Saturday, October 08, 2011

Don't Expect Apple-Like Innovation in China

Some interesting quotes from tweets and blogs in China, as featured in the WSJ Asia Technology article "China Frets: Innovators Stymied Here":

"In a society with an authoritarian political system, monopolistic business environment, backward-looking culture and prevalent technology theft, talking about a master of innovation? Not a chance! Don't even think about it."

 "Chinese companies can be expected to have the market valuation and business model like Apple's within a decade, but it will be difficult to expect any type of Apple-like innovation."

"The first thing the teachers do in China is to rub down the edges of those students who are different from the crowd."

"If Apple is a fruit on a tree,  its trunk is a society whose legal system acknowledges the value of intellectual property, its branches are the freedom to think and create, and its root is constitutional democracy. An authoritarian nation may be able to build huge projects collectively but will never be able to produce science and technology giants."

HT: Scott Lincicome

Romney Surge on Intrade: 3-to-1 Over Perry


Current odds on Intrade are 60.9% for Romney vs. 19.1% for Perry, more than 3-to-1 in favor of Romney.

Friday, October 07, 2011

More on the U.S. Manufacturing Renaissance

CHICAGO, October 7, 2011—"Transportation goods such as vehicles and auto parts, electrical equipment including household appliances, and furniture are among seven sectors that could create 2 to 3 million jobs as a result of manufacturing returning to the U.S.—an emerging trend that is expected to accelerate starting in the next five years, according to new research by The Boston Consulting Group (BCG).

The BCG analysis identifies those broad industry clusters that are most likely to reach a “tipping point” by around 2015—a point at which China’s shrinking cost advantage should prompt companies to rethink where they produce certain goods meant for sale in North America. In many cases, companies will shift production back from China or choose to locate new investments in the U.S. The U.S. is also expected to become a more competitive export base in these sectors for Europe and Canada.

“A surprising amount of work that rushed to China over the past decade could soon start to come back—and the economic impact could be significant,” said Harold L. Sirkin, a BCG senior partner and lead author of the analysis. “We’re on record predicting a U.S. manufacturing renaissance starting by around 2015. Now we can be more specific about which industries will return and why.”

In addition to transportation goods, electrical equipment and appliances, and furniture, the sectors most likely to return are plastics and rubber products, machinery, fabricated metal products, and computers/electronics. Together, these seven industry groups could add $100 billion in output to the U.S. economy and lower the U.S. non-oil trade deficit by 20 to 35 percent, according to BCG.

The tipping-point sectors account for about $2 trillion in U.S. consumption per year and about 70 percent of U.S. imports from China, valued at nearly $200 billion in 2009. The job gains would come directly through added factory work and indirectly through supporting services, such as construction, transportation, and retail."

HT: Robert Keuhl

Related: China Labor Costs Push Jobs Back to U.S.  (HT: Scott Lincicome)

Irony: Down With Evil Corporations


Today's Employment Report: Since Jan. 2010, -500k Government Jobs, +2.5 Million Private Jobs

Scott Grannis points out today that "One of the healthiest features of this recovery continues: the public sector continues to lose jobs—about 600K since the recovery began. This is the most extended and the largest decline of public sector jobs since the 1980-82 recession. It is contributing to the unusually high and sticky unemployment rate, of course, but this is a good problem to have since the public sector had grown like Topsy in the years leading up to the last recession and needed to be cut back. A smaller public sector will eventually make it easier for the more-efficient private sector to grow." 

Scott also comments that today's employment report "refutes (as have lots of numbers of late) any notion that the economy is slipping into another recession."  

Likewise, Brian Wesbury and First Trust Portfolio comment today that "Investors have been grossly misled about the odds of a recession."

MP: The chart above displays monthly changes in private sector and government jobs starting in January 2007, and shows that since January 2010 government payrolls have contracted by 500,000 jobs while private sector employment has increased by more than 2.5 million jobs. 

Thursday, October 06, 2011

Steve Jobs vs. Ted Kennedy


"Now, here’s how to get oneself banned from polite company – use the occasion of someone’s death to score points.

But reflect for a moment on Steve Jobs. He took resources from no one. He coerced no one. He pandered to no one. He made hundreds of millions of people happy. He ended up being responsible for the creation of tens if not hundreds of thousands of jobs, and inspired countless others to mimic him, or to beat him, or to otherwise complement his work. He asked for no special favors. He was adopted, and certainly was not dealt the best hand in the lottery of life. He blamed no one else for his failures. He shared in his successes. I would argue that this one man’s short life was far more important than a century’s worth of politicians who claim to be working in your interest.

