Saturday, January 21, 2012

The Secret Document That Transformed China's Economy With Private Property and Competition

For this great NPR story I thank John Chilton, who writes by email that it's "Just like the story of the Pilgrims whose economy was transformed when they gave up collectivism and the communal approach to farming."  It's a great story with economic lessons in private property rights, competition, entrepreneurship, and the triumph of the individual over the state, here are some excerpts:

"In 1978, the farmers in a small Chinese village called Xiaogang gathered in a mud hut to sign a secret contract. They thought it might get them executed. Instead, it wound up transforming China's economy in ways that are still reverberating today.

The contract was so risky — and such a big deal — because it was created at the height of communism in China. Everyone worked on the village's collective farm; there was no personal property. "Back then, even one straw belonged to the group," says Yen Jingchang (pictured above), who was a farmer in Xiaogang in 1978. "No one owned anything."

In theory, the government would take what the collective grew, and would also distribute food to each family. There was no incentive to work hard — to go out to the fields early, to put in extra effort, Yen Jingchang says. "Work hard, don't work hard — everyone gets the same," he says. "So people don't want to work."

In Xiaogang there was never enough food, and the farmers often had to go to other villages to beg. Their children were going hungry. They were desperate. So, in the winter of 1978, after another terrible harvest, they came up with an idea: Rather than farm as a collective, each family would get to farm its own plot of land. If a family grew a lot of food, that family could keep some of the harvest.

This is an old idea, of course. But in communist China of 1978, it was so dangerous that the farmers had to gather in secret to discuss it. Despite the risks, they decided they had to try this experiment — and to write it down as a formal contract, so everyone would be bound to it. By the light of an oil lamp, Yen Hongchang wrote out the contract.

The farmers agreed to divide up the land among the families. Each family agreed to turn over some of what they grew to the government, and to the collective. And, crucially, the farmers agreed that families that grew enough food would get to keep some for themselves. The contract also recognized the risks the farmers were taking. If any of the farmers were sent to prison or executed, it said, the others in the group would care for their children until age 18.

The farmers tried to keep the contract secret — Yen Hongchang hid it inside a piece of bamboo in the roof of his house — but when they returned to the fields, everything was different.  Before the contract, the farmers would drag themselves out into the field only when the village whistle blew, marking the start of the work day. After the contract, the families went out before dawn. "We all secretly competed," says Yen Jingchang. "Everyone wanted to produce more than the next person."

It was the same land, the same tools and the same people. Yet just by changing the economic rules — by saying, you get to keep some of what you grow — everything changed. At the end of the season, they had an enormous harvest: more, Yen Hongchang says, than in the previous five years combined."

MP: Sounds like this would be the perfect inspiration for a Chinese version of our "Thanksgiving" holiday.  

Why Does Obama Want the U.S. To Be Energy Poor?

From Thomas J. Pyle, President and CEO of the American Energy Alliance:

"One of the reasons the unemployment rate has been stuck above 8 percent for years is because the Obama administration is actively blocking the private sector from creating jobs. Approving the Keystone XL pipeline, now in its third year of review, would have gone a long way toward boosting American job creation and strengthening our energy security. But the President prefers the politics of energy poverty and has sided with environmentalist radicals over hardworking Americans and their families.

The reality at the White House has nothing to do with protecting the environment -- it’s about reinforcing a myth of energy scarcity on the United States and driving up the price of energy.   

For decades, one of the key tenets of environmental doctrine has been that the United States, and North America as a whole, is running out of affordable energy sources like oil, natural gas, and coal. For this reason, they argue, our economy must switch to renewables like wind farms and solar panels that produce electricity at intermittent rates. Through mandates, government has forced consumers to buy these sources, and the Obama administration has propped up Big Green Energy through taxpayer-funded loans to companies like Solyndra. 

 Yet the discovery of cost-effective oil production from Canadian oil reserves—as well as the large-scale deployment of shale technologies here in the U.S.—turns the environmentalists’ politics of energy scarcity on its head, and that is at the heart of the administration’s opposition to Keystone XL. The president wants the United States to be energy poor."

Read more here.

Nat Gas: A Foundational Fuel for the Economy With A Surplus That Will Keep Prices Low for Years

Charlotte Observer -- "Craig Schwartz's heating bill tells the story of a natural gas industry upheaval that's rippling through North Carolina.  First, take a look at Schwartz's natural gas bill for December: $73.69. Then look at December 2010, just a year before. The Raleigh computer scientist paid nearly twice as much: $134.14. Now spread those numbers out over several months, and quite likely years. 

