Tuesday, November 01, 2011

China Manipulates Its Currency To the Advantage of U.S. Consumers and Businesses Buying Its Products

At an event hosted last week by The Aspen Institute "Is U.S. Trade Policy Helping or Hurting Manufacturing?" featuring former U.S. Trade Representative Susan Schwab and Jared Bernstein, there was a lively debate on a number of issues relating to trade and manufacturing. While there were differences of opinions on most topics, there was a strong consensus (including among the attendees) on one topic: China is a currency manipulator. Here are the details of that consensus, as I understand it:

1. China manipulates its currency by keeping the dollar overvalued and the yuan undervalued.
2. That currency manipulation gives China an economic advantage that harms the U.S.
3. The U.S. and other countries should individually or collectively take steps to persuade or force China to stop its manipulation.
4. Solutions to China’s currency manipulation range from direct legislation like the bill passed in the Senate that will impose stiff tariffs on Chinese goods if the Treasury finds evidence of currency manipulation, to other forms of indirect pressure on China to persuade it to stop manipulating its currency.

Let me break from that consensus and present an alternative position:

In the best of all possible worlds for the U.S., China would use its labor and capital to manufacture consumer products like clothing, footwear, furniture, electronics and appliances and send $300 billion worth of these products to U.S. consumers for free every year, as a gift, or a form of foreign aid to the American people. In addition, the Chinese would produce and send to America another $100 billion worth of raw materials, parts, industrial supplies, inputs and natural resources at no charge, as a gift to American manufacturers every year.

Can there really be any argument that such an arrangement, where America would receive $400 billion worth of free goods every year from China, would be to the unquestionable economic advantage of the U.S.? (Note: That’s roughly the amount of goods we will purchase from China this year.)

However, that extreme Chinese generosity is probably not realistic. Here's a second best outcome:

Instead of sending $400 billion of goods annually for free, China offers an attractive alternative. It will send us $500 billion of goods every year, both consumer goods and industrial goods, but will sell us those manufactured goods at a substantial 20% discount, for only $400 billion. In that case, the amount of foreign aid will be less than the $400 billion in the first case, but will still be significant - a $100 billion gift every year from the Chinese people to the American people.

How will China generate the $100 billion in foreign aid to the U.S.? One way is to keep its currency undervalued to bring about the 20% discount on its products.

Which then raises the question: If China is willing to undervalue its currency and in the process provide $100 billion of foreign aid annually to the American consumers and businesses buying Chinese products, what’s the problem? Why should we complain?

And that is my main point: the "manipulation" of China's currency is actually to the distinct advantage of American consumers (especially low-income Americans) and American businesses buying products "made in China." They certainly aren't complaining about low-priced Chinese products, and in fact would be made worse off if China was forced to revalue its currency and in the process make its products more expensive to Americans.

So if neither American consumers nor U.S. import-buying businesses would benefit from a stronger yuan and a reduction in China's "foreign aid," who would really benefit? The same groups that always benefit from protectionist, mercantilist trade policies: domestic producers who compete against foreign rivals. 

We know from economic theory that protectionist tariffs produce benefits for domestic producers, but also higher costs for domestic consumers. Further, the costs to consumers from protectionism are greater than the benefits to producers, resulting in a net loss for the country and a reduction in its standard of living.

Likewise, I would argue that forcing China to appreciate its currency would be equivalent to a protectionist tariff on Chinese goods, and would make American consumers and import-buying companies, and the country as a whole, worse off.

Summary of my position on currency manipulation:

1. China's currency manipulation is a form of foreign aid, and to the direct advantage of millions of U.S. consumers, especially the poor and low-income groups, and to the direct advantage of thousands of American companies buying inputs from China. 

2. Forcing China to revalue its currency would benefit some American manufacturers competing with China, but would significantly harm those American consumers and businesses currently buying undervalued imports. On net, there would be more harm to American consumers than benefits to American manufacturers, making the country worse off.

3. Like other forms of mercantilism and protectionism, revaluing China’s currency would favor certain domestic producers over millions of consumers, but would make the U.S. worse off, not better off, on net.

4. Finally, instead of complaining, we should be thankful for China's foreign aid to Americans through an undervalued currency, overvalued dollar, and undervalued goods that save Americans billions of dollars every year.

Update: If you wouldn't object to China sending products to the U.S. for free, then on what basis would you object to currency manipulation that allows you to purchase undervalued Chinese imports at a huge discount and great bargain?  

Quote of the Day on Payday Loan Propaganda

"The mindset of the left was recently displayed in a big, front-page story in the October 30th issue of the San Mateo County Times. It was an investigative reporter's expose of the "payday loan" business and its lobbyists. According to the reporter: "In California lenders charge up to $45 in fees on a maximum $300 loan. This amounts to an interest rate of 460 percent, trapping some borrowers into a never-ending cycle of debt."

The 460 percent figure comes from imagining that the borrower is not just going to borrow the money for a couple of weeks, but is going to keep on borrowing every couple of weeks all year long. Using this kind of reasoning -- or lack of reasoning -- you could quote the price of salmon as $15,000 a ton or say a hotel room rents for $36,000 a year, when no consumer buys a ton of salmon and few people stay in a hotel room all year. It is clever propaganda, but do people buy newspapers to be propagandized?"

