Tuesday, August 30, 2011

Obama's Chief Econ. Adviser Once Made An Amazing Discovery: Demand Curves Slope Upward

In a 1994 paper published in the American Economic Review, economists David Card and Alan Krueger (appointed today to chair Obama's Council of Economic Advisers) made an amazing economic discovery: Demand curves for unskilled workers actually slope upward! Here's a summary of their findings (emphasis added):
"On April 1, 1992 New Jersey's minimum wage increased from $4.25 to $5.05 per hour. To evaluate the impact of the law we surveyed 410 fast food restaurants in New Jersey and Pennsylvania before and after the rise in the minimum. Comparisons of the changes in wages, employment, and prices at stores in New Jersey relative to stores in Pennsylvania (where the minimum wage remained fixed at $4.25 per hour) yield simple estimates of the effect of the higher minimum wage. Our empirical findings challenge the prediction that a rise in the minimum reduces employment. Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 13 percent."
Note: In that case, New Jersey should have increased the minimum wage even higher than $5.05 per hour, and employment would have increased even more than 13%!

It was only a short time before the fantastic Card-Krueger findings were challenged and debunked by several subsequent studies:

1. In 1995 (and updated in 1996) The Employment Policies Institute released "The Crippling Flaws in the New Jersey Fast Food Study"and concluded that "The database used in the New Jersey fast food study is so bad that no credible conclusions can be drawn from the report."

2. Also in 1995, economists David Neumark and David Wascher used actual payroll records (instead of survey data used by Card and Krueger) and published their results in an NBER paper with an amazing finding: Demand curves for unskilled labor really do slope downward, confirming 200 years of economic theory and mountains of empirical evidence (emphasis below added):
"We re-evaluate the evidence from Card and Krueger's (1994) New Jersey-Pennsylvania minimum wage experiment, using new data based on actual payroll records from 230 Burger King, KFC, Wendy's, and Roy Rogers restaurants in New Jersey and Pennsylvania. We compare results using these payroll data to those using CK's data, which were collected by telephone surveys. We have two findings to report.

First, the data collected by CK appear to indicate greater employment variation over the eight-month period between their surveys than do the payroll data. For example, in the full sample the standard deviation of employment change in CK's data is three times as large as that in the payroll data.

Second, estimates of the employment effect of the New Jersey minimum wage increase from the payroll data lead to the opposite conclusion from that reached by CK. For comparable sets of restaurants, differences-in-differences estimates using CK's data imply that the New Jersey minimum wage increase (of 18.8 percent) resulted in an employment increase of 17.6 percent relative to the Pennsylvania control group, an elasticity of 0.93. In contrast, estimates based on the payroll data suggest that the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group. This decrease is statistically significant at the five-percent level and implies an elasticity of employment with respect to the minimum wage of -0.24."
MP:  It should be noted that even if empirical evidence suggests that raising the minimum wage has no effect on the level of employment, that finding does not necessarily mean that the minimum wage has no adverse effects.  There could be many other negative effects making unskilled workers worse off, even if they manage to keep their job following a minimum wage increase.  Here are some examples:

1. Reduction in the number of hours worked;
2. Reduction in fringe benefits like reduced cost uniforms, reduction or elimination of reduced cost or free meals at restaurants, elimination or reduction in company-sponsored holiday parties, picnics, events; 
3. Reduction or elimination in any health care benefits;
4. Reduction in on-the-job training, etc.

The most likely outcome of a minimum wage increase, confirmed by Neumark and Wascher and consistent with the Law of Demand, would be that everything beneficial for unskilled workers decreases: employment levels, hours worked, fringe benefits, subsidized uniform and food, training, etc.  Let's hope that labor economist Alan Krueger, as he assumes his new position as Chief Economist to the President, remembers that demand curves really do slope downward, despite his original flawed findings based on faulty survey data.    

Pending Legislation in California: “The Law to Eliminate Employment of Babysitters in the State”

From California State Senator Doug LaMalfa (R-4th District):

"How will California parents react when they find out they will be expected to provide workers' compensation benefits, rest and meal breaks, and paid vacation time for…babysitters? Dinner and a movie night may soon become much more complicated.

California Assembly Bill 889 will require these protections for all “domestic employees,” including nannies, housekeepers and caregivers. The bill has already passed the Assembly and is quickly moving through the Senate with blanket support from the Democrat members that control both houses of the Legislature – and without the support of a single Republican member. Assuming the bill will easily clear its last couple of legislative hurdles, AB 889 will soon be on its way to the Governor's desk.

Under AB 889, household “employers” (aka “parents”) who hire a babysitter on a Friday night will be legally obligated to pay at least minimum wage to any sitter over the age of 18 (unless it is a family member), provide a substitute caregiver every two hours to cover rest and meal breaks, in addition to workers' compensation coverage, overtime pay, and a meticulously calculated timecard/paycheck.

Failure to abide by any of these provisions may result in a legal cause of action against the employer ("parents") including cumulative penalties, attorneys' fees, legal costs and expenses associated with hiring expert witnesses, an unprecedented measure of legal recourse provided no other class of workers – from agricultural laborers to garment manufacturers." 

MP: Just one more example of excessive regulation and high labor costs in the "unionocracy of California," giving businesses one more reason to leave the state in record numbers.  

The Mystery of Steve Jobs's Charitable Giving vs. The Non-Mystery of Joe Biden's Extreme Stinginess

Joe Biden's tax return information 1998-2008.
New York Times Columnist Andrew Ross Sorkin wrote yesterday about the "Mystery of Steve Jobs's Public Giving":
"Steve Jobs is a genius. He is an innovator. A visionary. He is perhaps the most beloved billionaire in the world. Surprisingly, there is one thing that Mr. Jobs is not, at least not yet: a prominent philanthropist. Despite accumulating an estimated $8.3 billion fortune through his holdings in Apple and a 7.4 percent stake in Disney, there is no public record of Mr. Jobs giving money to charity.