"That's huge," Schwartz said. "I'll take $200 to $300 bucks a year in natural gas savings, no problem."

It's a familiar scenario for the 35 percent of state households that heat and cook with natural gas. Natural gas prices have been in a freefall as electricity prices are pushing upward, prompting some residents to make retrofits so they can switch to natural gas to heat their homes this winter. The state's two biggest natural gas utilities - Piedmont Natural Gas and PSNC Energy - are both planning rate cuts next month in response to the falling global price of natural gas.

Historically low natural gas prices, resulting from a glut in global reserves, have caused home heating bills to plummet to levels not seen in a decade. Experts anticipate the prices dropping further before they self-correct, with expectations that a long-term surplus could keep prices cheap for years.

"Natural gas is a foundational fuel for the economy. It's plentiful. It's here. And it's cheap," said Thomas Skains, CEO of Charlotte-based Piedmont Natural Gas."

Read more here:

Read more here:

Frack Away, There's No Reason Not To, Even Though It's Not the "Government's Energy"

New Scientist -- "Frack away, there's no reason not to. Two of the main objections to "fracking" for shale gas have been blown out of proportion, according to British geologists. 

"We think the risk is pretty low," said Mike Stephenson, head of energy science at the British Geological Survey at a press briefing in London on Tuesday of this week."

See other reports here from BBC News, Wired UK and the Free Republic, where John Ranson writes:

"As George Will noted at the beginning of the year:

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.

Accordingly, liberals have been pushing for a ban on fracking, also called hydraulic fracturing, because of supposed health and environmental risks the method poses."  

HT: Warren Smith

Cleveland Federal Reserve: Ten-Year Expected Inflation is Only 1.39%, the Lowest in 30 Years

"The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.39 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade (see chart above).

The Cleveland Fed’s estimate of inflation expectations is based on a model that combines information from a number of sources to address the shortcomings of other, commonly used measures, such as the "break-even" rate derived from Treasury inflation protected securities (TIPS) or survey-based estimates. The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium."

MP: Inflation expectations are currently close to the lowest level in at least 30 years (see chart above).

HT: Benjamin Cole 

Friday, January 20, 2012

Etta James, R.I.P.

A classic 1987 performance above by the legendary Bluesy Diva Miss Etta James, accompanied by another legendary vocalist, Dr. John.  Etta James died today, just five days shy of her 74th birthday.  And of course, there's the song that will always be the one most closely associated with Ms. James, "At Last," which she performs here:

I highly recommend my top two favorite Etta James's CDs during her jazzier period in the mid-1990s: Mystery Lady and Time After Time.

Update: New York Times article.

Nitwitery Alert: House Democrats Are Proposing The Gas Spike Act and a "Reasonable Profits Board"

How about Congress establishes the"Reasonable Deficits Board" and gets that to work first?
 THE HILL -- "Six House Democrats, led by Rep. Dennis Kucinich (D-Ohio), want to set up a "Reasonable Profits Board" to control gas profits. The Democrats, worried about higher gas prices, want to set up a board that would apply a "windfall profit tax" as high as 100 percent on the sale of oil and gas, according to their legislation. The bill provides no specific guidance for how the board would determine what constitutes a reasonable profit. 

The Gas Price Spike Act, H.R. 3784, would apply a windfall tax on the sale of oil and gas that ranges from 50 percent to 100 percent on all surplus earnings exceeding "a reasonable profit." It would set up a Reasonable Profits Board made up of three presidential nominees that will serve three-year terms. Unlike other bills setting up advisory boards, the Reasonable Profits Board would not be made up of any nominees from Congress."

Here's how the bill starts:  "To amend the Internal Revenue Code of 1986 to impose a windfall profit tax on oil and natural gas (and products thereof) and to allow an income tax credit for purchases of fuel-efficient passenger vehicles, and to allow grants for mass transit." 

MP: Just wondering, now that natural gas prices have spiked so low (see chart above) that some producers aren't even covering their costs of production, shouldn't there be a "windfall losses subsidy" for the natural gas producers that are losing money as part of the "Gas Spike Act."  That is, market prices "spike" in both directions, up and down, so shouldn't there be some provision for downward spikes?

