Saturday, December 10, 2011

New York Federal Reserve Recession Model: Only 1-in-32 Chance of Double-Dip Recession in 2012

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" last week with treasury yield data through November 2011, and the Fed's recession probability forecast through November 2012 (see chart above). The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (2.01% in November) and 3-month Treasury bills (0.01%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here) using the spread between those two yields (1.42% in November).

According to the NY Fed's Treasury Spread model (data here) the chances of a double-dip recession through November of next year are 3.6%, or only a one-in-28 chance.

Interactive Guide/Map for the Republican Race

From The Economist:

"Our interactive map provides the latest polling data for the Republican candidates, showing who is leading the race in each state and the date of the polls. It includes a drop-down election calendar containing all the key dates, and as the primaries progress we will update the figures for each presidential hopeful as they move towards securing the nomination as the Republican Party’s candidate of choice. Once a state has voted, we will enter all the results on the map. You can also watch this space for any important developments in the race."

Here are the current polling results from the first four primary states, showing a strong lead for Gingrich in Iowa, South Carolina and Florida, and nationally as well:

Iowa (December 6) - Gingrich: 33%, Romney: 20%

New Hampshire (December 6) - Romney 35%, Gingrich: 26%

South Carolina (December 6) - Gingrich: 43%, Romney 20%

Florida (December 8) - Gingrich: 35%, Romney: 22%

National Average (December 7) - Gingrich: 33%, Romney: 21.3%

Markets in Everything: Smart Phone Ultrasound


Frustrated Ohio Construction Co. Tries to Expand, But Runs Into Problems Hiring New Workers

Don Harrison, the owner of Harrison Construction company in Marietta, Ohio, tried to expand his booming construction business by hiring 12 new workers so that he could accept more new contracts.  He explains his situation below:

"Last year the demand for our construction services, to our delight was "going through the roof," to a point where we were turning down more work than we were accepting. We were frustrated that we could not be available to the potential new clients who were calling on us and simultaneously excited that this was happening to our company.  Since unemployment was in double digits, I decided we would grow, and work to sign up as much as 40% more in total contracts by hiring up to 12 additional full time employees.  Basically we would take advantage of our good fortune and put a small portion of our community back to work."

But Mr. Harrison ran into some major problems hiring new workers. Reasons? Find out here.

Casualty of the War on Drugs: Flash-Bang Grenade Burns Flesh Off Woman's Leg in Botched Drug Raid

StarTribune -- "The Minneapolis City Council approved a $1 million settlement Friday after a botched drug raid in 2010 in which an officer threw a "flash-bang" grenade into a south Minneapolis apartment burning the flesh off a woman's leg.The payout to Rickia Russell, who suffered permanent injuries, was the third largest payout for alleged Minneapolis police misconduct on record.

Flash grenades are intended to distract and intimidate, not to injure people, but during the raid the device rolled under the legs of Russell, who was seated on a sofa, and exploded. The police were looking that day for a drug dealer, narcotics and a firearm, but found nothing."

MP: When police SWAT teams smash down doors with battering rams without any warning, and then use flash-bang grenades to burn innocent victims and cause permanent injuries, is it any wonder they call it a "War on Drugs," aka the "War on Peaceful Americans Who Voluntarily Use Intoxicants Not Currently Approved of by the U.S. Government, Who Will Sometimes Break Into Houses of Suspected Users and Burn Flesh Off Their Legs."

Friday, December 09, 2011

Bank Business Loan Charge-Off Rates Returning to 2007 Levels, Bank Failures Lowest Since 2008


The two charts above provide some evidence that the U.S. banking sector is recovering from the effects of the Great Recession and financial crisis of 2008-2009. 

Charge-off rates for all commercial banks are displayed in the top chart, and show that:

a. Business loan charge-off rates, at 0.73% in Q3, are the lowest in 14 quarters (since 0.71% in 2008 Q1) and have now almost returned to the pre-recession levels. 

b. Real estate loan charge-off rates fell in Q3 for the seventh consecutive quarter to 1.41%, the lowest quarterly rate since 2008 Q3. 

Annual bank failures are displayed in the second chart and show that:

a. Bank failures through mid-November of this year are at 90 institutions, and will likely be the lowest since 2008, and down significantly from 157 last year, and 148 in 2009. 

b. Compared to the nearly 3,000 banks that failed during the S&L crisis, the 425 bank failures since 2008 are relatively small in comparison.  

