Tuesday, June 21, 2011

Texas Turns Off Lights on Federal Lightbulb Ban

"State lawmakers have passed a bill that would allow Texans to skirt federal efforts to promote more efficient light bulbs, which ultimately pushes the swirled, compact fluorescent bulbs over the 100-watt incandescent bulbs many grew up with. The measure, sent to Gov. Rick Perry for consideration, lets any incandescent light bulb manufactured in Texas - and sold in that state - avoid the authority of the federal government or the repeal of the 2007 energy independence act that starts phasing out some incandescent light bulbs next year."

"Let there be light," state Rep. George Lavender, R-Texarkana, wrote on Facebook after the bill passed. "It will allow the continued manufacture and sale of incandescent light bulbs in Texas, even after the federal ban goes into effect. ... It's a good day for Texas."

Markets in Everything: Cash-Only Doctor

Renegade Minnesota doctor -- makes same-day house calls, spends 30 minutes with each patient, and accepts payment in cash, checks, eggs, wine, pork sausage, pickles, homegrown tomatoes, or homemade pies, but not insurance, Medicare or Medicare. 

Monday, June 20, 2011

MIT's BPP Monthly Inflation Rate Falls to 5-Mo. Low and TIPS Breakeven Spread Falls to A 6-Month Low

The Billion Prices Project @ MIT has just been updated with daily price data through June 1, and is reflecting moderating inflationary pressures that have fallen to a new 5-month low (see chart above of monthly inflation rates since 12/25/2010).  From a high of about 0.85% for the monthly inflation rate through late February, inflation has fallen to about 0.32% for the month ending June 1, and has been trending steadily downward for the last three months to the lowest level since late January.  

From a statement issued by the BPP @ MIT group: "We had been anticipating a slowdown in the all-items CPI, which was reflected in the BLS announcement a few days ago. The annual inflation rate appears to be stabilizing around 3.5%."

Another market indicator showing moderating inflationary pressures is the 10-year Treasury breakeven spread between yields on nominal and indexed Treasuries, which fell today to 2.17%, the lowest level since December 10, 2010 more than six months ago.  

Bottom Line: Inflationary pressures are falling. 

Another Reason For Companies to Leave California

Last week I posted about the record number of companies leaving California (5.4 per week this year), and here's an AP news story "Wave of Lawsuits Over Seats Hit Retail Stores," about a recent development that might give companies in the Golden State even more incentive to leave (or not move there in the first place, or not expand operations there):

"Enterprising trial attorneys by the dozen are using an obscure California labor law requiring retailers such as Wal-Mart, Home Depot and Target to have enough seats on hand for their workers. Superficially, the allegations appear to be little more than a nuisance.

But armed with two recent appellate decisions that allow workers and their lawyers to use California's novel "private attorney general" provision, the retailers are facing millions of dollars in damages. A first violation calls for as much as $100 per employee per pay period and double that for subsequent violations."

Markets in Everything: Fishing Pole with Video

The makers of FishEyes have created a rod and reel that features an integrated wide-angle video camera at the end of the line, sitting just above your bait.

What Happens on the Internet Every Minute

"Let's say that it takes you exactly one minute to read this post. In that time, over 6,600 photos will be uploaded to Flickr, about 70 new domains will be registered, over 1,200 new ads will be created on Craigslist, and more. Find out here what happens on the Internet every 60 seconds (see graphic above, click to enlarge)."

Sunday, June 19, 2011

Tiger Economics

From an interview with Michael ‘t Sas-Rolfes at the Percolator Blog:

"Conservation NGOs benefit from the tiger’s charismatic high profile as a means to raise funds, and conservation scientists like to study tigers, so one could argue that they have an incentive to prevent them from becoming extinct. By contrast, rural people living near tigers have to deal with threats to their livestock and children, and human-tiger conflict is a serious problem over most of the wild tiger’s range. Rural people have less of an incentive to conserve tigers, especially when offered large sums of money for tiger carcasses.

I believe that the main challenge for tiger conservation is that people living next to wild tigers are the ones who actually control their destiny, and right now those people typically don’t benefit much from the presence of wild tigers. The people who do benefit are mostly far away and don’t have much real control over what happens to tigers. There is a mismatch between who pays the costs and who gets to benefit from tiger conservation.

For something to be an asset, it has to be owned by someone. Right now most wild tigers are typically ‘owned’ by governments, but that is a weak and dispersed form of ownership, which does not benefit or incentivize specific people who control the wild tiger’s destiny. Those people are typically rural subsistence farmers and poorly paid government employees.

By creating stronger property rights – i.e. more direct ownership of tigers – one could create ways for more specific groups, communities or agencies to control and benefit directly from tigers. Ways to benefit could include genuine “adopt-a-tiger” schemes, contractual agreements with local people, tourist viewing, and possibly trophy hunting (although this is currently banned). This would give tigers much greater asset value."

Congrats to IBM for Surviving 100 Years of Intense Market Competition.... and Government Lawsuits

IBM Stock Returns vs. Dow Jones Industrial Average, 1968-1985 (click to enlarge)

IBM is celebrating the 100th anniversary of its founding on June 16, 1911.  See a timeline here of "milestone events in one of the quintessential U.S. corporate success stories."  It would be impressive enough for any U.S. company to still be profitable and successful even a decade or two after it started, but it's truly rare and extraordinary for a company to be around for an entire century like IBM, and survive two world wars, 20 recessions including the Great Depression, strong "gales of Schumpeterian creative destruction" and still be one of the largest and most successful companies in the world 100 years later.  