HT: Bob Wright

Update: According to the most recent rankings from YahooFinance!, the average profit margin for the 215 different American industries is 7.8% for the most recent quarter, and the profit margin for the "Major Integrated Oil and Gas industry" (includes ExxonMobil, Shell, BP, etc.) is right about average at 7.9%, and it ranks #90 out of 215 industries.  So if the profits of the major oil companies are "unreasonable," what about the other 89 industries that are even more profitable, like publishing (53% profit margin), silver (41%), gold (25%), cigarettes (22.5%), etc.?

HT: Morganovich (see comments)

Update from some responses to me on Twitter:

"How about they get the "Reasonable Deficits Board" to work first?"  

"I'll accept a "Reasonable Profits Board" when they accept a "Reasonable Income Board" for all public employees."

Thursday, January 19, 2012

Cartoon of the Day

Majors of the Top 1%? Economics is No. 2

NY Times Economix -- "According to the Census Bureau’s 2010 American Community Survey, the majors that give you the best chance of reaching the 1 percent are pre-med, economics, biochemistry, zoology and, yes, biology, in that order (see chart above)."

IJ Wages New Fight for Economic Justice in MN

Institute for Justice -- "The video above features the story of Verlin Stoll, a 27-year-old entrepreneurial dynamo who owns Crescent Tide Funeral and Cremation in Saint Paul, Minnesota. Verlin has built a successful business because he offers low-cost funerals (cremations from $750 and funerals with burials from $1,650) while providing high-quality service. His business is also one of the only funeral homes that benefits low-income families who cannot afford the high prices of the big funeral-home companies.

Verlin wants to expand his business, hire new employees and continue to offer the lowest prices in the Twin Cities, but Minnesota refuses to let Verlin build a second funeral home unless he builds a $30,000 embalming room that he will never use. 

 Why is Minnesota forcing Verlin to waste $30,000 on a useless embalming room as a condition of expanding his thriving business?

So that the big, full-amenity funeral-home businesses can benefit from a law that drives up prices for consumers and operating expenses for competitors such as Verlin.  Verlin’s basic services fee is only $250, which is about 90 percent lower than the $2,500 that the average Twin Cities’ funeral home charges.  Verlin’s business model is built on minimizing fixed costs, which is why he does not have a hearse or chapel, and this law—to the advantage of his competitors—stands in the way of him expanding his low-cost, high-quality approach.

The government should not force Minnesotans to do useless things.  That is why on January 19, 2012, Verlin and the Institute for Justice challenged the law in state court." 

Thursday Morning Links

1. A free market for wheat comes to Canada for the first time since 1943 as the Canadian Wheat Board ends its 69-year grain monopoly.  

2. TurboTax Goes Mobile: you can now prepare and file your income taxes with a mobile device.

3. Auto industry goes on a U.S. hiring binge.

4. Manufacturing employment has grown faster in the U.S. than in any other leading developed economy since the start of the recovery, as productivity gains and subdued pay rises raise hopes for an American industrial renaissance.

5. Reshoring: Business returns to U.S. as Asia loses edge.

6. North America will become almost totally self-sufficient in energy in two decades, thanks to a big growth in the production of biofuels, shale gas and unconventional oil. 

It's Time to Pull the Taxpayer Plug for Electric Cars

From my editorial in today's Detroit News:

The case for subsidizing electric cars was questionable from the start and is now a boondoggle.

Like many green initiatives promoted by the government and paid for by the American taxpayers, the electric car is more politically than performance or economically driven. Its subsidies and the government-imposed green energy mandates are contrary to the free market principles that undergird our economy.

What emerges most forcefully from experience with the electric car is that subsidies are a waste of taxpayer money. Although the government has provided plenty of help for electric vehicles, there remain major barriers in technology, cost and performance.

As battery technology improves and charging stations proliferate, we will eventually move to an electric-car future.

But the outcome of EV development needs to be like that of the internal combustion engines: the government doesn't have to subsidize regular cars because long ago, it became worthwhile for companies to do it themselves with rebates, discount pricing, and other promotions.

Private businesses will fund new technologies when there is a reasonable chance of commercial success. The private sector is entirely capable of developing EVs and other new automotive technologies without the need for subsidies.

When a new technology is economically viable, then government support is not needed. But if a technology isn't capable of surviving on its own, there's no amount of taxpayer support that will make it so.

It's time to pull the plug on politically motivated taxpayer subsidies for electric cars and see if they can survive on their own in the marketplace.

