Saturday, August 27, 2011

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

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

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

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

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

Course Materials for Econ Ph.D. Program at UCSD

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

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

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

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

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

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

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

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

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

HT: Don Boudreaux

Gibson Under Attack by U.S. Justice Department

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

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

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

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

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

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

HT: Juandos

Friday, August 26, 2011

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

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

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

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

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

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

HT: Matt Bixler

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

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

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

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

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

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

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

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

~James Bovard writing in the WSJ 

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

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

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

First They Came for Kid-Run Lemonade Stands,IV

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

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

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

First They Came for Kid-Run Lemonade Stands, III

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

Find out more here from

HT: Matt Bixler

Quote of the Day: The Importance of Jobs

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

~WSJ editorial

Lemonade Gestapo Extend Reach to Green Tea

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

HT: Mike Carlson

Corporate Profits Surge to Record High in Q2

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

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

Markets in Everything: Boston's Sneaker Truck

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

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

Thursday, August 25, 2011

Traveling Back to the Future on Intercity Buses

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

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

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

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

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

Quote of the Day: Dr. King Would Rejoice

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

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

~John McWhorter of the Manhattan Institute, in USAToday

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


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

For the data in the map, visit this page.

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

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

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

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

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

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

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

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

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

America's Apostrophe Catastrophe: What's Up With The Abuse of That Puny Piece of Punctuation?

SHINE -- "The person who writes copy for Old Navy t-shirts has a pretty easy job. No puns, no of-the-moment cultural references, just a word about sports or summer, followed by a couple of exclamation points. It's hard to screw it up. But screw it up, someone did indeed. 

Hundreds of thousands of shirts from the retailer's new college football line have been shipped to stores with the phrase "Let's Go", sans apostrophe (see photo above). Major grammar fail. 

I can't say I don't relate. Apostrophes and commas are my left and right Achilles' heels. If only shirts were as easy to fix as blog posts." 

MP: Those pesky apostrophe's (sic), sometimes people forgot them like the T-shirt example above, but most of the time people add them where they don't belong (like the beginning of this sentence, or in 1970's and CEO's), here are five other recent example's from the comment's on CD:

1. Perhaps you really have to be in Texas to understand that it's economy is much broader than simply energy.

2. have to look at a loan's underlying characteristics in order to determine it's real risk.....

3.  ….. society lived it's best decades in the 60s, 70s, 80s and 90s without these rules...

4.  At the time of it's fall the Soviet Union had a GDP roughly equivalent to Portugal's....

5. ....isn't that what McDonalds does to it's franchises?

Markets in Everything: African Game Hunting in TX

Texas Exotic Hunting, with price list ($5,500 for a zebra). 

HT: Juandos 

Steve Jobs: America's Greatest Failure

Example of one of Steve Jobs' epic, bonehead failures:
Nick Schulz writing in today's National Review Online:

"Lots of digital ink will be spilled about Steve Jobs in the coming days, most of it focusing on his truly marvelous successes.  It’s better to focus on his failures. 

Jobs failed better than anyone else in Silicon Valley, maybe better than anyone in corporate America. By that I mean Jobs did what only the greatest entrepreneurs can do: learn from their failures. I don’t mean learn from their mistakes. I mean learn from their abject, humiliating, bonehead, epic fails.  [Examples: Apple I and early Apple II, Lisa (pictured above), and NeXT.]         

Jobs is a great entrepreneur for another reason. Lots of ninnies can give customers products they want. Jobs gave people products they didn’t know they wanted, and then made those products indispensable to their lives

I didn’t know I needed the ability to read the Wall Street Journal and The Corner on a handsome handheld device at my breakfast table, on the Metro, on the Acela, or in any Starbucks I entered. But Steve Jobs did. I didn’t know I wanted to mix and match my music collection on a computer and take it with me wherever I went, but Steve Jobs did. I didn’t know I wanted a portable multimedia platform that would permit me and my kids to hurl angry birds out of a slingshot at thieving pigs. But Steve Jobs did.  

All those successes were made possible by failure after failure after failure and the lessons learned from those failures.  

There’s a moral here for a Washington culture that fears failure too much. In today’s Washington, large banks aren’t permitted to fail; nor are large auto firms. Next up will be too-big-to-fail hospital systems. Steve Jobs is a reminder that failure is a good and necessary thing. And that sometimes the greatest glories are born of catastrophe."

