Tuesday, August 23, 2011

78% of Congress Lacks An Econ/Business Degree

POLITICO -- "Almost 80 percent of lawmakers might need to crack open an economics textbook before the congressional recess ends, a new study on Tuesday suggests. The vast majority of members lack an academic background in business or economics, according to a study by the Employment Policies Institute, a nonprofit group that takes a conservative stand on fiscal issues. Only 13.7 percent majored in business or accounting, and 8.4 percent have an economics degree (see chart above).

The most popular majors among members were government and the humanities, with over half — 55.7 percent — bringing home a degree in those fields. And there are a number of science students in the halls of Congress, with 11.5 percent majoring in science or technology-related fields."

USGS Revises Estimate of Marcellus Gas by +42X

PHILADELPHIA -- "The U.S. Geological Survey (USGS) on Tuesday dramatically increased its estimate of the natural gas contained in the Marcellus Shale, the deep deposit that has triggered a drilling frenzy in Pennsylvania. The USGS now estimates that the shale contains about 84 trillion cubic feet of undiscovered, technically recoverable natural gas and 3.4 billion barrels of undiscovered, technically recoverable natural gas liquids.

The agency's latest numbers are 42 times greater than its 2002 assessment, which said the shale contained about two trillion cubic feet of gas (see chart above). The Marcellus lies under Pennsylvania and seven other Appalachian states. The USGS attributed the increase to new geologic information from shale-drilling operations, which have ramped up in recent years because of new developments in extraction technology.

The Marcellus Shale Coalition, the industry trade group, did not miss the opportunity to tweak skeptics who have expressed doubts about the longevity of the reserves.

"While some critics continue to question the viability of responsible domestic shale gas development, it is abundantly clear - as laid out by this new data - that the Marcellus Shale will continue to lead the way in meeting Americans' energy needs for years to come," Kathryn Z. Klaber, the coalition's president, said in a statement."

Markets in Everything: Smoking Mittens

Mittens with a metal eyelet to perfectly fit your cigarette. Helps you keep your hands warm when you are smoking outside. And let's face it, you are going to be smoking outside a lot.

Consumer Delinquency Rates Fall to Pre-Crisis Level

The Federal Reserve released data yesterday on delinquency and charge-off rates at U.S. commercial banks for the second quarter of 2011.  For consumer credit cards, the delinquency rate fell for the 8th consecutive quarter to 3.62% during the April-June period this year, dropping to the lowest level since a 3.54% reading in the fourth quarter of 2005, more than five years ago (see blue line in chart).  And before that cyclical low, you have to go all the way back to the first quarter of 1995 to find a lower credit card delinquency rate of 3.46%.  Compared to the 4.6% quarterly average since 1991, the delinquency rate on credit cards is now about a full percentage point below the long-run average. 

For all consumer loans, the second quarter delinquency dropped to 3.28%, the lowest rate since 3.2% in the third quarter of 2007 before the recession started (see red line in chart). The second quarter delinquency rate is also below the 3.5% historical quarterly average. 

The fact that consumer loan delinquency rates are back to pre-recession levels is part of the ongoing deleveraging of American households, who are also saving now at mid-1990s levels (see CD post here).  It's also more evidence that the worst is behind us.  Now if we could just get the Beltway elite to show some of the same financial responsibility that American households have been demonstrating of late.  

HT: Scott Grannis reported on this yesterday.

Markets in Everything: Wireless Charging Systems

"It's like Wi-Fi for energy."

"There are two components to the uBeam charge system: the uBeam Charge Station, which plugs into the wall and emits energy, and the uBeam Battery Adapter, which plugs into your electronics and absorbs energy. The uBeam Battery Adapter consists of a conglomeration of energy harvesting transducers connected to a rechargeable battery, where the beamed energy is stored. Once the uBeam Battery Adapter is plugged into your electronics, it will start charging your device. With a USB adapter on one side of the battery, and a PC or Mac power adapter on the other- uBeam can charge many portable electronics simultaneously."

Featured today on NPR

Las Vegas Home Sales: 95% of Sales Are to: a) Cash Buyers or b) First-time Buyers with FHA Financing

From the DQNews report on July home sales in Las Vegas:

1. In July, 4,535 new and resale houses and condos closed escrow in the Las Vegas-Paradise metro area (Clark County), down 13.8% from June but up 5.2% from July 2010. 

2. Distressed sales (foreclosures and short sales) represented 70.6% of July transactions, and foreclosure resales alone accounted for 59.5% of July sales. 

3. Last month, 53% of Las Vegas home sales were sold to cash buyers, and 42.1% to homebuyers using low down payment government-insured FHA loans.  Those sales represent more than 95% of July real estate transactions, meaning that less than 5% of Las Vegas homes were purchased with conventional financing (10-20% down payments, etc.).   In other words, it's like there are two real estate markets in Las Vegas, each with about half the market: a) cash sales to investors, and b) first-time homebuyers using FHA financing with low 3% down payments.

Beloit College Mindset List for Class of 2015

MILWAUKEE -- "Never trust anyone older than the Internet. That's not the official mantra for the incoming class of college freshmen, who according to an annual list collectively are the first to be younger than the World Wide Web, but it certainly could be."

ASSOCIATED PRESS -- "Most students entering college for the first time this fall — members of the Class of 2015 — were born in 1993. For these students, Andre the Giant, River Phoenix, Frank Zappa, Arthur Ashe and the Commodore 64 have always been dead."