~Thomas Sowell

Monday, October 31, 2011

Ending the Postal Monopoly: Lessons from Europe; Germany Has Sold 99.9% of Its Post Office Buildings

New York Times  -- "With the United States Postal Service facing insolvency, and one of the postal workers’ unions hiring consultants on business restructuring, it is looking toward Europe for new operating models, even though American legislation currently precludes adapting some of those innovations.

After selling off all but 24 of 29,000 post office buildings in the past 15 years, the German postal service is now housed mostly within other business “partners,” including banks, convenience stores and even private homes. In rural areas, a shopkeeper or even a centrally located homeowner is given a sign and deputized as a part-time postmaster.

At the same time, many European postal services, including the one here, have developed a host of electronic services that are increasingly making traditional post offices and mailboxes obsolete. Bills and catalogs can go first to digital mailboxes run by the post office on customers’ computers, and the customers can tell the post office what they want it to print and deliver. And while Americans are asked to send in suggestions for what celebrity should grace the next stamp, Germans can buy virtual postage from their cellphones. 

European postal services vary widely in their degree of adaptation to the digital age. “But the U.S.P.S. is probably the best example of a pure monopoly that has seen the least change,” said John Payne, the chief executive of Zumbox, a Los Angeles-based start-up that offers virtual mailboxes for personal computers in the United States on a private basis and that has sold the program to foreign postal services."

Price-Gouging Vendors of Prescription Drugs vs. Unionized Taxpayer-Gouging of Public Education

The graphic above is from the White House blog showing that 650% is the "average markup by price-gouging vendors when the drug is in short supply."  In response, "President Obama signed an Executive Order to prevent and reduce prescription drug shortages that lead to price gouging." 

The graphic below is from Investor's Business Daily showing a 375% increase in public school spending over four decades, with no change in reading, math and science test scores.  Reason? A bloated, bureaucratic, unionized public school monopoly that is sheltered from competition.  

Question: If President Obama is concerned about "price gouging" for prescription drugs, will he sign an Executive Order that will expose the public school monopoly to greater competition, and end the "taxpayer-gouging" that has increased the cost of public education by 375% with no change in educational outcomes?

Pendulum Swings on American Oil Independence

From Ed Crooks, writing in the Financial Times:

"Along with oil booms that are under way or expected across North America, from Alberta to Texas, is a development that holds profound implications for the economy of the US and its status as superpower. In prospect is energy independence – a decades-old dream of American politicians of all stripes. 

“Over the past couple of years, there has been a great U-turn in US oil supply,” says Daniel Yergin of IHS Cera, the research group. “Until recently, the question was whether oil imports would flatten out. Now we are seeing a major rebalancing of supplies.”

Many analysts expect that in the coming decade the US will leapfrog Saudi Arabia and Russia to become the world’s largest producer of liquid hydrocarbons, counting both crude oil and lighter natural gas liquids such as propane and ethane. That optimism reflects the increasing flow of “tight oil” as well as gas from shale – rock formations holding reserves unlocked through new extraction technologies.

Hydraulic fracturing (pumping a mix of water, sand and chemicals underground at high pressure to crack the rock) and long-reach horizontal drilling (sending wells up to a mile sideways and more than a mile below the surface) have transformed US gas production, opening up reserves some estimate will last 100 years. Now these techniques, used in places such as North Dakota, are having a similar impact on oil output. Already, America has cut the share of its oil consumption met by imports from more than 60 per cent in 2005 to 47 per cent last year (see chart above)."


Brazil to Surpass U.K. in 2011 to Be No. 6 Economy

Brazil's amazing economic rise: It will surpass the U.K. this year to become the world's sixth largest economy.
As recently as seven years ago in 2004, the U.K. economy ($2.2 trillion in GDP) was more than three times larger than Brazil's economy ($665 billion, see chart).  And even as recently as four years ago in 2007, the U.K. as the world's sixth largest economy, produced more than twice as much economic output as Brazil: $2.8 trillion of GDP for the U.K. vs. less than $1.4 trillion for Brazil, based on IMF data available here (see chart above).   

But then the global economic slowdown took a huge toll on the U.K.'s economy and its GDP fell 20% between 2007 and 2010, while Brazil's GDP soared by 52% during that period.  

Now the IMF is forecasting that Brazil's economy will surpass the size of the U.K. economy this year for the first time ever, and will overtake the U.K. to become the sixth largest economy in the world, behind the U.S., China, Japan, Germany and France.  And based on IMF projections, Brazil will surpass France in 2015 to become the world's fifth largest economy.     

Related: Here's a news report

U.S. Faces Severe Shortages of Farm Workers

1. NPR -- "Alabama farmers are facing a labor crisis because of the state's new immigration law as both legal and undocumented migrant workers have fled the state since the strict new rules went into effect last month.

In Baldwin County on the Gulf Coast, strawberry planting season is just a few weeks away. Farmers are wondering if they'll have the crews to get the plants in the ground.

Alabama Agriculture Commissioner John McMillan says there's no doubt the immigration law has left farmers in a lurch. He says they're concerned about where the labor is going to come from since legal immigrants are leaving along with the illegal ones."

2. SEATTLE TIMES - "One after another, at a recent emergency meeting called by the Governor's Office, Washington fruit growers talked about how hard it's been to find workers as the harvest hits its sweet spot. Apples alone are a $1.5 billion-a-year business in the state.