But the lack of public philanthropy by Mr. Jobs — long whispered about, but rarely said aloud — raises some important questions about the way the public views business and business people at a time when some “millionaires and billionaires” are criticized for not giving back enough while others like Mr. Jobs are lionized."

Sorkin does allow for some mystery and uncertainty by saying that "it is very possible that Mr. Jobs, who has always preferred to remain private, has donated money anonymously or has drafted a plan to give away his wealth upon his death."

Another national figure whose charitable giving is not mysterious or uncertain is Vice-President Joe Biden, see his tax information above for the years 1998 to 2008 (source).  Biden's AGI in every year exceeded $200,000 and his total income over the 11-year period totaled more than $2.7 million.  How much did he give to charities? Only $5,575 during the entire period, averaging about $500 per year, and representing only 0.20% of his income.  If you disregard his last two "generous" years leading up to the 2008 election, his charitable giving was only 0.1265% of his income, or about one-eighth of 1%.  In 1999, Biden reported only $120 in charitable gifts for the year, which likely included his church giving.  Had he been tithing to his church like many of his fellow Catholics, his charitable contributions should have been about three times that amount - every week.  

Of course, whether you're Steve Jobs or Joe Biden, you have the right to be as generous or as miserly as you want, and shouldn't be criticized for personal decisions about spending your own money.  But it appears that Mr. Sorkin is holding business leaders like Steve Jobs to a higher standard for charitable giving than say, a political leader like the Vice-President.  I'm pretty sure that neither Mr. Sorkin, nor any other NY Times columnist has probably ever questioned Mr. Biden's documented record of (un) charitable giving.  And that's fine.  But then they don't have the right to question Mr. Jobs's unknown record of philanthropy.  After all, if successful business people have some obligation to "give back" to society, then don't successful politicians have that same obligation as well?

Obama Beware: 9% Unemployment Rates Are NORMAL for European Welfare States Like France

Historical Unemployment Rate in France: 1970 to 2010

"Americans today are alarmed that unemployment has stayed around 9 percent for so long. But such unemployment rates have been common for years in Western European welfare states that have followed policies similar to policies being followed currently by the Obama administration (see chart above of the jobless rate in France).

Those European welfare states have not only used the taxpayers' money to hand out "free" benefits to particular groups, they have mandated that employers do the same. Faced with higher labor costs, employers have hired less labor."

MP: What is both really interesting and depressing (if it were to happen here) is that the annual unemployment rate in France was below 3% every year from 1970 to 1974, and then since 1984 it's been at or above 8% every year, with just a few exceptions.  

Talking On the Phone Is Down 15%, Texting is Up

HUFF POST TECH -- "According to new data from J.D. Power, a consumer research and marketing company, Americans are now talking on their cellphones over an hour less per month than in 2009. J.D. Power writes in a press release for its 2011 Wireless Network Quality Performance study:
Wireless usage patterns continue to evolve, as fewer calls are being made or received. On average, wireless customers use 450 minutes per month, a decline of 77 minutes from 527 in 2009. Customers are using their devices more often for text messaging. The study finds that wireless customers sent/received an average of 39 text messages during an average two-day period. During the course of a month, this equals more than 500 incoming/outgoing text messages.
Talking on cellphones has gradually given way to texting, emailing, and video chatting, as well as gaming, media consumption and a slew of other activities now made possible thanks to smartphone applications." 

MP: As I commented once before, the telephone replaced the telegraph for communicating, and now it's like we're going back to using the telegraph with texting. 

Convenient Medical Clinics in Retail Settings Are Booming: It's a Wake-Up Call for Family Physicians

From USA Today:

Insured patients are increasingly turning to the convenience of drugstore clinics like Minute Clinic and other medical resources outside the traditional doctor's office setting when they can't schedule day-of appointments with their primary-care provider. Some without health insurance say they find them a faster, less pricey alternative to urgent care or emergency room visits. Almost half of Minute Clinic's clientele don't have a primary-care doctor of their own.

There are about 1,250 retail-based convenient care clinics in the USA. Two-thirds are in drug stores and one-third are in retail settings, such as Wal-Mart and Target, and supermarket chains. The growth has been significant: in 2006, there were only 175 such locations.

The proliferation of independent care clinics is also a wake-up call for family physicians, says internist David Winter. "We can get our act together and make it possible for our patients to get in sooner than six weeks." 

MP: Isn't competition great?  

Cuba’s Growing Pro-Freedom Resistance Movement

Cuban Spring?

"As attention focuses on the Middle East and North Africa, where protesters have taken to the streets to demand political change, some wonder whether Cuba will follow suit. A closer look at the island, where freedom fighters wage a nonviolent struggle against a regime desperate to conceal the effectiveness such methods have met during the “Arab Spring,” reveals good news: a big story that cuts through the bleak reality of 52 years of totalitarian rule and the media noise fueled by pro-regime talking points.

The island’s growing pro-freedom Resistance, a movement of brave activists who defend Cubans’ basic liberties and fight for democracy, is making gains that are impossible to ignore. Their civic resistance actions, including increasingly bold demonstrations in highly visible public places, are garnering greater support from the man on the street. The Resistance has the courage to speak what is on the country’s mind.

Testimony from longtime activists and new video footage (featured above) making its way out of the island confirm that something new is happening: more and more, ordinary Cubans are overcoming the climate of fear created by systematic surveillance and repression, firing squad executions, political imprisonment and torture to support Resistance members who proclaim a pro-freedom message on Cuban streets. This is happening in a situation which finds Cubans at a disadvantage in comparison to conditions in some “Arab Spring” countries: Cuba is a single-party Communist state with centralized control over the economy and people’s livelihoods, the regime denies Internet access to all but a chosen elite, mobile phone penetration is very low, telephony is monitored, and all independent media is illegal."

