Tuesday, April 05, 2011

NY Fed Model: 1-in-232 Chance of 2012 Double-Dip

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" yesterday with treasury yield data through March 2011, and the Fed's recession probability forecast through March 2012. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (3.41% in March) and 3-month Treasury bills (0.10%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here).

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 37-42% (see chart above), and has been declining since then in almost every month.  For March 2011, the recession probability is only 0.26% and for March of next year the recession probability is slightly higher at 0.43%. According to the NY Fed Treasury Spread model, the chances of a double-dip recession through March of next year is less than one-in-200.

Paul Ryan's Plan for a Debt-Free Nation

Paul Ryan (R-Wisconsin) presented his "Path to Prosperity" budget plan today at AEI, here's the full text of his talk, here's his WSJ editorial today, here's the link to the video, and here's the full 73-page plan

Americans for Tax Reform prepared the chart above to compare Ryan's budget to the Simpson-Bowles (Obama) commission (and the Coburn-Chambliss “Gang of Six” which is introducing legislation modeled after Simpson-Bowles).

In his talk today, Paul Ryan quoted a famous American president:

"The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of sound policy. It is in violation of the traditions of America."

And Rep. Ryan concluded his talk by saying:

"This budget offers America a model of government that is guided by the timeless principles of the American Idea. This budget provides policymakers with a blueprint to put our budget on the path to balance and our economy on the path to prosperity. This budget assures America's seniors-those who are currently retired and future retirees-that their health and retirement security will be preserved and strengthened.

This budget provides parents with hope that their children can inherit a strong, free and prosperous America. It is a plan to give our children a debt-free nation so they too can realize the American Dream."

Two Americas: Public vs. Private Employees

1. "If you want to understand better why so many states—from New York to Wisconsin to California—are teetering on the brink of bankruptcy, consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government (see chart above).

2. NY Times -- "Carlos Bejarano, a Phoenix school superintendent with more than 30 years in education is one of an increasing number of public employees here who are retiring one day and going right back to the same jobs the next, enabling them to supplement their income with retirement benefits without really retiring at all."

It's called public sector "double dipping," "faux retirement" or "non-retirement retirement." 

3. Boston Globe -- "Health insurance plans to cover city and town employees in Massachusetts cost 37 percent more than similar plans for workers at private companies, mostly because municipal employees pay minimal copayments or deductibles when they get care, according to a new statewide survey.

The report, which focused on 14 municipalities, found that city and town workers typically pay only $11 to see their primary care physician, half the amount typically paid by workers in the state, federal, and private sectors."  (HT: Steve Bartin)

$11 for an office visits, that's "almost free," so it's no wonder medical costs are so high for city workers, they probably go to the doctor every time they have a mild cold. 

Monday, April 04, 2011

Employment Trends Index Increases for 6th Month

The Conference Board Employment Trends Index (ETI) increased in March for the sixth month in a row. The March index rose to 100.9, up from 100.3 in February.  Compared to March last year, the ETI has increased by 8%.

Says Gad Levanon, Associate Director, Macroeconomic Research at The Conference Board: “The Employment Trends Index started signaling acceleration in employment growth late last year, which we are now experiencing. In the last six months, employment excluding construction and state and local government has been growing faster than almost any other 6-month period in the past decade. We do not expect a turnaround in those sectors, which are still lagging, nor do we forecast acceleration in overall economic growth in the next several quarters. As a result, employment growth is likely to continue growing at its current rate and not improve further for the rest of 2011.”

Cartel Nation: Barriers to Entry Stunt Job Growth

"Consider this fact: In the 1950s, only 1 in 20 American workers needed the government's permission to work; today, that figure is nearly 1 in 3. So much for the Land of Opportunity."

MIT's BPP Monthly Inflation Rate Has Been Falling

I'm not sure what's going on here, or if this means anything, but the monthly inflation measure from the MIT Billion Prices Project has been falling steadily since mid-February, see chart above.  From the recent peak of 0.82% on February 18, the monthly BPP inflation rate has fallen almost in half, to 0.48% as of April 3, 2011. 

Jobs, Jobs, Jobs, Jobs

1. Walmart plans to create 10,000 jobs in Chicago by 2015.

2. McDonald's plans to hire 50,000 people this year (thanks to Steve Bartin).

Random Monday Links

1. Gloom and doom from Robert Reich: "The Truth About the Economy that Nobody In Washington Or On Wall Street Will Admit: We’re Heading Back Toward a Double Dip."

2. Senators Bacus and Kerry argue in the WSJ that Congress should pass the U.S.-Colombia Free Trade Agreement (FTA). Colombian products have nearly complete access to U.S. markets, while U.S. farmers face an average tariff of 30% in Colombia, and manufacturers face a 14% rate. The Colombia FTA will eliminate tariffs for U.S. exports.  Seems like a no-brainer.

3. The Mackinac Center reports that Michigan’s recent economic revival of late can be traced in part to two little-known sources – China and Saudi Arabia. Michigan’s international exports increased 36.3% from 2009 to 2010, the third-largest increase in the nation. 

4. Daniel Yergen writes in the WSJ on the promise of shale gas: "Estimates of the entire natural-gas resource base, taking shale gas into account, are now as high as 2,500 trillion cubic feet, with a further 500 trillion cubic feet in Canada. That amounts to a more than 100-year supply of natural gas."  

5. Oregon cops hope classical music deters loiterers, vagrants, vandals and ne'er-do-wells who loiter near a busy transit stop.

