Tuesday, September 13, 2011

Detroit Sets Future on Two-Tier Wages; That Could Be Part of the American Manufacturing Renaissance

DETROIT (NY TIMES) — "They are a cornerstone of Chrysler’s unlikely comeback: 900 employees turning out a Jeep Grand Cherokee sport utility vehicle every 48 seconds of the working day at an assembly plant here.  Nothing distinguishes them from other workers at the Jefferson North plant, except their paychecks. The newest workers earn about $14 an hour; longtime employees earn double that. 

With the economy slumping and job creation once again a pressing issue in the White House and Congress, the advent of a two-tier wage system in Detroit is spiking employment for one of the country’s most important manufacturing industries. The new jobs, which are seen as long term, are being watched closely by economists, executives in other industries and Washington policy makers eager to increase employment in manufacturing and other areas.

What was once seen as a desperate move to prop up the struggling auto industry is now considered an integral part of its future. The demand for $14-an-hour manufacturing jobs is providing Detroit’s Big Three automakers with a ready pool of eager new employees. Last year, Chrysler was flooded with inquiries about the jobs here. It froze the list after receiving 10,000 applications."

MP: The two-tier wages are definitely one factor in the revival of U.S. automotive jobs, and this is reflected in the large gains in manufacturing employment in states like Michigan (see chart above).  Over the last two years, manufacturing jobs in Michigan have increased by 52,000 to more 500,000.  That's the largest two-year job gain since the the mid-1990s, and reverses a downward trend in Michigan manufacturing employment that started in 2000 when there were more than 900,000 manufacturing jobs in the state.   

With the two-tier wage structure, it's likely that the Big Three will continue to expand domestic vehicle production, now that the wage costs are competitive with non-union foreign transplants like Toyota and Honda, and even increasingly competitive versus production in Mexico and other overseas locations.  Increased automotive manufacturing in the U.S. will likely be one part of the general renaissance of American manufacturing predicted by the Boston Consulting Group, as the wage gap with low-wage countries like China starts to shrink, and eventually disappears, adjusted for productivity, transportation and quality.  The two-tier wage scale for autoworkers provides one example of why the wage gap with China, Mexico and other offshore locations is shrinking. 

One point: If Chrysler is receiving 10,000 applications for jobs at the lower-tier $14 per hour wage, that's one indication that $14 per hour is still too high.  That is, Chrysler could offer to pay less than $14, and still have an excess supply of workers. 

37% of the Uninsured Live in Households Making $50k or More, and 40% Are Between 18-34 Years

The Census Bureau released its annual study today on "Income, Poverty, and Health Insurance Coverage in the United States: 2010," and reported that there were 49.90 million uninsured Americans in 2010, up from 48.98 million in 2000.

The chart above shows the household income levels of those 49.9 million uninsured Americans. There were 9.4 million uninsured Americans living in households making $75,000 per year or more, and this group represents almost 1 out of every 5 uninsured (19% of the total number of uninsured). There were 8.8 million Americans without health insurance in households making between $50,000 and $75,000, representing 17.7% of the uninsured. For those two groups combined, almost 37% of Americans without health insurance (18.2 million people) were living in households with $50,000 or more of household income in 2010 (see Table 8 in the Census report for these data).

Q: With $50,000 or more in household income, wouldn't many or most of those 18 million Americans be without insurance voluntarily? That is, couldn't many of those households afford health insurance? Alternatively, with those income levels (especially the 9.4 million with household income above $75,000), couldn't many of those households choose to forgo health insurance in favor of being "self-insured," at least for routine health procedures? Given the widespread availability of more than a thousand convenient and affordable retail health clinics around the country at Wal-Marts, Targets, Meijers, CVSs and Walgreens, these households could easily be on the "pay-as-you-go" model of self-insurance for health care, at least for routine medical services.

It's also the case that about 4 out of 10 uninsured Americans (39.8%) in 2010 were between the ages of 18 and 34 years, and the young people in that age group may also voluntarily choose not to be insured, and be "self-insured," because they are young and healthy and elect not to spend money on health insurance.  

As Thomas Sowell wrote in August 2009 when Obamacare was being rushed through Congress before the August recess:

"As for those uninsured Americans who are supposedly the reason for all this sound and fury [Obamacare], there is remarkably little interest in why they are uninsured, despite the incessant repetition of the fact that they are. The endless repetition serves a political purpose but digging into the underlying facts might undermine that purpose. Many find it sufficient to say that the uninsured cannot "afford" medical insurance. But what you can afford depends not only on how much money you have but also on what your priorities are. 

Many people who are uninsured have incomes from which medical insurance premiums could readily be paid without any undue strain (see chart above). Many young people, especially, don't buy medical insurance and elderly people already have Medicare. The poor have Medicaid available, even though many do not bother to sign up for it, until they are already in the hospital-- which they can do then.

Throwing numbers around about how many people are uninsured may create the impression that the uninsured cannot get medical treatment, when it fact they can get medical treatment at any hospital emergency room."

MP: We've now got Obamacare coming soon, and everybody will be forced to buy a federally approved insurance policy whether they want one or not, even those who can currently afford insurance but choose not to, and the young 18-34 year-olds who also currently elect not to buy insurance. We might have another very expensive government solution to what might have been very much of a non-problem.   

Quote of the Day: A Fundamental Fallacy

A fundamental fallacy is the notion that politicians can "grow the economy" by taking money out of the private sector and spending it wherever it is politically expedient to spend it -- so long as they call spending "investment."