The Disparity-Proves-Discrimination Standard Gets Applied Selectively; NBA, WNBA Get an A+ for Race

Does the "disparity-proves-discrimination" standard apply here? Apparently not, this gets an A+ for race.
Share of U.S. PopulationShare of NBAShare of WNBA

If you saw the data in the chart above and were asked to make an assessment about the degree of racial diversity represented by the outcomes, how would you grade these outcomes?  After all, the racial representations diverge greatly from the racial shares in the U.S. population.  For example, blacks are 15.4% of the population, but are significantly overrepresented in these outcomes: 78% (men) and 63% (women).  Whites are 75% of the U.S. population, but are significantly underrepresented here: shares of only 17% for men and 21% for women.  Likewise, Hispanics and Asians are significantly underrepresented in the outcomes compared to their shares of the population.  

When determining your letter grade for racial diversity, consider what would happen if some of the outcomes were reversed, e.g. blacks are 15.4% of the population, but make up only say 5% of some outcome like college enrollment, managerial positions, boards of directors, city payrolls for police or fire workers, coaching positions, etc.  In most cases of gender or racial under-representation, the goal of advocacy groups or government agencies is often: perfect statistical gender or racial parity based on shares of the general population (see example here of perfect gender parity being the stated goal of the Commerce Department for STEM jobs and college majors).

Given the statistical outcomes above where whites are underrepresented by a factor of 4.4 times compared to their share of the general population (75% to 17.4%) and blacks are overrepresented by a factor of 5 times (78% vs. 15.4%) compared to their share of the general population, it would seem that the logical conclusion is that the racial outcomes above for the NBA and WNBA depart dramatically from the standard measures of diversity.  When women or minorities are underrepresented in some outcome (STEM jobs, college enrollment, etc.), efforts are made to "increase diversity" by increasing the gender or racial shares of various outcomes to the gender or racial shares of the overall population.  

But when it comes to the NBA and WNBA, much different standards of diversity are applied to the racial composition of professional basketball teams.  According to the "Racial and Gender Report Cards" (released annually by the "Institute for Diversity and Ethics in Sports" at the University of Central Florida) both the NBA and WNBA got letter grades of A+ for "race" in 2011 for the significant over-representation of black players and the significant under-representation of white, Hispanic and Asian players?? 

This seems pretty Orwellian in the sense that "all racial and gender groups are equal and important for purposes of diversity, but some groups are more equal than others."  For example, when women are underrepresented in STEM fields, the gender activists invoke the "disparity-proves-discrimination dogma" and mobilize resources and support to address the gender disparity. But when women are overrepresented in earning college degrees (140 females per 100 men), or 7 out of 11 graduate degrees, or outnumber male veterinarians by more than 3:1, those disparities, and the "disparity-proves-discrimination" dogma are ignored.

Likewise, now that whites, Hispanics, and Asians are significantly underrepresented in the NBA and WNBA, the "disparity-proves-discrimination" dogma is abandoned and a new mantra is adopted by the Institute for Diversity and Ethics in Sports: "racial disparities-prove-success" as long as whites, Asians and Hispanics are under-represented, and deserve letter grades of A+.

Interestingly, the Institute of Diversity and Ethics is headed by two white guys who are listed as the organization's top administrators (see photo below).  What grade would they give their own organization for the category of "Top Management" (one of the categories they use for the NBA and WNBA)? Would this be an F for being 100% white and male?

Monday, August 29, 2011

Walmart Wasn't First Big Retailer to Be Condemned for Serving Its Customers With Everyday Low Prices

Does this sound familiar?

1. At its peak, the retail chain had nearly 16,000 stores nationwide, with a retail presence in almost every state. Critics charged it with competing unfairly by offering too-low prices. 

2. The major retailer's business philosophy is simple: If the company keeps its costs down and prices low, more shoppers will come through its doors, producing more profits than if it kept prices high. The more stores it opens, the greater the take.

3. But the company had a public-relations problem.  For generations, small "mom and pop" family stores have served as community anchors. There were thousands across the country.  If low-priced chain retailers drive out such stores, what will happen to small-town America?

4. Chain retailing has become a political issue, one that continues to nag the big-box retailer. The critics' persistent charge is that the chain retailer's prices are too low. Because the chains are so big, they could offer special deals to wholesalers. They can also build their own bakeries and canneries, options unavailable to the independent "mom and pops."

5. "We, the American people, want no part of monopolistic dictatorship in American business," remarked a popular Congressman from Texas commenting about the chain retailer. "Think of Hitler. Think of Stalin. Think of Mussolini."

6. The chain retailer defended its aggressive efforts to cut purchasing costs, narrow its own margins, and reduce consumer prices in order to build business by saying that its strategy is  exactly what a company is supposed to do in a market economy.
MP: Of course the chain retailer being discussed above would appear to be "evil" Walmart, but it's actually a discussion about a low-price, chain retailer that was founded almost a century before Walmart opened its first store in 1962.  What the two retailers had in common was a relentless focus on controlling costs with supply chain efficiencies and economies of scale, with the ultimate goal of providing "everyday low prices" to their consumers.  And despite their joint success in serving their consumers with service, quality and prices unmatched by their competitors, both chain retailers received a fair amount of public condemnation for providing alternatives to higher-priced small, "mom and pop" merchants.  

Find out more about Walmart's retail predecessor in today's WSJ (text above was modified slightly).    

Note: Walmart currently operates about 4,400 stores in the U.S. (including Sam's Clubs), far fewer than the 16,000 stores the other giant retailer was operating in the U.S. at one time.    

U.S. Exports to China Grew 4 Times Faster Than Exports to the Rest of the World from 2000 to 2010

We hear a lot about Chinese exports to the U.S., but we don't hear as much about U.S. exports to China.  Here are some facts from the U.S.-China Business Council:

China is the third largest export market for the United States ($92 billion in 2010), behind our NAFTA partners #1 Canada ($248 billion) and #2 Mexico ($163 billion), and head of #4 Japan ($60.5 billion) and #5 U.K. ($48.5 billion).  