Although there is more progress ahead necessary to completely restore the health of the U.S. banking system to its pre-recession level, there is lots of evidence that confirms that the worst is definitely behind us. 

Markets in Everything: Dog Poop Lottery

From The Inquisitr (ht: Mike W.):

"The Taiwanese city of New Taipei this week came up with a unique solution for cleaning their streets of dog feces, they launched a city wide lottery that everyone could participate in. City officials were able to collect 14,500 bags of dog poop from more than 4,000 people, removing half of the cities dog feces from streets and sidewalks.

For each bag turned over to the government a lottery ticket was awarded and eventually a 50-something woman claimed the top prize, a gold ingot worth $2,200.  Government officials also provided 85 other people with prizes ranging from smaller gold pieces to household appliances. This may be the first time that non-dog owners in the city weren’t complaining about other people’s dogs leaving messes in the middle of the cities streets."

MP: Good example of how "incentives matter."

Chart of the Day: Gas Prices Falling, Merry Xmas

At the national level, retail gas prices have fallen by 17% from the April high of about $4 per gallon to the current national average of about $3.28 (red line in chart above), according to price data from GasBuddy.com.  In Albuquerque, New Mexico, gas prices have fallen about 25% from the April peak and are currently the lowest in the country at $2.80 per gallon (see blue line and national gas price heat map here).   

It's an early Christmas present for U.S. consumers, who save about $1.35 billion annually (updated, see below) for every one cent decrease in gas prices.

Update 1: Gasoline consumption is currently averaging about 377.1 million gallons per day, or 135,450,000,000 gallons per year, according to data from the EIA.  Each one cent per gallon change in gasoline prices would translate into an annual change of about $1.35 billion for total spending on gas. 

Update 2: The chart below displays retail gas prices over the last 12 months, and shows that gas prices have increased 10.5% over the last year.  But the point I was making above is that most people don't think about what they were paying at the pump a year ago, they think more about: a) what they were paying a month ago, two months ago, three months ago, last summer, etc., and b) the recent trend in prices.  Now that we're in the holiday shopping season, I predict that the fact that gas prices are at their lowest levels since last February, and trending downward, will boost many consumers' spirits!


IJ: 20 Years Litigating for Liberty

IJ: 20 years of trailblazing a unique brand of advocacy.



Thursday, December 08, 2011

2011: The Year in Photos from The Atlantic

Go here for Part 1, Part 2 and Part 3.

HT: Paul Kedrosky

Wikipedia Wants to Close the Gender Gap

Roughly 9 out of 10 Wikipedia contributors are male. The Wikimedia Foundation considers that to be a problem, and wants to change it

Nat Gas is King, Will be No. 2 Fuel for Elec.by 2025

From today's WSJ article "Exxon Declares Gas is King":

"Natural gas will replace coal as the leading fuel for generating electricity in the U.S. by 2025, when it will also become the world's No. 2 overall fuel source thanks to its abundance and a drive for cleaner-burning energy, according to the latest long-term outlook from Exxon Mobil Corp.

Natural gas will overtake coal as the second-largest fuel source overall, ranking behind oil and powering everything from electrical plants to home-heating systems. But Exxon said coal use will continue to grow through 2025 around the world, primarily in developing nations such as China and India and the African continent, because economic growth will be fastest in emerging nations."

MP: The chart above (source) illustrates one of the reasons that the use of natural gas will continue to grow: it has a significant cost-advantage over other forms of energy.  Compared to natural gas, coal is 46% more expensive on an energy-equivalent basis, offshore wind is nearly four times more expensive, and some solar energy is almost five times more expensive.    

North Dakota Sets More Oil Production Records in October; On Pace to Surpass CA and AK in 2012

North Dakota oil production has doubled in two years.
The "Economic Miracle State" of North Dakota pumped another record amount of oil during the month of October, producing more than 15 million total barrels in a single month for the first time ever, at a daily rate of 488,068 barrels (see chart above, data here). Compared to October of last year, oil production in North Dakota is up 42%, and production has more than doubled over the last two years, from 240,000 barrels per day in October of 2009.  North Dakota's rich Bakken oil fields produced almost 9% of America's domestic crude oil production for the month of October, up from less than 2% of the nation's oil in 2006 (data here).

Other highlights of the October production report: 

1. The number of new wells producing oil in the state increased by almost 1,000 over the last year to a new record of nearly 6,000 wells in October, up from just slightly more than 5,000 wells a year ago.

