Saturday, August 13, 2011

Thomas Friedman: A Theory of Everything

"Globalization and the information technology revolution have gone to a whole new level. Thanks to cloud computing, robotics, 3G wireless connectivity, Skype, Facebook, Google, LinkedIn, Twitter, the iPad, and cheap Internet-enabled smartphones, the world has gone from connected to hyper-connected.

This is the single most important trend in the world today. And it is a critical reason why, to get into the middle class now, you have to study harder, work smarter and adapt quicker than ever before. All this technology and globalization are eliminating more and more “routine” work — the sort of work that once sustained a lot of middle-class lifestyles.

The merger of globalization and I.T. is driving huge productivity gains, especially in recessionary times, where employers are finding it easier, cheaper and more necessary than ever to replace labor with machines, computers, robots and talented foreign workers. It used to be that only cheap foreign manual labor was easily available; now cheap foreign genius is easily available. This explains why corporations are getting richer and middle-skilled workers poorer. Good jobs do exist, but they require more education or technical skills. 

Unemployment today still remains relatively low for people with college degrees (see chart above). But to get one of those degrees and to leverage it for a good job requires everyone to raise their game. It’s hard.

So let’s review: We are increasingly taking easy credit, routine work and government jobs and entitlements away from the middle class — at a time when it takes more skill to get and hold a decent job, at a time when citizens have more access to media to organize, protest and challenge authority and at a time when this same merger of globalization and I.T. is creating huge wages for people with global skills (or for those who learn to game the system and get access to money, monopolies or government contracts by being close to those in power) — thus widening income gaps and fueling resentments even more.

Put it all together and you have today’s front-page news." 


More Records for N. Dakota's Booming Oil Economy

If there's any doubt that domestic drilling of oil and gas generate huge and significant positive economic benefits (more jobs, income, output, tax revenues, and stable/rising housing prices, etc.), the booming economy in North Dakota provides a convincing case study.  The Peace Garden State's economy is doing so well on so many different measures, here are some highlights of its ongoing, record-setting economic success:  

1. North Dakota set a new monthly oil production record of 11,540,000 barrels in June, which was above its year-ago level by 22% and above the June level two years ago  by 79% (see chart above).  Oil production this year has averaged more than 10.8 million barrels per month, which is double the monthly production levels in 2008, and triple the levels from five years ago. 

2. Oil-related employment in North Dakota has more than doubled in just two years, from 6,900 jobs in June 2009 to a new record of 15,600 jobs in June of 2011.  While the national economy struggles with another "jobless recovery," North Dakota has continued to add jobs, and not just oil-related jobs.  The overall state employment level reached an all-time high in May and was 2.5% above the June 2009 level when the recession ended.     

3. North Dakota continued to lead the country in June with lowest state jobless rate of 3.2%, which was lower than second-place Nebraska's rate of 4.1% by almost a full percentage point, and was a full 6 percent below the national June jobless rate of 9.2%.   

4. North Dakota home prices have risen consistently through the national housing bubble and subsequent crash, and reached an all-time high in the first quarter of 2011 (see bottom chart above).  While the national real estate crash has brought average U.S. home prices back to 2003 levels, home prices in North Dakota have continued to appreciate every year even through the recession and financial crisis, and are now 42.5% above 2003 levels.    

5. North Dakota's Coincident Economic Activity Index (based on employment, unemployment, wages and salaries, and average hours worked in manufacturing) is above its cyclical peak in early 2008 by almost 12% (see bottom chart above).  Even in Texas, which gets all of the national attention for the state's economic success and job creation, its economic activity index is still slightly below the early-2008 peak. 

Bottom Line: North Dakota's impressive economic success clearly illustrates some of the benefits of domestic energy production: ongoing job growth, a jobless rate close to 3%, record-setting economic growth, and a bubble-resistant housing market.  There's no reason that the economic success of North Dakota can't be duplicated elsewhere, if we would only open up more U.S. land and off-shore areas to domestic energy exploration and drilling.   

Intrade Odds for Obama's Re-Election Below 50%

Intrade odds for Obama's 2012 re-election fell below 50% today for the first time (see chart).

