Monday, December 05, 2011

Let's Legalize It: Bone Marrow and Kidneys

1. Bone Marrow - "The U.S. Court of Appeals for the Ninth Circuit ruled that the majority of bone-marrow donors may lawfully be compensated. In a unanimous ruling, the court rejected the position of the U.S. Department of Justice that obtaining bone-marrow stem cells through a needle in a donor's arm—in much the same way that blood plasma and platelets are collected—violates the ban on paying for organs established by the 1984 National Organ Transplant Act (NOTA). 

"The ruling could save hundreds or thousands more lives a year," according to Jeff Rowes of the Institute for Justice, who was lead counsel on the case.

The decision has broad implications for transplant policy in general because it underscores the profound weakness in our altruism-only transplant policy—not only relating to bone marrow, no matter how it is collected, but also for the thousands who die each year awaiting a kidney, liver, heart or lung. As the judges pointed out, there is no logical basis for allowing compensation for blood, sperm and eggs while disallowing bone-marrow cells obtained through apheresis."

~Sally Satel in today's WSJ, "A Lifesaving Legal Ruling on Organ Donation"

2. Kidneys -  "This is a serious problem, because there aren’t nearly enough saints in the country to tackle the growing waiting list for a kidney. More than 34,000 people joined the waiting list in 2010; fewer than 17,000 received one. Thousands of people die waiting each year. 

This is a tragedy, but it doesn’t have to be this way. The people waiting for kidneys aren’t dying because of kidney failure; they’re dying because of our failure — without Congress’s misguided effort to ban organ sales, they would have been able to get the kidneys they desperately needed.

People should not have to beg their friends and family for a kidney, nor die while waiting for one. Donating a kidney is one way to help. But it isn’t enough. The only way to really change the terms of the debate and end the waiting lists is to end the ban on compensation and create a legal market for kidneys."

~Alexander Berger in Monday's New York Times, "Why Selling Kidneys Should Be Legal"

Exports and Imports Are Flip Sides of Same Coin; Therefore A Tax on U.S. Imports Is a Tax on Exports

In a short pamphlet from the American Enterprise Institute titled "Three Simple Principles of Trade Policy," Dartmouth economist Douglas A. Irwin writes this about his first simple principle, "A Tax on Imports is a Tax on Exports":

"Any restraint on imports also acts, in effect, as a restraint on exports. If a government undertakes policies that systematically  reduce the volume of imports, it also systematically reduces the volume of exports. The converse of this proposition is also true: when a government undertakes policies to expand the volume of exports, it cannot help but to expand the volume of imports as well.

The fundamental reason for this truth is that exports and imports are flip sides of the same coin.  Exports are necessary to generate the earnings to pay for imports, or exports are the goods a country must give up in order to acquire imports.  Exports and imports are inherently interdependent, and any policy that reduces one will also reduce the other."  

MP: The chart above provides historical data on U.S. international trade (annual exports and imports in log form) from 1790 to 2011 that confirm the strong statistical correlation between exports and imports over the last 221 years - they are inextricably linked and interdependent.  It follows from Irwin's First Simple Principle of Trade Policy that:

1. Trade policies that attempt to stimulate exports simultaneously stimulate imports. Although he probably doesn't understand or recognize this, Obama's plan to double exports over the next five years will simultaneously double imports over the next five years.

2. Attempts to tax (impose tariffs on) imports to protect domestic industries and increase jobs and exports in that industry will backfire because the tax on imports will simultaneously be a tax on U.S. exports, and there might actually be an overall decrease in employment. 

The history of U.S. trade policy is based on the illusion that exports and imports are determined, or can be influenced, independently, since trade policy is almost always targeted at either decreasing imports or expanding exports, e.g. Obama's plan to double exports.   But the reality is that exports and imports are dependent, determined simultaneously, and they rise and fall together.

3. This type of nitwitery will never work to create new U.S. jobs:

"World News with Diane Sawyer" is gearing up for a "Made in America Christmas" and we need your help. The average American will spend $700 on holiday gifts and goodies this year, totaling more than $465 billion, the National Retail Federation estimates. If that money was spent entirely on U.S. made products it would create 4.6 million jobs. But it doesn't even have to be that big. If each of us spent just $64 on American made goods during our holiday shopping, the result would be 200,000 new jobs."

According to the First Simple Principle, reducing spending on imported Christmas gifts this year will simultaneously reduce spending on U.S. exports, and to the extent that any new jobs are created in some U.S. industries, they will be offset by job losses in other industries. No matter how successful the "Made in America Christmas" campaign is at increasing sales of American-made products, it won't create a single new American job, on net.  

Milton Friedman: Why Drugs Should Be Legalized

On the 78th anniversary of the end of Prohibition, here's a classic Milton Friedman interview above where he explains why both alcohol and drugs should be legalized.

When asked if it's not true that the drug problem is an economic problem, Friedman responds:

"No, absolutely not, it’s primarily a moral problem. It’s a problem with the harm which government is doing. I have estimated statistically that the prohibition of drugs produces on the average 10,000 additional homicides per year. It’s a moral problem that the government’s going around killing 10,000 people. It’s a moral problem that the government is making into criminals people who may be doing something you and I don’t approve of, but are doing something that hurts nobody else.

Most of the arrests for drugs are for possession by casual users. Now here’s somebody who wants to smoke a joint. If he’s caught, he goes to jail. Now is that moral? Is that proper?

I think it’s absolutely disgraceful that our government should be in the position of converting people who are not harming others into criminals, of destroying their lives, putting them in jail, that’s the issue to me." 

