Saturday, July 09, 2011

How 3D Printing Will Revolutionize and Revive American Manufacturing in the 21st Century

Forbes (Rich Karlgaard) -- "The transformative technology of the 2015-2025 period could be 3D printing. This has the potential to remake the economics of manufacturing from a large-scale industry back to an artisan model of small design shops with access to 3D printers. In other words, making stuff, real stuff, could move from being a capital intensive industry into something that looks more like art and software. This should favor the American skill set of creativity."

Amazing, revolutionary potential here for manufacturing and even for medical applications like organ replacement.  According to Autodesk CTO Jeff Kowalski, because of 3D printing, "The next five years  in manufacturing are going to be substantially different than anything we've seen before.  With 3D printing, production and complexity become essentially free.  3D printing will make manufacturing localized, customizable and accessible, with no penalty for personalization or complexity.  It's entirely possible that the U.S. could see self-sufficiency and a self-sustaining future."

HT: Tom Sullivan

Related video on 3D printing via Cafe Hayek:

U.S. Patent Data Show No Innovation Slowdown

I'm reading Tyler Cowen's provocative book "The Great Stagnation" and blogging at 30,000 feet in the air on a Delta flight to Minneapolis (pretty amazing to be able to do that!).  Here's a quote from p. 20 in the first chapter of the book where Tyler discusses the supposed slowdown in innovation, supported by this factoid:

"The United States produced more patents in 1966 (54,600) than in 1993 (53,200)."  

MP: The top chart above (click to enlarge) shows the annual number of U.S. patents granted to U.S. residents from 1901 to 2009, using data available here from the World Intellectual Property Organization.  The selection of just two random years (1966 and 1993) from more than a century's worth of patent data seems very arbitrary, and ignores the subsequent 69% increase in patents between 1993 and the peak in 2006 (see chart).  

To illustrate how random and arbitrary the two years are, if we make a slight adjustment to the beginning and ending dates, we could say this: "The United States produced almost 18,000 more patents in 1994 (56,067) than in 1963 (37,291), or more than a 50% increase!"

And here's another amazing factoid: In just the single decade between 1988 and 1998 (a decade that spans Tyler's selection of the year 1993), the number of patents granted almost doubled from 40,497 in 1988 and 80,292 in 1998!

Further, the patent count in Tyler's book includes U.S. residents only.  The bottom chart above shows the total number of U.S. patents granted to both U.S. residents and non-residents, and illustrates a dramatic increase in patent activity in the United States since the early 1970s, when the Great Innovation Stagnation supposedly started.  In just an 11-year period between 1988 and 1999, the total number of patents granted more than doubled from 77,924 to 153,487.  The graph also shows that if there was any period that could be considered an "innovation slowdown" it would have to be the first half of the 20th century, the period that Tyler claims was a period of technological breakthroughs.  

To pick a few random dates, we could say that there were twice as many patents granted in 1915 (43,000) than 32 years later in 1947 (20,191), reflecting a 30-year period of stagnation in innovation.    

Bottom Line:  If there is a Great Stagnation or innovation slowdown, it's sure not supported by the U.S. patent data, especially when two random years are arbitrarily selected out of more than 100 years of patent data!

Friday, July 08, 2011

What About "Affirmative Action Grading"?

In many states, it's acceptable, legal and even desirable (according to many) for publicly-funded universities to engage in state-sponsored racial discrimination by applying double standards  and special preferences for certain minority groups when considering students for: a) admission to the university, and b) scholarship funding once accepted, i.e. practice "affirmative action."

Q1: If affirmative action is acceptable, legal and desirable for admissions and scholarship funding when practiced by a university's admissions and financial aid offices, should it also be acceptable, legal and desirable for professors at that university to engage in the practice of "affirmative action" when assigning grades in college classes, i.e. apply racial double standards and race-based preferences for test scores and letter grades? 

Why or why not?  