6. Cuban blogger Yoani Sanchez meets Jimmy Carter in Havana. 

7. Market-driven concierge medicine is expanding significantly, but its spread could worsen the shortage of primary care doctors when Obamacare brings in more than 30 million newly insured patients.  (Thanks to Steve Bartin.)

Sunday, April 03, 2011

Another Name for "Trade Deficit" is "Capital Account Surplus," Balance of Payments Always = 0

Here's another look at the balance of payments data back to 1980 (BEA data here), demonstrating graphically Don Boudreaux's statement that "another name for “U.S. trade deficit” is the “U.S. capital-account surplus” – that is, inflows of investment funds into America that supply (directly or indirectly) financing for more capital creation in America."

As a direct consequence of our current account deficits, the U.S. economy has been the beneficiary of more than $8 trillion worth of capital inflows from foreigners since 1980.  Because the Balance of Payment accounts are based on double-entry bookkeeping, the annual current account and capital account have to net to zero, so that any current account (trade) deficit (surplus) is offset one-to-one by a capital account surplus (deficit) and the balance of payments therefore always nets out to (equals) zero. And that's why it's called the "balance" of payments, because once we account for trade flows and capital flows, everything balances, and there are no deficits or surpluses on a net basis.  

For more details see this CD post from last October.     

A Fraudulent "Ph.D" in California With Politically Correct Results Keeps His Job, While A Real UCLA Ph.D. Scientist Gets Fired For Dissenting

UCLA Professor Enstrom goes up against California's "environmental regulation machine" and gets fired. 

The California Air Resources Board (CARB) claims that diesel particulates, a type of pollution emitted from buses and trucks, contributes to 2,000 premature deaths in California each year.

Hien T. Tran was the lead scientist who wrote the report upon which the heavy duty truck and bus regulations are based. He bought a $1,000 mail order Ph.D. from Thornhill "University" located at 255 Madison, New York.  Using his fake Ph.D., the unqualified liar applied for and got the position as Manager of the Health and Ecosystem Assessment Section claiming he has a Ph.D. in statistics from UC-Davis.  Some of the board members, the chair of the California Air Resources Board, Mary Nichols knew of the fraud before voting on the controversial regulation. The board members who knew, kept the information from other board members for nearly a year after the vote.  The Governor also had the information and failed to take action.

Reason.tv -- UCLA epidemiologist Dr. James Enstrom says the number of premature deaths should be closer to zero. In 2005 Enstrom authored an extensive study that found no relationship between diesel particulates and premature deaths. He says his study, as well as other evidence that agrees with it, have been ignored by an agency bent on passing ever more stringent regulations regardless of their effect on California's economy.

Enstrom blew the whistle on CARB for, among other things, failing to publicize that the lead author of the study that was used to justify the new regulations falsified his education history (he purchased his PhD from an online diploma mill). But UCLA didn't come to Enstrom's defense. In fact, officials informed him that, after 34 years at the university, he was out of a job.

"The environmental regulation machine in California is powerful," says Adam Kissel of the Foundation for Individual Rights in Education, which is defending Enstrom in the fight to keep his job. "When Dr. Enstrom went up against that machine he was retaliated against." A hearing that begins on April 4 will determine whether Dr. Enstrom keeps his job, and the final decision rests with UCLA Chancellor Gene Block.

Says Kissel, "If Dr. Enstrom loses his job because he exercised his academic freedom, then it's a message to other researchers that you'd better not rock the boat because you might be next."

And what happened to the fraudulent "Doctor" Tran? He got a 60-day suspension and a demotion, but still works as an air pollution specialist for the state of California despite his record of fraudulent misrepresentation of his academic credentials.

Bottom Line: In California, it's more important that your scientific results are politically correct than scientifically accurate, and as long as your results are politically correct, it doesn't matter if you've fraudulently misrepresented your credentials.  

Quotes from Yesterday's Wall Street Journal

1. "What a remarkable human achievement it is to have nearly seven billion people on the planet and more of them overweight than malnourished."  ~Matt Ridley

2. "But maybe there's a darker side to bike-lane advocacy. Political activists of a certain ideological stripe want citizens to have a child-like dependence on government. And it's impossible to feel like a grown-up when you're on a bicycle if you aren't in the Tour de France."  ~P.J. O'Rourke

3. "The great hypocrisy of politicians who oppose school choice is that most claim allegiance to a party and philosophy that so often claims the moral high ground as defenders of the disadvantaged. Yet they callously oppose an opportunity to provide a better educational choice for children because they have a large constituency in unions. If education policy is about providing our children with the best opportunities possible, we ought to be enacting school choice everywhere we can." ~Dick Armey

Why Wearing a Baseball Cap Backwards is Dumb

Thanks to Ron H. 

Update: One more.......

Markets In Everything: Princess Boot Camp

"With Britain's royal wedding around the corner, wannabe princesses gathered Saturday at a posh London hotel for a crash course on how to curtsy, what to say to the queen and how keep pesky crumbs off their lips when eating finger sandwiches. The April 29 wedding of Prince William and Kate Middleton has fueled a bonanza of opportunities for niche entrepreneurs.

Ms. Jerramy Fine, 33, the American founder of Princess Prep, says that "It gives girls the ability to know that they can be in any situation - whether it's with the queen, their parents, their teacher, a friend – and know that they're behaving the right way. And I think that's important, royalty or no royalty." 

