"I, Pencil" Updated to 2012 Version "I, Smartphone"

The "I, Smartphone" video above is a modernized 21st century version of the classic essay "I, Pencil," written in 1958 by Leonard Reed, founder of  the Foundation for Economic Education, and explained below by Milton Friedman in about 1980. 

 

Maybe Private Sector is Doing Fine? Growth in Post Recession "Private GDP" (3%) is Above Average

 The chart above shows annualized growth rates for: a) the quarterly, non-government, private-sector components of real GDP (personal consumption expenditures, gross private domestic investment, and net exports), see blue bars in chart, and b) the quarterly component of real GDP for "government consumption expenditures and gross investment" (brown bars).

First Trust Portfolios (Brian Wesbury et al.) is the only organization I know that calculates and reports "private real GDP" on a regular basis, here's their most recent commentary: "We’ve been tracking real “private” GDP (real GDP excluding government purchases), which grew at a 2.2% annual rate in Q2 and is up 3.3% in the past year."

For Q2, "public sector GDP" decreased -1.44%, and it was the eighth straight quarter of negative growth for total government spending, averaging -2.88% per quarter over the last two years. In contrast, there have been 12 consecutive quarters of positive growth for private sector GDP averaging 3.07% per quarter in the three years since the recession ended, which is slightly higher than the 2.8% average growth rate in private real GDP over the last 25 years.  Most of the decline in government spending over the last few years has come from cuts in defense spending at the federal level, and ongoing cuts in government spending by local and state governments.     

So maybe it's true that the "private sector is doing fine" and most of the sub-par economic growth measured by real GDP is simply reflecting the decreases in government spending, and not weakness in the private sector?  In that case, maybe the sub-par recovery has some positive effects of shrinking government?  And why don't more economists, analysts, and reporters calculate and report private- and public-sector economic growth separately?

Comments welcome.

Update: See related post by Catherine Rampell at Economix Blog, "‘Big Government’ Isn’t So Big by Historical Standards. It’s Also Shrinking."

Libertarian Candidate Will End War on Drugs

In his new advertisement above, Libertarian presidential candidate Gary Johnson promises to end the "War on Drugs Peaceful Americans Who Choose to Voluntarily Use Intoxicants Not Currently Approved of By the Government," and says "The fact is, marijuana users are no more criminal than our commander-in-chief. So what's up Mr. President, it's OK for you to do it, but everybody else should be arrested and go to jail?"

Johnson's ad features the photo below from the Prohibition-era, back when beer was one of the intoxicants not approved of by the government:

 

Great Interactive Chart of the Summer Olympics

From The Economist, a really interesting interactive map/chart of the Summer Olympics back to 1896, here are some factoids:

1. The first Summer Olympics was held in Athens, Greece in 1896, with 14 participating countries (see graphic above).

2. By 1900, the number of participating countries increased to 28 for Olympiad II, hosted by Paris, France. 

3. The U.S. hosted the Summer Olympics for the first time in 1904, and it was held in St. Louis. 

4. London hosted the Summer Olympics for the first time in 1908. 

5. The 1916 Summer Olympics in Berlin was cancelled due to World War I, and the Summer Olympics in 1940 (scheduled in Tokyo) and 1944 (scheduled for London, re-scheduled for 1948) were cancelled due to WW II.

6. London is first city to host the Summer Olympic games three times (1908, 1948, 2012).

Lots of other Olympic trivia appears on the individual screens for each Summer Olympic event (you can stop the graph by clicking on the arrow on the right).  

Expect Significant "Medal Inequality" at the 2012 London Olympics. Should There be a "Medal Tax"?

	Share of Adjusted Gross Income, 2008	Share of Olympic Medals, 2008
Top 5%	34.73%	36.22%
Top 10%	45.77%	53.11%
Top 25%	67.38%	71.47%
Top 50%	87.25%	91.03%

The table above shows a comparison of: a) the shares of Adjusted Gross Income for the top 5%, 10%, 25% and 50% of U.S. taxpayers in 2008 (IRS data here), and the shares of the Summer Olympic Medals for the top 5%, 10%, 25% and 50% of countries that earned at least one medal in 2008 (data here).   

Notice the amazing similarity between the shares of adjusted gross income earned in the U.S. in 2008 and the shares of the 1,918 Olympic medals awarded in 2008, in both cases by the top 5, 10, 25 and 50% of "participants" or "earners."
 

The "income inequality" that seems to disturb so many people in the U.S. is very closely matched with an even slightly higher degree of "Olympic medal inequality," and we'll likely get the same unequal distribution of Olympic medals this summer in London.  It's almost certain that we'll hear no objections or concerns over the next few weeks about the inevitable and significant "medal inequality," and that inequality will generate no calls for "medal taxes" on the top 5% of medal winners (e.g. U.S., China, Russia or the U.K. in 2008) or "medal redistribution" from the U.S. and China to the dozens of countries that will win no medals. 