~Thomas Sowell

Monday, September 12, 2011

Borders Store No.1 Closes; We Should Celebrate. Powerful Market Forces Are Working Perfectly

The mighty force of "consumer greed" prevails again:
The original Borders store opened 40 years ago in Ann Arbor, Michigan as an independent bookseller, and after today its flagship two-story, 37,000-square-foot store there will close forever.  The remaining Borders in Michigan will be closed by the end of the week, according to this Detroit New article

The economic lessons here include:

1. Creative destruction.  When Borders started aggressively pursuing a Big-Box, Walmart-style discount retail pricing model, it was successful and profitable and its stores spread nationally, and then globally.  Like Walmart, Borders was frequently criticized for putting small, local, independent "mom and pop" booksellers out of business. But by providing a more efficient business model and supply chain, Borders was creating significant value for society through the process of "Schumpeterian creative destruction" that destroyed many small bookstores but created significantly greater value for consumers through lower prices, better selection and longer hours.  In the end, Borders itself fell victim to Amazon's online dominance, the emergence of Kindles and other e-readers, and an evolving marketplace that left Borders behind in a digital wake of "creative destruction."

2. Consumer sovereignty.  It's not completely accurate to blame Borders or Walmart when local merchants or independent booksellers go out of business. After all, neither Borders nor Walmart can force consumers to shop at their stores; all they can do is offer low-priced alternatives to the higher-priced independent booksellers and downtown merchants.  If the small local merchants don't survive, it's consumers and their "greed" for low prices that should get the blame, not Borders or Walmart. 

In a market economy, it is consumers, not businesses, who ultimately make all of the decisions, and that's the ultimate consumer power known as "consumer sovereignty." When we vote in the marketplace with our dollars, we consumers decide which products, businesses, and industries survive—and which ones fail.

It is therefore consumers who indirectly but ultimately determine business success, not corporations like Borders.  In the beginning, it was the power of consumers and consumer sovereignty that created Borders' success and dominance over independent booksellers, and in the end the same "will of the consumers" that brought about Borders bankruptcy and liquidation.  

3. Profit and Loss System.  A market economy's profit-and-loss system is an extremely effective monitoring mechanism that continually evaluates the economic performance of every business enterprise and its ability to serve consumers. When Borders was more successful at serving consumers than independent booksellers, it was rewarded with huge profits and it expanded nationwide and then globally with more than a thousand stores worldwide.  When Borders no longer served consumers as well as Amazon and other competitors, it was penalized with losses, and eventually forced into bankruptcy. Under a profit-and-loss system, unsuccessful firms like Borders cannot escape the strong discipline of the marketplace in the long run, which is beneficial because it ensures a constant reoptimization of resources and moves the economy toward greater levels of efficiency. 
As was noted on a recent CD post, the "failure of Borders is a glorious event," and today's closing of Borders Store No. 1 gives us reason to celebrate - it demonstrates that the market forces of: a) creative destruction, b) consumer sovereignty, and c) the profit-and-loss system, are all working perfectly.  To quote Anthony Gregory, "If voluntary competition should one day bring Amazon.com down, in the midst of a competing commercial success today unimaginable but even more friendly to consumers than that wonderful online store, we will again have reason to celebrate."

Interesting/Weird Fact of the Day: Maine and D.C.

Q: What do Maine and the District of Columbia have in common? 

A: They rank lowest for 2010 SAT scores by state: Maine for the lowest average reading score in the country at 468  points vs. the national average of 501; and the District of Columbia for the lowest average math score in the country (464 points vs. 516 national average).  For math, Maine ranks #50 and for reading the District of Columbia ranks #50.  

It doesn't seem like Maine and D.C. would have that much in common to share the bottom rankings for SAT scores, does it? 

(FYI: Data for the 2011 SAT will be released on Wednesday.)   

Update: "Maine is the only state using the SAT to comply with No Child Left Behind accountability standards," and they therefore have a 92% SAT participation rate, the highest in the country.  As Tom points out in the comments, that could be one explanation for Maine's low average test scores - almost all high school students take the SAT, even those with no intention to attend college.  However, nearby Massachusetts has the second-highest SAT participation rate of 86%, and it has average test scores above the national means (512 for reading, 526 for math)?

U.S. Manufacturing Profits Set New Record in Q2

In another sign of a strong recovery in America's manufacturing sector, the after-tax profits of U.S. manufacturing corporations reached a record-high $159.7 billion in the second quarter of 2011, according to data released today by the Census Bureau. Adjusted for inflation, second quarter profits this year were 9.1% ahead of the previous quarter, and 40% ahead of a year earlier.  Compared to the pre-recession profit level of $124.1 billion in the fourth quarter of 2007, manufacturing profits have increased by 28.7% and $35.6 billion.

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

President Obama’s $447 Billion Tax Increase

"In his September 8 lecture to Congress, President Obama promised that “every proposal I’ve laid out tonight will be paid for.”  How?  By raising tax rates on “the wealthiest Americans and biggest corporations.” In other words, the President is proposing a $447 billion tax increase."

Read more here of Cato's Alan Reynold's blog post

An Excellent $6 Knoxville-DC Megabus Adventure

Read about Dan and Holly's excellent $6 Megabus adventure from Knoxville to DC. 

For previous CD posts about Megabus go here, here and here.

Is It Consistent to Have Affirmative Action for Admissions, But Not for Grading in the Classroom?

In 2006, Michigan voters overwhelmingly approved Proposal 2, ending state-sponsored discrimination via race-based preferences in college admissions, hiring, and contracting. But a recent federal court ruling has temporarily overturned the will of Michigan voters, opening the door for affirmative action’s return to Michigan. 

Supporters of affirmative action in college admissions face some tough questions.