Sure, tears are shed at the passing of “great” political leaders, and indeed some leaders have done a fine job of representing their constituents. But even the best political leaders are best at laying the foundations and groundwork so that remarkable people like Steve Jobs can flourish. That does not mean the work of good political leaders is unimportant – of course not — a cursory look across the planet to some dysfunctional countries confirms that. But it does mean that the general scorn applied to the entrepreneurs who have done so much to help us become healthy, wealthy and wise is disproportionately large given the scorn applied to a political class whose exclusive tool is to employ coercion (which again, is perhaps necessary, if unfortunate). 

Why are we able to appreciate the life of a Steve Jobs and to ignore the millions of others doing the same thing? And why is the default view of the political class more like the way Jobs himself is being treated today? Contrast what Jobs has done for the world with what Ted Kennedy did for the world. The reaction to Senator Kennedy’s death reminded me a bit of the reaction we are seeing today. Am I crazy for hearing these two reactions as discordant when played together?"

HT: Pete Friedlander

Intermodal Rail Traffic Highest in Four Years

"The American Association of Railroads today reported gains in weekly rail traffic, with U.S. railroads originating 312,170 carloads for the week ending Oct. 1, 2011 (week 39), up 4.7% compared with the same week last year. Intermodal volume for the week totaled 250,864 trailers and containers, up 4.4% compared with the same week last year. This week’s U.S. carload volume is highest since Week 45 of 2008, and the intermodal volume is the highest since Week 39 of 2007."

MP: These ongoing improvements in U.S. weekly rail shipments suggest ongoing increases in economic activity.  Especially when considering that intermodal rail volume reached a four-year high last week and is back to pre-recession levels, and carload rail volume is the highest in almost three years, the case for an economic slowdown or double-dip recession seems weak and unconvincing.   

Historic Low: 30-Yr. Mortgage Rates Drop Below 4%


Freddie Mac reported today that mortgage rates dropped to fresh all-time historic lows this week for both 30-year mortgages (3.94%, see chart above) and 15-year mortgages (3.26%).

1984 Apple's Macintosh Commercial

"The triumph of the entrepreneur over the ideologue."


The 1984 Apple commercial has its own Wikipedia page

HT: Warren Smith

Even with Fees, The Miracle of Flight Still a Bargain

WALL STREET JOURNAL -- "Structurally, the airline business is capital-intensive, labor-intensive, highly leveraged and fiercely competitive. It is also vulnerable to external shocks, including terrorism, oil-price spikes, waning consumer confidence and high taxes. Even though the industry generates billions of dollars in annual revenue, it rarely is able to cover its huge expenses, much less show a decent return on invested capital. 

Passengers love to accuse the airlines of gouging, and a dizzying array of fares adds to the outrage. A new raft of fees for better seats, expedited security lines and meals on board only makes passengers angrier. But airlines, caught between a steady decline in fares and rising costs, have no choice but to look for every nickel they can find. Passenger tickets now account for just 71% of U.S. airlines' total passenger revenue, down from 88% in 1990, according to the DOT. The rest comes from fees it charges for, among other things, reservation changes, standby service, checked luggage, in-flight food service and transporting pets."

MP: The chart above shows average annual U.S. airfares for domestic travel back to 1979 (data here), both with fees (blue line) and without fees (red line).  Even with fees that averaged $21.66 last year for baggage ($13.78) and reservation charges ($7.88), the average total fare of $337.97 in 2010 was 43% below the 1980 peak of $592.55, and 16% below the $401.27 average fare in 2000.  Without fees, the average fare of $292.25 in 2009 was the lowest average annual airfare in history. In 2010, the average airfare without fees of $316.31 was below the 2008 average of $323.32 and about the same as the average in the years from 2004-2007, so inflation-adjusted airfares have been basically flat for the last 7 years or so.

As much as consumers complain about rising fees for baggage and other services, the "miracle of flight" is still close to the lowest cost in history, and travelers today are getting a great bargain, especially when compared to the fares of the 1980s and 1990s.  Considering that the average flier today is saving about $200 per flight compared to the average cost during the 1980s, those average baggage fees of $14 don't seem so bad.

Update: As Jet Beagle pointed out in the comments, the average miles flown per round-trip journey has increased by more than 20% over the last 30 years (data here), from 1,947 miles in 1980 to an all-time high of 2,345 miles in 2010. Therefore, the cost-per-mile traveled has gone down even more than the 43% reduction in the average air fare since 1980.   The chart below shows the downward trend in real cost per mile traveled, and compared to 1980 ($0.2878 per mile), the cost in 2010 was 50% cheaper ($0.1441 per mile).