Just imagine for a moment how "Olympic medal taxes," and especially a "progressive Olympic medal tax," with subsequent "medal redistribution" at the Final Ceremony to achieve a more "equal distribution of medals" would quickly destroy the competitive spirit of the Olympics and reduce the overall level of athletic performance, especially for the "extreme," world-class athletes at the top like Michael Phelps. If the final ceremony at the Olympics included imposing a medal tax on an "extreme athlete" like Michael Phelps, and redistributing some of his gold medals to countries that earned "too few" medals by some consensus (or no medals like Bolivia, Pakistan, Uganda and dozens of other countries in 2008), you can imagine what might happen - he might not show up at the next Olympics, or certainly wouldn't have the same incentive to train as hard.

We might get the same outcome when we attempt to tax the top, or "extreme income earners" - at some point they'll stop working or won't have the same incentive to work as hard and earn as much taxable income.

Bottom Line: The Olympic medal winners are respected and admired, despite the significant amount of "medal inequality" that results from that intense world-class competition. Instead of always vilifying them, perhaps we should pay the same respect to the world-class winners of the American free enterprise system - the successful "extreme" entrepreneurs at the top of our economic ladder who are represented in the top 1, 5 and 10% by income.

Energy Fact of the Day: U.S. Crude Oil Production (ex-Alaska) Reaches a 23-Year High in June

One of the more interesting items buried in today's 213-page Monthly Energy Review from the EIA (full report here) is the fact that U.S. crude oil production for the lower 48 states is estimated to have reached a 23-year high in June of 5.74 million barrels per day (see chart above, data here).  That would be the highest monthly crude oil production in the lower 48 states since 5.76 million daily barrels of oil were produced in June of 1989.  During the first half of 2012, the EIA estimates that oil production in the non-Alaska states increased almost 13% compared to the same period last year, boosted by the strong, ongoing gains in North Dakota shale oil (+67% year-to-date through May) and Texas shale oil (+17% year-to-date through May).

Thanks to advances in technology (fracking and horizontal drilling), domestic oil production has been increasing since 2010, reversing a quarter-century downward trend in U.S. oil production that started in the mid-1980s (see chart above).  Over the last year, we've seen one of the largest annual increases in domestic oil production (in the 48 states) in the history of monthly EIA data on U.S. oil production going back to 1973.

America's booming energy sector, especially the increased production related to shale oil and gas, is America's "economic bright spot" right now, and continues to get better and brighter all the time.  As weak as economic growth is right now, imagine what the state of the current U.S. economy would be like if we didn't have the booming oil and gas industry that is bringing energy prosperity and shovel-ready jobs to states like North Dakota, Texas and Pennsylvania.  Without the game-changing, $1 billion per day energy stimulus to America, it's possible that the U.S. economy would have entered another recession by now.   

Weekly Update on the Bakken Boom, It Just Keeps Getting Better and Better All the Time

Bruce Oskol of the Million Dollar Way blog sends along these recent updates on the impressive Bakken boom: 

1. Diversified energy company ONEOK (NYSE: OKE, currently trading at an all-time high of $45.21 per share, and 26% above a year ago) announced $1 billion of new investments in energy projects, including a fourth (and unplanned) 100 million cubic feet natural gas processing facility in the Bakken. This is huge. 

2. Bentek Energy predicts a natural gas boom for the Bakken. Remember, the Bakken field is an oil field; the natural gas is a by-product in the Bakken. 

3. Natural gas was estimated to add 3 - 5 percent of economic value to the Bakken; original estimates were that $3 to $4 billion will be required to develop the natural gas in Bakken; that estimate has now been moved up to $15 billion based on the Bentek Energy study suggesting a natural gas boom is pending in the Bakken. 

4. There are now reports that North Dakota is producing up to 800,000 bbls. of oil per day. I think that's a stretch; most recent official figures are 639,000 bbls., but huge increases are projected for this summer due to additional well completion crews being sent to Williams County, where activity has shifted. (McKenzie County activity also growing.) 

5. Occidental (a $72 billion market cap company) reported that it increased worldwide oil production in Q2 of 2012, and much of the increase was due to the Bakken. 

6. Whiting, a Bakken-centric oil company, had a stellar second quarter, especially in light of how the majors (XOM, CVX, and COP) did. 

7. The Bentek Energy study suggests oil production in the Bakken could go from current 639,000 bopd, to a peak of 2 million bopd by 2025, the highest estimate yet. 