Q2: Is it consistent for somebody to support affirmative action when practiced by a staff member in the admissions or financial aid office of a university in one building on a college campus, but not support "affirmative action grading" when practiced by a college professor on that same college campus in another building?   

Stated differently, is it logically consistent for somebody to find "affirmative action grading" objectionable, but not find "affirmative action admissions" objectionable?  If race-neutral grading is the accepted standard for the treatment of students IN the classroom, can race-based preferences be justified when selecting students for admission to the university in the first place? 

Monster Employment Index Reaches 2.5 Year High

Today's employment report from the BLS was pretty bleak, with only 57,000 new private sector jobs added in June, bringing the unemployment rate up to 9.2% last month, the highest level since last December's 9.4% rate.  

The labor market news from today's Monster Employment report on online job demand and recruitment activity for June was a little more upbeat, with the Monster Employment Index increasing to the highest level since October 2008 (see chart above).  Other highlights include:

1. The Monster Index grew at an annual rate of 4% in June, marking the 17th consecutive month of year-over-year growth.  

2. By industry, 13 out of 20 sectors showed annual growth in online job demand, with the mining, quarrying, oil and gas extraction industry leading the Monster Index with a 60% yearly increase, followed by utilities with a 25% annual gain.  More evidence here that drill, drill, drill = jobs, jobs, jobs. 

3. 26 of the 28 metro markets recorded positive annual growth in job demand for June, with Minneapolis leading (+24%) the country, followed by Detroit (+22%), Cleveland (+18%) and Cincinnati (+18%).  The only metro area with an annual decline in job demand was Washington, D.C., which experienced a -7% decrease in June. 

From Monster Worldwide Senior VP Jesse Harriott:

“It is encouraging to see that the Monster Employment Index U.S. has reached its highest level since October 2008 and has shown continued growth in the current economic cycle. Expansion in recruitment activity for the commerce sectors, like retail and wholesale trade in particular, is a positive indication of continued momentum in economic activity.”

Update: The chart below shows the strong correlation between: a) BLS private payroll jobs and b) the Monster Employment Index over the last 7.5 years. 

Thursday, July 07, 2011

Why We Need Rich People: Because They Buy New Products At the Highest Price for the Worst Version

Thanks to rich people like Gordon Gekko, who was making mobile phone calls on a $4,000 "brick with buttons" in the 1980s movie Wall Street, we can now get an iPhone for $40.

HT: Jeff Jacoby

Economic Recovery Watch

1. The American Staffing Association Staffing Index, a weekly barometer of temporary and contract employment that is also a key coincident economic indicator and a leading indicator of total U.S. nonfarm employment reached a year-to-date high of 88 for the week ending June 26.  It was also the highest weekly reading during the month of June since 2008 three years ago.

2. The International Air Transport Association (IATA) is reporting a 6.8% increase in global passenger traffic for May compared to the same month last year.  

3. Passenger traffic at Washington Reagan Airport increased 8.1% in May compared to a year ago. 

4.  The American Association of Railroads is reporting another weekly gain in rail traffic for the week ending July 2, with both carloads and intermodal volume increasing compared to the same week last year.

5. The Cass Freight Index, a monthly, broad-based measure of shipping activity across a wide range of industries reached a three-year high in June of this year, with more shipments in any single month since June 2008. 

6. Shipping volume at the Port of Portland for the month of May was 23% above the same month last year, and 63.5% above May two years ago. 

The D.C. Taxi Hobgoblin and Government "Solution" to a "Non-Problem": Create a D.C. Taxicab Cartel

Is a Taxi Cartel Like This Coming to D.C.?

In the 1920s, H.L. Mencken said "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."   

Exhibit A: 

Taxicabs in Washington, D.C. are plentiful (estimated to number as high as 10,000), accessible and easy to find almost any time or day, and with fares cheaper by 20-25% than regulated, limited entry markets ("cartels") like NYC and Boston.  From my personal experience, most D.C. taxi drivers are owner-operators who enjoy working for themselves and being able to set their own hours.  As a group, the drivers are generally friendly and courteous.  In other words, it's a consumer-driven, market-based  industry with affordable fares and great service, and both the D.C. taxi drivers and D.C. customers are perfectly happy with the current system. 