Exhibit A:  As an example of how the War on Drugs ruins lives (not to mention economic potential and an NFL career), consider this story of Green Bay Packers defensive lineman Johnny Jolly, who recently got sentenced to six years in prison for being addicted to codeine pills. (ht/Roman)

Good News: War on Alcohol Ended 78 Years Ago; Bad News: War on Drugs Kills 61 Per Day in Mexico

Good News: Today marks the 78th anniversary of the repeal of America's "War on Alcohol" on December 5, 1933, after nearly 13 years of Prohibition.  

Bad News: Largely as a result of America's "War on Drugs," more than 22,000 people will die this year from drug-related violence in Mexico, bringing the total number of narco-related killings to almost 55,000 in the six years since 2006 (see chart above).  At the current rate of 61 drug deaths per day, the total number of Mexican casualties from the "War on Drugs" will reach 58,000 sometime around March 1, which will then match the number of U.S. casualties in the Vietnam War (58,272). 

More Casualties from the U.S. War on Drugs

Some police officers, border patrol agents, and probation officers who support reforming America's drug laws are among the latest casualties of America's War on Drugs War on Peaceful Americans Who Voluntarily Use Intoxicants Not Currently Approved of by the U.S. Government, Who Will Put Them in Cages if Caught (thanks to Don Boudreaux and Glenn Greenwald for inspiring this description), reports the New York Times.  For daring to publicly express their opinion that we should consider relaxing America's draconian and barbaric drug laws, some members of law enforcement are being punished, and some are being terminated. 

Meanwhile, more than 20,000 Mexicans will give their lives this year to the War on Drugs, at a rate of 61 drug-related deaths per day, an increase over last year's rate of "only" 37 narco-related killings per day. 

Higher Education Bubble: A Simple Case of Inflation

Glenn Reynolds writing about the higher education bubble in Sunday's Washington Examiner:

"This is a simple case of inflation: When you artificially pump up the supply of something (whether it's currency or diplomas), the value drops. The reason why a bachelor's degree on its own no longer conveys intelligence and capability is that the government decided that as many people as possible should have bachelor's degrees. 

There's something of a pattern here. The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle class people go to college and own homes, then surely if more people go to college and own homes, we'll have more middle class people.

But homeownership and college aren't causes of middle-class status, they're markers for possessing the kinds of traits -- self-discipline, the ability to defer gratification, etc. -- that let you enter, and stay in, the middle class. Subsidizing the markers doesn't produce the traits; if anything, it undermines them. One might as well try to promote basketball skills by distributing expensive sneakers.

Professional basketball players have expensive sneakers, but -- TV commercials notwithstanding -- it's not the shoes that make them good at dunking.  If the government really wants to encourage people to achieve, and maintain, middle-class status, it should be encouraging things like self-discipline and the ability to defer gratification. But that's not how politics works."

HT: Steve Bartin at Newsalert

Sunday, December 04, 2011

WSJ: Notable and Quotable

WSJ Notable and Quotable: Economist Mark J. Perry on China's exchange rate and American prosperity at, Dec. 2:

"Let me break from [the] consensus about China's currency policy and present an alternative position: In the best of all possible worlds for the United States, 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. (Note: That's roughly the amount of goods we will purchase from China this year.) . . .

Unfortunately, that extreme Chinese generosity is not realistic, so here's a possible second-best outcome: . . . [China] agrees to send us $500 billion worth of consumer and industrial goods every year, but agrees to sell us those manufactured goods at a substantial 20 percent discount for only $400 billion. In that case, the amount of foreign aid will be less than the $400 billion in the first example, but will still be significant—a $100 billion gift every year from the Chinese people to the American people.

How will China generate this $100 billion in annual foreign aid to the United States? One way is to keep its currency undervalued to bring about the 20 percent discount on its products coming to America.

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

New Cars: Why Not Report Unit Sales AND Prices?

Manufacturer Nov. 2011
Transaction Price
Nov. 2010
Transaction Price
Percent Change
Chrysler$29,128 $28,436 2.40%
Ford $32,174 $30,027 7.20%
GM $33,189 $32,551 2.00%
Honda $26,730 $25,421 5.20%
Hyundai/Kia $21,384 $19,408 10.20%
Nissan $27,613 $26,784 3.10%
Toyota $27,692 $26,311 5.20%
Industry Average$30,317 $29,154 4.00%

Last week Autodata reported 994,721 total light vehicle sales for November, which was a 13.9% annual increase from November last year (873,323 units).  Separately, reported that the average sales price for a new car reached a record high in November of $30,317 (average transaction price), an increase of 4% compared to a year earlier ($29,154, see chart).  

In that case, the total sales volume for new vehicles increased year-over-year in November by 18.44%, from $25.46 billion last year to $30.15 billion this year, and the total sales volume increase was even more impressive than the 13.9% increase in unit sales.  Now only did American consumers buy 121,398 more cars last month compared to November 2010, but they were also willing to pay 4% more on average, or $1,163 more per vehicle.  That translated into an increase in sales volume of $5 billion.

When existing and new home sales are reported, both unit sales, and average and/or median sales prices are reported.  Maybe car sales should be reported the same way, to get a more complete picture of vehicle sales?  