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

If race-neutral grading is the accepted standard for the treatment of students in the classroom, can race-based preferences be justified when selecting students for admission to the university in the first place? 

The challenges revealed in these questions and the obvious unacceptability of academic favoritism in the classroom with affirmative action grading explains why Michigan voters ended racial favoritism in college admissions in 2006. 

College students in Michigan are treated as individuals without regard to race by university professors once they enter college and start taking classes. Treating all students as individuals by college admissions officers when they first apply to college will ultimately move us further along toward the ideal of a colorblind society than bringing back admissions practices involving double standards, special preferences, and racial discrimination.

In 1963, President John F. Kennedy said: "Simple justice requires that public funds, to which all taxpayers of all races contribute, not be spent in any fashion which encourages, entrenches, subsidizes or results in racial discrimination." 

Hopefully, President Kennedy's vision will prevail in Michigan and the current prohibition of state-sponsored racial discrimination will be upheld by the courts. 

~From my editorial in today's Grand Rapids Press

Sunday, September 11, 2011

N. Dakota Oil Production in July is "Off the Charts" It Could Surpass CA By End of Year for No. 3 Spot

North Dakota's "Hockey Stick" Chart of Oil Production
North Dakota's July oil production set a number of new monthly records, including:

1. The most oil ever produced in a single month - 13,131,366 barrels - an increase of almost 14% above the previous record in June of 11,544,331 barrels, and a gain of almost 32% from July of last year.  In just a little more than two years (since June 2009), oil production in North Dakota has doubled to its current record-setting level.

2. The highest-ever number of producing wells at 5,507, an increase of 673 wells from a year ago, and almost 200 more than in June of this year.

3. A new record high 2,384 barrels per well, and the highest-ever daily oil produced per well at 77 barrels.

4. North Dakota's oil wells produced an average of 423,592 barrels of oil every day in July, a new monthly record, and an increase of almost 40,000 barrels per day compared to June.

Bottom Line: At the current rate of ongoing record-setting increases  in North Dakota oil production, it could surpass California (540,000 barrels per day) by the end of the year as the No. 3 oil-producing state in the country, behind only Texas (1,410,000 barrels per day) and Alaska (550,000).    

Saturday, September 10, 2011

Consumption Has Recovered, We've Got a Sub-Par Recovery Because of Weak Investment Spending

Robert Higgs makes an important point that "Consumption Spending HAS Already Recovered," and it's private investment spending that is lagging and holding the economy back:

"Commentators and pundits, some of whom ought to know better, continue to harp on the idea that the recession persists because consumers are not spending. Every Keynesian seems to believe that because consumers are in a dreadful funk, only government stimulus spending can rescue the moribund economy, given (to them, at least) that investors will not spend more because the Fed, having already driven interest rates to extraordinarily low levels, cannot use conventional policies to drive them any lower and thereby elicit more investment spending.

People, please look at the data. They are conveniently available to one and all at the website maintained by the Bureau of Economic Analysis. According to these data, real personal consumption expenditure recovered from its recession decline by the fourth quarter of 2010 (see chart above). Continuing to grow, it now stands (as of the most recent data, for the second quarter of 2011) even farther above its pre-recession peak.

The economy remains moribund not because consumption spending has failed to recover and not because government spending has failed to increase, but because the true driver of economic growth—private investment—remains deeply depressed. Gross private domestic fixed investment fell steeply after the second quarter of 2007, and in the second quarter of 2011 it remained 19 percent below its pre-recession peak (see chart above).

Here is the true reason for the recession’s persistence.  Private investors, despite the full recovery of real consumer spending, remain apprehensive about the future of new investments, especially new long-term investments. I have argued repeatedly during the past three years that an important reason for this apprehension and the consequent reluctance to make new capital commitments is regime uncertainty—in this case, a widespread, serious fear that the government’s major policies in areas such as taxation, Obamacare, financial reform, environmental regulation, and other areas will have the effect of depriving investors of control over their capital or diminishing their ability to appropriate the income that the capital generates. President Obama’s harping on the desirability of making “the rich” pay their “fair share” of the government’s ever-rising costs only exacerbates regime uncertainty. Business leaders have spoken again and again of how the present political environment is discouraging risk-taking and entrepreneurship.

In any event, it should be crystal clear that the problem is not the failure of consumer spending to recover. Let us please have more respect for the facts than to continue singing that old, thoroughly worn-out tune."

Greg Mankiw makes a similar point in his Sunday NY Times article, "How to Make Business Want to Invest Again": 

"Business investment has been weak. Over the last two years, nonresidential fixed investment has grown by only 12 percent, whereas during the two years after the 1982 recession, it grew by 27 percent. Similarly, the narrow category of spending on business equipment and software fell more than twice as much in this recession as it did in the 1982 recession, and it has been slower to recover."

To stimulate investment spending Professor Mankiw recommends: a) lowering the income tax burden on corporations, b) promoting greater international trade by passing the free trade agreement with S. Korea (and I assume the FTAs with Colombia and Panama as well), and c) reducing the regulatory burden on business, e.g. reining in the National Labor Relations Board for trying to block Boeing's investment in a non-union plant in S. Carolina.  

Bottom Line: Unfortunately, there's not much in the Obama jobs plan that will stimulate or increase private investment business spending, and as long as we have "an investment-less recovery," we'll probably also continue to have a "jobless recovery." 

Windfall Profits Tax... But Not on Oil This Time

Starting back in the 1970s, high oil prices rise in the United States are frequently followed by calls for "windfall profits taxes" on oil companies.  So what do you suppose is happening in some gold-producing countries now that gold prices are at record high levels?  Here's what is happening in one of those countries?

