Tuesday, September 20, 2011

Gain in Architecture Billings Index Highest in 4 Yrs.

Washington, D.C. – September 21, 2011 – "On the heels of a period of weakness in design activity, the Architecture Billings Index (ABI) took a sudden upturn in August. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the August ABI score was 51.4, following a very weak score of 45.1 in July (see chart above). This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.9, up sharply from a reading of 53.7 the previous month (see chart).

“Based on the poor economic conditions over the last several months, this turnaround in demand for design services is a surprise,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Many firms are still struggling, and continue to report that clients are having difficulty getting financing for viable projects, but it’s possible we’ve reached the bottom of the down cycle.” 

MP: The increase in the August architecture billing index was the largest monthly increase for the index in four years, and forecasts an increase in construction spending by next spring.

Exports from L.A. Port Surge in August

Loaded outbound export containers leaving Los Angeles for overseas destinations surged in August, registering an increase of 11.5% compared to July, and a gain of 24.8% compared to August of last year, according to shipping data recently released by the Port of Los Angeles (see chart above).  The 184,321 outbound containers set a new record for the month of August, and indicates that the global demand for U.S. manufactured products remains strong.  Strong August shipping from the L.A. Port should translate into solid August exports when the BEA releases international trade data next month, as well as contribute to gains in third quarter GDP when those data are released around November 1.     

In a related report, the Conference Board announced today that the Leading Economic Index for China increased by 0.60% in July, following increases of 0.90% in June and 0.40% in May.  The ongoing increases in China's Leading Economic Index signals that robust economic growth will continue in China through the rest of the year, although it's likely that growth in 2011 will slow slightly from 2010.  Continued economic expansion in countries like China will help to support demand for U.S. exports.  

Happy 5th Birthday Carpe Diem!

Carpe Diem started five years ago on September 20, 2006.  Here's a link to CD post #1 (this current post is #8,254), which features a quote in the WSJ from Warren Buffett - not about taxes, but about whether business degrees from Ivy League universities matter for success in the business world (answer: No).  

Thanks for your readership and support!  And special thanks go to: a) Professor Lee Coppock at the University of Virginia for his initial encouragement to start an economics blog, b) Mike "Eagle-Eye" Carlson for his voluntary copy-editing support, and c) Ben Cunningham for his ongoing research support! 

Cartoon of the Day: Getting The Terminology Right

IBD's Michael Ramirez.

HT: Mike Carlson

If Private, Social Security Would Be Illegal

"The fundamental problem of Social Security is that the irresponsible way its finances are set up, and the changing demographics of the country, mean that there is simply not going to be enough money in its trust fund to pay today's young people what they are legally entitled to, when time comes for them to retire.

Declining birth rates and greatly increasing lifespans have created havoc with Social Security's finances, which are based on having the first generation's pensions paid with money collected from the second generation -- and the second generation's pensions paid by the next generation, etc.

Any private financial scheme set up in a similar way would be illegal. That is why Charles Ponzi went to prison."

Omaha Hokum: The Entire Buffett Rule is False

"So here we are back at the same old political stand, though even Mr. Obama concedes that today those he routinely calls "millionaires and billionaires" pay at least some tax. The President's complaint, echoing billionaire Warren Buffett, is that too many billionaires pay a lower rate than regular salary earners. So even as he endorsed tax reform in general yesterday, Mr. Obama insisted that one of his reform "principles" is that people who make more than $1 million must pay a higher tax rate than middle-class earners.

There's one small problem: The entire Buffett Rule premise is false, as the table above shows. In 2008, the last year for which such data are available, the IRS reports that those who made more than $1 million in adjusted gross income paid an average income tax rate of 23.3%. 

That's slightly lower than the 24.1% rate paid by those making between $500,000 and $1 million, probably because the richest are like Mr. Buffett and earn more from capital gains and dividends. The rate for a relative handful of the rich—400 people—fell to 18%. But nearly all millionaires still paid a rate that is more than twice the 8.9% average rate paid by those earning between $50,000 and $100,000, and more than three times the 7.2% average rate paid by those earning less than $50,000. The larger point is that the claim that CEOs are routinely paying lower tax rates than their secretaries is Omaha hokum."

~Wall Street Journal editorial (emphasis added)

MP: Using IRS data for a different year (2009), I made the same point in a CD post yesterday. 

Monday, September 19, 2011

At USD, School of Nursing and Health Science is 96.5% Female But It Got $600,000 in Taxpayer Funding To Increase Female Professors in STEM?

Among administrators and deans at the University of San Diego, females are well-represented.  For example, the president, provost and VP for Student Affairs are female (top three above) and three of the university's six academic deans are female (bottom three above).  Among chairs and faculty in science, social science and math departments, females are also well-represented including:

1. Math and Computer Science Department: Female chair and 7  out of 15 faculty.    

2. Chemistry Department: Female chair and 5 out of 14 faculty.  

3. Sociology Department: Female chair and 6 out of 8 faculty.  

4. Biology Department: 7 out of 15 faculty.

5. Chemistry Department: 5 out of 14 faculty. 

6. Environmental Studies: 3 out of 6 faculty.

Given what appears to be a pretty female-friendly academic institution headed by a woman president and provost, with gender parity in most science and math departments, you wouldn't think the University of San Diego needs any taxpayer money to "boost the ranks of female science and technology professors," would you?  Well, think again.  

The University of San Diego was just awarded $600,000 of your tax dollars via the National Science Foundation to increase the ranks of female professors, particularly those of color, in science and technology.  From the university's press release:

“We’re excited about the opportunity to become a model for undergraduate institutions that want to increase their diversity and provide a supportive environment for female faculty,” said Mary Boyd, dean of USD’s College of Arts and Sciences.

The five-year grant for $600,000 will support the project, Advancement of Female Faculty: Institutional climate, Recruitment and Mentoring (AFFIRM) to boost efforts to recruit women, especially those of color, in science, technology, engineering and mathematics (STEM) as well as the social and behavioral sciences.