Our top five exports to China in 2010 were: Computers and electronics ($15.3 billion), farm products ($13.8 billion), chemicals ($11.8 billion), transportation equipment ($10.6 billion) and machinery ($9.3 billion).  Except for farm production, the other top four export categories are all  American manufactured products with the "Made in the U.S.A." label. 

Over the last decade from 2000 to 2010, U.S. exports to China grew by 468%, which was more than 8 times the 55.7% growth in exports to the rest of the world (see chart above of indexes for both series that are equal to 100 in the year 2000).  On an annual basis, exports to China have been growing at an average rate of 19% over the last decade, more than four times faster than the 4.5% annual growth rate for exports to the rest of the world.  

Positive Economic News Roundup

1. World steel production increased in July to 127.5 million metric tons, which was an increase of 11.5% from its year-earlier level, and a 21.1% gain from two years ago.  Steel production increased in July by 15.5% in China and by 10.2% in the U.S. from a year ago.

2. The Conference Board announced recently that its Leading Economic Indexes for June increased in Mexico (0.1%), the Euro Area (0.3%), France (0.5%) and Germany (0.80%).

3. The hotel industry trade association is reporting positive results for July in the three key performance metrics for the U.S., Brazil and Canada.   

4. According to weekly box office data from BoxOffice Mojo, sales receipts for the Top 12 movies during the week of August 12-18 this year ($214 million) were 7.2% ahead of the comparable week last year ($199.7 million).

5. The Chicago Fed Midwest Manufacturing Index increased 0.5% in July, following a 0.30% increase in June.  It was the highest level for the index in almost three years, since October 2008

"Economist" vs. Economist Smackdown

From University of Maryland "economist" Peter Morici (emphasis mine):

"Rebuilding after Irene, especially in an economy with high unemployment and underused resources in the construction and building materials industries, will unleash at least $20 billion in new direct private spending-likely more as many folks rebuild larger than before, and the capital stock that emerges will prove more economically useful and productive

This is not to discount the direct costs to individuals by temporary and in some cases permanent displacements; however, when government authorities facilitate rebuilding quickly and effectively, the process of economic renewal can leave communities better off than before."

From what can only be described as a brilliant economic smackdown from George Mason economist Don Boudreaux, in his open letter to Peter Morici:

"I hereby offer my services to you, at a modest wage, to destroy your house and your car.  Act now, and I’ll throw in at no extra charge destruction of all of your clothing, furniture, computer hardware and software, and large and small household appliances.

Because, I’m sure, almost all of these things that I’ll destroy for you are more than a few days old (and, hence, are hampered by wear and tear), you’ll be obliged to replace them with newer versions that are “more economically useful and productive.”  You will, by your own logic, be made richer.

Just send me a note with some times that are good for you for me to come by with some sledge hammers and blowtorches.  Given the short distance between Fairfax and College Park, I can be at your place pronto. Oh, as an extra bonus, I promise not to clean up the mess!  That way, there’ll be more jobs created for clean-up crews in your neighborhood."

MP: Don, can I offer to help? 

Real Consumer Spending Up in July to Record High

The BEA reported today that real consumer spending increased in July to $9.428 trillion (2005 dollars), setting a new monthly record (see chart above).  Consumer spending in July increased by 0.46% from June, and by 2.3% from a year ago.  That was the highest monthly increase in consumer spending since December 2009, 19 months ago.  By major product type, the largest increase in July was the 2% jump in spending by consumers on durable goods.

In comparison to the cyclical peak in December 2007 when the recession started, real consumer spending in July was 1.1% and $100.4 billion above that pre-recession level.  Despite low readings for consumer confidence based on survey data, the spending data tell a different story: consumer spending is coming back strong to new record levels almost every month.    

More On 3-Year Inflation Being Lowest in 54 Years

Percent change in price from July 2008 to July 2011:

Item  3-Year % Change  
Natural Gas -31.60
Fuel Oil -20.65
Orange Juice9.23
Bread 9.32
Ground Chuck17.50

As a follow-up to this CD post featuring three-year inflation rates, the chart above shows the three-year percentage change in prices from July 2008-July 2011 for the items in the "Top Picks" from the BLS website.  Of the 16 items in the list, 11 have decreased in price over the last three years, five items have increased, and the average three-year change was -5.31%.  

Over the most recent three-year period through July, overall prices have increased by only 2.87% for the CPI: All Items index, or 0.95% per year on an average annual compounded basis, and that's the lowest three-year inflation rate since January 1957. 

Maybe this helps explain the mixed opinions about consumer prices and inflation: Over a three-year period, there has been almost no overall inflation at all, and there has actually been deflation for many consumer items since the summer of 2008.  Over a shorter period like one or two years, consumer prices have been rising faster than previously, so it does seem like inflation is increasing, even though over a longer period like three years inflation is almost non-existent.   

Sunday, August 28, 2011

Three-Year Inflation Rate is Lowest in 54 Years

From the Uneasy Money blog, in response to a recent WSJ editorial defending Gov. Perry's hard money position and his criticism of Fed Chair Bernanke's record of easy money: 

"Well, let’s take a look at Mr. Bernanke’s record of currency debasement.  The Bureau of Labor Statistics announced the latest reading (for July 2011) of the consumer price index (CPI); it stood at 225.922.  Thirty-six months ago, in July 2008, the index stood at 219.133.  So over that entire three-year period, the CPI rose by a whopping 3.1% (see chart above).  

That is not an annual rate, that is the total increase over 3 years, so the average annual inflation rate over the whole period was less than 1%.  The last time that the CPI rose by as little as 3% over any 36-month period was 1958-61.  It is noteworthy that during the administration of Ronald Reagan — a kind of golden age, in the Journal‘s view, of free-market capitalism, low taxes, and sound money — there was no 36-month period in which the CPI increased by less than 8.97%, or about 3 times as fast as the CPI has risen during the quantitative-easing, money-printing, dollar-debasing orgy just presided over by Chairman Bernanke."  