Working Paper: The Impact of Economics Blogs

From a World Bank Policy Research Working Paper titled "The Impact of Economics Blogs":

"There is a proliferation of economics blogs, with increasing numbers of economists attracting large numbers of readers, yet little is known about the impact of this new medium. Using a variety of experimental and non-experimental techniques, we have provided the first quantitative evidence that they are having impacts.

First, links from blogs cause a striking increase in the number of abstract views and downloads of economics papers, while a majority of economics blog readers say they have read a new paper in the past month as a result of a blog. Second, blogging raises the profile of the blogger (and his or her institution) and boosts their reputation above economists with similar publication records. Finally, a blog can transform attitudes about some of the topics it covers."

Markets in Everything: First Commercial Jetpack

"If scoring a seat onboard an airship doesn't seem to be in your immediate future, why not consider a jetpack? We've seen jetpack stunts and world record attempts before, but the notion of actually buying one for private, sky-legal use probably seemed like science fiction. But hold your skepticism: the first commercial jetpack is slated to go on sale as soon as next year.

The Martin Jetpack is scheduled to go on sale in 2012, and the current price tag is set at a lofty $100,000. Amazingly, it's actually legal: It will meet the FAA's strict standards for ultralight aircraft flight. By design, the jetsetter along for the ride won't be able to exceed 63 miles per hour, with a flight time limited to 30 minutes."

A Tariff-Reduction Plan for American Jobs

Cato's Dan Ikenson argues in today's WSJ that we should eliminate the import tariffs taxes that we impose on American companies who purchase imported raw materials, industrial supplies and materials, and industrial equipment and machinery as inputs for production that takes place in the U.S. (see chart above showing that industrial supplies and equipment represent more than 57% of U.S. imports so far this year through July):

"As important as access to foreign markets is, however, some of the most significant obstacles to U.S. export success aren't foreign-made but homegrown. If the president is genuinely committed to spurring economic growth and job creation, he will take the lead on reducing or eliminating duties that U.S. producers pay on imported raw materials and components they need for manufacturing. This would instantly boost the competitiveness of U.S. products at home and abroad. 

The same demographics that have created growing foreign markets also mean there are more foreign suppliers of raw materials, industrial inputs, and other intermediate goods used by U.S. producers in their own production processes. Last year, U.S. Customs and Border Patrol collected $30 billion in duties on $2 trillion of imports, 55% of which were ingredients for U.S. production—such as chemicals, minerals and machine parts. Purchases of imported inputs accounted for more than $1 trillion of U.S. production costs, a price tag that was roughly $15 billion higher than it might have been without U.S. import duties.

Now the president should push Congress to reduce or eliminate, on a permanent basis, all tariffs on industrial inputs so that U.S. producers are more competitive in the global economy and so that America is a more appealing destination for foreign direct investment. That approach has produced good results in Canada, where the government has been reducing tariffs on manufacturing inputs for the past few years.

Improving access to foreign markets, through trade agreements and other measures, will be essential to continued U.S. economic growth. But for maximum effect, the president should strongly advocate the elimination of duties on imported manufacturing inputs and other domestic impediments to U.S. competitiveness abroad and at home."

The Lesson of Economic Damage From "Taxing the Rich" With the Punitive Luxury Tax in the 1990s

"Most Americans celebrated as the ball fell in Times Square New Year's Eve. But for auto dealers this new year is especially sweet. January 1 marked the expiration of the federal luxury tax on cars, the last vestige of the destructive luxury tax package in the infamous 1990 budget deal.

Starting in 1991, Washington levied a 10% luxury tax on cars valued above $30,000, boats above $100,000, jewelry and furs above $10,000 and private planes above $250,000. Democrats like Ted Kennedy and then-Senate Majority Leader George Mitchell crowed publicly about how the rich would finally be paying their fair share and privately about convincing President George H.W. Bush to renounce his "no new taxes" pledge.

But it wasn't long before even these die-hard class warriors noticed they'd badly missed their mark. The taxes took in $97 million less in their first year than had been projected -- for the simple reason that people were buying a lot fewer of these goods. Boat building, a key industry in Messrs. Mitchell and Kennedy's home states of Maine and Massachusetts, was particularly hard hit. Yacht retailers reported a 77% drop in sales that year, while boat builders estimated layoffs at 25,000. With bipartisan support, all but the car tax was repealed in 1993, and in 1996 Congress voted to phase that out too. January 1 was disappearance day.

The end of any federal tax is such a rarity that it's well worth celebrating. And the luxury tax lesson of economic damage is worth keeping in mind as politicians begin to wail that President Bush's new tax proposals aren't punitive enough on the rich."

HT: Pete Friedlander

Friday, September 09, 2011

Markets in Everything: Vending Bike Repair

Bike Repair Vending Machine Sells Parts, Tools, And Snacks:

"Say goodbye to bike shops. Minneapolis's Bike Fixtation will sell you the parts you need to get your bike back on the road, and give you the tools to make your repairs right there. 

It's happened to every biker. A flat tire in an inconvenient place on your commute, and the nearest bike shop is a long walk away. Most casual bikers don't carry extra tubes or tools with them; and so any repair work on the road can mean an end to a bike ride, and potentially leaving your bike locked up somewhere slowly rusting as you forget about it in your frustration. That's why the idea of the Bike Fixtation is so brilliant: a place for you to buy new parts and then install them yourself."

HT: Dan Greller

"It's Not The End of the World" Friday Links

1. Scott Grannis updated his "20 Bullish Charts" from a year ago, and concludes that the economy is not at risk of a double-dip recession. 