8. The Bakken has moved from exploratory to development stage. More and more leases are held by production and urgency to drill will lessen. 

9. There is a flurry of activity at state level to issue permits for the Fort Berthold Indian Reservation, in the Heart Butte oil field. Native Americans are becoming huge beneficiaries of the Bakken boom.

Here's a Michigan Business That Did NOT Happen

President Obama: "If you’ve got a business -- you didn’t build that.  Somebody else made that happen." Or in the case of 13-year old entrepreneur Nathan Duszynski in Holland, Michigan, who tried to start a business, and somebody else (government bureaucrats) made that not happen, as I reported on CD last week.  Here's a video update from Michigan's Mackinac Center for Public Policy:

From the Mackinac Center: "In Holland, Mich., a 13-year-old entrepreneur thought he would be able to sell hot dogs and financially help his disabled parents with the purchase of a food cart. Unfortunately, city zoning officials have shut down his business, based on an ordinance that prohibits competition to brick-and-mortar restaurants from mobile food vendors. The Mackinac Center's own Anne Schieber investigates."

North Dakota: Where the Jobs and Opportunity Are

From the Twin Cities Star Tribune:

"Right now you are probably asking yourself: "What would it be like to live in a place with an unemployment rate of 1 percent?" Me, too! So I went to Williston, N.D., to find out.

There are certain things that journalists do as a public service because you, the noble reader, are probably not going to do them for yourself -- like attending charter revision meetings or reading the autobiography of Tim Pawlenty. Going to Williston is sort of in this category. The people are lovely, but you're talking about a two-hour drive from Minot.

If you did come, however, you would feel really, really wanted. Radio ads urged me to embark on a new career as a bank teller, laborer, railroad conductor or cake decorator. The local Wal-Mart has a big sign up, begging passersby to consider starting their lives anew in retail sales.

The Bakken Region Recruiter lists openings in truck driving, winch operating and canal maintenance work, along with ads for a floral designer, bartender, public defender, loan officer, addiction counselor and sports reporter. All in an area where the big city has a population of around 16,000."

Read more here. 

Move Over Bakken, Here Comes Eagle Ford Shale

The world's largest economics organization IHS Global Insight is reporting today that the Eagle Ford Shale area in South Texas will likely be an even more prolific oil-producing area than the booming oil-rich Bakken region of North Dakota:

"Strong drilling results, coupled with the large prospective area, and magnitude of the resource potential, combine to make the Eagle Ford Shale play in South Texas a contender for the best tight oil play in the U.S., according to a new report from IHS, the leading global source of information and analytics.

According to the IHS Herold Eagle Ford Regional Play Assessment, typical well performance as well as peak-month production of the Eagle Ford’s best wells exceeds wells drilled in the Bakken Shale, often considered the tight oil standard. The favorable outlook for the Eagle Ford is reflected in a highly competitive merger and acquisition (M&A) environment, with implied deal values averaging $14,000 per acre for Eagle Ford acreage in 2011 and top prices approaching $25,000 per acre.

“Our analysis at IHS indicates that Eagle Ford drilling results to date appear to be superior to those of the Bakken,” said Andrew Byrne, director of equity research at IHS and author of the study. “Although the well counts aren’t nearly as high at this point in development of the Eagle Ford, the peak of the well-distribution curve compares favorably with the Bakken.”

The most frequent well result of the Eagle Ford is around 300 barrels per day to 600 barrels-per-day for a peak month production average, compared with 150 barrels-per-day to 300 barrels-per-day for the Bakken, Byrne said. The best wells in the Bakken have an average peak-month production rate of 1,000 barrels-per-day or more, while the Eagle Ford central area’s top wells are even better on a barrels-of-oil-equivalent (BOE) -per-day basis."

MP: Peak what? 

May Travel Volume +2.3%, Largest Gain Since 2009

The Federal Highway Administration (FHA) reported recently that "travel on all roads and streets" in the U.S. increased by 2.3% in May compared to May 2011.  That was the largest monthly gain in motor vehicle travel since a 2.8% increase in November 2009, two and-a-half years ago (see chart above). On a year-to-date basis, traffic volume through May this year is 1.2% higher than the same period last year.

The May gain in monthly traffic volume was widespread geographically across all five regions of the country, with especially strong increases of 3% in the "North Central" and "South Gulf" regions. Additionally, the FHA reported that its "moving 12-month total of vehicle miles traveled" increased by 5 billion miles in May, which was the largest monthly improvement in that measure of traffic volume since August 2007. 

MP: The strong increase in May traffic volume over last year, along with the year-to-date improvement over last year and the strong gain in the 12-month total of miles traveled,  provide some additional evidence of a economy growing moderately, with no danger yet of being on the front edge of another recession.   