As Steven Pearlstein wrote in today's Washington Post

"IBM, almost uniquely among technology companies, has managed to survive a series of technological sea changes and make it to its 100th anniversary, which was celebrated last week in New York. Since 1911, as the world has progressed from the calculator and typewriter to the mainframe to the personal computer and now to the Internet, this corporate centurion remains at the top of its game and near the top of the technology heap."

Successful companies like IBM (or Alcoa and Microsoft) that survive over many generations do so because of their extreme focus on innovation, bringing new products to the market, cost-cutting, productive efficiency, and engaging in super-competitive behavior.  Even when they inevitably capture a large market share and become industry leaders, companies like IBM, Alcoa and Microsoft still face extreme market discipline, both from existing firms and from the potential threat of new competitors who stand ready to enter the market and challenge the market leader under the right market conditions.

And to make it to its 100th anniversary, IBM not only had to survive intense market competition and "technological sea changes," but it also had to survive several antitrust cases brought by the U.S. government (like Alcoa and Microsoft), including one that lasted for more than a decade.  From Wikipedia

"IBM's dominant market share in the mid-1960s led to antitrust inquiries by the U.S. Department of Justice, which filed a complaint for the case U.S. v. IBM in the United States District Court on January 17, 1969. The suit alleged that IBM violated the Section 2 of the Sherman Act by monopolizing or attempting to monopolize the general purpose electronic digital computer system market, specifically computers designed primarily for business. The case dragged out for 13 years, turning into a resource-sapping war of attrition. In 1982, the Justice Department finally concluded that the case was “without merit” and dropped it. But having to operate under the pall of antitrust litigation significantly impacted IBM's business decisions and operations during all of the 1970s and a good portion of the 1980s."

MP: The chart above shows the history of IBM stock returns compared to the Dow Jones Industrial Average (DJIA) from 1968 to 1985.  Perhaps this is a case of correlation and not causation, but during the entire time that IBM was being sued by the Department of Justice for exercising monopoly power, the return on IBM was about the same as for the entire DJIA.  But as soon as the case was dropped, and IBM no longer had to divert resources to defend itself from government prosecution, the return on IBM stock rebounded.  In the three years following the end of the government's lawsuit, IBM shares increased by 120%, or more than twice the 50% return on the DJIA during that period.    

Of course by the 1980s the computer industry was going through a major "technological sea change" and moving from mainframe computers to personal computers, and the potential threat of competition from young upstarts like Microsoft (founded 1975), Apple (founded 1976), Sun (founded in 1982), Cisco (founded 1984) and Dell (founded 1984) was becoming a reality and providing IBM with so much market competition that the government's monopoly case against IBM was becoming irrelevant. 

One of the lessons from IBM's 100 anniversary is that intense market competition is the best and most effective regulator possible, making vigorous enforcement of antitrust laws unnecessary.  In the 13-year period from 1969-1982 that the government was harassing IBM, the twin forces of "technological sea changes" and market competition were much more successful and effective at challenging IBM's market dominance than the government's prosecution.  And we can't overlook the financial damage to IBM from fighting an expensive 13-year battle against the Department of Justice (and the cost to U.S. taxpayers) - imagine if instead of spending millions, maybe billions of dollars fighting the government, IBM had invested those resources in research and new product development at a critical period when the industry was shifting from mainframes to PCs.

Bottom Line: Congratulations to Big Blue for a major business milestone of surviving 100 years in the most competitive marketplace in the world, and for surviving several lawsuits brought by the most powerful government in the world.

How About Europe Learning from Mississippi?

In a New York Times editorial last year titled "Learning from Europe" Paul Krugman wrote:

"The story you hear all the time about Europe — of a stagnant economy in which high taxes and generous social benefits have undermined incentives, stalling growth and innovation — bears little resemblance to the surprisingly positive facts. The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works. The European economy works; it grows; it’s as dynamic, all in all, as our own."

The BEA recently released data for the amount of GDP produced by U.S. states in 2010 , which allows for a updated comparison of output per capita in U.S. states (Note: Per-capita GDP is provided by the BEA in 2005 dollars, and those amounts have been adjusted to 2010 dollars for comparison to other countries in 2010) to European countries (and Japan and Canada), see table below (international countries are adjusted for PPP).  Key findings:

1.The European Union as a group ($32,700 GDP (PPP) per capita in 2010) ranks below America's poorest state, Mississippi ($32,764).

2. Even relatively wealthy (by European standards) Switzerland would rank #32 as a U.S. state, behind Georgia.  The countries of Belgium and Germany would rank even lower at #46 and #47, and the U.K., Finland, and France would be close to the bottom of American states, below #48 South Carolina.  

3. Spain, Italy, Greece and Portugal all rank below America's poorest state (Mississippi) for GDP per capita.

MP: Paul Krugman's assessment of Europe's economic success bears little resemblance to the surprisingly negative facts, which are actually the opposite of what Krugman claims.  With a few exceptions, the amount of economic output produced per person would rank most European countries among America's poorest states.  And even America's poorest states like Mississippi and West Virginia would rank above average among the countries of Europe.  When it comes to economic success, the data suggest that Europe has a lot more to learn from the U.S. than vice-versa.

 GDP per Capita: U.S. States vs. Europe, Japan and Canada, 2010

 Rank    GDP per Capita, 2010 
District of Columbia$168,327
5New York$59,596
7New Jersey$55,715
11North Dakota$51,882
16South Dakota$49,741
23Rhode Island$46,688
24New Hampshire$46,295
27North Carolina$44,568
40New Mexico$39,475


48South Carolina$35,034
United Kingdom$34,920



49West Virginia$33,738
European Union$32,700





Saturday, June 18, 2011

Saturday Links

1. "Lemonade stands are supposed to come with lessons — about camaraderie, teamwork, entre­pre­neur­ship.  But sometimes the all-American rite of passage instead becomes a master class in government overreach," like near the U.S. Open as reported by the Washington Post (another story will appears on the front page the Sunday edition) and other media. 

