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

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

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

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

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

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

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

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

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

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

What's Wrong with Peak Oil? It Ignores Economics

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

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

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

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

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

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

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

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

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

Popularity of Telemedicine Grows in Michigan, U.S.

Instant online access to docs at Michigan Rite-Aid stores:

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

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

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

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

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

HT: Mike W.

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

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

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

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

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

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

Canada's Vast Oil Sands: A Jobs Gusher

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

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

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

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

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

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

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

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

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

Typical Mortgage Payment for Homes Sold in California:

August 2011	June 2006	April 1989
$982	$2,758	$2,237

From DQ News:

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

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

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

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

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

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

Collaborative Consumption: The Rental Society

Rental markets in everything, e.g. Toilets

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

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

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

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

HT: Steve Bartin

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

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

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

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

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

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

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

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

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

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

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

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

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

HT: Bob Wright

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

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

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

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

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

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

HT: Tim Dodson

Cartoon of the Day

Lisa Benson.

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

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

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

The study reached four conclusions:

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

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

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

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

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

HT: Fred Dent

America's Most Successful State Economy: ND

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

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

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

Read more here.   

More on Social Security = Ponzi Scheme?

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

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

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

2. Columnist Charles Krauthammer "Social Security is a Ponzi Scheme – And It Should Be Fixed":

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

Update:

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

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

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

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

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

Peter Schiff's Testimony Before Congress

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

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

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

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

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

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

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

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

Boom Industry: There Are Now 1,300 Retail Clinics

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

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

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

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

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

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

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

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

Do Taxes on the Rich Raise More Revenue?

Robert Frank in the WSJ:

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

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

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

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

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

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

HT: Peter Parlapiano

Even MSNBC Admits Big Oil Creates Jobs

Drill, drill, drill = Jobs, Jobs, Jobs

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

HT: Americans for Tax Reform

2011 SAT Test: Gender Disparity in Math Persists

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

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

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

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

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

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

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

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

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

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

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

Cartoon of the Day: Opportunity Cost

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

HT: Don Coffin

Charts of the Day: College Degrees and Employers

From The Economist:

Female Graduation Rates around the world.

World's largest employers.

Ponzi to Perry: The Truth About Social Security

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

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

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

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

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

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

Are Chain Stores Good or Bad?

From LearnLiberty.org: 

"Are chain stores good or bad? According to Professor Art Carden, there are reasons to both like and dislike chain stores. The reasons to like chain stores include their ability to lower prices, increase variety, and reduce uncertainty. However, chain stores also do things to dislike such as pursuing special government privileges like subsidies and eminent domain.

Essentially, when chain stores respond to the incentives of the market, they create wealth for society. On the other hand, when chains stores respond to the incentives of the political process, they often produce detrimental effects for society."

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Quote of the Day: A Fundamental Fallacy

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

~Thomas Sowell

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

The mighty force of "consumer greed" prevails again:

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

The economic lessons here include:

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

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

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

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

3. Profit and Loss System.  A market economy's profit-and-loss system is an extremely effective monitoring mechanism that continually evaluates the economic performance of every business enterprise and its ability to serve consumers. When Borders was more successful at serving consumers than independent booksellers, it was rewarded with huge profits and it expanded nationwide and then globally with more than a thousand stores worldwide.  When Borders no longer served consumers as well as Amazon and other competitors, it was penalized with losses, and eventually forced into bankruptcy. Under a profit-and-loss system, unsuccessful firms like Borders cannot escape the strong discipline of the marketplace in the long run, which is beneficial because it ensures a constant reoptimization of resources and moves the economy toward greater levels of efficiency. 

  

As was noted on a recent CD post, the "failure of Borders is a glorious event," and today's closing of Borders Store No. 1 gives us reason to celebrate - it demonstrates that the market forces of: a) creative destruction, b) consumer sovereignty, and c) the profit-and-loss system, are all working perfectly.  To quote Anthony Gregory, "If voluntary competition should one day bring Amazon.com down, in the midst of a competing commercial success today unimaginable but even more friendly to consumers than that wonderful online store, we will again have reason to celebrate."

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

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

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

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

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

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

U.S. Manufacturing Profits Set New Record in Q2

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

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

President Obama’s $447 Billion Tax Increase

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

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

An Excellent $6 Knoxville-DC Megabus Adventure

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

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

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

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

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

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

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

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

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

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

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

~From my editorial in today's Grand Rapids Press