Saturday, September 03, 2011

The Natural Forces of Market Concentration

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

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

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

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

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

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

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

More Government Overreach: The War on Drugs

NEW YORK TIMES -- "Hundreds of New Yorkers who have been caught with small amounts of marijuana, or who have simply admitted to using it, have become ensnared in civil child neglect cases in recent years, though they did not face even the least of criminal charges, according to city records and defense lawyers. A small number of parents in these cases have even lost custody of their children."

Truly scary.  

Cartoon of the Day: Green Jobs

By Lisa Benson.

More than a decade ago, Paul Gigot of the WSJ pointed out that "ethanol is produced by mixing corn with our tax dollars."  In that case, solar energy is produced by mixing sunlight with our tax dollars. 

Friday, September 02, 2011

Two Brits, Alex and Liam, Visit Walmart

"Walmart is amazing, I don't even know why any other stores exist. They should just have one Walmart for every city."

HT: Che

Some Good Friday Editorials

1. "A Case Against the Case Against Walmart," by Art Carden in the Washington Examiner.  Critics of Walmart have the burden of proof. 

2. "Mr. Obama, Tear Down Those Union Posters," by Diana Furchtgott-Roth in the Washington Examiner, about the NLRB requirement for employers to put up 11-by-17-inch posters informing workers of their right to unionize.
3. "The Great Recession and Government Failure," by Gary Becker in the WSJ. When comparing the performance of markets to government, markets look pretty darn good.

4. Review of "The Fall of the Faculty: The Rise of the All-Administrative University and Why It Matters," in the WSJ.   Professors once ran university affairs largely by themselves. Now they are at the mercy of proliferating 'deanlets.' The enormous investment in administrative bloat has not translated into a better college education.
5. 'Green Jobs' vs. Real Energy Jobs, by Steve Moore in the WSJ. For every two cents of tax subsidies for 'Big Oil,' wind and solar get nearly $1. The environmentalists are for any energy source.... except those that actually work.
6. "It's Time to Repeal the Minimum Wage," by Gary Wolfram in the Detroit News. It's time that we restored one of our fundamental freedoms - to negotiate wages for unskilled labor without government interference.  

Only in California: A Ballot Proposal to Prohibit Foreclosures and Shut Down the Mortgage Industry

Here is some of the language below from a ballot proposal in California called the "Foreclosure Modification Act," scheduled to go on the November 2012 ballot if supporters get the required minimum 800,000 voter signatures.  It was approved in late July by the California attorney general for signature collection.
  • Makes home ownership a fundamental right for every Californian.
  • Prohibits lenders from foreclosing on any California citizen's personal home.
  • Requires lenders to assist California borrowers not making payments on home loans due to financial hardship or illness.
  • Requires lenders to reduce mortgage principal to reflect any drop in local property value of more than 10 percent, and to reschedule payments, reduce interest rates, and/or refinance without new credit review.
  • Requires lenders to refinance home loans at a minimum cost within 45 days of request if loan has been maintained for three years.
  • Provides back property tax assistance to homeowners from local governments (counties, cities, townships, etc.)
Here's a news report in Business Law Daily about this citizen's initiative that would basically eliminate all new private mortgages in California.  

HT: Morganovich

Cartoon of the Day

Thursday, September 01, 2011

Gender Wage Gap and Occupational Fatality Gap

"Are women discriminated against in the workplace? Looking at the data, women on average earn an annual wage that is approximately 75% that of men, which many people believe is the result of discrimination. However, when Prof. Steve Horwitz analyzes the data more closely, he finds that women make certain choices, such as career selection and raising children, which tend to result in lower wages than men. These choices could be the result of personal preferences or sexist cultural expectations for women's work, though the relative influence of these two factors remains unclear."

Another factor that can explain some of the "gender wage gap" is the huge "gender occupational fatality gap." Last year, men were 12 times more likely than women to get killed on the job, see the chart below and read my post today about this topic on the Enterprise Blog.  More men than women are willing to work in high-risk occupations, with both higher wages and a higher chance of workplace-related injury or death, which can help explain some of the disparity in wages by gender.

One Solution for High-Priced Textbooks

From Timothy Taylor at the Conversable Economist blog:

"Take a look at prices for the best-selling and best-known introductory economics textbooks. A copy of the full-year, micro and macro version will typically list at more than $200, although students can often get discounted copies at sellers like for about $170-$180.