And two weeks ago Gov. Chris Gregoire amped up what now has become an almost annual harvest-time refrain by growers when she declared the state's farm-labor shortage a crisis.

Growers mostly blame rising tensions around illegal immigration that have spooked migrant farmworkers, the majority of whom are here illegally, while worker advocates say there'd be no shortage if growers were willing to pay workers more."

3. ATLANTA JOURNAL CONSTITUTION -- "State officials have set their sights on another potential pool of workers to help bridge Georgia’s severe farm labor gap: prisoners."

LSU-Alabama Tickets on Stubhub for $10,000


TUSCALOOSA, Alabama - "Simple question: Would you pay $10,423.14 to watch No. 1 LSU at No. 2 Alabama? That is the listed price per ticket on Stubhub.com for a seat in the lower level north end zone in row 25. You can pick seat 17 or 18, or buy both for a total of $20,486.28. Tack on an additional $16.49 for overnight delivery of the ticket(s). There are dozens of tickets being sold for more than $1,000 per ticket (see sample ticket prices above)."

September Restaurant Performance Index Improves

"Buoyed by stronger same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) topped the 100 mark in September for the first time in three months. 

The Restaurant Performance Index consists of two components - the Current Situation Index (measuring current trends) and the Expectations Index (measuring restaurant operators’ six-month outlook) - and tracks the health of and outlook for the U.S. restaurant industry.

The Current Situation Index stood at 100.1 in September – up 0.8 percent from August and the first gain in three months (see chart above).  In addition, the Current Situation Index rose above 100 for the first time since June.

Restaurant operators reported stronger same-store sales and customer traffic in September.  Fifty percent of restaurant operators reported a same-store sales gain between September 2010 and September 2011, up from 45 percent who reported a sales gain in August. In addition, 43 percent of restaurant operators reported higher customer traffic levels between September 2010 and September 2011, while 33 percent of operators reported a traffic decline.

The Expectations Index stood at 100.2 in September – up 0.7 percent from August and the strongest gain in nine months (see chart).  In addition, September represented the first time in three months that the Expectations Index stood above 100."

The "Imaginary Hobgoblin" of Income Inequality


The charts above were prepared using Census Bureau data (Table E-2) on the Gini coefficients (a statistical measure of dispersion that quantifies income inequality on a range from 0% for complete equality to 100% for complete inequality where one person receives all of the income) for full-time, year-round workers.  Like other measures of income inequality for families and households over time presented recently here, income inequality for full-time , year-round workers follows the same pattern: 

The Gini coefficient for full-time workers increased gradually through the 1960s, 1970, 1980s, and then stabilized in the mid-1990s (after rising from 34% in 1967 to 39.5% in 1994, see top chart) and hasn't changed at all in the sixteen-year period from 1994 (39.5%) to 2010 (39.7%).  

Bottom Line: Whether we look at Census Bureau data on Gini coefficients for U.S. households, families, or year-round workers, or look at the share of income going to the top fifth of Americans, there is absolutely no statistical support for the commonly held view that income inequality has been rising recently.  So why are we even having this national debate about solutions to the "non-problem" of rising income inequality.  Is this another "imaginary hobgoblin" (see below)?

H.L. Mencken: "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."    

Sunday, October 30, 2011

Intrade Update: Cain Drops From 8% to 3.4%

Most recent odds from Intrade.com.  Note: Cain contracts are experiencing high volume trading and high volatility, probably because of this recent news report.

U.S. Income Inequality Has Been Flat Since 1994

We keep hearing from the media and OWS protestors that rising income inequality (or exploding income inequality according to Jonathan Chait) and stagnating household incomes have gotten worse in recent years, caused allegedly by the "rich getting richer at the expense of the poor and lower-income income groups" because disproportionate and rising shares of national income have been going to the top 1% or top 20%, etc.  In other words, we're hearing the standard, typical "class warfare" narratives. 

Another part of that narrative is that income inequality wasn't nearly as much of a problem in the decades of the 1950s, 1960s, and 1970s when there was an upwardly mobile middle-class, when real median household income was rising year after year, and when income was more equitably and fairly distributed among income groups, i.e. during the "Golden Age" of the middle class.  But once we experienced the Reagan tax cuts of the 1980s and the first "decade of greed," the American Dream of middle class equality started to fade.  Once the Bush tax cuts of 2001 and 2003 took effect, the middle class was doomed, and "the rich" dominated the economy, upward mobility was over, the share of income going to the rich skyrocketed and income inequality "exploded." 

But there's a problem, because three different measures of income dispersion (the share of total U.S. income going to the top 20% of American households, and Gini coefficients for both U.S. households and families) from the Census Bureau (Tables E-1 and F-4) displayed in the two charts above show trends that are completely contrary to the common narrative. 

As can be seen in the top chart, all three measures of income dispersion have gradually increased over time, but most of the increases occurred in the earlier period between 1967 and 1994.  Starting in the mid-1990s, the three measures of income inequality stalled out and barely changed in the sixteen years from 1994 to 2010 (see bottom chart of just the 1994-2010 period).

Read more at The Enterprise Blog.  

Thanks to the Political Calculation blog posts here and here for the inspiration. 

