Wow, Demand Curves Really DO Slope Downward!

From the article "Restauranteurs Wrestle With State's Minimum Wage Hike to $9.04," about the  January 1 increase in Washington state's minimum wage to $9.04 per hour, the highest state minimum wage in the country and almost $2 more per hour than the $7.25 national minimum wage:

 "Some restaurants will increase prices. Others will reduce the hours of employees on minimum wage. And others will find cost savings elsewhere.

For Chad Mackay, president and chief operating officer of the Mackay Restaurant Group, the minimum wage hike computes to an additional annual cost of around $50,000 for his company's five restaurants.

Mackay says he will reduce the scheduled hours for servers by starting shifts later and phasing them out earlier at the end of the evening.

“The increase in the minimum wage is one of these things that there’s a real financial cost,” Mackay said. “We don’t just sit back and take it. We have to run labor tighter.”

At Joey in Bellevue, like at Mackay Group restaurants, employee hours will be reduced to adjust for the difference.

“We are already making adjustments on how many people we are staffing at the beginning of the year because business is slower during that time,” said Nick Rehse, a shift leader and bartender at Joey. “We make adjustments to dial down the hours.”

MP: This example provides evidence that minimum wage workers are not necessarily better off with a higher minimum wage.  With a reduction in hours thanks to that pesky downward-sloping demand curve for restaurant labor, minimum wage restaurant workers might actually see their weekly earnings go down, not up.  And it also provides an example of how the number of workers employed might not be significantly reduced following an increase in the minimum wage, even when there could be a significant reduction in hours worked.  Therefore, minimum wage workers could be made worse off with an increase in the minimum wage from reduced hours and income, even if it doesn't show up as an increase in the unemployment rate.  

BCS: Record Ticket Prices for College Football

NOLA.COM --  "Monday night’s BCS showdown between Louisiana State University and the University of Alabama will crown a national champion. But the game appears likely to produce another title: highest-priced tickets ever for a college football game."

MP: At TicketsNow, the official ticket reseller ("scalper") for the BCS, 575 tickets are currently being offered for sale at prices ranging from $1,292 for seats in the upper levels to $5,460 for seats in the 13th row at the 50 yard line (see sample above of the highest-price seats). 

Thanks to the Oil and Gas Boom, ND, AK and TX Have Regained All Jobs Lost During Recession

Despite the gradual improvements in the U.S. labor market and the drop in the jobless rate to 8.5% in December, the payroll employment level of 131.9 million jobs in December is still more than six million jobs below the 137.9 million peak level when the recession started in December 2007.  In percentage terms, December payrolls were 4.5% below the December 2007 level, see the chart above.

In contrast to the ongoing "jobless recovery" at the national level, there are three states that have now regained all of the jobs lost during the recession: North Dakota, Alaska and Texas (see chart above).  What do these three states have in common? They are all oil and gas rich, and have been adding thousands of mining and natural resources jobs over the last several years (12,000 in North Dakota, 2,200 in Alaska and 66,600 in Texas) to keep up with the increased domestic production of energy resources, mostly for shale gas and oil.   

Chart of the Day: Historic Drop in Government Jobs

The chart above displays the annual change in total government employment (data here) and shows that the 589,000 reduction in government jobs between 2009 and 2011 was the largest reduction in government payrolls since the post-WWII period of 1945-1947.  Total government employment (federal, state and local) in December 2011 was the lowest government payroll level since June 2006.

As I reported earlier today, the Great Recession has been responsible for downsizing the total government workforce more than any other event since WWII.  And the loss of government jobs post-WWII was really just a reversal of the huge buildup in military forces from 1941-1943. If some of those 589,000 government jobs losses are permanent, wouldn't it be ironic if one of the legacies of the Obama administration was a long-term reduction in the size of government through reduced government employment? I don't think that was really the "hope and change" that Obama was planning on.  

Update: Most of the government job losses have taken place at the local level (-511,000 jobs since December 2008) and some at the state level (-1114,000), while federal government employment has increased slightly over the last three years  by 25,000 jobs.  

Interesting Facts from Today's Employment Report

A few interesting items from today's BLS Employment Report for December:

1. The unemployment rate for workers with a college degree fell to 4.1% in December, which  is the lowest jobless rate for that group since January 2009, almost three years ago.   The number of employed college graduates is at an all-time high of 45.2 million, and more than 1.6 million above the December 2007 level when the recession started.  In contrast, the jobless rate for workers with less than a high school degree jumped to 13.8% in December from 13.3% in November, and the employment level for those workers remains 1.24 million jobs below the December 2007 level. This contrast suggests that educational level might be an important factor in the labor market improvements and the drop in the jobless rate to 8.5%, with college-educated workers being the group that is gaining jobs during the recovery, while the least educated workers are the group finding it hardest to find jobs. 