Wednesday, October 05, 2011

George Will on Elizabeth Warren's Collectivism

George Will below responds to Elizabeth Warren's recent claims that (modified slightly):

"There is nobody in this country who got rich on his own. Nobody. If Steve Jobs or Bill Gates created a new company like Apple or Microsoft out there — good for you guys.

But I want to be clear. You moved your iPods, iPhones, and Windows software products to market on the roads the rest of us paid for. You hired workers for Apple and Microsoft that the rest of us paid to educate. You were safe in your offices because of police forces and fire forces that the rest of us paid for. ... You built a computer business and it turned into something terrific or a great idea — God bless, keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."

Here's George Will:

"Elizabeth Warren is a pyromaniac in a field of straw men: She refutes propositions no one asserts. Everyone knows that all striving occurs in a social context, so all attainments are conditioned by their context. This does not, however, entail a collectivist political agenda.

Such an agenda's premise is that individualism is a chimera, that any individual's achievements (like Steve Jobs) should be considered entirely derivative from society, so the achievements need not be treated as belonging to the individual. Society is entitled to socialize — i.e., conscript — whatever portion it considers its share. It may, as an optional act of political grace, allow the individual (like Steve Jobs) the remainder of what is misleadingly called the individual's possession.

The collectivist agenda is antithetical to America's premise, which is: Government — including such public goods as roads, schools and police — is instituted to facilitate individual striving, aka the pursuit of happiness.

Society — hundreds of millions of people making billions of decisions daily — is a marvel of spontaneous order among individuals in voluntary cooperation. Government facilitates this cooperation with roads, schools, police, etc. — and by getting out of its way. This is a sensible, dynamic, prosperous society's "underlying social contract."

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

From Holman Jenkins, in the WSJ, "The Amazing Steve Jobs Story: He ranks in the industrial pantheon along with Edison and Ford":

"What comes to mind now is a forgotten PBS show in the 1980s that tried to explain what was then known as the "quality revolution" in business. Interviewed was some wise old MIT professor who said, if memory serves, "Quality is love." Mr. Jobs's determination to make superb products was, one likes to think, an expression of love for the world, life and possibility." 

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

Markets in Everything: Variable Parking Rates

SAN FRANCISCO -- "Local motorists had better keep a close eye on where they park. Hourly meter rates in San Francisco will soon range from $1.25 to $4 depending on the neighborhood and time of day.

The new meter prices will go into effect later this month and are part of the San Francisco Municipal Transportation Agency’s SFpark program, which aims to reduce traffic congestion by raising or lowering hourly parking meter rates based on demand."

HT: Pete Friedlander

Steve Jobs' 2005 Stanford Commencement Address



Final words: "Stay hungry, stay foolish.  I've always wished that for myself. And now as you graduate to begin anew, I wish that for you: Stay hungry, stay foolish."

Steve Jobs 1955-2011

The message above is from the Apple website, accessed from the Wikipedia listing for Steve Jobs, which has already been updated to reflect the announcement minutes ago that Steve Jobs has died at age 56.   

"We Stand with Gibson" Rally and Concert


What: A Rally and Free Concert to show support for Gibson Guitar

When: Saturday October 8 from 2-4 P.M.

Where
: Parking Lot of the Scoreboard Restaurant, Nashville

Websitehttp://GibsonRally.com

Why: Federal agents raided two Gibson factories in August and confiscated part of the production inventory of this 100 year old American Manufacturer and Employer. This abuse of federal power must not go unanswered. We, the citizens who grant government its power and authority, MUST act to hold government accountable when that power is abused. Please join us on October 8 in Nashville and Stand with Gibson.

Those attending will include Gibson Chairman and CEO Mr. Henry Juszkiewicz and Rep. Marsha Blackburn (R-Tenn.), pictured below:


'Ya Know,' He's Not As Impressive Unscripted



Everybody knows that President Obama is a great orator when he's working with a script and reading from a teleprompter.  But when he goes unscripted, Obama is not nearly as impressive.  An analysis of this transcript of Obama's interview with George Stephanopoulos reveals that Obama uses the expression "you know" 46 times (watch video above). 

Examples:

-- you know, given the economy, there's no doubt that, you know, whatever happens on your watch, you've got-- 

-- you know, I haven't quite boiled it down to a bumper sticker yet. But I think what'll-- define 2012 is-- you know, our vision for the future. 