The Next Big Thing: It's Not Alternative Energy, It's Traditional Energy Through the Miracle of Fracking

From the Bloomberg editorial "Energy Revolution Keeps Carbon on Top," by Nathan Myhrvold, former chief strategist and technology officer at Microsoft and the founder/CEO of Intellectual Ventures:

"A remarkable thing happened in Silicon Valley during the past decade. Venture capitalists and entrepreneurs set their sights on clean energy as the Next Big Thing. They audaciously hoped to reinvent energy by harnessing the incredible innovation that had transformed information technology and biotechnology. 

Some of the best venture capitalists in the business detached from their computing roots and focused on energy startups. The result was a staggering surge of capital into clean-energy technologies. Worldwide, from 2006 to 2010, about $535 billion in venture capital, private equity and initial public offerings as well as mergers and acquisitions flowed into 4,236 clean-tech businesses, according to a recent analysis by GlobalData.

Venture-capital investing is inherently high-risk, so it shouldn’t surprise or bother anyone that many of these startups failed -- some rather spectacularly. Solyndra, the solar-cell company, for example, went bankrupt even after receiving a $535 million in loan guarantees from the U.S. Energy Department. But similar failures happened during the dot-com bubble. Remember pets.com and its infamous sock-puppet TV ads?

What is worrying is that almost a decade of energy investing hasn’t produced any home runs -- no green-energy equivalents of eBay, Amazon, Google or Facebook. The modest, incremental advances we have seen don’t perceptibly move the needle on the energy problem.

In the meantime, however, a real revolution has happened in traditional energy -- one that poses a serious challenge to companies and investors betting on alternative energy. This breakthrough is arguably one of the greatest advances in energy production since the 1960s. And it came not from a Silicon Valley company, or from MIT or Stanford, but from George Mitchell, the son of a Greek goatherd who immigrated to the U.S.

After graduating from Texas A&M, Mitchell tinkered with a variety of long-known techniques that had never been used in combination. One of these was horizontal drilling, which originated in the 19th century, was adapted for oil production by the Soviets in the 1930s and was perfected by oil drillers in the 1980s. A second idea was to inject fluid into the rock to fracture it into lots of pieces, thus allowing the gas and oil inside to flow more easily. 

A third technique that Mitchell tried was adding sand to the water to help prop open the cracks that formed in the rock. Together these approaches, collectively called hydraulic fracturing, or “fracking,” allowed drillers to inexpensively recover gas from tight shale rock.

Not so long ago, many people believed that the cost of oil and gas would rise indefinitely, thus supporting the market for alternatives. Mitchell’s miracle has changed that calculus, much to the chagrin of the Silicon Valley venture capitalists who caught the green-energy bug."

Romney: "Pretzel Candidate," But Still Frontrunner

From George Will's Washington Post column today (Mitt Romney, The Pretzel Candidate"):

"Romney cannot enunciate a defensible, or even decipherable, ethanol policy.  Life poses difficult choices, but not about ethanol. Government subsidizes ethanol production, imposes tariffs to protect manufacturers of it and mandates the use of it — and it injures the nation’s and the world’s economic, environmental, and social (it raises food prices) well-being.

In May, in corn-growing Iowa, Romney said, “I support the subsidy of ethanol.” And: “I believe ethanol is an important part of our energy solution for this country.” But in October he told Iowans he is “a business guy,” so as president he would review this bipartisan — the last Republican president was an ethanol enthusiast — folly.

Romney said that he once favored subsidies to get the ethanol industry “on its feet.”  But Romney added, “I’ve indicated I didn’t think the subsidy had to go on forever.” Ethanol subsidies expire in December, but “I might have looked at more of a decline over time” because of “the importance of ethanol as a domestic fuel.” Besides, “ethanol is part of national security.” However, “I don’t want to say” I will propose new subsidies. Still, ethanol has “become an important source of amplifying our energy capacity.” Anyway, ethanol should “continue to have prospects of growing its share of” transportation fuels.

Got it?

What would President Romney competently do when not pondering ethanol subsidies that he forthrightly says should stop sometime before “forever”? Has conservatism come so far, surmounting so many obstacles, to settle, at a moment of economic crisis, for this?" 
 

MP: The chart above shows the current Intrade odds for the Republican nominee, with Romney (68%) still far ahead of both Perry (11%) and Cain (8%).

Markets in Everything: In-N-Out Burgers Delivered

EATER.COM -- "Hello, In-N-Out (pictured above) fanatics who do not live in California, Utah, Nevada or the Dallas-Fort Worth metro area. Today is your lucky day: website Midtown Row (online speciality food retailer) is offering to overnight two frozen double-doubles — classic OR animal style — to your pathetic, non-In-N-Out-having location for the low (high?) price of $50 plus $6 shipping. Burgers will be shipped from California November 1."

One transplanted California fanatic feels so strongly about "In-N-Out" burgers that she was brought to tears when the chain recently opened a new  restaurant in Dallas.

How Technological Breakthroughs and Not Energy Policy Have Created A New World Order of Oil

From Daniel Yergin's editorial in today's Washington Post (emphasis added):

"For more than five decades, the world’s oil map has centered on the Middle East. No matter what new energy resources were discovered and developed elsewhere, virtually all forecasts indicated that U.S. reliance on Mideast oil supplies was destined to grow. This seemingly irreversible reality has shaped not only U.S. energy policy and economic policy, but also geopolitics and the entire global economy.