Saturday's one-day course will be followed by a series of weeklong summer camps in London for 8- to 11-year-old girls. Costing more than $4,000, the camps teach girls about modern and historic princesses, royal history, phone etiquette, how to take compliments and how to curtsy. The girls also volunteer at charities - all while being waited on by a butler called 'Jeeves.' Fines says she expects to draw more Americans for the longer summer camps, which are in their first year."

Don Boudreaux: Don't Fear the Trade Deficit

"To lament an American trade deficit, is to lament the fact that foreigners are investing in America. And that seems very odd."

Snarky Fashion Rant: Guys Wearing Shorts in Winter

Is it just my imagination or has the following "somewhat retarded" fashion trend been gaining popularity in recent years: Guys are now wearing shorts all year-round, even in the middle of winter, and sometimes even when it's snowing and really cold (see example above)?  This last winter especially, I observed many dozens of guys wearing shorts outside in Minnesota, Michigan and Washington, D.C. even when the temperatures have been in the 20s, 30s or 40s.

Maybe this is something like the retarded fashion practice of wearing a baseball cap backwards, where the thinking must be something like this: "It doesn't make any logical or rational sense to wear a baseball cap backwards (or wear shorts in the middle of winter), and in fact it's somewhat retarded.  But maybe it's so goofy and retarded, that if enough people start doing it, it will somehow be perceived as being cool and fashionable, instead of being nonsensical and stupid."   

Help me out here, has anybody else noticed this? 

Saturday, April 02, 2011

Our Trade Deficit = $3.5 Trillion FDI in the U.S. Economy and 6 Million Jobs for Foreign Firms

In his latest example of economic illiteracy/lunacy and anti-trade nitwitery, Ian Fletcher claims that: "Our trade deficit helps Guangdong, Seoul, Yokohama, even Munich – but not Gary, Indiana, Fontana, California, and the other badlands of America’s industrial decline."

Don Boudreaux injects a dose of economic sanity into the debate by reminding Fletcher that "Such a claim reveals its author to be unaware that another name for “U.S. trade deficit” is “U.S. capital-account surplus” – that is, inflows of investment funds into America that supply (directly or indirectly) financing for more capital creation in America."

The chart above shows just how significant those foreign capital inflows into the U.S. economy really are, using BEA data on "direct investment" by foreigners.  Foreigners are also buying government Treasury securities and other private U.S. securities (stocks, bonds, bank CDs, etc.), but the chart above is showing just the capital inflows into American companies in industries including manufacturing (auto plants from investments by Toyota, Honda, BMW, the carbon steel processing plant Thyssen Krupp in Alabama that Jetbeagle mentions in the comments, etc.), retail trade (IKEA), publishing, telecommunications, finance and insurance, real estate, engineering, mining, utilities, computer systems, construction, hotels, health care, transportation, etc. (see BEA website here for more information).       

Bottom Line: As a direct consequence of our trade deficit, foreigners have invested almost $3.5 trillion directly into the U.S. economy since 1960 in American companies, with about half of that investment occurring in the last decade.  Those trillions of dollars of investments in U.S. companies HAVE generated HUGE benefits for the American economy, and are responsible for millions of U.S. jobs for Americans working at Toyota, Honda, BMW, IKEA, etc.  In 2008 (latest year available), foreigners owned almost $12 trillion of total corporate assets in the U.S., and those foreign-owned companies generated almost $3.5 trillion in sales, spent almost $200 billion on property, plant and equipment and employed 5.593 million Americans (data here). 

Feb. Phoenix Homes Sales Highest Since 2007

DQ NEWS -- "A record-high portion of investor and all-cash purchases lifted Phoenix-area February home sales to a four-year high for that month. The median sale price dropped year-over-year for the eighth consecutive month as sales of existing homes priced below $100,000 remained strong and sales of newly built homes, which are typically more expensive, held at a record-low." 

A total of 7,248 new and resale houses and condos closed escrow last month in the combined Maricopa-Pinal counties metropolitan area. That was up 5.5 percent from the month before and up 6.2 percent from a year earlier. Last month’s sales were the highest for a February since 8,940 sold in February 2007."

Government Mandates Do NOT Create Jobs

Steve Moore tells a story about Milton Friedman traveling to Asia in the 1960s and visiting a worksite where a new canal was being built. Friedman was shocked to see that instead of modern tractors and earth-mover equipment the workers instead were using small shovels. Milton asked a government bureaucrat why there were so few machines, and the bureaucrat replied: 'You don't understand. This is a jobs program.' To which Milton Friedman replied: 'Oh, I thought you were trying to build a canal. If it's jobs you want, then you should give these workers spoons, not shovels.'" 

A more recent version of the same story is happening in Michigan, as the state ends its outdated 1976 law that requires Michigan retailers to put individual paper price tags on every item. Michigan AFL-CIO President Mark Gaffney claims that the change in the law on September 1 this year will eliminate 200 to 300 Michigan jobs.

Jarrett Skorup of the Midland, MI-based Mackinac Center counters with a job-creating proposal:

"If it is true that government mandates can create employment and wealth, then I have a proposal. Instead of the current law, which requires businesses to have one paper tag per item, the state should mandate 10 tags per item. In fact, maybe we should up that to 100 tags per item. After all, think of how many more jobs will be created by forcing businesses to hire more and more workers to comply."

