Tuesday, June 26, 2012

Markets in Everything: Digital Hitchhiking App

There's an interesting new ridesharing app available through Apple called SideCar, which connects drivers and passengers, kind of like a modern form of hitchhiking in the digital age:

"SideCar is a community-based, real-time ridesharing marketplace. Our proprietary technology, deployed via a user-friendly mobile app, instantly connects people with extra space in their cars to those who need to get from one place to another. Spontaneous carpools. SideCar is an easy, safe, reliable, and completely donation-based way to get from here to there. Not to mention fun!

SideCar is neither a taxi nor limo. It’s a ride-matching app that connects people who need rides with community drivers who can give them rides on the fly. All payments are completely voluntary and are handled via a cashless, donation-based system between smartphones."

Note: It's only available right now in San Francisco, with plans for expansion to other parts of the country.

HT: Fred Dent

Tuesday Night Links

1. Mobile phones are changing the world of retail – at a remarkable speed.  Mobile commerce represents a fundamental shift in consumer behavior and retailers must move quickly to exploit it.

2. (you can probably guess #1). 

3. Oil companies are giving millions of dollars in charitable contributions to local communities in North Dakota.

4. Tech Title IX?  Twitter, General Electric, Google, and eBay announce "Girls Who Code" initiative to address the gender imbalance in the IT industry.

5. North Dakota's robust and diverse energy sector could be model for the country: An energy policy that really works.

6. Ferry Systems Consider Switch to Liquid Natural Gas as the Price of Diesel Rises.  

No Peak Oil in Sight: We've Got an Unprecedented Upsurge in Global Oil Production Underway

The global oil boom underway represents the most significant increase in any decade since the 1980s.

In the tradition of resource economist Julian Simon, here are some of the conclusions and predictions from new research just published by Harvard Research Fellow Leonardo Maugeri, titled "Oil: The Next Revolution; The Unprecedented Upsurge of Oil Production Capacity""

1. Contrary to what most people believe, oil is not in short supply and oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The full deployment of the world’s oil potential depends only on price, technology, and political factors. More than 80 percent of the additional production under development globally appears to be profitable with a price of oil higher than $70 per barrel.

2. The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation, although the U.S. boom is difficult to be replicated given the unique features of the U.S. oil (and gas) arena. Whatever the timing, emulation over the next decades might bear surprising results, given the fact that most shale/tight oil resources in the world are still unknown and untapped. China appears to be the first country to follow the U.S. example. Moreover, the extension of horizontal drilling and hydraulic fracturing combined to conventional oil fields might dramatically increase world’s oil production and revive mature, declining oilfields.

3. In the aggregate, conventional oil production is also growing throughout the world, although some areas (e.g. the North Sea), face an apparently irreversible decline of the production capacity. In most traditional producing countries, old oilfields go through a production revival thanks to better techniques and knowledge, or advanced exploration and production technologies, so far used only in the U.S. and in the North Sea. Huge parts of the world are still relatively unexplored for conventional oil (for example, the Arctic Sea or most of sub-Saharan Africa).

4. Over the next decades, the growing role of unconventional oils will make the Western hemisphere the new center of gravity of oil exploration and production.

5. Based on original, bottom-up, field-by-field analysis of most oil exploration and development projects in the world, this paper suggests that an unrestricted, additional production of more than 49 million barrels per day (mbd) of oil is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd.

6. After adjusting this substantial figure considering the risk factors affecting the actual accomplishment of the projects on a country-by-country basis, the additional production that could come by 2020 is about 29 mbd. Factoring in depletion rates of currently producing oilfields and their “reserve growth,” the net additional production capacity by 2020 could be 17.6 mbd, yielding a world oil production capacity of 110.6 mbd by that date – as shown in Figure 1 above. This would represent the most significant increase in any decade since the 1980s.

MP: Peak what?

Markets in Everything: Solar Coke Bottle Lights

Used plastic Coke bottles are now transforming the rural neighborhoods of Manila, Philippines. Homes there are often built so close to each other that they have no windows or natural light, but now affordable "solar Coke bottle lights" are being installed in roofs to provide an overhead "solar light bulb" inside the home. With electricity unaffordable or unavailable for many Philippine families, they used to have to work, do chores, and eat in near darkness.  Now there is light, thanks to human ingenuity and the recycling of used plastic Coke bottles. Take a look.

HT: Gale Pooley

Monday, June 25, 2012

Some Positive Signs in Today's New Home Sales Report for a Significantly Improving Housing Market

One interesting data point from today's Census report on new home sales is the very low inventory level of homes for sale: there is currently only a 4.72 months' supply of new homes for sale at the current sales pace, which is calculated as the ratio of new houses for sale at the end of the month (145,000) to the number of homes sold in May (30,750 at a seasonally adjusted rate).  The inventory of new homes relative to demand hasn't been that low since October 2005, more than six years ago (see chart above), and is an indication that the balance between the supply and demand for new homes has returned to a more typical level than the double-digit months' supply levels back in 2008 and 2009.  In fact, the average inventory since 1963 is a 6.2 month supply of new homes, so the current level of only 4.72 months' supply is below historical norms, and reflects a very low inventory level of new homes in relation to the rising demand. 

As Brian Wesbury and Robert Stein point out today,

"The lack of availability of completed new homes is likely holding back sales, which will improve even more as builders finish some of the homes now under construction. We see the same phenomenon in the existing home market, where a lack of homes on the MLS is temporarily holding back sales. The road ahead looks better than it has in years. Look for housing to continue to move higher, and to add to GDP for the fifth consecutive quarter."

Scott Grannis also reports today on new home sales in May, which were up by almost 20% from a year ago and reached the highest sales level in more than two years, and new home starts, which were up in May by more than 26% from last year, and comments:

"To be sure, the level of sales and starts remains very depressed from an historical perspective. But from an economist's perspective, it's not the level that is important, it is the change on the margin. Correctly viewed, there has been a very significant improvement in the housing market over the past few years."