2. The amount oil produced per well also reached a record high of 82 barrels per day in October, which is almost 50% higher than the 55 barrels per day two years ago, and probably reflects both increasing productivity from technology and drilling in more productive areas.  

3. The combination of a record number of wells producing oil at record-setting productivity levels has put North Dakota on a trajectory to surpass both California (539,000 barrels per day) and Alaska (555,000 bpd) by as early as January 2012 to become the No. 2 oil-producing state in the U.S. (see chart above).  At the current pace of record-setting monthly gains, North Dakota's oil production is currently on track to break the 600,000 barrels per day level by next March. (Note: Due to a normal seasonal slowdown during some of the winter months, these predictions could be delayed for several months.)

4. At 488,000 barrels per day in October, North Dakota's oil production has now surpassed OPEC-member Ecuador's daily production of 485,000 barrels for the first time.    

As a result of the ongoing oil boom in the Bakken area, North Dakota continues to lead the nation with the lowest unemployment rate at 3.5% for October, more than 5 full percentage points below the nation's average 9.0% rate for October.  As reported earlier this week on CD, there are ten North Dakota counties with jobless rates below 2%, and Williams County, which is at the center of the Bakken oil boom, boasts the lowest county jobless rate in the country at 0.9%.

Bottom Line: The ongoing record-setting oil production in the Peace Garden State continues to make it the most economically successful state in the country, with record levels of employment and income growth, increasing tax revenues, the lowest foreclosure rate in the country, a strong real estate market, and jaw-dropping jobless rates in many counties of the Bakken region below 2%. "Drill, create and collect."

Markets in Everything: Wine in Cans

New York Times -- "First, winemakers poured their vintages into bottles and corked them. Then they lost the corks and added screw tops. Then they lost the bottles and sold wine in boxes, next to beer and pretzels at supermarkets. And now, winemakers seeking some pop are canning wine."

HT: Joe Lais

Mexico: Rising Natural Gas Superstate?

A recent CD post highlighted how the "shale gale" of unconventional natural gas is starting to go global, with huge recent discoveries in Argentina and China, leading some to conclude that "peak oil" is losing relevance.  We can now add Mexico as another rising natural gas superstate:

"Mexico's [energy] future seems even brighter. According to U.S. Energy Information Administration Executive Director Maria van der Hoeven, Mexico's significant untapped natural gas reserves, if properly developed, could eventually provide Mexico with energy independence. She recently stated, "Mexico is sitting on very large natural gas fields that could allow it to end gas imports and could give it energy independence.

Van der Hoeven's assertions are backed by Mexican Energy Secretary Jordy Herrera, who said, "With the shale gas potential and reserves, and the gas associated with crude, we should become a country with sufficient energy resources, both fossil and renewable, to achieve independence, and we could eventually export, all we need to do is make decisions in favor of the Mexican people. Developing gas production is urgent, the country cannot be subjected to the political times." 

Herrera is salivating over official estimates, that developing Mexico's shale natural gas industry could attract $7-10 billion in annual investment. According to Herrera, government officials have been working with state-owned oil giant Petroleos Mexicanos, or Pemex, to determine the size of the country's natural gas fields and have contacted Congress to discuss the development of the country's indigenous natural gas reserves."

Death to Pennies



Originally appeared on Grey's Blog and has recently been featured on Marginal Revolution and Greg Mankiw's blog.  

Note: Both New Zealand (1990) and Australia (1992) stopped using pennies decades ago. 

Wednesday, December 07, 2011

Steve Hayward: America's Vast Energy Resources



Environmental scholar Steven Hayward exposes how U.S. energy policies have restricted access to America's vast energy resources. The result? America is less competitive in the world, energy prices are skyrocketing, and the economy is suffering. The United States must open federal lands to exploration and end the regulatory blockade that keeps shale oil and gas out of our reach. To read the North American Energy Inventory that Dr. Hayward's video is based on, go here.

Digital Christmas Story



HT: Joe Lais

Quote of the Day: Taxes and Home Values

"When you buy a house, you’re not just committing to a mortgage. You are also promising to pay the future property taxes on that house. What drives those local property taxes are the future costs of paying state and local workers and retirees, particularly retirees’ pensions and health care. These costs are going in one direction: up.  

Unless state and local governments take steps now to reduce future costs, or unless they plan on suddenly repudiating their promises to their public-sector work forces one day, every dollar in unfunded pension and health-care costs is up to a dollar less in the future value of a house."