2. The manufacturing sector added 225,000 jobs in 2011, following an increase of 109,000 factory jobs in 2010, bringing manufacturing employment to 11.79 million at year-end.  That's the first time since 1996-1997 of two consecutive annual increases in employment by U.S. manufacturing companies, and the 225,000 job gain last year was the largest since a 304,000 increase in 1997.  If manufacturing companies continue to add jobs at the current pace, it's likely that manufacturing employment by mid-2012 will exceed the 12 million mark for the first time since early 2009.  

3. Government payrolls fell by 280,000 jobs in 2011, with most of the job losses taking place at the local (-181,000) and state level (-63,000), compared to a much smaller reduction in federal jobs (-36,000).  The decline in government jobs in 2011 follows declines in 2010 (-223,000) and 2009 (-76,000), bringing the three-year loss of government jobs to 589,000, and lowering total government employment to the lowest level since June 2006.

The last time there were three consecutive years of government job losses was back in 1945-1947 following WWII, and the only comparable more recent example was a 300,000 government job loss in 1981 followed by a 92,000 job loss in 1982.  But all of those government job losses were re-gained by late 1985, so it will be interesting to see if the current downsizing to a five and-a-half year low for government jobs remains in effect as the economy continues to recover.  If some of the government jobs are not added back, the Great Recession might be responsible for a permanent reduction in the number of government jobs, or maybe that's just wishful thinking?     

Chart of the Day: Three-Month T-Bills

The chart above shows 3-month T-bill rates back to 1934, and shows an interesting historical, full-circle pattern: from zero in the 1930s to a 16% peak around 1980, back to zero again in 2011.

Rail Traffic Ends the Year With Strong Gains

"The Association of American Railroads (AAR) today reported gains in 2011 rail traffic compared with last year, with U.S. railroads originating 15.2 million carloads, up 2.2 percent over 2010 and up 9.7 percent over 2009. Total U.S. rail intermodal volume in 2011 was 11.9 million trailers and containers, up 5.4 percent over 2010 and up 20.4 percent over 2009.

In 2011, 14 of the 20 carload commodity categories tracked by AAR saw increases on U.S. railroads compared with 2010 indicating a broad recovery across industry sectors. The largest gains were: metallic ores, up 20.5 percent or 67,631 carloads; primary metal products, up 12 percent or 56,988 carloads; and petroleum products, up 11.1 percent or 36,811 carloads. 

“A good beginning, some uncertainness in the middle, and then a good ending—that describes U.S. rail traffic in 2011,” remarked John Gray, AAR’s Senior Vice President for Policy and Economics. “We continue to see hopeful economic signs, as the industry prepares for 2012.”

AAR also announced gains in December 2011 rail traffic, with U.S. railroads originating 1,134,580 carloads, up 7.3 percent over December 2010, which is the largest year-over-year monthly increase since January 2011. U.S. rail intermodal originations totaled 873,390 containers and trailers, up 9.4 percent over December 2010. This is the second-highest monthly intermodal average for any December in history. During December 2011, 16 of the 20 carload commodity categories tracked by the AAR saw increases compared with December 2010."

MP: The materials moving daily around the country by rail are the "raw ingredients" (coal, grains, chemicals, lumber, minerals, paper, iron, steel, etc.) of American industry that are being delivered to a company, factory or plant somewhere  in the U.S. for the next stage of processing.  The annual gains in the volume of those raw materials being shipped by rail last year and the ongoing monthly gains in rail traffic, reflect the gradual recovery taking place in the U.S. economy, especially in the manufacturing sector.  Increases in orders for the inputs delivered by rail in 2011 will translate into increases in final output (GDP) this year, which could also contribute to greater job growth in 2012. 

Related: NY Times article by Floyd Norris, "Manufacturing Is Surprising Bright Spot in U.S. Economy."

Byron Wien's Surprises of 2012

Byron Wien, vice chairman of Blackstone Advisory Partners, yesterday published his list of surprises for 2012 -- following a 25-year tradition he began while still chief U.S. investment strategist at Morgan Stanley.