2. Estimate: Google's Les Paul doodle guitar cost companies around the world $268 million in lost productivity.

3.  Hospitals Embrace Text Messaging of Emergency Room Wait Times 

4. To increase efficiency, Hewlett-Packard is planning to shift part of its notebook production from China to Japan in the next few months. The Californian company plans to eventually manufacture all computers for sale in Japan in factories near Tokyo.

5. Get your soon-to-be-extinct incandescent light bulbs on Ebay or Amazon while they're still legal.  (HT: Instapundit)

6. From Popular Mechanics: "101 gadgets that changed the world," from #1 (Mobile/Smartphone) to #101 (duct tape).  (HT: Instapundit)

Friday, June 17, 2011

Mapping the Dead from Mexico's Drug War

This website tracks and maps the narco-related killings in Mexico, which now exceed 40,000 since the start of the Mexican drug war in December 2006.  The map above (click to enlarge) shows the deaths in Mexico over just one 6-1/2 month period from May 15, 2010 to December 2010.  Death maps for other periods are available at the website.  Here's the map legend:

The RED balloons are civilians. The RED balloons with a dot are politicians, and other high profile killings. The BLUE balloons are police officers and soldiers (and other law enforcement officials). The BLUE balloons with a dot are high ranking officers.  The YELLOW suns represent car bombs and the 2 GREEN people represent mass graves.

40 Yrs. of Drug War Failure and 40k Dead in Mexico

Related: The number of casualties from the War on Drugs in Mexico is estimated to be 40,000 since 2006, according to some sources.  At the current rate of 10,000 deaths per year, the number of Mexicans killed in its drug war will soon approach the number of Americans killed in the Vietnam War. 

Companies Leaving California in Record Numbers

California currently ranks #49 among U.S. states for "business tax climate" (Tax Foundation) and #48 for for "economic freedom" (Mercatus).  It shouldn't be any surprise then that companies are leaving the "Golden State" in record numbers this year (see chart above) for "golder pastures" and more business-friendly climates in other states. 

From Joe Vranich:

"Today, California is experiencing the fastest rate of disinvestment events based on public domain information, closure notices to the state, and information from affected employees in the three years since a specialized tracking system was put into place. Out-of-state economic development officials are traveling through the state to alert frustrated business owners and corporate executives to their friendlier business climate versus California's hostility toward commercial enterprises.
  • From Jan. 1 of this year through this morning, June 16, we have had 129 disinvestment events occur, an average of 5.4 per week (see chart above).
  • For all of last year, we saw an average of 3.9 events per week.
  • Comparing this year thus far with 2009, when the total was 51 events, essentially averaging 1 per week, our rate today is more than 5 times what it was then.
Our losses are occurring at an accelerated rate. Also, no one knows the real level of activity because smaller companies are not required to file layoff notices with the state. A conservative estimate is that only 1 out of 5 company departures becomes public knowledge, which means California may suffer more than 1,000 disinvestment events this year. 

The capital directed to out-of-state or out-of-country, while difficult to calculate, is nonetheless in the billions of dollars. The top five destinations are (1) Texas, (2) Arizona, (3) Colorado, (4) Nevada and Utah tied; and (5) Virginia and North Carolina tied.

Based on the legislature’s recent rejection of business-friendly legislation and Sacramento’s implementation of additional regulations, signs are that California’s hostility towards business will only worsen. California is such fertile ground that representatives for economic development agencies are visiting companies to dissect our high taxes, extreme regulatory environment and other expenses to show annual savings of between 20 and 40 percent after an out-of-state move."

See related news story here

Leading Economic Index Points to Ongoing Growth

The Conference Board reported today that its Leading Economic Index (LEI) increased 0.8% in May to 114.7 (see chart above), with the largest positive contributions to the index coming from the interest rate spread, consumer expectations and building permits.  The LEI has now increased in 25 out of the last 26 months starting in April 2009, with the only monthly decrease occurring in April of this year.  

According to economist Ataman Ozyildirim at The Conference Board: “The U.S. LEI rebounded in May and resumed its upward trend with a majority of the components supporting this gain. The Coincident Economic Index, a monthly measure of current economic conditions, continued to increase slowly but steadily. Overall, despite short-term volatility, the composite indexes still point to expanding economic activity in the coming months.”

MP: Despite some recent signs of a temporary slowdown in certain areas of the economy, the ongoing upward trend in the Leading Economic Index that started in the spring of 2009 suggests that the economic expansion will continue through the rest of 2011 without interruption.  

Thanks to War on Drugs, U.S. is World's #1 Jailer

This is a post to recognize the 40th anniversary of the day in 1971 that President Nixon declared that the U.S. government would start waging a "War on Drugs" war on peaceful Americans who chose to use intoxicants not approved of by the U.S. government (HT: Don B.).

Q: Which repressive country puts the most people in jail for violating government laws? 

A. Iran
B. Saudi Arabia
C. Libya
D. Egypt
E. United States of America

Well, it's not even close..............