Check Out the Live Eagle Nest Cam

Check out the eagle nest n Decorah, Iowa, 80 feet above the ground, 5-6 feet across, weighing 1.5 tons. One chick hatched today, 2 more to go....

HT: J. Howe

Friday, April 01, 2011

Occupational Licensing/Permitting Gone Wild

SF Chronicle -- "Novella Carpenter (pictured above) took over a vacant lot on a hardscrabble corner of West Oakland eight years ago and turned it into a working farm of vegetables, goats, rabbits and, sometimes, pigs.  Carpenter milked goats, made cheese and ate much of the produce. She also wrote a popular book, "Farm City," about the experience and became an icon of the Bay Area's urban farming movement.

But the future of her Ghost Town Farm is in question. This week, Oakland officials suggested it may need to close. The reason: She sells excess produce for about $2,500 per year and needs a costly permit of several thousand dollars to do so." 

MP: Hey, here's an idea: Couldn't Novella apply for farm subsidies?

HT: Roman P. 

Female Gains Dominate Today's Jobs Report

Here are a couple of interesting items in today's Employment Report:

1. From the household survey, there was an increase of 291,000 jobs in March, because of an increase in female employment of 305,000 jobs last month, which was offset slightly by a decrease of 14,000 household jobs for men. 

2. The March jobless rate for men remained the same as February at 9.3%, while the unemployment rate for women fell from 8.5% to 8.3%.  

Therefore, all of the employment gains in March were female jobs, and all of the overall reduction in the March jobless rate from 8.9% to 8.8% was because of job gains for women.  Looking through the report, I didn't find any obvious sources of the job gains for women, e.g. there was a gain of 45,000 jobs for the education and health care sector, where about 70% of the jobs are held by women. But that doesn't come close to explaining 305,000 job increase for women, so I'm somewhat puzzled.....

U.S. Traffic Deaths Lowest Since 1949

WASHINGTON -- "Americans spend more time behind the wheel of their cars than they ever have, but deaths from traffic accidents fell last year to levels not seen in more than 60 years, according to new information released Friday by the National Highway Traffic Safety Administration (NHTSA).

The NHTSA estimated that 32,788 people died in accidents in the US, down by three percent from 2009 and hitting the lowest level since 1949 (see top chart). The agency estimated that Americans drove three trillion miles in 2010, up by more than 21 billion from 2009. Yet, the death rate per 100 million miles traveled dropped to 1.09 in 2010, down 25 percent from 2005 (see bottom chart)."

Housing Affordabilty Reaches New Record High

Housing affordability reached another new record-high in February at 192.3, rising slightly from 192.2 in January, according to data released today by the National Association of Realtors.  A household with the median family income of $61,566 has 192.3% of the qualifying income needed to purchase the median priced single family home of $157,000, assuming a 20% down payment and a 30-year mortgage at 4.91%.  In the Midwest region of the U.S., the housing affordability index reached 243.8 in February, meaning the typical household has almost 2.5 times the income necessary to qualify for the median-priced home of $121,700.   

15-Mo. Job Growth Returns to Pre-Recession Level

Today's BLS employment report shows that 1.904 million jobs (civilian employment, household data here) were created over the last 15 months through March since the cyclical low of 137.96 million jobs in December 2009 (now at 139.864 million total employment), see chart above.  That's the greatest number of total jobs created over a 15-month period since November 2007, the month before the recession officially started, and implies that job growth has returned to its pre-recession levels. 

Sen. Lugar Wants to End America's Sugar Cartel: "It's A Job-killing, Market-Distorting Monstrosity"

The chart above shows that U.S. sugar prices have averaged twice the world price (28.1 cents per pound vs. 14.4 cents) since 1980 (data here), because of tariffs and quotas that restrict the amount of foreign sugar allowed to enter the U.S. and thereby protect domestic beet sugar producers against more efficient foreign producers of sugar cane.  I've estimated before that our sugar policy cost U.S. consumers of sugar $2.5 billion in 2009 and $4.5 billion in 2010.  

Senator Richard Lugar (R-Indiana) has introduced the "Free Sugar Act of 2011," which would "free Americans from government control of sugar prices," and "create a free market in sugar, free small businesses and consumers from paying government-inflated food prices, and free sugar producers from the commands of Washington."

Here's a recent op-ed by Sen. Lugar in the Washington Time titled "Sweet Deal for Big Sugar," where he writes:

"Our sugar policy imposes a hidden tax of billions of dollars annually on consumers and businesses and has destroyed thousands of U.S. manufacturing jobs. It substitutes the federal government for the private sector in basic decisions about buying and selling, supply and price.

This sweet deal for sugar producers is a sour one for consumers. Food and candy manufacturers are prominent victims, but also hurt are hundreds of thousands of small businesses, including bakeries, confectioners and restaurants. It makes no sense to place extra costs on small businesses, the main engines of job growth."

HT: Matt Bixler

Thursday, March 31, 2011

Replacing What Works With What Sounds Good

"Much of the social history of the Western world over the past three decades has involved replacing what worked with what sounded good. In area after area - crime, education, housing, race relations - the situation has gotten worse after the bright new theories were put into operation. The amazing thing is that this history of failure and disaster has neither discouraged the social engineers nor discredited them."

~Thomas Sowell 

Exhibit A: From personal experience over the last two years in Washington, D.C. I have found that taxis in the city are cheap and ubiquitous, you can often get a cab within seconds, the drivers are usually friendly and helpful, and the fares are frequently run less than $10.  From a consumers' standpoint, I don't know of any other city in America where taxis are cheaper and more available.    