Research suggests that the disparity of women in higher education can be explained “by an academic culture that provides women fewer opportunities, limited support and inequity in leadership,” Boyd said. “Too often we still see talented young female professors leave the academy because of feelings of isolation, problems with balancing career and family life and other issues. The AFFIRM project can help change the culture and provide the support to attract, retain and advance more outstanding female professors in areas of science and technology that are vital to our nation’s future.”

MP: I don't think the under-representation of males in USD's School of Education (only 3 out of 13 faculty are male) or the School of Nursing and Health Science (all 11 administrative positions are held by women, and 44 out of 46 faculty positions are female, for an overall ratio of 27.5 females per one male, or 96.5% female), will qualify for any taxpayer funding to address the gender disparities in those academic fields (I guess Nursing and Health Science is not part of STEM)? For example, I don't think USD will be applying for a grant titled:

"Advancement of Male Faculty: Institutional climate, Recruitment and Mentoring (AFFIRM) to boost efforts to recruit men, especially those of color, in education and nursing."

HT: Mike Donahue

New FBI Numbers Reveal Failure of "War on Drugs": One Drug Arrest Every 19 Seconds in the U.S.

WASHINGTON, D.C. -- "A new FBI report released today shows that there is a drug arrest every 19 seconds in the U.S. A group of police and judges who have been campaigning to legalize and regulate drugs pointed to the figures showing more than 1.6 million drug arrests in 2010 as evidence that the "war on drugs" is a failure that can never be won.

"Since the declaration of the "War on Drugs" 40 years ago we've arrested tens of millions of people in an effort to reduce drug use. The fact that cops had to spend time arresting another 1.6 million of our fellow citizens last year shows that it simply hasn't worked. In the current economy we simply cannot afford to keep arresting three people every minute in the failed 'war on drugs,'" said Neill Franklin, a retired Baltimore narcotics cop who now heads the group Law Enforcement Against Prohibition (LEAP). "If we legalized and taxed drugs, we could not only create new revenue in addition to the money we'd save from ending the cruel policy of arresting users, but we'd make society safer by bankrupting the cartels and gangs who control the currently illegal marketplace."

Today's FBI report shows that 81.9 percent of all drug arrests in 2010 were for possession only, and 45.8 percent of all drug arrests were for possession of marijuana."

Petition to Redistribute College GPA Scores

Do some students really need a 4.0 GPA? Isn't that "excessive"?  Let's make it a 3.80 and redistribute those extra GPA points to another student who's struggling to graduate.

AT&T and the Economics of Monopoly; Dept. of Justice Has Dismal Record in Fast-Moving Industries

"The Justice Department has a dismal record in bringing antitrust cases in fast-moving industries. In the 1960s, IBM had to defend its "dominant" mainframe business, which the personal computer soon rendered obsolete. Then Microsoft was accused of having monopoly power it only wishes it ever had. Today Google is in the regulatory crosshairs just as it faces many new competitors. 

"In treating technology markets as if they were fixed in size and closed to new entrants," tech author Larry Downes wrote recently for Forbes, the case against AT&T "marks a new low in Washington's appreciation for how and why the Internet economy works."

In its focus on market concentration instead of on market power or any evidence of harm to consumers, the Obama administration is a throwback to the old style of antitrust. The last thing consumers need is the government protecting some wireless providers at the expense of others, especially if this prevents cheaper and more reliable wireless service. AT&T may not be the most sympathetic underdog, but the rationale for blocking this merger could make a target of any successful tech company.

Instead of trying to pick winners and losers, the White House and Congress should let the FCC finally hold its auctions for spectrum, then let the most innovative wireless companies compete to serve growing consumer demand."

2011 Pew Research Political Typology Quiz

Where do you fit politically? To find out, take the 2011 Pew Research Political Typology Quiz.

Sunday, September 18, 2011

Amazing Illusion: The McGurk Effect

Behold, The Circle of Government Life

Investor's Business Daily -- "Ex-employees of the failed solar panel company Solyndra have applied for aid under the federal government’s Trade Adjustment Assistance program, the Labor Department has confirmed. If approved, the employees of what was once touted as a leading exemplar of the White House’s green jobs program will be eligible for more federal funds to enable them to be retrained for other jobs.

It would be an ironic coda to the saga of Solyndra, which manufactured solar panels and received $527 million in loan guarantees from the Energy Department and praise from President Obama during visits to the firm’s California headquarters. Now those green workers will be seeking the government’s help to find work again and not necessarily in the conservation jobs sector."

Scott Lincicome summarizes this "Circle of Government Life":

"So to recap: massive government subsidies created 1,100 "green jobs" that never would've existed but for those massive government subsidies.  And when those fake jobs disappeared because the subsidized employer company couldn't compete in the market, the workers blamed China (instead of what's easily one of the worst business plans ever drafted) in order to receive... wait for it... more government subsidies.

Behold, the Circle of Government Life."

U.S. Dependence on Foreign Oil Lowest Since 1996

From Daniel Yergin's WSJ article "There Will Be Oil":

"In 2003, the Bakken formation in North Dakota was producing a mere 10,000 barrels a day. Today, it is over 400,000 barrels, and North Dakota has become the fourth-largest oil-producing state in the country. Such "tight" oil could add as much as two million barrels a day to U.S. oil production after 2020—something that would not have been in any forecast five years ago. 

Overall U.S. oil production has increased more than 10% since 2008. Net oil imports reached a high point of 60% in 2005, but today, thanks to increased production and greater energy efficiency (plus the use of ethanol), imports are down to 47%."

MP: The chart above displays oil imports as a share of U.S. demand annually back to 1973 (data here), showing that dependence on foreign oil at 47% this year (average through July) is the lowest in 15 years, since the 46.4% share in 1996.   

Saturday, September 17, 2011

Racial Discrimination at UW-Madison Gets Minority Students Admitted, But Almost 50% Don't Graduate

From Linda Chavez, Chairwoman and founder of the Center for Equal Opportunity:

"The campus at the University of Wisconsin-Madison erupted this week after the release of two studies documenting the heavy use of race in deciding which students to admit to the undergraduate and law schools. The evidence of discrimination is undeniable, and the reaction by critics was undeniably dishonest and thuggish.