You know, I'm pretty eclectic. You know, I'll-- you know, I read a lot of newspapers that I used to read in print, I now read on-- on the web.

Markets in Everything: $4 Tickets for MN Vikings

Arizona at Vikings tickets for this Sunday are selling on Stubhub starting at $4. 

HT: Newsalert

America's Most Dangerous Cities

From Forbes.

Tuesday, October 04, 2011

Truckonomics: Truck Sales Shift Into High Gear

More than 7 million light trucks were sold in September, which was the highest monthly sales count for trucks in 3 and-one-half years going all the way back to March of 2008 (see chart above).  September truck sales were up by 9.5% compared to August and up by 20.3% compared to last September.  Why are truck sales important? 

According to AutoNation Chairman and CEO Mike Jackson:

"I've always said, when you want to know when this economy is going to turn, just watch the pickup sales.  All those sales are small businesses and entrepreneurs, and when they see the prospect for better business, they're going to go out and finally buy a new pickup truck. So this is a key indicator of what's going on in the U.S. economy.  This is small business America saying that the worst is over, I see opportunities in the future, I feel confident enough to go out and buy a new truck.    

Pickup trucks are bought by small business entrepreneurs who have their finger on the pulse of the U.S. economy. It's an expression of confidence in the future of the economy. They don't buy until they see the prospects for business are brighter."

And according to this Associated Press report:

"If you want a hint about the economic recovery, follow that truck. Pickups are a kind of rugged indicator of the nation's financial health. When times are good, contractors buy more of them to carry tools around for landscaping and lumber to build homes. Weekend haulers also gravitate to them even though cars get better mileage."

MP: What double-dip?

(Thanks to Scott Grannis for the data.)

Markets in Everything: Black Market Pesticides

NY Times -- "The recent arrests of vendors in Chinatown accused of selling an illegal, highly potent pesticide apparently smuggled from China opened a window on the underground trade in chemicals used to combat roaches, rats and other vermin in New York City's immigrant neighborhoods." 


Gov. Christie is Out and Romney Intrade Odds Surge

Intrade odds for Romney to be the 2012 Republican presidential nominee surged more than ten points today to 57.4% (see chart above), as he was apparently the main beneficiary of Gov. Chris Christie's announcement this afternoon that he would not run for president.  At 57.4% odds, Romney now leads second-place Rick Perry by a record-setting 38 points.

Markets in Everything: Rent Your Futon

Find a place to stay for one night or several months anywhere in the world: Rent nightly from real people in 19,716 cities in 196 countries.

Airport Maps from Bing

Detailed airport maps from Bing include information on parking garages, ticket counter location, terminals and gates, baggage claims, currency exchange and more! You’ll also see a sortable directory of airlines, cafes and restaurants.

American Manufacturing Renaissance: Ford To "In-Source" 12,000 Jobs from Mexico and China

Oct. 4 (Bloomberg) -- "Ford Motor Co. said it has committed to add 12,000 hourly jobs in its U.S. manufacturing plants by 2015 as part of a four-year tentative agreement with the United Auto Workers.

The figure includes 5,750 more UAW jobs than a previously announced 6,250 hourly positions to be added by the end of 2012, Executive Vice President John Fleming said at a news conference in Dearborn, Michigan. Ford will be “in-sourcing” jobs from Mexico, China and Japan, the company said in a statement. The union said it will release details later today.

The majority of the 12,000 jobs Ford is adding will be workers making entry-level wages, said Marcey Evans, a Ford spokeswoman. Wages for those so-called Tier-2 workers have started at about $14 an hour, half of what senior workers make.
   
The second-largest U.S. automaker earned $4.95 billion in the first half of the year, as fuel-efficient models like the Fiesta subcompact attracted buyers. Ford’s U.S. light-vehicle sales are up 11 percent this year through September, ahead of the industrywide gain of 10 percent.

Ford earned $9.28 billion in the past two calendar years after $30.1 billion in losses from 2006 through 2008. The automaker borrowed $23.4 billion in late 2006, putting up all major assets including its blue oval logo as collateral. That helped Ford avoid the bankruptcies and bailouts that befell the predecessors of GM and Auburn Hills, Michigan-based Chrysler."

Comments:

1. Of course, one of the main reasons for the 12,000 jobs being "in-sourced" to the U.S. from China and Mexico is the new 2-tiered wage structure that allows Ford to bring in new workers at a more competitive, realistic, market-based wage of $14 per hour.  This increased domestic production and hiring is part of a trend that will continue as part of the renaissance of American manufacturing predicted by the Boston Consulting Group.