Market Innovation vs. Government Regulation

The world's first autonomous crop planter.Will it need a commercial driver's license from the government?


1. Amazing market-based innovation that could increase farm productivity, reduce production costs, and lower costs to consumers.

WILLIAMSBURG, Iowa (Aug 10, 2011) – "Kinze Manufacturing gave the agriculture industry a glimpse into the future today with the unveiling of its precision planting technology – an autonomous planter that operates without an operator in the tractor cab. The Kinze Autonomy Project, the first of its kind in row crop production worldwide, utilizes autonomous agricultural equipment to complete many tasks on the farm with minimal direct human input.

“We are proud to offer the first truly autonomous row crop solution on this scale in the world,” said Susanne Kinzenbaw Veatch, vice president and chief marketing officer at Kinze. “Knowing how important it is to get crops into the ground during the short planting window, we’re excited to offer this system to help growers be productive and make the most of their harvest.”

The Kinze Autonomy Project is designed to reduce the need for skilled operators by taking the human element out of the tractor cab. Kinze plans to market this technology to help growers increase their productivity by allowing them to focus their time and attention elsewhere while performing cursory monitoring of the Kinze autonomous equipment.

To begin, the grower loads a field map into the global positioning system including field boundaries and any predesigned non-field areas such as waterways. After the grower takes the tractor to the field and identifies which field it is positioned in, the system generates the most efficient method to plant the field. At that point, the system then positions the tractor and planter at a designated starting point and begins planting - see video above."

2. A not-so-amazing proposed government intervention that will decrease farm productivity, increase costs of production, and raise consumer prices.   

Milwaukee --"Wisconsin dairy farmer Tim Strobel has been driving a tractor for 20 years, so he's a bit puzzled that federal officials are kicking around an idea that could ultimately force him - and anyone else operating farm machinery - to get a commercial driver's license. Yes, the same kind of license that interstate truckers must have to operate their rigs.

"I am not against some training, but this is going a little bit overboard," said Strobel. It's "overreaching and unnecessary," said Karen Gefvert, Wisconsin Farm Bureau director of governmental relations.

The additional public safety gained from increased federal regulation is unclear at best, but the additional costs for farmers would come at a time when they could least afford them, Brancel said in a letter to federal officials.  In one scenario, farmers hauling grain to local elevators would be treated as if they were engaged in interstate commerce because grain, in many cases, eventually leaves the state."

HT: Wally Block via Tim Taylor

Friday, August 12, 2011

The Mark of a Tired Nation: Today's Retirees Pay Less Than 50% of Their Lifetime Medicare Benefits

"Since the New Deal — and especially since the Great Society — America has chosen an accelerating transfer of wealth from young to old. Some of this was necessary and desirable. Many seniors face a period of economic struggle toward the end of life, which entitlements have effectively, compassionately eased.

But longer lives have extended this period of dependence, while health-care inflation has dramatically increased the cost of the Medicare entitlement. According to Andrew Biggs of the American Enterprise Institute, someone who retires today will pay for less than half of the Medicare benefits he or she is likely to receive over a lifetime — a subsidy given to even the wealthiest retirees. The balance of these costs is imposed on workers or added in debt.

The problem is that there are two periods of economic dependence in life — late and early. A healthy society not only cares for its elderly but also cultivates its children. Biggs estimates that the federal government now spends $6 on seniors for every $1 it spends on children, even though the poverty rate of children is much higher.

From a historical perch a century hence, this will seem an odd, sad decision. A country that increases taxes on current workers and encumbers children with debt to maintain unreformed health entitlements is looking backward. Unless this course shifts, America will have a continually diminished capacity to invest in children and young families. It is the evidence of a generation that prefers its own future comfort to the welfare and ambitions of generations to follow. And this attitude is the mark of a tired nation."

~Michael Gerson in yesterday's Washington Post 

Using Value-Added Trade Estimates, We Have a +$32.25B Trade SURPLUS with China for 2011

According to research at the San Francisco Federal Reserve, 36% of the value of imported goods goes to U.S. companies and workers, and for Chinese imports it's much higher: the U.S. content of “Made in China” is close to 55%.  Reason? The SF Fed explains:

"The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services." 