The Center for Equal Opportunity (CEO), which I founded in 1995 to expose and challenge misguided race-based public policies, conducted the studies based on an analysis of the university's own admissions data. But the university was none too keen on releasing the data, which CEO obtained through filing Freedom of Information Act requests only after a successful legal challenge went all the way to the state supreme court.

It's no wonder the university wanted to keep the information secret. The studies show that a black or Hispanic undergraduate applicant was more than 500 times likelier to be admitted to Wisconsin-Madison than a similarly qualified white or Asian applicant. The odds ratio favoring black law school applicants over similarly qualified white applicants was 61 to 1.

The median SAT scores of black undergraduates who were admitted were 150 points lower than whites or Asians, while the median Hispanic scores were roughly 100 points lower. And median high school rankings for both blacks and Hispanics were also lower than for either whites or Asians.

CEO has published studies of racial double standards in admissions at scores of public colleges and universities across the country with similar findings, but none has caused such a violent reaction.

Instead of addressing the findings of the study, the university's vice provost for diversity, Damon A. Williams, dishonestly told students that "CEO has one mission and one mission only: dismantle the gains that were achieved by the civil rights movement." In fact, CEO's only mission is to promote color-blind equal opportunity so that, in Martin Luther King's vision, no one will be judged by the color of his or her skin."

Here are links to the reports for undergraduate admissions and law school admissions.  

MP:  According to this article in the Journal of Blacks in Higher Education, the graduation rate for black students at UW-Madison in 2006 was only 52%, indicating that almost one-half of the black students admitted to the University of Wisconsin under special preferences, state-sponsored discrimination, and affirmative action failed to graduate.   The proponents of affirmative action always seem to focus mostly on the "front end," i.e. getting minority students admitted as freshmen, but never seem to pay as much attention to the "back end," i.e. getting minority students to successfully graduate.  In the case of UW-Madison, the "academic mismatch" that results from race-based preferences does a great disservice to many of the minority students, given that almost half of the admitees fail to graduate.  

What's Wrong with Peak Oil? It Ignores Economics

Daniel Yergin explains in today's WSJ why "peak oil" is "peak idiocy" (thank to Mike Munger for that one) - its originator completely ignored the important role economics, market forces, prices and technological change:

"The [peak oil] idea owes its inspiration, and indeed its articulation, to a geologist who, though long since passed from the scene, continues to shape the debate, M. King Hubbert. Indeed, his name is inextricably linked to that perspective—immortalized in "Hubbert's Peak."

Hubbert was imaginative and innovative," recalled Peter Rose, who was Hubbert's boss at the U.S. Geological Survey. But he had "no concept of technological change, economics or how new resource plays evolve. It was a very static view of the world." Hubbert also assumed that there could be an accurate estimate of ultimately recoverable resources, when in fact it is a constantly moving target.

Hubbert insisted that price didn't matter. Economics - the forces of supply and demand - were, he maintained, irrelevant to the finite physical cache of oil in the earth. But why would price—with all the messages that it sends to people about allocating resources and developing new technologies—apply in so many other realms but not in oil and gas production? Activity goes up when prices go up; activity goes down when prices go down. Higher prices stimulate innovation and encourage people to figure out ingenious new ways to increase supply.

The idea of "proved reserves" of oil isn't just a physical concept, accounting for a fixed amount in the "storehouse." It's also an economic concept: how much can be recovered at prevailing prices. And it's a technological concept, because advances in technology take resources that were not physically accessible and turn them into recoverable reserves.

In the oil and gas industry, technologies are constantly being developed to find new resources and to produce more—and more efficiently—from existing fields.  New technologies and approaches continue to unlock new resources. Ghana is on its way to significant oil production, and just a few days ago, a major new discovery was announced off the coast of French Guiana, north of Brazil. As proof for peak oil, its advocates argue that the discovery rate for new oil fields is declining. But this obscures a crucial point: Most of the world's supply is the result not of discoveries but of additions and extensions in existing fields.

Things don't stand still in the energy industry. With the passage of time, unconventional sources of oil, in all their variety, become a familiar part of the world's petroleum supply. They help to explain why the plateau continues to recede into the horizon—and why, on a global view, Hubbert's Peak is still not in sight."

Chart of the Day: You Can Buy 2 Detroit Homes for About the Same as One Average-Priced New Car

For the last four years since 2008, the average price of a new home in Detroit has been below the national average price of a new car (see chart).  For 2011, the average price in Detroit for homes sold year-to-date through July is $14,998, compared to the $29,602 average price of a new car.  In other words, you could buy two houses in Detroit for about the same price as a new car.  Maybe a middle-income household in Detroit could be a two-home, two-car family?   

Popularity of Telemedicine Grows in Michigan, U.S.

Instant online access to docs at Michigan Rite-Aid stores:
Detroit News -- "Michiganians who have an urgent medical question, lack insurance or just want access to a doctor and prescription after hours can increasingly reach for their phones or computers for an instant chat or webcam conversation with a physician or nurse. Telemedicine and telehealth — the practice of medicine using electronic communication between a physician in one location and a patient in another — is growing in popularity in the state and across the country. 

At health fairs today, nine Southeast Michigan Rite Aid stores will debut OptumHealth's NowClinic, which allows consumers to talk to a nurse for free or use a credit card and pay $45 for a private appointment with a doctor licensed to practice in Michigan — anytime the store is open and online 24 hours a day. Doctors can diagnose patients and, when appropriate, write them a prescription, which can be filled at Rite Aid stores.

Several online health companies such as MDLiveCare and Consult A Doctor are growing by forming partnerships with health insurers and employers as a way to lower health care costs. Through its wellness program, Taylor-based Masco Corp. (NYSE:MAS) provides its about 500 headquarters' employees and dependents free access to MDLiveCare, which has board-certified, Michigan-licensed physicians available 24/7.