So what's the problem?  There really is no problem, unless apparently you're an over-zealous, anti-market, meddling bureaucrat, and/or a large, anti-competitive taxi company with a self-interest in controlling a large share of a restricted market with high barriers to entry.  In that case, the government "solution" to D.C.'s "non-problem" with its taxicab industry is to create a "taxi cartel," by artificially restricting the number of DC taxicabs to only 4,000 (putting thousands of taxi drivers out of work), and charging a $10,000 cartel membership fee to purchase a special license called a "medallion." 

It's pretty easy to predict what will happen with a DC taxi cartel: There will be fewer cabs, the taxi fares will be higher, it will be more difficult to get a cab during peak demand, and customer satisfaction will deteriorate.   

And what will happen to D.C. medallion prices over time?  We can look to NYC to get an idea.  When NYC capped the number of taxis at about 12,000 in the 1930s, the first medallions sold for only $10 (about $157 in today's dollars). Medallions for individuals are now selling for $673,000 as of June 2011, an all-time record high (see chart above).  That's an annual return of 12.65% for owning NYC taxi medallions since 1937, more than double the 5.9% annual return for the Dow Jones Industrial Average over that same period, clearly demonstrating that "cartel membership has its privileges."

For more background and a video, see "D.C. Taxi Heist: How a new law would screw drivers and riders." 

Thursday Links

1. Vehicle City, the nickname given Flint as the birthplace of General Motors, has become the state's version of Dodge City, as murders and arsons soar. 

2.  There are now more medical marijuana dispensaries in Denver than Starbucks. Local smokers even have a professional weed critic in the alternative weekly paper. 

3. NYC police crack down on Midtown Manhattan food trucks.  

4. Manpower Employment Services has many job openings, but is finding a lack of qualified applicants to fill jobs.

 5. Iceland is considering banning the sale of cigarettes and making them a prescription-only product. 

6. VW plans to export 4,000 Chattanooga-made Passats per year to Korea. 

7. The extraordinary Mexican migration that delivered millions of illegal immigrants to the U.S. over the past 30 years has sputtered to a trickle because changes in Mexico have made staying home more attractive.

ADP Report: Econ. Recovery Finds New Traction

"Employment in the U.S. nonfarm private business sector rose 157,000 from May to June on a seasonally adjusted basis, according to the latest ADP National Employment Report released today (see chart above).  Today’s ADP National Employment Report estimates employment in the service-providing sector rose by 130,000 in June, nearly three times faster than in May, marking 18 consecutive months of employment gains. Employment in the goods-producing sector rose 27,000 in June, more than reversing the decline of 10,000 in May. Manufacturing employment rose 24,000 in June, which has seen growth in seven of the past eight months.

These figures are above the consensus forecast for today’s report and for Friday’s jobs number from the BLS. Payroll employment growth at this pace usually implies a steady unemployment rate, perhaps even a modest decline. June’s figures suggest that the economic recovery, which slipped in the spring, might have found new traction in early summer."

Other highlights include: 

1. June marks the 17th consecutive month of overall ADP employment gains, starting in February of last year (see chart above). 

2. Almost one million (984,000) private-sector jobs have been added so far this year, including 116,000 new manufacturing jobs.   
3. Over the last 12 months, private employment has increased by almost 1.6 million jobs (1,557,000) including 148,000 new manufacturing jobs.  