The iPhones imported from China help illustrate this - of the $600 retail price of an iPhone that is imported and "assembled in China," more than 60% goes directly to Apple and other American companies. From a CD post about this:

"A new reasearch paper calculates that because of the way trade statistics are calculated - the full value of an iPhone is considered an export to the U.S. from China by both countries, even though only about 1% of the value was created during the final assembly process in China -  just the iPhone alone added almost $2 billion to America's trade deficit with China in 2009. The authors find that if a "value-added approach" was used to calculate trade statistics, the iPhone would have instead generated a $48 million trade surplus for the U.S. in 2009, instead of the $1.9 billion trade deficit reported using the conventional methodology."

Using the percentages provided by the S.F. Federal Reserve, we can re-estimate our current trade position with China as follows:

According to the BEA, we currently have a $133 billion trade deficit with China for 2011, based on imports of $183 billion and exports of about $50 billion.  But of the $183 billion of Chinese imports, about 55%, or $100.65 billion, represents the contributions of U.S. content that goes to American companies and workers.  The balance of $82.4 billion would represent the value-added by China to its exports to the U.S.

On the other hand, we have to account for the Chinese content (or "value-added") of U.S. exports, which we could estimate at 36% using the S.F. Fed estimate for U.S. imports (and it's possible that this could be high for the Chinese-contribution of our exports to China).  In that case, the U.S. value-added for exports to China would be 64% of $50 billion, or $32 billion, and the Chinese content would be $18 billion. 

Summing up, we would have $100.65 billion in U.S. value-added for the "Made in China" imports, and $32 billion in U.S. content, or value-added, for our exports to China, for a total U.S. value-added of $132.65 billion for 2011. 

For China, it would have $82.4 billion in value-added to its exports to the U.S. (our imports) and it would get credit for $18 billion of Chinese-content in the total of $50 billion worth of  "Made in the U.S.A." products it purchased this year.  The total value-added for China would be $100.4 billion.   

Bottom Line: Using the San Francisco Federal Reserve estimates of the foreign and domestic content of imports, we would have a $32.25 billion "value-added" trade surplus with China for 2011 ($132.65 billion - $100.4 billion), instead of the officially reported trade deficit of -$133 billion.  

Food Truck Revolution Comes to Calgary

From the Calgary Herald article "Food Trucks Feed a Frenzy as Calgary Starts Pilot Project":

"The appetite for the new food trucks hitting Calgary streets is strong, as hundreds of people converged on Stephen Avenue to get a taste of what’s to come. Those who came out said they were pleased the food truck revolution has finally arrived in the city."

Getting Paid by Gov't. for NOT Flying Passengers

We're all familiar with various government agricultural policies over the years that have paid farmers not to farm, with the goal being to reduce the supply of crops like corn and soybeans and thereby support higher commodity farm prices.  According to a 2006 Washington Post article

"Nationwide, the federal government has paid at least $1.3 billion in subsidies for rice and other crops from 2000- 2006 to individuals who do no farming at all."  

For some great humor, see this tongue-in-cheek letter to the Secretary of Agriculture titled  "Getting Paid for Not Raising Hogs" that starts like this:

"My neighbor received a check for $10,000 from the Government for not raising hogs, and I want to go into the "not-raising-hogs" business. What I want to know is, in your opinion, what is the best kind of farm not to raise hogs on, and what is the best breed of hogs not to raise?"

Now comes a story from the Associated Press of a new government scheme that might be called "Getting Paid for Not Flying Any Passengers": 

"On some days, the pilots with Great Lakes Airlines fire up a twin-engine Beechcraft 1900 at the Ely, Nev., airport and depart for Las Vegas without a single passenger on board. And the federal government pays them to do it.

Federal statistics reviewed by The Associated Press show that in 2010, just 227 passengers flew out of Ely while the airline got $1.8 million in subsidies. The travelers paid $70 to $90 for a one-way ticket. The cost to taxpayers for each ticket: $4,107. Ely is one of 153 rural communities where airlines get subsidies through the $200 million Essential Air Service program, and one of 13 that critics say should be eliminated from it."