Byron defines a "Surprise" as an event which the average investor would only assign a one out of three chance of taking place but which Byron believes is "probable," having a better than 50% likelihood of happening: 

The Surprises of 2012 (first four): 

1. The extraction of oil and gas from shale and rock begins to be a game changer. The price of oil drifts back to $85 a barrel and the United States becomes less dependent on Middle East supply. Deposits in Poland, Ukraine and elsewhere prove promising as well.  Increased production from Libya and Iraq and reduced demand resulting from the slowdown in world-wide economic activity contribute to the price decline. 

2. Earnings for American corporations continue to move higher driving the Standard & Poor's 500 above 1400. Raw material prices continue soft and business leaders successfully adjust to slower economic growth by using technology to reduce the labor and logistical component of goods and services sold; profit margins stay high. 

3. The U.S. economy gets its second wind. Real growth exceeds 3% and the unemployment rate drops below 8%. Recession fears and even "the new normal" view of prolonged slow growth are called into question.  Capital spending, exports and the consumer drive the economy, overcoming fiscal drag. The drop in the price of oil and the rise in the stock market improve both consumer confidence and spending patterns. 

4. The recovering economy and the declining unemployment rate help President Obama convince the voters that he didn't do such a bad job in his first term after all. He is viewed as a good speaker but a poor leader who is running against Mitt Romney, viewed as uninspired and whose positions on many issues are unclear. Democrats take back the House of Representatives but lose the Senate in an anti-incumbent wave.

HT: Tom Keyes

Creative Destruction: Kodak Teeters on the Brink

Rochester-based Eastman Kodak has been around since 1894, and was a blue-chip Dow Jones Industrial Average stock from 1930-2004.  The company has been on the annual Fortune 500 list of America's largest companies every year since the rankings started in 1955.  But the company hasn't turned a profit since 2007, and is now on the verge of filing for bankruptcy, according to an article in today's Wall Street Journal.

Here are some excerpts:

"Eastman Kodak Co. is preparing to seek bankruptcy protection in the coming weeks, people familiar with the matter said, a move that would cap a stunning comedown for a company that once ranked among America's corporate titans.

That Kodak is even contemplating a bankruptcy filing represents a final reversal of fortune for a company that once dominated its industry, drawing engineering talent from around the country to its Rochester, N.Y., headquarters and plowing money into research that produced thousands of breakthroughs in imaging and other technologies.

 The company, for instance, invented the digital camera—in 1975—but never managed to capitalize on the new technology.

Such uncertainty [about the company's future] was once unthinkable at Kodak, whose near-monopoly on film produced high margins that the company shared with its workers.

Former employees say the company was the Apple Inc. or Google Inc. of its time." 

MP: The rise and fall of Kodak is a great example of several economic principles including Schumpeterian "creative destruction," "consumer sovereignty," market competition, and the discipline of the market.  It also illustrates the economic reality that even a firm with a dominant, near-monopoly status in the short-run (Kodak, IBM, ALCOA, Microsoft, etc.) will be unable to maintain that position in the long-run due to innovation, advances in technology, changes in consumer preferences, competition, substitute products, etc., usually even without antitrust enforcement.

As further evidence of the constant "churning and creative destruction" of a dynamic market, I reported recently on CD that only 67 companies on the Fortune 500 list of the largest U.S. companies in 1955 were also on the Fortune list in 2011.  In other words, only about 13% of the Fortune 500 companies in 1955 were still on the list 56 years later in 2011, and almost 87% of the companies have either gone bankrupt, merged, gone private, or still exist but have fallen from the top Fortune 500 companies (ranked by revenue).
 
HT: Wayne Sanman

Update: See WSJ editorial The Kodak Lesson: "Still, the Kodak story is a reminder that nothing is forever in a free-market economy, and that it's important to keep in mind how consumers have benefitted from what has brought Kodak low."

Interactive Map of 2011 U.S. Migration Patterns

From Atlas Van Lines, based on 80,289 interstate and cross-border (Canada) household goods relocations from January 1, 2011 through December 31, 2011.  

States that gained population with net inbound moves in 2011 include North Dakota (no surprise there), Texas, New Mexico, Alaska, Tennessee, North Carolina, Virginia, Maryland, Washington, D.C., New Hampshire and Rhode Island. 

Other migration facts for 2011:

Michigan became a balanced state after six consecutive years of steady outbound moves. 

For the sixth year in a row, Washington, D.C. had the highest percentage of inbound moves. 

Ohio has the highest percentage of outbound moves.

Jobless Claims End 2011 at 3.5 Year Low; And ADP Reports 325K Private Job Gain in December

In another sign that the U.S. labor market is gradually improving, the Labor Department reported today that the four-week moving average for initial jobless claims fell to 380,250, the lowest level since June 2008, three and-a-half years ago (see chart above).  This marks the fifth consecutive decline in the four-week moving average, and the ninth decline in the last ten weeks.  