Big Oil Redraws Energy Map and Heads Back Home; U.S. Is At Forefront of Unconventionals Revolution

In Monday's WSJ, Guy Chazan explains why energy companies are shifting their focus away from the Middle East and toward the West, and how this will have profound implications for the companies, global politics and consumers, here's an excerpt:

"Big Oil is redrawing the energy map.  For decades, its main stomping grounds were in the developing world—exotic locales like the Persian Gulf and the desert sands of North Africa, the Niger Delta and the Caspian Sea. But in recent years, that geographical focus has undergone a radical change. Western energy giants are increasingly hunting for supplies in rich, developed countries—a shift that could have profound implications for the industry, global politics and consumers.  

Driving the change is the boom in unconventionals—the tough kinds of hydrocarbons like shale gas and oil sands that were once considered too difficult and expensive to extract and are now being exploited on an unprecedented scale from Australia to Canada.  

The U.S. is at the forefront of the unconventionals revolution. By 2020, shale sources will make up about a third of total U.S. oil and gas production, according to PFC Energy, a Washington-based consultancy. By that time, the U.S. will be the top global oil and gas producer, surpassing Russia and Saudi Arabia, PFC predicts.  

That could have far-reaching ramifications for the politics of oil, potentially shifting power away from the Organization of Petroleum Exporting Countries toward the Western hemisphere. With more crude being produced in North America, there's less likelihood of Middle Eastern politics causing supply shocks that drive up gasoline prices. Consumers could also benefit from lower electricity prices, as power plants switch from coal to cheap and plentiful natural gas.  

And the change is reshaping the oil companies themselves, as they reallocate their vast resources to new areas and new kinds of fuel. Working in the rich world—with its more predictable taxes and investor-friendly policies—removes some of the risks about the big oil companies that worry investors, making them less vulnerable to the resource nationalism of petrostates like Russia and Venezuela."

Bond Market's Inflation Prediction Falls Below 2%

The chart above shows the bond market's inflation prediction since the beginning of the year, calculated as the weekly difference between the 10-year regular, nominal Treasury yield (data here) and the 10-year Treasury inflation-indexed yield (a measure of the real interest rate, data here), both on a constant maturity basis.  From a yearly high of 2.62% in mid-April, the proxy for bond investors' inflation outlook has been trending downward, and reached a year-to-date low of 1.82% in late September.  After rising above 2% for three weeks for the last week of October and the first two weeks of November, the inflation expectation spread has been below 2% for the last two weeks.

Notice that the downward trend in the bond market's inflation prediction over the year has been very similar to the downward pattern in the actual monthly rates of inflation from the BPP @ MIT, see post below (link here) and graph below.  

BPP Data Shows Inflation Trending Downward

The chart above shows monthly inflation rate from the Billion Prices Project @ MIT over the period from the first of the year through October 31.  According to the BPP website, the index is "designed to provide real-time information on major inflation trends, not to forecast official inflation announcements. We are constantly adding new categories of goods, but we do not cover 100% of CPI goods and services. The price of services, in particular, are not easy to find online and therefore are not included in our statistics."

Bottom Line: Monthly inflation, measured by the BBP @ MIT, has been trending downward since February, and at the end of October was below 0.10%.    

Saturday, December 03, 2011

Markets in Everything: Stupid Xmas Gifts

Like the Santa Claus Beard Beanie pictured above, and there's lots more here from

Markets in Everything: App to Avoid WA Bridge Toll

More information here.

HT: Roger Weber

Friday, December 02, 2011

Two Completely Mind-Blowing Videos

Nature is awesome.

People are awesome.

HT: Coyote Blog (second video)

Friday Night Gallimaufry

1. Cancer patients can now legally offer modest compensation to bone marrow donors, thanks to a legal victory this week by the Institute for Justice.

2. The British Library has digitized 300 years worth of newspaper archives, and now brings 65 million articles and 4 million pages online in searchable format.  

3. Do cell phone bans have a positive effect on road traffic safety? No, not in terms of reduced number of crashes, according to this Swedish study (see Section 3.9).

4. As more Americans give up their land lines, the increased use of cellphones is causing big problems for public opinion pollsters.

5.  Retail health clinics in the U.S. are now at record high: 1,353 are operating in 41 States, and the number of clinics has increased by 144 over the last 12 months. 

6.  A professor says that colleges should be required to post a "College Report Card" on their Web sites, i.e. a "consumer warning label," like those required for tire manufacturers. 

7. America's 100 most promising companies, from Forbes.   

8. October home sales increased by 15.2% in Phoenix and by 15.3% in Las Vegas.

Markets in Everything: Online Micro-Labor

Hello Heroic: Facebook Meets Craigslist

MINNEAPOLIS (WCCO) -- "Cleaning the bathroom, making bag lunches and shoveling the sidewalk, they’re all tedious tasks.But now if you’re looking for help, you can pay someone else to do those chores with the click of a mouse. You even pick how much those jobs are worth.

It’s through a web site called called Hello Heroic. Think Facebook meets Craigslist, but you’re in charge."  Watch video above for more details.

See related WSJ article "Serfing the Web: Sites Let People Farm Out Their Chores" featuring micro-labor websites TaskRabbit ("Get just about anything done by safe, reliable, awesome people") and Zaarly.

CD Trivia: New Record for Comments?

This November 23 CD post "There Is No Money Pile To Be Shared Equally" might have set a new all-time record for the highest number of comments: 601 so far (see graphic above).

Markets in Everything: Online Toy Rental

"The Netflix of Toys"

BOSTON (CBS) – "When you are a kid on Christmas morning, it’s all about volume. But when you are a parent, cruising the aisles of the toy-store in December, it’s about trying to balance a happy holiday with a reasonable budget. Paul Reinsmith of Boston has found a great way to have plenty of toys under the tree, and all year, without breaking the bank.