MP: Actually, the CPI in July 2011 was 225.425 (not 225.922), so the three-year inflation rate through July 2011 was only 2.87% (not 3.1%), the lowest rate since January 1957, more than 54 years ago.  Although I have not seen this type of three-year inflation analysis before, I think there is some value at looking at inflation rates beyond the normal one-year time frame. This could help explain why: a) long-term interest rates like 30-year fixed rate mortgages are so low, and b) why market-based measures of inflation expectations based on the "breakeven rates" (regular minus TIPS treasury yields) have been so low.   

HT: Benjamin Cole

Chart of the Day: Consumer Sovereignty Rules in the Long Run and Competition Breeds Competence

The data in the chart above come from a fascinating 2007 Bloomberg article "The Fall of Detroit: An Insider's Tale," by John Lippert, chief of Detroit' Bloomberg New bureau, and formerly a GM employee from 1973 to 1981. Customer complaints were so high for Ford and GM in 1980 because they were both selling everything they could produce, and so it was quantity of production that mattered, not quality.  According to John Lippert, "For labor and management alike, moving iron out the door trumped everything," and "We didn't emulate Toyota sooner because we didn't think we needed to."

What are the economic lessons here?

1) Although "labor sovereignty" and "management sovereignty" may have prevailed in the auto industry in the short-run as they ignored quality and consumer complaints, that outcome was not sustainable over time in a competitive market.  Ultimately it was "consumer sovereignty" that prevailed in the auto industry over the long run, as the dramatic improvements in quality and customer satisfaction demonstrate.

2) The intense competition from Japanese automakers was the best thing that ever happened for American car consumers, because it was that competition that restored American consumers to their rightful throne as the kings and queens of the market economy. Adjusted for quality and price, American car consumers today have never had it so good. Ever. They can thank international competition from Toyota, Honda and VW for that. 
HT: Chris Douglas

Perfect Storm of Hype: Apocalypse That Never Was

UK Telegraph -- "The truth is that the dire warning beforehand suited both politicians and journalists. Just as with the minor earthquake that shook the east coast last week causing no loss of life and virtually no damage, Irene became a huge story because it was where the media lived.

For politicians, Irene was a chance to either make amends or appear in control. The White House sent out 25 Irene emails to the press on Saturday alone.

By lunchtime on Sunday, the sun was peeking through over New York. The TV anchors were expressing their relief at the good news that the east coast had “dodged a bullet” and Irene had not been the apocalypse they had predicted.

Perhaps it would be a bit too much to hope that they and certain politicians felt a little sheepish too."

HT: Juandos

Sunday Night Links

1. North Dakota's oil rig count reached the 200 mark for the first time in state history on Friday.  In 2001, the state had only 15.

2.  Jobs are fairly plentiful in some states - America's bleak economic landscape includes pockets of prosperity. 

3. What makes Steve Jobs great? He broke every rule of management. 

4. Miami: Highest number of condo resales in the month of July since 2005.

Irene Hits Woodley Park D.C.

Damage in the neighborhood, although I think this was pretty isolated for storm damage in NW D.C.

Satellite TV in 1981: 10-15 Foot Antennas, $12,400

From the November 1981 issue of Popular Science:

"Once a toy of the super-rich—or the electronically gifted—satellite-TV terminals are becoming a middle-class luxury. “Prices have come way down,” said Bob Cooper of Satellite TV Technology (STT). “The equipment is easier to use. It’s tremendously more reliable. And you have a wide variety of choices. The manufacturers are not just imitating each other—they’re innovating.”

What do you need? First, an antenna—10 or 15 feet in diameter (see photo above) —to gather and concentrate the microwave signals. Weakened by their long journey, the signals must be amplified, then converted from the very high frequencies the satellites use down to standard UHF frequencies. This job is done by electronic equipment—a low-noise amplifier and what the industry calls a down converter. Coaxial cable carries the signals inside to a receiver. It has no screen or speaker, but it may have a demodulator to convert the signals to frequencies your TV set can pick up.

The cost of all this has come down drastically. Commercial versions once cost hundreds of thousands of dollars. Two years ago you’d pay at least $10,000 ($31,000 in today’s dollars) for a “turnkey” system, installed by the dealer, to pick up just one channel on one satellite. More versatile systems cost up to $36,000 ($112,000 today).

At the STT show, I saw good basic systems that cost about $5,000 ($12,400 today), installed. High-end systems with superior reception and convenience features go to $16,000 ($40,000 today).

There’s an even cheaper route. You can assemble your own antenna from a kit, pour the concrete footing, raise the antenna, and cable the electronics together. For $6,995, you can buy a bolt-together antenna and a semi-assembled receiver from the Heath Company ($17,000 today). This kit rivals the $16,000 ($40,000 today) systems in sophistication."

Saturday, August 27, 2011

Steve Jobs: American Manufacturing Icon at One of the Most Successful Manufacturing Firms in History

American manufacturing of computer equipment reached an all-time record high in July.
Following the announcement on Wednesday night of his resignation as Apple CEO, Steve Jobs has been receiving lots of well-deserved praise and accolades for his entrepreneurial genius at Apple, one of the most successful, profitable and valuable manufacturing firms in the history of the world.  That's right, we shouldn't forget that Apple, Inc. (NAICS Code 3341: Computer Manufacturing) is part of the American manufacturing sector , a sector that the Boston Consulting Group predicts is headed for a renaissance.  

Given Apple's escalating success under the leadership of Jobs, especially in recent years, perhaps Apple and Jobs have already helped launch the renaissance of American manufacturing.  And when we think of Steve Jobs, we should be sure to remember that at his core, he's an American manufacturing icon, genius and titan.  As much as we hear the never-ending media narrative that "America doesn't make anything anymore," or that "American manufacturing just can't compete globally anymore," Apple's success clearly demonstrates that the narrative is false.  