The Arithmetic of Shale Gas: Consumer Surplus from Technology of Shale Gas Exceed $100 Billion

It's been well-documented now that falling prices for natural gas (see chart above) and the resulting drop in utility rates have saved consumers billions of dollars (see CD posts here and here).

A new study by researchers at Yale University, "The Arithmetic of Shale Gas," provides some additional evidence of the consumer benefits of shale gas using a cost-benefit approach (where consumers include residential, industrial, commercial and utilities) here's an excerpt:

"The Henry Hub spot price in 2008 was $7.97 per mcf and in 2011 was $3.95 per mcf (see chart above) so that the difference in price over three successive years was $4.02 per mcf. Gas production in 2008 was 25.6 tcf so that the surplus to consumers by the price reduction from shale gas equaled $102.9 billion.

This very large amount of consumer gain—over $100 billion—from the new technology induced price reduction in gas is the elephant in the room. It comprised a substantial majority of total expenditures on this fuel nationwide. In past years those expenditures were limited by the higher costs of production of gas produced from vertical wells. These were in part producer surplus but most were the costs of sustaining well operations in the old technology. Even so it is startling to acknowledge that consumer benefits from the technology of shale gas drilling and new gas production can be expected to exceed $100 billion per year, year in and year out as long as present production rates are maintained."

The authors then account for the possible environmental costs to society and compare that to the consumer-savings of $100 billion per year:

"How then do we extrapolate individual disaster scenarios across an entire industry to determine the social cost of possible contamination from fracking in order to deduct it from the consumer surplus of $100 billion for each year? We consider that the reported instances of contamination from fracking relate, at most, to an extremely limited minority over hundreds of thousands of wells. Assuming the worst—that the accidents occur in one year; that the cleanup requires a new water well at $5,000; and that one hundred spills occur at $2.5 million per spill given then that the industry drills 10,000 new wells per year. The cost of frackwater contamination is $250 million. Economic benefits, as estimated in as limited methodology as is reasonable, exceed costs to the community by 400-to-1."

And they also estimate the consumer benefits of switching from oil to natural gas:

Replacing 1.0 million bbls per day of crude oil with the 6 billion cubic feet (bcf”) equivalent of natural gas, would generate approximately $25.6 billion ($70/bbl*1 million bbls*365 days) of consumer surplus for the US economy over one year." 

Note: There are also gains to shale gas producers from increased production, and while those are less than the gains to gas consumers, they are significant and are estimated be multi-billions of dollars per year.

Here's a Forbes article that summarizes some of the key findings of the Yale study. 

Sunday, June 24, 2012

Law Grads Face Brutal Job Market

"Members of the law-school class of 2011 had little better than a 50-50 shot of landing a job as a lawyer within nine months of receiving a degree, according to a Wall Street Journal analysis of new data that provides the most detailed picture yet of the grim market for law jobs.

Under pressure from disillusioned graduates and some professors, the American Bar Association for the first time released a tally of the previous year's graduates who have secured full-time, permanent jobs as lawyers. Until recently, the ABA required law schools to report only general data about how their graduates fared, such as how many were employed full-time or part-time in any kind of job, whether or not it required a law degree.

The numbers suggest the job market for law grads is worse than previously thought. Nationwide, only 55% of the class of 2011 had full-time, long-term jobs that required a law degree nine months after graduation. The ABA defines "long-term" jobs as those that don't have a term of less than one year."

MP: An interactive graphic accompanies the article, and reveals that graduates of even some of the top law schools are having a hard time finding full-time work in jobs that require a law degree: less than 66% of the graduates from Georgetown Law (tuition of $50,000 per year) and only about 75% of the graduates from University of Michigan are employed in jobs that require a J.D. degree.  

Interestingly, the word must be getting out that law school graduates can't find work - the number of students taking the LSAT this year fell to an 11-year low, see chart below. 

J2LYK There's a Texting/SMS Language Revolution

Back in 2009, a CD post featured Charles Platt, former senior writer for Wired Magazine, who got hired at an Arizona Wal-Mart and then blogged and wrote about his experience.  Today he sends along this provocative guest post for CD:

Phone messaging and Facebook are being blamed for degrading the English language, but in reality, language evolves to satisfy the needs of people who employ it, and the result is enrichment with new terms that serve a useful purpose. After online media encouraged acronyms as substitutes for frequently used phrases (such as BTW, OMG, and the ubiquitous LOL), the limitations of a phone keypad spawned abbreviations that are showing signs of permanence, even including txt for text and k for ok (Netlingo hosts a list of more than 2,000 chat acronyms and text message abbreviations, while Wikipedia provides a thorough history and analysis of SMS language).

The international reach of the web means that the neologisms and (especially) emoticons are now functioning as the beginnings of a world language. Esperanto was supposed to achieve this, but failed miserably, perhaps because it was created by a committee of experts. Texting and messaging are developing from the grass roots up, and thus are more durable, regardless of what language professors might prefer. I see this as something to celebrate, but of course YMMV.

~Charles Platt

TAM Charles!

Amazing Illusions: Two of the Best Ever

It's been awhile since I've featured an illusion, the last one was the peacock illusion above, which I thought was one of the best ever.  Both birds are exactly the same color, but you'll never convince your mind of that, see it here without the background.  

Here's a new one that might be even better, courtesy of Alex Tabbarok, where again you can't convince your mind that the two boxes are the same color. 

Saturday, June 23, 2012

The Bad Grammar Epidemic

From the Wednesday WSJ:

"Managers are fighting an epidemic of grammar gaffes in the workplace. Many of them attribute slipping skills to the informality of email, texting and Twitter where slang and shortcuts are common. Such looseness with language can create bad impressions with clients, ruin marketing materials and cause communications errors, many managers say.