Paul and his wife Pam discovered what they call the ‘Netflix’ of toys. It’s called Toygaroo, a website that lets parents rent toys for a fraction of what they would cost to buy."

HT: Drudge Report

We Should Thank China for Its Currency Policy

When you hear discussion of China’s currency manipulation, keep the following in mind:

1. China's currency manipulation is a form of foreign aid, and to the direct advantage of millions of U.S. consumers, especially 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, which would reduce our overall standard of living.

3. Like other forms of mercantilism and protectionism, forcing or pressuring China to appreciate its currency would favor certain domestic producers over millions of consumers and import-buying companies, but would make the United States worse off, not better off.

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

Bottom Line: If you wouldn't object to China sending products to the United States 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?

Excerpt from my article "Why We Should Thank the Currency Manipulators" at The American.

Update: Thanks to Don Boudreaux for the link, who also links to Bastiat's famous "Candlemakers' Petition," which gave me an idea for another way to make the argument about China's "currency manipulation":

1. If you wouldn't object to getting free light from the sun (even though that reduces output and employment for some domestic producers of candles, lights, lamps, lightbulbs, flashlights, electric utilities, etc.), then you likewise shouldn't object to getting free, or greatly "undervalued" goods from China as a result of its currency manipulation in favor of Americans purchasing Chinese imports.

2. If you think that China should be forced or pressured to revalue its currency to the advantage of U.S. companies competing with China, then you must also agree with Bastiat's facetious appeal to the French parliament advocating trade policy to protect the French candlemakers against the "ruinous competition of a foreign rival," which is none other than the sun:

"We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds—in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat."

Thursday, December 01, 2011

More Pot, Less Beer, and Fewer Traffic Fatalities

Here's an interesting study titled "Medical Marijuana Laws, Traffic Fatalities, and Alcohol Consumption," by economists D. Mark Anderson and Daniel Rees.  This is the abstract:

"To date, 16 states have passed medical marijuana laws, yet very little is known about their effects. Using state-level data, we examine the relationship between medical marijuana laws and a variety of outcomes. Legalization of medical marijuana is associated with increased use of marijuana among adults, but not among minors. In addition, legalization is associated with a nearly 9 percent decrease in traffic fatalities, most likely due to its impact on alcohol consumption. Our estimates provide strong evidence that marijuana and alcohol are substitutes."

From the conclusion:

"Why does legalizing medical marijuana reduce traffic fatalities? Alcohol consumption appears to play a key role. The legalization of medical marijuana is associated with a 6.4 percent decrease in fatal crashes that did not involve alcohol, but this estimate is not statistically significant at conventional levels. In comparison, the legalization of medical marijuana is associated with an almost 12 percent decrease in any-BAC fatal crashes per 100,000 licensed drivers, and an almost 14 percent decrease in high-BAC fatal crashes per 100,000 licensed drivers. 

The negative relationship between legalization of medical marijuana and traffic fatalities involving alcohol is consistent with the hypothesis that marijuana and alcohol are substitutes. In order to explore this hypothesis further, we examine the relationship between medical marijuana laws and alcohol consumption using data from the Behavioral Risk Factor Surveillance System and The Brewer’s Almanac. We find that the legalization of medical marijuana is associated with decreased alcohol consumption, especially by 20- through 29-year-olds. In addition, we find that legalization is associated with decreased beer sales, the most popular alcoholic beverage among young adults (Jones 2008)." 

HT: Jonathan Turley

Excluding Cash for Clunkers, November Car Sales Are the Highest Since June 2008, 2.5 Years Ago

Auto sales were released today by Autodata, and excluding the artificially high "cash for clunker" month of August 2009,  light vehicles sales in November were the strongest in any month since June 2008, almost two and-a-half years ago (see chart above).  On a seasonally adjusted annual rate, 13.63 million cars were sold last month, which was an 11% gain from the same month last year and almost a 3% improvement from October. 

Sales gains for November were led by Chrysler, which experienced a 44.5% increase over last year, followed by strong gains from Kia (39.1%), Volkswagen (28.7%), Madza (20.4%) and Nissan (19.4%).  Many of the luxury brands reported strong annual sales gains in November including Mercedes (46.2%), Land Rover (30.7%) and BMW (14.8%).    

Bottom Line: With another strong month for U.S. vehicle sales that are now at the highest level in almost two and-a-half years, the case for a fragile economy about to enter a double-dip recession seems pretty weak. 

One-Year ARMs Fall to Historical Low

The rates for one-year ARMs fell today to 2.78% this week, which sets a new record all-time low for the series going back to 1986.  To purchase the median priced existing home at $162,500 in October with a 20% down payment and a one-year ARM at 2.78%, the monthly payments for the first year would be only $532.78 for principal and interest on a before-tax basis, and less than $400 per month after taxes.  

How Terrible: Walmart Plans to "Dump" Six Stores, 1,600 Jobs and $21 Million in Charity on Wash. D.C.

Washington, D.C.'s unemployment rate has been rising over the last year, and at 11.1% in September was more than two percent above the 9% jobless rate for the country (which has been falling, see chart above).  Further, more people in the District are now unemployed - 37,034 - than at any other time in the city's history.  So you would think that if an employer promised to bring 1,600 permanent jobs and 600 construction jobs to the city, and also pledged $21 million in charitable donations over the next seven years, that District residents would be thankful, grateful and appreciative, and would welcome that employer with open arms.  

