Saturday, June 30, 2007

Real GDP vs. Real Disposable Income

Robert Hall, Stanford University economist:

"Our command over resources in the world is measured by our real income, not real GDP. Improved terms of trade--cheaper imports--raises our real income even if it does not affect productivity or output. The goal of economic policy should be to maximize the present value of real income. It's just as important to give US consumers access to cheap foreign goods as it is to make real GDP bigger."

Business Week blogger Michael Mandel:

"Now, this is a fascinating alternative perspective, since it seems to imply that real income growth should be the headline number for economic policy, and not real GDP growth."

The graphs above show: a) real GDP growth, which was only 0.70% in the first quarter of 2007, and was 2-2.5% in the last three quarters of 2006, and b) the annualized growth rate of monthly real disposable income over the same period, which has grown at above 4% for the last two quarters. Over the last 10 quarters, real GDP growth has averaged 2.9% compared to 3.4% for real disposable income, or at a half percent higher rate.

Bottom Line: According to real disposable income, the U.S. economy is doing quite well and is growing at a healthy 4% rate this year, but that economic health and vitality is apparently not being captured by real GDP growth, which measures production. We should pay more attention to real income growth, and less attention to real GDP growth.

Friday, June 29, 2007

Marriott To Expand in India

Number of hotel rooms, Las Vegas, Nevada: 132,605

Number of hotel rooms, entire country of India: 100,000

From today's NY Times:

"Marriott International Inc., the top U.S. hotel operator, said today it would more than triple its hotel portfolio in India by the end of 2010 as it cashes in on rising business and leisure travel. Marriott, which manages nearly 2,900 hotels under brands including Ritz-Carlton and Residence Inn, will manage 21 properties by 2010 in India's underserved market (Marriott Mumbai pictured above)."

From today's Hindustan Times:

"The Marriott properties in India will cut across Mumbai, Goa, Hyderabad, Chennai, Bangalore, Gurgaon, Noida, Kolkata, Ahmedabad and Pune. In all, the 21 properties will offer 5,222 rooms. The idea is to cater to all kinds of demands, both from customers within India as well as from other countries."

Bottom Line: As globalization and outsourcing increase India's income and standard of living, its demand for U.S. products and services increases. Exhibit A: Marriott's expansion in India.

Celebrating The 4th of July With Foreign Fireworks

1. Create your own fireworks display here on your computer screen, turn up the volume and go crazy!

2. From today's WSJ: Nearly all the celebratory explosions set off by Americans -- from the lowly New Year's firecracker to next week's mighty Fourth of July mortar -- originate in Liuyang, China, a county nestled into the red hills and bamboo forests of Hunan.

What would Lou Dobbs and the protectionists say about using foreign fireworks to celebrate the 4th of July? Doesn't the outsourcing of fireworks to China cost a lot of American jobs?

Congestion Pricing Works in Minnesota

There are several previous CD posts on congestion pricing for traffice: here, here and here, based on the principles that: a) anytime you have congestion it's because of a failure to apply market pricing, and b) market pricing helps to elminate or reduce congestion.

The WSJ has an article about congestion pricing on I-394 in Minneapolis that introduced HOT (high-occupancy toll) lanes in 2005, where tolls range from 25 cents to $8, varying with the amount of congestion in order to keep traffic moving along at close to 55 miles an hour.

"HOT lanes work like this: Sensors in the pavement track the number of cars and their driving speed. When traffic slows, computers increase the toll to discourage other cars from entering the lanes. Toll amounts are displayed on huge digital signs and debited from an electronic smart card inside the driver's vehicle. At the height of rush hour, drivers can pay around $3 to $5. Carpoolers, buses and motorcycles still use the lane with no toll.

Now the idea is picking up speed across the U.S., with plans under way in more than a dozen cities and states. If all of the express lanes are built, millions of American commuters could face less driving misery every day."