But today, what appeared irreversible is being reversed. The outline of a new world oil map is emerging, and it is centered not on the Middle East but on the Western Hemisphere. The new energy axis runs from Alberta, Canada, down through North Dakota and South Texas, past a major new discovery off the coast of French Guyana to huge offshore oil deposits found near Brazil.

This shift carries great significance for the supply and the politics of world oil. And, for all the debates and speeches about energy independence throughout the years, the transformation is happening not as part of some grand design or major policy effort, but almost accidentally. This shift was not planned — it is a product of a series of unrelated initiatives and technological breakthroughs that, together, are taking on a decidedly hemispheric cast.

The new hemispheric outlook is based on resources that were not seriously in play until recent years — all of them made possible by technological breakthroughs and advances. They are “oil sands” in Canada, “pre-salt” deposits in Brazil and “tight oil” in the United States.

One major supply development has emerged right here in the United States: the application of shale-gas technology — horizontal drilling and hydraulic fracturing, a process popularly known as “fracking” — to the extraction of oil from dense rock. The rock is so hard that, without those technologies, the oil would not flow. That is why it is called “tight oil.”

Case study No. 1 is in North Dakota, where, just eight years ago, a rock formation known as the Bakken, a couple of miles underground, was producing a measly 10,000 barrels of oil per day. Today, it yields almost half a million barrels per day, turning North Dakota into the fourth-largest oil-producing state in the country, as well as the state with the lowest unemployment rate.

Similar development is taking place in other parts of the country, including South Texas and West Texas. Altogether, tight oil production is growing very fast. The total output in the United States was just 200,000 barrels per day in 2000. Around 2020, it could reach 3 million barrels per day — a third of the total U.S. oil production. (And that is a conservative estimate; others are much higher.)

For the United States, these new sources of supply add to energy security in ways that were not anticipated. There is only one world oil market, so the United States — like other countries — will still be vulnerable to disruptions, and the sheer size of the oil resources in the Persian Gulf will continue to make the region strategically important for the world economy. But the new sources closer to home will make our supply system more resilient. For the Western Hemisphere, the shift means that more oil will flow north to south and south to north, rather than east to west. All this demonstrates how innovation is redrawing the map of world oil — and remaking our energy future."

HT: Bill Miller

Saturday, October 29, 2011

Higher Education Bubble Update: Colleges and Universities Charging $50k+ Increases 25X in 3 Yrs.

2012 Mercedes E550 Coupe ($56,590) = 1 Year of College
Top 25 Colleges for Tuition and Room & Board, 2011-2012
RankCollege2011-2012 Tuition,
Room and Board
1Sarah Lawrence College $59,170
2Landmark College $57,330
3New York U. $56,787
4Columbia University $56,310
5Harvey Mudd College $56,268
6Wesleyan U. $56,006
7Claremont McKenna College $55,865
8Johns Hopkins U. $55,742
9Berklee College of Music $55,615
10Bard College $55,592
11Barnard College $55,566
12Vanderbilt U. $55,556
13Trinity College $55,450
14U. of Chicago $55,416
15Dartmouth College $55,365
16Bates College $55,300
17Stevens Institute of Technology $55,276
18Vassar College $55,135
19Washington U. in St. Louis $55,111
20Boston College $55,079
21Haverford College $55,050
22Pitzer College $54,988
23Connecticut College $54,970
24Bard College at Simon's Rock $54,960
25Bennington College $54,960

From the Chronicle of Higher Education (subscription required):

"The 50K club is getting crowded: 123 institutions now charge $50,000 or more for tuition, fees, room, and board, according to data released by the College Board. That's up from last year, when 100 colleges and universities charged that much."

MP: The table above shows the top 25 colleges for tuition, and room and board, for the current 2011-2012 academic year.   

In this related Chicago Tribune article, they point out that: a) only 58 schools charged more than $50,000 for tuition and room and board in 2009-2010 and the year before it was only five colleges, and b) an increasing number of colleges are now charging more for tuition than the average American earns per year ($42,000 according to the Social Security Administration).


Amazing NASA Video of a Decade of Earth's Fires



"NASA has released a series of new satellite data visualizations that show tens of millions of fires detected worldwide from space since 2002. The visualizations show fire observations made by the MODerate Resolution Imaging Spectroradiometer, or MODIS, instruments onboard NASA's Terra and Aqua satellites.

NASA maintains a comprehensive research program using satellites, aircraft and ground resources to observe and analyze fires around the world. The research helps scientists understand how fire affects our environment on local, regional and global scales."

Friday, October 28, 2011

Richard Epstein on Income Inequality in America



HT: Don Boudreaux and Pete Friedlander

Oil Boomtowns of ND: 2k Job Openings Every Day


Income Mobility is Much More Important Than Rising Income Inequality or Stagnating Household Income, and We Have a Lot of It (Mobility)

We hear a lot these days about "increasing income inequality" and "stagnating household income," but those discussions rarely include what is probably the most important factor when it comes to income over time: income mobility.  In fact, even if: a) income inequality was increasing over time, and b) median household income was stagnant over time, those outcomes wouldn't necessarily be a problem if there was significant income mobility.  Reason? If there is substantial movement of households over time from lower-income to higher-income quintiles, households may only be earning the median household income for a short period of time on their way up to a higher quintile.  