Well, think again if that employer is Walmart, and if the District resident is Washington Examiner columnist Jonetta Rose Barras who editorialized yesterday in a column titled "Occupied by Walmart":

"It was bad enough that District elected officials, particularly Mayor Vincent C. Gray, stood by as Walmart announced its intention to dump six stores into neighborhood commercial corridors, creating an environment ripe for the retail behemoth to bully small businesses. The executive exacerbated that short-sighted economic development strategy by signing the "Community Partnership Initiative."
Despite the peacocking by Gray and others after the agreement was signed, the District is receiving mostly crumbs. Walmart has committed to providing $21 million in charitable donations over the next seven years, an average of $3 million a year. That's a pittance."

MP: So instead of gratitude for the thousands of new jobs and millions of dollars of charity Walmart will bring to the District, Ms. Barras ungratefully describes that as "mostly crumbs" and is outraged because Walmart is "dumping six stores" into the District and giving "only" $21 million in charity to the city??  

I'm pretty sure that most District residents view this differently, and are grateful that Walmart is "dumping" six stores, 1,600 permanent jobs, 600 construction jobs and $21 million on the District.  Especially the 37,000 residents who are unemployed.

Update in response to some of the comments:

A few years ago, when Walmart opened a store on Chicago's west side it created more than 400 good-paying jobs, made the neighborhood safer and helped to revitalize and stabilize the area, which then attracted new stores including a Menards, a CVS pharmacy, two new banks and an Aldi Grocery Store. Local Chicago alderwomen Emma Mitts credited Walmart for attracting many new stores to the neighborhood, and says that "traffic is so heavy on the weekends that it's hard to get up and down the strip, and that's a good thing and I'm so grateful for it."

Although Walmart frequently gets blamed for putting local merchants out of business when it opens a new store, this story provides some evidence to the contrary - by stabilizing a rough area on Chicago's West Side and attracting thousand of customers for "everyday low prices," Walmart actually helped to attract new businesses to this Chicago neighborhood, including direct competitors like Menards, CVS and Aldi.  

In other words, Walmart provides many significantly "positive externalities" and "spillover benefits" to the communities in which it operates, even though it frequently gets more attention for some of the "negative externalities" and "spillover costs" it might impose. For neighborhoods like the west side of Chicago, it sure looks like the positive externalities (jobs, tax revenues, great safety, more commercial activity, etc.) far outweigh any negative externalities.

Wednesday, November 30, 2011

Democrats Need to Re-Think U.S. Energy Policy

Charles K. Ebinger, director of the Brookings Institution's Energy Security Initiative, writing in the L.A. Times (emphasis mine):

"Let me say upfront that I have always been a Democrat. However, I also vote my conscience and have supported independent candidates. Today, energy policy is one area where I think my party is wrong.

Today's Democratic leadership has reached a nadir in rational energy policymaking. In the last several years, congressional party leaders have squandered opportunities for a nuclear waste management storage program and have shown opposition to shale gas production. This month, the party reached a new low: The Obama administration's delay of the Keystone XL pipeline from Canada, in spite of its promise of an additional 750,000 barrels of oil per day and the thousands of new jobs it would create, was an inexcusable political decision unbecoming of a pragmatic leader.

The former generation of Democratic legislators would have embraced the energy opportunities before the United States today. Whoever is president in 2013, it will be the first time in 40 years that the United States has a serious chance to transform its energy landscape. The previously accepted inexorable decline in U.S. oil and gas production is being reversed: New "tight oil" — resources trapped in low-porosity formations such as shale rock — could provide the country with several million barrels of oil per day in the coming decades, and the country's abundant and accessible shale gas reserves may leave us gas independent for up to a century. There also are still conventional reserves to be tapped, most notably in Alaska, where the Beaufort and Chukchi seas and the North Slope hold an abundance of hydrocarbon reserves.

Exploitation of these resources would have a number of benefits. Increased domestic oil production, coupled with growing imports of Canadian oil sands, would result in a reduction of non-North American oil imports, leading to a significant improvement in the country's yawning trade deficit. Increased gas production would be valuable for cleaner electricity generation (when compared with coal) and could also signal a revival of the U.S. industrial and petrochemical sectors. Further, if natural gas can be deployed in the commercial heavy-duty vehicle fleet, we would be able to reduce our oil imports dramatically. We may even be able to export gas to our allies and trading partners.

The Democratic leadership must start facing the hard truths about energy and stop proselytizing that renewable sources of energy can replace the fossil fuels currently in use. This is not to argue that the reduction of fossil fuel emissions is not an urgent priority. However, the emphasis must be on job creation and on building the 21st century energy infrastructure that will reestablish America's primacy in the world. The size of our energy resources gives us the wherewithal to make this transition."

MP: Amen, Brother Ebinger.

(Thanks to Warren Smith for the pointer.)


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McDonald's Outsmarts San Francisco Politicians

SF Weekly -- "Local McDonald's employees tell SF Weekly the company has devised a solution that appears to comply with San Francisco's "Healthy Meal Incentive Ordinance" that could actually make the company more money -- and necessitate toy-happy youngsters to buy more Happy Meals. 

It turns out San Francisco has not entirely vanquished the Happy Meal as we know it. Come Dec. 1, you can still buy the Happy Meal. But it doesn't come with a toy. For that, you'll have to pay an extra 10 cents.

Huh. That hardly seems to have solved the problem. But it actually gets worse from here. Thanks to Supervisor Eric Mar's much ballyhooed new law, parents browbeaten into supplementing their preteens' Happy Meal toy collections are now mandated to buy the Happy Meals.