And yet it now looks like the D.C. City Council wants to engage in the practice that Sowell describes by replacing what is working with something that sounds good - restricting the supply of taxis by selling taxi medallions.  

Read about it here in yesterday's Washington Times.

3rd Annual Kauffman Economics Bloggers Forum

I'm in Kansas City attending the Third Annual Kauffman Foundation Economics Bloggers Forum, which will be available by webcast live tomorrow from 8:30 a.m. to 11 a.m. and 1 p.m. to 4:30 p.m. (Central Time).  Here's the schedule and list of speakers.

It's OK to Print. Trees Are Renewable, Recyclable

This is from an article in today's WSJ titled "Save a Forest: Print Your Emails":

"Notice: It's OK to print this email. Paper is a biodegradable, renewable, sustainable product made from trees. Growing and harvesting trees provides jobs for millions of Americans. Working forests are good for the environment and provide clean air and water, wildlife habitat and carbon storage. Thanks to improved forest management, we have more trees in America today than we had 100 years ago."

MP: What a great quote, I'm putting that at the bottom of all of my emails from now on. 

A Solid February Restaurant Performance Report

National Restaurant Association -- "Driven by improving same-store sales and customer traffic levels as well as growing optimism among restaurant operators, the outlook for the restaurant industry improved in February. The National Restaurant Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.7 in February, up 0.4 percent from its January level (see chart above). In addition, February represented the fifth time in the last six months that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

In addition, restaurant operators’ outlook for capital spending hit a 40-month high, while their expectations for staffing growth rose to the highest level in nearly four years.

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 101.9 in February – up from January’s level of 101.8. In addition, the Expectations Index stood above the 100 level for the 7th consecutive month, which signifies expansion in the forward-looking indicators."

MP: This marks the first time since the fall of 2007 that the overall RPI and the Expectations Index have both been above the benchmark level of 100 for three consecutive months.  

Monster Employment Index Increases by 9% in March: 14th Straight Month of Annual Growth

The U.S. Monster Employment Index was released today, here are some highlights:

1. The March index rose to 136 in March, up from 129 in February and up by 9% compared to the year-ago level of 125.  

2. The annual increase in March was the 14th consecutive year-over-year increase in the Monster Index starting in February last year (see chart above).  

3. All 28 metro markets covered by the Monster Index recorded positive annual growth in March, with Detroit (+51%), Philadelphia (+40%) and Chicago (+29%) registering the largest gains. 

4. 14 of the 20 industries covered by the Monster Index increased on an annual basis, as did 17 of the 23 occupational categories.

5. Monster spokesman and VP Jesse Harriott said "The March Index reinforces a consensus from other leading indicators that the labor market is continuing to grow at a measured pace.
“We continue to see the impact of an increased demand for specialized IT talent as well as sustainable recruitment levels for all related healthcare occupations. We are now seeing hopeful signs in the wholesale trade and manufacturing sectors which are historically considered foundations of an improving economy.”

Milton Friedman on Steel, Tariffs, and Trade

HT: Ron H.

Wednesday, March 30, 2011

The Public Sector Premium for School Principals

Principals in private and public elementary and secondary schools.
Average Salaries, 2007-2008
AgePublicPrivatePublic Premium
  Under 40$80,600$47,30070.40%
  40 to 44$84,900$54,80054.93%
  45 to 49 $86,000$55,00056.36%
  50 to 54$88,100$59,50048.07%
  55 or over $91,500$63,70043.64%
Average $86,900$58,30049.06%

In a recent CD post, I featured the public sector premium for full-time elementary and secondary school teachers, which ranges from 14% to 102%, depending on experience and education.  The chart above is based on Department of Education data for the salaries of private and public school principals in 2007-2008 based on age.  Compared to public school principals in the age groups above, private school principals have slightly more experience as principals, slightly less experience as teachers, and are less likely to have advanced degrees (Master's or Doctor's degrees).  So the age group categories above don't control perfectly for education and experience, but still show huge premiums for public school principals of 43% or higher, with an overall average premium of 49%.

Here's one comparison:

Private school principals in the oldest age group "55 or over" have 18.6 years teaching experience on average, 15.4 years experience as principal, and 9.4% have Doctor's degrees.  Public school principals in the youngest age group of "under 40" have 2.9 years experience as principal on average, 7.6 years teaching experience, and 6% have Doctor's degrees.  

And yet the public school principals in the youngest age group with the least experience make $80,600 on average, compared to the private school principals in the oldest age group with the most experience who make $63,700 on average, which represents a 26.5% public sector premium.

Online Labor Demand Now Above December 2007 Levels; First Quarter Layoffs Fall to 16-Year Low

The Conference Board reported today that online advertised vacancies rose in March to 4,454,500, which is the highest number of job openings since May 2007, almost four years ago.  The March increase of 208,800 online jobs advertised follows a 437,600 increase in January, and brings the total increase in online job openings in the first quarter of 2011 to 619,000. 

The 2,725,900 new online job vacancies in March is the highest level since April 2007 for that series, and marks the first time since the recession started in December 2007 that both total ads and new ads are above their pre-recession levels.  

In some other positive labor market news today, Challenger, Gray and Christmas reported today that U.S. employers have announced 130,749 job cuts in the first quarter of 2011, which is 28% fewer than the same period of 2010, and the lowest first quarter total for job layoffs since 1995. 