2. Daniel Indiviglio of The Atlantic comes to the same conclusion in his article "That Double Dip Everybody's Talking About? It's Not Here."

3. The Conference Board reported this week that the Leading Economic Indexes for July increased in Japan (+0.90%) and the U.K. (+0.30%). 

4. Monster Employment Indexes increased in August for the U.S. (+8% from last year) and Europe (+21% annual growth).  

5. According to new data from the New York Fed, there is only a 1-in-40 chance of a recession through August 2012 (2.41% probability).    


6. Why the Economy Might Not Be as Bad as You Think

Markets in Everything: Medical Tourism TO the USA

"Miami hospitals are partnering with the Greater Miami Convention & Visitors Bureau to market Miami as a destination for international patients. Deloitte estimated in 2008 that 400,000 international patients go to the US for medical care, but since then other sources have suggested it is much higher and the current figure could be around 750,000. Ironically, the country most targeted by overseas destinations, the USA, now probably has more inbound medical tourists than there are Americans going overseas."

VIDEO: Life In An Oil Field "Man Camp"

"I was going to go to school for alternative energy, and here I am in the oil fields. So much for solar panels."  

HT: Che

Drill, Drill, Drill = Jobs, Jobs, Jobs

Jeff Landry (R-LA) during Obama's speech last night.
Statement from Rep. Landry: "By allowing the hard-working people in the Gulf of Mexico to ply their trade, we can save 25,000 job. And by lifting the ban on new offshore drilling, we could create 1.2 million jobs.  Mr. President, do the right thing: let us drill."

Cartoon of the Day

By Michael Ramirez.

Stats of the Day

1. The number of active Twitter members is now more than 100 million, almost double the number at the beginning of the year.

2.The number of Chinese billionaires had doubled in the last two years, from 130 in 2009 to 271 this year. China is now second only to the United States which boasts about 400 billionaires.  What would Mao say?  Let hundreds of Chinese billionaires blossom?

Dodd-Frank Act, aka The 2010 Full Employment Act for Lawyers, Accountants, and Consultants

NEW YORK TIMES -- "Call it Dodd-Frank Inc. A year after Congress passed the broadest financial overhaul since the Great Depression, the law has spawned a host of new businesses to help Wall Street comply — and capitalize — on the hundreds of new regulations. Besides the lawyers, there are legions of corporate accountants, financial consultants, risk management advisers, turnaround artists and technology vendors all vying for their cut."

“It is a full-employment act,” said Gregory J. Lyons, a partner at Debevoise, where a team of a half-dozen lawyers has drafted 30-plus comment letters in the last six months. “The law is passed, but we are still reasonably early in the process,” Mr. Lyons said. “There is still a lot to be written.” 

The Sarbanes-Oxley Act of 2002 became a boon for the Big Four accounting firms as public corporations were forced to tighten compliance in the wake of the Enron and WorldCom scandals. Now, the Dodd-Frank Act is quickly becoming such a gold mine that even Wall Street bankers, never ones to undercharge, are complaining that the costs are running amok. 
No one yet is tracking all the money being spent to deal with Dodd-Frank (which in itself could be an entrepreneurial venture), but a back-of-the-envelope calculation puts it in the billions of dollars (see chart below)."

MP: The top chart above compares the number of pages in the Dodd-Frank Act to the page count for previous financial legislation.  One study estimated the compliance cost of the 66-page Sarbanes-Oxley Act (SOX) to be as high as $1.4 trillion.  If "size matters" for financial regulation, i.e. the number of pages translates into compliance cost, watch out: Dodd-Frank is almost 13 times bigger than SOX.   

HT: Dan Greller

Markets in Everything: Jakarta "Traffic Jockeys" Rent Themselves Out as Paid Passengers

PRI -- "With 20 million vehicles on the streets each day, and with far less pavement than in big cities like New York, Singapore and Tokyo, traffic in Jakarta is terrible (see photo above). To reduce the number of cars on the road, lawmakers have designated several main arteries as what they call “Three in One zones.”

During the morning and afternoon rush, you can’t drive there unless you have at least three people on board. That’s why, near the entrances to the zones, men, women and children line up – raising their index finger – offering to rent themselves as "traffic jockeys" to commuters in a hurry."

Thursday, September 08, 2011

A Guide To Code Words In Presidential Speeches


1. When he says: We need to put politics aside and pass the three pending trade bills. 

What he means is: I've been holding these bills up for more than two years, but I want to make it look like it's the Republicans' fault, and I know I can count on my lap dog media friends not to call me on this blatant falsehood. 

2. When he says: We need to invest in clean energy jobs of the future. 

What he means is: Pay no attention to all those failed taxpayer-supported "green" companies over there. 

3. When he says: Thank you. God bless you and may God bless the United States of America! 

What he means is: Are you ready for some football?!?!

Mortgage Rates Fall to New Record Low of 4.12%

The 30-year fixed mortgage rate fell to an historic low of 4.12%, as reported today by Freddie Mac.

U.S. Exports Surge to New All-Time High in July, Led By New Records for U.S. Manufactured Goods

U.S. exports set a new monthly record in July of $178 billion, which was an increase of more than 15% from a year ago, and a 3.6% increase from June (see top chart above, full report here).  Export categories that showed especially strong gains in July included industrial supplies (+29.3% from a year ago), capital goods (+8.8%), and automotive vehicles (+29.1%), and all three of these manufacturing categories set new monthly records in July.  

Total trade in July was above $400 billion for only the second time ever, and just shy of the record $401.5 billion total trade in May of this year (see bottom chart above).