Today and tomorrow mark the last days that put-upon parents can satiate their youngsters by simply throwing down $2.18 for a Happy Meal toy. But, thanks to the new law taking effect on Dec. 1, this is no longer permitted. Now, in order to have the privilege of making a 10-cent charitable donation in exchange for the toy, you must buy the Happy Meal.

Hilariously, it appears Mar et al., in their desire to keep McDonald's from selling grease and fat to kids with the lure of a toy have now actually incentivized the purchase of that grease and fat -- when, beforehand, a put-upon parent could get out cheaper and healthier with just the damn toy."

HT: Stuart Anderson

Green Junk: 15k Abandoned Windmills Litter the Landscape; Symbols of a Dying Climate Religion

Abandoned windmills in Hawaii, click to enlarge.
From Alex Newman writing in the New American:
Despite billions in taxpayer subsidies pumped into the so-called “green-energy” industry, almost 15,000 windmills — maybe more — have been left to rot across America. And while the turbines have been abandoned over a period of decades, the growing amount of “green junk” littering the American landscape is back in the headlines again this week.

Across the country, subsidized wind farms are meeting increasing resistance — and not just from taxpayers and electricity consumers forced to foot the bill. "If wind power made sense, why would it need a government subsidy in the first place?” wondered Heritage Foundation policy analyst Ben Lieberman, who deals with energy and environmental issues. “It's a bubble which bursts as soon as the government subsidies end."

It turns out that wind power is expensive and inefficient even in the best wind-farm locations in the world. And regular power plants always need to be on standby in case there is no wind, not enough wind, or even too much of it — a fairly regular occurrence.

That is why, when the tax subsidies run out, the towering metallic structures are often simply abandoned. In their wake: a scarred landscape and dead wildlife — the very same ills offered as justifications by administration officials for preventing oil exploration.

“There are many hidden truths about the world of wind turbines from the pollution and environmental damage caused in China by manufacturing bird choppers,” noted environmental blogger Tory Aardvark in a recent post about wind farms, also citing the dangerous noise produced by turbines. He added,

"The symbol of Green renewable energy, our savior from the non existent problem of "Global Warming," abandoned wind farms are starting to litter the planet as globally governments cut the subsidies taxes that consumers pay for the privilege of having a very expensive power source that does not work every day for various reasons like it’s too cold or the wind speed is too high."

Tory Aardvark called the more than 14,000 abandoned wind turbines in the U.S. symbols of a “dying Climate Religion.”
Note: This type of renewable energy can only be produced by mixing wind with your tax dollars. And when the tax dollars dry up, the turbines stop.

Why Does a NYC Taxi Medallion Cost $1 Million?

In case it's not obvious, this podcast from Planet Money answers the question. 

Markets in Everything: Dissolving Fruit Labels

NPR -- "[A start-up firm] is preparing to roll out Fruitwash, a sticker that turns into a soap under running water. Once dissolved, the Fruitwash allegedly removes wax, pesticides, and dirt from fruit and vegetables. And while [the inventor] won't reveal what the sticker is made of, [he] says it contains all 'organic' ingredients."

HT: Fred Dent

+167,000 Auto Jobs by 2015, Thanks to 2-Tier Pay That Is Deflating the Unsustainable Wage Bubble

NEW YORK TIMES (DETROIT) — "Employment in the auto industry will return to prerecession levels by 2015, with carmakers and their suppliers adding about 167,000 jobs by then, according to estimates by an auto industry research firm.

The job growth would represent a 28 percent increase over current levels but would still replace only about a third of the jobs lost in the last decade. And much of the increase is made possible by labor agreements ratified this fall that allow the Detroit automakers to hire more workers on the lower of their two pay scales.

The industry group, the Center for Automotive Research in Ann Arbor, Mich., said it expected the Detroit automakers to hire 14,750 hourly employees in the next four years. They would receive entry-level wages of $16 to $19 an hour. Workers hired before 2007 earn about $29 an hour. The group projected that about 15 percent of the new jobs would be at Detroit automakers, and nearly 80 percent would be at suppliers. Foreign automakers would account for the rest. 

The two-tier system was created in 2007 to help the automakers cut labor costs as they were hemorrhaging money, but only recently were they able to begin hiring new workers in large enough numbers for the savings to have a noticeable effect on the bottom line. 

About 590,000 people now work in the auto industry, 13 percent more than in July 2009, when G.M. emerged from bankruptcy. That figure is expected to grow to 756,800 in 2015. Much of the job growth will happen in Michigan, where the three Detroit automakers cut more than half of their jobs since 2001."

MP: One way to think about U.S. auto manufacturing over the last several decades is to consider that it was suffering from an "unsustainable wage bubble" (thank to Tim Kane for that reference), especially for the UAW wages paid by Detroit automakers.  Now that auto wages are more realistic, competitive, and more closely aligned with market forces with the new 2-tiered wage structure, the wage bubble has burst and the auto jobs are coming back.

Tuesday, November 29, 2011

While Nation Struggles, There's One Miracle State

The chart above shows the "Coincident Economic Activity Indexes" for the U.S. and a sample of U.S. states (New York, Florida, California, Arizona, Minnesota, Illinois, and Wisconsin).  The coincident economic indexes are based on four variables: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing, and wages and salaries.  

While the current economic conditions in most states, and the country as a whole, remain below their pre-recession levels in 2007, there's one miracle state (see red line) whose economic activity index is 17% above the pre-recession level.  If the Obama administration is really interested in putting thousands of  Americans to work at "shovel ready" jobs, it might want to look to the "miracle state" and see how they did it; it's a formula that could easily be replicated in many areas around the country.   