2. Ford lost money in 2006 (-$12.6 billion on sales of 2.73 million vehicles) and 2007 (-$2.7 billion on vehicle sales of 2.4 million).  Ford is now profitable and earned $6.5 billion last year on sales of only 1.93 million units, and it made almost $5 billion in profits during the first half of this year on a sales pace about the same as last year.  Greater cost efficiencies and lower labor costs have translated into higher profits for the automaker, despite unit sales that are almost 30% below the 2006 level. 

HT: Buddy Pacifico

Shameful Government Overreach: Civil Forfeiture



Imagine you own a million-dollar piece of property free and clear, but then the federal government and local law enforcement agents announce that they are going to take it from you, not compensate you one dime, and then use the money they get from selling your land to pad their budgets—all this even though you have never so much as been accused of a crime, let alone convicted of one.

Find out more from the Institute for Justice here and here.

The Media Should Stop Coddling Warren Buffett


I recently featured the video above of Bloomberg's Betty Liu interviewing Warren Buffett, and Reason's Ira Stoll writes about the interview in the article "Stop Coddling Warren Buffett":

"Ms. Liu deserves some credit for being a rare interviewer of Mr. Buffett who, rather than simply fawning, challenges him. Other journalists sought out by Mr. Buffett would do their profession and the country a favor by following suit. Some possible follow-ups for next time: “What’s your justification for making your tax apply only to “people who shuffle money around all day” but not to athletes or CEOs? Would it apply to CEOs of banks, insurance companies, or other publicly traded financial firms? Are there any other precedents for taxing income differentially by occupation rather than by source? Is that something we want to encourage in the tax code? Wouldn’t it just make things more complex?

And, Mr. Buffett, if you feel undertaxed, why don’t you lead the effort to get a group of “ultra-rich” to write voluntary multi-billion-dollar checks to the government, rather than waiting for others to do it first? And if you feel undertaxed, why focus your tax increase on your taxable income, which is relatively small, as opposed to on your unrealized capital gains or the assets of your (and the Gates’s) charitable foundation, which are relatively large?

Stop coddling the super-rich, sure. But the place for the “coddling” of Mr. Buffett to stop isn’t the tax code, but the press corps. Ms. Liu’s questions were a good start, but there’s plenty of room for more."

Putting the Jobs Cart Before the Growth Horse

The idea that creating jobs will lead to growth and prosperity is a fallacy that is at the heart of our unemployment problems, according to venture capitalist Bill Frezza, who appeared on National Public Radio today.

According to Bill Frezza, "It puts the cart before the horse. It’s actually the other way around. Growth causes employment, employment doesn’t cause growth.   

The best way to think about that is to take every political statement that has the words “job creation” and substitute the words “expense creation,” and you said you’re going to go out to businesses and want them to enhance their “expense creation,” how do you think they would react?"

In the NPR interview, Bill Frezza discussed many of the points he made in a recent Real Clear Markets article "Putting the Jobs Cart Before the Growth Horse."  Here are some excerpts:
 
"As impolitic as it is to say out loud, we need to face the fact that jobs are a necessary evil. In any rationally managed business the payroll is a burden, not a benefit. Entrepreneurs and hiring managers only add staff if they think additional employees will produce more value than they consume. This happens as a matter of course in healthy, growing businesses when the amount of work that needs to be done exceeds the number of hands on deck to do it. Increasing the number of hands when the amount of work is unpredictable, stagnant, or declining is a recipe for bankruptcy.

"What about all that cash being hoarded on corporate balance sheets?" quacks the leader of the free world. "Why don't corporations use that money to hire more workers?" Does this really merit an answer? Obviously, if corporations thought that hiring more workers was the best way to earn a proper risk-adjusted return on their investments, then that is exactly what they would do. Instead they are parking it in short-term securities earning, what, a percent or two in interest.

What does that tell you? The business community has become so whipsawed, bludgeoned, and bewildered by the epic incompetence and bloviating hostility of our political leaders that they are keeping their powder dry until they can size up the next set of leaders the electorate foists on them. Fourteen months is not too long to hunker down and hope for change when you consider the cost of getting caught in a cash crunch when the global sovereign debt house of cards comes tumbling down."