"We really wanted to see how it works and to have an alternative to seeing your primary care doctor, running to the urgent care for things that were minor in nature," said Julie Forrester, director of benefits for Masco, which makes several brand-name home products.

During the past six months, Masco has recorded about 40 different doctor visits for non-emergencies, Forrester said. The service can save employees time and money, as co-pays for an office visit run $20 to $25 and up to $100 for a trip to urgent care, Forrester said. If successful, Masco is considering putting a kiosk — which includes MDLiveCare and other wellness tools for employees — into some of its manufacturing locations, where access to health care may be more difficult."

HT: Mike W.

North Dakota Celebrates 60 Years of Oil; Future Looks Bright - ND Could Surpass CA and Alaska Soon

BISMARCK, N.D. (AP) - "North Dakota's booming oil patch is likely to slow just a bit this weekend as the state marks 60 years of production at a festival in Williston. Kevin Paschke, executive director of the Williston Chamber of Commerce, said the Williston Basin Energy Festival is a time for fun and relaxation but also a tribute to "risk-takers who had the vision and believed oil was beneath us.'' 

Paschke said workers from more than 200 companies and thousands of people from communities throughout the oil patch are expected to attend the festival, which will feature fireworks, beauty pageants and food, including barbecued alligator. A sort of roughneck Olympics also is slated, where oil workers will compete in tug-of-wars, arm wrestling, truck pulls and a drill-bit toss. Gov. Jack Dalrymple is slated to serve as the grand marshal for the festival's parade this morning. 

Amerada Corp.'s well struck oil on Clarence Iverson's wheat farm near Tioga in the northwest part of the state in 1951. The following year, the company hosted a party and provided 3,000 pounds of prime beef to feed a crowd of more than 10,000. Similar events have been held in 1961, 1981 and 2001.

More than 1.85 billion barrels have been produced in North Dakota over the past 60 years, state records show. Officials estimate that at least twice that amount remains untapped in the Bakken shale and the Three Forks formation below it. North Dakota is the nation's No.4 oil producer, on pace to surpass California and Alaska, where production has been declining.

North Dakota's oil patch is pumping about 100,000 more barrels of crude daily than a year ago at this time and about double the production in 2008. State and industry officials estimate the state could hit 700,000 barrels daily by 2015."

Canada's Vast Oil Sands: A Jobs Gusher

From my editorial for McClatchy News, out for national distribution this weekend:

Canada's vast oil sands hold an estimated 174 billion barrels of recoverable oil, second in the world only to Saudi Arabia's reserves. What's significant is that Canada now supplies the United States with more oil than all of the Middle East countries combined.

If not for our access to Canada's oil sands, the United States would be unable easily to replace declining oil imports from Mexico and Venezuela, and we would be at the mercy of Gulf sheikhdoms with shifting allegiances.

By 2020, the amount of Canadian oil shipped to the United States could double from current levels, increasing up to 5 million barrels per day and accounting for at least 40 percent of America's oil imports. But that depends on the construction of the Keystone pipeline, a 1,700-mile artery extending from Alberta to Texas refineries at the Gulf of Mexico. Because it would cross the U.S.-Canadian border at Montana, the Keystone pipeline would also carry stranded American oil that is flowing in large quantities from shale deposits in Montana and North Dakota.

The Keystone pipeline would create 20,000 American jobs and nearly 120,000 indirect jobs as well as increase revenues for state and local governments along its route. It would be senseless to forfeit such a huge economic stimulus with guaranteed job creation and an estimated $20 billion in revenue at a time when 25 million Americans are looking for work.

The enormity of the challenge before us is obvious. If America is to have a reliable and affordable supply of oil in the future, we will need Canada's oil sands. Since this great resource is nearby and its development will stimulate our economy, provide jobs and strengthen our energy security, there are few more important tasks than ensuring the Keystone pipeline gets built. President Obama should approve its construction, for the good of the country.

Related: "Canada's Oil Sands Are a Jobs Gusher" by WSJ's  Mary Anastasia O'Grady

Update: In contrast, green-jobs subsidies of $17.2 billion have created about 3,545 new permanent jobs, at a cost of $4.85 million per job. 

$982 Monthly Payment for Aug. Home Buyers in California Is Lowest On Record, 64% below 2006

Typical Mortgage Payment for Homes Sold in California:
 August 2011    June 2006   April 1989 
$982 $2,758 $2,237

From DQ News:

"An estimated 37,734 new and resale houses and condos were sold statewide last month. That was up 8.8% from 34,695 in July, and up 10.2% from 34,239 for August 2010. An increase from July to August is normal for the season. California sales for the month of August have varied from a low of 29,764 in 1992 to a high of 73,285 in 2005, while the average is 48,344.

The median price paid for a California home last month was $249,000, down 1.2% from $252,000 in July, and down 4.2% from $260,000 for August a year ago. The year-over-year decrease was the 11th in a row after 11 months of increases. The bottom of the current cycle was $221,000 in April 2009, while the peak was $484,000 in early 2007. 

Distressed property sales continued to make up more than half of California’s resale market last month. Of the existing homes sold last month, 34.6 percent were properties that had been foreclosed on during the past year. That was up from a revised 34.5 percent in July and down from 35.6 percent in August a year ago. The all-time high was in February 2009 at 58.5 percent. 

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 17.8% of resales last month. That was up from 17.3% in July and down from 18.0% a year earlier. Two years ago short sales made up an estimated 14.3% of the resale market.

The typical mortgage payment that home buyers committed themselves to paying last month was $982, the lowest on record (see chart above). That was down from $1,027 in July, and down from $1,045 in August 2010. Adjusted for inflation, last month's mortgage payment was 56.1% below the spring 1989 peak ($2,237) of the prior real estate cycle. It was 64.4% below the current cycle's peak in June 2006 ($2,758)."

MP: The monthly mortgage payment data above are pretty amazing.  Compared to 2006, the typical California first-time home buyer today saves more than $21,000 annually in housing costs (adjusted for inflation).  We hear all the time that median household income is flat or falling, but that doesn't account for the significant savings in housing costs in states like California, at least for some home buyers, especially first-time buyers.  Even with no change in median income, some recent, first-time home buyers are experiencing the equivalent of a $21,000 increase in real income compared to 2006.      