HT: Andy Foster 

Update: I can see a new letter to the government that would start like this:

Great Lake Airlines received checks for $1.8 million from the Government last year for not flying a lot of passengers, and I want to go into the "not-flying-passengers" business. What I want to know is, in your opinion, what is the best kind of airplane not to fly passengers on......

The Top 20 Political "Heavy Hitters" Lean Democrat


Top 20 Political Donors, 1989-2010
RankOrganizationTotal Donations, 1989-2010Dem %Rep %
1ActBlue$52,572,081 99%0%
2American Federation of State, County & Municipal Employees$45,238,103 94%1%
3AT&T Inc.$41,314,444 45%54%
4National Association of Realtors$39,717,410 47%49%
5National Education Association$36,312,895 81%5%
6Service Employees International Union$36,043,789 77%2%
7American Association for Justice$33,983,671 89%8%
8International Brotherhood of Electrical Workers$33,476,655 97%2%
9Laborers Union$31,335,267 89%7%
10American Federation of Teachers$31,023,603 90%0%
11Teamsters Union$30,632,309 89%6%
12Carpenters & Joiners Union$30,523,437 86%9%
13Communications Workers of America$29,468,934 95%0%
14American Medical Association$27,431,405 39%59%
15United Auto Workers$27,108,182 98%0%
16United Food & Commercial Workers Union$26,788,209 93%0%
17National Auto Dealers Association$26,664,992 32%67%
18Machinists & Aerospace Workers Union$26,407,374 98%1%
19United Parcel Service$24,505,222 37%62%
20American Bankers Association$24,190,464 39%60%
Average76%20%

The Center for Responsive Politics (OpenSecrets.org) is a national research group that tracks money spent on U.S. politics and its effect on elections and public policy.  The table above shows the Top 20 All-Time Political Donors from the organization's "Heavy Hitter List" of the 100 biggest political donors in federal-level politics from 1989-2010.

OpenSecrets tracks political contributions by source, and also identifies the political leanings of the organizations who spend money on political donations.  For example, the National Education leans strongly Democrat, the National Auto Dealers leans mildly Republican, and the National Association of Realtors is politically balanced. 

Overall, the top 20 political donors lean strongly Democrat, see the average above in the last row of the chart: 76% Democrat vs. 20% Republican.  

Note: Koch Industries ranks #87 at $9.5 million and AFSCME ranks #2 at $45.2 million.  Read here what AFSCME has to say about the evil Koch brothers.   

HT: Steve Bartin

Happy Cost of Government Day: August 12; You Will Be "Government-Free" Starting Tomorrow


Americans for Tax Reform -- "Cost of Government Day (COGD) is the date of the calendar year on which the average American worker has earned enough gross income to pay off his or her share of the spending and regulatory burden imposed by government at the federal, state and local levels. Cost of Government Day for 2011 is today, August 12. On average, workers must toil 224 days out of the year just to meet all costs imposed by government. In other words, the cost of government consumes 61.42% of national income.

Cost of Government falls two days earlier than last year’s revised date of August 14 (see top chart above). In 2011, the average American will have to work an additional 41 days to pay off his or her share of the cost of government compared to ten years ago in 2001, when COGD was July 2. In fact, between 1977 and 2008, COGD had never fallen later than July 20. 2011 marks the third consecutive year COGD has fallen in August. The difference between 2008 and 2009—from July 16 to August 14—was a full 29 days. The increase was spurred by government intervention in the form of the Emergency Economic Stabilization Act (EESA) that created the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act of 2009 (ARRA).

The two day decrease of the 2011 COGD is only a temporary fall before projections of increased future spending. In March 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law which will add $2.3 trillion to COGD over its first decade.  Even without counting Obamacare’s contributions to future COGDs, the three years of the Obama Administration have been three record-setting years of federal government regulation and spending—a 21.78 percent increase relative to the average size of the federal government between 1977 and 2008. 

Cost of Government Day Components (see bottom chart):

1. The average American worker will have to labor 103 days this year just to pay for federal spending, which consumes 28.15% of net national product. 

2. In 2011, the average American has to work 44.2 days to pay for state and local expenditures—roughly the same number of days in 2010 and one day less than the 45.4 days worked in 2009.