Wednesday, January 18, 2012

Auto Plants Are At Capacity and Adding Third Shifts Around the Country, Boosting Local Economies

Bloomberg -- "Bobbi Marsh puts her 11-year-old son to bed each night and then heads to her job at General Motors Co. (GM)’s metal-stamping plant in Lordstown, Ohio. She gets home in time to make him breakfast.  Marsh, 34, is one of thousands of auto workers in the U.S. benefiting from the return of a third shift at factories -- often from 11 p.m. to 7 a.m. -- translating to 24-hour-a-day production at many plants for the first time since the industry collapse in 2009. At the nadir, some plants ran only one eight- hour shift. 

The new third shifts, adding more than 4,300 jobs in four states at GM alone, bring jobs to the economy and revenue to governments as well as demand at odd hours for everything from daycare and dentistry to financial services and food. U.S. auto plants this year may operate at about 81 percent of capacity after falling as low as 49 percent in 2009, according to estimates from IHS Automotive in Northville, Michigan. 

U.S. Automakers are increasing production at the car plants after the U.S. light-vehicle sales rose by at least 10 percent for two straight years for the first time since 1984 and grew at a faster rate than China, the world’s biggest auto market, for the first time in at least 13 years. States that were hard-hit by the downturn, such as Michigan and Ohio, are among the biggest beneficiaries, adding jobs at places like Ross’ Eatery & Pub and Tony M’s Restaurant that operate near GM auto factories."

Natural Gas Updates; Here Comes Super-Fracking

1. Domestic production of natural gas set another new all-time record high during the month of October at 2.48 trillion cubic feet of gross withdrawals (see chart below, data here).

2. Due to the record levels of natural gas production and the unseasonably warm weather this winter, prices keep falling.  The price for U.S. natural gas futures contracts dropped to a ten-year low of $2.47 per million BTUs in trading on the NYMEX yesterday, see chart below.

3. The shale gas revolution that has produced record-setting levels of domestic production has been made possible by advanced drilling technology known as "fracking," which has unlocked vast supplies of gas from deep shale formations around the country.  As effective and successful as fracking has been for unlocking deep shale gas and tight oil, it might soon get even better with new technologies that are under development and being called "super-fracking." According to a Bloomberg article, "Industry scientists are studying ways to create longer, deeper cracks in the earth to release more oil and natural gas." If "super-fracking" becomes a reality, it might be the case that the "shale revolution" is just getting started. 

Thanks to Benjamin Cole for the Bloomberg article.

Obama Rejects 20k Jobs, aka Keystone Pipeline

From an updated version of my recent McClatchy-Tribune editorial, to reflect the Obama administration's pending rejection of 20,000 new jobs for Americans, aka as the Keystone XL pipeline:

Kicking the can down the road 20,000 Americans while they're down and unemployed, as President Barack Obama did in delaying a decision on rejecting the construction of the Keystone XL oil pipeline from Canada to Texas, certainly pleased the green lobby. But it did absolutely nothing for jobs creation. Nor did blocking access to new federal offshore areas for oil and natural gas drilling produce any jobs.

At a time when more than 13 million Americans are unemployed, you'd think that the president would be doing everything possible to stimulate employment. But his jobs-creation policy lacks direction and focus.

Putting off a decision on Rejecting the Keystone pipeline and stalling offshore drilling was grossly counterproductive, compromising our commitment to North American oil production and potentially threatening our energy security. These and other regressive actions don't augur well for domestic energy development or job creation.

Despite great handwringing over America's anemic job creation, the president demonstrates little understanding of the damage his policies are doing to millions of unemployed Americans desperate to find work. Unfortunately, pleasing the environmental lobby seems much more important to him now than jobs.

Markets in Everything: Boyfriend Rental in China

FT.COM -- "This is a tough time of year for Chinese spinsters. Chinese New Year is just around the corner and every single girl knows what her parents want most for the holidays: a betrothal. Girls of a certain age (say, 30) do not dare go home at all without one; and even women in their 20s feel serious pressure not to turn up for this Sunday’s traditional new year’s eve dinner without a marriage prospect in tow.

Now, thanks to Taobao (the Chinese version of Ebay) and the inventiveness of the Chinese entrepreneur, they do not need to: for as little as Rmb100 per day (about $16), Chinese singles can rent a boyfriend to take home for lunar new year.

Chatting up the parents is included in the price, while hand-holding and hugging sometimes cost extra. The boyfriend-substitute will even share a bedchamber with the customer, if that helps persuade the doubting parents. There seems little limit to the a la carte ingenuity of the companies that provide this service: some even offer to waive the fee if the girl and guy share the same bed."