Collaborative Consumption: The Rental Society

Rental markets in everything, e.g. Toilets

In its October issue, Reason Magazine reviews the book "What's Mine Is Yours: The Rise of Collaborative Consumption," here's the Collaborative Consumption website.  The review is titled "Pimp Your Ride: Why own what you can rent? And why not rent out what you own?," here's an excerpt:

"Just a few years ago, President George W. Bush was still touting “the ownership society” as the surest path to prosperity and personal autonomy. But that was before we could easily search our cellphones for the nearest power drills, sedans, and spacious Manhattan closets for rent. What we really want, sharing evangelists suggest, is access, not ownership. And when we can use the mobile Web to pinpoint sharable goods, the burdens of ownership—which include maintenance, storage, and eventual disposal—begin to outweigh the benefits in many cases.

The emergence of new rental markets is also likely to exert a downward pressure on existing products and services. If the Web has taught us anything, it’s that consumers are quite generous in what they will tolerate if the price is right. The thousands of amateur hoteliers now offering couches and air mattresses in New York City and Paris for as low as $20 a night have the potential to undermine the prices that hotels charge in the same way that people who create content for free have changed the business model of Hollywood and the news industry. A space on the floor in someone’s living room flop house may not have all the amenities of Motel 6, but if it’s clean enough and safe enough and reliable enough to attract consumers on an ongoing basis, it will create competition for legacy hoteliers that will in turn create new waves of innovation and price reduction."

MP: Here's another example below: "Moms have swapped hand-me-down clothes with friends and relatives for years. Now a startup called startup ThredUP is trying to use the Internet to automate the process of sharing used kids’ clothes between people who don’t know each other."

HT: Steve Bartin

Markets in Everything: Drive-in Sex Stalls or "Government Funded Stimulus Project"

SWITZERLAND - "Zurich city parliament on Wednesday rubber-stamped a loan earmarked for the construction of drive-in sex stalls where punters ("johns") can meet prostitutes at purpose-built venues away from the city center. Representatives voted 74 to 30 in favour of the new development in Alstetten to the west of the city.

Ten garage-like booths will be erected on derelict land in an industrial area in Alstetten, complete with parking spaces and alarm buttons. The so-called "performance stalls" will be the first of their kind in Switzerland if the project goes ahead."

Friday, September 16, 2011

Goodyear Tire Comeback Story: U.S. Manufacturing Can Be Competitive with A Two-Tier Wage System

AKRON, Ohio — "Five years ago, the wheels had just about come off Goodyear Tire & Rubber. The 113-year-old tire maker was losing money, feuding with its workers and struggling to compete with foreign imports that undercut its prices at stores across the U.S.

Today, this industry icon appears to have regained traction after a painful transformation. It downsized operations, found common ground with union leaders and fought imports by using technology to turn its tires into prized consumer products. Goodyear is now profitable with a smaller, highly skilled work force and selling more premium-priced tires.

In the first half of the year, Goodyear sold 89.7 million tires, just 2% more than the year-ago period, but revenue was up 25% to $11 billion and income soared, to $143 million from a loss of $19 million.

Rich Kramer, who took over as chief executive in April 2010 after overseeing operations and finance, says the key to its turnaround has been concentrating on fewer but higher priced products targeted more toward consumers than auto makers. Almost 75% of its tires now sell for $130 and up. Four years ago, almost 40% of the tires it produced were low-end tires retailing for about $60 apiece.

"Our strategy in the past was based on volume. Now we look only to make the tire consumers want. It's easy to say but hard to do," said Mr. Kramer, 47. Its former strategy focused on running factories at high volume to offset operating costs. Now, the company is focused on being "a consumer products company and not just an auto supplier company," Mr. Kramer said.

One key to Goodyear's turnaround has been better relations with its union employees. In 2006, it locked horns with the United Steelworkers union in a battle over retiree health care costs that led to a bitter, two-month strike. Eventually, the two sides reached an agreement that offered Goodyear a two-tiered wage system and more flexible work rules in exchange for putting $1 billion into a fund to cover the cost of health care for retired workers. The company also reduced its U.S. plants to 16 from 29; nine were part of a division that was sold.

Goodyear also committed to modernize its U.S. plants to produce more advanced, higher-end tires. Since the strike, the company has spent more than $900 million to upgrade its North American plants and equipment."

MP: Here's another example of how American manufacturing can be increasingly competitive globally, especially when U.S. firms can get their labor costs to be more competitive with the two-tiered wage system that is helping to revive the domestic auto industry.  Being based in the United States, America manufacturers have always had the best access to the most innovative, cutting-edge, advanced and automated production technology that gives them a competitive cost advantage over manufacturers in Asia, South America and Europe.  

But what has most handicapped American manufacturers in the past and driven manufacturing overseas has often been the over-priced, higher-than-market labor costs for factory workers in the United States.  Now that American manufacturing wages are starting to adjust to a more realistic, market-driven and globally competitive level, thanks in part to the two-tiered wage system, we can expect to hear more stories of American manufacturing revival like the Goodyear example above.

HT: Bob Wright

TSA Creator: The Whole Thing is a Fiasco. Screeners Should Be Privatized, Agency Dismantled

HUMAN EVENTS -- "A decade after the TSA was created following the September 11 attacks, the author of the legislation that established the massive agency grades its performance at “D-.”

“The whole program has been hijacked by bureaucrats,” said Rep. John Mica (R. -Fla.), chairman of the House Transportation Committee. “It mushroomed into an army,” Mica said.  “It’s gone from a couple-billion-dollar enterprise to close to $9 billion." As for keeping the American public safe, Mica says, “They’ve failed to actually detect any threat in 10 years.”

“Everything they have done has been reactive.  They take shoes off because of shoe-bomber Richard Reid, passengers are patted down because of the diaper bomber, and you can’t pack liquids because the British uncovered a plot using liquids,” Mica said. “It’s an agency that is always one step out of step,” Mica said.