Strong Gains for Sept. Auto Sales, Especially Trucks

U.S. car sales of 13.1 million units in September (on a seasonally adjusted annual rate, SAAR) were the highest monthly total since last April and showed strong gains of 8.1% from August and 10.8% compared to a year-ago, according to sales data released yesterday by Motor Intelligence. On a year-to-date basis, total light vehicle sales through September are up by 10.4% compared to last year, with especially strong gains of 12.2% for light trucks and 48.7% for midsize SUVs (source).  For the month of September, light truck sales exceeded 7 million units (SAAR) for the first time in at least several years.  

Scott Grannis reports on the booming September auto sales and concludes that "Auto sales do not conform at all to the current narrative about the economy being on the ropes."  Larry Kudlow is not convinced, and says "We’re on the front end of a recession."

Monday, October 03, 2011

There Really is No Trade Imbalance to Eliminate, So Eliminating a Fictional Deficit Won't Create Jobs

What imbalance?
According to C. Fred Bergsten (Director of the Peterson Institute for International Economics) writing in the NY Times:

"The U.S. runs an annual trade deficit of about $600 billion, or 4 percent of our entire economy. Eliminating that imbalance would create three million to four million jobs, according to Commerce Department estimates, at no cost to the budget."

Don  Boudreaux responds to Mr. Bergsten, and Mr. Bergsten then responds to Don here.

Here are two of my comments:

1. There really is no trade "imbalance" once we take into account the fact that an annual "trade deficit" of $600 billion is exactly offset by a "capital account surplus," "capital inflow," or "foreign investment surplus" of $600 billion.  The chart above shows that America's annual "trade deficits" have been balanced every year with offsetting capital inflows, and since 1980 America has benefited by a cumulative $8.1 trillion "foreign investment surplus."  Because there is no real "trade imbalance" to bring into balance, it's unlikely that any correction to a fictional imbalance would create any new jobs.

2. The only way to eliminate the $600 billion trade deficit would be to simultaneously eliminate the $600 billion foreign investment surplus.  With the elimination of hundreds of billions of dollar of foreign investment that likely helps create jobs, why would we expect a net job increase? 

As Don Boudreaux points out, if Americans purchase $1 million of Chinese textiles, that $1 million comes back into the U.S. either to purchase: a) $1 million worth of American goods and services, or b) $1 million of American assets (stocks, bonds, real estate, direct investment in U.S. firms, etc.).

Apparently, C. Fred Bergsten assumes that the $1 million spent on American goods supports or creates U.S. jobs, while the $1 million spent on U.S. assets does nothing for U.S. jobs.  That's nonsense.  The $1 million invested in the U.S. to purchase American assets might create more jobs in the long run than the $1 million spent on American goods.  In any case, the simple fact that there is no "trade imbalance" to start with once we account for spending on both goods and financial assets, implies that eliminating a "fictional imbalance" won't have any effect at all on U.S. employment.

Update: In the study "The Trade-Balance Creed," Dan Griswold of the Cato Institute found the following historical relationship between trade deficits and jobs:
 
"Trade deficits are routinely blamed for job losses, yet civilian employment grew a healthy 1.4 percent annually during periods of rising trade deficits while job growth was virtually zero during those periods when the deficit was declining. Ditto for the unemployment rate. The jobless rate ticked down 0.4 percentage points per year on average when the trade deficit was on an upward trend, and jumped a painful 1.0 point per year when the trade deficit was shrinking. In four of the five periods in which imports did outpace exports, the unemployment rate fell, and in every period in which imports grew more slowly than exports, or fell more rapidly, the unemployment rate rose."

The Sub-Par "Investment-Less" Recovery

From today's Enterprise Blog:

The chart above helps to illustrate the current economic situation by showing the percent changes since the third quarter of 2007 for five key economic variables: real personal consumption spending, real disposable personal income, real GDP, private payroll employment, and real business investment. As can be seen in the chart, consumption, income, and production have all recovered from the effects of the Great Recession and are now back to their pre-recession levels. But private employment remains almost 6 percent and more than 6 million jobs below the pre-recession level, and that’s associated with private business investment that remains 10 percent below 2007 levels.

Bottom Line: Private job creation and private business investment are so closely linked that the current “jobless recovery” could also be described as an “investment-less recovery.” The chart above helps to show that it’s not a lack of consumer spending, weak gains in personal income, or sluggish real output growth that are holding back job creation. Rather, it’s weak business investment spending that is largely responsible for the sub-par recovery.

The attempts to jump-start the economy with fiscal and monetary stimulus haven’t brought the jobs back because they haven’t created the right incentives to bring private business investment spending back to a level that would restore jobs to pre-recession levels. If we could focus instead on removing the many political and regulatory uncertainties that are holding back private business investment, risk-taking, and entrepreneurship, only then will the “investment-less recovery” end.  And when it ends, strong job creation will automatically follow and then the "jobless recovery" will end.