Here's a sample from the full list:

1. There has always been an Internet ramp onto the information highway.

3. States and Velcro parents have always been requiring that they wear their bike helmets.

4. The only significant labor disputes in their lifetimes have been in major league sports.

12. Amazon has never been just a river in South America.

13. Refer to LBJ, and they might assume you're talking about LeBron James

23. There has never been an official Communist Party in Russia.

53. Charter schools have always been an alternative.

57. They've often broken up with their significant others via texting, Facebook, or MySpace.

74. "PC" has come to mean personal computer, not political correctness.

The 6-Year Search for a Family Doctor in Canada

All of these people were actually lined up to try to get a family doctor in Canada.
From the article "The Soul-Destroying Search for a Family Doctor," about a woman's six-year search to find a family doctor in Canada, where the single-payer system is frequently plagued with shortages for primary care physicians.  Although once you manage to find one, you are entitled to receive their medical services for "free" (and there might be some long waiting times):

"When the man took my registration papers and said “congratulations, you have a family doctor,” I confess I had to hold back a few tears. I had just spent three hours of my Saturday standing in line (pictured above) with hundreds of other people outside a community center in an Ottawa suburb to enroll with a new family medicine clinic that is opening at the end of August. 

The wait was inconsequential compared to my long and frustrating search for someone to provide me with basic primary care.

When I moved to Ottawa in 2005, leaving behind a wonderful doctor in Burlington, Ont., who had looked after my family for more than a decade, I had no idea how difficult it would be to find someone to replace him. I spent months searching the Internet, calling doctors’ offices and imposing upon friends for the names of their physicians – all to no avail. No one was taking patients. My own husband’s doctor refused to take me because his practice was full. So I visited walk-in clinics when I urgently needed medical attention and went without the routine stuff, including annual physicals.

Then, in early June, I fractured a vertebra. It was a minor crack, as those things go. But the emergency room physicians insisted that I see my family doctor for follow-up care. And I did not have one. Which meant I had to resume the search that I had abandoned four years earlier, this time in earnest."

MP: In contrast to the situation in Canada, there are sixteen primary care doctors or internists in the DC area listed on the ZocDco website who all have appointments available within the next few days (some lists openings this afternoon).

HT: Pete Friedlander and David Henderson

Monday, August 22, 2011

Breakeven Rates: 1% for 2-Year and 2% for 10-Year

"Breakeven rates" are the differences in yields on regular and inflation-indexed T-notes over the same time horizon, and are measures from the bond market of the expected rates of inflation over those time horizons. 

The current 2-year "breakeven rate" is less than 1% (0.935%, top chart), and down significantly from the recent peak of 2.67% in late April, and now at the lowest level since last year.  The 10-year breakeven rate is trading at just slightly above 2% (2.046%), and was trading below 2% last week.  

Although commodity markets are telling a different story, the bond market seems to be suggesting that inflationary expectations have been falling, and according to breakeven rates are now back to last year's levels. 

President Approval: 43.5% vs. 50.5% Disapproval

Consensus from Real Clear Politics. The -7% spread (43.5% approve - 50.5% disapprove) is the widest since November 2009.

Jon Stewart: Media Pretend Ron Paul Doesn't Exist

Some Get Married for Money. Others Get Married for a $400 Rent-Controlled Manhattan Apartment

The Daily Mail is reporting that a 63-year-old woman married an 87-year-old Manhattan man just a month before he died, allegedly to take over his $400 per month rent-controlled apartment in a West Village building where market rents can reach more than $5,000 per month.  The building owner is asking a Manhattan judge to evict the woman.

I am sure there are hundreds of stories in NYC like this that illustrate the distortions caused by rent (price) control laws.  It certainly creates quite an adversarial relationship between tenants and landlords/owners. 

HT: Matt Bixler

Tax Tip for Warren Buffett, and Wouldn't His 2010 Taxable Income Be only $100k To Pay 17.4% Rate?

Just a thought: If Warren Buffett is really serious about paying higher taxes, couldn't he simply take the standard deduction voluntarily ($11,400 for married taxpayers filing jointly in 2010) instead of itemizing his deductions?  That wouldn't require any change in tax policy, so he doesn't have to wait.  

After all, it must be all of his itemized deductions (e.g. charitable, etc.)  that reduce Buffett's income tax rate to only 17.4% on about $40 million income last year.  Except for about the first 1% of his income ($373,650) that would be taxed at lower rates, he should be paying a marginal tax rate of 35% on the other 99%.  Using the tax brackets below for 2010, how could Buffett claim that he paid an effective tax rate of only 17.4% unless his taxable income was only about $100,000?

Married Filing Jointly 2010 Tax Brackets

  Taxable Income
  Marginal Tax Rates 
$0-$16,750 10%
$16,751-$68,000 15%
$68,001-$137,300 25%
$137,301-$209,250 28%
$209,251-$373,650 33%
$373,651+ 35%

Markets in Everything: Orbiting Space Hotel

DAILY MAIL -- "Tiring of the annual two-week break in a Med hot spot? Fed up with overcrowded resorts with no room to move? Then how about a real get-away-from-it-all holiday with plenty of space – in space? Russia yesterday announced plans for a hotel in orbit 217 miles up which would house seven guests in four cabins and have huge windows for views of the Earth turning below." 