HT: Andrew Biggs

L.A. Port Sets Record in 2011 for Export Containers

LA Times -- "The Port of Los Angeles set a new standard for exports in 2011, becoming the first harbor in the nation to ship more than 2 million containers carrying U.S. goods to customers overseas, according to year-end statistics released by port officials.
The nation's busiest seaport moved 176,531 export containers in December, enough to kick up its 2011 total to 2.11 million containers. That broke the port's former record of 1.84 million export containers set in 2010.

No other U.S. harbor has moved more export containers in one year. The closest competitors are second-ranked Long Beach, which moved 1.69 million export containers in 2008 and third-ranked New York-New Jersey, which moved 1.62 million export containers that same year."

MP: The 2.11 million loaded outbound export containers leaving the L.A. port last year (data here) was a 14.5% increase over 2010, and follows a 10.3% increase in 2010.  The record number of loaded outbound export containers shipped overseas from the L.A. Port in 2011 were filled with manufactured goods from America's factories, which is further evidence of the ongoing expansion and growth of U.S. manufacturing.  

Markets in Everything: Wedding Proposal Planners

Daily Mail UK -- "We're all familiar with how wedding planners can navigate us around the tricky maze of getting married. But now a new industry has emerged, for helping men pop the question in the first place. Proposal planners have discovered a demand for lavish scenarios, be it white doves, helicopter rides, a favorite musician - all with a photographer on hand to record the magic moment.

Sarah Pease of New York-based Brilliant Event Planning says she only focused on weddings until she heard how one friend's proposal involved an engagement ring at the bottom of a bucket of Kentucky Fried Chicken.

'I figured there must be a better way,' she told the New York Times."

HT: Matt Bixler

Tuesday, January 17, 2012

Top 500 U.S. Manufacturing Firms Had 2011 Sales of $5 Trillion, Almost As Much as Japan's GDP

The 500 largest U.S. manufacturing firms operate in 28 different industries. Here are the 10 largest manufacturing industries, based on those firms:

Rank10 Largest U.S. Manufacturing Industries, 2011 Revenue (Millions)  Examples
1Petroleum & Coal Products$1,274,150Exxon, Chrevron, Conoco
2Computers & Other Electronic Products$709,613HP, IBM, Apple, Dell
3Chemicals$406,445P&G, Dow, DuPont
4Pharmaceuticals$306,076J&J, Pfizer, Merck and Co.
5Motor Vehicles$303,540Ford, GM, Harley-Davidson
6Food$284,469General Mills, Kellogg, Campbell
7Aerospace & Defense$254,126Boeing, Lockheed Martin
8Electrical Equipment &  Appliances$244,738GE, Emerson, Whirlpool
9Machinery$227,481Caterpillar, Deere, Xerox
10Beverages$120,356Pepsi, Coke, Snapple

IndustryWeek recently released its annual ranking of the 500 largest publicly held U.S. manufacturing companies in 2011 based on sales revenue, and the top ten U.S. manufacturing industries (of 28 total industries for the Top 500 companies) are displayed above. Here are some factoids:

1. The combined sales revenue (including global sales) of the top 500 U.S.-based manufacturing firms for 2011 was $5.13 trillion, which was a 12.75% increase over 2010 sales of $4.55 trillion. To put it in perspective, that amount of annual revenue ($5.13 trillion) of the 500 largest U.S.-based manufacturing companies was almost as much as the $5.8 trillion of GDP for the entire economy of Japan in 2011 (world's third largest economy).  

2. The sales revenue from the top ten manufacturing industries totaled $4.13 trillion in 2011 (see chart above), which was more than Germany's entire GDP of $3.6 trillion last year.

3. Annual sales of $1.27 billion in 2011 for America's single largest manufacturing industry - petroleum and coal products - was larger than the GDP of both Mexico and South Korea, and larger than the Gross State Product of both Texas and New York.  

4. Annual sales of $709 billion for America's second largest manufacturing industry - computers and other electronic products was more than the entire GDP last year of Switzerland ($594 billion) and almost as much as the GDP of Turkey ($797 billion) and the GSP of Florida ($754 billion).  

5. The top ten largest U.S. manufacturing companies (Exxon, Chevron, Conoco, GE, GM, Ford, H-P, IBM, Valero, and Proctor and Gamble) had combined revenues of $1.57 trillion, almost as much as Canada's GDP in 2011 of $1.75 trillion.

