovery is real, "has legs" (see Scott Grannis), and is being led by the manufacturing sector (see ISM report today), the "shining star" of the U.S. recovery.

M2 Growth Below 4% + Velocity at 25-Year Lows + 4% Real GDP Growth This Year = No Inflation

Here's an updated chart of annual M2 growth, with data through the second week of February.  For the week ending on February 11, annual M2 growth was only 3.9%, more than two percentage points below the 6.05% average since 2000.  If that kind of M2 growth continues this year, and if we have 4% growth in real output this year, there's very little chance of inflationary pressure building in the U.S. economy.  Moreover, M2 velocity as of the last quarter of 2010 was close to a 25-year low (data here), so it just doesn't appear that we have any of the right ingredients for rising inflation. 

MIT's BPP Shows Low, Stable Inflation over Last Yr.

According to the Billion Prices Project at MIT, annual U.S. inflation a year ago was running at 2.33% and annual inflation as of yesterday was 2.79%.  The range over the last year has been between 2.20% in November and 2.84% last August.  Based on this record of low and stable inflation over the last year, shouldn't Bernanke's monetary policy get a pretty high letter grade?  A?

Note: Here are some key facts for the BPP: The project started in 2007, and statistics are updated every day based on 5 million individual items in 70 countries; prices are based on apparel, supermarkets, electronics, furniture, real estate, and more.

Feb. ISM Manufacturing Index: Highest Since 1983

From today's "Manufacturing ISM Report On Business":
"Manufacturing continued its rapid growth in February as the PMI registered 61.4 percent, an increase of 0.6 percentage point when compared to January's reading of 60.8 percent. This is also the highest PMI reading since May 2004 when the index also registered 61.4 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting."

MP: Some of the categories in the index that listed as both "growing" (for direction) and "faster" (for rate of change) are: new orders, production, employment, exports, manufacturing sector and overall U.S. economy.   And prices! 

The February index of 61.4 matched the May 2004 reading, and before that you have to go all the way back to December 1983 to find a higher PMI index. Manufacturing continues to be the "shining star" of the U.S. economic recovery.

Updates: a) Link to the report is fixed, and b) Scott Grannis predicts real GDP growth of 4% or higher for Q1 and Q2 based on today's strong ISM report.   

The VW Bus: It's Back!

Old model:
New model:

Marketplace: "The 81st Gevena International Motor Show kicks off this week, and motorheads are already buzzing about big news from Volkswagen. The New York Times Wheels blog is reporting that VW will introduce the Volkswagen Bulli concept car today (bottom picture above). The Bulli concept derives its name from the original 1950 Microbus of the same name, and was first seen by car enthusiasts in 2001. For various reasons, production of the new Bulli was put on hold, but now VW fans everywhere have reason to celebrate. Volkswagen says the new concept is more compact, affordable, and is equipped with more sustainable technologies."

Monday, February 28, 2011

The U.S. Doesn't Make Anything Any More? We Make Some Pretty Cool High-Tech Glass Products

This video is a great example of a high-tech, U.S. manufacturing company, competing globally in the 21st Century from Midland, Michigan: glass-maker Dow Corning, with production facilities in Michigan (6), Alabama, Indiana, Kentucky, Ohio, North Carolina and Tennessee. 

HT: Mike Carlson

Japan's GDP Growth Since 1990 is About the Same As Europe, But Lost Decades Only Apply for Japan?

Here's an updated chart to follow up on this post about the "Media Myth of Japan's Lost Decades." The chart above starts in 1990, instead of 1980 like in the previous post, and shows real GDP per capita for the U.S., Germany, Japan and Italy, with each country's GDP per capita converted to an index equal to a starting value of 100 in 1990.  We can see that Japan's real output per person grew slightly less per year (average of 0.91%) than Germany's (1.12%), and slightly more than Italy's (0.76%), and each of those country's real GDP per capita grew less than the U.S. at 1.41% per year.  And yet even with economic growth in Germany and Italy and many other European countries that is comparable to Japan's growth, we never hear about the "lost decades" in Germany or Italy or the U.K.  

Real Consumer Spending in January Was Above the Pre-Recession 2007 Level for 4th Straight Month

In today's BEA report on Personal Income, there was some pretty good news on real personal consumption expenditures: On an annual basis, real consumption spending increased by 2.8 percent in January, which was the largest annual improvement in four years, since January 2007 (see bottom chart above).  Measured in constant 2005 dollars, real consumer spending dipped slightly by -0.1 percent in January from the all-time record high in December, but consumer expenditures last month of $9.44 trillion was the second highest month on record.  January was the fourth consecutive month that real consumer spending was above the December 2007  level of $9.35 trillion.  

Update: Real disposable income also had an impressive 2.7% increase in January from its year ago level, the largest annual gain since March 2007 almost four years ago (except for the tax-rebate spikes in May and June of 2008).  The personal savings rate increased in January to 5.8% from 5.4% in December, the highest monthly savings rate since last summer.  Taken together, this is a "hat trick" of good economic news: real disposable income and real consumer spending are both close to record-high levels, and personal savings at 5.8% is almost a full percent above the 4.9% average over the last 25 years.    

The Vicious Cycle of Government Unions

A good summary of the vicious cycle of government unions, from Katherine Kersten writing in yesterday's StarTribune:

"Here's the vicious cycle: Union leaders take money from union dues and pass it to Democratic candidates. Once elected, the politicians "negotiate" with the unions that helped elect them. In essence, the unions hire their own bosses who face them across the bargaining table.

Politicians repay unions' financial support by doling out hefty pensions and benefits. It's easy to be generous when you're spending taxpayers' money, not your own.  Elected officials aren't accountable to a board of directors or shareholders, and they don't have to worry about going bankrupt, as private companies do.

Government is a monopoly, or near monopoly, so it has no concerns about competitiveness or efficiency to keep it honest. To keep unions happy, politicians need only kick the can down the road.  Today, public unions are among the Democratic Party's largest donors, and form the core of its on-the-ground campaign machine.

But the gig is up.

Increasingly, taxpayers understand that the structural deficits this arrangement generates will bankrupt us. Already, taxpayer-subsidized pensions and benefits are edging out other spending priorities -- from schools to parks and highways."

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.