There's no easy fix. Some bosses and co-workers step in to correct mistakes, while others consult business-grammar guides for help. In a survey conducted earlier this year, about 45% of 430 employers said they were increasing employee-training programs to improve employees' grammar and other skills, according to the Society for Human Resource Management and AARP." 

Accompanying the article: How's Your Grammar? Take a 22-question grammar quiz here to test your skills.

Where Krugman Went Right: On Housing Policy

Since 1999, when economist Paul Krugman started writing for The New York Times, he has been drawing the criticism of free market-oriented economists (and recently the president of Estonia) for glaring deficiencies in economic analysis and for writing what amounts to “fiction” (economist and Estonian expert Steve Hanke’s word to describe Krugman’s trashing of Estonia’s recent robust economic growth and counter Keynesian fiscal reforms). 

The Krugman-Estonia kerfuffle raises an interesting question: Has Krugman ever sided with free market economists against government activism in his Times forum?

In Back from Serfdom, my Atlanta colleague Robert Dell quotes a Krugman column from June 2008 to support the case for termination of government affordable housing policies.  The normally predictably partisan pundit Krugman appears here to be channeling AEI's Peter Wallison: 

“Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?

Listening to politicians, you’d think that every family should own its home—in fact, that you’re not a real American unless you’re a homeowner. . . . and that is reflected in U.S. policy (MP: Which drove homeownership to unsustainable levels and created the housing bubble, see chart above). Because the I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing. On top of that, government-sponsored enterprises — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — provide cheap financing for home buyers; investors who want to provide rental housing are on their own. In effect, U.S. policy is based on the premise that everyone should be a homeowner.

But homeownership isn’t for everyone. In fact, given the way U.S. policy favors owning over renting, you can make a good case that America already has too many homeowners.” 

We can only hope Krugman will direct a future critical blast toward the Government National Mortgage Association (Ginnie Mae) for continuing to promote home ownership on its web site

Larry Sabato Speaks Out on UVa Controversy

"This has given us our worst two weeks of publicity since I've been associated with UVa and that was 42 years ago. So it's been a disaster, it's been a national public relations disaster."   

Friday, June 22, 2012

The Coming Revolution in Information Technology

From my article in the Detroit News this week:

We are on the cusp of a revolution in information technology that will be even larger than the one that's taken place over the past 40 years. Evidence of this transformation is emerging in what's known as direct-digital manufacturing, an innovation that could lead to the "desktop" printing of entire products from automobiles to washing machines.

Some products developed from three-dimensional computerized manufacturing — such as patient-specific implants for hip joints or teeth, and lighter and stronger aircraft parts — are being made from computer-engineered materials that did not exist a few years ago.

Smart manufacturing, in which the science of emerging materials revolutionizes the very fabrication of physical products, has extraordinary economic implications for the United States, which is at the epicenter of digital innovation.

To grasp the magnitude of the changes taking place, consider that, in the last three decades, computing speeds have risen 200,000-fold, while costs have dropped 10,000-fold. In 1980, it cost $10,000 for the hardware to store a single book. Today it costs one penny. That's why a Kindle can store thousands of books. And the cost of storing books and digital information is still collapsing.

We're entering a new age of super-computing, providing cheap information and processing power to nearly everyone. But that assumes that our electricity production keeps pace with the rising energy demands of the new information-intensive technologies. Those states that fail to increase electrical generating capacity will pay a huge price for such shortsightedness in terms of lost economic opportunities and jobs. It's time to start modernizing the electrical infrastructure now to prepare for an exciting digital future.

America's Manufacturing Renaissance

From my article "Manufacturing in Our Favor" for the U.S. Chamber of Commerce:

Intro: There were three related and important manufacturing trends that emerged in 2011:
a)  American manufacturing remained at the forefront of the United States’ economic expansion for the second year in a row and re-established itself as one of the economy’s strongest sectors;

b)  An erosion of China’s manufacturing cost advantages, especially for wages, started to bring manufacturing production back to the United States from China and other low-wage countries, reversing a decade-long trend of outsourcing production overseas; and,

c)  An abundance of domestic shale-based natural gas brought gas prices to record low levels and sparked a new boom in the United States for energy-intensive manufacturing. 
As a result of these trends, American manufacturing in 2011 had its best year in at least a generation by all relevant measures of economic performance: profits, output growth, and employment gains. In fact, it’s possible that we will look back on 2011 as a watershed year that marked the beginning of a great manufacturing renaissance in America.


Putting it all together, the U.S. manufacturing sector had one of its best years ever in 2011, reflecting a new manufacturing rebound that is now underway and is expected to accelerate in the years ahead. Flush with record-level profits, the manufacturing sector has never been financially healthier than it is today, and the future of American manufacturing has never looked brighter. After years of negative reports about the decline of American manufacturing, it’s now time to recognize and celebrate a great turning point, as America’s industrial sector moves in a new direction that many are now calling a “manufacturing renaissance.” 

Maybe This Helps Explain Why Europe is in Trouble: Workers Now Get a Paid "Vacation Do-Over" if Sick

BRUSSELS — "For most Europeans, almost nothing is more prized than their four to six weeks of guaranteed annual vacation leave. But it was not clear just how sacrosanct that time off was until Thursday, when Europe’s highest court ruled that workers who happened to get sick on vacation were legally entitled to take another [paid] vacation. 

“The purpose of entitlement to paid annual leave is to enable the worker to rest and enjoy a period of relaxation and leisure,” the Court of Justice of the European Union, based in Luxembourg, ruled in a case involving department store workers in Spain. “The purpose of entitlement to sick leave is different, since it enables a worker to recover from an illness that has caused him to be unfit for work.” 

With much of Europe mired in recession, governments struggling to reduce budget deficits and officials trying to combat high unemployment, the ruling is a reminder of just how hard it is to shake up long-established and legally protected labor practices that make it hard to put more people to work and revive sinking economies.