3. The average American must labor more than 77 days in 2011 just to cover the cost of government regulations (49.75 days for federal regulations and 27.6 days for state regulations) - identical to the number of days worked in 2010 and slightly less than the 79 days worked in 2009."

For the full report go here

Related: See Grover Norquist's WSJ editorial today "Happy Cost of Government Day! You Worked for It."   

MP: Isn't it a bit ironic that Americans celebrate Independence Day on July 4 to recognize our rejection of oppressive British regulation, mercantilism and taxation, and yet the typical American now works until the middle of August to pay for today's Big Government?  That is, we celebrate our declaration of independence from the British government when we are still more than a month away from really being free from the tax and regulatory burden of our current government. 

Thursday, August 11, 2011

1-Year ARM, 15-Year Fixed Rates Fall to New Lows

The rate for one-year adjustable mortgages fell to 2.89% this week, setting a new all-time record low going back to April 1986, when weekly data for ARMs started being collected, according to a weekly mortgage market survey released today by Freddie Mac (see top chart above).  The average fixed rate for 15-year mortgages fell to 3.50%, the lowest rate in the history of this series, which started in 1991.  Rates for the 30-year fixed mortgage fell to a 9-month low this week of 4.32%, which is the lowest rate since mid-November of last year, when the 30-year rate fell to an historic record low of 4.17% (see bottom chart above).

Given those historic low, or near historic low rates for mortgages, it would seem hard to make a strong case for higher inflation in the coming years. Back in the late 1970s when high inflation really was a problem, the 30-year fixed mortgage rate was approaching 20%. But now with one-year ARMs at 2.89% and 15-year fixed rates at 3.5% (both record lows) and 30-year fixed mortgages at 4.32%, there sure isn't much of an inflation premium incorporated into those record-low mortgage rates.

Ticketmaster is an Evil Monopolist and "Restrictive Paperless Ticketing" Will Give It Even More Power

From Fan Freedom Project: "We, the fans, own the tickets that we buy. That’s the way it’s always been, and the way it always should be.

But Ticketmaster, venues and sports teams want to change that. They want to use a new ticketing technology called restrictive paperless tickets to limit what we can do with our tickets.

Paperless tickets sound convenient. But in truth, they’re a nightmare for fans. Here’s two videos that explain how they work":




Here are FAQs about Restrictive Paperless Tickets.

MP: It's pretty amazing that many artists (Bruce Springsteen, Paul Simon, Tom Waits, Michael Buble, etc.) must be so blinded by their hatred of market-based ticket prices, ticket scalpers, and secondary ticket markets, that they now support anti-fan, anti-market, restrictive paperless tickets and Ticketmaster's evil attempt to completely monopolize all ticket sales (primary and secondary)! As I have argued before, for artists or their managers to complain about ticket scalping is really to acknowledge their faulty under-estimation of fan demand, and the blame should therefore be directed at the band for under-supplying tickets to its performances, not towards the greed of secondary ticket brokers.

Map of the Day: Every Pizza Place in Manhattan

Interactive map of every pizza place in Manhattan:



Markets in Everything: Charter Universities

COLUMBUS — "Ohio’s 14 universities would be automatically relieved of some state regulations and they could qualify for even more autonomy if they take less state money, according to an executive summary of a plan to be released today.

Ohio Board of Regents Chancellor Jim Petro today will walk university officials through his plan to create charter or enterprise universities and change the way the state oversees higher education."

Quote of the Day: The Folly of Short-Termism

"The president is wrong to pose the issue as more taxes for millionaires to pay for more redistribution now. That path leads to future crises because higher taxes support the low productivity growth of the welfare state, delay the transition to export-led growth, and do not reduce future budget liabilities enough.

The central issue facing the U.S. is whether we turn away from unsustainable budget and trade deficits toward an economy that grows at historic rates with low inflation. More redistribution now won't do that. More investment and productivity growth now will, and it will also provide more resources to pay for a greater share of future health-care costs at lower tax rates.