Photo of the Day: The 2011 VA Earthquake

Featured by Dennis Gartman in today's The Gartman Letter.

Waiting for Wikipedia or Superstar University

"Harvard and Ohio State are not going to disappear any time soon. But a host of new online enterprises are making earning a college degree cheaper, faster and flexible enough to take work experience into account. As Wikipedia upended the encyclopedia industry and iTunes changed the music business, these businesses have the potential to change higher education. 

Most experts agree that given the exploding technologies, cuts to university budgets and the expanding universe of people expected to earn postsecondary degrees, there is no end in sight for newfangled programs preparing students for careers in high-demand areas like business, computer science, health care and criminal justice. 

Chester E. Finn Jr., a senior fellow at the Hoover Institution and the president of the Thomas B. Fordham Institute, predicted that all but the top tier of existing universities would “change dramatically” as students regained power in an expanding marketplace." 

“Instead of a full entree of four years in college, it’ll be more like grazing or going to tapas bars,” Mr. Finn said, “with people piecing together a postsecondary education from different sources.” 

“I’m just waiting for a Wikipedia University, with high-quality, online, open-source courses provided by a variety of different people,” said Richard Vedder, an Ohio University economics professor who directs the Center for College Affordability and Productivity. “Or the moment when someone like Bill Gates creates Superstar University, finding the best professors for the 200 courses that a good liberal arts college offers, and paying them $25,000 each to put their classes online.” 

HT: Larry G.

Wednesday, August 24, 2011

Cartoon of the Day: Economic Optimist Club

Update: Is that Larry Kudlow chairing the meeting?

HT: Gene Hayward

How Private Property Rights and Limited Trophy Hunting Saved the African Rhino From Extinction

"In 1900, the southern white rhinoceros was the most endangered of the five rhinoceros species. Fewer than 20 rhinos remained in a single reserve in South Africa. By 2010, white rhino numbers had climbed to more than 20,000, making it the most common rhino species on the planet. Saving the white rhino from extinction can be attributed to a change in policy that allowed private ownership of wildlife. While protecting the rhinos encouraging breeding, the ranchers were able to profit by limited trophy hunting."

~From a summary of the article "Saving African Rhinos: A Market Success Story," by South African environmental economist Michael 't-Sas Rolfes

Occupational Licensing Gone Wild: In Chicago, You Need a License To Help Others Get a License

NCPA -- "Restrictions on who can and cannot practice a certain profession have increased significantly in recent years (see chart above). Occupational licensing — the most onerous restriction — requires people to pass tests and meet other criteria before they can practice a trade. It is a barrier to employment, disproportionately affecting low-income and immigrant workers, and frequently benefiting established practitioners by limiting competition from new entrants.

Many jobs could be performed by unlicensed individuals at a lower cost, without sacrificing safety or quality. Licensing decreases the rate of job growth by an average of 20 percent and costs the economy an estimated $34.8 billion to $41.7 billion per year, in 2000 dollars,
reports the Reason Foundation.

MP: Here's how we know that occupational licensing has gone too far in America: 

In Chicago (since 2009), you need an official "expediters license" to help other people fill out paperwork to get a different city license (or a city permit or certificate).  In other words, the occupational licensing process has gotten so complicated and time-consuming, that you need to hire a expediter to help you get a license to operate a business, and that expediter needs a license to help you get a license..... Kinda makes your head spin....

HT: Matt Yglesias via Newsalert

America's Unique, Unsuccessful and Dangerous Housing and Mortgage Policies

The Richmond Fed has an interesting cover story in its second quarter publication titled "Foreign Housing Finance," with some interesting comparisons of U.S. housing finance, mortgage markets, and housing policy to other countries.  Here's an excerpt: 

"It is common for developed-country governments to intervene in the provision of housing services. Many have state-owned rental properties for example, and most have housing programs targeted to lower-income families. Nearly every industrialized country also encourages the direct ownership of homes through tax breaks and other policies — but none does so to the extent of the United States. 