The ruling applies across the European Union of 27 countries, but does not apply to the 25 percent of the Spanish labor force that is currently unemployed."

HT: Bill Greenway

BPP@MIT Annual Inflation Rate Falls Below 1.5%

The Billion Prices Project @ MIT just released daily online price index data through May 31, and the annual inflation rates from that price index are displayed in the chart above going back to late 2009 (red line). According to this real-time information of major inflation trends in the U.S., inflationary pressures have been subsiding for the last year, and the current annualized inflation rate of about 1.5% through May is the lowest rate since late 2009. In contrast to the MIT-BPP inflation, annual inflation based on the CPI is running higher, at about 2.25% through May.  

The breakeven rate on regular 10-year Treasury notes versus 10-year indexed-Treasuries, a market-based measure of expected future inflation, has been trending downward from a recent peak of 2.43% in April, and is currently at 2.07%, indicating that the bond market expects future inflation to continue to remain low.  The one-year breakeven rate just turned negative, so that might indicate some expectation of mild deflation over the next year. 

Bottom Line: There doesn't seem to be any evidence that inflationary pressures are developing in the U.S. economy, and there doesn't seem to be any indication that inflation will be a problem going forward through the rest of the year.  If anything, we might see some mild deflation.  

Update: Note in the chart below that when both the BPP@MIT are scaled to equal 100 in July of 2008, they both are equal 105 at the end of May 2012, both having risen exactly 5% over the last four years (almost).  Therefore, the BPP@MIT index tracks the CPI over long periods of time, despite the fact they are tracking different baskets of goods with different weights.  In that case, it would be hard to make the case that the BPP@MIT index "inherently deflationary" (see comments).   

Thursday, June 21, 2012

Reshoring Update

Bloomberg -- "As costs in China rise and owners consider the challenges of using factories 12,000 miles and 12 time zones away, many small U.S. companies have decided manufacturing overseas isn’t worth the trouble. American production is “increasingly competitive,” says Harry Moser, founder of the Reshoring Initiative, a group of companies and trade associations trying to bring factory jobs back to the U.S. “In the last two years there’s been a dramatic increase” in the amount of work returning."

The Video That Led to UVa President's Departure

The video above features a talk ("Higher Education 2.0") by former Stanford professor Sebastian Thrun, co-founder of the new, low-cost (mostly free) online university Udacity, and originally appeared on CD in January.  It was this video that was partly responsible for the downfall of President Theresa Sullivan at U-Va, because it seems that the U-Va. Board of Visitors wanted the university to move more rapidly in the direction of innovative, open-course, online education (with Udactiy cited as one model), and weren't getting enough support from the president. 

From today's Chronicle of Higher Education (subscription required):

"In the weeks leading up to the resignation of Teresa A. Sullivan, president of the University of Virginia, the leaders of the board that forced her out of office traded a number of e-mails with attached articles about the forces transforming higher education, telling one another that the articles illustrated "why we can't afford to wait."

In many of the e-mails, which were obtained by The Cavalier Daily [through a FOIA request], the rector and vice rector of the Board of Visitors—Helen E. Dragas and Mark J. Kington, respectively—commented on articles about online education and the open-course ventures in which top research universities like Harvard, Stanford, and others, are engaged.

The exchanges included one about Udacity, the free education platform that grew out of a Stanford University professor's course. In an e-mail on June 3, Jeffrey C. Walker, a member of the Board of Trustees for the foundation of the university's McIntire School of Commerce, urged Ms. Dragas and Mr. Kington to check out a video of a talk by Sebastian Thrun, the Stanford computer-science professor who founded Udacity.

Mr. Walker said the Berklee College of Music was going to have its board, of which Mr. Walker is a member, watch the video 'as a signal that the on-line learning world has now reached the top of the line universities and they need to have strategies or will be left behind.'

In the e-mails, Ms. Dragas, Mr. Kington, and others appeared to believe that Ms. Sullivan was not doing enough to embrace change, or to press for it quickly enough at the University of Virginia.

On June 10, Mr. Kington sent Ms. Dragas an e-mail in which he forwarded a statement that Robert F. Bruner, dean of the Darden School of Business, made about Ms. Sullivan's departure. In Mr. Bruner's statement, which he sent to faculty, alumni, and other supporters of Darden, Mr. Bruner said that the "philosophical difference of opinion" between Ms. Sullivan and the board, cited as the reason for the president's resignation, had to do with 'the rate of change and progress in the face of long range challenges to the University.'"

MP: Professor Thrun is co-teaching the free, 7-week Udacity course "Introduction to Statistics," which starts next Monday.  

Democratic Congressman Jarel Polis Schools DEA Agent Over Marijuana During Congressional Hearing

DEA official can't answer the questions: Are crack cocaine, heroin, and meth worse than marijuana? 

From Andrew Kirwell in Mediaite.com: "Congressman Jared Polis (D-CO) made drug reformers proud on Wednesday when he went after Drug Enforcement Administration official Michele Leonhart during a hearing on DEA oversight. Polis refused to allow Leonhart to get away with half-answering questions about the relative health impact of marijuana versus other drugs. 

Rep. Polis is an outspoken advocate of marijuana legalization (last year, he proposed a deficit-reduction plan that involved legalizing and taxing weed). During the hearing, he sought to make Leonhart concede that other Schedule I narcotics are much worse than marijuana — a point drug reformers often use to make the case that pot shouldn’t be classified with drugs like heroin and meth."

Update: From U.S. News and World Report, "Chart: What the DEA Refuses to Admit About Drugs," featuring my chart below:

U.K. Study: The Most Harmful Drug of All? Alcohol

From the Examiner on November 1, 2010 (originally posted on CD in 2010) : 

"Alcohol is more dangerous than illegal drugs like heroin and crack cocaine, according to a new study. British experts evaluated substances including alcohol, cocaine, heroin, ecstasy and marijuana, ranking them based on how destructive they are to the individual who takes them and to society as a whole.