4. Private-sector employment at 108,677,000 is the highest level in more than two years, since April of 2009. 

Wednesday, July 06, 2011

The D.C. Park Police Violate the First Amendment

"Why I Was Arrested at a D.C. Taxi Commission Meeting"

Here's Producer Jim Epstein's account of what happened:

"On June 22, 2011, I attended a meeting of the D.C. Taxi Commission for a story I'm currently working on about a proposed medallion system in the district. About half-an-hour into the meeting, I witnessed journalist Pete Tucker snap a still photo of the proceedings on his camera phone. A few minutes later, two police officers arrested Tucker. I filmed Tucker's arrest and the audience's subsequent outrage using my iphone.

A few minutes later, as I was attempting to leave the building, I overheard the female officer who had arrested Tucker promise a woman, who I presumed to be an employee of the Taxi Commission, that she would confiscate my phone. Reason intern Kyle Blaine, overheard her say, "Do you want his phone? I can get his phone." (The woman who was given assurances by the officer that she could have my phone can be seen at the end of the video telling me, "You do not have permission to record this!")

As I tried to leave, I was told by the same blond female officer to "stay put." I told her I was leaving and attempted to exit the building. I was then surrounded by officers, and told to remain still or I would be arrested. I didn't move, but I tried to get the attention of a group of cab drivers who were standing nearby. At this point I was arrested. I spent the remainder of the day in a cell in the basement of the building. I was released at about 4PM."

Read more here and here (letter from legal counsel for Jim Epstein and Reason).   

Challenging the Middle Class Stagnation Myth: From 1979-2007 The Rich Got Richer and Poor Got Richer

Click to enlarge.
It’s a familiar and frequently-told narrative that middle-class incomes have stagnated over the last several generations while the upper-income groups have gotten richer.  President Obama has promoted this narrative by claiming in 2009 that  “For many years, middle class Americans have been working harder, yet not enjoying their fair share of the fruits of a growing economy."

But a new working paper titled “A "Second Opinion" on the Economic Health of the American Middle Class” by NBER and Cornell researchers provides new evidence that the popular narrative is largely mistaken.  By taking into account previously unmeasured shifts in household size and the tax units in them, taxes paid, transfer payments received, and the increasing importance of fringe benefits, the researchers find that the growth in after-tax household income has been substantial not only for the middle class, but for all income groups over the last 30 years.

From the paper:  

“The median pre-tax pre-transfer income of all tax units (filers and non-filers) only increased by 3.2% in real terms over the entire period between 1979 and 2007. These results are consistent with the view that the typical American has not gained much from economic growth over the last 30 years.

But when we broaden the sharing unit to the household, account for economies of scale in household consumption, and recognize that the payment of taxes or the receipt of tax credits as well as government transfer income and in-kind benefits all impact the economic resources available to individuals, we find the story changes. Specifically, when using our broadest measure of available resources—post-tax, post-transfer size-adjusted household income including the value of in-kind health insurance benefits—median income growth of individual Americans improves to 36.7% over the period from 1979 and 2007.

The table above illustrates the change in income for each income quintile over the entire 29 year period. Importantly, in contrast to tax unit market income measures of income where the bottom two quintiles get poorer (first column of data) and only the top quintile gets noticeably richer, each of the other series shows income growth throughout the distribution. Once taxes and health insurance are taken into account, each of the quintiles of the distribution are shown to have sizable growth over the 29 year period - with the slowest growth being a 26.4% increase in mean incomes for the bottom quintile of the distribution (last column). Growth in the middle quintile is 36.9%, dramatically greater than their 2.2% growth in private market income when measured at the tax unit level."

Conclusion: "These more inclusive measures of access to economic resources suggest that income inequality increased in the United States not because the rich got richer, the poor got poorer and the middle class stagnated, but because the rich got richer at a faster rate than the middle and poorer quintiles and this mostly occurred in the 1980s. Growth was substantial in all quintiles once the influence of government tax and transfer policy as well as the shift in compensation from wages to health insurance provided by employers and the shift to increased in-kind health insurance by government is more full recognized.

MP: The findings in this paper provide strong, empirical evidence contrary to the middle-class stagnation story, and in fact show that over the last thirty years "the rich got richer and the poor got richer" after making adjustments for household composition, taxes, transfer payments and fringe benefits to measure "access to economic resources." 