World Rank, 2010CountryPrisoners per 100,000 Population
70Saudi Arabia178

The table above shows how the 2010 U.S. prison incarceration rate (prisoners per 100,000 population) compares to some of the roughest countries in the world.  The full list of 216 countries is here, the countries above were selected as some of the world's most repressive regimes (Iran, Saudi Arabia and Libya), some of the world's least economically free countries (Venezuela, Turkmenistan, Sudan, Afghanistan, according to the Heritage Foundation), and some countries with the biggest narco-terrorism problems (Colombia and Mexico).  

But none of them even come close to the incarceration rate of the World's #1 Jailer - the United States, largely because of the "War on Drugs" war against peaceful Americans using intoxicants currently not approved of by the U.S. government (see chart below).  

Note that in the full list of countries, neighboring Canada ranks #124 (117 prisoners per 100,000), and countries with liberalized drug laws like Portugal rank #128 (112 per 100,000) and Netherlands ranks #145 (94 per 100,000).   

Update: AIG claims that "There is ZERO evidence that this greater number of prisoners in the U.S. is due to the war on drugs." Here is some evidence:

1. "A major cause of such high numbers of prisoners in the United States system is that it has much longer sentences than any other part of the world. The typical mandatory sentence for a first-time drug offense in federal court is five or ten years, compared to other developed countries around the world where a first time offense would warrant at most 6 months in jail.  Mandatory sentencing prohibits judges from using their discretion and forces them to place longer sentences on nonviolent offenses than they normally would have."

2. "One of the biggest contributors to the United States' spike is the war on drugs. Around 1980, the United States had 40,000 people in prison for drug crimes. After the passage of Reagan's Anti-Drug Abuse Act in 1986, incarceration for non-violent offenses dramatically increased. Part of the legislation included the implementation of mandatory minimum sentences for "the distribution of cocaine, including far more severe punishment for distribution of crack—associated with blacks—than powder cocaine, associated with whites."

Under the Anti-Drug Abuse Act, users of powder cocaine can possess up to 100 times more substance than users of crack, while facing the same mandatory sentence.  The Anti-Drug Act targeted low-level street dealers, which had a disproportionate effect on poor blacks, Latinos, the young, and women.

The United States houses over 500,000 prisoners for these crimes. Ethan Nadelmann of the Drug Policy Alliance said, "We now imprison more people for drug law violations than all of Western Europe (with a much larger population) incarcerates for all offenses."

Thursday, June 16, 2011

The Geography of Ethanol Support and Why Corn Ethanol is Doomed Without Taxpayer Dollars

From the Percolator Blog:

"Today the Senate voted 73-27 in favor of repealing a $6 billion tax credit for ethanol producers. The measure would end a 45-cent-per-gallon tax credit for ethanol refiners and a tariff of 54 cents per gallon on imported ethanol. The bill’s passage may be a pleasant surprise — ethanol is, after all, not so great for the environment. But which senators voted in favor of the tax credits is all too predictable (see maps above, click to enlarge)."

"A broad bipartisan majority of the Senate voted Thursday to end more than three decades of federal subsidies for ethanol, signaling that other long-sacrosanct programs could be at risk as Democrats and Republicans negotiate a sweeping deficit-reduction deal. The tax breaks, which now cost about $6 billion a year, had long been considered untouchable politically because of the power of farm-state voters and lawmakers. Iowa's role as the site of the first presidential caucuses has further elevated the political potency of the biofuel. 

Presidential hopefuls made a quadrennial ritual of going to Iowa and pledging to support the tax breaks, tariffs and mandates that supported production of ethanol motor fuels from corn. This year, however, some Republican presidential candidates have pointedly refused to endorse ethanol tax breaks. Thursday's vote doesn't by itself doom federal support for the corn ethanol industry. The House is expected to reject the repeal as unconstitutional because tax bills must originate in that chamber, and the White House opposes it. But the 73-27 vote signals that once-unassailable programs could be vulnerable."

MP: Paul Gigot of the WSJ pointed out a decade ago that "ethanol is produced by mixing corn with our tax dollars." Hopefully, given the reality of our worsening fiscal situation, the Senate vote today signals that taxpayer funding of ethanol will eventually end, and ethanol will have to survive on its economic and scientific merits.  Simply put, without tax dollars, the current political-motivated recipe for producing so much corn ethanol is doomed.   

President Jimmy Carter Says: Let's Call the Whole Thing Off; The "War on Peaceful Americans" That Is

Pres. Jimmy Carter in the NY Times, "Call Off the Drug War":

"Drug policies here are more punitive and counterproductive than in other democracies, and have brought about an explosion in prison populations. At the end of 1980, just before I left office, 500,000 people were incarcerated in America; at the end of 2009 the number was nearly 2.3 million. There are 743 people in prison for every 100,000 Americans, a higher portion than in any other country and seven times as great as in Europe. Some 7.2 million people are either in prison or on probation or parole — more than 3 percent of all American adults! 

Some of this increase has been caused by mandatory minimum sentencing and “three strikes you’re out” laws. But about three-quarters of new admissions to state prisons are for nonviolent crimes. And the single greatest cause of prison population growth has been the war on drugs war on peaceful Americans who chose to use intoxicants not currently approved of by the U.S. government (HT: Don B.), with the number of people incarcerated for nonviolent drug offenses increasing more than twelve-fold since 1980."

U.S. Manufacturing in 2009 = Germany, Italy, France, Russia, U.K., Brazil and Canada COMBINED

The chart above helps put the size of the U.S. manufacturing sector into perspective. In 2009, the U.S. produced $2.33 trillion of manufacturing output including mining and utilities, according to data from the United Nations.  The U.S. ranked #1 in the world for manufacturing, and produced 14% more output than second-ranked China ($2.04 trillion) and twice as much output as third-ranked Japan ($1.15 trillion). 