Now who would have expected the People's Republic of Minnesota to be at the country's forefront of market solutions to traffic congestion? See a previous post here on Minnesota's
anti-market solutions to textbook pricing and foreign-made flags.

Quote of the Day: Tragedy of Bill Gates' Charity

Traditional philanthropy is collective, tribal, even. The donor feels noble; paternalism reigns; poverty is perpetuated. Extending the institutons of economic liberty -- even to the limited degree that this has occurred in China and India -- has done more good than would have been achieved had Mr.Gates liquidated Microsoft and shipped all that money to Africa.

The tragedy of Gates-style philanthropy is less that it will do little good but, rather, that he has abandoned the entrepreneurial skills used so creatively in his truly significant wealth-creation work at Microsoft. Had he employed similar skills in dealing with the problems of Africa, he would not simply replicate the tried and failed policies of traditional paternalistic aid. Rather, he would be examining the barriers -- political, cultural, tribal -- that block entrepreneurial activity throughout Africa and explore ways to remove them. Could we, for instance, out-compete the oligarchs and tyrants by creating prizes that would bypass the bureaucracy and achieve success in health- and wealth-creation, in reducing corruption?

~Fred L. Smith, President of the Competitive Enterprise Institute, Letter-to-the-Editor in today's WSJ

Thursday, June 28, 2007

Interesting Facts of the Day

Number of millionaires worldwide in 2006: 9,500,000

Number of millionaires in India in 2006: 100,000 (1 lakh)

Percent increase, Indian millionaires from 2005: 20.5%

Number of U.S. millionaires in 2006: 3,200,000 (32 lakhs)

Percent increase, American millionaires from 2005: 8.3%

Source: 2007 World Wealth Report

Read a Times of India article here and a WSJ article here.

Update: How Buffet Can Make a Gift to the IRS

Tim Worstall has this TCS post about how to make gifts to the U.S. government, and writes "When a campaigner (MP: or Warren Buffet) tells you in his speech that he thinks taxes should be raised, smile sweetly and ask him how much he added to his tax bill last year. After all, if he thinks you should pay more taxes shouldn't he already be doing so voluntarily himself?"

And here is the link to the
Treasury's website with instructions for citizens who wish to make a general donation to the U.S. government into an official account called "Gifts to the United States."

"This account was established in 1843 to accept gifts from individuals wishing to express their patriotism to the United States. Money deposited into this account is for general use by the federal government and can be available for budget needs. These contributions are considered an unconditional gift to the government. Financial gifts can be made by check or money order payable to the United States Treasury and mailed to the address below."

Gifts to the United States
U.S. Department of the Treasury
Credit Accounting Branch
3700 East-West Highway, Room 6D17
Hyattsville, MD 20782

Warren Buffet, take note.

Mr. Buffet: IRS Accepts Voluntary Tax Payments

Greg Mankiw writes today about Warren Buffet saying at a fundraiser for Hillary Clinton that he does not pay enough in taxes, because he was taxed at a rate of 17.7% on income of $46 million (tax bill of $8.142 million) and his receptionist was taxed at 30%.

First, Mankiw points out that Buffet's low 17.7% tax rate was because of the 15% maximum tax rate on dividends and capital, which was a large share of Buffet's taxable income, compared to his receptionist, who probably had only ordinary income taxed at the higher rates, and very little dividend income. Further, Mankiw points out that corporate income is subject to double taxation, and Buffet ignored the first round of taxes on corporate profits at rates up to 35% before Mr. Buffet could receive his dividend checks and pay his 15% tax.

Further, if Buffet thinks 30% is a better, more "fair" rate for rich people like himself, he doesn't have to wait for any changes in the tax code, he can simply write a check to the IRS for an additional $5,658,000 to make up the difference between what he actually paid (17.7% tax rate) and what his receptionist paid (30%). He could have done this to set an example, and then encouraged Hilary Clinton and the 600 Wall Street bankers and money managers attending his talk to do the same.

iPod Teardown: Who Really Makes It?