Tuesday, July 05, 2011

Bastiat's One-Hand Solution to Job Losses

According to David Brooks writing in today's NY Times, it's a "problem" that "Manufacturing employment is cratering even as output rises."

Don Boudreaux speculates that David Brooks probably "uses computers, word-processing software, ink-jet printers, e-mail, and other modern techniques that increase his productivity (and, thus, that cause the amount of time that he and others spend producing punditicities to crater even as their output rises)." In that case, Don wonders why Brooks "bemoan[s] increasing worker productivity in the manufacturing sector?"  

Q: Would Brooks also consider it to be a "problem" that "agriculture employment has been cratering for 200 years even as farm output rises to record high levels" as a direct result of significant increases in farm worker productivity?   

David Brooks is sounding a lot like President Obama, who recently linked productivity and efficiency gains to job losses, as Russ Roberts pointed out recently in his WSJ op-ed "Obama vs. ATMs: Why Technology Doesn't Destroy Jobs."

If Obama and Brooks really want to "maximize jobs" in manufacturing, banking, farming, or any other industry, they should consider an effective job-creation program from more than 150 years ago advanced by French economist Frederic Bastiat.  In 1845, as a solution to counteract job losses in some French domestic industries like textiles due to free trade, Bastiat proposed to the King of France that he "forbid all loyal subjects to use their right hands."

Bastiat predicted that "as soon as all right hands are either cut off or tied down, things will change. Twenty times, thirty times as many embroiderers, pressers and ironers, seamstresses, dressmakers and shirtmakers, will not suffice to meet the national demand."

"Yes, we may picture a touching scene of prosperity in the dressmaking business. Such bustling about! Such activity! Such animation! Each dress will busy a hundred fingers instead of ten. No young woman will any longer be idle. Not only will more young women be employed, but each of them will earn more, for all of them together will be unable to satisfy the demand."

Bottom Line: If manufacturing job losses are a "problem" due to technology and productivity gains, an effective "solution" would be to forbid all American workers from using their right hands.  By adopting Bastiat's proposal, we could immediately stop the "cratering" of manufacturing employment that David Brooks and Barack Obama lament, and dramatically increase the number of new, one-handed manufacturing workers by millions. 

Economic Freedom Extends Life Expectancy

Following my recent post on life expectancy and economic growth in Chile, here's a more comprehensive analysis in the chart above of the relationship between: a) economic freedom measured by the Heritage Foundation, on a scale from 1 (repressed) to 100 (free), and b) life expectancy for 176 countries in 2009. 

 The regression line in the chart above shows a clear and positive relationship between economic freedom and life expectancy, with higher levels of economic freedom being associated with longer life expectancies.  Specifically, from the regression equation we can say that every 10 point increase in the economic freedom index is associated with a 4.6 year increase in life expectancy.   

Bottom Line: As Larry Kudlow reminds us all the time, "Free market capitalism is the best path to prosperity," and I'll add "the best path to a longer life." There's nothing more precious than human life, and the evidence shows that economic freedom will sustain, nurture, conserve and extend human life, while economic repression does the opposite: it stifles and squashes the human spirit and shortens life expectancy.  

HT: Charles Musick for the data and idea. 

Which American Accent Do You Have?

Take a 17-question quiz here and find out. 

Political Preference for Talking Points, Not Facts

From Thomas Sowell's new column "Politics Versus Reality":

"A preference for talking points, and a lack of interest in digging into the facts about realities, prevails today in discussions of whether to have a government-controlled medical system.
Since there are various countries, such as Canada and Britain, that have the kind of government-controlled medical systems that some Americans advocate, you might think that there would be great interest in the quality of medical care in these countries.

The data are readily available as to how many weeks or months people have to wait to see a primary care physician in such countries, and how many additional weeks or months they have to wait after they are referred to a surgeon or other specialist. There are data on how often their governments allow patients to receive the latest pharmaceutical drugs, as compared to how often Americans use such advanced medications.