~Alan Meltzer in today's WSJ

Wednesday, August 10, 2011

Mayo Clinic Opens Retail Clinic at Mall of America



Minneapolis -- "This week a healthier take on retail therapy is coming to the Mall of America as Mayo Clinic opens a wellness center there. Meant to help consumers manage their own health, the "Create your own Mayo Clinic Health Experience," will open its doors at 10 a.m. Thursday morning.

Mayo Clinic will do its research by talking to shoppers at the Mall of America about their health needs. They will use that information to form a more clinical area at the mall next month where they will offer medical services like women's preventive health care, dermatology screening and sports medicine."

HT: J. Howe

U.S. Consumers Spend < 2% on "Made in China"

 
A new paper from the San Francisco Fed "The U.S. Content of 'Made in China'" has been getting a lot of blog attention, see Matt Yglesias, Doug Henwood and Tim Fernholz (HTs to Steve Bartin and Jonah Goldberg).  One of the main points of the article is:

"Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%."

Expressed in dollar amounts, that means that of the $276 billion spent by consumers in 2010 on goods "Made in China" (or 2.7% of total consumer spending of $10,245 billion), only about $123 billion (0r 1.2% of consumer spending) reflects the contribution of Chinese content, and the other $153 billion (or 1.5% of consumer spending) actually goes to American companies and workers for value added in the U.S. from transportation, distribution, marketing, wholesale and retail activities.  

For those goods "Made in the USA" with parts imported from China, the contribution of the Chinese content represents only 0.7% of total consumer spending.  

Bottom Line: 

1. The total share of U.S. consumer spending on: a) "Made in China" imports (1.2%, see chart) plus b) the value of Chinese inputs used to produce goods labelled "Made in the USA" (0.7%, see chart) together represents less than 2% (1.9%) of personal consumption expenditures (or $194.65 billion out of $10,245 billion).   
 
2. The SF Fed concludes that because the "share of consumer spending attributable to imports from China is less than 2%, it is unlikely that recent increases in labor costs and inflation in China will generate broad-based inflationary pressures in the United States."

3. Doug Henwood adds that "it’s also an antidote to the widespread belief that the U.S. is hollowed out and all the action is in China."

Markets in Everything: Union Strike Services

1. There’s a market for unions to hire non-union protesters, e.g. in Nashville at the Music City Convention Center (see photo above).  There’s one problem though: the protesters hired by the union are paid $10 per hour (with no benefits), which is below the Tennessee prevailing hourly wage of $12.56 for general laborers.

2. For more than half a century, a little-known firm in a Minneapolis suburb - Strom Engineering - has provided a service of supplying replacement workers when companies across the country are faced with a union strike.  American Crystal Sugar sought reinforcements from Strom when it locked out some 1,300 union employees in Minnesota, North Dakota and Iowa recently. Strom workers have stepped in at a steel mill for nearly a year, replaced striking mechanics at Northwest Airlines and kept a food plant running during a dispute.

Wednesday Links

1. Infographic: App Store Growth Compared to McDonald's Burgers.

2. 534 lobsters released in Buddhist ceremony are retaken by lobstermen.

3. What's Happening to Men? Boys today are growing up in a culture that, unlike any before in civilization, is agnostic about their future familial responsibilities. 

4. Lessons from the 1990s: Obama has called for taxing corporate jet owners to help offset government spending and balance the federal budget. It is just the latest example of the president’s economic illiteracy.

5. Missing jobs and how we can find them.  

Quote of the Day: Too Big to Fail

"If banks are "too big to fail," they are too big. They must be allowed to succeed or fail on their own merit, without any hint of government support. The failed behemoths at the core of housing finance, Fannie Mae and Freddie Mac, should be wound down. Robust, dynamic competition is a far better way to allocate credit."

~Kevin Warsh and Jeb Bush in today's WSJ

Tuesday, August 09, 2011

Markets in Everything: Rent People by the Hour

Pal Locale is “a community of pals available for rent by the hour.”

Read more here.  

HT: Jacob Fink

Quote of the Day: No Time to Panic

"The economy can hold up. 

During a period like this, with stocks plunging almost on a daily basis, it’s clear that fear and shock are ruling the roost. But fear can be overdone. As someone who has been around awhile and has seen many sell-offs, let me offer some advice: Do not panic. Market corrections come and go. They are not the end of the world. Most times they are actually healthy.