In a separate report today, paycheck processer ADP reported that U.S. nonfarm private employment increased by 325,000 in December, another sign that the labor market was gaining momentum as the year ended. This was the largest monthly employment gain in a year, and almost twice the median consensus expectation of a 178,000 gain.

According to Joel Prakken, Chairman of Macroeconomic Advisers, who is quoted in ADP's press release,  "Today’s report, which is notably above the consensus forecasts both for today’s number and for Friday’s jobs estimate from the BLS,points towards a strengthening labor market.  Today’s report also suggests that November’s somewhat surprising decline in the unemployment rate might stick and, indeed, that the unemployment rate could fall further in December. Other indicators also signal some firming of labor market conditions, including the downward trend in unemployment claims, upturns in consumer sentiment and confidence influenced by perceptions about the availability of jobs, along with a rising trend in employees voluntarily quitting their positions."

Update: See Scott Grannis's post and graphs highlighting the good news on the labor front today. 

Evil Walmart Offers Free Health Screening at Sam's

Walmart Press Release -- "On Saturday, January 14 from 11 a.m. to 3 p.m., Sam’s Club offers the communities they serve a simple solution for health maintenance by screening for several key vital health metrics. The January health screenings, valued at up to $100, include total cholesterol, glucose, blood pressure and Body Mass Index (BMI) screening. Knowing where your health stands at the start of the New Year helps to set realistic goals for 2012.

Free health screening events at Sam’s Club help Members take charge of their health. In honor of American Heart Month in February, the next free in-Club health screenings at Sam’s Club will focus on heart health. Sam’s Club licensed professional pharmacists, serving members and the public, are always available to support their communities with preventative health and wellness solutions, quick personal assistance and low prices on the medications patients need."

MP: Walmart gets criticized for a litany of evils including low wages, low prices, no health care for part-time employees, discrimination, etc., but they never seem to get credit for all of the benefits they provide communities around the country, including offering free health screenings at Sam's. When's the last time Target offered free health services?  Probably never.  

Markets In Everything: Body Shop Bidding

"BodyShopBids is a marketplace for auto repairs. The platform connects consumers who need auto body repairs with body shops through a bidding system. Consumers upload a photo of their damaged vehicles and will receive around 4 custom quotes from nearby body shops within 24 hours. A personal BodyShopBids concierge also educates consumers on the repair process and work needed. From there, the consumer can choose an estimate and book an appointment with the body shop.

BodyShopBids launched in June 2011 in Chicago, and in the last six months has partnered with 275 Chicago-area body shops and processed more than $2.5 million in damage estimates. It will expand to Los Angeles and other cities in early 2012."

Markets in Everything: Mobile Visa Processing

The Lucky Dragon Mobile Visa Consultants provide a mobile solution to some inefficient Chinese bureaucracy.  The rented Penske truck (pictured above with some satisfied customers) is parked in front of the Chinese consulate in New York City every day, with two Mac laptops and a printer to help frustrated visa applicants print out the correct visa forms.  The long, complicated visa forms available online from China's consulate are usually not the correct visa applications, and many frustrated applicants show up with the wrong visa forms.  

The correct forms are not available at the inconveniently-located consulate on NYC's West Side Highway, and the only help the consulate officials provide is to direct frustrated applicants to an internet cafe in a Burger King a half-mile away, where they can go online and print out the correct forms.   After experiencing the frustration himself a few months ago, entrepreneur Adam Humphries, immediately started the mobile visa processing business in October with some friends, and their business is booming.  They grossed nearly $10,000 in the first month.

Read more here at Planet Money: "A Man, A Plan, A Surprising Business Plan." It's a great "Markets in Everything" story, and demonstrates how most successful businesses are started with the express goal of trying to solve other people's problems.  It's an example of the invisible hand of the free market at work, compared to the visible boot of the government.    

Update: "Capitalists seek to discover what people want and then produce it as efficiently as possible." ~Walter Williams in his column today, "I Love Greed." 

Everything's Amazing and Nobody's Happy, Even When Sitting in a Chair in the Sky with Internet

"Everything is amazing and nobody is happy"

According to tech writer Dan Frommer (via The Economist and Matt Yglesias), in-flight Internet access through Gogo is apparently not very popular with air travelers, and only about 4% of passengers on flights offering Gogo's Wi-Fi actually pay for online access.  The writer for The Economist claims that Gogo's internet connections are slow and unreliable.