In other words, it's more likely that most households are "typical" or at the "median" level" only temporarily on their way to a higher income group.  The fact that median household income might be stagnant over time seems far less important than what happens as households exceed median income and move up to a higher-income category.  In the case of significant income mobility over time, wouldn't households actually benefit from increasing income inequality over time if that allowed them to earn higher incomes relative to the median or low-income quintiles once they arrived at one of the top two quintiles?  

Most of those complaining about income inequality and stagnating income seem to statically assume that households or individuals stay in the same income group (by quintile, or the "top 1%," "top 10%," bottom 50%, median income, etc.) forever, with no movement over time.  If we assume that you're stuck in the bottom income quintile for life, or even earn the median household income for life (both highly unrealistic), then the concerns about rising income inequality or stagnating median household income have greater strength.  But with dynamic movement over time in the income of households and individuals, the "problems" of income inequality and stagnating income seem much less important, and might even be "non-problems."

Thomas Sowell offers this key insight (emphasis added):

“Only by focusing on the income brackets, instead of the actual people moving between those brackets, have the intelligentsia been able to verbally create a "problem" for which a "solution" is necessary. They have created a powerful vision of "classes" with "disparities" and "inequities" in income, caused by "barriers" created by "society." But the routine rise of millions of people out of the lowest quintile over time makes a mockery of the "barriers" assumed by many, if not most, of the intelligentsia.”
                      
Contrary to prevailing public opinion that households get stuck at a given income level for decades or generations, there is strong empirical evidence that households actually move up and down the economic ladder over even very short periods of time.

For example, recent research from the Federal Reserve Bank of Minneapolis is summarized in the table above, based on income data from the Panel Study of Income Dynamics that followed the same households from 2001 to 2007.  The empirical results answer the question: For households that started in a given earnings quintile (20 percent group) in 2001, what percentage of those households moved to a different income quintile over the next six years? Short answer: a lot. 

Read more here at The Enterprise Blog.

Rising Income Inequality for the Texas Rangers. So?

The chart above is based on data from the USA Today Salaries Databases and reveals significant and increasing income inequality over time for the Texas Rangers, measured both by the payroll share of the top 20% and the Gini coefficient of statistical dispersion.  Over that time period, the average inflation-adjusted Texas Ranger salary has gone up almost 8 times, from $412,350 in 1988 (measured in 2011 dollars) to $3.18 million in 2011. 

So what's the problem?  We hear all the time that rising income inequality is harmful and damaging, so why isn't that the case for professional sports? 

Also, the minimum salary for the Texas Rangers is $414,000, which is the MLB salary minimum, putting every MLB player in the top 1% (based on $344,000 minimum to be in the top 1% for 2009, the most recent year available).  Where's the outrage? What about Occupy MLB Stadiums?

Thursday, October 27, 2011

Public Worker Overtime Binge in California Contributes to the State's $19 Billion Deficit

BLOOMBERG -- "Jean Keller earned $269,810 last year working as a nurse at a men’s prison on California’s central coast by tripling her regular pay with overtime hours. Keller got more overtime in 2010 than any other state employee. In all, California’s public workers collected $1.7 billion of extra pay last year, more than half of it in overtime, state payroll data show. The rest was for unused vacation and union-negotiated benefits such as uniform allowances, physical-fitness incentives and special compensation in recognition of a “complex work load.”

“It’s outrageous,” said 29-year-old Gilbert Ramirez, one of about 30,000 teachers fired in California since 2007 because of budget cuts. “It boils my blood that I’m out of work and they claim they don’t have enough money to pay me.”

California paid the additional wages -- enough to fund the average salaries of about 25,000 teachers -- as it faced a $19 billion deficit and cut school spending and services for poor children and the elderly. The state may have to trim the academic year by seven days and eliminate some student busing if revenue shortfalls persist.

The extra compensation underscores a broader trend in California, where government workers are paid more than in other states for similar duties. Among them: city managers whose pay is higher than the governor’s, prison doctors who make more than counterparts in other states and Los Angeles firefighters who collect twice the national mean."

MP:  Nurse Keller wouldn't quite qualify for the "top 1%" based on her income of $269,810, but would certainly easily qualify for the "top 5%," which required an income of "only" $154,643 in 2009 (data here). No wonder California has a $19,000,000,000 deficit.  

HT: Matt Bixler

S&P 500 Posts Highest Monthly Gain Since 1974

The S&P500 Index has gained 13.5% in October (with two trading days to go), the largest monthly gain since a 16.3% increase in October 1974, exactly 37 years ago (see chart above).  

See Bloomberg story here.         

Real GDP Recovers to Above Its Pre-Recession Level

The BEA reported today on third quarter GDP, here are some hightlights:

1. Nominal GDP was $15,159 billion in the third quarter and real GDP (in 2005 dollars) reached a new all-time high of $13,353 billion, putting real output above the early-recession peak (and previous record high) of $13,310 billion in the second quarter of 2008.  

2. Real GDP grew at 2.5% in the third quarter and this marks the ninth consecutive quarter of real output growth starting in the third quarter of 2009.  The 2.5% growth in third quarter 2011 GDP matches the 2.5% average growth rate over the current nine-quarter economic expansion that started in third quarter 2009.   

3. Led by a 17.4% increase in business equipment and software, overall business investment grew at 16.3% in the third quarter, which was only the third time in the last decade that business investment increased more than 16% in a single quarter.  

4. Real consumption expenditures showed a 2.4% gain from Q2, which brought consumption spending to a record-setting $9,500 billion in Q3, and 1.5% above the pre-recession level of $9,313 billion in Q4 2007.  