Cost? $165,000 for a five-day stay, plus about $825,000 for transportation via rocket.  Due to open in 2016. 

HT: Jacob Fink

Why BMW Picked South Carolina: No Auto Culture

 The Richmond Fed has an interesting article ("When South Carolina Met BMW") that reviews the history of how BMW decided to start producing vehicles in South Carolina, where production started in 1996.  BMW now employs 7,000 workers at its Spartanburg factory, which produces about 20,000 X3, X5 (pictured above) and X6 sports "activity" vehicles every month. 

Here's an interesting excerpt:

"BMW reviewed 250 sites worldwide before choosing Spartanburg County, in the South Carolina Upstate, an 11-county region in its northwest corner. BMW preferred the Eastern Standard Time zone because it allows real-time conversations between South Carolina and Germany. 

BMW also was pleased by something South Carolina did not possess: an existing automotive culture. “BMW wanted to develop its workforce and routine in its own way,” retired BMW executive Bobby Hitt says. And it probably didn’t hurt that union activity in the state is practically nonexistent. Foreign auto firms locate, in most cases, in right-to-work states."

July Chicago Fed National Activity Index Improves

CHICAGO FED -- "Led by improvements in production-related indicators, the Chicago Fed National Activity Index increased to –0.06 in July from –0.38 in June (see chart above). Three of the four broad categories of indicators that make up the index improved in July; only the sales, orders, and inventories category deteriorated from June.

The index’s three-month moving average, CFNAI-MA3, increased to –0.29 in July from –0.54 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. Likewise, the economic slack reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year."

Background:  The index is a weighted average of 85 indicators of national economic activity. The indicators are drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

Sunday, August 21, 2011

More on the Failure to Pass the FTAs

Thanks to its thriving mining industry, Colombia is the sixth-largest market in the world for Caterpillar, one of the many U.S. companies hoping that the long-delayed FTA with Colombia finally passes.
From a July 27 article in the Washington Diplomat:

"Slowly but surely, Americans have realized that delaying the FTA is destroying jobs in America," insisted Gabriel Silva, Colombia's ambassador to the U.S. Noting that Colombia must import 70 percent of its corn and 95 percent of its wheat due to limited domestic production, he pointed out that "in 2008, U.S. farmers were the largest providers of agricultural products to Colombia. The U.S. had 46 percent of the Colombian food import market. That's since fallen to 20 percent."

"We were not going to wait for the U.S., so we've signed free trade agreements with Mercosur, Chile and Mexico," he added, referring to the Mercosur trade bloc comprising Argentina, Brazil, Uruguay and Paraguay. "We've renegotiated an agreement with Canada, and also one with the European Union. These countries compete head-to-head with American farmers, in particular Brazil and Argentina."

That is why Bob Stallman, president of the American Farm Bureau Federation, is so gung-ho about passing the U.S-Colombia FTA — now.

"Time is of the essence," he said. "It's important that Congress acts quickly to vote on the package by August recess. If not, we stand to lose this opening and it will come at a cost to America's farmers and ranchers. After more than four years, we cannot afford to miss this opportunity."

Doug Wolf, president of the National Pork Producers Council, agrees, saying it's imperative that the deal is approved before Congress adjourns for a month. "U.S. pork producers need new and expanded market access to remain competitive in the global marketplace," he said. "And the way to get that is through free trade agreements."

MP: Obviously, Congress adjourned in August without signing the FTAs.

So Congress and Obama talk all the time about increasing the number of U.S. jobs and lowering the unemployment rate, but their joint failure to pass the FTAs demonstrates that they really aren't serious about jobs.  Maybe maintaining the support of U.S. organized labor is more important politically than creating thousands of new jobs for Americans.

After all, by not passing the FTAs, politicians maintain union support but don't lose any political support because unemployed workers around the country aren't even aware that their lack of employment might be due to Congressional and presidential inaction on the FTAs.  If they pass the FTAs, elected officials lose union support, but don't gain any new political support because newly hired workers in U.S. industries exporting to Colombia and Panama may not even realize that their employment came about because of FTA passage.  And the thousands of newly created jobs from FTA passage would be dispersed throughout the economy in many industries, and those new workers, unlike organized labor, are not unified and organized as a powerful political block.  So politically, there is probably no net benefit from passing the FTAs, and a very likely net loss politically, especially for Obama and Democrats in Congress. 

Bottom Line: The failure to pass the FTAs has nothing to do with economics, logic, common sense, creating jobs, or what's best for the country as a whole, and everything to do with good ol' politics.

College Professors: Get Out While You Can

From Smith College economics professor James Miller writing in Inside Higher Ed:

"Tenure won’t save us from a higher education collapse. Start making alternative career contingency plans now because this collapse could be sudden and catastrophic.

If you have tenure and therefore think that your college would never get rid of you, consider what would happen if most of your school’s peer institutions replaced expensive tenured faculty with cheap online courses and used the savings to cut tuition by 50 percent. Even if your school has a healthy endowment, many members of your Board of Trustees or Regents probably have business backgrounds and would consider it financial malfeasance for the school to bear costs that the majority of its competitors had shed.

I'm far from certain that the higher education market will disintegrate. But the reasonable chance that it might should be enough to get young and middle-aged tenured professors to think about what we would do if forced out of academia. And bear in mind that if academia suddenly collapsed, the job market would be flooded with former professors, making it extraordinarily challenging for us to get jobs, such as editing and teaching high school, that are well-suited to many professors' skills."