I'm proud to be part of "the 4%" because I've purchased Gogo's online access on every Delta flight I've taken in the last two years, and have found the connection speeds to be fast and reliable for email, blogging and Internet browsing (not sure about movies or YouTube).  The connection fees seems pretty reasonable to me.  For example, you can purchase advance access for $4.95 for flights up to 1.5 hours, and there is usually an in-flight, 15-minute option for only $1.95 if you just want to do a quick check for email.

In the clip above, Louis C.K. discusses in-flight internet access starting at about 3:30 and points outs that "we live in an amazing, amazing world, and it's being wasted on the crappiest generation of spoiled idiots," maybe like The Economist writer above who is "flying through the air sitting in chair" to quote Louis C.K., and "experiencing the miracle of human flight" and at the same time getting access to the Internet, and then complaining about an occasional slow connection (which has not been my experience).  "Like how quickly the world owes him something (a fast internet connection) that didn't even exist a few years ago...."

ND Oil Boom Fuels Real Estate Sales in Arizona

USA Today --- "Flush with cash from an oil boom and plentiful jobs, North Dakotans are snapping up homes 1,500 miles away in balmy Arizona, where prices have plunged since the real estate bubble burst. 

"It boils down to the weather and taking advantage of the market," says real estate agent Rocky Parra of HomeSmart Realty in Gilbert, Ariz., a Phoenix suburb. He and wife Beverly, a native of Minot, N.D., have sold eight homes to North Dakotans in recent months. Parra is heading to North Dakota this month to meet with possible buyers.

"A lot of people have struck it rich," he says. "Oil companies are coming in and buying businesses and land. They're selling up there at the peak and buying down here at the bottom." Some want second homes. Others move outright."

MP: Drill, drill, drill in North Dakota = jobs, jobs, jobs = real estate sales, sales, sales in Arizona.  This provides another excellent example of the many positive spillover benefits of America's new age of energy abundance.

HT: Nick Schulz

Las Vegas Home Sales Increase in November for 5th Month; But Two-Thirds of Sales Are Distressed

DQ News -- "The number of homes sold in the Las Vegas area rose year-over-year for the fifth consecutive month in November as a surge in sub-$200,000 transactions made up for a decline in activity above that threshold. Prices appeared flat, with the region’s overall median sale price stuck at $115,000 for the third consecutive month.

The number of Las Vegas homes that resold rose 11.3 percent on a year-over-year basis, marking the 11th consecutive month in which resales have posted an annual gain. It was the highest number of resales for a November since 2009, and the second-highest since 2005. November sales of newly-built homes also rose from a year earlier, by 9.8 percent, but were still the second-lowest on record for a November. New-home sales have risen year-over-year for the past five consecutive months.

Total sales last month were 2.0 percent higher than the average number of homes sold in November since 1994, while resale activity (excludes new homes) was 45.5 percent above average for a November.

Distressed property sales – the combination of foreclosure resales and “short sales” – made up more than two-thirds of the Las Vegas resale market last month.

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 52.4 percent of the Las Vegas resale market in November. That was down from 52.8 percent in October and 53.1 percent a year earlier. Foreclosure resales peaked at 73.7 percent of the resale market in April 2009. Last month’s figure was the lowest since September 2010, when it was 50.8 percent.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 14.8 percent of Las Vegas-area November resales. That compares with an estimated 12.7 percent in October, 13.2 percent a year ago, and 11.7 percent two years ago."

MP: There's still a lot of distress in the Las Vegas real estate market, but the ongoing monthly increases in the number of homes sold suggest that the excess inventory of unsold homes is starting to clear, and the market there is gradually recovering.  With no increases in home prices, the increases in sales activity should continue.

George Will on America's Energy Abundance and Why Progressives Crave Energy Scarcities

George Will on America's new age of energy abundance, and why progressives prefer energy scarcities:

"In 2011, for the first time in 62 years, America was a net exporter of petroleum products. For the indefinite future, a specter is haunting progressivism, the specter of abundance. Because progressivism exists to justify a few people bossing around most people and because progressives believe that only government’s energy should flow unimpeded, they crave energy scarcities as an excuse for rationing — by them — that produces ever-more-minute government supervision of Americans’ behavior.

Imagine what a horror 2011 was for progressives as Americans began to comprehend their stunning abundance of fossil fuels — beyond their two centuries’ supply of coal. Progressives responded with attempts to impede development of the vast, proven reserves of natural gas and oil here and in Canada. They bent the willowy Obama to delay approval of the Keystone XL pipeline to carry oil from Canadian tar sands; they raised environmental objections to new techniques for extracting gas and “tight” oil from shale formations."