My solution is my own introductory textbook, "Principles of Economics." The second edition of this text is out this fall through Textbook Media, Inc. The pricing works this way: $17 for access to an online e-textbook which has search, notes, and chat options, but that can't be printed; $22 for the e-textbook along with the ability to print out PDF files of the chapters; and $33 for the e-textbook along with a black-and-white printed softcover version of the book.  Textbook Media is a small company. It has no sales force to knock on the doors of professors and take them to lunch. It sponsors no junkets. The book is printed in black and white. But it does have e-textbook functionality, a workbook of problems and answers, a test bank, and some other add-ons. If you want a micro or a macro split, they are available."

MP: I predict that we'll see more and more of this.  Spending $1,000 per semester on textbooks (5 courses x $200) seems like an unsustainable exercise of monopoly power and pricing. 

Ratio Of Takers To Givers Reaches A Tipping Point

Larry Elder has an editorial in today's Investor's Business Daily that starts out by quoting an Irish taxi driver who identified the No. 1 reason for the grim economic situation in Ireland as "too many takers - not enough givers."  The charts above help to graphically illustrate that situation in the U.S.  Read the full editorial here.  

Watch Out for Political Solutions to Non-Problems

Here's some editing of Jon Huntsman's recent comments:

"When I was born in 1960, manufacturing agriculture comprised 25 four percent of our GDP. Ten years earlier it was about seven percent.  Today, it’s down to around 10 only one percent (see chart above). This does not reflect a decline in American ingenuity or work ethic; it reflects our government’s failure to adapt to the realities of the 21st Century economy.  It’s time for Made "Grown in America" to mean something again."

MP: Even though the shares of GDP for both agriculture and manufacturing have fallen over time, the total production of agricultural and manufactured products have continued to increase to record levels in almost every year.  It's a testament to the increased productivity of American farm and factory workers that we can produce more output over time with fewer workers.  And it's those significant increases in productivity that have dramatically lowered the prices of food and durable goods over time, so that purchases of those goods represent a decreasing share of national and personal income.  That's a good thing (see chart below).

If Huntsman is suggesting that increasing manufacturing's share of GDP back to 25% would make us better off economically, then wouldn't it also be the case that we would be better off if the farming/GDP share increased back to 7%? In both cases it would imply a significant reduction in worker productivity making the manufacturing and agricultural sectors much less efficient, leading to large increases in the prices of food and durable goods, and increasing the share of income spent on food and durable goods (see chart below for food). That would make us much worse off.       

Bottom Line: It's a sign of remarkable progress, not regress, that the farming/GDP and manufacturing/GDP ratios have fallen over time, and means that our standard of living has risen, not fallen.  Be very skeptical of Huntsman's political solution of increased government intervention to solve this "non-problem" because it would certainly make us worse off, not better off.

Price Discrimination in Pictures

At the tavern:

Local residents get a 50% discount to Six Flags:

Wednesday, August 31, 2011

Secretary Solis: Watch Where You Park Your Car

Labor Secretary Hilda Solis said yesterday that she was inspired to buy a Chevrolet Equinox "because of the pride she saw in American auto workers during trips to U.S. car and truck plants. She said that she was wowed by the pride they take making our automobiles here in America."  Whoops! Turns out the Equinox was built by proud Canadian auto workers

Just in case Secretary Solis decides to visit any more U.S. car and truck plants in the future and she happens to be driving her foreign-made Equinox, Ms. Solis better make sure not to visit any of the many local UAW offices near those plants.  Because many of them have signs like those above in Michigan and the Secretary's foreign-made auto could be towed. 

Labor Secretary Buys a Foreign Vehicle By Mistake, But At Least It Was Built By Foreign Union Workers

Her Chevrolet Equinox Was Not "Made in the USA"

In the video above, President Obama's Labor Secretary, Hilda Solis, explains why she recently bought a new Chevy Equinox:

"What better example could I set if I encouraged my staff to go and purchase and seek how we could acquire a vehicle that would for me would send a signal that we're for supporting our American workers, American-made products, fuel efficient as well."