CPI for Natual Gas Falls to Nine-Year Low This Year

 

The chart above displays the monthly CPI series for "Utility (piped) gas service" back to 2000 (the series equals 100 in 1983), and shows the significant benefits of the shale gas revolution for American consumers. Despite a slight uptick in June, the CPI measure of the price consumers pay for natural gas last month was the lowest since February 2003, more than nine years ago.  And compared to the peak index level four years ago in the summer of 2008 of almost 300, the price index for natural gas today is almost 50% lower at 161 in June.  

Consumers might be paying higher prices this year for some food items, medical services, college tuition and textbooks, clothing and other goods and services, but one of the consumers' best friends is natural gas, thanks to the abundance of shale gas and the resulting falling prices.  Just like advances in technology have dramatically lowered the price of electronic goods, computers and software, and cell phone services, so has technology (fracking and horizontal drilling) lowered the price of natural gas for American consumers and businesses.  Result? Those technology-driven falling prices have significantly raised our standard of living.  

Markets in Everything: $40 Foot-Powered Washing Machine That Could Change Millions Of Lives

From Fast Company -- "About a year ago, two students from the Art Center College of Design named Alex Cabunoc and Ji A You traveled from Los Angeles to Cerro Verde, a 30,000 person slum outside of Lima, Peru. Their goal? Develop a commercial product that alleviates issues related to water poverty, targeted at people who earn between $4 and $10 a day." 

Here's what they came up with:  

"The GiraDora (see picture above and video demonstration below) is a blue bucket that conceals a spinning mechanism that washes clothes and then partially dries them. It’s operated by a foot pedal, while the user sits on the lid to stabilize the rapidly churning contents. Sitting alleviates lower-back pain associated with hand-washing clothes, and frees up the washer to pursue other tasks. It’s portable, so it can be placed nearby a water source, or even inside on a rainy day. It reduces health risks like joint problems, skin irritation, and mold inhalation. Most importantly, it uses far less water and cleans clothes faster than conventional hand-washing. This equates to more free time, explains Cabunoc, and the opportunity to 'break the cycle of poverty.'"

Energy Fact of the Day: North Dakota Oil Could Offset All Persian Gulf Imports by 2025

BISMARCK, N.D. (AP) — "A new study says North Dakota's oil production could jump more than threefold by 2025 to more than 2 million barrels a day. 

The study released Wednesday by Bentek Energy LLC of Colorado also says natural gas production could more than quintuple by 2025 in the Williston Basin. The basin includes the Dakotas and Montana."

MP: If oil production in North Dakota increases to 2 million barrels per day from current daily production of 639,000 barrels, that would be more than enough domestic oil to completely offset current daily U.S. imports of 1.86 million barrels from all of the Persian Gulf countries combined (for 2011, EIA data here)!

Peak what?

In a Letter to Congress, Some Economists Refute the Law of Demand and Propose a 35% Increase in the Minimum Wage to Stimulate the Economy

A group of prominent economist including Robert Reich, Jeffrey Sachs, Joseph Stiglitz and Laura Tyson have sent a letter to Congressional leaders recommending a 35% increase in the minimum wage from $7.25 per hour to $9.80 per hour by 2014. 

The group identifies the following benefits from a 35% increase in the minimum wage:

1. "This policy would directly provide higher wages for close to 20 million workers by 2014. Furthermore, another nearly 9 million workers whose wages are just above the new minimum would likely see a wage increase through “spillover” effects, as employers adjust their internal wage ladders."

2. "A minimum wage increase can also serve to stimulate the economy as low-wage workers spend their additional earnings potentially raising demand and job growth. Therefore, pursuing a higher minimum wage at this juncture will not only provide raises for low-wage workers but would provide some help on the jobs front as well."

And what about the costs of artificially raising the minimum wage for unskilled workers? Well, there apparently are none!  Here's the only thing the letter says about costs:

"In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market."

MP: Here are some important questions for the group of economists who apparently believe in a perfectly (or nearly) vertical demand curve for unskilled labor:

If a 35% increase in the government-mandated wage for unskilled workers can deliver such a huge stimulus to the economy by directly raising earnings for 29 million workers (almost 22% of payroll employment),  and then creating a secondary stimulus through increases in both spending and jobs throughout the economy, why are you being so stingy? Why not advocate an even larger increase in the government-mandated minimum wage by 50 or 75% to create an even larger economic stimulus?

With U.S. GDP of $15T, Many Large Metro Areas Have Larger Economies Than Entire Countries

From the WSJ:

Inside the $15 trillion machine that is U.S. economy are dozens of metropolitan economies, from New York to Honolulu, that are the real pistons and gears of U.S. growth and prosperity. So how do those individual economies stack up against the world?