Related: "As is well known, large companies have $2 trillion of cash and securities, up $520 billion since year-end 2007. That's money firms could use to hire and invest in plants or new products — if managers were more confident. Instead, they're stockpiling funds against another financial crisis."

~Robert Samuelson's article "Risk Aversion Has Economy Frozen Stiff"

Update: In response to some of the comments, the chart below shows that real personal consumption expenditures are about 1% above the re-recession level.  


More on China's Currency

"In substantive terms, there is little to be gained from high-profile pressure on China to accelerate the pace of RMB appreciation, since the United States possesses no leverage which can be plausibly brought to bear. U.S. policy should therefore de-emphasize the exchange rate, and instead focus on keeping the pressure on China to maintain and expand market access for American firms in the domestic Chinese market, which in principle is provided for under the terms of China’s accession to the World Trade Organization."

~From the Brookings Institution, "China's Currency Policy Explained"

MP: Note in the graph above that China has allowed the yuan (dollar) to appreciate (depreciate) by more than 20% since 2006.  

HT: Scott Lincicome

Recession Watch: No Evidence Yet of Double-Dip

According to the National Bureau of Economic Research (NBER), a recession is a "significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."  Here's how some of those key recession-indicating variables are doing:

1. Industrial production: Increased by 4.67% at an annual rate over the most recent three month period from May to August.

2. Private payroll employment: Increased by 1.27% at an annual rate during the most recent three month period from May to August.

3. Real GDP: Increased by 1.33% in the second quarter.  

4. Real Retail sales: Decreased by 0.56% in the May-August quarter, at an annualized rate.

Other indicators:

5. Automakers are reporting strong sales gains in September vs. last year: Chrysler +27%, Ford +9% and GM +20%.  

6. The September ISM manufacturing index beat consensus expectations today and increased to a three-month high of 51.6%, which when annualized is historically consistent with 3.2% real GDP growth in the third quarter. 

7. Weekly rail freight shipments are showing ongoing signs of increases in economic activity, not declines.   

8. Jeremy Piger's "recession probability" (based on four monthly variables: non-farm payroll employment, industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales) was updated last week for July at 0.9% (less than 1 out of 100 chance), unchanged from June, and down from 1.2% in May and 1.1% in April.

MP: All of the variables reported above are positive except for real retail sales.  Taken together as a group, these positive indicators suggest that while the current expansion might be sub-par, the economy is certainly not experiencing any of the significant, persistent and widespread declines that would lead the NBER to declare sometime next year that the U.S. economy entered a recession in any of the recent months. 

Interesting Fact of the Day: Greece vs. Maryland

In terms of economic output in 2010, the GDP of Greece at $305 billion was just slightly larger than the GDP of America's 15th largest state economy, which is Maryland at $295 billion.  

Congress Considers Raising Taxes on American Consumers and Firms Buying Chinese Imports

Here we go again.....

WASHINGTON (AP) -- "After years of unsuccessfully trying to force American consumers and businesses to pay higher prices for Chinese imports, Congress is taking another stab at retaliating against what many see as Chinese manipulation of its currency to make its exports to the United States cheaper for Americans and U.S. goods more expensive in China.

The Senate is expected to take up legislation Monday that would impose higher U.S. duties taxes on Americans buying Chinese products to offset the perceived advantage that critics say China gets by undervaluing its currency in favor of millions of American consumers and thousands of U.S. companies.

It's a political shortsightedness because given here that China's economic policy has damaged American manufacturers and taken away American jobs has saved American businesses buying low-cost imported Chinese inputs millions, if not billions of dollars, and helped U.S. firms be more competitive and in the process support  and create U.S. jobs.  Further, the cost savings from American consumers buying Chinese imports has freed up billions of consumer dollars that have been spent elsewhere in the economy and have supported and created thousands of jobs throughout the U.S. economy.

Beijing denies that its exchange rate is responsible for the huge trade deficit that the United States has with China, and it's not clear that U.S. lawmakers have the political will to follow through with imposing new taxes on the fragile American economy.

Sens. Chuck Schumer, D-N.Y., and Lindsey Graham, R-S.C., along with others, have tried for at least six years to pass legislation making it easier to impose higher tariffs taxes on American consumers and businesses buying Chinese goods. That would help compensate punish millions of Americans for what they say is Beijing's effort to keep its currency, the yuan, undervalued against the dollar and provide everyday low prices for millions of struggling poor and middle-class Americans.