~Nicole Gelinas, NRO article "How Taxes Drive Down Home Values"

HT: NCPA

Fact of the Day: Hunting is Safer Than Bowling?


According to the National Shooting Sports Foundation, hunting with firearms is one of the safest recreational activities in America (here's the press release and here's the fact sheet with sources provided).  Based on the percentage of injuries per 100 participants, hunting with firearms (0.05%) is slightly safer than bowling (0.06%) or jogging (0.08%) and slightly less safe than billiards (0.02%), see chart above.   The organization also points out that compared to hunting a person is:
  • 11 times more likely to be injured playing volleyball
  • 19 times more likely to be injured snowboarding
  • 25 times more likely to be injured cheerleading or bicycle riding
  • 34 times more likely to be injured playing soccer or skateboarding
  • 105 more times likely to be injured playing tackle football.
Not surprisingly, the least safe sport is football (tackle) by far, followed by basketball, skateboarding, soccer, wrestling and bicycle riding (see chart below).


Tuesday, December 06, 2011

Ten N.D. Counties Have Jobless Rates Below 2%

 North Dakota County   October Jobless Rate 
Williams County 0.9%
Slope County 1.1%
Mountrail County 1.3%
McKenzie County 1.4%
Billings County 1.5%
Stark County 1.5%
Dunn County 1.7%
Bowman County 1.9%
Oliver County 1.9%
Steele County 1.9%

According to the North Dakota state government, there were ten counties in the state (out of 51) that had unemployment rates below 2% in the month of October (see chart above).  Williams County leads the country with the lowest jobless rate for any county at 0.9%.  Almost all of these counties are in the western part of the state that sits on top of the vast oil resources of the Bakken formation.  The drilling boom for shale oil in North Dakota has led to a jobs boom and the lowest state unemployment rate in the country (2.6% in October, not seasonally adjusted), with some North Dakota counties falling below 2% this year.

Drill, drill, drill = jobs, jobs, jobs.

Income Inequality: Babe Ruth vs. Alex Rodriguez

$1 million salary vs. $30 million
In 1927 when Babe Ruth hit 60 home runs and set the single-season record that lasted until 1961, he made $70,000 playing for the New York Yankees.  That would be equivalent to a salary in today's dollars of only $911,000.  In 1930 and 1931, Babe Ruth was paid $80,000 by the Yankees, which was the most he earned in a single year, and equivalent to only slightly more than $1 million today.  

In contrast, the average major league baseball player's salary was nearly $3.1 million this year, or three times more than super-star Babe Ruth made at the peak of his career, adjusted for inflation. Is that unfair or not?  

And isn't that evidence of rising income inequality over time that average players now make more than the superstars of the past, and today's highly-paid superstars like Alex Rodriguez make salaries ($32 million) that are more than 30 times higher than a superstar of the 1920s and 1930s like Babe Ruth?  And it's highly likely the share of baseball payrolls going to the top 1, 5 or 10% of the players has also increased over time, as incomes have become more concentrated among the top players. For example, Alex Rodriguez's salary represented 16% of the Yankee's $202 million payroll this year as the highest paid player, and in 1988 the highest-paid Yankee, Jack Clark, earned a salary of $2 million that  represented only 11% of the team's $18.9 million payroll that year.  Baseball's "rich" (top 1%) just keep getting richer and richer?   

Just ask yourself this question: As a superstar with world-class athletic ability, would you rather be marketing your talent in 1930 America like Babe Ruth, or in 2011 America like Alex Rodriguez?  Clearly Alex Rodriguez has the advantage of selling his superstar abilities in a much larger (greater ticket sales), much more globalized sports marketplace with increased competition from talented players around the world, along with much higher salaries to reflect the realities of modern MLB.

As part of both society's 1% and "MLB's 1 percent," Alex Rodriguez deserves to make more income today than Babe Ruth made in the 1920s and 1930s when he was part of the "MLB 1 percent" of that era.  But it's also the case that MLB's lowest-paid, average-paid players, and in fact "the entire MLB 99%," are also better off  today in terms of income than their counterparts of the past. 

Maybe there's a lesson here about rising income inequality.  Whether it’s in professional sports or in society as a whole, perhaps rising income inequality over time is a natural and expected outcome of increasingly competitive labor markets and the expanded opportunities that come from larger and increasingly competitive global markets.  And those same competitive forces that lead to greater income inequality in both the MLB and the overall economy over time also help to make all MLB players and all Americans better off year after year, just not at exactly the same rate.