MP: The record-setting level of exports in July, along with a near-record volume of total trade, suggest that both the U.S. and global economies are continuing to expand, and the robust trade levels do not support a pending double-dip recession.  U.S. exports of  industrial supplies, capital goods and vehicles, all at record levels in July, indicate an ongoing strength in U.S. manufacturing.

July Job Openings Highest in Three Years

The BLS reported yesterday that there were 3,228,000 job openings in July, an increase of 1.9% from June, and 13.3% from July last year, to reach the highest level since August 2008, almost three years (see chart above).  Private sector job openings, at 2,900,000 in July, were also the highest since August 2008, and 15.3% higher than a year earlier.    

From the Associated Press:

"Companies advertised the most job openings in three years, a hopeful sign after the worst month for hiring in nearly a year. The Labor Department said Wednesday that employers posted 3.2 million jobs in July, up from 3.17 million in June. That is the largest number of openings since August 2008. Typically, it takes anywhere from one to three months to fill an opening. The biggest gains in openings were reported in manufacturing, trade, transportation and utilities.

There's heavy competition for each job. Nearly 14 million people were out of work in July. So roughly 4.3 unemployed workers were competing for each opening. That's a slight improvement from June, when the ratio was 4.45. In a healthy economy, the ratio is closed to 2 to 1.

Total openings are about 1.1 million higher than they were in July 2009, one month after the recession officially ended. But they are still far below the 4.4 million openings that existed in December 2007, when the recession began."

Wednesday, September 07, 2011

Wednesday Night Links

1. The NFL season hasn't even officially started, but the ads for the 2012 Superbowl are almost sold out already.  (HT: Mike LaFaive) 

2. Twenty high-profile economists have urged the British government to drop the top 50 percent income tax rate, which they say is doing "lasting damage" to the UK economy.

3. With the economy in the dumps for the last few years, it means less trash in the landfills in Florida. (HT: Steve Bartin)

4. NY Fed Report: Consumer Goods from China Are Getting More Expensive (and we can expect that trend to continue).

5. "Managers for the U.K.'g government-run National Health Service are making patients wait longer than necessary for operations, with one claiming that treating them quickly “raises expectations.”  In some areas, patients endured delays of 12 or 15 weeks after GPs decided they needed surgery, even though hospitals could have seen them sooner."

6. In contrast to the last item, read about Thomas Sowell's "same-day" medical service in the U.S.

Big Gov't Doesn't Create Jobs, Gibson Guitar Does

Tennessee Congresswoman Marsha Blackburn issued the following statement today announcing that Gibson Guitar CEO, Henry Juszkiewicz, will be her special guest for President Barack Obama’s address to the Joint Session of Congress on Thursday night:

“Gibson Guitar is at the heart of this jobs debate, and is an example of exactly why President Obama has it wrong when it comes to getting our economy back on track. Maybe if the President spent more time finding real solutions to empowering small business owners and less time hindering businesses like Gibson, we'd see more new jobs being created.

Small businesses under the leadership of executives like Henry are the key to getting our nation’s economic engine running again. While the President is busy delivering speeches, small business leaders like Henry are busy trying to deliver results. The best thing President Obama could do is seek their advice, then get out of the way. Big government doesn’t create jobs, small businesses like Gibson Guitar do.”

See previous CD posts about the government raids on Gibson guitar here and here

Drill, Drill, Drill Jobs Plan: +1.4 Million Jobs, $800 Billion in Revenue, and Increased Energy Security

U.S. oil, gas jobs: Status Quo vs. Increased Development
With more than 22 million Americans unemployed (14 million) or working-part time and unable to find full-time employment (8.5 million), there is obviously nothing more important economically today than job creation.  The issue of jobs will likely be one of the main topics at the Republican debate tonight, and it will President Obama's only topic tomorrow night when he addresses a joint session of Congress and outlines his new jobs programs that will cost $300 billion for increased government spending and tax cuts.  How many jobs will be created from Obama's plan remains to be seen, but even if it optimistically (and unrealistically) created 1 million new jobs, that would come at a very expensive cost of $300,000 per job - not such a good deal.

Well, what if we could create 1 million new jobs in the U.S. over the next seven years by 2018, and 1.4 million total new jobs by 2030 without spending a dollar of taxpayer money?  In fact, what if the creation of those new jobs actually generated hundreds of billions of dollars of additional government revenue ($800 billion by 2030).  Sound too good to be true?

Those are the estimates of job creation and increased government revenues that would result from: a) opening access in key regions of the U.S. to oil and natural gas development that are currently closed, b) returning to historical levels of oil and gas development for existing U.S. regions (onshore U.S., the Gulf of Mexico and Alaska) and c) opening the Keystone XL pipeline and other potential Canada-to-U.S. oil pipelines, according to a new report released today titled "
U.S. Supply Forecast and Potential Jobs and Economic Impacts (2012-2030)."

The study was conducted by Scotland-based Wood Mackenzie Energy Consulting for the American Petroleum Institute (API), see the API
press release here and the full report here.

MP: The chart above graphically shows the net job gains from increased domestic energy development compared to maintaining the current projected levels of domestic energy development through 2030.  Here's one way to understand the impact of those new jobs on the U.S. economy: If we had 1 million of those jobs today, it would lower the U.S. jobless rates from 9.1% down to 8.4% and if we 1.4 million jobs, it would lower the rate down to 8.2%.

When you can add a million or more jobs to the U.S. economy, while at the same time generate hundreds of billions of revenue and also increase America's energy security as an additional bonus, I think you've got a jobs package that will dominate anything that we'll hear about tomorrow night.