Consumers Are Responsible for Income Inequality

"Paul Krugman laments in his Nov. 3 New York Times column "Oligarchy, American Style," "We have a society in which money is increasingly concentrated in the hands of a few people, and in which that concentration of income and wealth threatens to make us a democracy in name only." 

I'd ask Krugman this question: Who's putting all the money in the hands of the few, and what do you think ought to be done to stop millions, perhaps billions, of people from using their money in ways that lead to high income and wealth concentration? In other words, I'd like Krugman to tell us what should be done to stop the millions of children who make Joanne Rowling rich, the millions who fork over their money to the benefit of LeBron James, and the hundreds of millions of people who shop at Wal-Mart."

~Walter Williams

U.S. Nat Gas Production Hits New Record in Sept.

Updated: The EIA released data today on U.S. natural gas production for the month of September.  On a seasonally-adjusted basis, natural gas production (both gross withdrawals and marketed production) in the U.S. reached new record-high levels in September of almost 2.5 trillion cubic feet for gross withdrawals and 2.1 trillion cubic feet for marketed production, about 6% above the year-ago levels.  Compared to September 2006, natural gas production has increased by 22% over the last five years for gross withdrawals and 24% for marketed production. 

Here's the opening paragraph from a related story on natural gas in The Economist from a few days ago, about why Europe may "have trouble replicating America’s shale-gas bonanza," at least in the short-run:

"Shale gas has turned the American energy market on its head. Production has soared twelve-fold since 2000, to 4.9 trillion cubic feet, or a quarter of the country’s total gas output. By 2035 the proportion could rise to half. As the shale gas flows, prices have come crashing down. Not long ago, America depended on imports of liquefied natural gas. Now it is likely to become a gas exporter. These benefits have not gone unnoticed in Europe."

Here's the ending paragraph:

"America’s shale revolution began 20 years ago, but its impact has been felt only in the past five years. Europe’s may take just as long. But when the fracking begins in earnest, it could turn Europe’s energy market on its head, too."

Canada: "We Believe in Free Trade" and Will End Dozens of Tariffs on Imports to Help Manufacturing

TORONTO (Reuters) - "Canadian Finance Minister Jim Flaherty said on Sunday the government would eliminate tariffs on dozens more products used by Canadian manufacturers, aiming to lower their costs and encourage more hiring. The initiative would scrap custom duties on 70 items used by businesses in sectors such as food processing, furniture and transportation equipment.

Flaherty, who estimated the tariff cuts would save Canadian businesses C$32 million ($30.5 million) a year, said the cuts were part of the Conservative government's overall free trade policy. "We believe in free trade in Canada," Flaherty said on CTV's "Question Period" program. "Some of these old-fashioned tariffs get in the way. So we're getting rid of them."

As part of its Economic Action Plan to pull Canada through the global slowdown of 2008-09, the government has eliminated more than 1,800 tariff items, providing about C$435 million a year in tariff relief. Its stated goal is to make Canada a tariff-free zone for manufacturers by 2015."

A few thoughts:

1. We sometimes forget that "tariffs" and "duties" are really "taxes" on imports; and therefore eliminating or reducing tariffs or duties is the same thing as eliminating or reducing taxes on consumers and businesses buying foreign products.  In the same way that "tax cuts" can stimulate economic activity, "tariff cuts" do the same, and that's the approach being taken in Canada. 

2. When it comes to helping domestic manufacturers through trade policy, the usual approach is to impose tariffs or restrictions on imports as a way to protect domestic producers from more efficient foreign producers.  But the Canadian case illustrates the reality that domestic producers are often using foreign-produced inputs, parts and supplies, to manufacture products domestically, and in that case reducing tariffs on imports ("cutting taxes") helps domestic manufacturers by lowering the cost of their foreign inputs.  

The chart above displays U.S. imports by category for 2011 (through September) and shows that roughly 58% of imported goods are: a) industrial supplies and b) capital equipment that are being purchased by U.S. producers.  If we were to completely eliminate tariffs on imports, U.S. manufacturers relying on foreign inputs would receive significant benefits, while other U.S. manufacturers competing against imports would be less protected from foreign competition.  

Bottom Line: Even though we usually think of increasing exports as the route to increased domestic manufacturing output and employment, Canada's trade policy of reducing tariffs for its manufacturing sector highlights the important contribution of imports to domestic manufacturing.

Update: By keeping its currency undervalued, China is in effect subsidizing American businesses and consumers buying products "Made in China."   We should be thankful for that form of "foreign aid," or transfer of wealth from relatively poor Chinese to rich Americans, as unfair as that might be.  If the U.S. pressures China to appreciate its currency, it would be exactly the same as imposing (or increasing) tariffs on Chinese products.  And just like increased tariffs would make Americans worse off overall, I would argue that a stronger yuan would have the same result.

Monday, November 28, 2011

Chart of the Day: Drill, Drill, Drill= Jobs, Jobs, Jobs

The chart above displays monthly "natural resources and mining" employment levels in North Dakota (blue line) and Pennsylvania (red line) back to 1995. After more than a decade of flat employment levels for energy-related jobs in both states, employment levels recently have been booming, along with the Bakken oil boom in North Dakota and the Marcellus natural gas boom in Pennsylvania. 