The American free-enterprise system can weather these shocks, and I believe favorable political and policy changes are on the way. It will take time. But time heals. Longer-term investors would do well to think about the many stock market opportunities that are opening up as a tough correction runs its course."

~Larry Kudlow

Markets in Everything

1. Butt Advertising -- "Britain's female beach volleyball champions are renting out their rears in an advertising deal that encourages spectators to photograph their behinds.

Zara Dampney, 24, and Shauna Mullin, 26, have turned their bottoms into their bottom line by wearing bikini briefs with a Quick Response (QR) code printed on the back where it will catch the eye of spectators. When photographed on a smartphone, the code takes the user to a specific website - in this case, for bookmakers Betfair." 

2.  Universities Offer Online High School Diplomas -- "Stanford University, George Washington University, Indiana University, and the University of Missouri have all launched online, diploma-granting high school programs over the past few years, and several other four-year universities offer online classes to high school students."

Monday, August 08, 2011

Monday Higher Education Links

1. Last week, Arnold Kling proposed an independent college grading service he calls "A Means A":  

"A Means A solves the problem of credibility and comparability of grades in courses taught at different institutions of higher education. The innovation is to separate the grading process from other aspects of higher education. For any college-level course, A Means A will devise an appropriate exam and use independent professionals to grade the exam, according to transparent, standard criteria."

2. Today's Chronicle of Higher Education reports that Western Governors University in Utah is employing independent evaluators to grade students' work:

"The best way to eliminate grade inflation is to take professors out of the grading process: Replace them with professional evaluators who never meet the students, and who don't worry that students will punish harsh grades with poor reviews. That's the argument made by leaders of Western Governors University, which has hired 300 adjunct professors who do nothing but grade student work."

3. Tim Worstall writes at Forbes.com that Arnold Kling's college grading model already exists at the University of London:

"No one “goes to” the University of London. You go to King’s College, the London School of Economics, the University College London, Queen Mary, etc. But everyone’s degree is one from the University of London: because that university exists exactly and precisely to provide the accreditation, the standards, for the component colleges."

4. Alex Tabarrok writes about "The Coming Education Revolution" and highlights an upcoming online class on Artificial Intelligence that will be offered for free this fall at Stanford University, as one example of how the education market is moving towards superstar teachers who teach thousands of students online.  Alex predicts:

"For superstars and strong researchers, life in the ivory tower remains good. But for most teachers the cushy life is gone; tenure is just a dream for a majority of university teachers, salaries are low and teaching requirements have risen."

Burton Malkiel: Don't Panic About the Stock Market

Corporate profits, the "mother's milk of stocks, business success and job creation," remain at record high levels.
Burton Malkiel writing in today's WSJ:

"Is it time to sell all your stocks, which are still well above their lows of 2009? I think not. No one can predict what the stock market will do in this and coming weeks. Stocks may continue their decline, but I believe it would be a serious mistake for investors to panic and sell out. There are several reasons for optimism that in the long run we will see higher, not lower, market valuations.

First, I believe that stocks today are cheap. Price/earnings multiples are just over 14 and forward P/E multiples, which use forecasted earnings, have shrunk to less than 12. These multiples are low relative to historical precedent and are especially low when considered in comparison to a 10-year Treasury yield of 2.5%. Dividend yields of 2.5% also compare favorably with 10-year Treasurys.

Moreover, the structure of U.S. corporate earnings increasingly reflects economic activity abroad—including the rapidly growing emerging markets—rather than activity in the U.S. This is why corporate earnings have been growing so rapidly even though U.S. economic growth has been so tepid (see chart above). For large U.S. multinational corporations, the continued growth in emerging markets will be the most important determinant of the future growth of corporate earnings. For many companies, what happens in China, India and Brazil is more important than the inability of Europe to get its house in order and the paralysis in the U.S. and Japan.