But supporters of government medical care show virtually no interest in such realities. Their big talking point is that the life expectancy in the United States is not as long as in those other countries. They have no interest in the reality that medical care has much less effect on death rates from homicide, obesity, and narcotics addiction than it has on death rates from cancer or other conditions that doctors can do something about. Americans survive various cancers better than people anywhere else. Americans also get to see doctors much sooner for medical treatment in general."

Monday, July 04, 2011

U.S. Home Prices Are Poised to Climb

Bloomberg -- "Prices for U.S. homes may climb as soon as the third quarter, ending price declines as a drop in foreclosures makes more home available for sale, said Housing and Urban Development Secretary Shaun Donovan. “It’s very unlikely that we will see a significant further decline,” Donovan said on CNN. “The real question is when will we start to see sustainable increases. Some think it will be as early as the end of this summer or this fall.”

Home sales have increased in six out of the past nine months and the number of property owners in default is declining, Donovan said on CNN’s “State of the Union” program. Housing prices will begin rising as the number of foreclosures declines, he said. “In the long run, it’s a good time to buy,” Donovan said. “It’s so affordable today compared to where it’s been for generations.” 

Related: Real estate bidding wars are back in some D.C. areas.

HT: Gary Lyle

Markets in Everything: $49 Strip Mall Lab Tests; A Convenient, Affordable Antidote to Obamacare

Click arrow to watch video.

KSTP -- "Next time you want a blood test, you could get it at a strip mall. A store-front lab firm is now open in Plymouth. It is the first business of its kind in Minnesota, but it will not be the last.

53-year-old Elaine Warren came to Any Lab Test Now to get her cholesterol checked. "I had an annual exam. It was up just a little bit so I thought I'm going get ahead of the game," says Warren. Her insurance covered her annual exam back in January, but to have her cholesterol checked now at her regular clinic would cost her $57 for the test, and a $45 co-pay for a total of $102. Her visit to Any Lab Test Now cost her $49. She was told she would get her results in about two days.

Any Lab Test Now has what it calls a 'Take Out Menu' of lab tests it performs. Lab officials say they've seen DNA tests for both paternity and immigration related issues, STD testing for informational purposes, thyroid panels and diabetes panels.

University of Minnesota Business Professor Steve Parente says with high deductible insurance becoming more popular this store-front lab test firm is an increasingly popular business model. Any Lab Test Now opened its first Minnesota branch in Plymouth in June and plans to have three more in the next year."

MP: This is one more example of affordable, convenient, market-based medicine with transparent pricing at labs that are open six days per week, and with evening hours at many locations.  Any Lab Test Now now operates in 31 states, and you don't need an appointment, insurance or a physician's referral.  At the same time that Obamacare is planning a complete government takeover of health care and medicine in America that will stifle competition and raise prices, the market continues to offer many new, innovative, alternative solutions to health care that are competitive, affordable and convenient.  

HT: Mike Carlson

Las Vegas, Phoenix Home Sales at 5/6 Year Highs

1. "Las Vegas region home sales were at a five-year high in May, rising modestly from both April and a year earlier as sales of distressed properties continued to account for nearly 70% of the resale market. Price measures moved little month-to-month but the declines from a year earlier steepened amid higher levels this year of foreclosure resales and sub-$100,000 transactions.  In May, 4,570 new and resale houses and condos closed escrow in the Las Vegas metro area – the highest sales tally for a May since 2006. May sales rose 1.8% from April and 1.7% from May 2010." 

2. "Phoenix-area home were at a six-year high in May, amid near-record levels of investor purchases. The region’s median price remained at essentially the same level – $120,000 – it’s been at the past six months as distressed property sales continued to account for around 2/3 of the resale market. The median price dropped sharply from a year earlier, however, as the number of homes selling below $100,000 shot up nearly 41% year-to-year. 