HT: Steve Bartin at Newsalert

Kids Arrested in DC on Lemonade Freedom Day

U.S. Capitol police get out the handcuffs and arrest kids for selling lemonade near the Capitol.

Chart of the Day: Transfer Payments

Warren Buffett's recent column focused mostly on the "sources of government revenue" and the income taxes collected from the "super-rich," which he suggests should be immediately increased with higher rates on incomes above $1 million to reduce the national debt and deficit. 

But there's also the other side of the equation - the "uses of government revenue" that Mr. Buffett did not address.  The chart above shows "transfer payments as a share of government spending" from 1929 to 2010 (BEA data here), which has doubled from 22% in 1966 to 44% last year.  If this trend continues, we might reach a point where no amount of taxation on the rich or super-rich can finance an unsustainable "transfer society."  At some point, the mega-rich might just "go Galt." 

Exhibit A: "Controversial Ryanair boss Michael O'Leary has warned that he will leave Ireland and become a tax exile if rates for high earners become exorbitant. "Europe will realize, as they are in the US, that a tiny proportion of the working population supports a ludicrous amount of incentives and feather-bedding for people who don't want to or won't work," he said."

Saturday, August 20, 2011

More on Warren Buffett's "Mega-Rich"

Tax Returns with $10 Million Income or More
Year Number   Total AGI ($1,000s)   Taxes Paid ($1,000s)   Share of Total Taxes 

The chart above shows some federal income tax data for "mega-rich" Americans, those with annual income of $10,000,000 or more. Note the following:

1. When the economy was booming before the recession started, the number of "mega-rich"  Americans reporting income of $10,000,000 or more reached a peak of 18,394 in 2007, almost double the number in 2004 just three years earlier.  In 2007, the "mega-rich" represented only 0.0129% of American taxpayers (a little more than 1/100 of 1%), or just one in 7,773 taxpayers.  And yet that small group of "mega-rich" paid nearly 10% of all federal income taxes paid that year.  It seems like this elite group should be honored as national heroes for shouldering such a hugely disproportionate share of the national tax burden, and not vilified or accused by Warren Buffet of being "coddled" and "protected" by a "billionaire-friendly Congress" and being "spared from the shared sacrifice" that the rest of society supposedly suffers from.      

2. From the WSJ's recent editorial "Millionaires Go Missing":

"Those with $10 million or more in reported income fell to 8,274 in 2009 from 18,394 in 2007, a 55% drop. As a result, their tax payments tanked by 51% (see chart, from $110.8 billion in 2007 to only $53.7 billion in 2009). These disappearing millionaires go a long way toward explaining why federal tax revenues have sunk to 15% of GDP in recent years. The loss of millionaires accounts for at least $130 billion of the higher federal budget deficit in 2009."

3. From the Tax Foundation blog: 

"Mr. Buffett wants those making more than $10 million per year to pay even more [in taxes].  The table below exhibits the effect of imposing a 100% tax effective rate on these individuals (MP: Instead of paying $53.7 billion taxes as they actually did in 2009, we now assume that their entire $240 billion of income (AGI) was confiscated through taxation, raising an additional $186 billion in tax revenue): 

Even taking every last penny from every individual making more than $10 million per year would only reduce the nation's deficit by 12 percent and the debt by 2 percent.  There's simply not enough wealth in the community of the rich to erase this country's problems by waving some magic tax wand."

Bottom Line: As the WSJ points out, "If Warren Buffett wants to reduce the deficit, he should encourage policies to create more millionaires, not campaign to tax them more." 

What we really want is a strong economy that could bring the number of "mega-rich" taxpayers back above 18,000 like in 2007, with an advantage that tax revenues from that group would double to more than $100 billion again.  That would be a much more effective way to raise tax revenues from the super-rich than raising marginal tax rates on Buffett and his super-rich friends as he proposes.  Raising tax rates simply increases the "membership fee" of joining Buffett's elite group and  could reduce the number of Americans willing and able to enter the "mega-rich" club. 

Saturday Night Links

1. CNBC’s “Mad Money” show will originate from western North Dakota’s oilfields on Wednesday, part of the program’s “Invest in America” series.

2. New York has exported more than 1,200 doctors to Texas since 2003, following medical malpractice reforms in Texas.  Since 2003, medical liability rates in New York have increased more than 60 percent while in Texas, they’ve dropped by 54 percent.

3. Not content ordering from the menu? Here's your guide to secret menu items at fast food and chain restaurants.  (HT: Tim D.)

4. Maine couple on trial for redeeming deposits for bottles from New Hampshire. Think Seinfeld. (HT: Tim D.)

5. Four DC Metro transit workers made more than $100,000 last year, including a police officer who made $123,000.  No big deal, right? Well, that was just for overtime.

1,733 Days and Counting. The Biggest Trade Barrier to the 3 Free Trade Agreements? Barack Obama

It's now been 1,733 days since the U.S.-Colombia free trade agreement was signed on November 22, 2006, and during that time almost $4 billion of tarrifs have been imposed on U.S. exports to Colombia. 

It's now been 570 days since President Obama's first State of the Union address on January 27, 2010, where he outlined his plan to help U.S. businesses double exports over the next five years and in the process add two million American jobs. Further, Obama warned that “If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. We have to seek new markets aggressively, just as our competitors are." 