If these two positive reports are good indications of  improving labor market conditions, we can expect a fairly positive BLS employment report this Friday. 

Feb. Home Sales in Las Vegas Highest Since 2006!

DQ News -- "Las Vegas region February home sales rose to a five-year high, boosted by unusually high levels of cash and investor purchases. The record portion of cash deals represented more than half of all transactions for the third consecutive month, while the percentage of homes bought with a mortgage dropped to the lowest point for any month in at least 17 years. 

Last month 3,879 new and resale houses and condos closed escrow in the Las Vegas-Paradise metro area (Clark County) – the highest sales tally for any February since 2006, when 6,065 sold. Last month’s sales were up 4.9 percent from both January and from February 2010." 

MP: Isn't this evidence that markets are working?  At some point, home prices fall far enough to start bringing buyers back into the market, and sales increase. 

Canada Home Prices: Headed for Steep Correction?

Home price indexes for January were released this week for the U.S. (Case-Shiller) and Canada (Teranet), see chart above.  Both home price indexes for both countries equal 100 in January 2000 in the graph.  U.S.  home prices more than doubled between 2000 and 2006 and peaked at 206.52 in July 2006 when the real estate bubble burst and home prices plunged by 32.4% before hitting bottom in April 2009 at an index level of 139.26.  Canadian home prices have more than doubled between 2000 and 2010, and peaked at 204.59 in August 2010, before flattening out over the last six months.  

There has been some speculation that the Canadian real estate market is headed for a major correction, here's an excerpt from yesterday's WSJ article "Housing Booms North of the Border": 

"As much of the U.S. housing market limps along, home prices north of the border are on a fresh tear, fired up in part by a borrowing binge that has sent Canadians' debt to record levels—and now higher than their notoriously profligate U.S. neighbors—while income growth pokes along. All that has raised worry at the country's central bank, which repeatedly has warned about rising debt levels, and among some economists, who say the market is ripe for a correction—maybe a steep one.

David Madani, Canada economist at Capital Economics, an independent research consultancy based in London, says Canadian housing prices could be in for a 25% drop in the next three years, a correction he says is warranted by the now-inflated ratio of house prices to income. House prices have risen to almost 5.5 times disposable income per worker, well above the long-term historical average of 3.5, he says."

Teachers in CA Receive More in Retirement Than Active Teachers in More Than Half of U.S. States

According to the California State Teachers’ Retirement System 2010 Summary Report to Members, the average retired California public school teacher receives an annual pension of $51,072 (see chart above).  According to Department of Education data, that's more in retirement pay than the average current salary for active elementary and secondary public school teachers in 28 states, and almost as much as the national average for active public school teachers of $55,350.  

If you take out the top three highest states for public school salaries (New York at $71,470, California at $70,458 and Massachusetts at $68,000), the average retired California teacher receives an annual pension that is the same as the average salary for teachers in 47 states.  And compared to teachers in the lowest paid state of South Dakota (average salary of $35,136), California teachers make 45% more in retirement than South Dakota teachers earn on average while teaching. 

Thanks to Steve Bartin for the links to Intercepts.

When It Comes to Selling His Own Book, Ian Fletcher Must Believe Free Trade DOES Work

Nobody in recent months has expressed more public opposition to free trade than Ian Fletcher, see "Ten Problems With Free Trade"  and "The Social Snobbery of Free Trade" for some examples of his anti-free trade vitriol.  In the last link, he accuses President Obama of being a "free trader," and that accusation alone should give you a good idea how much an "anti free-trader" Fletcher really is.   

Given his stated opposition to free trade, I was surprised to receive the email invitation below from Ian Fletcher inviting me to engage in free trade and incur a household trade deficit by buying his book "Free Trade Doesn't Work."  

The 2011 edition of my book Free Trade Doesn’t Work is now available! Thiis edition has updated statistics, political analysis revised to include the events of 2010, and a few minor sharpenings of its economics.

The book is on Amazon, but you can get it at a 60 percent discount if you go to this page and enter discount code UU2N84E6. If you want to help without buying anything, please go to the book’s Amazon page and give it a favorable review, as the reviews from the original edition do not automatically carry over.

Best Regards,
Ian Fletcher
Senior Economist
Coalition for a Prosperous America
225 Bush St., 16th Fl.
San Francisco, CA 94104 USA
Well, now I'm really confused.  How could a guy who believes free trade doesn't work be asking me to engage in free trade and "import" his book from California into my household, and subject my household to a trade deficit with him? After all, the inevitable conclusion of the philosophy that free trade doesn't work is total self-sufficiency at the household level.  In a letter to Ian Fletcher in January Don Boudreaux pointed this out by reminding Fletcher that his anti-trade position would mean that "The path to riches is for each household to write and print its own books!" .... and NOT purchase or "import" Fletcher's book. 

And Fletcher is not just engaging in free trade by trying to sell his books, isn't he also engaging in the predatory, cutthroat and unfair trade practice of "dumping" his books on the American market by offering a 60% discount?

Tuesday, March 29, 2011

New Mpls. Federal Reserve Bank Study Shows Significant Earnings Mobility Between 2001-2007

The chart above (click to enlarge) is based on data from the Panel Study of Income Dynamics that follows the same households over time, and was reported in a recent study by economists at the Minneapolis Federal Reserve Bank titled "Facts on the Distributions of Earnings, Income, and Wealth in the United States: 2007 Update."