Turn over your iPod and you'll see that it's "assembled in China." But that doesn’t mean that most of the profits or revenue go there. In fact, only about $2 (less than 1%) of the $299 retail price of a 30GB iPod goes to China (see chart above, click to enlarge), and more than half ($163) goes to American companies and workers, according to a recent study funded by the Sloan Foundation, using "teardown" data from Portelligent.

For a fee of $1950, the company Portelligent provides a complete "full teardown" report for electronic goods like the iPod, cameras, cell phones, etc. Several recent articles discuss Portelligent's "iPod teardown," which identifies the 451 individual parts in a 30GB iPod, the companies that make the parts, and the countries where the parts are made.

As one would expect, the iPod is a highly globalized product, with parts coming from all over the world: Japan, Phillipines, Taiwan, S. Korea, with finally assembly taking place in China.

See UC-Berkeley economist Hal Varian's
IHT article here, "Who really makes the iPod?" and see Computerworld's article here.

Beyond the interersting factoids about the iPod's worldwide components, this study has some very important trade statistic implications as well.

From Computerworld: "Given that the product is manufactured overseas, one might assume that most of the value goes there. In fact, the brand that creates the product reaps a substantial portion of the returns. And when iPods are shipped to the U.S. for sale here, 55% of the purchase price goes back to U.S.-based firms. How ironic, then, that the federal government attributes most of the iPod’s value to China, boosting the trade deficit when it receives the smallest slice of the pie."

From Professor Hal Varian: "This illustrates the futility of summarizing such a complex manufacturing process by using conventional trade statistics. Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to its bilateral trade deficit with the Chinese."

Bottom Line: Our $250 billion "trade deficit" with China is probably hugely overstated because of misleading trade calculations used by the Dept. of Commerce. If the import value of the iPod is overstated by a factor of 75X, think of all of the other similar products imported from China that are probably also grossly overstated!

Unconscionable Movie Popcorn Price Gouging? has an interesting article on the history of movie theater concession stands, which are the lifeblood of the theater business - they account for 40% of theaters' net revenue!

But it wasn't always that way. Far from embracing food sales, many theaters were downright hostile toward them up until the 1930s. "Movie theater owners wanted their venues to remain upscale, free from the chomping of snacks you'd find at burlesque shows; and they wanted their plush theaters garbage-free."

That all changed during The Great Depression, when theater owners sought new sources of revenue, and started selling popcorn for 10 cents a bag. And they kept raising the price over time, way above the rate of inflation.

Assuming movie popcorn today costs about $4 per bag, that is a 40X increase in price. Compare that to gasoline, which sold for about 20 cents a gallon in the 1930s, and now costs about $3, a mere 15X increase in price since the 1930s (see chart above, click to enlarge).

Just wondering, what's next? A "Federal Price Gouging Act" for movie popcorn?

Wednesday, June 27, 2007

Sicko Thoughts

"Feeble"...."inane"... "superfluous"... from The New Yorker

"Canada is a country in which dogs can get a hip replacement in under a week and in which humans can wait two to three years," from the Wall Street Journal article "Who's Really Sicko"

"Michael Moore is grossly overweight. Some experts claim that obesity is an epidemic that is imposing a heavy, and unnecessary, burden on our health care system. If we are all on the financial hook for Michael’s aggressive eating habits in a socialized health care system, it seems like the rest of us must get a say in what he eats," from George Mason grad Matt Kibbe.

What's Your Socioeconomic Status? Find Out

This NY Times website will allow you to determine your socio-economic status in relation to the rest of the population, based on your occupation, education, income, and wealth - you'll get an individual ranking on each of the four factors, and an overall percentile ranking.

World's Worst Currencies

According to Foreign Policy, the world's five worst currencies are the Somali shilling, Iraqi dinar, North Korean won, Venezuelan bolívar and the world's absolutely worst currency, the dollar of Zimbabwe (pictured above), where inflation is currently 3,713% (see chart above) and is expected to rise over 6,000% in 2008 - now that's hyperinflation! At that rate prices would be doubling about every week, and would be rising almost 1% every hour!