Well, that's exactly what’s happening , but it’s not the good part about doubling exports and adding U.S. jobs, it’s the bad part about the U.S. sitting on the sidelines while Colombia and Panama negotiate free trade agreements (FTAs) with the European Union and Canada, and while Korea finalizes an FTA with the European Union. Meanwhile, America’s FTAs with Colombia, South Korea and Panama, all signed back in 2006 or 2007, are now languishing into their fourth or fifth year awaiting Congressional approval.

What makes those delays especially inexcusable is the fact that the main beneficiaries of the stalled free trade agreements with Colombia and Panama would actually be American companies and workers, because the agreements would open up those markets to U.S. exports by eliminating the stiff tariffs currently imposed on our products (while 90 percent of Colombian and Panamanian imports currently enter the U.S. duty-free).

Here's the latest on the FTAs from today's WSJ:

"President Obama says he wants to get the U.S. economy growing, so here's a tip that may help: In order for Congress to ratify free-trade agreements, the White House must first send the signed deals to the other end of Pennsylvania Avenue. 

On his three-state tour in the Midwest this week, Mr. Obama repeatedly told audiences that the Korea, Colombia and Panama free-trade deals would all be law by now if not for an obstructionist Congress. Passing the deals is something Congress "could do right now," he said. Except that's not true. Congress can't pass the agreements "right now" because it doesn't have them. They are still sitting on the President's desk. Seriously.

If you are surprised to learn this, you are not alone. White House deputy press secretary Josh Earnest only learned the news on Friday during a press conference. Asked why the FTAs haven't been sent, he responded, "We have not sent them over?"

How Private Citizens Saved Central Park

Who's in charge of maintaining Central Park in Manhattan? The city of New York using taxpayer money and unionized public employees, right? Well, Wrong!

From Laura Vanderkam in the City Journal (emphasis mine):

"Perhaps the most amazing thing about Central Park is how little tax money goes into maintaining it. Though it is still ultimately the city’s responsibility, the park has been managed since the 1980s by the nonprofit Central Park Conservancy, and it relies on private donations for most of its budget. The marriage between the city and the Conservancy has been a fruitful one. Can this model, known as a public-private partnership, restore and invigorate all of New York’s green spaces, including neighborhood parks in less affluent areas? It’s an important question, not only as the city faces tough fiscal times but as urban planners increasingly view parks as tools of economic development and public health.

People who lived in New York in the 1970s and early 1980s still remember how forbidding the parks were in those dark days. Douglas Blonsky, now head of the Central Park Conservancy and thus Central Park’s administrator, recalls that when he started working there in 1985, most of the benches were broken and most surfaces sported layers of graffiti. “The Great Lawn was a dust bowl,” he says, at least when the weather was dry; when it rained, seas of mud meant that “you could barely walk through the park for days.”

But where “government had given up,” citizens stepped in. In 1980, landscape designer Elizabeth Barlow Rogers and others founded the Central Park Conservancy, whose original purpose was to raise money, stop the park’s decline, and restore several of its major landmarks. The city eventually gave the Conservancy the lion’s share of day-to-day control of the park. Because its workers weren’t organized into public-sector unions, the Conservancy had a great deal of freedom to institute private management practices—above all, emphasizing accountability. The park is now divided into 49 sections, with a master gardener responsible for the condition of each. About 85 percent of the Conservancy’s annual budget comes from private donations, mostly from people who live within a ten-minute walk of the park. “Obviously, it’s an incredible backyard, and look what it does to your real-estate values,” says Blonsky."

HT: Matt Bixler

CD Milestones: +8,000 Posts and +6,000,000 Visits

A few new statistical milestones for Carpe Diem: 1) The total number of posts just went over 8,000 and 2) the total number of visits recently went over 6,000,000 (see graphic above)!  Thanks for your support and thanks also for the 60 comments and several private emails about the "gestapo" issue, which overwhelmingly found the term to not be objectionable.   

Tax Foundation Map of State Credit Ratings

The map above from the Tax Foundation shows S&P credit ratings of the 50 states: 13 states have the top AAA rating, 14 states have the second-highest AA+ rating, 17 states have the next highest rating of AA, four states have an AA- rating, and the two worst states have ratings of A+ (Illinois) and A- (California). 

Friday, August 19, 2011

Individuals Have Unlimited Wants and Desires and That Prevents Persistent Unemployment

Sam Harris writes on his blog, following a post titled "How Rich is Too Rich?"

"Specifically, I would be interested to know if any economist has an economic argument against the following ideas: 

Future breakthroughs in technology (e.g. robotics, nanotech) could eliminate millions of jobs very quickly, creating a serious problem of unemployment.

I am not suggesting that this is likely in the near term. I am saying that it is possible. Many people believe that there is some fundamental principle of economics (even of physics) that rules this out. Drawing a lesson from the information revolution, many readers have written to inform me that the birth of the computer led to new industries and new jobs (thank you). Needless to say, I do not disagree. I am suggesting, however, that there is nothing that rules out the possibility of vastly more powerful technologies creating a net loss of available jobs and concentrating wealth to an unprecedented degree."

Here's the response I submitted:

1. Yes, there IS a fundamental principle of economics that rules out a serious persistent problem of unemployment: 

The first principle of economics is that we live in a world of scarcity, and the second principle of economics is that individuals have unlimited wants and desires. 

Therefore, the second principle of economics: unlimited wants and desires, rules out any long-term problems of unemployment.