Take the quiz below, and for answers see this chart.

1. New York has the highest Gross Metropolitan Product (GMP) of any U.S. metropolitan area — $1.287 trillion. That is bigger than the GDP of all but how many countries (not including the U.S.)?

a) 5

b) 8

c) 10

d) 12 

2. Houston’s GMP is larger than which of the following nations’ GDP?

a) South Africa

b) Venezuela

c) Finland

d) All of the above

3. The implications of Greece’s financial troubles appear woefully larger than its tiny economy. With a $300 billion GDP, what U.S. metro economy is that closest to?

a) Chicago

b) Philadelphia

c) Atlanta

d) Miami

4. Ireland’s GDP is smaller than which of the following U.S. cities’ GMPs?

a) Seattle

b) Minneapolis

c) Detroit

d) None of the above

CEO Won't Hire People Who Use Poor Grammar

Kyle Wiens, CEO of iFixit, the largest online repair community, and founder of Dozuki, a software company dedicated to helping manufacturers publish amazing documentation, explains on the Harvard Business Review blog why "I Wont' Hire People Who Use Poor Grammar. Here's Why":

"I am a grammar "stickler." I have a "zero tolerance approach" to grammar mistakes that make people look stupid.

Everyone who applies for a position at either of my companies, iFixit or Dozuki, takes a mandatory grammar test. If job hopefuls can't distinguish between "to" and "too," their applications go into the bin.

Yes, language is constantly changing, but that doesn't make grammar unimportant. Good grammar is credibility, especially on the internet. In blog posts, on Facebook statuses, in e-mails, and on company websites, your words are all you have. They are a projection of you in your physical absence. And, for better or worse, people judge you if you can't tell the difference between their, there, and they're.

Good grammar makes good business sense — and not just when it comes to hiring writers. Writing isn't in the official job description of most people in our office. Still, we give our grammar test to everybody, including our salespeople, our operations staff, and our programmers.

On the face of it, my zero tolerance approach to grammar errors might seem a little unfair. After all, grammar has nothing to do with job performance, or creativity, or intelligence, right?

Wrong. If it takes someone more than 20 years to notice how to properly use "it's," then that's not a learning curve I'm comfortable with. So, even in this hyper-competitive market, I will pass on a great programmer who cannot write.

Grammar signifies more than just a person's ability to remember high school English. I've found that people who make fewer mistakes on a grammar test also make fewer mistakes when they are doing something completely unrelated to writing — like stocking shelves or labeling parts.

I hire people who care about those details. Applicants who don't think writing is important are likely to think lots of other (important) things also aren't important. And I guarantee that even if other companies aren't issuing grammar tests, they pay attention to sloppy mistakes on résumés. After all, sloppy is as sloppy does.

That's why I grammar test people who walk in the door looking for a job. Grammar is my litmus test. All applicants say they're detail-oriented; I just make my employees prove it."

HT: Chris Matheson

Raising the Minimum Wage by 38% to $10 per Hour Would Be “Economic Malpractice”

In a recent column about the minimum wage titled “Raising the Minimum Wage is Cheap and Easy,” economist Dean Baker writes:  “There are some policies that are pretty much no-brainers.  Most recent research finds that [the minimum wage] has no impact on employment. Even the research that finds job loss shows that the effect is small, suggesting that a 20 percent increase in the minimum wage may reduce employment of young people by around 2 to 3 percent.”

Unlike Baker, and contrary to his assertion that the “minimum wage is non-controversial,” most economists believe in the Law of Demand, which means that there is a non-controversial inverse relationship between wages and the number of workers hired.   

 Artificially raise the required minimum wage for unskilled workers and the employment of unskilled workers will fall according to the non-controversial laws of economics, just as surely as water will run downhill according to the non-controversial laws of physics. 

Baker claims that the “only real issue regarding the minimum wage is how high it should be,” and he then goes on to propose a 38 percent increase in the minimum wage from $7.25 to $10 an hour.  One might wonder why Baker is being so stingy, and ask if it wouldn’t be better to artificially mandate a minimum wage of $20 or $30 per hour, but let’s put that issue aside and consider only the most important issue: how much of an adverse effect on employment and unemployment will result from a 38 percent increase in the minimum wage for young Americans aged 16-19 years old (the group most affected by the minimum wage)?

Let’s use the research cited by Baker that finds only “small” effects of a 2-3 percent reduction in employment from a 20 percent increase in the minimum wage.  Accordingly, a 38 percent increase in the minimum wage to $10 per hour would reduce teenage employment by between 3.8 and 5.7 percent.  And what would that mean for the number of jobs eliminated and the increase in the jobless rate?   