Food Truck Links

1. DETROIT -- "It’s only fitting that a region called “The Motor City” is getting into the mobile food game big time.  The new Taco Mama Detroit is now in operation (see photo above)."

2. CANADA -- "Exotic food trucks, which have long been popular staples in such U.S. cities as Los Angeles, New York City and Portland, are slowly making their way to Canada. However, some operators in two of the country's biggest markets say municipal regulations often leave them spinning their wheels.

Montreal has banned street food for more than the last half-century. Toronto has had a moratorium on new food truck vending permits for almost a decade, although it is now reviewing its street vending bylaws. Vancouver, on the other hand, revamped its rules and now is in the midst of a street eats boom."

3. The Washington Post yesterday featured Bert Gall, the head of the Institute for Justice's food truck program, and described his job as "suing the living daylights out of cities that dare to limit the free enterprise of street vendors."

MP: Canada obviously needs a brach office of the Institute for Justice, or an equivalent organization to fight for economic justice! 

HT: Mike W.

Markets in Everything: Amazon Lockers at 7-11

"Word on the street is that Amazon is testing out something new in Seattle - lockers at 7-Eleven mini marts that will let online shoppers pick up their packages while they grab a hot dog instead of waiting for the UPS man at home.

How do these work? Presumably, Amazon customers will be able to have their goodies shipped to the 7-Eleven lockers and access the boxes via a pin number supplied with their order notification email (see photo above)."

Tuesday, September 06, 2011

U.S. Innovation, Manufacturing Are Alive and Well. Exhibit A: IBM and 3M Collaborate on 3D Chips

IBM and 3M's Breakthrough Stacked Chip Technology Will Be 1,000 Times Faster Than Today's Chips

Two of America's oldest and most successful manufacturers, 3M (founded in 1902) and IBM (founded in 1911), have teamed up to collaborate on a new 3D computer chip stacking process that could revolutionize computer technology.  According to a report posted just several hours ago on a Wall Street Journal blog,  
"Such three-dimensional structures could be 1,000 times faster than today’s individual chips, IBM estimates, ushering in much more powerful portable devices, PCs and server systems. Electronics companies now routinely stack a few chips together–particularly memory chips, for use in small devices like cellphones–but IBM is talking about bonding 100 or more chips together, including high-performance microprocessors.
What role will 3M play?
"Microprocessors generate heat, and gluing chips together would cause them to melt. That’s where 3M comes in. The Minnesota-based materials company will work with IBM to develop special heat-dissipating adhesives that can safely conduct heat away from chips, and processes that can coat hundreds or thousands of chips with glues at one time."

"You want to ultimately make a brick of silicon,” says Bernard Meyerson, IBM’s vice president of research. “That does not exist today.”
MP: Watch the video above to see how the chip-stacking process works.  The commercial availability of brick-style computers might be several years away, but this new developing breakthrough innovation from two old-line, 100-year old iconic American manufacturers tells us that "Made in the USA" is alive and well, and America is still the World's No. 1 Innovator.  

Guitar Links

1. The 40 Most Influential Rock Guitar Solos, from Guitar Player magazine in June 2011. 

2. The 50 Greatest Guitarists Ever, from the LA Times in 2010, with videos of each one (including the one of Les Paul featured above).

3. Evertune bridge keeps your guitar in tune forever.  

HT: Pete Friedlander

Tuesday Morning Links

1. "Manity sizing" comes to the U.K. Stores are labeling trousers up to two inches narrower at the waist than they actually are. 

2. The Post Office is dying.  Reason? We don't need it anymore. (HT: Tim D.)

3. Flashback to July 22, 2007 - "Fannie Mae and Freddie Mac are riding to the rescue of the subprime lending market. Consumer advocacy groups and politicians have been calling on the agencies to get more involved in guaranteeing subprime loans and creating consumer-friendly mortgages that can be made available to borrowers with blemished credit histories." (HT: Jimmy P.)

4. Freelance Nation: "The Freelance Surge Is the Industrial Revolution of Our Time," a new series in The Atlantic. 

5. China to Overtake Japan in Luxury Demand This Year.  After centuries of communism where private property was not allowed, today's Chinese love to show off a little bling.

Cartoon of the Day: Western Fetish

Featured in James Joyner's article about "the Western fetish for turning cheap, efficient food into expensive, inefficient fuel."

Let Business Pioneers Do What They Do Best: Create New Wealth, Not Redistribute Wealth

From Thomas Sowell's latest column:  

"A recent New York Times article criticized Apple CEO Steve Jobs for not contributing to charity as much as the New York Times writer thought he should. The media in general are full of praise for business people and their companies for giving away substantial amounts of their wealth. Indeed, that is one of the few things for which many in the media praise businesses and the wealthy.  

Judging businesses or their owners by how much wealth they give away -- rather than by how much wealth they create -- is putting the cart before the horse. Wealth is ultimately the only thing that can reduce poverty. The most dramatic reductions in poverty, in countries around the world, have come from increasing the amount of wealth, rather than from a redistribution of existing wealth. 

What kind of world do we want -- one in which everyone works to increase wealth to whatever extent they can, or a world in which everyone will be supported by either government handouts or private philanthropy, whether they work or don't work? 

It is not an abstract question. We can already see the consequences on both sides of the Atlantic. Those who have grown used to having others provide their food, shelter and other basics as "rights" are by no means grateful. 

Let business pioneers do what they do best. And let the rest of us exercise more judgment as to how much charity is beneficial and how much more simply perpetuates dependency, grievances and the polarization of society."