(I shouldn't pass up an opportunity here to invoke Thomas Sowell and point out that the first principle of politics is to ignore the first principle of economics.)

2. What if we were having this discussion in the 1800s, when the U.S. was an agricultural-based economy, and you were suggesting that “future breakthroughs in farm technology (e.g. tractors, electricity, combines, the cotton gin, automatic milking machinery, computers, GPS, hybrid seeds, irrigation systems, herbicides, pesticides, etc.) could eliminate millions of jobs very quickly, creating a serious problem of unemployment.” 

With hindsight, we know that didn’t happen, and all of the American workers who would have continued to work on farms without those technological, labor-saving inventions found gainful employment elsewhere in different or new sectors of the U.S. economy like manufacturing, health care, education, business, retail, computers, transportation, etc. 

For example, 90% of Americans in 1790 were working in agriculture, and now that percentage is down below 2% (see chart above), even though we have greater employment and output overall now than in 1790.  The technological breakthroughs and advances reduced the share of workers in farming, but certainly didn’t create long-term problems of unemployment.  Thanks to “unlimited wants and desires,” Americans found gainful employment in industries besides farming.

Update: If there were examples in the past where farm technology eliminated millions of jobs very quickly, it certainly wasn't a long-term, persistent problem of unemployment

More Records for N. Dakota's Booming Oil Economy

State Employment, Top 10 by Annual % Increase
StateJuly 2010July 2011% Change
1.North Dakota375,300395,0005.25%

The BLS released data today for July state employment and unemployment.  Thanks to its ongoing oil boom (see recent CD post "More Records for North Dakota's Booming Oil Economy), North Dakota led the country with the greatest year-over-year job growth at 5.25%, slightly more than double the 2.6% job growth in second-place Texas (see chart above).  North Dakota also leads the country with the lowest July jobless rate of 3.3%, far below the national rate of 9.1% and almost a full percentage point below second-place Nebraska at 4.1%.  Texas wasn't even close at 8.4%, ranking 27th in the country for July jobless rates.

North Dakota also led the country with a 6.9% growth in personal income for the first quarter of 2011, much higher than the 2.6% growth for the next two states: Wyoming and Texas.  In 2010, North Dakota was the state with the highest growth in real state GDP at 7.1%, far ahead of second -place New York at 5.1%, and more than twice the 2.8% rate in Texas.     

Related: See Catherine Rampell's post today at the Economix blog titled "The North Dakota Miracle," which starts with "Forget the Texas Miracle. Let's instead look at North Dakota..." 

Following 60 Trips to City Hall for Permits, the First Legal Food Truck is Now Operating in Detroit

DETROIT (July 17, 2011) -- "Today marks the first day that hungry Detroiters will be able to order lunch from a legal food truck in downtown Detroit. El Guapo Fresh Mexican Grill, downtown's first fully sanctioned food truck, will be stationed at 301 Monroe St. at Randolph, serving tacos, burritos and several kinds of salsas.

While other food truck operators in downtown Detroit have set up shop without permits, Anthony Curis and Doug Runyon, co-owners of El Guapo, made dozens of trips to City Hall to find a path to legality. Curis said he visited City Hall about 60 times over the past six months, working closely with Kim James, director of the Buildings, Safety, Engineering and Environmental Department, to secure a locale to operate legally."

HT: Mike W.

A Big Bridge in the Wrong Place on the Hudson

From David Kestenbaum at Planet Money:

"You would never look at a map of the Hudson River (see above), point to the spot where the Tappan Zee Bridge is, and say, "Put the bridge here!" The Tappan Zee crosses one of the widest points on the Hudson — the bridge is more than three miles long. And if you go just a few miles south, the river gets much narrower. As you might expect, it would have been cheaper and easier to build the bridge across the narrower spot on the river.

So I wanted to answer a simple question: Why did they build the Tappan Zee where they did, rather than building it a few miles south?"

As you might imagine, building a big expensive bridge in the wrong place had nothing to do with economics, science, environmental concerns, engineering, logic or common sense, but everything to with... what's left? Politics.  Find out more here

Thursday, August 18, 2011

Median Grades at Cornell by Department

Cornell -- "In 1996 the Cornell University Registrar began publishing online median grade reports — an indication of the grades awarded in all undergraduate courses at Cornell. The move came in preparation for a much larger transition: the publishing of median course grades on Cornell transcripts. This year's seniors, the Class of 2012, will be the first class where all students will receive transcripts with these grades listed.

This interactive infographic transforms the Fall 2009 Median Grade Report into a visual form you can explore and manipulate."

MP: The graphic above shows median grades for courses in three departments at Cornell: Economics, Education and Math.  Specifically, it shows the percentage of courses in each department with a median grade of A: Economics (13.6%), Education (77.8%) and Math (12.9%).  Note also that 100% of Education courses have a median grade of either A (77.8%) or A- (22.2%), whereas for Economics there's a wider distribution of median grades: A (13.6%), A- (18.2%), B+ (50%) and B- (18.2%).  For math the breakdown is: A+ (3.2%), A (12.9%), A- (16.1%), B+ (41.9%), B (22.6%) and B- (3.2%).  

As Walter Williams reminds us "Schools of education, either graduate or undergraduate, represent the academic slums of most any university."  And yet education majors frequently graduate with some of the highest GPAs in the university, as these data confirm.  Maybe that's why grade inflation is now also a problem in high schools (see chart below)? 