A total of 9,837 new and resale houses and condos closed escrow during May in the Phoenix metro area. That was up 0.8% from the month before and up 4.9% from a year earlier.  May’s total sales were the highest since 2007, when 10,112 homes sold, and were 8.6% short of the average number of May sales since 1994. However, the number of existing single-family detached houses that sold in May was the highest for that month since 2005, while resales of condos were the highest for a May since 2006."

Update: Real estate bidding wars are back in parts of DC area.  

Are Race-Based Preferences in Mich. Coming Back?

RaceChance of UM Admit w/3.2 GPA, 1240 SATGPA @ UM, 2003-2004Academic Probation at UM 2003-2004 (%)Honors Program at UM, 2003-2005 (%)

With a 58% to 42% overall margin, Michigan voters in 2006 overwhelmingly approved a ballot initiative called "Proposal 2" that ended the traditional practice of racial double standards in college admissions at selective public universities, and required that all state-funded universities start practicing race-neutral admissions (and race-neutral hiring and contracting).  By county, 80 out of 83 Michigan counties voted in favor of Proposal 2, which amended the state constitution with the following section:

"The University of Michigan, Michigan State University, Wayne State University, and any other public college or university, community college, or school district shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting."

One of the main motivations for Michigan's Proposal 2 was the ongoing, blatant racial double-standards in undergraduate admissions at the University of Michigan main campus, illustrated in the table above using data from the Center for Equal Opportunity.  With a high school GPA of 3.20 and an SAT score of 1240, blacks (92%) and Hispanics (88%) had roughly a 90% chance of being admitted in 2005, while Asians and whites with the same academic credentials had only about a one in ten chance (10 and 14 percent, respectively).

In addition to the obvious issue of racial favoritism for admission to Michigan, the other data in the table provide evidence of another issue: the possibility that racial favoritism results in an "academic mismatch" for minority students at highly selective universities like Michigan.  Black and Hispanic students at Michigan earn lower GPAs than whites or Asians, and are much more likely to be on academic probation, and much less likely to qualify for the Honors Program.  Without racial double-standards in admissions, black and Hispanic students might have studied at a less-selective school like Michigan State, Wayne State, Central Michigan, Eastern Michigan or Western Michigan, all very highly regarded public universities in Michigan.  But without racial preferences for admission at those less selective schools, it's very likely that minority students would have higher GPAs, be less likely to be on academic probation and more likely to qualify  for an Honors Program compared to Michigan.

Although not shown in the chart, the huge differences in graduation rates by race also provide strong evidence of academic mismatch at Michigan.  In 2006, 89% of white students at Michigan graduated within 6 years, compared to only 68% of black students, a huge 21% graduation rate race gap (source). 

But there's been a new development in the fight for racial equality and equal opportunity  under the law.  According to the Detroit Free Press, "Affirmative action is back on the menu in Michigan, but for how long is anyone's guess.  On Friday, a federal appeals court struck down Proposal 2, the 2006 Michigan constitutional amendment that banned affirmative action in college admissions, employment and contracting."  Michigan's attorney general will be appealing the ruling, and the ban on race-based preferences will stand for now.  It's possible this will end up being considered again by the Supreme Court, which previously ruled against the University of Michigan's undergraduate racial quota and point system that produced the outcomes in the table above.  

Hopefully, the vision of racial equality and equal opportunity expressed by President John F. Kennedy will prevail in the courts: "Simple justice requires that public funds, to which all taxpayers of all races and national origins contribute, not be spent in any fashion which encourages, entrenches, subsidizes or results in racial discrimination."

Sunday, July 03, 2011

The Great Gov't.-Induced Homeownership Bubble

In his latest column, George Will reviews the scalding new book “Reckless Endangerment" by New York Times columnist Gretchen Morgenson and housing finance expert Joshua Rosner.  Here's an excerpt from George Will:

"The book is another cautionary tale about government’s terrifying self-confidence. It is, the authors say, “a story of what happens when Washington decides, in its infinite wisdom, that every living, breathing citizen should own a home.”