What's most impressive is that the U.S. produced almost as much manufacturing output as the manufacturing sectors of Germany (#4), Italy (#5), France (#6), Russia (#7), U.K. (#8), Brazil (#9) and Canada (#10) combined ($2.44 trillion).

Harvard B-School Admits More MBA Students with Manufacturing Backgrounds: From 9% to 14%

From the WSJ article "Harvard Business School Changes Its Class Profile":

"Harvard Business School's incoming class will have a substantially smaller percentage of finance professionals than in previous years. Instead, a higher number of students will have manufacturing and technology backgrounds.

Students with manufacturing backgrounds make up 14% of the class of 2013, up from 9% the previous year (see chart above). Technology rose three percentage points to 9%." 

MP: Maybe Harvard is preparing more MBAs in anticipation of America's coming "manufacturing renaissance"?

U.S. Trade With Rest of World is Always Balanced

In a Tuesday Washington Times editorial "Truth about Trade Deficits and Jobs," Cato Institute trade specialist Dan Griswold makes the following important point about U.S. trade deficits:

"A trade deficit doesn't mean that the dollars flowing abroad just disappear. They quickly return to the United States. If they are not used to buy our goods and services to export, they are used to buy American assets — Treasury bills, corporate stock and bonds, real estate and bank deposits. 

In this way, America's trade deficit is always and almost exactly offset by a foreign investment surplus. The net surplus of foreign investment into the U.S. each year keeps long-term interest rates down, prevents the crowding out of private investment by government borrowing and promotes job creation through direct investment in U.S. factories and businesses.

In the broadest sense, our trade with the rest of the world is always balanced. In 2010, Americans bought $4 trillion worth of goods, services and assets from abroad, while foreigners bought $4 trillion worth of goods, services and assets from the U.S."

MP: The Bureau of Economic Analysis released detailed data today on U.S. international transactions for the first quarter 2011. The U.S. had a $182.45 billion "trade deficit" for goods in the first quarter, which was offset by multiple surpluses for other international accounts including services, income receipts and asset purchases, so that our overall trade with the rest of the world remained balanced.  (What a relief!)

While most of the media attention focuses on the "trade deficit," a more complete analysis always reveals offsetting surpluses for other international transactions that result in a "balance" of our total payments (cash outflows) and receipts (cash inflows) with the rest of the world.   Because international transactions are calculated using double-entry bookkeeping accounting, international payments HAVE TO BALANCE, and the balance of payments has to equal ZERO, just like a corporate "balance sheet" has to balance such that Total Assets - (Debt + Equity) = ZERO.

The chart above illustrates graphically the "balance" of international transactions for the first quarter showing that the $1.1 trillion of cash inflows to Americans between January and March from: a) the export of U.S. goods and services, b) income receipts (e.g. dividends and interest income) to Americans owning foreign assets, and c) the sales of U.S. assets (e.g. stocks and bonds) to foreigners, is exactly equal to the $1.1 trillion of cash outflows paid to foreigners for: a) imports of goods and services, b) income payments to foreigners owning U.S. assets, and c) the purchase of foreign assets by Americans.  

In other words, even though it's not very "newsworthy," America's international transactions were once again balanced in the first quarter, just like every quarter and every year, and the "balance of payments" was once again ZERO.  

Bottom Line: As Dan Griswold concludes, politicians, and everybody else, should just stop worrying about the "trade deficit."

Interesting Facts of the Day About China

1. China will become the second largest consumer market in the world by 2015, behind only the U.S.

2. Wal-Mart is opening one store per week in China. 

3. KFC is opening one store per day in China.

4. IKEA has stopped advertising in China because its stores have become so crowded it's facing "crowd control" problems. 

 ~James McGregor, author of the book "One Billion Customers: Lessons from the Front Lines of Doing Business in China," from his interview today on NPR

Markets in Everything: Handwritten Obama Letters

Yahoo! News -- "Destiny Mathis, a young woman in Indiana, reached out to President Obama for a sign of hope in tough economic times, and was initially thrilled to receive a handwritten reply from the president. Now, however, the same economic hardships that prompted her to write to Obama last November have prompted her to put up the letter for sale on the Moments in Time auction website for $11,000--marking the ninth such sale of an Obama letter that the online auction service has handled."

Wednesday, June 15, 2011

China Considers a Market-Based Approach to Solve Its Kidney Shortage, Maybe the U.S. Can Follow?

The chart above illustrates a very serious and escalating health care crisis in America:  The number of kidney transplant operations has remained flat for the last six years, and there were actually fewer last year (16,968) than in 2006 (17,095).  Meanwhile, the number of registered transplant candidates continues to grow, at an average rate of more than 4,500 new candidates in every year since 2005.  In 2010, the chances of receiving a kidney for the almost 88,000 patients on the waiting list fell below 20% for the first time ever, and those odds probably won't improve any time soon.   

Reason? It's illegal for Americans to receive any kind of financial compensation for providing a kidney to save the life of a stranger, and without financial compensation there's no way to solve the growing kidney shortage.  The number of kidney donations and transplant operations will remain flat, the kidney waiting list will grow, and the pain, suffering and death for those waiting will continue to escalate as the waiting list becomes a sure death sentence for a large majority of patients.  

By relying exclusively on altruistic kidney donation in the supposedly market-friendly U.S., the kidney shortage will surely continue to worsen.  But there's now hope for a more rational, market-based approach in historically market-unfriendly China, according to AEI scholar Sally Satel in Slate.com

"Last month, the China's health ministry announced a proposal that could expand the pool of organs available for transplant surgeries. Huang told the Chinese press that his office was considering several possible incentives. These include tax rebates, deduction of transplant-related hospital fees, medical insurance, tuition waivers for donors' family members, or deduction of burial fees for people who donated in death. 