HT: Craig Newmark

Help Me Out Here....

On several CD posts over the last six months, I've described overzealous, intrusive, heavy-handed, oppressive government bureaucrats as the "licensing gestapo."  In response to those posts, I've received private emails objecting to the use of the term "gestapo." 

In an attempt to be provocative, have I crossed over the line into using "inflammatory" or "objectionable" language with the term "gestapo"?  To me, I have been using the term "licensing gestapo" in the same spirit as the commonly-used term "grammar nazi" (or "soup nazi" as one commenter mentions below).  Those terms to me seem more provocative and descriptive than offensive or inflammatory, but help me out here.....

Is "licensing gestapo" offensive? Is "grammar nazi" or "soup nazi" offensive?  Would the term "licensing KGB" be less offensive than "licensing gestapo?"

Comments solicited!     

Mortgage Rates Fall to Record Low Levels: Monthly Payments on A Median Price Home Only $677

Based on data released today by Freddie Mac:

1. Rates for the 30-year fixed mortgage fell to a new all-time historic low this week of 4.15%, which is slightly below previous record low for the 30-year rate in mid-November of last year of 4.17% (see top chart above). 

2.  The average fixed rate for 15-year mortgages fell to 3.36%, the lowest rate in the history of this series, which started in 1991 (see middle chart).   

3. The rate for one-year adjustable mortgages fell to 2.86% from 2.89% last week, setting a new all-time record low going back to April 1986, when weekly data for ARMs started being collected (see bottom chart). 

MP: It's a great time to buy a house or refinance your mortgage.  For the current median price home of $174,000, with a 20% down payment, monthly payments for principal and interest would be: 

30-year 4.15% fixed rate: $676.66 per month
15-year 3.36% fixed rate: $985.57
1-year 2.86% ARM: $576.41

English: The Inescapable Language

"English dominates the Internet. It is the only language used in air traffic control. It is the overwhelmingly dominant language of science. (Even the premier French scientific organization, the Institut Pasteur, publishes its papers in English first and only later in French). Sixty percent of all students studying a foreign language today are studying English. It’s a required course in school, starting early on, in an increasing number of countries.

So we native speakers of English have a great advantage. Learning English at our mothers’ knee is almost like being born able to do algebra. Those not so fortunate can still get a handle on it fairly easily, however. That’s lucky for them because, like it or not, acquiring a competence in English is now a necessary part of every serious education around the world."

~John Steele Gordon writing in The American.com

First They Came for Kid-Run Lemonade Stands, II

Then the "licensing gestapo" came for adults with cancer trying to raise money with weekend yard sales:

Salem, OR -- "A woman fighting a terminal form of bone cancer is trying to raise money to help pay bills with a few weekend garage sales, but the city of Salem says she’s breaking the law and is shutting her down.  Jan Cline had no idea, but the city of Salem has a clear law that states a person can only have three yard sales a year.

Cline has been selling her stuff in the backyard for a few weekends and said she thought she’d be fine by keeping the sale out of everyone’s way."

But then a city inspector showed up and shut her down....

HT: Matt Bixler

Update: Jan Cline's friends have set up a Facebook page for her, and there is a website here to make donations.

"Peak Solar" Hits Tennessee as Grant $$ Run Out

Nashville -- "While the state has put great emphasis on solar technology in recent years, bringing that technology to bear in Tennessee homes and businesses is proving a difficult task because of the high cost of installation, which is becoming increasingly hard for the state and its citizens to swallow.

Wednesday, the Tennessee Solar Institute announced it would stop processing applications for further grants as it exhausts about $10 million of stimulus funds encouraging businesses to invest in solar technology.

This news arrives as Tennessee Valley Authority officials continue to mull alternatives for the future of the Generation Partners program, which pays incentives to those who install solar systems at their homes or businesses. The program is funded by customers who voluntarily pay more money on their electric bills to support renewable energy.

With the tough economy pinching customers, the contributions haven’t covered the costs, and the solar incentives are costing TVA about $5 million a year."

MP: This story helps illustrate the reality that solar energy is produced by mixing sunlight with tax dollars. 

Update: "Peak solar" hits Oregon as well.  

"A solar boom was spawned by the Legislature's supersizing of Oregon's controversial Business Energy Tax Credit in 2007, under which the state covered 50 percent of the cost of renewable energy projects up to a maximum credit of $10 million.

But solar developers in Oregon say solar projects will no longer be feasible, now that lawmakers have put the state subsidies system on a starvation diet. With the state budget in free fall, the Legislature cleaved its commercial renewable energy subsidy pot by 99 percent for the current budget cycle, from a cap of $300 million in credits for 2009-2011 to $3 million in 2011-2013.
Without the tax credits, the economics of commercial solar projects don't work, for electricity buyers or investors who underwrite the projects."

HT: Wayne Sanman

All Conference Board Indicators Increase in July

From the Conference Board report today (here and here):

"The Leading Economic Index (LEI) for the U.S. increased for a third consecutive month in July (see chart above). Gains in the financial components and average weekly initial claims for unemployment insurance (inverted) offset the large negative contributions from vendor performance and consumer expectations. In the six-month period ending July 2011, the leading economic index increased 2.9 percent (about a 6.0 percent annual rate), slightly slower than the growth of 3.2 percent (about a 6.5 percent annual rate) during the previous six months. However, the strengths among the leading indicators have been more widespread than the weaknesses recently.