The 1977 Community Reinvestment Act pressured banks to relax lending standards to dispense mortgages more broadly across communities. In 1992, the Federal Reserve Bank of Boston purported to identify racial discrimination in the application of traditional lending standards to those, Morgenson and Rosner write, “whose incomes, assets, or abilities to pay fell far below the traditional homeowner spectrum.”

In 1994, Bill Clinton proposed increasing homeownership through a “partnership” between government and the private sector, principally orchestrated by Fannie Mae, a “government-sponsored enterprise” (GSE). It became a perfect specimen of what such “partnerships” (e.g., General Motors) usually involve: Profits are private, losses are socialized.

There was a torrent of compassion-speak: “Special care should be taken to ensure that standards are appropriate to the economic culture of urban, lower-income, and nontraditional consumers.” “Lack of credit history should not be seen as a negative factor.” Government having decided to dictate behavior that markets discouraged, the traditional relationship between borrowers and lenders was revised. Lenders promoted reckless borrowing, knowing they could off­load risk to purchasers of bundled loans, and especially to Fannie Mae. In 1994, subprime lending was $40 billion. In 1995, almost one in five mortgages was subprime. Four years later such lending totaled $160 billion.

By 2003, the government was involved in financing almost half — $3.4 trillion — of the home-loan market. Not coincidentally, by the summer of 2005, almost 40 percent of new subprime loans were for amounts larger than the value of the properties."

MP:  The chart above helps tell the story, by showing graphically the unprecedented, government-induced rise in homeownership, from less than 64% in 1994 to more than 69% in 2004, a 5.4 percentage point increase in only one decade.  In many ways, what has been called the "housing bubble" was at the same time an unsustainable "homeownership bubble" (fueled by the political obsession with homeownership) and the bursting of the home price bubble was at the same time a bursting of the "homeownership bubble" as the graph clearly demonstrates.   

Sunday Rant on Flip-Flops and Baby Strollers

Here's my Sunday rant on two "extreme living" trends:

1. Extreme Flimsy Footwear: Once upon a time, flip-flops were cheap, rubber thongs that you bought at the drug store and only wore in the summer when you went to the beach or washed your car, or maybe wore in the locker room.  Now flip-flops have become almost year-round, everyday footwear that I see everywhere: in airports, shopping malls, downtown DC, on the DC Metro, in restaurants, at ball games, etc.  You'll even see them at the White House on an official visit with the President of the United States (see picture above, and news report here on the "flip-flop scandal" at the White House in 2005; so I guess I'm a little "late to the party" on this foot fashion controversy).

Update: "Hot weather is finally here, but with it, painful foot conditions. A common culprit? Those bbiquitous, thin flip-flops.  They're colorful, cheap, convenient and trendy. But those who specialize in treating foot problems say they're terrible for feet because they offer neither support nor protection against trauma.  They're also dangerous to wear while driving because they can get stuck under the gas pedal or the brake.

Dr. Joseph Stern, a Lower Mainland podiatrist who is president of the Canadian Podiatric Medical Association, said flip-flops should only be worn for short periods, "like from the house to the pool." (Vancouver Sun).

2. Extreme Over-sized Monster Strollers. Once upon a time, baby strollers were flimsy and lightweight with small wheels.   Today, baby strollers have "gone Hummer" with huge wheels, heavy-duty construction, multiple storage compartments, with options like sidecars, sound systems, navigation, air conditioning, and outhouses.  OK, I made up the part about the options, but the stroller pictured above illustrates the typical over-sized Monster Hummer stroller that has invaded Washington, D.C. in large numbers, especially in my neighborhood near the National Zoo - and they create havoc on crowded Metro trains, elevators and the escalators.  Total "excess" in my opinion.

Suggestion: Could we maybe go a little less flimsy on our footwear, and a little more flimsy on our baby strollers?