Researchers analyzed how addictive a drug is and how it harms the human body, in addition to other criteria like environmental damage caused by the drug, its role in breaking up families and its economic costs, such as health care, social services, and prison.

Heroin, crack cocaine and methamphetamine, or crystal meth, were the most lethal to individuals. When considering their wider social effects, alcohol, heroin and crack cocaine were the deadliest. But overall, alcohol outranked all other substances, followed by heroin and crack cocaine. Marijuana, ecstasy and LSD scored far lower (see chart above)."

Here's a link to the full text of the article "Drug harms in the UK: a multicriteria decision analysis," and a summary of the key findings:

"Multicriteria decision analysis (MCDA) modeling showed that heroin, crack cocaine, and methamphetamine were the most harmful drugs to individuals (part scores 34, 37, and 32, respectively), whereas alcohol, heroin, and crack cocaine were the most harmful to others (46, 21, and 17, respectively). Overall, alcohol was the most harmful drug (overall harm score 72), with heroin (55) and crack cocaine (54) in second and third places (see chart above)."

Note: The first 21 comments below appeared following the original post in November 2010.

Leading Economic Index Increases in May

The Conference Board reported today that its Leading Economic Index (LEI) increased 0.3% in May to a four-year high of 95.8, following a 0.1% decline in April, and a 0.2% increase in March (see chart above).  Despite all of the recent challenges and headwinds facing the U.S. economy, especially the serious economic issues in Europe, the LEI has increased in 7 of the last 8 months starting in November 2011.  This ongoing improvement in the index that is constructed to predict the future direction of the U.S. economy, suggests that the U.S. economy will continue with moderate economic growth through the rest of the year, and is not currently threatened by a serious possibility of a double-dip recession.      

Says Ataman Ozyildirim, economist at The Conference Board: “The LEI rose in May, reversing the slight decline in April. Weakness in the average workweek in manufacturing, stock prices and consumer expectations kept the LEI from rising further. Its six-month growth rate remains in expansionary territory and well above its growth at the end of 2011, pointing to a relatively low risk of a downturn in the second half of 2012.”

Says Ken Goldstein, economist at The Conference Board: “Economic data in general reflect a U.S. economy that is growing modestly, neither losing nor gaining momentum. The result is more of a muddle through. Continued headwinds, both domestic and foreign, make further strengthening of the economy difficult.”

Like Any War, Drug Prohibition Kills

HT: Warren Smith

Rubio's Twisted Political Logic of Trade Protection

On CNBC above, Sen. Marco Rubio explains the twisted political logic of trade protectionism, and why he voted last week to protect domestic sugar growers from more efficient foreign competitors, and maintain our current system of crony capitalism and agricultural welfare for U.S. sugar farmers (paraphrased below):

We'll stop damaging our economy with higher sugar prices for U.S. consumers and industries using sugar as an input that burden them annually with billions of dollars in higher costs, and destroy thousands of American jobs in the process, just as soon as other countries stop damaging their consumers and economies with net job-destroying trade protectionism for their sugar farmers. 

HT: Sallie James via Don Boudreaux

Wednesday, June 20, 2012

ReasonTV on Taxpayer-Funded Bike Rental Programs for Well-Educated, Rich White People

ReasonTV above exposes another expensive, government taxpayer-funded public transportation boondoggle, this one being the Capital Bikeshare program, which rents bikes at more than 165 outdoor stations in the Washington D.C. area.  And who are the main beneficiaries of this taxpayer largesse? Well, mostly highly educated, affluent white people.

As Reason explains, "There's nothing wrong with that, of course, except that the program has received $16 million in government taxpayer subsidies, including over $1 million specifically earmarked to 'address the unique transportation challenges faced by welfare recipients and low-income persons seeking to obtain and maintain employment.'"

And Washington, D.C. isn't the only city that is picking the pockets of taxpayers to subsidize bike transportation for highly-educated, relatively wealthy white folks (don't they have the financial resources to buy their own bikes??), it's spreading around the country like the food truck explosion to Chicago, Philadelphia, Boston , Denver, Boulder, Houston, Minneapolis, Madison, Omaha, San Antonio, and Des Moines.

HT: Mark Meranta

Chart of the Day: Share of World GDP, 1-2008 AD

Click to enlarge.
Bottom Line: Free market capitalism is the best path to prosperity illustrated, or how a minor British colony became a world economic superpower with free market capitalism.

Quote of the Day: Racial Double Standards

"Mitt Romney hasn't revealed all of his fall campaign strategy yet, but what if he launched a "White Americans for Romney" movement in an effort to get out the white vote? If the Romney campaign did that, there'd be a media-led outcry across the land, with charges ranging from racial insensitivity to outright racism. When President Barack Obama announced his 2012 launch of "African Americans for Obama", the silence was deafening. Should the same standards be applied to Obama as would be applied to Romney? The answer turns out to be no, because Obama is not held to the same standards as Romney."

~Walter E. Williams

Tuesday, June 19, 2012

S&P: 2nd Mortgage Defaults at 7-Year Low

Mortgage News Daily -- "Default rates fell in May for all types of loans tracked by the S&P/Experian Credit Default Indices. For most loan types it was the fifth consecutive drop and four loan types posted their lowest rates since the end of the recession.

The national composite default rate declined to 1.62 percent in May from 1.86 percent in April and the first mortgage rate was down to 1.50 percent from 1.76 percent. Second mortgage defaults were at 0.88 percent, compared to 0.93 percent and bank card defaults dropped to 4.35 percent from 4.49 percent. Auto loans fell four basis points to 1.03 percent, a low point in the eight year history of the index.

Second mortgage defaults were at their lowest point in seven years and first mortgage and credit card defaults were the lowest since May 2007 and 2008 respectively.