Monday, September 05, 2011

Chart of the Day: World GDP and Suez Canal Traffic

The chart above from The Economist displays annual world GDP growth and the annual growth in the amount of cargo passing through the Suez Canal in Egypt, representing about 8% of the total world trade. Making a simple forecast based on recent trends in cargo traffic, The Economist predicts that world GDP will fall from 3.8% in the first quarter to 3.3% in the second quarter.

America Is Still A Great Engine of Innovation and Growth: The U.S. Is Still The Biggest Buy of All

Cato's Dan Griswold points to this great quote in Barron's from Alger CEO Dan Chung (alternate link here):

"America is not a stagnant country. We have a relatively youthful population. Our technology and media industries are the envy of the world, and the Internet is most dynamic in those areas. Europe, China and Japan, for all their attempts, have not been able to replicate our success in innovation of technology and media. We are still a great engine of innovation and growth. While it doesn't make the whole sector or all the stocks a Buy, it does make our country a Buy."

Does the Media Have a Liberal Bias? Is There Any Evidence? Yes, According to a New Book and Study

Political Quotients of Some Politicians (click to enlarge)

Does the mainstream media have a liberal bias?  Yes, according to the empirical evidence that Tim Groseclose, UCLA political scientist and economist, presents in his new book "Left Turn: How Liberal Media Distorts the American Mind."  From Tim's website:

"Dr. Tim Groseclose, a professor of political science and economics at UCLA, has spent years constructing precise, quantitative measures of the slants of media outlets. He does this by measuring the political content of news and converting that content into an SQ, or “slant quotient,” of the outlet.  To determine bias, he compares SQs of news outlets to the PQs, or “political quotients,” of voters and politicians.
Among his conclusions are: 1) all mainstream media outlets have a liberal bias, and 2) while some supposedly conservative outlets—such as the Washington Times or Fox News Special Report—do lean right, their conservative bias is less than the liberal bias of most mainstream outlets.

Groseclose contends that the general leftward bias of the media has shifted the PQ of the average American by about 20 points on a scale of 100, the difference between: 1) the current political views of the average American and 2) the political views of the average resident of Orange County, California or Salt Lake County, Utah. With Left Turn, readers can easily calculate their own PQ—to decide for themselves if the bias exists. This timely, much-needed study brings fact to this often over-heated debate."

MP: To determine your PQ, take this 40-question quiz.  At the end of the quiz, you'll see a list of politicians who have PQs similar to yours.  The chart above (click to enlarge) shows a sample of PQs for politicians ranging from Michele Bachmann and Jim DeMint on the far conservative end to Barney Frank and Nancy Pelosi on the far liberal end of the scale.  

Here's a five-part video series of Tim being interviewed about his book by Peter Robinson on Uncommon Knowledge: Part 1, Part 2, Part 3, Part 4 and Part 5

Sunday, September 04, 2011

Social Security IS a Pyramid Scheme

Is the Social Security system a Ponzi scheme? Texas Governor Rick Perry says Yes, and calls it a "monstrous lie for younger people."  Cato Institute's Michael Tanner says Perry was being too kind, and writes:  "As with Ponzi’s scheme, when the number of new contributors dries up, it will become impossible to continue to pay the promised benefits." Boston Globe columnist Jeff Jacoby says that's not the point, and points out that "Ponzi schemes are intended to defraud; Social Security was designed to be a social safety net for the old."

The debate will continue, but the facts in the graph above are crystal clear: the number of active workers per Social Security recipient is declining, and will continue to decline, and the Social Security system is clearly unsustainable.  Whether Social Security technically meets the technical definition of being a Ponzi scheme is less important than the fact that the current system has become a Pyramid scheme as the population ages.  We will eventually run out of money from active workers, and money from the "trust fund,"  to pay for the unfunded liabilities due to Social Security recipients.  

Temperature Trivia

82 Fahrenheit = 28 Celsius

61 Fahrenheit = 16 Celsius

For those two temperatures, you can simply switch the numbers.

Saturday, September 03, 2011

The Natural Forces of Market Concentration

Country  HHI Index, 2009  
South Africa4,152
United Kingdom3,401
US - Proposed3,320
US - Now2,744

NEW YORK TIMES -- "The [AT&T-T-Mobile] merger would increase the concentration of the cellular industry in the United States to 3,320, by the Herfindahl-Hirschman Index (HHI, a measure of market concentration), up from 2,744 before (see chart above). But note that even if AT&T does not acquire T-Mobile, the American wireless market is and will remain highly concentrated. An international comparison of market concentration, published this week by the Columbia Institute for Tele-Information, shows that the wireless markets in most nations are highly concentrated. 

In fact, the merger would move the United States from “toward the bottom to well in the middle of the pack” in terms of consolidated market power in the wireless industry, said Eli Noam, an economist at the Columbia University Business School and director of the telecommunications research institute (see chart above).

In telecommunications, the market concentration itself is not surprising. The telephone business, after all, has long been one of the classic examples of an industry that exhibits the forces that lead toward “natural monopolies,” or at least oligopolies. Those forces include high fixed costs — the investment needed to build out networks — and the efficiencies that come from providing services to millions of customers.

The drive to build out more sophisticated, higher-speed wireless networks will considerably increase the capital costs for network carriers. “That will almost certainly increase the natural forces of market concentration,” Mr. Noam noted.

MP: Maybe it would be best that the Department of Justice do nothing about the ATT-T-Mobile merger. As long as there is open entry to the wireless services industry, and the incumbent firms have no legal protection against current or future competition, what's the problem? The natural forces of market competition are usually the best and most effective forms of regulation.

Update: Don Boudreaux argues in this video that the proposed merger between AT&T and T-Mobile would make the wireless market more competitive, benefiting consumers.