MP: While we still have a sub-par and jobless recovery, the 2.5% real output growth for both Q3 and the average over the last nine quarters, and  the recovery of real GDP to above its pre-recession level would at least suggest that a pending double-dip recession is now pretty much out of the question.

Markets in Everything: Aerosol e-Book Enhancer

"Does your Kindle leave you feeling like there’s something missing from your reading experience? Have you been avoiding e-books because they just don’t smell right? If you’ve been hesitant to jump on the e-book bandwagon, you’re not alone. Book lovers everywhere have resisted digital books because they still don’t compare to the experience of reading a good old fashioned paper book.

But all of that is changing thanks to Smell of Books, a revolutionary new aerosol e-book enhancer."

(Warning: This might be a spoof, but is still entertaining.)

OWS Kitchen Staff Protests "Freeloader Greed"

NEW YORK POST --  "The Occupy Wall Street volunteer kitchen staff launched a “counter” revolution yesterday -- because they’re angry about working 18-hour days to provide food for “professional homeless” people and ex-cons masquerading as protesters.

For three days beginning tomorrow, the cooks will serve only brown rice and other spartan grub instead of the usual menu of organic chicken and vegetables, spaghetti bolognese, and roasted beet and sheep’s-milk-cheese salad. They will also provide directions to local soup kitchens for the vagrants, criminals and other freeloaders who have been descending on Zuccotti Park in increasing numbers every day."

HT: Morganovich

The Top Ten Richest Celebrities Supporting OWS Have A Combined Net Worth of $1.255 Billion

Here's the breakdown, starting with Yoko Ono, who is worth $500 million.

Multimillionaire Moore Denies He's in the Top 1%



Documentary filmmaker and multimillionaire Michael Moore squirms in the interview above as he refuses to admit he's in the top 1% (transcript available here), which seems highly unlikely because it would only take $344,000 of income in 2009 to be in the top 1%, and Moore's net worth is estimated be $50 million.  

Total box office revenues from Moore's movies come to about 1/3 of a billion dollars ($342 million), and "Fahrenheit 911" by itself grossed $222 million on a production budget of only $6 million.  He also repeatedly claims that "capitalism did nothing for me."

Markets in Everything: Urban Farm Pods

Is this the produce farm of the future?

ATLANTA -- "It's easy to miss the Podponics headquarters on Ponce de Leon Avenue. We breezed right by before company co-founder Dan Backhaus came out to the curb to wave us in. To look at their setup--six rust-colored, graffitied shipping containers tucked between a Cactus Car Wash franchise and a halfway house--you'd never suspect this was one of Atlanta's flourishing young startups. But behind the padlocked doors, an urban farming operation is in full swing.

"Our ultimate vision is to get 80-100 pods next to the Publix distribution center in Florida or the Walmart distribution center," says Backhaus, "so that we can harvest right there in the morning and plug it directly into their supply chain. We're mainlining fresh produce into the regional distribution network."

Watch video below:



HT: Warren Smith

Wednesday, October 26, 2011

Marcellus Shale Gas Has Been Very Good for Pennsylvania's Labor Market and Overall Economy

The Pennsylvania Department of Labor and Industry recently issued a labor market report for the state's Marcellus Shale-producing region (which covers about 2/3 of the state, see map above), here are some highlights:

1. Employment in Pennsylvania's core shale-related industries increased by 114% between 2008 Q1 and 2011 Q1. 

2.  There were 214,000 employees working in Marcellus Shale related industries during the first quarter of 2011.
 

3. Marcellus Shale related industries had a total of 13,504 Pennsylvania establishments in 2011, which was a 63% increase, and a gain of more than 650 establishments, from 2008. 

4. The average wage in the core Marcellus industries was $76,036, compared to the average wage of $46,222 for all industries in Pennsylvania. The average wage in the ancillary shale gas industries was $62,581.

5. Total job postings for Marcellus Shale related industries were 62.3% higher in August 2011 than August 2010, compared to a 21.3% gain for all industries in Pennsylvania.

6. In 2011 Q2 there were 2,129 new hires in the Marcellus Shale related core industries, which was 138.1% higher than 2008 Q2. In 2011 Q2 there were 16,342 new hires in the Marcellus Shale related ancillary industries, which was 8.6% higher than 2008 Q2. Across all industries in Pennsylvania, total new hires in 2011Q2 were 8.3% lower than in
2008 Q2.

7. The number of Marcellus Shale wells drilled from January to August 2011 was 37.4% higher than over the same eight month period in 2010.

8. Five of the six state workforce areas with substantial Marcellus Shale drilling have experienced unemployment rate decreases from August 2009 to August 2011 greater than the average decrease for the whole state. 