New Report Shatters the Myth of Energy Scarcity and Highlights America's Vast Energy Resources

Here are some excerpts from a new energy study titled "North American Energy Inventory" from The Institute for Energy Research: 

Letter from the President (Thomas J. Pyle): "Access to affordable, abundant energy is, fundamentally, a means of freedom. But for those seeking to create a crisis that provides an opportunity to direct the way we live, work and act, affordable, reliable, abundant, domestic energy is a threat. In a very real sense, the more energy we have, the less power they will have. Energy abundance ends the justi!cation for central energy decision-making.

Against that backdrop, the Institute for Energy Research (IER) is proud to release the following report. It is the culmination of months of research and investigation by IER experts, drawing on a broad array of government, industry and university data—all of it public information—to provide the reader a more accurate description of what is available in North America now and what will likely be available in the future.

America’s energy future can be bright. Converting that potential into something real and transformative will not be easy—nor is success guaranteed. This report describes in detail what is possible and should serve once-and-for-all to shatter the myth of energy scarcity, and in so doing, empowers American citizens rather than politicians."

Conclusion: "North America is blessed with enough energy supplies to promote and sustain economic growth for many generations. The government’s own reports detail this, and Congress was advised of our energy wealth when the Congressional Research Service released a report showing that the United States’ combined recoverable oil, natural gas, and coal endowment is the largest on Earth.

Despite this overwhelming evidence of energy abundance, many continue to proclaim that an energy problem or “crisis” exists that justifies increased central planning, increased expenditures of public money, increased energy taxes and increased diktats on American citizens in order to solve “the problem.”

For forty years, politicians and special interests have argued successfully that energy production requires more regulations, more taxes, and more restrictions and the result has been less domestically produced energy, less economic growth, and fewer jobs.

Ironically, many of the policies that serve to hamstring energy production were abetted by the same premise: since America does not have enough oil, natural gas, and coal to continue to build its economy and improve the standards of living for all, the impact of proposed policies would negligibly affect energy production and security. The truth that is finally becoming clear is that North America is not only blessed with huge quantities of energy, but also could become the single largest producer in the world, with all of the attendant manufacturing, technological innovation and re-industrialization that would provide generations with good jobs and sustainable futures.

The question Americans therefore need to ask is whether government officials throughout North America will embrace this enormous opportunity or scorn it. Armed only with pessimistic assumptions about technology and an incomplete and misleading understanding of our energy wealth here at home, we should not be surprised that our energy situation has gotten worse the more they intervened.

The era of perceived energy shortages must end, and informed judgments about North America’s energy potential must finally be made.  Millions of new jobs, untold economic growth, and unprecedented wealth creation for North America and the world await a productive and conducive environment for energy production. 

Facing a future of plentiful and affordable energy supplies, Americans can once again reclaim the optimism that has characterized our history, replacing the pessimism of scarcity and government rationing that has placed limits on the growth of our economy and perhaps more importantly, our way of looking at the world."


Shale Gas Will Increase Jobs, GDP, Tax Revenues and Industrial Output, and Lower Elec. Costs

Bloomberg reports on a new study from IHS Global Insight about the benefits of shale gas drilling for the U.S. economy, here are some highlights:

1. Producing natural gas from shale will support 870,000 U.S. jobs and add $118 billion to economic growth in the next four years.

2. Gas from shale, which accounts for 34% of U.S. output, also will contribute $57 billion in federal, state and local taxes by 2035, or $933 billion in the next 25 years. 

3. The shale-gas contribution to U.S. gross domestic product will triple to $231 billion in 2036 from $76 billion last year. 

4. Lower natural gas prices as shale boosts supply will cut U.S. electricity costs by an average of 10%. Lower prices will raise industrial production 2.9% by 2017 and 4.7% by 2035.

Megabus Alternative to Amtrak and High-Speed Rail

NEW YORK (WALA) - "Megabus.com , the first city-to-city, express bus service offering fares from $1, announced it is offering 200,000 free seats for travel Jan. 4 to March 1, 2012. Customers can begin booking their free seats now."

MP: This year's Megabus promotion offering 200,000 free seats follows last year's promotion that also gave away 200,000 free seats, which was double the 100,000 seats given away two years ago for Megabus' first "free seat" promotion.  That brings the total number of free seats on Megabus to 500,000 over the last three years.  And even when it's now giving away free seats, Megabus offers fares starting at $1 on a year round basis, making it the cheapest way to travel.  A quick check of the Megabus website shows $9 fares for travel between Washington, D.C. and NYC next week. If you book a trip on Amtrak from Washington, D.C. to NYC on the same day, it'll cost you $80 for regular service and $142 for the Acela Express, and that's one-way. And it's probably safe to say that Amtrak has never given away any free tickets. 