Unfortunately, much of the international transplant establishment—including the World Health Organization, the Transplantation Society, and the World Medical Association—focuses exclusively on obliterating illicit organ sales. While this may seem like a reasonable approach to abhorrent practices, in reality it is a lethal prescription."

Sally concludes:

"The only way to save lives and starve underground markets abroad is to provide more transplants at home. And the only way to do that is to break radically—and ethically—with a status quo that forbids an informed donor to be rewarded for saving the life of a stranger."

Cops, Prosecutors and Judges Say: "Legalize It"

WASHINGTON, DC -- "In conjunction with this week's 40th anniversary of President Nixon declaring "war on drugs," a very expensive war on peaceful Americans who get high using intoxicants the government disapproves of (thanks to Don Boudreaux for this editing) a group of police, judges and jailers who support legalization released a report today showing how the Obama administration is ramping up a war it disingenuously claims that it ended two years ago.

Following the report's release at a press conference this morning, the pro-legalization law enforcers attempted to hand-deliver a copy to Obama administration drug czar Gil Kerlikowske, who is a former Seattle chief of police.  Instead of making time to listen to the concerns of fellow law enforcers who have dedicated their careers to protecting public safety, he simply sent a staffer to the lobby to receive a copy of the cops' report.

The full text of the pro-legalization cops' report is available online here

Law Enforcement Against Prohibition (LEAP) represents police, prosecutors, judges, prison wardens, federal agents and others who want to legalize and regulate drugs after fighting on the front lines of the "war on drugs" war on peaceful people who get high using intoxicants the government disapproves of, and learning firsthand that prohibition only serves to worsen addiction and violence."

Manufacturing Productivity Has Improved Our Lives

In a comment on this CD post about the dramatic gains in U.S. manufacturing productivity, JoeMac asks an important question: "How have these gains in productivity improved the lives of Americans?"

The chart above displays the share of Personal Consumption Expenditures represented by three categories of manufactured consumer goods that are most important to U.S. households: a) food and beverages consumed at home, b) clothing and footwear, and c) furnishings and durable household equipment (BEA data here).  In the late 1940s, it required almost half (41%) of consumer expenditures to provide for the household basics: food, clothing and home furnishings, which are all manufactured goods.  

As a direct result of the significant improvements in manufacturing productivity, manufactured goods have become cheaper and more affordable over time, resulting in a declining share of total consumer expenditures required to furnish our homes, and cloth and feed our families.  By 1985, the share of consumer spending on household basics was only 20%, or less than half of the 41% share in 1948.  For each of the last five years since 2006, the share of consumption expenditures on food, clothing and household furnishings has been below 14%, and was only 13.5% in 2010.  

For every $100 of consumer spending today, only $13.50 is spent on food, clothing and household furnishings and $87.50 is spent on everything else.  Contrast that to 1948, when it took $40 of every $100 of spending for the basics, leaving only $60 to spend on all other goods and services.      

Bottom Line: Without the major productivity gains in the manufacturing sector over the last fifty years, it would still require almost half of consumer spending just to furnish our houses, and feed and clothe our families.  The standard of living for the average American household has improved significantly over the last 50 years, and keeps getting better all the time, thanks in large part to greater manufacturing productivity.  

Here's the proof that productivity gains have improved our lives: Would you be willing to exchange your computer and laser printer for an old manual typewriter?  Would you be willing to exchange your cell phone or iPhone for an old rotary phone?  Would you be willing to exchange your big-screen color TV for an old black and white TV?  Would you be willing to trade your iPod and iTunes for an old phonograph and 45 RPM records?  Would you be willing to trade your modern refrigerator, washing machine or dishwasher for appliances from the 1950s?  I think most rational people would much prefer today's manufactured goods to those from past eras, and we can thank manufacturing productivity for lower costs and greater variety, and for better quality and more energy-efficient products.          

Markets in Everything: Weiner-Gate Strip Show

"Ginger Lee, the receiver of the infamous lewd photo from the “peter tweeter” Anthony Weiner, and her rumored sexual relationship which created “WEINER GATE,” is making her first public show appearance at the famous Pink Pony strip club in Atlanta, Ga. this Wednesday & Thursday June 15th & 16th."

TMZ is reporting that Ginger Lee is getting 3 times her normal fee.  

Wednesday Links

1. John Goodman reports on free health care screenings, currently available at Sam's Clubs, and comments that  "In just three years you are going to be forced to buy insurance coverage for the very services Wal-Mart is giving away for free!"

2. Wendell Cox argues that land-use restrictions and planning policies like smart growth fueled property prices and became the engine of the housing boom and bust.

3. Tourism officials at Alabama beaches say taxes have been up for the past seven months and people are spending money on the beach at a higher level than before the recession hit in 2008.  

4. Scotts Miracle-Gro has long sold weed killer. Now, it's hoping to help people grow killer weed

5. China's cell phone pirates are helping to bring down Middle Eastern governments. 

6. Virginia state revenue collections increased 17.9% in May.

7. Kentucky’s general fund receipts in May rose 17.8 percent compared with a year earlier.

8. Stage is Set for Long Run-Up in Class 8 Vehicle Demand
(HT: Gary Lyle)

Stranded in Libya

While most countries have rushed to evacuate their citizens from Libya in recent months, one country decided to leave 200 of their nationals stranded in Libya.  Guess the country, it should be easy. 