It cost $1 billion just to train workers, which now number more than 62,000, and “they actually trained more workers than they have on the job,” Mica said.

“The whole thing is a complete fiasco," Mica said.  "Screeners should be privatized and the agency dismantled."

HT: Tim Dodson

Cartoon of the Day

Lisa Benson.

New Report Finds That Oil and Gas in the United States Are More Abundant Than Previously Thought

HOUSTON CHRONICLE -- "A new report that predictably found huge potential natural gas supplies in the U.S. also contained news its own writers found surprising - that oil is more abundant than they thought. 

The study released Thursday by the National Petroleum Council, a collection of industry, academic, government and other officials convened by the secretary of energy, touted how advanced technology has unlocked vast formations of natural gas previously deemed uneconomic to tap."

1. "The potential supply of North American natural gas is far bigger than was thought even a few years ago. As late as 2007, it was thought that the United States would have to become increasingly dependent on imported liquefied natural gas, owing to what appeared to be a constrained domestic supply. That is no longer the case. It is now understood that the natural gas resource base is enormous and that its development – if carried out in acceptable ways – is potentially transformative for the American economy, energy security, and the environment, including reduction of air emissions. These resources have the potential to meet even the highest projections of demand reviewed by this study.

Thanks to the advances in the application of technology pioneered in the United States and Canada, North America has a large, economically accessible natural gas resource base that includes significant sources of unconventional gas such as shale gas. This resource base could supply over 100 years of demand at today’s consumption rates.

2. Surprising to many, North America’s oil resources are also much larger than previously thought. These oil resources offer substantial supply for decades and could help the United States reduce, though not eliminate, its reliance on imported oil. The United States and Canada together produce 4% more oil than Russia, the world’s largest producer. Realizing the potential of oil, like natural gas, in the future will depend on putting in place appropriate access regimes that can allow sustained exploration and development activity to take place in resource-rich areas.

3. Natural gas and oil resources will be needed even as energy efficiency reduces demand and lower carbon alternatives become more economically available on a large scale. Moreover, the natural gas and oil industry is vital to the U.S. economy, generating millions of jobs, widely stimulating economic activity, and providing significant revenues to governments.

4. Realizing the benefits of natural gas and oil depends on environmentally responsible development. The nation can realize the benefits of these larger resources by ensuring they are developed and delivered in a safe, responsible, and environmentally acceptable manner in all circumstances."

HT: Fred Dent

America's Most Successful State Economy: ND

There’s no shortage of bad economics news these days. Take your pick: In August there were no new jobs created, retail sales were flat, consumer confidence plunged to recession-era lows, and it was reported this week that the nation’s poverty rate last year rose to the highest level since 1993.  Amid all of the national “gloom and doom” there is an amazing story of America’s most successful state economy - North Dakota, and I have been following that story for the last several years.  

In my post today at The Enterprise Blog, I outline 8 recent facts about North Dakota’s economy, which is flourishing as a direct result of the booming oil and gas production in the state’s oil-rich Bakken formation.  Here's one of those facts:

While the national economy struggles to add jobs in the current "jobless recovery," jobs in North Dakota are increasing at a record-setting pace, and not just oil-related jobs. The overall state employment level reached an all-time high in August and is 9.2% above the pre-recession level in 2007. In contrast, U.S. payroll employment is still 5% below the December 2007 level (see chart).

More on Social Security = Ponzi Scheme?

1. Cato's Michael Tanner, "At Least Ponzi Didn't Force People to Enroll":

"Imagine that someone comes to you with a new plan to save for your retirement. They take your money, but they spend it. Then, they find new investors. They take money from those new investors and give it to you, then go looking for still more investors so that they can give their money to the people whose money they gave to you. That is exactly what Charles Ponzi did in 1916 with the original Ponzi scheme. And that pretty well describes what Social Security does today.

Unlike Charles Ponzi's original Ponzi scheme, Social Security will never go broke as long as the government can force people to pay more taxes and accept fewer benefits. But does that make Social Security better than a Ponzi scheme - or worse?"

"Of course it's a Ponzi scheme. So what? It's also the most vital, humane and fixable of all social programs. The question for the candidates is: Forget Ponzi – are you going to fix Social Security?"


3. Dean Kalahar at Real Clear Markets, "Social Security's Truth Is Coming Our Way":
"In simple terms the FICA program is a pyramid or Ponzi scheme. In the fraud, people on the top of the pyramid collect as long as they can get others below them to pay in. Now as the baby boom retires, the takers outstrip the payers. And like all Ponzi schemes, this is when the system will collapse like a house of cards and take with it the American economy.

The day of reckoning is here. Not even the all powerful OZ can spend other people's money, write an IOU to himself, and then on some future day expect to use those IOUs to fund the Emerald City. It's time to pull back the curtains and admit "the emperor has no clothes."

Thursday, September 15, 2011

Government Bureaucracy Gone Wild: Medical Service Codes Go From 18,000 to 140,000

Wall Street Journal -- "Today, hospitals and doctors use a system of about 18,000 codes to describe medical services in bills they send to insurers. Apparently, that doesn't allow for quite enough nuance.  A new federally mandated version will expand the number to around 140,000—adding codes that describe precisely what bone was broken, or which artery is receiving a stent. It will also have a code for recording that a patient's injury occurred in a chicken coop. (See code.)"

A search of the code database reveals that there are 12 codes for injuries from alligators, see graphic above.  

Peter Schiff's Testimony Before Congress

"Government stimulus will never grow this economy. It will never create jobs. It is the equivalent of trying to put out a fire by pouring gasoline on it. We have to understand that the housing bubble, the financial crisis of 2008, were the consequences of government stimulus.

We stimulated our way into this problem, we’re not going to stimulate our way out. In fact, the stimulus is actually a sedative. The stimulus is preventing the free market from unraveling the problems that years of bad fiscal and monetary policies have created. We don’t need more spending, we need the opposite of spending. We need under-consumption. What the economy lacks is savings, investment, production. And if we try to preserve the jobs of the Bubble Economy with more reckless money printing and borrowing and government spending all we’re going to succeed in doing is preventing the restructuring that we need and preventing more productive jobs from ever coming into existence."