Megabus is a great example of a competitive, flexible, low-cost (sometimes free), consumer-driven, market-based solution to inter-city transportation that has thrived without any government subsidies, tax breaks or taxpayer funding.  Contrast that alternative to government transportation options like Amtrak and high-speed rail proposals that are the opposite: non-competitive, inflexible, high-cost, politician-driven, and not market-based, requiring massive amounts of taxpayer funding and subsidies.   

Housing Affordability At Record High in October

According to a release today from The National Association of Realtors, the Housing Affordability Index reached a new all-time record high of 197.8 in October (see chart above).   Based on the hypothetical purchase of the median-priced home of $161,600 in October, financed at the average mortgage rate of 4.32% (with a 20% down payment), the median family income of $60,871 was 197.8% of the $30,768 income required to qualify for the financing and the $641 monthly payments (principal and interest).   

In other words, median family income in the U.S. is now nearly double the income required  to qualify for the purchase of the median-priced home.  Housing has probably never been more affordable in U.S. history than it is today, and you would think that the record affordability would eventually have to start translating into robust home sales and a strong real estate recovery.  

The "Shale Gale" Goes Global with Discoveries in Argentina and China, "Peak Oil" Losing Relevance

1. Peak Oil Debate Losing Relevance Due to New Upstream Technology -- "The debate over whether the world's reserves of hydrocarbons have now peaked and are in decline has lost relevance over recent years as new technology allows oil companies to find and exploit new hydrocarbon sources, the CEO of Repsol Antonio Brufau said today.

Brufau said progress made in exploring and developing ultra-deepwater areas, unconventional oil and gas sources and the move into remote areas such as the Arctic, have been key to growing global reserves of oil and gas. "The speed at which technology changes and its consequences have taken us largely by surprise. The peak oil debate has lost a great deal of its relevance in the past three years," Brufau told the World Petroleum Congress in Doha. 

Repsol continued to more than replace its proven oil and gas reserves outside Argentina this year and will accelerate output from 2015 onwards as it converts contingent resources into proven reserves. Brufau pointed to developments in the U.S. shale gas industry and highlighted Repsol's own plans to develop a huge shale oil and gas area in Argentina. The Vaca Muerta shale oil and gas discovery in Argentina covers nearly 1 billion equivalent barrels of recoverable shale oil."

2.  Shell Strikes Shale Gas in China -- "Royal Dutch Shell has found shale gas in China, a development that could cap imports in a market natural gas producers are hoping will drive demand.  An official with Shell's partner, PetroChina, a unit of the country's top energy group, state-owned CNPC, said drilling results from two wells Shell drilled had been positive.

"Shell has two vertical wells and they got very good primary production," Professor Yuzhang Liu, Vice president of Petrochina's Research Institute of Petroleum Exploration and Development (RIPED), said in an interview at the sidelines of the World Petroleum Congress in Doha. "It's good news for shale gas," said Liu. China currently has no commercial shale gas production."

HT: Mike W.

U.S. Car Industry Is Coming Back from the Dead


1. Guess What? The U.S. Car Industry Is Back From The Dead, and it will continue to get better (see video above). Reason? The average age of cars in America is now more than 10 years, compared to 6 years at the peak of the economic boom. This suggests that Americans will have to continue to buy new cars to replace the ones they have, which bodes well for future car sales.

Here's another reason that the U.S. car industry will expand output in the future:

2. "Toyota Motor Corp. said it plans to export its U.S.-built Camry sedan to South Korea, following the ratification of the free trade deal. The Japanese automaker plans to ship about 6,000 Camry vehicles annually from the United States to South Korea starting in January. Last month, Toyota started exporting its Sienna minivan to South Korea, as well.

It's the first time Toyota will export the U.S.-built Camry outside North America. Toyota faces cost pressures in Japan in assembling vehicles there because of the strength of the Japanese yen."  (HT: Mike W.)

And car sales in China are booming  for GM and Ford.

3.  "GM today reported its November sales in China shot up at their fastest pace in ten months; Ford reported its sales in China are up 7 percent this year -- all proof that in these tough economic times, somebody somewhere is buying something. That would be: people in China are buying cars."

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 American.com, 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, TrueCar.com 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%.