"Out of fear that what they witnessed -- a full-blown popular rebellion against Qaddafi's dictatorship -- could lead to a copycat rebellion back home," according to a story in Foreign Policy.  "The fear was obviously that these 200 would have a kind of a viral effect, bringing news and information about what was happening in Libya." 

Here's the full article, and here an NPR segment on the story.  

Tuesday, June 14, 2011

Phenomenal Gains in Manufacturing Productivity

The chart above shows annual real manufacturing output per worker from 1947-2010 using data from the BEA for manufacturing output by industry and data from the BLS on manufacturing employment.  

In 1950, the average U.S. manufacturing employee produced $19,600 (in 2010 dollars) of output, and by 1976 the amount of output per worker had doubled to $38,500.  During that period manufacturing productivity was growing annually at 2.63%.  Output per worker doubled again to $75,000 by 1997 (21 years later), as productivity per worker increased to 3.23%.  Manufacturing output per worker approximately doubled again to $149,000 by 2010, but it only took 13 years because worker productivity accelerated to 5.42% during this period.

This is an amazing story of huge increases in U.S. worker productivity in the manufacturing sector.  In fact, the growth in manufacturing worker productivity more than doubled from 2.63% per year in the period between 1950 and mid-1970s to 5.42% annually between 1997 and 2010.  Whereas it took 26 years for output per worker to double during the first period (1950-1976), it only took 13 years during the more recent period (1997-2010). 

We are constantly hammered with bad news about the decline in the number of manufacturing jobs in the U.S., but we never hear the good news about why that is happening: Manufacturing workers in America keep getting more and more productive, which then allows us to produce more and more output over time, with fewer and fewer workers.  That's a great story about an American industry that is healthy, successful and thriving, and not an industry in decline.  

By continually increasing worker productivity and productive efficiency, the American manufacturing sector has been hugely successful at achieving one of the most important economic outcomes of being able to "produce more with less." In the process, those efficiency and productivity gains have helped conserve scarce resources, including human resources, more effectively than almost any other industry, except maybe farming. It's hard to overstate how much the efficiency gains achieved by U.S. manufacturing have contributed to the improvements in our standard of living by making manufactured goods more affordable over time.  We should spend less time complaining about fewer workers in manufacturing, and more time celebrating the phenomenal gains in manufacturing worker productivity.    

Shipping Activity at L.A. Port Was Strong in May

Loaded outbound 20-foot containers (TEUs) exported from the L.A. Port in May totaled 184,275 units, which was the highest export container count ever for the month of May, and the second highest monthly export shipping volume for any month in the port's history, next to the all-time monthly record of 192,850 TEUs in March of this year (see chart).  Other highlights of this month's report include:

1. Containerized exports in May were above the year-ago level by 14.7%, and up by 21% from two years ago in May 2009.  

2. For the first five months of the year, January-May shipping activity for outbound export containers this year improved by 11% compared to the same period last year.  

3. Loaded inbound containers in May, at 360,969 containers, were above last year's level by 5.5%, and the highest count for the month of May in three years, since 2008.

4. Overall shipping activity at the L.A. Port set a new record for the month of May at 545,243 containers, and it was the second-highest monthly loaded container count in port history.   

Bottom Line: The strong level of shipping volume at the Port of Los Angeles in May indicates that the U.S. and world economies are continuing to expand and grow, and the recent slowdown in some economic indicators was probably temporary and mild.   

Drill, Drill, Drill = Jobs, Jobs, Jobs

Joshua Wright at the New Geography website has a great article titled "The Explosion of Oil and Gas Extraction Jobs."  The whole article is worthwhile and there's a lot of interesting jobs data, but here's the most amazing data point:

"In total, nine of the top 11 fast-growing jobs in the nation are tied in one way or another to oil and gas extraction." 

Producer Price Food Inflation: Crude vs. Consumer

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

It's interesting to note the following:

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

2. Double-digit inflation (0r deflation) rates in crude food items (like we've had for the last 11 months now starting last July) never translate into double-digit inflation (deflation) rates for finished consumer food products. 

3. The current 12-month inflation rate of 4.0% through May for finished consumer foods is only slightly higher than the 3% average over the last ten years (see red line above).

4. The annual inflation rates in May of 24.1% for crude foodstuffs and 4% for finished consumer foods were both lower than the recent peaks of 29.1% for crude foodstuffs and 7.4% for finished consumer foods in February of this year. 

MP: Based on the May PPI data for food, I think it's still hard to make a strong case for inflationary pressures building in the U.S. economy.   

A New Age of Energy Abundance in the U.S.

According to data released recently by the Energy Information Administration, U.S. natural gas production set a new monthly record in March of 2.4 trillion cubic feet (see chart above). This production record is another new milestone for the ongoing success of the hydraulic fracturing method of extracting natural gas from deep shale rock that is bringing about a new age of energy abundance in the United States.

The booming natural gas production is also helping to create thousands of new jobs for Americans in a very tough job market. More than 34,000 drilling-related jobs were added over the past year in Pennsylvania—that’s almost a hundred new jobs every day in just one state and demonstrating that drill, drill, drill = jobs, jobs, jobs.

Another benefit of the record production of natural gas in America is that inflation-adjusted gas prices for commercial users are lower this year than in any year since 2002, and are about 50 percent below the peak highs in 2005 and 2008 (see chart, data here). Affordable energy costs are a key factor in helping America’s manufacturing sector survive and thrive in a very competitive world marketplace, and the natural gas boom can play an important role here.