For example, Apple and its domestic competitors in the U.S. computer industry (Dell, H-P, Microsoft, IBM, Cisco, Intel, etc.) are all world-leaders, and collectively produced more output last month than ever before in history (see chart above of the Federal Reserve's monthly production index for computer and peripheral equipment).  And it's a remarkable fact that U.S. manufacturing output of computer equipment has doubled in less than six years since 2005, after doubling previously in just seven years.  So much for the claim that "we don't make anything anymore."

Bottom Line: When we celebrate the genius of Steve Jobs and the success of Apple Computers, we should remember  that we are also celebrating the success of American manufacturing.  Simply put, Steve Jobs and Apple prove that American manufacturing is not dying, but is very much alive and well.     

Course Materials for Econ Ph.D. Program at UCSD

"Ever wonder what the first year of an Economics Ph.D. program looks like? Now you can see for yourself here:


The directory above contains scanned PDFs of about 2,000 pages of notes, problem sets and exams from the first year of the Ph.D. program at the University of California, San Diego from 2010. I've also included some material from the math prep I did during the year before the program began, including courses in real analysis, linear algebra and differential equations."

"The Evil Market" Comes To the Rescue: Hurricane Preparation is a Science for Walmart, Home Depot

A convoy of Walmart trucks waited to enter New Orleans in 2005 after Hurricane Katrina.

NPR -- "Forecasters don't expect Hurricane Irene to make landfall until Saturday. But for nearly a week now, big-box retailers like Walmart and Home Depot have been getting ready.

They've deployed hundreds of trucks carrying everything from plywood to Pop-Tarts to stores in the storm's path. It's all possible because these retailers have turned hurricane preparation into a science — one that government emergency agencies have begun to embrace.

At Home Depot's Hurricane Command Center in Atlanta, for example, about 100 associates have been trying to anticipate how Irene will affect its East Coast stores from the Carolinas to New York. At times like this, the Command Center looks much like NASA Mission Control during a shuttle launch, says Russ Householder, the company's emergency-response captain.

Walmart is able to anticipate surges in demand during emergencies by using a huge historical database of sales from each store as well as sophisticated predictive techniques, says Mike Cooper, Walmart's head of emergency management.

He says that with Irene on the way, that system is helping them allocate things like batteries, ready-to-eat foods and cleaning supplies to areas in the storm's path. Walmart also has the advantage of having a staff meteorologist, Cooper says."

HT: Don Boudreaux

Gibson Under Attack by U.S. Justice Department

Illegal fingerboards? Maybe, according to the Justice Department's peculiar interpretation of Indian law.
Gibson CEO Henry Juszkiewicz was a guest yesterday on The Dana Show and explained what led to the raid this week at two Gibson facilities where armed federal agents seized guitars, wood and company records, forcing Gibson to send hundreds of workers home.  Due to the disruption in production at four factories, the company lost $1 million this week.

In the radio interview, the Gibson CEO first pointed out that this is not the first time the company has been subjected to a government raid.  In 2009, the government seized $500,000 of Gibson's property, but the company was never charged with any offenses and Gibson is now suing the government to get its property back.

The current allegation is that Gibson has obtained illegal, partially finished, wooden guitar fingerboard blanks from India.  Under Indian law, wood products have to meet certain minimum "India content" requirements before they can be certified for export.  Then the exported wood and documentation from India has to be cleared by U.S. Customs.  In this case, all of the legal requirements by the Indian government were met, legal paperwork accompanied the wood to the U.S., and the materials and accompanying paperwork were then approved by the U.S. government before delivery to Gibson.

But now the government is apparently claiming that according to its peculiar interpretation of Indian law, Gibson's fingerboard blanks don't have sufficient "Indian content," and the guitarmaker is in violation of Indian law.    

The Gateway Pundit summarized it well, "Gibson is under attack by the the Obama Justice Department for accusations that the company broke American Indian laws."

Watch a press conference below with Gibson CEO Henry Juszkiewicz (Note: It's outside and there's a lot of background wind and airplane noise):

HT: Juandos

Friday, August 26, 2011

If You Subsidize Something You Get More Of It. And That's The Only Way to Get More Solar Energy

DAILY MAIL -- "Hundreds of acres of countryside have been carpeted in solar panels after companies from across the globe flocked to Britain to benefit from a lucrative policy on solar power.  The Feed In Tariff (FIT), launched in April last year. promised those who built solar 'farms' an inflated minimum price for the power generated which is fixed for the next 25 years.  In a rush to beat the deadline which expired earlier this month, a sudden flurry of development has seen around 20 farms spring up, covering at least 200 acres across the country.

The speed of the construction, with some 30 acre sites springing up just weeks after planning permission was granted, has left residents stunned. Homeowners also claim the developments are inefficient, with some of the bigger schemes only developing enough power for 1,000 homes. 

Robin Smith's beautiful view of the Somerset Levels has been blighted by 20,000 solar panel which stretch for over a mile near Puriton.  He said: "It is blanket desecration of the countryside. I feel very sad that it is just for people lining their coffers."

The solar industry has exploded at an alarming rate in Britain. In 2010, there were just five solar farms, generating just 60 megawatts of electricity. There are now thought to be around 20 generating 300 megawatts. More than 200 companies from around the world including China, Germany and America are now operating in the UK and there are more than 2,500 certified installers."

MP: As I mentioned before solar energy is produced by mixing sunlight with tax dollars.

HT: Matt Bixler

A New Civil Right: The Right to Raise Hell in Section 8 Rental Housing in Formerly Nice Neighborhoods: Another Failed Government Housing Policy

"Section 8 rental subsidies have long been one of the most controversial federal social programs. The Department of Housing and Urban Development (HUD) under the Obama administration is making a troubled program worse.