“Compared to other developed countries, only a couple come even close,” says economist John Kiff, who in April 2011 published a comparative analysis with colleagues at the International Monetary Fund (IMF). “You’ve got interest payment deductibility, nonrecourse [mortgages] in some states, special protections in bankruptcy courts,” among other things, he says. Then there’s the support of mortgage finance by Fannie Mae and Freddie Mac, the creatures of statute known as government-sponsored enterprises (GSEs). “Everything you could possibly name for supporting homeownership for everybody regardless of whether they can afford it, it’s all in place in the U.S.”

Given that the United States pours relatively more public resources into promoting homeownership, one might expect an obvious reflection in homeownership rates. This is not quite the case. At about 67 percent, the U.S. homeownership rate — defined as the ratio of occupied housing units that are owned by the resident — falls squarely in the middle of the pack among developed nations, although it should be noted that many factors affect homeownership, from rental policies to zoning regulations to intangibles such as culture (see chart above).

By some measures, we actually perform worse. The United States experienced a greater percentage of mortgage defaults during the recent global housing market decline than any other developed nation, despite some occurrences of larger housing booms and busts elsewhere. About 8 percent of U.S. mortgages were in default at the end of 2010, down from almost 10 percent a year earlier. Countries differ in what legally count as mortgage defaults, or “arrears,” but according to local definitions, almost 6 percent of Irish mortgages were 90 or more days in arrears in late 2010. Spain and the United Kingdom trailed at about 3 percent and 2 percent of mortgages, respectively, and defaults in most other developed countries hovered below 1 percent.

Whatever benefits the government’s support of homeownership has bought for the United States, its costs are evident. The government has injected more than $150 billion so far toward rescuing housing agencies Fannie Mae and Freddie Mac, whose support of the mortgage market resulted in record losses. U.S. housing policies heavily encourage consumers to build housing debt (as opposed to equity), which some data suggest may have helped to turn the unprecedented housing decline of the late 2000s into the major recession that followed."

MP: There are two excellent sidebar articles that accompany the main article, one on how U.S. housing policies encourage excessive debt (over equity), and another one on the 30-year fixed rate mortgage, both are worth reading.

One conclusion from the article might be that even with our political obsession and public policies directed towards increasing homeownerhsip, we still never achieved the levels of homeownership in countries like Canada, Australia, Ireland and Italy that don't promote homeownership as aggressively as in the U.S.  And it was the political obsession with homeownership that was largely responsible for the housing bubble, deterioration of credit standards, mortgage meltdown, and financial crisis.  So the political obsession with homeownership failed by every measure.   

Quote of the Day: China Is Not the Enemy

"China is not the enemy. It is just another part of the manufacturing cycle, similar to what the U.S. was to Europe in the 19th century, Japan was to the U.S. in the 20th century, and Malaysia, Vietnam, and other countries are to China today. And so it goes. European manufacturing did not collapse when the young U.S. developed its manufacturing base -- and U.S. manufacturing is not going away either."

The Culture of Low Standards and Significant Grade Inflation for America's College Education Majors

In a new AEI Education Outlook “Grade Inflation for Education Majors and Low Standards for Teachers: When Everyone Makes the Grade,” University of Missouri economist Cory Koedel finds that grades awarded to education students at America’s universities are considerably higher than grades in every other academic discipline.  As I wrote on The Enterprise Blog today, what makes those findings especially striking is that education majors score significantly lower on standardized college entrance exams like the SAT and ACT than students majoring in other academic areas like science, business, social sciences and humanities.  In other words, it’s a case of the least academically qualified college students on campus getting the highest grades and GPAs. 

Professor Koedel presents evidence of significantly lower grading standards and inflated grades for education majors by comparing grade distributions for 12 academic departments at Indiana University-Bloomington, see chart above (education is the solid line, math and science departments are dashed lines, social sciences are xs, and humanities are the circles). 

According to Koedel, "The outlying grade distribution in each figure belongs to the education department. The other distributions are cluttered, but this is largely the point: while all other university departments work in one space, education departments work in another."  Talk about an outlier - education grades are "off the charts" compared to every other academic department!? OMG!!

The grade distribution shown above for Indiana is not at all unique but found elsewhere including at the University of Missouri-Columbia and Miami University (in another paper by Koedel).   In a larger sample of large public universities, Professor Koedel finds that the average course-level GPA for education departments is 3.66. I presented evidence recently of significant grade inflation for the education department at Cornell University compared to other departments.  

Assuming that it can be documented that there's a nationwide culture of low academic standards and inflated grades for college students majoring in education, what does it mean?