The results in the chart above on earnings mobility are from Tables 28 and 29 in the Minneapolis Fed study and answer the question: For U.S. households that were in a given earnings quintile (20 percent group) in 2001, what percentage of those households moved to a different quintile by 2007?  Here are some conclusions about the earnings mobility for those U.S. households that had positive earnings in both years:

1. For American households that were in the lowest earnings quintile (bottom 20 percent) in 2001, only 56% of those households remained in that quintile in 2007, and 44 percent had moved to a higher quintile by 2007. Five percent of low-income households in 2001 had moved to one of the top two quintiles in just six years.

2. For those households that were in the highest earnings quintile (top 20 percent) in 2001, 34 percent had moved to a lower quintile by 2007, and 5 percent of those households had moved all the way to the bottom quintile.

3. For those households in the middle earnings quintile (middle 20 percent) in 2001, about one-third moved to a higher quintile by 2007, more than one-fourth moved to a lower quintile, and only 42 percent remained in the same quintile.

4. More than half of the households in the second, third, and fourth quintiles in 2001 moved to a different earnings quintiles by 2007 (see bottom row in chart).

For the full post and conclusions, see my post today at the Enterprise Blog.  

State and Local Tax Revenues Set Record in QIV

In another sign that the U.S. economy has made a full recovery from the 2007-2009 recession, state and local tax collections reached a new record high in the fourth quarter 2010 of $378.3 billion, according to data released today by the Census Bureau.  Compared to the fourth quarter of 2009, state tax collections were up overall by 1.64%, helped by increases of more than 10% for individual income taxes, 14.3% for corporate income taxes, and 2.3% for sales taxes.  Property tax collections fell by almost 3% over the year, most likely due to falling home values.  

The rising tax revenues at the state and local levels to all-time record highs might suggest that the many states with budget deficits have a spending problem, not a revenue problem.  

Update: Inflation-adjusted version of the chart below:

Monday, March 28, 2011

U.S. Manufacturing Profits Soar to Record High

Both after-tax profits and after-tax profit margins (profits/sales) for U.S. manufacturing corporations soared to record-high levels in the fourth quarter of 2010, according to data released today by the U.S. Census Bureau.  Profits for U.S. manufacturing firms reached $135.3 billion in QIV last year, the highest amount of profits ever recorded in a single quarter for America's manufacturers, and surpassing the previous record of $127 billion in QII 2007 before the recession started (see top chart above).  The after-tax profit margin for U.S. manufacturers also reached an all-time time of 9.1%, at least for the data the Census Bureau has available going back to 1999 (see bottom chart above). 

The surge of manufacturing profits in 2010 to record high levels provides additional evidence that the U.S. manufacturing sector is expanding, profitable, thriving and healthy, and is leading the U.S. economic recovery.      

Feb. Real Consumer Expenditures at Record-High

Real consumption expenditures reached a record-high of $9.459 trillion (seasonally adjusted, annual rate in 2005 dollars) in February, according to today's BEA report on Personal Income and Outlays.  Consumer spending is now 1.1% above the pre-recession level of $9.355 in December 2007, and almost 4% above the cyclical low of $9.114 trillion in April 2009 (see chart above).     

Record High for Europe's Leading Economic Index

The Conference Board Leading Economic Index (LEI) for the Euro Area increased 0.9 percent to an historical high of 108.9 in February (2004 = 100), following a 0.7 percent increase in January and an 0.8 percent increase in December.  The February increase in the Euro Area LEI was the fifth straight monthly gain, and starting with a sharp upturn in April 2009, the LEI has increased in 21 out of the last 23 months (see chart above). 

Said Jean-Claude Manini, The Conference Board Senior Economist for Europe: “The fourth consecutive large increase in the LEI for the Euro Area suggests that European businesses will likely benefit from the current upswing in the expansion. However, despite the rapid improvement in the leading indicators, present economic conditions are relatively weak. Retailers and consumers are likely to remain cautious as higher inflation and expected budget cuts are likely to weigh on growth during the second half of the year.”

Sunday, March 27, 2011

Administrative Bloat in Michigan Public Universities

From a front page story in today's Detroit Free Press, "Amid Tougher Times, Spending on Payroll Soars at Michigan Universities":

"Michigan universities increased their spending on administrative positions by nearly 30% on average in the last five years, even as university leaders say they've slashed expenses to keep college affordable for families. The number of administrative jobs grew 19% over that period at the state's public universities, according to data submitted by the schools to the state budget office. 

The increases took place from the 2005-06 school year through 2009-10 -- a period in which both student enrollment and state funding of universities remained about the same, state data show. The higher administrative costs were slightly exceeded by tuition hikes over this period."

From a related earlier story in the Flint Journal:

"The University of Michigan-Flint’s administrative ranks has grown the fastest among the 15 public universities in the state, according to figures from the Michigan Higher Education Institutional Data Inventory released earlier this year. The data showed that the percentage growth in full time administrative and professional staff positions swelled 74 percent between 2005 and 2009, although the percent of administrative positions on campus remains average compared to other universities.

As the number of deans, associate deans and program directors grew at the Flint campus over the last five years, so have administrative paychecks. Six-figure salaries more than doubled on campus since 2006, according to the newest faculty and staff salary information recently released by UM. Nearly 50 of the roughly 1,000 employees made $100,000 or more at UM-Flint, compared to about 20 four years earlier."