The Unconscionably Ridiculous "Unfair Sales Act"

Update: I reported in May about a gas station owner in Wisconsin named Raj Bhandari who got in trouble with state bureaucrats because his gas prices were "too low," at a time when gas prices were actually at an historical high (see chart above, click to enlarge), and everybody was complaining about gas prices being TOO HIGH.

Bhandari, who owns Center City BP in Merrill, Wis., 150 miles north of Madison, was ordered by Wisconsin state regulators in late April to stop offering discounts of 2 cents per gallon to senior citizens and 3 cents per gallon for donors to a youth hockey league, because the programs violated the law. The state's "Unfair Sales Act" makes it illegal for retailers to sell gasoline without marking it up 6% over what they paid or 9.18% over the local wholesale price - whichever is higher. Violators face stiff fines from regulators, and can be sued by competitors for selling gas too cheap.

Raj filed a lawsuit Tuesday seeking to overturn a 1930s state law requiring retailers to mark up the price of gas. "I should be allowed to give whatever discounts I want to give to the people in order to run my business," Bhandari said, and his lawyer added, "Entrepreneurs and consumers - not state bureaucrats - are in the best position to decide the price of gas."

Yeah, and here I thought politicians and bureaucrats were worried about gas prices being too high, not too low! After all, the House just voted 282-141 to pass the Federal Price Gouging Prevention Act to protect consumers against gas prices that are TOO HIGH!

Society and Money)

Natural Correction: Dollar Depreciates

I had a previous post about Indian companies like Tata outsourcing jobs TO the U.S., partly because the appreciation of the rupee vs. the dollar (+10% since fall 2006, see chart above) makes American workers and U.S. products less expensive.

The Economist has a new article "India's Strong Rupee" about this issue:

"The main reason for the rupee's appreciation since late 2006 has been a flood of foreign-exchange inflows, especially US dollars. The surge of capital and other inflows into India has taken a variety of forms, ranging from foreign direct investment (FDI) to remittances sent home by Indian expatriates.

Indian policymakers face a difficult dilemma. On the one hand, the rupee's appreciation has benefited the economy by making imports cheaper. This is no small benefit--containing inflation has been high on the policy agenda during the past year.

On the other hand, for both economic and political reasons, policymakers cannot afford to ignore the problems of exporters. Although exports account for a relatively small share of the economy, India's rapid export growth in recent years has been an important catalyst of economic growth.

In confronting this dilemma, government policymakers are undoubtedly hoping that there will be no need for a major intervention. However, the problem is unlikely to disappear soon."

MP: On the other hand, American workers and exporters should be happy, Indians will buy more of our products and hire more of our workers, but American importers and companies outsourcing work to India will be hurt by the 10% depreciation of the dollar, everything in India is now more expensive. Along with the 12-15% wage increases in India due to fierce competition for workers, hiring Indian workers is now about 25% more expensive than it was a year ago. This is a natural correction taking place due to market forces, and demonstrates that political intervention is not only unnecessary but would only serve to distort the self-correcting and self-adjusting features of voluntary trade.

"Unconscionably Ridiculous" Price Gouging Laws

The chart above appeared in today's Detroit News, as part of my commentary "Energy Bill May Gouge Consumers: Price Controls, Taxes Would Curtail Oil Exploration and Hurt Workers."

"In the name of supposedly protecting consumers, Congress also wants to empower the Federal Trade Commission (FTC) to prosecute companies and individuals who engage in "price gouging" for gasoline and other petroleum products.

Leaders want this even though a congressionally-mandated FTC study of gasoline price increases in the aftermath of hurricanes Katrina and Rita two years ago found no evidence of widespread price gouging or any anti-competitive behavior. The FTC concluded that the price increases were due to the market forces and not to any illegal manipulation by oil companies.