A New Age of Energy Abundance in the U.S.

Thanks to the shale revolution....

From the WSJ article "Oil and Gas Bubble Up All Over":

"You'll know the U.S. energy industry is really on the rebound when North Dakota's newfangled Bakken oil field starts pumping more crude than Alaska's stalwart Prudhoe Bay. Energy experts expect it to happen in 2012 (see chart above).

Dwindling production from the once-mighty Alaskan field has been a symbol of what was once seen as the slow, inexorable decline of U.S. oil. But new technologies have turned that overall decline into an increase, led by the Bakken shale, which in July produced 424,000 barrels a day, to Alaska's 453,000.

Rising oil production from the Bakken and other nontraditional fields is expected to add 250,000 barrels of oil a day to U.S. production, according to the International Energy Agency, even as conventional oil production falls. If overall trends continue, daily U.S. oil output could be up by 1 million barrels a day by 2016, to 6.6 million.

"I didn't see it, and I don't know anyone else who saw it coming," said James L. Williams of WTRG Economics, an energy consultancy in London, Ark.

Crude-oil imports are falling, balance-of-trade payments are improving and thousands of oil-field jobs are being created from Texas to Ohio, from West Virginia to Wyoming. Moreover, the U.S. is beginning to export a significant amount of diesel and gasoline refined from crude and could begin exporting chilled natural gas next year.

The Bakken wasn't discovered so much as unlocked. The energy industry figured out that a combination of technologies—hydraulic fracturing and vertical wells that turn underground to run horizontally through oil-rich rock—could free petroleum and natural gas trapped in dense rock formations.

New technologies are now being applied to the Eagle Ford oil field in South Texas. In August, the field produced about 109,000 barrels a day, according to state records, compared with 3,100 barrels two years earlier. Output is expected to quadruple over the next five years.

Next up: The Utica oil field in eastern Ohio and Pennsylvania. Its existence was disclosed last July, and activity is just starting to ramp up. Chesapeake Energy Corp.'s chief executive, Aubrey McClendon, said last summer that "pound for pound, foot for foot, the Utica rock is going to be better than the Eagle Ford." As more wells are drilled in 2012, this boast will be tested."

Lesson of the Financial Crisis: Too Many "Dumb" Regulations. We Need "Smarter," Not More Regs

University of Chicago libertarian-leaning finance professor John Cochrane is now blogging at The Grumpy Economist, here's an excerpt from his excellent post today: 

I am often asked, "doesn't the financial crisis mean we need more regulation?" It's one of those maddening questions, because the answer is "that's the wrong question," which gets you nowhere.

For regulation is not "more" or "less," something you just pour into a cup until you've had enough like a good beer. Regulation is most of all "smart" or "dumb." Dumb regulations produce the opposite of their intended effects, have all sorts of unintended consequences, or get used for fully intended but pernicious consequences like driving out competition. Smart regulations don't.

The main lesson of the financial crisis is not that we did not have "enough" regulations -- we had hundreds of thousands of pages of regulation. The lesson of the financial crisis is that most of those were "dumb" regulations. Their massive unintended consequences led to a fragile financial structure. Yes, we need financial regulation, but "smarter," not necessarily more."

MP: For examples of "smarter" financial and banking regulations, we can look north to our Canadian neighbor.  While our historically fragile banking system lead to 9,000 bank failures during the Great Depression, about 3,000 bank failures during the S&L crisis, and 427 bank failures from 2008-2011 from the "Great Recession," Canada experienced almost no bank failures during any OF those periods.  What's so "smart" about Canada's regulations that allowed it to avoid the thousands of bank failures that occurred in the U.S.?
 
1. Canada never restricted branch banking the way the U.S. did until 1994.  By forcing banks to operate in a single state, they were forced to generally be small and non-diversified in their loan portfolios.  This was an especially important factor in the 9,000 U.S. bank failures during the 1930s when Canada had none.   
 
2. Canada's underwriting standards for home mortgage lending are much more conservative than the U.S. and capital requirements for banks are much higher.
 
3. Canada doesn't have an equivalent to our GEE-sponsored secondary mortgage market (no Fannie or Freddie), so the Canadian banks that originate home mortgages typically keep most of those loans on their own balance sheets, which is another factor that keeps underwriting standards much more conservative than in the U.S. In the U.S. there's more of an incentive to originate mortgages and then sell them in the secondary market, which then allows the banks to lend more.