One problem: The Chevy Equinox is not built by American workers, because it's not American-made.  It's built by foreign workers, in a foreign country: Canada.  If Secretary Solis wanted to buy the "most American-made possible" to show her support of American workers, she should have considered the two most "American-made cars" available in America today: the Toyota Camry or the Honda Accord (according to  

The Labor Secretary could have also considered one of the other top 10 "American-made" cars like the Honda Odyssey, Toyota Sienna, or the Toyota Tundra.  But we all know why that won't ever happen - those cars are mostly built in "right-to-work" states by non-union American workers.  And so for political purposes to maintain union support, it's more important for the U.S. Labor Secretary to support union workers in a foreign country than to support non-union workers in America.  That just politics as usual in Washington.  Better to support Canadian Auto Workers north of the border than support non-union workers in Texas or Alabama.  

Ms. Solis tried to defend her purchase of a foreign import by saying that "66% of its parts were made in America."  Nice try.  When conducts its annual "American-made" list, it doesn't even consider models like the Chevy Equinox with a domestic parts content rating below 75 percent. 

Markets In Everything: Digital Detox Hotel

Special Package at the Renaissance Pittsburgh Hotel: "Zen and the Art of Detox"

"This is a chance to revive yourself from an over-stimulated world.  This package includes overnight accommodations in a Deluxe King Room; and kayak lessons within a 5 minute walk from the hotel.

Your laptop, cell phone, and all other digital devices must be surrendered upon check-in, and will be held for you until your departure. Prior to your arrival, the television, phone, and ihome dock station will be removed from your guest room and replaced by literary classics."

HT: Jacob Fink 

Chart of the Day: Home Prices USA vs. Canada

From today's report on Canadian home prices for June:

"Canadian home prices in June were up 1.7% from the previous month, according to the Teranet–National Bank National Composite House Price Index. This rise took the index to a new high of 144.27 (June 2005 = 100). It was the third consecutive monthly increase exceeding 1% and the largest rise since August 2009. It was also the seventh consecutive monthly increase, coming after three straight monthly declines. As in April and May, prices were up in all six of the metropolitan markets surveyed. What is new is that in all six markets the June monthly rise was at least 1%, a first since April 2005. It was 2.0% in Toronto, 1.7% in Vancouver and Ottawa, 1.6% in Calgary, 1.1% in Montreal and 1.0% in Halifax."

MP: The chart above shows how the Canadian home price index compares to the 20-city Case-Shiller Composite Index for the U.S., when both indexes are adjusted to equal 100 in January 2000.  From 2000 to 2005, home prices in the U.S. doubled (+100%), while Canadian home prices increased by only 50%.  Since then, U.S. home prices have fallen by 30% and Canadian home prices increased by another 40%.  Compared to January 2000, U.S. home prices have appreciated by 41% and Canadian home prices are up by 112%.  

Q1: Are Canadian home prices in an unsustainable bubble headed for a future major correction or crash? Or are the home price increases in Canada sustainable?

Q2: Could the U.S. have avoided a housing bubble and crash, with a lower but more sustainable rate of home price appreciation in the 2000s, similar to Canadian home prices, if we had not had the massive government interventions in the housing and mortgage markets?  


Another Company Moves Production Back to U.S.

Back to the USA: Manufacturing Makes a Comeback

On Bloomberg TV, CEO Lonnie Kane of U.S.-based women's clothing company Karen Kane talks about the company's decision to reduce the amount of clothing it produces in China from 50% to 20%, and increase its U.S. manufacturing from 50% to 80%.

Reason? Labor and inputs prices are rising rapidly and erratically in China, making production costs there too unpredictable compared to producing domestically, where costs are much more controlled and predictable.  When the company added in import duties and shipping costs for clothing produced in China, moving production back to the U.S. started to make sense economically, even with higher (but stable) labor costs in the U.S.       

Karen Kane is not the first company to move production back to the U.S. (Caterpillar, Wham-O and NCR are recent examples) and certainly won't be the last.  Relocation of manufacturing back to the U.S. is a growing trend that reflects the reality that labor arbitrage is quickly disappearing for outsourcing manufacturing to China and other low-wage (but rapidly rising) countries.

As the Boston Consulting Group reported in May, "Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world.  We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years."

America's Pro-Freedom Resistance Movement? Taking Back the Streets with Lemonade Day

America's "Lemonade Spring"?