In the 1990s, the feds were embarrassed by skyrocketing crime rates in public housing—up to 10 times the national average, according to HUD studies and many newspaper reports. The government's response was to hand out vouchers to residents of the projects, dispersing them to safer and more upscale locales.

Section 8's budget soared to $19 billion this year from $7 billion in 1994. HUD now picks up the rent for more than two million households nationwide; tenants pay 30% of their income toward rent and utilities while the feds pay the rest.

But the dispersal of public housing residents to quieter neighborhoods has failed to weed out the criminal element that made life miserable for most residents of the projects. "Homicide was simply moved to a new location, not eliminated," concluded University of Louisville criminologist Geetha Suresh in a 2009 article in Homicide Studies. In Louisville, Memphis, and other cities, violent crime skyrocketed in neighborhoods where Section 8 recipients resettled.

Dubuque, Iowa, is struggling with an influx of Section 8 recipients from Chicago housing projects. Section 8 concentrations account for 11 of 13 local violent crime hot spots. Though Section 8 residents account for only 5% of the local population, more than 20% of arrestees resided at Section 8 addresses. Dubuque's city government responded by trimming the size of the local Section 8 program. HUD retaliated by launching a "civil rights compliance review" of the program.

HUD seems far more enthusiastic about cracking down on localities than on troublesome Section 8 recipients who make life miserable for the rest of the community. And because Section 8 recipients in some areas are mostly black or Latino, almost any enforcement effort can be denounced as discriminatory.

Remarkably, HUD seems bent on creating a new civil right—the right to raise hell in subsidized housing in nice neighborhoods. Earlier this year, the agency decreed that Section 8 tenants who are evicted because of domestic violence incidents may sue for discrimination under the Fair Housing Act because women are "the overwhelming majority of domestic violence victims." In essence, this gives troublesome tenants a federal trump card to play against landlords who seek to preserve the peace and protect other renters."

~James Bovard writing in the WSJ 

MP: In hindsight, we now know that the political obsession with homeownership created a housing bubble, mortgage meltdown, and financial crisis, which destroyed many formerly good, stable neighborhoods.  We now have another example of failed government policy intended to create affordable housing, this time for renters, with government-subsidized Section 8 rental housing.  

With one set of public policies, the political obsession with homeownership turned good renters into bad homeowners and created a housing, mortgage and financial crisis, and with another set of policies to create affordable rental housing, the political elite turned bad renters in bad neighborhoods into bad renters in formerly good neighborhoods, and helped destroy even more neighborhoods in America. 

In hindsight, isn't it obvious that we would be better off today if the federal government had never intervened in the residential housing market, the mortgage market, or the rental market?  Then add in the distortions and inefficiencies of local rent control laws in NYC and elsewhere, and you have a strong case that government intervention in housing over the last 50 years has done significant damage to the housing market and economy.  I think it would be almost impossible to argue that government housing policies have created net benefits for America over the last half-century, and very easy to make the case that government policy has made our housing markets and neighborhoods much worse off.

First They Came for Kid-Run Lemonade Stands,IV

Then armed federal agents raided guitar factories like Gibson and seized wood, guitars and company records.
Wall Street Journal -- "Federal agents swooped in on Gibson Guitar Wednesday, raiding factories and offices in Memphis and Nashville, seizing several pallets of wood, electronic files and guitars. The Feds are keeping mum, but in a statement yesterday Gibson's chairman and CEO, Henry Juszkiewicz, defended his company's manufacturing policies, accusing the Justice Department of bullying the company. "The wood the government seized Wednesday is from a Forest Stewardship Council certified supplier," he said, suggesting the Feds are using the aggressive enforcement of overly broad laws to make the company cry uncle.

It isn't just Gibson that is sweating. Musicians who play vintage guitars and other instruments made of environmentally protected materials are worried the authorities may be coming for them next.

If you are the lucky owner of a 1920s Martin guitar, it may well be made, in part, of Brazilian rosewood. Cross an international border with an instrument made of that now-restricted wood, and you better have correct and complete documentation proving the age of the instrument. Otherwise, you could lose it to a zealous customs agent—not to mention face fines and prosecution."

First They Came for Kid-Run Lemonade Stands, III

Then armed "nuisance abatement team" gestapos came and drove people off their land in the California desert.

Find out more here from Reason.tv

HT: Matt Bixler

Quote of the Day: The Importance of Jobs

"The current economic malaise has made Americans doubt our ability to grow and prosper as the country always has. As long as we remember that the source of that prosperity comes not from government managers but from restless, relentless individuals like Steve Jobs, we will."

~WSJ editorial

Lemonade Gestapo Extend Reach to Green Tea

FORBES --"This may be the first case of state police shutting down a kid’s green-tea stand, but the list of lemonade stands being closed down by various government agencies is long and growing. Lemonade stand shutdowns may not be the same violation of liberty that no-knock botched SWAT raids or the incarceration of innocent people are, but they reflect the same mentality. It’s the mentality that needs reforming. No simple task."

HT: Mike Carlson

Corporate Profits Surge to Record High in Q2

Corporate profits in the second quarter (both nominal and inflation-adjusted using the business sector price deflator) reached all-time record highs during the April-May period of this year, according to today's BEA report on GDP and corporate profits for the second quarter (see chart above).  Real GDP growth in the second quarter was revised down from the previous estimate of 1.3% to 1%, based on more complete data. While overall economic growth remains weak as measured by real GDP, the record level of corporate profits shows that American companies are financially healthy and strong, and can easily weather the current spring-summer "soft patch." 

Compared to the cyclical low of $770 billion in the fourth quarter of 2008, real corporate profits have almost doubled to the current record level of $1,540 billion, which confirms the fact that corporate profitability has made a full recovery from the effects of the Great Recession.  Based on post-war history, the U.S. economy has never experienced a recession that is not preceded by sharp declines in corporate profits, so I think we can safely say we're definitely not headed for a double-dip recession in the near future.    