Six of the ten indicators that make up The Conference Board LEI for the U.S. increased in July. The positive contributors – beginning with the largest positive contributor – were real money supply, the interest rate spread, average weekly initial claims for unemployment insurance (inverted), stock prices, manufacturers’ new orders for nondefense capital goods, and manufacturers’ new orders for consumer goods and materials. The negative contributors – beginning with the largest negative contributor – were the index of supplier deliveries (vendor performance), the index of consumer expectations, and building permits. Average weekly manufacturing hours held steady in July."

Ataman Ozyildirim, economist at The Conference Board, said: “The U.S. LEI continued to increase in July. However, with the exception of the money supply and interest rate components, other leading indicators show greater weakness – consistent with increasing concerns about the health of the economic expansion. Despite rising volatility, the leading indicators still suggest economic activity should be slowly expanding through the end of the year.”

The Conference Board also reported that the Coincident Economic Index increased 0.3 percent and The Conference Board Lagging Economic Index increased 0.2 percent in July.

CPI Core Inflation Stays Below 2% for 32nd Month

The BLS released its monthly CPI report today for July, here are some highlights:

1. From July of last year, the all items CPI inflation was 3.6%, the same rate as in May and June (see chart above). 

2. Over the last 12 months through July, food prices have increased by 4.2% (highest since March 2009), overall energy prices by 19%, and gasoline prices by 33.6%.  Oil prices have fallen by almost 17% over the last month from mid-July, which would mean that energy inflation has already moderated substantially and will likely be much lower for the August CPI report.  Thanks to the ongoing "shale gas revolution," natural gas prices fell by -2.8% over the last year. 

3. Core inflation (CPI less food and energy) was 1.8% from last July, the highest rate since April 2009, but the 32nd consecutive month below 2% (see chart above).

MP: Despite the recent increases in food and energy prices, core inflation remains low - below 2%.  Looking at U.S. inflation rates for overall prices and core prices on a monthly basis back to January 1958 (see graph above), the recent record of U.S. inflation still looks a lot more like the price stability of the late 1950s and 1960s than the inflationary 1970s and early 1980s.  One difference is that overall inflation has been much more volatile than core inflation over the last decade, compared to the 1958-2000 period when overall and core inflation moved much more closely together.  And maybe it's that greater volatility in food and energy prices in recent years that makes inflation seem worse than it really is.  It still seems hard to make a strong case for 1970s-style inflation when core inflation is below 2%.    

Cartoon of the Day: Ballast

By the always-excellent Michael Ramirez

HTs: Mike Carlson and Dennis Gartman

Wednesday, August 17, 2011

Buffett Pays Too Little Tax, Not Because He’s So Rich but Because the U.S. Tax System is So Poor

Here's a Canadian perspective from Jack Mintz on Warren Buffett's proposal that the "billionaire-friendly Congress" stop coddling him and his friends by raising tax rates on the "mega-rich":

"Although a brilliant investor, Warren Buffett’s recent prognosis to hike taxes on the rich is off the mark and, frankly, naive public policy. He is right that tax reforms of some sort will be needed to deal with the U.S. deficit since the fiscal hole is just too large now. With federal-state-local government spending over 40% of GDP and all-government revenues at 30% of GDP, Americans are paying only for 75% of their 2011 public bills. Spending reforms alone won’t do the trick.

However, the Obama plan to simply increase personal income tax rates on the rich and hike capital gains and dividend taxes will hurt rather than help growth. Higher personal tax rates will reduce the incentive to invest by entrepreneurs, who are most responsible for growth.  Capital gains and dividends (subject to federal-state personal tax rate of 20%) are currently highly taxed at more than 50% once taking into account the 39% corporate income tax rate that reduces the amount of profits distributed to shareholders or reinvested by the company. More double taxation of dividends and capital gains hurts the economy.

Already the highest-income taxpayers — about 5% of taxpayers — pay almost 60% of U.S. income taxes. The bottom half of the population pays only 3%. So any tax increase imposed on high-income earners should be in areas where some, like Warren Buffett, are paying far less than other wealthy individuals. Warren Buffett’s 17% tax rate results only because he gets a large number of breaks that other wealthier Americans, like doctors, cannot use.

Which gets to the main point. The United States needs major tax reform, rather than playing at the edges to make the system more progressive than it is already. U.S. income taxes are complex, inefficient and highly unfair. The statutory rates, once taking into account federal and state income and payroll taxes, are already high, even with the Bush tax cuts.  The problem is that too many targeted preferences reduce the amount of taxes paid, undermining economic growth. 

The list of special preferences in the United States is mindboggling and could fill a book on how not to run a tax system. A major tax reform that lowers rather than increases personal and corporate tax rates and eliminates a number of special preferences would make the tax system more efficient and fair, and it would grow revenue over time by growing the economy. Currently, favored activities earn a lower return, so base-broadening and rate reductions would shift resources to activities with better returns. The Americans could also build in some extra revenues to help deal with the deficit, since a more efficient tax system would generate growth.

The United States needs to get out of its box of low growth. Current proposals for tax increases are the wrong medicine. Instead, a rate-reducing cum base-broadening tax reform would be more powerful by reducing the economic cost of taxation. Buffett pays too little tax, not because he’s so rich but because the U.S. tax system is so poor."

HT: Brad Parkes