MP: The comparisons above help put the enormous size of the U.S. manufacturing sector into perspective and demonstrate that American manufacturing is not withering and disappearing, but  thriving, expanding and prospering.  In terms of profits, the American manufacturing sector will have its best year ever in 2011.  Based on data currently available through the third quarter, the U.S. manufacturing corporations are on track to earn more than $600 billion in profits for 2011, which will be a new record high, and double the profits in both 2008 ($266 billion) and 2009 ($286 billion), and 36% above the pre-recession level of $442 billion in 2007.  American manufacturing is alive and well. 

Dick Morris TV: Union Power Grab

In the video above, Dick Morris explains why Obama's recess appointments to the Labor Relations Board could mean coerced, mandatory unionization.

HT: Phillip Beaver

Quote of the Day on Disparities in Achievements

"Gross inequalities in skills and achievements have been the rule, not the exception, on every inhabited continent and for centuries on end. Yet our laws and government policies act as if any significant statistical difference between racial or ethnic groups in employment or income can only be a result of their being treated differently by others.

Nor is this simply an opinion. Businesses have been sued by the government when the representation of different groups among their employees differs substantially from their proportions in the population at large. But, no matter how the human race is broken down into its components -- whether by race, sex, geographic region or whatever -- glaring disparities in achievements have been the rule, not the exception."

Markets in Everything: Roll-Your-Own Cigarettes

"A South Carolina store owner said smokers can get cigarettes without paying state and federal taxes because of a tax loophole. M.J. Farah, owner of Jake's One Stop in Pelzer, South Carolina is offering customers the chance to roll their own cigarettes.

"The customers are taking advantage of a tax cut. They don't have to pay the taxes on the tobacco if they are making it on their own," said Farah. "I have people who drive all the way up here 45 minutes just to come get their tobacco."

Farah recently got three new machines that stuff the cigarettes for customers. He was already selling roll-your-own supplies, but the new machines are less time-consuming and still save smokers money."

Gallup's Jobless Rate Falls to 8.3% in Mid-January

PRINCETON, NJ -- "U.S. unemployment, as measured by Gallup without seasonal adjustment, is 8.3% in mid-January -- a slight improvement from 8.5% in December, and down from 9.9% in January a year ago. Gallup's mid-month unemployment reading, based on telephone interviews of a random sample of 18,500 adults in the 30 days ending Jan. 15, serves as a preliminary estimate of the U.S. government report, and suggests the BLS will likely report on the first Friday of February that its seasonally adjusted unemployment rate declined once again in January.

The U.S. government's January unemployment rate that it will report in early February will be based on mid-month conditions. Therefore, Gallup's mid-month unemployment reading, based on data collected through the 15th of the month, normally provides a good estimate of the government's unadjusted unemployment rate for the month. Because of employer layoffs after the holidays, unadjusted unemployment rates normally increase at this time of year, and the government seasonally adjusts for these layoffs. So it seems likely that the government will report another decline in its seasonally adjusted U.S. unemployment rate for January.

Regardless of what the government reports, Gallup's unemployment and underemployment measures show modest improvement so far in January, and that is particularly positive news for job conditions at this time of year because the early part of the year is usually slow for hiring. This is good news for the overall U.S. economy. It is also a plus for the president's re-election efforts."

Top 20 Predictions for Life 100 Years From Now

From the BBC, the top 20 predictions for life in 2112 include:

1) Oceans will be extensively farmed for fish, energy, algae, and natural resources, 2) Telepathic communication will become common, 3) Immortality, 4) Ability to control the weather, and 5) Only three languages (English, Spanish and Mandarin).   

New York State Manufacturing Expands in January; The Six-Month Outlook is Highly Optimistic

The Empire State Manufacturing Survey indicates that manufacturing activity expanded in New York State in January. The general business conditions index climbed 5.3 points to 13.5, and the 5 point gain in January follows strong increases of 8 points in November and 7.4 points in December (see brown line in chart).

According to the NY Fed, "The new orders index rose eight points to 13.7 and the shipments index inched up to 21.7. The prices paid index was positive and slightly higher than it was last month while the prices received index jumped twenty points to 23.1, indicating a significant pickup in selling prices. Employment indexes were positive and higher, pointing to higher employment levels and a longer average workweek."

The future indexes conveyed a high degree of optimism about the six-month outlook, with the future general business conditions index rising 9.26 points to 54.9, its highest level since January 2011 (see blue line in chart). That follows gains of 18.1 points in November and 13.5 points in December, and that 41 point gain in the future index over the last three months is the largest three-month gain in more than ten years.   