Oil Quiz

1. ExxonMobil produces 2 million barrels of oil per day of worldwide.  In addition to its own production, Exxon also purchases crude oil at the market rate for its global refining network.  How much oil does Exxon buy every day at the prevailing market rate?
a. 500,000 barrels
b. 1 million barrels
c. 3 million barrels
d. 5 million barrels

2. Local, state and federal gasoline taxes average roughly 49 cents per gallon nationally, and are as high as 67 cents per gallon in California and New York.  What amount of profit does ExxonMobil earn per gallon of gasoline sold? 
a. 65 cents per gallon
b. 45 cents per gallon
c. 25 cents per gallon
d. 8 cents per gallon 

3. More than 75% of ExxonMobil’s operating earnings come from outside the United States. What percent of ExxonMobil's workforce is based in the United States?
a.  20%
b. 40%
c. 60%
d. 80% 

4. ExxonMobil is the world’s largest publicly traded oil company. What percent of the world’s oil reserves does it actually control?
a. Less than 1 percent
b. 2 percent
c. 5 percent
d. 10 percent 

5. What percent of the world's oil reserves does America's "Big Oil" companies control?
a. 3 percent
b. 6 percent
c. 12 percent
d. 18 percent 

6. In the first half of 2011, ExxonMobil paid $6.7 billion in tax expenses in the U.S. What were ExxonMobil's operating earnings for that period? 
a. $20 billion
b. $7 billion
c. $5.5 billion
d. $3.5 billion

Find the answers here.

Reshoring: Outsourcing to China Goes Into Reverse

HAYWARD, CALIF. -- "Housewares company Simple Wave LLC is moving production of its CaliBowls (pictured above) to the U.S. after two years of manufacturing in China. 

The move from a contract manufacturer in China to injection molder Jatco Inc. in Union City, Calif., fits with Simple Wave’s desire to have its bowl made in the U.S., and allows it more control over quality and delivery, said Meaghan Mott, vice president of sales."

HT: Scott Bury

Natural Gas Brings A Renaissance in Chemical Manufacturing and Maybe 35,000 Jobs to LA

WWL.COM -- "Louisiana could see an influx of more than 35,000 jobs due to new access to vast, new supplies of natural gas from shale deposits, which could be one of the most dramatic domestic energy developments in the last 50 years, according to American Chemistry Council.   Louisiana has the second largest chemical industry in the nation, and shale gas is a critical component.

"That really provides the opportunity for what will be a renaissance in chemical manufacturing in the United States and Louisiana is uniquely positioned to capitalize on that." Cal Dooley, president and CEO of the American Chemistry Council says their economic analysis projects that in the next 5 years there will be an additional $5.4 billion in capital investments in chemical manufacturing and related services in Louisiana."

More Research Showing Nat Gas Cleaner Than Coal

Following up on this recent CD post about how the media has been giving much greater coverage to a Cornell University research report that found the environmental impact of natural gas to be more harmful than coal, and much less coverage to a report from Carnegie-Mellon University that came to the opposite conclusion:

WASHINGTON – "Six months removed from the release of the paper from researcher-activists at Cornell attempting to argue that the production and consumption of coal was better for the environment than natural gas from shale, new data and research rebutting and correcting those unsubstantiated claims continues to roll in. The latest shoe to drop? A detailed analysis from researchers at the University of Maryland that takes a closer look at the GHG profile of natural gas derived from shale when used in the electricity sector."

From the abstract of the University of Maryland paper

"We show that for electricity generation the greenhouse gas impacts of shale gas are 11% higher than those of conventional gas, and only 56% that of coal for standard assumptions."

MP: In other words, the researchers at Maryland found that the greenhouse gas impacts of coal are almost twice the impacts of natural gas for electricity generation.

Cartoon of the Day: Where To Find The Real 1%

Cartoon by Bob Gorrell.

Tuesday, October 25, 2011

Happy 10th Birthday iPod!

Ten years ago, Apple introduced the iPod, here's a link to the 10/24/2001 New York Times story titled "Apple Introduces What It Calls an Easier to Use Portable Music Player," with the following quote:  

"But while industry analysts said the device appeared to be as consumer friendly as the company said it was, they also pointed to its relatively limited potential audience, around seven million owners of the latest Macintosh computers."

Actual number of iPods sold as of January 2011: More than 300 million

Natural Gas Can Put Americans Back to Work

ConocoPhillips CEO James Mulva in the WSJ

"Even after 103,000 jobs were added during September, unemployment remains at 9.1%. Counting those who have given up the job search or accepted a part-time job, economists calculate actual unemployment at a staggering 16.5%. Where will the growth come from that can help get people back to work?

One source is the natural gas industry, which is already generating jobs by the thousands, all without government subsidy. And it can generate even more, if we unleash this resource's full potential.

More than 600,000 Americans already explore, produce, store and transport natural gas, according to consultancy IHS Global Insight. For example, in Texas the Barnett shale gas field has created 100,000 jobs since the mid-1990s, and the Eagle Ford field is expected to create 68,000 jobs by 2020. In addition, IHS Global Insight estimates another 2.2 million jobs nationwide are sustained indirectly by the incomes of natural gas workers, or in companies that service the industry.

At least 15 states now produce shale gas and others may join them. The largest shale area, the still-emerging Marcellus, covers much of the Northeast and already supports 140,000 jobs in Pennsylvania alone.

Natural gas and shale gas heat homes, schools and factories, generate electricity and serve as feedstock in plastics, chemicals and fertilizer. They are familiar, safe and affordable. Abundant reserves—North America has an estimated 100-plus year supply, according to the Department of Energy—mean natural gas prices will remain reasonable, giving energy-dependent American manufacturers an edge in competing for global business. 

The natural gas industry is growing, and its growth can help put the country back to work." 

MP:  The chart above shows the significant growth over the last five years in natural gas production in the U.S., which recently surpassed Russia to become the No. 1 producer of gas in the world.