Here's Professor's Koedel's conclusion:

"Low grading standards in university education departments are part of a larger culture of low standards for educators, and they precede the low evaluation standards by which teachers are judged in K–12 schools. The culture of low standards for educators is problematic because it creates a disconnect between teachers’ perceptions of acceptable performance and the perceptions of everyone else. 

Society resists change, and resistance to change is particularly acute in education. But there is no rational reason for the low grading standards in education departments. Rather than asking why these grading standards should be changed, perhaps the more reasonable question is why they shouldn’t be changed. Put differently, if we were to start over with university education and could choose the grade distributions in each discipline, would we choose the currently observed discrepancy between education departments and all other academic departments?"

Keynesian Stimulus: Divine Miracle or Bloodletting?

Economist Robert Barro writing in today's WSJ (emphasis added): 

"Keynesian economics—the go-to theory for those who like government at the controls of the economy—is in the forefront of the ongoing debate on fiscal-stimulus packages. For example, in true Keynesian spirit, Agriculture Secretary Tom Vilsack said recently that food stamps were an "economic stimulus" and that "every dollar of benefits generates $1.84 in the economy in terms of economic activity." Many observers may see how this idea—that one can magically get back more than one puts in—conflicts with what I will call "regular economics." What few know is that there is no meaningful theoretical or empirical support for the Keynesian position. 

If valid, this result would be truly miraculous. The recipients of food stamps get, say, $1 billion but they are not the only ones who benefit. Another $1 billion appears that can make the rest of society better off. Unlike the trade-off in regular economics, that extra $1 billion is the ultimate free lunch.  

There are two ways to view Keynesian stimulus through transfer programs. It's either a divine miracle—where one gets back more than one puts in—or else it's the macroeconomic equivalent of bloodletting. Obviously, I lean toward the latter position, but I am still hoping for more empirical evidence."

American Manufacturing Drives the Recovery

Both a) new orders and b) actual shipments of manufactured durable goods showed strong monthly increases in July, increasing by 4.0% and 2.5% respectively compared to June, according to today's Census Bureau report. New orders for durable goods in July, at $201.5 billion, were at the highest monthly level since September 2008, almost three years ago (see blue line in chart above).  Actual shipments of manufactured durable goods (electrical equipment, computers, appliances, cars, aircraft, machinery, fabricated metal products, transportation equipment, etc.) also exceeded $200 billion in July, for the first time since October 2008. (see red line in chart).   

Bottom Line: Today's report on the strong increases in both new orders and actual shipments of durable goods strengthens the case that American manufacturing continues to be one of the strongest sectors and main drivers of the economic recovery.  Employment gains in manufacturing this year further confirm the case that manufacturing is at the forefront of the expansion.  In 2011, 180,000 new manufacturing jobs have been added in the first seven months, which is the largest January-July increase in manufacturing jobs since 1994.  American manufacturing alone was responsible for close to 20% of the 930,000 new payroll jobs added to the U.S. economy this year through July, even though manufacturing jobs represent fewer than 9% of the total payroll jobs in the economy.

Tuesday, August 23, 2011

78% of Congress Lacks An Econ/Business Degree

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

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

Cartoon of the Day: Minutes Before DC Earthquake

Michael Ramirez.

USGS Revises Estimate of Marcellus Gas by +42X

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

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

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

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

Markets in Everything: Smoking Mittens

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

Consumer Delinquency Rates Fall to Pre-Crisis Level

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

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

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

HT: Scott Grannis reported on this yesterday.

Markets in Everything: Wireless Charging Systems

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

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

Featured today on NPR

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

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

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

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

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

Beloit College Mindset List for Class of 2015

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

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

Here's a sample from the full list:

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

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

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

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

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

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

53. Charter schools have always been an alternative.

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

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

The 6-Year Search for a Family Doctor in Canada

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

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

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

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

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

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

HT: Pete Friedlander and David Henderson

Monday, August 22, 2011

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

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

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

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

President Approval: 43.5% vs. 50.5% Disapproval

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

Jon Stewart: Media Pretend Ron Paul Doesn't Exist

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

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

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

HT: Matt Bixler

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

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

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

Married Filing Jointly 2010 Tax Brackets

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

Markets in Everything: Orbiting Space Hotel

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

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

HT: Jacob Fink