Update: See recent CD post featuring a study predicting that Ohio’s natural gas and crude oil industry could help create and support more than 200,000 Ohio-based jobs

Possible Antidote to the Higher Education Bubble: Free Computer Classes at Stanford University

From I Programmer -- "Stanford University is offering the online world more of its undergraduate level courses. These free courses consist of You Tube videos with computer-marked quizzes and programming assignments.

The model is that courses are delivered as lecture videos, which are broken into small chunks some of which will contain integrated quiz questions. There will be approximately two hours worth of video content per week over 10 weeks.

There are no textbooks to buy, although there may be some recommended reading; and no tuition, although there will be forums for asking questions and receiving feedback and answers."

MP: As just one example, Stanford University Computer Science Lecturer Nick Parlante is offering an introductory course, Computer Science 101, worldwide for free starting in February 2012 (see introduction video above). Here's the course website.

Here's another report from I Programmer about Stanford's free computer classes. 

Gales of Creative Destruction: Ten Brands That 24/7 Wall St. Predicts Will Disappear in 2012

"Each year, 24/7 Wall St. regularly compiles a list of brands that are going to disappear in the near-term.  Last year’s list proved to be prescient in many instances, predicting the demise of T-Mobile among others.
24/7 Wall St. has created a new list of brands that will disappear in 2012, which includes Sears, Sony Pictures, American Apparel, Nokia, Saab, A&W All-American Foods Restaurants, Soap Opera Digest, Sony Ericsson, MySpace, and Kellogg’s Corn Pops."

Average New Home Price Lowest in 8 Years

Here's something interesting from today's Census release on new home sales: The average new home price fell to $242,300 in October, which was the lowest average monthly new home price since August 2003 ($241,000), more than 8 years ago (see chart above).  It's also $79,200 (and 25%) below the peak average new home price of $321,500 in February 2007.  

HT: Zero Hedge

"Jet Man" Stunts Alongside Fighter Jets Over Alps

HT: Warren Smith

Update 1: As Morganovich comments, you might want to put this on your Christmas list.

Update 2: Featured on CBS NewsFox News, and the UK Guardian (but Alan in the comments section below is skeptical), and here is the Jet Man homepage.

Following Delay of the Keystone XL Pipeline to U.S, China is Anxious to Tap Into Canada's Tar Sands Oil

It shouldn't be any surprise that following Obama's decision to delay the decision on the Keystone XL pipeline until after the 2012 election, and in the process kill 20,000 "shovel-ready" U.S. jobs, Canada is now looking westward to China as an alternative destination for Alberta's vast tar-sands oil (output is expected to double by the end of the decade).  Here are two recent reports:

1. Reuters -- "China is set to embrace Canada's offer of more crude oil, heating up competition with the United States as the world's top two oil consumers jostle to secure supplies and meet ravenous demand. Canada's plan to ship crude to Asia got a boost after Prime Minister Stephen Harper said his nation would step up efforts to supply the region after the United States delayed a decision on a pipeline supply link."

2.  Wall Street Journal -- "Canadian politicians and energy executives are ratcheting up support for several big infrastructure projects aimed at redirecting the country's growing oil output to thirsty Asian markets—a move seen as crucial in preventing a looming bottleneck of crude.

The push has taken on fresh urgency after Washington this month pushed back approval of a pipeline envisioned to boost oil exports from Canada to the U.S. Canadian officials lobbied hard for the line, TransCanada Corp.'s Keystone XL, which would run from Alberta to the U.S. Gulf Coast."

One-Year ARMs Fall to Lowest Level in U.S. History

At 2.79%, one-year adjustable rate mortgages fell last week to the lowest level in U.S. history, going all the way back to 1986 (see chart above) following the "legalization" of ARMs in the U.S. by the "Garn–St. Germain Depository Institutions Act" in 1982.

EU Wine Cartel is "Whining" About Competition -- "European wine growing regions are battling European Commission plans to allow massive vineyard expansion. 

If the reform goes through, by 2019 there will be no restrictions to planting vines across the European Union, even in countries that today have no vineyards. Bordeaux vineyards could theoretically rise from 120,000 hectares (ha) to 220,000ha, and Burgundy from 28,000ha to 59,000ha."

According to an industry spokesman, "The effect of this could be catastrophic."

MP: "Catastrophic" for the wine producers maybe, because of the increased competition, but probably a great deal for consumers who will  most likely benefit from a greater selection, higher quality and lower prices. 

HT: Joe Lais

There's An App for That: Mobile Baggage Tracking

Now when you download the latest update to the Delta Airlines app, you’ll be able to track your checked bag – just like you track a package.

Credit Card Delinquency Rate Falls to 16-Year Low

The Federal Reserve recently released data on delinquency and charge-off rates at U.S. commercial banks for the third quarter of 2011.  For consumer credit cards, the delinquency rate fell for the 9th consecutive quarter to 3.47% during the July-September period this year, dropping to the lowest level since a 3.46% reading in the first quarter of 1995, more than 16 years ago (see blue line in chart).  Compared to the 4.35% quarterly average since 1992, the delinquency rate on credit cards is now about a full percentage point below the long-run average. 

For all consumer loans, the third quarter delinquency dropped to 3.15%, the lowest rate since the 2.99% rate in the second quarter of 2007 before the recession started (see red line in chart). The second quarter delinquency rate is also below the 3.34% historical quarterly average since 1992. 

The fact that consumer loan and credit card delinquency rates are back to pre-recession levels and below historical averages is part of the ongoing de-leveraging of American households.  It's also more evidence that the worst of the financial crisis is behind us.  Now if we could just get the Beltway elite to show some of the same financial responsibility that American households have been demonstrating of late.