More Milton Friedman.... Poverty and Equality

"You can only aim for equality by giving some people the right to take things from others. And what ultimately happens when you aim for equality is that A and B decide what C should do for D. Except that they take a little bit of commission off on the way."

First comment on the YouTube site for this video:

"Whenever Milton Friedman speaks, God smiles."

"Healthcare Marketization" Could End the Crisis

Some key paragraphs from the editorial "Private enterprise fix could save healthcare":

"Does America have a “grocery system”? An “automobile system?” A “tourism system”? The nation does, of course, have a “healthcare system” and the fact that the medical-services sector can’t be described as a market… well, it’s the prime cause of the “healthcare crisis.” 

Consumers make choices about employment, food, housing, clothing, transportation, investment, and leisure peddled by an uncountable — and ever-changing — number of vendors. Price, convenience, and quality vary. Transparency is standard. Accountability is enforced, at times rapidly and ruthlessly, by both sellers and buyers. Yet satisfying the nation’s healthcare needs involves an appalling supply of waste, waiting, bureaucracy, and buck-passing. 

Consumer-driven medical services, if fused with health savings accounts that insure against catastrophic conditions, would revolutionize the way physicians and hospitals — gulp — “do business.” Savings would be substantial. The “crisis” would quickly end."

Witch City: Who Should Determine the Number of Psychics? Gov't. Regulation v. Market Competition

Here's a good case study of occupational licensing, with economic lessons in barriers to entry, contestable markets, and government regulation vs. market competition:

In 2007, the city of Salem, Massachusetts lifted its cap on the number of psychics allowed to operate in the city and now some local psychics believe the 'Witch City' is getting overrun with too many competitiors.  The views of two area psychics represent the two opposing approaches to the situation: a) more government regulation to limit the number of psychics, vs. market competition determining the number of psychics in Salem.

1. Barbara Szafranski, long-time psychic license holder and owner of shop "Angelica of the Angels," argues for greater government regulation:

"It negatively affected my business by 75%. I lost business because many stores opened up that were not in this field. They just opened up because they wanted to get the money from the readings.  It just becomes a bunch of gypsies. Maybe I shouldn't say that word because they might be upset by it but those people are not necessarily always qualified.

I'm in favor of putting the cap on because there are so many psychics in the city now. When I first opened up my business 25 years ago I was just about the only one in this area and, of course, as you're seeing since then it's grown and grown and grown."

Szafranski wants Salem city leaders to do a better job controlling the number of fortunetellers and preventing charlatans from operating.

2. Christian Day, a Salem warlock who owns two shops in the city, lobbied the city council to lift the cap on Salem psychics and thinks the change towards greater market competition is good for the psychic industry:

"I feel like it creates this sort of sparkle effect where everybody's sort of raising the bar on one another and making everything more exciting. As a person who believes in the power of the free market, I believe that the free market should decide whether or not there are too many psychics. If we have too many, they won't make any money and they leave. It's just like anything else.

What we want to encourage is that quality people come and in my opinion the free market encourages quality. If you cap the number of licenses and keep those people with licenses protected you essentially guarantee that people with lesser talent are protected. It is rather interesting to me that people expect government to protect their business. Your ingenuity should protect your business. Your talent should protect your business. Your aggressiveness to succeed will protect your business."  

MP: I'm with Christian Day on this issue, he believes in the "power of the market" and understands basic economic principles that "competition breeds competence" and intense market competition is usually the best and most effective regulator possible.  

HT: Curtis Purington

Milton Friedman Schools Another Michael Moore

Milton Friedman Schools A Young "Michael Moore"


Note: I think the reference to Michael Moore is figurative, not literal.

Where Are the Female Economics Bloggers?

"There are 39 women who rank in the top 1000 economists and 0 of them blog. Contrast that with the men. Consider the top 100 men. In this elite subset; at least 8 of them blog. Consider the men ranked between 101 and 200. At least, six of them blog. So, this isn't very scientific but we see a 7% participation rate for excellent male economists and a 0% participation rate for excellent women. This differential looks statistically significant to me."

Read more here

HT: Joy Pavelski

Saturday, March 26, 2011

How to Increase New Home Prices by $4,000 in CA

California building code amendments now require every single-family home and duplex built anywhere in the state to be equipped with a fire sprinkler system. Builders say it will add $4,000 to the price of a house.

The Price of Taxing the Rich

From the WSJ article "The Price of Taxing the Rich":

"Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them.

New York, New Jersey, Connecticut and Illinois—states that are the most heavily reliant on the taxes of the wealthy (see chart above)—are now among those with the biggest budget holes. A large population of rich residents was a blessing during the boom, showering states with billions in tax revenue. But it became a curse as their incomes collapsed with financial markets.

Arriving at a time of greatly increased public spending, this reversal highlights the dependence of the states on the outsize incomes of the wealthy. The result for state finances and budgets has been extreme volatility."

Here's a related item:

"In a letter sent March 21 to Gov. Pat Quinn, Caterpillar chief executive officer Doug Oberhelman said officials in at least four other states have approached the company about relocating since Illinois raised its income tax in January."

"I want to stay here. But as the leader of this business, I have to do what's right for Caterpillar when making decisions about where to invest," Oberhelman wrote in the letter obtained Friday by the Lee Enterprises Springfield bureau. "The direction that this state is headed in is not favorable to business and I'd like to work with you to change that."

HTs: Pete Friedlander and Steve Bartin