From the website of the organization "Lemonade Day":

"Entrepreneurship is the past, present and undoubtedly the future of our nation, for the rich and the poor alike. And no organization supports this concept more than Lemonade Day. For this reason, we wish to partner with every city in America on Lemonade Day. Together we can provide the opportunity for every child in America to build their own “American Dream” through Lemonade Day. The time is now to come together to rebuild a sustainable economic future for America’s families and to give the children of this great country the tools to succeed in life.

The 2007 debut in Houston, Texas, the national headquarters, showcased the Lemonade Day impact. There were over 2,600 children involved, 1,013 participating schools, and 82 community partners. In one year the number of registered lemonade stands in Houston almost quadrupled to 11,200. Today Lemonade Day has become the largest citywide event of its kind for children. In 2011 Lemonade Day reached 120,000 children in 31 cities across America and Canada. Our goal is to positively impact 1 million youth in 2013 with Lemonade Day.

Lemonade Day stands for the American Dream. It gives young people the knowledge and the power to invent new stories for their lives, and it gives them the tools to put their dreams into action."

MP: In Houston there were 50,000 kid-run lemonade stands operating on Lemonade Day - May 1 - and lemonade sales topped $4 million (from the video above).  That must have been a little overwhelming for the "Lemonade Gestapo."  

HT: Kelly Morris

It's Time to Deregulate: Americans Should Be Able to Sell Stuff Without Permission from Government

From Conor Friedersdorf, associate editor at The Atlantic:

"The normal mindset among U.S. officials is that prior permission should be required to sell legal goods to a willing buyer. Kids selling lemonade on the street are shut down. A Missouri man has been fined $90,000 for selling rabbits (he made about $200). In Illinois, an artisan ice cream maker is being shut down for lack of a dairy permit. Manuel Winn was arrested, handcuffed, and booked for selling magazines door-to-door without a permit. A Maryland mother of three was arrested for selling $2 phone cards without a license. Lots of municipalities are going after food trucks. A group of Louisiana monks had to go to court to win the right to sell simple wooden caskets to consumers.

If you read enough of these stories, you'll see the targeted entrepreneurs say the same thing again and again: I just had a good idea and started a business. It never occurred to me that I needed permission. And, of course, other would-be entrepreneurs don't ever get started because they're too intimidated to assess and grapple with the bureaucratic hurdles. Or else the regulations are written in a way that excludes from commerce folks who are operating at a very small scale

These needless, onerous regulations would be objectionable at any time. But they're particularly problematic when many Americans find themselves unemployed, needful of income, and thrust into the position of doing what they can to get by. That may mean a series of garage sales, or selling fruit from a backyard tree, or making a craft to offer for sale on the street, or going door-to-door offering handyman skills, or any number of other informal businesses. We're making things harder on the least advantaged among us, and some are forced to take more social welfare because laws prevent them from making a living on their own.

This isn't a jeremiad against all government regulation. Should commercial airline pilots be required to have a license? Sure. Are zoning restrictions sometimes legitimate? Of course. But is society really going to suffer if lemonade vendors, casket makers and purveyors of $2 phone cards sell their wares without permission? The default should be that free citizens can engage in commerce with one another, sans any prior restraint by federal, state, or local governments. It's time to deregulate."   

Tuesday, August 30, 2011

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Historical Unemployment Rate in France: 1970 to 2010

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

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

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

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

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

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

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

From USA Today:

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

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

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

MP: Isn't competition great?  

Cuba’s Growing Pro-Freedom Resistance Movement

Cuban Spring?

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

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

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

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

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

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

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

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

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

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

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

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

Monday, August 29, 2011

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

Does this sound familiar?

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

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

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

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

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

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

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

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

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

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

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

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

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

Positive Economic News Roundup

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

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

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

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

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

"Economist" vs. Economist Smackdown

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

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

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

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

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

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

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

MP: Don, can I offer to help? 

Real Consumer Spending Up in July to Record High

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

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

More On 3-Year Inflation Being Lowest in 54 Years

Percent change in price from July 2008 to July 2011:

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

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

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

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

Sunday, August 28, 2011

Three-Year Inflation Rate is Lowest in 54 Years

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

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

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

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

HT: Benjamin Cole

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

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

What are the economic lessons here?

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

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

Perfect Storm of Hype: Apocalypse That Never Was

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

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

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

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

HT: Juandos