My advice for investors is to stay the course. No one has ever become rich by being a long-term bear on the fortunes of the United States, and I doubt that anyone will do so in the future. This is still the most flexible and innovative economy in the world. Indeed, it is in times like this that investors should consider rebalancing their portfolios. If increases in bond prices and declines in equities have produced an asset allocation that is heavier in fixed income than is appropriate, given your time horizon and tolerance for risk, then sell some bonds and buy stocks. Years from now you will be glad you did."

Sunday, August 07, 2011

Why the Gender Pay Gap Won’t Go Away. Ever.

"Because women prefer the mommy track." 

From Kay Hymowitz writing in City-Journal (emphasis added):

"Early last spring, the White House Council on Women and Girls released a much-anticipated report called "Women in America." One of its conclusions struck a familiar note: today, as President Obama said in describing the document, “women still earn on average only about 75 cents for every dollar a man earns. That’s a huge discrepancy.”

It is a huge discrepancy. It’s also an exquisite example of what journalist Charles Seife has dubbed “proofiness.” Proofiness is the use of misleading statistics to confirm what you already believe. Indeed, the 75-cent meme depends on a panoply of apple-to-orange comparisons that support a variety of feminist policy initiatives, from the Paycheck Fairness Act to universal child care, while telling us next to nothing about the well-being of women.

Women work fewer hours, choose less demanding jobs, and then earn less than men do? Why? The answer is obvious: kids. A number of researchers have found that if you consider only childless women, the wage gap disappears. June O’Neill, an economist who has probably studied wage gaps as much as anyone alive, has found that single, childless women make about 8 percent more than single, childless men do (though the advantage vanishes when you factor in education). Using Census Bureau data of pay levels in 147 of the nation’s 150 largest cities, the research firm Reach Advisors recently showed that single, childless working women under 30 earned 8 percent more than their male counterparts did.

That’s likely to change as soon as the children arrive. Mothers, particularly those with young children, take more time off from work; even when they are working, they’re on the job less. The AAUW's "Behind the Pay Gap" study found that “among women who graduated from college in 1992–93, more than one-fifth (23 percent) of mothers were out of the work force in 2003, and another 17 percent were working part time,” compared with under 2 percent of fathers in each case. Other studies show consistently that the first child significantly reduces a woman’s earnings and that the second child cuts them even further.

So it makes no sense to think of either the mommy track or the resulting wage differential as an injustice to women. Less time at work, whether in the form of part-time jobs or fewer full-time hours, is what many women want and what those who can afford it tend to choose. Feminists can object till the Singularity arrives that women are “socialized” to think that they have to be the primary parent. But after decades of feminism and Nordic engineering, the continuing female tropism toward shorter work hours suggests that that view is either false or irrelevant. Even the determined Swedes haven’t been able to get women to stick around the office."

New Fees: Bookstore Admission, Big Bank Deposits

1. NY Times -- "Bookstores, including some of the most prominent around the country, have begun selling tickets or requiring a book purchase of customers who attend author readings and signings, a practice once considered unthinkable. Bookstore owners say they are doing so because too many people regularly come to events having already bought a book online or planning to do so later. Consumers now see the bookstore merely as another library — a place to browse, do informal research and pick up staff recommendations. 

“They type titles into their iPhones and go home,” said Nancy Salmon, the floor manager at Kepler’s. “We know what they’re doing, and it has tested my patience.” 

2. NPR -- Bank of New York Mellon said Thursday that it will charge its customers a fee to hold cash deposits over $50 million. The bank said it has seen such a large increase in deposits over the last month that it will charge a 0.13 percent fee to clients with "extraordinary high deposit levels." Normally, banks pay interest to customers for deposits. But with short-term interest rates near zero, and increased FDIC insurance premiums on deposits, it hurts banks when they hold large amounts of cash on their balance sheets.

"This is a historic precedent in the U.S. banking system," said Dan Geller, Executive Vice President at Market Rates Insight, a firm that analyses bank pricing.

Another Chart: Home Size Bubble

According to the Census Bureau, the average size of new single-family homes built in 2010 was 2,392 square feet, the lowest average new home size since 2004 (2,349 square feet).  Another housing bubble that is now deflating - the "home size bubble."

Charts of the Day

For U.S. only (1970 to 2005):
Source: Heritage Foundation (here and here).