The Department of Labor estimates that there are currently just under six million teenagers currently in the labor market.  About 4.5 million of them are employed, and 1.4 million are unemployed, resulting in a 23.7 percent June jobless rate for that group.   

If the 38 percent increase in the minimum wage to $10 per hour had the minimum effect of reducing teenage employment by “only” 3.8 percent, that would put 171,000 currently-employed teenagers out of work and increase the teen jobless rate almost three full percentage points to 26.6 percent.  At the high end, a 5.7 percent reduction in teen employment would put almost one-quarter million teenagers out of work and drive the teenage jobless rate up to 28.1 percent, the highest rate in history. 

Actually those estimates of the new, higher unemployment rates are conservative because raising the minimum wage by almost $3 per hour would certainly attract new unskilled workers into the labor market.  With thousands of additional job seekers, the jobless rates would be even higher than the static estimates above.

Bottom Line: Raising the minimum wage is always a bad idea, because it harms the very workers whom we want to help -- unskilled, inexperienced teenage workers who desperately need jobs to get the experience, training and work habits that will eventually make their market value much higher than the minimum wage.  But to raise the minimum wage by 38 percent as Baker proposes, during the worst jobless recovery in modern history when the unemployment rate for 16-19 year olds is already 23.7 percent, would be a serious case of  “economic malpractice.”  For the hundreds of thousands of teenagers who would lose their jobs, or not find them in the first place, a 38 percent increase in the minimum wage at this time wouldn’t be “cheap and easy,” but would be more accurately described as “expensive and devastating" for America's unskilled workers.

Evidence Mounts: U.S. Real Estate Market Has Passed Bottom and Entered a Period of Recovery

The Federal Housing Finance Agency (FHFA) released its monthly report today on U.S. home prices in May, based on its House Price Index (HPI) for houses financed or guaranteed by Fannie Mae or Freddie Mac. According to the FHFA, home prices increased in May by 0.8% from April to an index level of 188.06, which was the highest level for home prices since August 2010 (see top chart above).  The April-May increase in the HPI was the fourth back-to-back monthly price increase starting in February, and was the largest four-month increase in home prices (3.47%) since the fall of 2005.

Over the last year, home prices have increased by 3.7% since May 2011, and that annual gain was the largest yearly increase in home prices since September 2006, almost six years ago (see bottom chart).  It was also the first time of four consecutive annual increases since the summer of 2007. 

In related housing news today, leading real-estate information provider Zillow reported that its Home Value Index increased in the second quarter by 0.2% from last year, marking the first annual gain in its measure of home prices since 2007.  Zilllow's chief economist Stan Humphries declared that the increase in home prices for the first time in almost five years means that the U.S. real estate market has finally reached a bottom and has now entered a new period of gradually increasing home values.

Bottom Line: The evidence continues to mount that we've passed the bottom of the U.S. housing market, as we continue to see sales gains for both new and existing homes, and gradual but ongoing increases in home prices according to various sources like the FHFA, Zillow, CoreLogic and the National Association of Realtors (median existing-home price in June was the highest since 2008).  Moreover, home builder confidence reached a five-year high this month, and the S&P Homebuilders Index has gained 20% over the last year (compared to an overall flat stock market), which provides additional evidence of a real estate recovery.  With record-low mortgage rates and pending sales at the highest level in two years, we can look for more improvements in the real estate market going forward through the rest of the year.

Corporate Greed? What about "Worker Greed"

We hear all the time about “corporate greed.” Do a Google search for that term and you’ll find more than 2 million results. But we almost never hear about “worker greed” (only 3,390 results) or “consumer greed“ (50,500 results). Here’s an excerpt from a Boston Globe story from 2009 about firefighter "pension spiking" that clearly illustrates an example of excessive “worker greed”:

Nearly 30 Boston firefighters with pending disability claims filed for retirement yesterday, just two days before a new state law ends a controversial benefit that allows them to significantly enhance their pensions if they claim career-ending injuries occurred while filling in for a superior at a higher pay grade. 

Of the 29 who filed yesterday, 25 said they were filling in for a superior at the time of their injuries, according to city officials, which makes them eligible for a pension benefit at the higher salary scale. That perk, which can add hundreds of thousands of dollars over a retiree’s lifetime and cost taxpayers millions, will not be available to anyone filing after today. 

“This is highly unusual,’’ said Kathleen Kiely-Becchetti, executive director of the Boston Retirement Board, of the number of firefighters who filed for retirement yesterday while their disability claims were still pending. 