"Price gouging" provisions in the energy legislation could have a chilling effect on the oil market. The severe civil and criminal penalties -- substantial fines and possible jail time -- would force everyone in the oil industry, from the biggest refiner to the smallest gas station, to reconsider everyday business decisions, including whether they should remain open, particularly in disaster areas.

Gasoline suppliers and wholesalers may choose not to move any additional supplies into affected areas when doing so exposes them to possible fines and jail time if the government finds them guilty of the ambiguous crime of "unconscionable pricing."

In that case, consumers certainly won't be better off when they face artificial, government-created shortages of gasoline after future natural disasters."

Tuesday, June 26, 2007

No Economic Reason to Fear XM/Sirius Merger

The graph above shows Sirius Radio (red) and XM Radio (blue) plotted vs. the S&P500 over the last two years. Sirius and XM have lost 50-70% of their value at the same time that the general stock market has increased by about 25% in value.

Steve Chapman writes in today's Baltimore Sun about the proposed merger between Sirius and XM in an excellent article titled "In A World of Options for Consumers, Fear of Mergers is Misplaced," here is an excerpt:

"The alternative to one (merged) satellite radio company may not be two companies but none. The existing ones have accumulated some $7 billion in losses between them (see chart above). The merger may allow them to reduce costs, so they can eke out a profit and stay in business. Raising prices would not be easy, because consumers have plenty of affordable options. Music fans can listen to terrestrial radio, pop in a CD, find an Internet feed, turn on an iPod, flip to the cable TV music station or check out unknown talents on YouTube.

Web radio may not get as much attention as Howard Stern, but it has four times as big an audience as XM and Sirius combined."

MP: In the begining of satellite radio there was only one station (XM) for almost one year, and if one of the companies fails soon before merging, there would only be one station, so what's the big deal about having one healthy company now resulting from a merger? As Chapman points out, there is so much competition now for music (iPods, cable TV, Internet, AM/FM), that it would be ridiculous to oppose a merger because it might result in "anti-competitive behavior."

And we should never underestimate the "threat of potential competition," which can also act to impose strict discipline on a single "monopoly" provider, like a merged XM/Sirius. As long as there are low barriers to entry, XM/Sirius will feel the threat of potential competition from possible rivals like Apple? Like maybe an iPhone with satellite radio service?

(HT: Cafe Hayek)

Expanding Waistlines Waste A Lot of Fuel

"As American waistlines have expanded since 1960, so has their consumption of gasoline, say researchers at the University of Illinois at Urbana-Champaign and Virginia Commonwealth University," according to this press release. "The conclusions are based on mathematical computations drawn from data on U.S. weight gain from 1960 to 2002, a period in which the weight of the average American has increased by more than 24 pounds.

Americans are now pumping 938 million gallons of fuel (almost 1 billion!) more annually than they were in 1960 as a result of extra weight in vehicles. And when gas prices average $3 a gallon, the tab for overweight people in a vehicle amounts to $7.7 million a day, or $2.8 billion a year. The numbers are added costs linked directly to the extra drain of body weight on fuel economy."

Watch this interesting graphic of the body mass index in the U.S. increasing from 1985 to 2003.

Market-Clearing Pricing vs. The Alternative

Wikipedia has a pretty good summary of basic microeconomic principles in its entry on "Supply and Demand," including the graph above showing market clearing.

In contrast to simple, efficient, spontaneous market-clearing prices, the
Cato Institute provides an example (with this graphic) of the alternative: government-pricing for milk.

Traveling This Summer? Int'l Tipping Etiquette

Tipping customs vary greatly by country and by profession (see the Freakonomics post here about why flight attendants don't get tipped), see some International tipping guidelines from the BBC here, which includes these tipping customs ranging from no tipping for anything, to tipping for almost everything:

No tipping of any kind is expected in Australia, China, Japan and New Zealand.