“May 2012 data show continued improvements in consumer credit quality,” says David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Indices. “Consumer default rates continue to fall and we are reaching new lows across all the loan types. In the last recession, default rates peaked in the spring of 2009, since then the decline has been bumpy but consistent. Only bank cards remain above their pre-recession lows."

HT: Robert Kuehl

Cartoon of the Day

Visualization of Domino Pizza Delivery in NYC

GPS trails reveal the routes taken by cycling pizza delivery riders on one Friday night in Manhattan. Each rider's shift lasts eight to nine hours, in which time they can deliver between 30 and 40 pizzas all over the city. 

Gas Prices Below $3 per Gallon in S. Carolina

Gas is now below $3 per gallon in most parts of South Carolina and is selling for as low as $2.89 in Greenville, S.C.

Houston Real Estate Market Might Be the Hottest in the Country, As Home Prices Rise to All-Time Highs

Houston Association of Realtors -- "Houston home shoppers went on a buying spree in May, sending sales volume and pricing through the roof and accounting for the 12th consecutive month of positive sales. Average and median prices broke records while volume of sales reached the highest level since June 2008. Local housing inventory is now at its lowest level in more than five years.

May sales of single-family homes soared 23.8 percent versus one year earlier. That marks the biggest monthly increase since last August. 

The May single-family home average price rose 8.5 percent year-over-year to $237,083, the highest level ever in Houston. The median price—the figure at which half of the homes sold for more and half sold for less—rose 7.1 percent to $168,000, which is also a record high."

MP: With home prices at historical highs and sales volume at the highest level in four years, I think we can conclude that the Houston real estate market has made a full recovery from the real estate crash, mortgage meltdown and financial crisis.  

Update: Pittsburgh is not doing too badly either, with homes sales up 18.1% and the total sales volume up 23.3% compared to the same month in 2011. 

Quote of the Day

“The free man owns himself. He can damage himself with either eating or drinking; he can ruin himself with gambling. If he does he is certainly a damn fool, and he might possibly be a damned soul; but if he may not, he is not a free man any more than a dog.”

~G.K. Chesterton

HT: Matticus Rex

Cartel-Buster "Institute for Justice" Goes Up Against Nevada Board of Cosmetology with Legal Challenge

Institute for Justice -- "In Nevada, teaching others how to apply makeup without a government-issued license can subject you to up to $2,000 in fines. Lissette Waugh and Wendy Robin are makeup artists with over 40 years of combined experience. 

Lissette opened L Makeup Institute and Wendy opened Studio W in order to train the next generation of makeup artists in the art and artistry of applying makeup for the entertainment and retail industries. But the Nevada State Board of Cosmetology has threatened to silence the two entrepreneurs by shutting down their businesses. 

Nevada law recognizes that makeup artists are different from cosmetologists—who focus on cutting and styling hair, cleansing and caring for the skin, and manicures—by exempting them from the state’s cosmetology licensing scheme. Yet both women could face fines of up to $2,000 for doing nothing more than teaching makeup artistry without a cosmetology instructor’s license and not operating their makeup artistry schools as state-licensed schools of cosmetology. 

The government cannot require teachers to spend hundreds of hours in a classroom learning skills that have nothing to do with what they teach. Nor can it impose its mandatory curriculum and equipment requirements on schools that do not teach cosmetology. 

That is why on June 19, 2012, Lissette and Wendy teamed up with the Institute for Justice, a national public interest law firm that protects the rights of entrepreneurs, to file a federal constitutional lawsuit against the Nevada State Board of Cosmetology. They seek to vindicate their constitutional rights to teach and to earn an honest living by operating their businesses as they see fit without having to comply with an arbitrarily applied government licensing scheme."

Watch the video above for an overview of the new IJ case.

MP: Kudos to the Institute for Justice for its ongoing "cartel busting" efforts on behalf of small business owners in America. There is probably no other organization anywhere on the planet that is doing greater work defending small businesses and entrepreneurs against economic protectionism, empowering individuals to earn an honest living, and promoting economic and social justice.   

Broad-Based Real Estate Recovery Taking Hold

1. "For the fourth month in a row, the RE/MAX National Housing Report is showing an increasing Median Home Price. In May, home prices were 6.1% higher than those in May 2011. Home sales also rose above the mark set last year by a significant 12. 8%. With 42 surveyed metros showing increases in BOTH sales and prices, the recovery of 2012 appears to be taking hold in all regions of the country. For 11 months in a row, home sales have exceeded the level of the same month a year ago. Inventory continues to fall significantly lower than the previous year, with a 26.6% drop from May 2011. The related Months Supply and Days on Market figures are also trending lower."

“Clearly, 2012 is the year the housing industry has been waiting for; there’s a broad-based recovery taking hold,” said Margaret Kelly, CEO of RE/MAX, LLC. “This recovery may not bring improvement in all sectors to all markets at the same time, but most markets across the country are experiencing the best selling season they’ve seen in years.”

2. "Sales and prices of existing homes in Wisconsin continued to rebound in May, another indication that the long-languishing housing market is on the mend. Home sales jumped 18.9% in May from May 2011, the 11th consecutive month of a double-digit increase from the same month a year earlier, the Wisconsin Realtors Association said Monday. At the same time, the median home sale price in the state rose 1.5% in May to $138,000. Through May, sales for 2012 are up 20.2% from the same period last year."

3.  WASHINGTON(AP) – "Home builders started work on more single-family homes in May and requested the most permits to build homes and apartments in three and a half years.  The increase suggests the housing market is slowly recovering even as other areas of the economy have weakened.  The government also said April was much better for housing starts than first thought. The government revised up the April figures to 744,000 — fastest building pace since October 2008.

And builders are more optimistic about the next 12 months. They requested more permits to build homes, a gauge of future construction. Permits increased to a seasonally adjusted rate of 780,000 — the most since September 2008."