Monday, January 16, 2012

Low Natural Gas Prices Help Families, Businesses

 USA Today -- "The natural gas futures price fell 13% last week, to $2.67 per 1,000 cubic feet. That's the lowest winter level in a decade (see chart above).

"The market has been overwhelmed with gas," says Anthony Yuen, a commodities analyst at Citibank. He and other analysts expect the price to average near $3 for all 2012. If the weather stays mild, the price could even dip below $2, a level not seen since 2002.

Cheap natural gas is mainly a good thing for the economy:

• More than half of U.S. households use natural gas for heat, and a quarter of the nation's electricity is made from it. Falling heating and electric costs are offsetting the impact of high gasoline prices and enabling families and small businesses to spend on other things. Residential gas and electric customers are saving roughly $200 a year, according to a study by Navigant Consulting.

• For companies that make plastics, fertilizer and other chemicals derived from natural gas, falling prices are a windfall. The same goes for makers of products from steel to bricks to beer. All use a lot of natural gas to heat their furnaces. U.S. manufacturers are becoming more competitive globally as a result of the country's cheap natural gas, industry officials say."

Powerpoint Version of "I Have a Dream" Speech

From economist William Easterly:

"Martin Luther King's "I Have a Dream" speech would have been even more successful if Dr. King had two things that have vastly improved in the last 47 years: (1) presentation software, and (2) the evocative jargon used by "social entrepreneurs" trying to change things. Using my expert knowledge of these two areas, I was able to improve the "Dream" speech considerably in this Powerpoint presentation."

U.S. Exports to China Have Increased by 21% per Year Since 2005, Twice the 11% Growth in Imports

As much as we continually hear about China's currency manipulation to artificially increase its exports to the U.S., the chart above shows something very interesting. When: a) monthly U.S. exports to China, and b) monthly imports from China, are both normalized to equal 100 in January 2005, we can see that U.S. exports to China have actually grown much faster (about 21% per year) than imports from China (about 11% per year). Over the 7-year period from January 2005 to November 2011, U.S. exports to China have increased almost four times while imports from China have only doubled.

Another way to describe the trend: in 2005, there were about $6 of imports from China for every $1 of exports to China, and by 2011 the ratio of Chinese imports-to-U.S. exports to China had fallen to less than 4.  Conversely, the ratio of U.S. exports-to-Chinese imports has risen from 17% to 26% since 2005. 

Also, the current level of monthly imports from China (about $36-38 billion) is only slightly higher than the $34 billion peak in 2008 during the recession, while the current volume of U.S. exports to China (about $10 billion) is more than 50% above the $6.5 billion peak as the recession started in late 2007.

Although we still have a trade deficit with China, its relative size (in relation to the total volume of trade with China) has been shrinking over time.  As disposable incomes increase in China and as more Chinese enter the new middle class there, their purchases of American goods have increased at a faster rate than our purchases of their products.  That's a trend that we can expect to continue.   

A Man's Home is the Government's Castle in NYC

In December I had a post about James Harmon, an owner-occupant Manhattan landlord who is going all the way to the United States Supreme Court with his legal claim that New York City’s rent control laws constitute an illegal seizure of his five-story brownstone property on W. 76th Street without just compensation, and violate the Constitution’s contracts clause.

Nicole Gelinas, contributing editor to the Manhattan Institute’s City Journal, has an excellent editorial about NYC rent control laws and James Harmon's legal case in today's NY Post, appropriately titled "A Man's Home is the Government's Castle."

The Dental Cartel Objects to Competition from Dental Therapists, Out of Concern for Public Safety


"Try finding a dentist in the remotest rural or deepest urban pockets of the land, and for blatantly economic reasons, they just aren’t there. That’s why states are looking to fix the problem by creating a so-called mid-level dental provider, sometimes referred to as a dental therapist or advanced dental therapist. Much like a nurse practitioner (NP) or physician assistant (PA) is to a doctor, this provider would be educated and licensed to perform basic dental services -- routine checkups, cleanings, filling cavities and extracting teeth -- under the supervision of a fully trained dentist. These providers would be charged with providing care in underserved areas."

MP: Sounds like a great innovative alternative that would make dental care more available, convenient, and affordable, right?  Sure, unless you're a member of the "dental cartel," aka the American Dental Association, and you don't appreciate the possibility of increased competition for your services.  Here's more from the article:

"In much the same way that the American Medical Association fought against the creation of NPs and PAs, the American Dental Association (ADA) and its state chapters are lobbying hard to thwart state legislatures as they work to create this new level of dental care providers, who are common and well liked in other parts of the world."