The race to file yesterday is the first obvious reaction to the sweeping pension law that was passed by the Legislature and signed by Governor Deval Patrick earlier this month. The claims filed by the firefighters yesterday – and an expected rash of new claims today – could cost Boston taxpayers millions in additional payouts at a time of major budget constraints, fire officials said. 

Boston Fire Commissioner Roderick J. Fraser Jr. said firefighters are clearly taking advantage of the final days before the new clampdown on enhanced pensions goes into effect. 

“The old system provided a financial incentive for people to file for accidental disability while they were filling in for supervisors,’’ he said. “This illustrates that fact.’’ 

Suspected disability retirement abuses and pension excesses have been a chronic problem at the Boston Fire Department, prompting an inquiry by the FBI. 

A Globe review of city retirement and payroll records last year found that, over the prior six years, 102 Boston firefighters had substantially enhanced their tax-free disability pensions by claiming career-ending injuries while they were filling in for superiors at higher pay grades. Some firefighters have sought the enhanced benefit after filling in for a superior for just one day, leading critics to call it the “king-for-a-day’’ provision. 

MP: Corporate managers and business owners don’t have a monopoly on greed, and consumers and workers don’t have a monopoly on virtue. In their role as consumers and workers, individuals can be just as ruthless, cut-throat, and greedy as some corporate executives, like in the case of the extremely unethical, self-centered behavior of the Boston firefighters described above.

The U.S. Energy Sector Delivers an Economic Stimulus of Almost $1 Billion Every Day

According to a new report from Merrill Lynch, read about it here.

Monday Economic Updates

1.The Chicago Fed’s 85-variable “National Activity Index” improved in June, and provides no evidence of a U.S. recession, see chart above and read more here.

2. Comerica Bank's "Michigan Economic Activity Index" climbed in May to the highest level since early 2005, see chart above. Further, building permits issued in Michigan during the month of May were the highest since October 2007.  Read more here about Michigan's economic recovery.

3. Minneapolis-St. Paul is the latest metro area with a sizzling June real estate report: Home sales increased 13.8%, pending sales increased 16%, the median sales price increased by 10.7% to almost a four-year high of $179,500, average time on the market fell to a six-year low of 113 days, and the "percent of original list price received" increased to almost a five-year high of 96.1%. 

Interesting Fact of the Day: Many of Today's Teens Are Too Busy Surfing and Texting to Drive

The percentage of 19-year-olds in the U.S. who have driver's licenses dropped from 87.3% in 1983 to 69.5% in 2010, according to the University of Michigan's Transportation Research Institute.

"It reflects mostly the increased use of the Internet," said Michael Sivak, research professor and the head of the University of Michigan's Transportation Research Institute. "The virtual contact that is possible through electronic means is reducing the actual physical need of contact among young people. Furthermore, some young people feel that driving interferes with texting and other electronic communication."

Meanwhile, the percentage of people with a driver's license who are 70 or older has increased from 55% in 1983 to 80% in 2010.

Source: USA Today

Retirement Fact of the Day

Three quarters of near retirees (ages 50 to 64) have average total retirement account balances of only $26,395. 

Source via this Sunday NY Times article. 

The Future of Manufacturing: America not China

From the Foreign Policy article: "The Future of Manufacturing Is in America, Not China," by Vivek Wadhwa:

"Ralph Lauren berets aside, the larger trends show that the tide has turned, and it is China's turn to worry. Many CEOs, including Dow Chemicals' Andrew Liveris, have declared their intentions to bring manufacturing back to the United States. What is going to accelerate the trend isn't, as people believe, the rising cost of Chinese labor or a rising yuan. The real threat to China comes from technology. Technical advances will soon lead to the same hollowing out of China's manufacturing industry that they have to U.S industry over the past two decades."

"Several technologies advancing and converging will cause this."

"First, robotics.  The factory assembly that China is currently performing is child's play compared to the next generation of robots -- which will soon become cheaper than human labor."

"Then there is artificial intelligence (AI) -- software that makes computers, if not intelligent in the human sense, at least good enough to fake it. Neil Jacobstein, who chairs the AI track at the Silicon Valley-based graduate program Singularity University, says that AI technologies will find their way into manufacturing and make it "personal": that we will be able to design our own products at home with the aid of AI design assistants. He predicts a "creator economy" in which mass production is replaced by personalized production, with people customizing designs they download from the Internet or develop themselves."

"How will we turn these designs into products? By "printing" them at home or at modern-day Kinko's -- shared public manufacturing facilities such as TechShop, a membership-based manufacturing workshop, using new manufacturing technologies that are now on the horizon."

"By the end of this decade, we will see 3D printers doing the small-scale production of previously labor-intensive crafts and goods. It is entirely conceivable that, in the next decade, manufacturing will again become a local industry and it will be possible to 3D print electronics and use giant 3D printing scaffolds to print entire buildings. Why would we ship raw materials all the way to China and then ship completed products back to the United States when they can be manufactured more cheaply locally, on demand?"