More Than 2X as Many Gang Related Drug Murders in Chicago This Year As Casualties in Afghanistan

(CBS News) -- "There are 228 dead: That's the number of murders this year in Chicago. It's nearly twice as many as the number of Americans lost on the battlefields of Afghanistan over these last six months. And the number of deaths is up 35% over the same period last year. 

Chicago police Superintendent Gary McCarthy believes most of the violent crime in the city is "absolutely" gang-related. He said the problem has a lot to do with drugs, guns and gang wars. 

McCarthy says the data doesn't always show it, but the police are making progress through increasing undercover operations and greater infiltration of the gangs, as well as a crackdown against the narcotics traffic which is the fuel that keeps them going."

MP: In 1972, President Nixon officially declared a "War on Drugs," when he appealed to Congress to give the highest priority to provide funding to the federal government to "destroy the market for drugs," with "increased enforcement and vigorous application of the fullest penalties provided by law" and to "render the narcotics trade unprofitable."  Nixon said that "The final issue is not whether we will conquer drug abuse, but how soon."

Well, it's been 41 years now, and despite the increased drug enforcement that Nixon called for, and despite the billions of dollars spent, and millions of Americans arrested and jailed for drug offenses, and thousands of people murdered, we clearly haven't destroyed the market for drugs, and we've got more drug-related problems today (e.g. murders) than in 1972 when Nixon first declared the War.  

Exhibit A: More drug-related murders this year in one U.S. city, Chicago, than American casualties on the battlefields of Afghanistan, making the term War on Drugs seem even more appropriate and descriptive.

The North Dakota Miracle: Fracking in the Bakken

The recent boom of the Bakken oil fields—made possible by a perfect storm of sensible state regulations, the fracking process, and the fact that most drilling is taking place on private lands—has produced a whirlwind of economic growth in a formerly sleepy corner of northwest North Dakota. Recently, a team from The Heritage Foundation and the Institute for Energy Research (IER) traveled out West to see it for ourselves, watch their video above.

Monday, June 18, 2012

Markets in Everything: Direct Publishing

From the post "How Amazon Saved My Life" by author Jessica Park on the Indie Reader blog:

"I spent months thinking that I needed a big publisher in order to be a writer, to legitimately carry that “author” title. To validate me, and to validate my book Flat-Out Love. I needed a publisher to print my books and stick a silly publishing house emblem on the side of a hard copy. They were the only way to give my books mass distribution, and having them back me would mean that readers would know my book was good.

I also, apparently, thought that I needed to be taken advantage of, paid inexcusably poorly, and chained to idiotic pricing and covers that I had no control over. I was, it seems, deluded.

It turns out that I was entirely wrong. I was missing what I really wanted. One of the major reasons that I write is to connect with readers, not publishers. The truth is that I couldn’t care less whether New York editors and publishers like me. I don’t want to write for them. I want to write for you. The other undeniable truth is that readers could care less that my books aren’t put out by a big publisher. They read for the content, not the publishing house emblem.

One day after I got yet another rejection letter, I got angry. Really, really furious. It clicked for me that I was not the idiot here. Publishing houses were. The silly reasons that they gave me for why my book was useless made me see very clearly how completely out of touch these houses were with readers. I knew, I just knew, that I’d written a book with humor, heart, and meaning. I’d written something that had potential to connect with an audience. As much as I despise having to run around announcing how brilliant I supposedly am and whatnot, I also deeply believed in Flat-Out Love. I knew that editors were wrong.

And I finally understood that I wanted nothing to do with these people. I snatched the book back from my agent and self-published it. With great relief, I should note."

MP: And also with great success, I should note, using Kindle Direct Publishing, which is featured now (along with Jessica Park's story and her book) on the Amazon.com homepage:

"Kindle Direct Publishing empowers serious authors to reach readers, build a following, make a living, and to do it on their own terms. Readers get lower prices, authors get higher royalties, and we all get a more diverse book culture (no expert gatekeepers saying "sorry but that will never work"). KDP is already meaningful--22 of our top 100 best-selling Kindle books so far this year are KDP books--and more great stories are being published every day." 

This is another great example of how technology and the Internet empower individuals, fuel creativity and innovation, and challenge the established status quo by bringing buyers and sellers together without the need for a traditional, and sometimes expensive middleman person (think Matt Drudge as just one example).   

HT: Bob Wright

Builder Confidence Reaches 5-Year High in June; Framing Lumber Prices Are Back to 2006 Levels

"Builder confidence in the market for newly built, single-family homes gained one point in June from a slightly revised level in the previous month to rest at 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest level the index has attained since May of 2007 (see top chart above). 

“This month’s modest uptick in builder confidence comes on the heels of a four-point gain in May and is reflective of the continued, gradual improvement we are seeing in many individual housing markets as more buyers decide to take advantage of today’s low prices and interest rates,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla."

MP: The top chart above shows the historical relationship between the NAHB/Wells Fargo HMI (blue line, through June) and the number of new, single-family housing starts (red line, through April) back to 1985. Although builder confidence is still far below pre-recession levels, it has been on a definite upward trend since the index dropped to an all-time historical low of 8 in January 2009, and has now rebounded this month to a five-year high. However, the HMI has to rise above 50 before more home builders view conditions as good than poor, so the market for new homes obviously still has a long way to go. 

In another sign that home building is recovering, even if it's at a slow pace, the prices for framing lumber - the wood used for new home construction - have been rising (see bottom chart above, data here).  Weekly lumber prices have increased by about $100 per 1,000 board feet since last winter, rising from $252 in early November to above $340 in each of the last four weeks. Except for an artificial run-up in lumber prices in April 2010 that was related to the home-buyer tax credit that expired in May 2010, lumber prices in recent weeks have returned to the highest levels since the spring of 2006.  The rising lumber prices to six-year highs is possibly reflecting increased demand in recent months for new home-building and other construction projects. 