Among Republicans, presidential hopeful Mitt Romney has said he agrees that we should would penalize American consumers and businesses with higher prices through higher taxes when they buy imports from China China for keeping its currency artificially low.

MP: To the extent that China is manipulating its currency to provide low prices for American consumers and businesses, we should be thankful for the "foreign aid" being provided, and be grateful for the ongoing transfer of wealth from the relatively poor Chinese citizens to the relatively wealth Americans.  

Sunday, October 02, 2011

Intrade Odds Fall to 21% for Christie to Run

In late trading, the odds of Chris Christie running for president have fallen from 29.5% to 21% (see chart above), putting the chances of a Christie candidacy now at almost 4-to-1. 

What if NFL Played by Unionized Teachers' Rules?

Spending per public school pupil almost tripled since 1970, while standardized test scores have remained flat.
"Imagine the National Football League in an alternate reality. Each player's salary is based on how long he's been in the league. It's about tenure, not talent. The same scale is used for every player, no matter whether he's an All-Pro quarterback or the last man on the roster. For every year a player's been in this NFL, he gets a bump in pay.  And if a player makes it through his third season, he can never be cut from the roster until he chooses to retire, except in the most extreme cases of misconduct. Let's face the truth about this alternate reality: The on-field product would steadily decline. Why bother playing harder or better and risk getting hurt?

No matter how much money was poured into the league, it wouldn't get better. In fact, in many ways the disincentive to play harder or to try to stand out would be even stronger with more money. Of course, a few wild-eyed reformers might suggest the whole system was broken and needed revamping to reward better results, but the players union would refuse to budge and then demonize the reform advocates: "They hate football. They hate the players. They hate the fans." The only thing that might get done would be building bigger, more expensive stadiums and installing more state-of-the-art technology. But that just wouldn't help.

If you haven't figured it out yet, the NFL in this alternate reality is the real -life American public education system. Teachers' salaries have no relation to whether teachers are actually good at their job—excellence isn't rewarded, and neither is extra effort. Pay is almost solely determined by how many years they've been teaching. That's it. After a teacher earns tenure, which is often essentially automatic, firing him or her becomes almost impossible, no matter how bad the performance might be. And if you criticize the system, you're demonized for hating teachers and not believing in our nation's children.  

Perhaps no other sector of American society so demonstrates the failure of government spending and interference. We've destroyed individual initiative, individual innovation and personal achievement, and marginalized anyone willing to point it out. As one of my coaches used to say, "You don't get vast results with half-vast efforts!"

Our rigid, top-down, union-dictated system isn't working. If results are the objective, then we need to loosen the reins, giving teachers the ability to fulfill their responsibilities to students to the best of their abilities, not to the letter of the union contract and federal standards." 

~Former Minnesota Vikings quarterback Fran Tarkenton writing in Monday's Wall Street Journal

Yo, For Real - Ali G Interviews Andy Rooney in 2004



Ali G's 2004 interview with Andy Rooney didn't go so well.  Watch Andy Rooney end the interview, leading Ali G to accuse the crabby, cantankerous, crotchety, CBS curmudgeon of being a "racialist."  

The Shale-Gas Boom Comes to the U.K. and How The Multiplier Impact Can Revive Manufacturing

THE ECONOMIST --"On September 21 Cuadrilla Resources, the first firm to drill for shale gas in Britain, estimated that 200 trillion cubic feet of gas lie in an area near the seaside town in northwest England—nearly 40 times previous projections of all of Britain’s shale resources and, in theory, four times as much gas as is still recoverable from the North Sea. Cuadrilla hopes to drill 400 wells in Lancashire in the next decade."

WALL STREET JOURNAL --  "With Cuadrilla's announcement, shale gas goes from something ignored by policy elites on the grounds that it can only be developed in America, to something that is happening in real time in Europe."

And here's a key point made by Alan Riley in the WSJ article:

"One of the overlooked consequences of the U.S. shale-gas revolution has been the multiplier impact that access to large quantities of cheap gas can have on the broader U.S. economy. Shale gas could lead to a revival of the American steel and chemicals industry, and of energy-intensive manufacturing. It may also push food prices lower, since natural gas provides 80% of the constituent of most modern fertilizer."

MP: In addition to the shrinking manufacturing wage gap with countries like China, the "multiplier impact" from abundant, cheap natural gas could be another major factor in the pending renaissance of American manufacturing