Mortgage Rates Fall to New Record Lows; In Real Terms You Can Borrow Now for Free at 0% or Less

Freddie Mac reported today that the average rate on 30-year fixed mortgages fell to 4.09% this week, down from 4.12% last week, and the lowest rate since the early 1950s (see top chart above, news report here).  The 15-year fixed rate fell to 3.30% this week from 3.33% last week, setting a new all-time record low (see bottom chart above).

To purchase a median priced existing home at $174,000 (most recent data available is for July) with a 20% down payment, the monthly payments at 4.09% would be $671.80.  In 2008, when the median priced home averaged $198,100 and the 30-year mortgage rate averaged 6.04%, the monthly payments (with 20% down) would be $954.25, or 42% higher than the current monthly payment of $671.80.

With rates so low, and home prices stable or falling, there's probably never been a better time to buy or refinance a home.  With annual inflation of 3.8% through August, getting a 4.09% 30-year fixed rate mortgage is basically "free money" at close to a 0% real rate (assuming inflation remains at 3.8%).  If you lock in at 4.09% and inflation rises above that rate for some part of the next 30 years, you'll have a negative real rate of interest and you'll pay back less in real dollars than the amount you borrowed - the best of all possible worlds for a borrower.  With a 15-year fixed rate of 3.30% and 3.80% inflation, you're starting out with a negative real rate of -.50% (assuming inflation continues at 3.8%).

If you can borrow $100 and pay back $98 in inflation-adjusted dollars, you're getting paid by the bank to be in debt.  (In that case, it's just like a "negative price" for goods, where you get free merchandise and some cash on the way out of  the store - the ideal outcome for consumers.)  

Bottom Line: The record low mortgage rates and possible negative real interest rates are a great deal for borrowers, but a terrible deal for lenders - are we headed for another S&L crisis?   

Boom Industry: There Are Now 1,300 Retail Clinics

During the month of August, 40 new retail health clinics opened including 25 new Minute Clinics in CVS stores (bringing the total to 520, the most of any national chain), 6 new Clinics at Walmart (137 total), and 4 new Target clinics (44 total).  After accounting for 5 closings in August, the net increase of 35 new retail clinics last month brought the national total up to 1,300, an all-time record high, according to retail clinic trade association Merchant Medicine.  Compared to August of 2010, the number of retail clinics nationwide has increased by 110, representing a 9.2% increase from a year earlier. 

U.S. Trade With Rest of World is Always Balanced

The Bureau of Economic Analysis released detailed data today on U.S. international transactions for the second quarter of 2011. 

For the first six months of the year, the U.S. had total cash outflows of $1.9 trillion that represent: a) $1.575 trillion in spending by American consumers and companies on imported goods and services, and income payments (dividends and interest) by U.S. companies and governments to foreigners who own U.S. assets (stocks, bonds, bank deposits), and b) a $335 billion cash (or capital) outflow from Americans buying foreign assets (stocks bonds, bank deposits, direct investments in foreign firms), see chart above.

Over the same period, there was a total cash inflow to the U.S. of $1.9 trillion from: a) $1.4 trillion for U.S. exports and income payments that were made to Americans who own foreign assets, and b) a $510 billion cash (or capital) inflow from foreigners buying U.S. assets. 

For America’ "current account" (the first category outlined above for goods, services and income payments) there was a $175 billion "current account deficit" for the first half of the year.  For investment/capital flows, the U.S. had a $175 billion "capital account surplus" (or “capital inflow” or “investment surplus”), which exactly offset the $175 billion current account deficit.   In other words, our overall trade with the rest of the world remained in balance for the first half of the year, after accounting for all cash inflows (+$1.9 trillion) and cash outflows -$1.9 trillion), and there really is no overall "trade deficit."

While most of the media attention focuses on America's "trade deficit" for goods and services, a more complete analysis always reveals offsetting surpluses for other international transactions that result in a "balance" of our total payments (cash outflows) and receipts (cash inflows) with the rest of the world.   Because international transactions are calculated using double-entry bookkeeping accounting, international accounts HAVE TO BALANCE on net, and the Balance of Payments has to equal ZERO, just like a corporate "balance sheet" has to balance such that Total Assets (TA) = Debt (D) + Equity (E); and TA - (D + E) = ZERO.

Bottom Line: Even though it's not "newsworthy" and won't be covered by the media, America's international transactions were once again balanced from January-June this year, just like every quarter and every year, and the "balance of payments" was once again ZERO. (What a relief!)

Wednesday, September 14, 2011

Do Taxes on the Rich Raise More Revenue?

Robert Frank in the WSJ:

"The debate over taxing the rich in the U.S. seems to center on “fairness” – who pays too much or too little. Yet there is little discussion about a more immediate question: Would it raise the expected revenue?

Great Britain’s recent experience may be instructive. The U.K. is imposing a new tax rate of 50% for those making £150,000 a year (about $236,000). There is a fierce battle between British Chancellor George Osborne, who wants to scrap the tax, and many Liberal Democrats, who want to preserve it.

The Chancellor has asked for a study to find out how much revenue the tax has raised, though hard numbers won’t be available until next year. It was expected to raise £2.7 billion a year.

A report from Britain’s  Institute for Fiscal Studies said the tax is costing the treasury £500 million a year, instead of earning billions. The reason: High earners are simply finding ways to avoid the tax. Top earners are hiding income or moving their earnings offshore.

“It looks like the 50% rate may be too high and that it is possible it will reduce tax revenues,” Paul Johnson, director of the IFS, told the Telegraph." 

MP: I think the answer is usually "No."

HT: Peter Parlapiano

Even MSNBC Admits Big Oil Creates Jobs

Drill, drill, drill = Jobs, Jobs, Jobs

Amazing facts: The Williston, North Dakota Walmart sells out of merchandise every day, and the local McDonald's is one of the busiest in the country and pays $15 per hour to attract workers. 