4. Mortgages in Canada are full recourse loans, meaning that the homeowner/borrower is responsible for their mortgage debt even if they lose their home through foreclosure.  In most U.S. states, homeowners can live in their home for several years or more without making payments, walk away following foreclosure, and then are not held responsible for the deficiency.  Not so in Canada.  The banks there will follow you forever, and even garnish your wages.  
 
5. Most mortgages in Canada generally require a 20% down payment, and there are no 30-year fixed rate mortgages.  Canadian banks will issue 25-year or 30-year mortages, but interest rates are adjusted every five years, like a 5-year ARM. If a borrower in Canada can't come up with the 20% down payment, they have to purchase mortgage insurance from a private insurance company and pay the full premium up front.  And the private mortgage insurance company has to approve the property appraisal before the deal can go through.  
 
Related: See my article "Due North: Canada's Marvelous Mortgage and Banking System."   

2011: The Year in "Typo's"

More apostrophe abuse (mostly) from the Wichita Eagle.

"Decline of Manufacturing" is Global Phenomenon: And Yet the World Is Much Better Off Because of It

The chart above shows manufacturing output as a share of GDP, for both the "world less the U.S." and the U.S. alone, using United Nations data for GDP and its components at current prices in U.S. dollars from 1970 to 2010. We hear all the time from Donald Trump and others about the "decline of U.S. manufacturing," about how nothing is made here any more, and how everything that used to be made here is now made in China and other low wage countries.  An underlying assumption of most of those claims is that if the manufacturing base is shrinking in the U.S. (the "hollowing out of U.S. manufacturing"), that there is an offsetting manufacturing gain that is captured elsewhere in the world, as manufacturing output supposedly shifts from the U.S. to other countries, with world manufacturing remaining constant.

In reality, the chart above shows that the decline in U.S. manufacturing as share of GDP between 1970 and 2010 is really a global phenomenon as the entire world becomes increasingly a service-based economy.  The manufacturing/GDP ratio in the U.S. fell from 24% to 13% between 1970 and 2010, while the world ratio fell at almost the same rate, from 27% to 16%.   

As a share of GDP, manufacturing has declined in most countries since the 1970s. A few examples: Australia's manufacturing/GDP ratio went from 22% in 1970 to 9.3% in 2010, Brazil's ratio went from 24.5% to 13.5%, Canada's from 19% to 10.5%, Germany's from 31.5% to 18.7%, and Japan's from 35% to 20%.

Bottom Line: When we hear claims that "nothing is made here anymore," it's not really the case that somebody else is making the stuff Americans used to make as it is the case that we (and others around the world) just don't manufacture as much "stuff" any more in relation to the growing levels of national income, which the graph above clearly shows. 

The main reason that the manufacturing/GDP ratio has declined in the U.S. and around the world is that productivity gains for durable goods have significantly lowered the price of those goods relative to: a) the prices of services, and b) household incomes, as I pointed out in this CD post on the "miracle of manufacturing." In other words, the declining manufacturing/GDP ratio reflects declining prices for manufacturing goods, which is a sign of economic progress, not regress.  The standard of living around the world today, along with global wealth and prosperity, are all much, much higher today with manufacturing representing 16% of total world output (including the U.S.) compared to 1970, when it was almost twice as high at almost 27%. And for that progress, we should celebrate, not complain about the "decline of manufacturing."  

Some Interesting 2011 Facts: U.S. is No. 1 Wine Consumer, Napa Valley Cools Off, $3 Natural Gas

1. "For the first time in recorded history, America bought more wine in 2011 than any other country in the world."

2. "Napa Valley experienced another cooler than average wine growing season — a decade-long trend. The cool summer led to “the latest start to harvest that any vintner or grower can remember." The first grapes for the sparkling harvest were brought in on Aug. 29."

Source: "A Look Back at the Year in Wine" (thanks to Joe Lais)

3. "Three dollar natural gas or to be precise $2.98 for a thousand cubic feet on December 30, 2011 natural gas was the biggest, most powerful energy and environment fact of 2011."

Source: John Hanger, energy expert

Huge Occupational Differences by Gender Exist. Is That By Choice or Is It Gender Discrimination?

Occupation Category	Percent Female
Management and Professional	51.5%
Service	56.8%
Sales and Office	62.9%
Farming, Fishing, Forestry, Construction and Maintenance	4.6%
Production, Transportation and Material Moving	21.2%

Source: BLS

The table above shows the percent of female workers in 5 major occupation categories, based on data for 2010 just released by the BLS (Table 11).  Women are over-represented in the first three categories listed above, and under-represented in the last two.