"It's a near certainty that robotics, AI, and 3D-printing technologies will advance rapidly and converge. American companies are already finding the rising cost of labor, shipping costs and time lags, and intellectual-property protection to be major issues in doing business in China."

"The most advanced automobile of today -- the Tesla Roadster -- is already being manufactured in the United States using robotic and AI technologies. Google just announced that it will produce its highly-acclaimed Nexus 7 tablet in the United States. This is just the beginning of the trend. So, let me predict a future headline: 'Protests break out in China over 2020 Summer Olympic uniforms, 3D-printed with U.S.-made technology.'"

HT: Sadanand Dhume

Title IX for America's Most Dangerous Occupation?

Being a firefighter is a very dangerous occupation, although it's been getting slightly safer over time.  According to the National Fire Protection Association, almost 3,600 firefighters died on the job between 1981 and 2011. That's an average of about 115 occupational deaths per year for firefighters, although fortunately there's been a slight downward trend and the  number of deaths last year was only about half the historical average at 61, setting a new record low.

The number of annual injuries for firefighters has been declining as well, but there were still  almost 72,000 incidents last year. That means that almost 200 firefighters were injured on-the-job every day in 2010.  There were slightly more than one million firefighters in 2010 (including 768,150 volunteers), which means that more than 6.5%, and more than one out of every 15 firefighters, were injured or killed on the job in 2010.  That's a lot better than the 10% share of firefighters who were injured or killed in 1991, but it still makes firefighting one of the most dangerous jobs in America (based on both occupational fatalities and on-the-job injuries). 

But there are huge, and persistent gender gaps for firefighters (along with huge gender occupational fatality gaps and huge gender occupational injury gaps), with male firefighters outnumbering female fighters by almost 27-to-1 (96.4% male vs. 3.6% female in 2010). 

Q: Shouldn't the huge gender disparities in firefighting employment, injuries and deaths motivate applying Title IX legislation to this industry with the goal of perfect gender parity?  

For Many Consumer Items, Prices Are Falling

Item	% Change       Last Year
Food (actual prices)
Butter	-14.5%
Lettuce	-13.2%
Bacon	-10.9%
Rice	-9.6%
Cabbage	-9.2%
Ham	-7.2%
Milk	-6.2%
Bread	-5.8%
Broccoli	-4.5%
Tomatoes	-4.3%
Bologna	-3.0%
Peppers	-3.0%
Chuck Roast	-2.7%
Malt Beverages	-2.7%
Flour	-1.7%
Turkey	-1.5%
Bananas	-1.5%
Potatoes	-1.3%
Eggs	-0.8%
Energy
Natural Gas	-13.6%
Fuel Oil	-8.1%
Gasoline	-4.1%
CPI: Household Items
Televisions	-19.5%
Computers	-8.1%
Leased Cars	-6.5%
Toys	-5.5%
Computer Software	-4.3%
Photographic Equipment	-4.2%
Sports Equipment	-1.4%
Wireless Phone Services	-0.6%

The chart above shows a sample of 30 products or services that have experienced deflation in the last year (June 2011 to June 2012 for most items).  The 19 food items and three energy items are based on actual "average price data" from the BLS, and the household items are based on CPI indexes for those items.


Overall, "inflation" describes a period when most prices (and wages, interest rates, and home prices) are rising, and I don't think we're anywhere close to meeting those conditions yet. Certainly not as long as so many prices for food, energy and household items are declining or staying the same, and not rising.  Any notion that "real" inflation is now running about 8-10% at an annual rate according to some adjusted "real" measure of consumer prices seems to be very misguided, and not supported by the actual price data presented above for many food and energy items.  

A Tale of Two Cities and Two Visions; Market-Driven Williston vs. Politically-Driven Fremont

"This tale of two cities has a moral, which is that no political or governmental leader can forecast the future. Barack Obama and his Nobel Prize-winning energy secretary thought solar panels were a huge growth industry. They bet billions of tax dollars and lost.

True, many private investors guessed no better. But they were risking their own money, not ours. And yes, government research provided some early help in developing fracking.

But Fremont and Williston are more evidence, if any is needed, that the collective decisions of participants in economic markets do a better job of allocating resources than the often contributor-driven decisions of a few politicians.

Williston's jam-packed motels and trailers don't look as glamorous as the Solyndra headquarters in Fremont. The weather in North Dakota is seldom as pleasant as the microclimate of the East Bay.

But the Bakken shale is doing much more for America's economy than the shuttered solar panel plant."

~Michael Barone