HT: Americans for Tax Reform

2011 SAT Test: Gender Disparity in Math Persists

The College Board released data today on the 2011 SAT test results, here are some highlights:

1. Following an uninterrupted trend that dates back to at least 1972, high school boys scored higher on average than girls on both the 2011 SAT reading test (500 average for males vs. 495 for females) and the SAT math test (531 for males vs. 500 for females, see chart above). The five-point male advantage on the 2011 SAT reading test was slightly greater than last year’s 4-point difference; the 31-point male advantage for the math SAT was the lowest gender gap since 1972 (earliest year reported by the College Board). Both differences in average test scores by gender are statistically significant at the 1% level.

2. High school girls outperformed boys on the 2011 SAT writing test by 14 points (496 average for females vs. 482 for males), and that gender gap in favor of females is the widest since the College Board introduced the reading test in 2006.

3. For scores in the highest 100-point range of 700-800 on the 2011 SAT tests, there were 162 boys for every 100 girls (69,215 boys vs. 42,678 girls) for the math SAT. In that range for the reading test, high school boys and girls were almost equally represented (38,430 boys vs. 38,135 girls). Girls outnumbered boys for 700-800 reading scores by a ratio of 134 females per 100 males (41,396 females vs. 30,990 males).

4. There were large test score gaps among ethnic groups on the 2011 SAT test. For example, on the 2011 math SAT there was a 60-point gap in favor of Asian students compared to whites (595 average for Asians vs. 535 for whites), a 108-point gap in favor of white students compared to blacks (535 average for whites vs. 427 points for blacks), and a 168-point gap in favor of Asians compared to black students (595 vs. 427).

5. For average scores on the math SAT by gender and ethnic group, there was a significant, but varying gender gap in favor of males for Asians (+25 points), whites (+32 points) and blacks (+13 points).

6. For 2011 SAT test-takers, girls had superior academic high school records on average compared to boys: for students ranking in the top 10% of their high school classes, there were 127 girls (56% of the total) for every 100 boys (44% of the total), and for students with GPAs of A+, girls outnumbered boys by a ratio of 144 females per 100 males (59% to 41%). High school girls had a higher overall average GPA of 3.40 compared to 3.27 for boys.

7. More high school girls than boys took advanced AP/honors math classes in high school (117 females per 100 males) and science classes (122 females per 100 males).

8. More high school girls (54%) than boys (46%) studied mathematics for four years in high school, and those percentages were the same for students studying four years of high school science.

Bottom Line: The fact that women hold a “disproportionately low share of science, technology, engineering and math (STEM) undergraduate degrees and fewer than 25 percent of STEM jobs” according to the Census Bureau certainly isn’t because female students are being discouraged from studying math and science in high school. In fact, the evidence shows that females are excelling in math and science in high school and are overrepresented in AP/Honors math and science courses, and are more likely than their male counterparts to take four years of math and science. 

Further, compared to boys, high school girls get better grades on average, and are far more likely to graduate in the top 10% or 20% of their high school classes. By most objective measures, girls have all of the necessary ingredients for success in STEM fields like engineering except perhaps for one: that huge 31-point gender gap on the SAT math test in favor of boys that persists over time and across all ethnic groups.  

Cartoon of the Day: Opportunity Cost

"And if you drive a typical car more than a mile out of your way for each penny you save on the per-gallon price, it doesn't matter how worthless your time is to you - the gas to get there and back costs more than you save."  Source.

HT: Don Coffin

Charts of the Day: College Degrees and Employers

From The Economist:
Female Graduation Rates around the world.

World's largest employers.

Ponzi to Perry: The Truth About Social Security

AEI economist Andrew Biggs (formerly principal deputy commissioner of Social Security) writes in the American.com (emphasis added): 

"What makes the Social Security/Ponzi references so common is the similarity in the way they are financed. In both cases, early participants receive payments, not from interest on their own investments, but directly from inflows from later participants. If you were describing the mechanics of how Social Security’s financing works, it wouldn’t be illogical to refer to a Ponzi scheme. 

And, also like a Ponzi scheme, Social Security paid early participants incredible returns on their money, because they contributed to the system for only a few years but received a full retirement’s worth of benefits. A person who retired in 1950 received around a 20 percent annual return on the taxes he paid (which happens to be exactly the same return that Madoff promised to his investors). Put another way, that person received around 12 times more in benefits than he’d paid in taxes. That helps explain why Social Security became so popular: it was simply an incredibly good deal. 

Similarly, like a Ponzi scheme, there really isn’t any actual investment going on with Social Security. While the trust fund has a $2.5 trillion balance it can call on to pay benefits, this fund won’t be of any help to the taxpayer. When Social Security goes to redeem bonds in the trust fund, the Treasury must raise taxes, cut other programs, or borrow the money—exactly the same steps as if there weren’t a trust fund at all. The trust fund records how much we have borrowed from Social Security but, as the Congressional Budget Office points out, “trust fund balances convey little information about the extent to which the federal government has prepared for future financial burdens.” While legally important, the CBO says, the trust fund has “little economic meaning.” 

The biggest difference may be that Social Security can go on forever while a Ponzi scheme can’t, but that’s mostly because Social Security can force you to participate. If Madoff could find enough people willing to accept a 2 percent return rather than a 20 percent return, his plan could keep going indefinitely. With Social Security participation mandated, the program can go on forever, so as long as Congress makes the changes necessary to keep the system from going broke. 

Which, in the end, is what Perry and the other presidential candidates—including President Obama, I might add—should be talking about. Whether Social Security was constitutional and whether its pay-as-you-go financing structure is optimal, we’ve got what we’ve got. A differently designed Social Security system in 1935 might have produced better outcomes today and in the future, but we can’t turn back the clock. We have to deal with the system we have and figure out how to make it solvent and how to make it work better in the future. Instead of arguing about what’s wrong with Social Security, we should be thinking about how to put things right. (For my part, I put together this proposal.)"