Anecdotally, I just heard about a cabin owner in northern Minnesota whose property is located 100 miles from the North Dakota border, and the person is getting bids for a new garage.  The local builders said that lumber is hard to get, and also very expensive, partly because of the building boom going on in North Dakota.  So there are some hopeful signs of a real estate recovery, and we'll find out more on Thursday when the National Association of Realtors reports on existing-home sales for May.  

Update: A few related comments about today's NAHB report, from the WSJ:

Joshua Shapiro, economist, MFR Inc.: “The cumulative 15-point gain reported in the nine months to May had lifted this index to its best level since May 2007. These recent results would seem, therefore, to point to significant gains in single-family housing starts, something that so far has not occurred even with record warmth this past winter. The next few months will be critical in determining to what degree homebuilders follow their more optimistic talk with action.”

Cooper Howes, economist, Barclays Capital: “This report is in line with our view of a continued housing recovery in 2012, and we expect this year to be the first since 2005 in which residential investment will provide a positive contribution to real GDP growth.”

Cartoon of the Day

Monday Afternoon Links

1. Robert Samuelson in today's Washington Post: "President Obama committed a colossal error of judgment in making health-care “reform” a centerpiece of his first term."

2. The case for economic optimism despite gloomy headlines, from "heartland economist" Jim Paulsen of Wells Capital Management in Minneapolis.

3. Photos: The 25 best skylines in the world. (ht/Craig Newmark) 

4. Iowa consumers benefit from lower natural gas prices and utility rates.

5.  Sunday Washington Post article on the U-VA Kerfuffle: Ousted President Teresa Sullivan Has Hired a Lawyer, and the Board Has Hired a PR Firm.  That's not a good sign.

6.  Small businesses that make machines and components for other manufacturers are experiencing an upswing that could be a sign of things to come for the broader economy.

Are Real Estate Commissions Fixed?

Steven Landsburg points to an economic riddle about real estate commissions:

"In many real estate markets (including the one where I’m currently shopping), the agent’s commission is equal to a fixed percentage of the sale price. (Typically it’s 6%, though this is split evenly between the buyer’s and seller’s agents, each of whom gives a cut to their respective agencies, so either agent’s take-home is more on the order of 2%).

This means that if you sell a million-dollar house, you earn TEN TIMES the commission of your identical twin who sold a hundred-thousand-dollar house, though I doubt very much that you did ten times the work or bore ten times the expense.

Now, plenty of hundred-thousand-dollar houses are being sold, which means that plenty of agents are settling for the relatively dinky commissions. Question: Why are those agents not attempting to steal some of the high-end business by offering to accept a smaller percentage? After all, 1% of a million is still a lot more than 2% of a hundred thousand.

You might say that the agencies collude to restrain them — but what stops a rogue agency from busting the cartel?

So what’s going on? I see something that looks a lot like a competitive labor market where different workers receive substantially different wages for doing pretty much the same thing. Economic theory says that under very general circumstances, that can’t happen. Why is this market different from all other markets?"

Here are some related questions/puzzles:

1. Why is the 6% real estate commission typically fixed, regardless of whether the house sells in the first hour or day after being listed, or is sold only after a year of marketing, advertising, holding numerous open houses, etc.?  

2. Why is the 6% real estate commission typically fixed, regardless of whether two agents are involved (one working with the buyer and one representing the seller), or whether a single agent is involved, e.g. selling a home at an open house to buyers who are not represented by a real estate agent, in which case one agent gets to "hog" both sides of the commission?

So I guess the basic question is: In a competitive market, and especially during a slow market like during the last three years, why don't we see more competitive and creative fee arrangements that might include adjustments for: a) the price of the house, b) the time it takes to sell the house, and c) whether one or two agents are involved in the transaction?

Some of the commenters on Steve Landsburg's blog point out that there are typically two agents involved in a transaction, and if the listing agent agrees to a commission below 6%, the agents working with buyers might be reluctant to show those houses.  That seems plausible, but I thought I'd add some additional questions, and see what CD readers have to say.  Perhaps there are some companies out there with fee arrangements challenging the status quo?  

Factual Free-Market Fairness

Deidre McCloskey defends the free market and makes the important point that "Efficiency is not the chief merit of a market economy: innovation is," along with providing many examples of "government failure" and "unintended consequences," here's a sample:

"In the 19th and 20th centuries ordinary Europeans were hurt, not helped, by their colonial empires.  Economic growth in Russia was slowed, not accelerated, by Soviet central planning.  American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High-Street shops and protected monopolies of professional services like medicine, not the consumers.  “Protective” legislation in the United States and “family-wage” legislation in Europe subordinated women.  State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats.  Some of the New Deal prevented rather than aided America’s recovery from the Great Depression.

Unions raised wages for plumbers and auto workers but reduced wages for the non-unionized.  Minimum wages protected union jobs but made the poor unemployable.  Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians and made housing more expensive for the poor.  Zoning and planning permission has protected rich landlords rather than helping the poor.  Rent control makes the poor and the mentally ill unhousable, because no one will build inexpensive housing when it is forced by law to be expensive.  The sane and the already-rich get the rent-controlled apartments and the fancy townhouses in once-poor neighborhoods.

Regulation of electricity hurt householders by raising electricity costs, as did the ban on nuclear power.  The Securities Exchange Commission did not help small investors.  Federal deposit insurance made banks careless with depositors’ money.  The conservation movement in the Western U. S. enriched ranchers who used federal lands for grazing and enriched lumber companies who used federal lands for clear cutting.  American and other attempts at prohibiting trade in recreational drugs resulted in higher drug consumption and the destruction of inner cities and the incarcerations of millions of young men.  Governments have outlawed needle exchanges and condom advertising, and denied the existence of AIDS."

HT: Morgan Frank

Sunday, June 17, 2012

Classic Milton Friedman on the Minimum Wage

"The minimum wage law is most properly described as a law saying that employers must discriminate against workers who have low skills."

Update: The minimum wage illustrated (ht/VangeIV):