Markets in Everything: Boston's Sneaker Truck

Food trucks have become popular in Boston, and one of its local favorites, Roxy's Gourmet Grilled Cheese food truck, is competing with seven other food trucks around the country for the national title in the second season of The Food Network's "Great Food Truck Race." 

The success of food trucks might be just the first wave of mobile retailing to sweep the nation, followed by many more offerings of consumer goods being sold from a truck?  For example, the latest rolling retail venture in Boston is Green Street Vault, a "sneaker truck," featured in today's Boston Herald.  What's next? 

Thursday, August 25, 2011

Traveling Back to the Future on Intercity Buses

"While the Obama administration has been desperately seeking to spend $53 billion on so-called high-speed rail lines, private businessmen have developed Chinatown and Megabus lines that provide inter-city service that has attracted legions of price-conscious travelers.

Private bus operators have effectively taken a 100-year-old technology, the bus, and adapted it seamlessly to the 21st century. Compare high-speed rail. It is tethered to enormous stations that must be built or refurbished and limited to particular routes that, once the rails are laid down, cannot be changed except at prohibitive expense.

And it is enormously costly. In just two years, the estimated cost of the Obama administration's pet project, California high-speed rail, in the Central Valley has risen from $7.1 billion to $13.9 billion. Oxford economist Bent Flyvbjerg has found that high-speed rail projects always end up costing more, usually far more, than estimates. In addition, operating costs almost always end up higher than fares. And fares always turn out to be expensive, comparable to airfare if you book a popular flight the day before your trip.

So high-speed rail is a form of transportation on which government subsidizes business travelers. You don't see backpackers anymore on the Acela or Amtrak trains from Washington to New York. They're taking the Chinatown bus or one of its competitors.
Finally, most of the high-speed rail lines the Obama administration is touting are a whole lot slower than France's TGV or Japan's bullet train. You can beat the proposed Minneapolis-Duluth line by going just slightly over the speed limit on I-35. The proposed line from the college town of Iowa City to Chicago would take longer than the currently operating bus service.

So the private sector provides cheap intercity transportation while government struggles to waste $53 billion. Please remind me which is the wave of the future."

Quote of the Day: Dr. King Would Rejoice

"Martin Luther King, resurrected, would be prouder of black America than many of its leaders and thinkers. Economic disparities remain, but in 1960 nine in 10 blacks were poor, whereas today three of four blacks are not. Tracing the remaining disparities to racism becomes trickier by the year. The 'institutional racism' many trace these statistics to is something black people of King's time would have considered a much more workable adversary than open bigotry and segregation. Some holdouts remain bigots, but not enough to keep Barack Obama out of the White House, and overall, racism is considered as socially embarrassing as pedophilia. 

King could never have predicted that this would happen so quickly. Is America 'post-racial'? Afraid not. But is the treatment of black people in America still so transparently and grievously unjust as to make a mockery of our democratic ideals and require redress with all deliberate speed? Afraid not, again, and Dr. King would rejoice, as we should with him."

~John McWhorter of the Manhattan Institute, in USAToday

Drill, Drill, Drill. North Dakota Leads the Country With the Largest Growth of High-Income Taxpayers


"The map above [from the Tax Policy blog] shows the percentage growth of taxpayers earning over $200,000, minus the percentage growth of all taxpayers, over the decade-long period from 1999 to 2009. The $200,000 threshold is in nominal dollars, so all states will have had considerable growth, but the differences between the states demonstrate that certain states have had much stronger increases in wealthy taxpayers than others. North Dakota takes the top spot—returns with AGI over $200,000 increased 144.53%, while all returns increased only 7.1%—a considerable difference of 137.4%. Michigan is last—returns over $200,000 increased only 17.6%, while total returns actually decreased by 0.5%, for a final difference of 18.1%."

For the data in the map, visit this page.

Ongoing Rail Traffic Gains Reflect Consistent Economic Expansion; No Signs of a Double-Dip

Warren Buffett's single most favorite economic indicator - weekly rail traffic - continues to reflect healthy economic activity, based on the volume of raw materials, natural resources, metals, motor vehicles, chemicals and basic raw inputs moving around the country (and Canada and Mexico).  From today's American Association of Railroads report:

 1. U.S. railroads originated 300,521 carloads for the week ending August 20, 2011, up 1.1 percent compared with the same week last year. Intermodal volume for the week totaled 238,680 trailers and containers, up 1 percent compared with the same week last year (see chart above).

2. For individual commodity groups, gains in shipping activity year-to-date are led by metallic ores (27.4%), metals and products (10.2%), motor vehicles and equipment (7.1%), and iron and steel scrap (6.9%). 

3. For the first 33 weeks of 2011, U.S. railroads reported cumulative volume of 9,531,017 carloads, up 2 percent from the same point last year, and 7,461,628 trailers and containers, up 6.3 percent from last year.

4. For the first 33 weeks of 2011, Canadian railroads reported cumulative volume of 2,449,585 carloads, up 2.7 percent from the same point last year, and 1,564,448 trailers and containers, up 2 percent from last year.

5. Cumulative volume on Mexican railroads for the first 33 weeks of 2011 was 472,817 carloads, up 4.9 percent compared with the same point last year, and 267,267 trailers and containers, up 25.4 percent.

5. Combined North American rail volume for the first 33 weeks of 2011 on 13 reporting U.S., Canadian and Mexican railroads totaled 12,453,419 carloads, up 2.3 percent compared with the same point last year, and 9,293,343 trailers and containers, up 6 percent compared with last year.

MP: The gradual, but ongoing increases in rail activity in the U.S., Canada and Mexico reflect a gradual, but consistent expansion of economic activity.  Compared to the first three weeks of  August two years ago as the economic recovery was just underway, rail traffic so far this month is 6.6% higher for carloads and almost 22% higher for intermodal containers.  There certainly is absolutely no indication at all from weekly rail traffic that we're heading for a double-dip recession.