Read more here at The Enterprise Blog

Positive Economic News from Europe

1. The Leading Economic Index for the U.K. increased 0.4% in April, following increases of 0.4% in March and 0.5% in February. 

2. The Monster Employment Index for Europe increased by 21% in May from a year ago, led by Germany's 42% year-over-year increase, and strong industry gains in manufacturing (53%) and transportation (53%).    

Markets in Everything: Food Truck Catering

From today's WSJ "Every Bride Expects a Lovely Food Truck":

"Street sales aren't the only source of revenue for the gourmet food trucks that have taken New York City by storm in a few years. Some are deriving as much as half of their income from catering and rentals. They cater everything from weddings (see photo above) to bar mitzvahs to movie and television crews filming on the street. Food trucks also are being hired by businesses to woo corporate clients."

Monday, June 13, 2011

If You Tax Something, You Get Less of It

From an IBD editorial, "Will the Chicago Merc Flee Illinois Taxes?"

"The company that owns Chicago's two largest futures exchanges is thinking about moving operations out of state to flee oppressive business taxes. Terence Duffy, chairman of CME Group Inc., which owns the two institutions as well as the New York Mercantile Exchange, and Chief Financial Officer James Parisi announced the financial giant is considering moving operations and jobs out of the state in response to massive increases in state taxes.

Parisi told the company's annual meeting of shareholders that the state legislature's tax hike on corporations from 4.8% to 7% costs CME an extra $50 million a year. Corporations in Illinois also pay 2.5% tax on income, called a personal property replacement tax, which is collected by the state and flows to local governments. The two rates taken together come to 9.5%, the third highest corporate tax rate in the nation. In February, CME reported a 3% drop in fourth-quarter earnings partly because of expenses it booked related to the tax hike.

The ways of Washington, D.C., and Illinois stand in stark contrast with Texas, a state with no income tax, where workers decide for themselves whether to join a union, and that doesn't impose harsh regulatory burdens on businesses or their employees. It recently added to its business-friendly climate with loser-pays tort reform legislation.

Texas eschews while Illinois embraces the Obama model of more government, more unions, more central planning, higher taxes. So it's not surprising that while Obama's Illinois flounders, Texas has created 37% of all new net jobs since June 2009.

Illinois is losing a congressional seat as businesses and people leave. Texas is adding four seats as that state prospers. Build it and they will come; tax it and they will leave."

HT: Pete Friedlander

U.S. Manufacturing Profits Set New Record in Q1

In another sign of a strong economic recovery in the manufacturing sector, the after-tax profits of U.S. manufacturing corporations reached a record-high $144.5 billion in the first quarter of 2011, according to data released today by the Census Bureau. Adjusted for inflation, first quarter profits this year were 6.6% ahead of the previous quarter, and 28.7% ahead of a year earlier.  Compared to the pre-recession level of $124.1 billion in the fourth quarter of 2007, manufacturing profits have increased by 16.2% and $20.4 billion.

I think we can now safely say that the profitability of the U.S. manufacturing sector has made a complete and total V-shaped recovery from the effects of the U.S. recession and global slowdown, and is now well-prepared and situated for a new cycle of growth and expansion in output, sales, jobs, R&D, and capital investment. 

Monday Links

1. "Facebook Sees Big Traffic Drops in US and Canada as It Nears 700 Million Users Worldwide."

2. Banking in Africa via a cellphone and a shack.

3. Chinese food delivery in Manhattan goes from the bicycle to illegal battery-powered bikes. (HT: Dan Greller)

4. Interactive state map for 2010 GDP growth at Economix.

5. Steven Landsburg on a "miracle of the marketplace": the Apple iPhone. (HT: Lee Coppock)

6. Markets NOT in Everything: Raw milk.

Medical Manufacturing in the U.S. is Alive and Well

"Made in the USA": The Continuous Flow Heart Pump
NPR featured a story this morning titled "Heart With No Beat Offers Hope Of New Lease On Life" about new technological advances in the U.S. for making artificial hearts.  Several specialists at the Texas Heart Institute have developed a "no beat" continuous-flow heart pump that should last longer than other artificial hearts and cause fewer problems (see photo above).  This development represents a departure from the traditional research in pulsating heart pumps and would result in a patient having "no pulse" because of the continuous flow feature of the new pump.  

The medical breakthrough is interesting by itself, but the story is important for another reason: It's a great example of "U.S. manufacturing in the 21th century."   You probably won't see or notice a "Made in the USA" label on a heart pump or a lot of other high-tech medical equipment manufactured in America like MRI machines, CT Scans or X-ray equipment, but they are all part of America's thriving and growing high-tech manufacturing sector.

The chart above displays the Federal Reserve's monthly inflation-adjusted measure of "Medical Equipment and Supplies" back to 1986, and shows the continual growth in this sector of America's manufacturing industry.  Except for two months in 2008, the amount of medical equipment and supplies manufactured in the U.S. was higher in April of this year than ever before.  The annual growth in the production of medical equipment manufacturing over the last year was 3.5%, slightly lower than the 4.25% annual average growth over the last 25 years.  Consider also that the amount of medical equipment manufactured in the U.S. has doubled since the early 1990s, which is in direct contradiction to the frequent claims about the "demise or death of U.S. manufacturing." 

When you think of "U.S. manufacturing in the 21st century" think of high-end, high-value-added heart pumps, MRI machines, and surgical heart values produced by high-wage American medical manufacturing companies like Medtronic.  And don't believe the nonsense from Donald Trump and others about how "we don't make anything in the U.S. any more."  The U.S. is the world leader in the manufacturing of medical equipment and supplies, and we make more now than ever before.