MP: It's probably not too surprising that the dental cartel's main publicly stated objection to the creation of a new level of dental provider is their concern about the public's "safety."  The cartel's possible loss of business from increased competition hasn't been mentioned, but I think we know better, don't we?

Medicare Sets 6 Billion Prices Across the Country; Is There Any Chance Those Are the Right Prices? NO

From John Goodman's blog post today "How Doctors Are Trapped":

"Medicare has a list of some 7,500 separate tasks it pays physicians to perform. For each task there is a price that varies according to location and other factors. Of the 800,000 practicing physicians in this country, not all are in Medicare and no doctor is going to perform every task on Medicare’s list. 

Yet Medicare is potentially setting about 6 billion prices across the country at any one time. Is there any chance that Medicare can get all those prices right? Not likely.

What happens when Medicare gets them wrong? One result: doctors will face perverse incentives to provide care that is costlier and less appropriate than the care they should be providing. Another result: the skill set of our nation’s doctors will become misallocated, as medical students and practicing doctors respond to the fact that Medicare is overpaying for some skills and underpaying for others.

The problem in medicine is not merely that all the prices are wrong. A lot of very important things doctors can do for patients are not even on the list of tasks that Medicare pays for." 

MP: These problems sound a lot like the deficiencies of Soviet-style central planning in general when the government, rather than the market, sets prices, see Economic Calculation Problem.

Dear College Student......

From the Forbes article "Dear Student: I Don't Lie Awake At Night Thinking of Ways to Ruin Your Life," by economics professor Art Carden:

"First, I do not “take off” points. You earn them. The difference is not merely rhetorical, nor is it trivial. In other words, you start with zero points and earn your way to a grade.

Second, this means that the burden of proof is on you to demonstrate that you have mastered the material. It is not on me to demonstrate that you have not.

The fact that you “don’t understand” why you didn’t earn full points for a particular question might itself help explain why you didn’t earn full points. Don’t take this personally or interpret it as a sneer. See it as a learning opportunity.

Finally, I’m here to be a mentor and instructor."

HT: Greg Mankiw

Sunday, January 15, 2012

Markets in Everything: The Beer Mitten

Keep your hands warm and your malt beverage cold with the beer mitten.

Update: 10 Surprising Health Benefits of Beer, via Instapundit

CBS News: 12 Clean Energy Firms Received $6.5B in Taxpayer Money, And Are All in Financial Trouble

A CBS News investigation has found a pattern of the government pouring your tax dollars into clean energy.

CBS NEWS --"It's been four months since the FBI raided bankrupt Solyndra. It received a half-billion in tax dollars and became a political lightning rod, with Republicans claiming it was a politically motivated investment.

CBS News counted 12 clean energy companies that are having trouble after collectively being approved for more than $6.5 billion in federal assistance. Five have filed for bankruptcy: The junk bond-rated Beacon, Evergreen Solar, SpectraWatt, AES' subsidiary Eastern Energy and Solyndra.

Others are also struggling with potential problems. Nevada Geothermal -- a home state project personally endorsed by Senate Majority Leader Harry Reid -- warns of multiple potential defaults in new SEC filings reviewed by CBS News. It was already having trouble paying the bills when it received $98.5 million in Energy Department loan guarantees."

Find out more in the video above, or go here

Sunday Night Links

1. Because of its proximity to the Bakken shale oil formation, a record number of passengers flew out of Minot International Airport in 2011.

2. In South China, elderly diners savor cat meat, particularly during winter.  

3. Less than one-fourth of a $2.5 million Tennessee state fund to encourage purchases of electric cars has been claimed since the vehicles hit the market a year ago.

4. Tampa Bay businesses find savings in new fingertip, credit card technology.

5. Among the best deals at some Dollar Tree stores is a $2 Sunday newspaper for a buck, with sales limited to three papers per customer.

Markets in Everything: Rent Your Stuff

A marketplace where you can rent almost anything. -- "We connect people with other people (and rental businesses) nearby to rent out their everyday stuff such as sporting goods, camping gear, musical equipment, grills, lawn mowers, tools, tech gadgets and more. makes it effortless for people to connect with friends, neighbors, local people and businesses in order to find stuff they need or make money by lending out stuff they own but are not using."

HT: Managerial Econ