Am I just being a total sexist, or is it possible that women might actually disproportionately prefer work environments that are relatively safe, indoors, air-conditioned, not physically demanding, and comfortable (office jobs) and men disproportionately tolerate work environments that are relatively unsafe (see CD post about the 12:1 male-female occupational fatality ratio), outdoors, and physically demanding (farming, fishing, logging, manufacturing, roofing, oil rig workers, etc.)?  And if labor markets compensate workers with wage premiums for unsafe, uncomfortable, and physically demanding work, could that explain some of the observed gender-based wage differences?  Or do any observed gender disparities, e.g. occupational differences, reflect conscious or unconscious sex discrimination?  

More Apostrophe Abuse: It's vs. Its

"Its" only been about six "week's" since my last rant about apostrophe abuse, but they just keep appearing in the CD comments, at the rate of about one per week. Here are the latest "violation's" that deserve a public "punctuation citation":

1. “… their argument needs some crutches to stand on it's own."

2. “... a free-trade advocate treads very close to trade sanctions against China for it's currency manipulation."

3. "The Netherlands isn't egalitarian because of it's government, it's egalitarian because of it's culture." (two "abuse's" in one sentence!)

4. “…..a company that devotes some of it's revenues to R&D..."

5. "....increase the company’s market share while reducing it's share of products…."

Here's the simple, very basic grammar rule for it's vs. its.

Whirlpool's Latest Anti-Consumer Rent-Seeking Attempt to Use Government Force to Raise Prices

Below is a slightly revised Saturday WSJ article about Whirlpool's latest rent-seeking attempt to use the coercive power of the U.S. government to protect itself from its more efficient foreign rivals (appliance makers) in South Korea.  To paraphrase H.L. Mencken, trade policy is frequently like two foxes (domestic producers like Whirlpool and the U.S. government) and a chicken (consumers) taking a vote on what to eat for lunch. These revisions reflect the voice of the millions of unorganized consumers, whose views are generally disregarded when trade policy is decided. 

"Whirlpool Corp., battered by price competition on home appliances, asked the U.S. government Friday to impose duties on imports of taxes and higher prices on American consumers who purchase residential washing machines made by South Korean rivals Samsung Electronics Co. and LG Electronics Inc.

This marks the second time in 2011 that Whirlpool has sought to use U.S. trade laws engaged in rent-seeking to protect itself from more efficient imports foreign rivals by imposing higher prices on Americans who purchase appliances for their homes. In March, the company asked its government enablers for duties on to impose higher prices on every American who decides to purchase an imported refrigerators.

Whirlpool, based in Benton Harbor, Mich., and the world's biggest maker of appliances, in its latest trade rent-seeking move for trade protection against its foreign rivals accused the two Korean companies of "dumping" selling washers made in Korea and Mexico into the U.S. market at prices below their production costs. Whirlpool also said its rivals benefit from various Korean government subsidies.  Based on their purchasing decisions, American consumers have overwhelming expressed their support for low-cost washers from Korea, and they have benefited collectively by saving millions of dollars.  And to the extent that Korean taxpayers have subsidized washers sold in the U.S., some consumers have expressed their gratitude to the Koreans for the generous foreign aid they have provided to American households during these tough economic times.

Because it’s been unable to compete effectively against lower-cost rivals, Whirlpool now needs the coercive power of the government to do what it can to defend protect itself from increasingly tough Korean competition amid sluggish U.S. demand, said David MacGregor, an analyst at Longbow Research in Cleveland.

LG and Samsung sold tens of thousands of washers at deep discounts, sometimes as much as 50%, during the recent Black Friday sales period, Whirlpool said. Whirlpool tried to limit its Black Friday promotions this year and ended up losing market share.  Partly because its recent marketing strategy failed, the company decided to seek protectionist trade policies that would coercively increase Whirlpool’s market share for washing machines with government force.
 
In its earlier trade case filed in March, Whirlpool sought import duties on government force to impose a tax on every American who purchases a premium-priced refrigerators with the freezer section at the bottom, made by the same Korean companies in Korea and Mexico. The U.S. Commerce Department in October said in a preliminary finding that duties taxes of as much as about 37% could be applied imposed on Americans who purchase those refrigerators, subject to further government reviews that would not consider the negative effects of higher prices on thousands of U.S. consumers.

Whirlpool makes washers under the Whirlpool, Maytag, Roper, Estate, Admiral, Amana, and Crosley brands in the U.S., and also makes store-brand washers for some retailers. Whirlpool said it believes it accounts for 95% of all large residential washers made in the U.S., but would like to further increase its washer market share towards 100% with government assistance, i.e. crony capitalism."