No tipping is expected at restaurants in Italy and France (service of 15% is included by law in France).

In UK pubs, you don't tip with cash, you offer to buy the bartender a drink.

In Egypt and Mexico, you are expected to tip for almost everything.

(HT: Sanil Kori)

What's Your Carbon Footprint? Don't Forget Fido

Here's a website to calculate your "carbon footprint," the "amount of carbon dioxide emitted through the combustion of fossil fuels; in the case of an individual or household, as part of their daily lives." Check here to find out how to reduce your carbon footprint, and check here to find out how to offset your carbon footprint.

From today's NY Sun, comes an interesting article "
What's Your Paw Print?", about the carbon footprint of people's dogs, who often use lots of carbon in pet owners' air-conditioned apartments and houses during the summer, and lots of carbon in the production of pet food and the "tin" containers, etc.

"When calculating one's carbon footprint, dog owners should add an extra individual, or two or three, to their household size."

And what is the point of feeding "natural/organic" food to animals that lick the behinds of other animals, drink from toilets, sniff up dirty curbs and sidewalks, and chew on shoes and rugs which contain dyes and other chemicals?"

Law Schools Ranked By Blogs Now

From today's WSJ article "Law Schools Also Ranked By Blogs Now":

"Since they first began appearing annually in 1990, U.S. News's law-school rankings have been the go-to list for students venturing into the field... and the magazine has essentially had a monopoly in the law-school realm. In the last two years, at least a dozen upstart Web sites, academic papers and blogs have stepped in with surveys of their own to feed the hunger for information on everything from the quality of the faculty to what a school's diploma might be worth to future employers."

Last year, a blogger and Notre Dame Law School graduate who goes by the name "law firm addict" began trolling message boards frequented by law students. The blogger invited students to share figures on school representation in law firms' summer-associate programs (one finding: Columbia is the perennial winner in New York), as well as where federal appeals clerks went to school. (This year's winner is Stanford by number of clerks as a percentage of its class.) The information is posted on and"

Chart above (click to enlarge) shows law school rankings based on various factors.

Capital, Workers, Foreign Investment Getting Out

I had a post yesterday about capital flight from Venezuela to the U.S., especially Weston ("Westonzuela"), Florida.

Today's WSJ has two related articles, the first about Venezuelan oil workers fleeing to Alberta, Canada:

"Frigid, remote Alberta has become one of the world's fastest growing enclaves of Venezuelans, rivaling such warm-weather spots as Weston, Fla., outside Miami; and Sugar Land, Texas, near Houston. There are now 3,000 Venezuelan-Albertan families, up from 800 or so last year. Some Albertans now call Evergreen, a Calgary housing development, "Vene-green" because of the 100 families who have bought split-level homes there, and dangle Venezuelan flags from car rearview mirrors.

The loss of so many skilled oil workers has hit PdVSA (Venezuela's state-owned oil giant) hard. Since Mr. Chávez took power in 1999, Venezuela's oil production -- according to U.S. government statistics -- is down to 2.4 million barrels a day, from 3.1 million barrels a day, despite high prices."

Also from
today's WSJ, an article about U.S. and other Western private oil companies fleeing Venezuela:

"U.S. oil company ConocoPhillips plans to walk away from its massive Venezuelan investments rather than agree to a government takeover of the assets, a person familiar with the talks says. Five other Western oil companies face the decision of whether to accede to Venezuela's demands and turn over a controlling stake or walk away including Exxon Mobil, BP and Chevron.

It is unclear how the other companies will respond, though industry observers have said ConocoPhillips's decision will increase the likelihood other U.S. companies may follow suit."

Bottom Line: It can't be a good sign when you've got capital, skilled workers, and foreign investment all fleeing a country at the same time, can it?

Monday, June 25, 2007

Hernando de Soto for World Bank Chief Economist?

According to Mark Davis, writing in National Review: "Instead of maintaining the status quo, new World Bank President Robert Zoellick would do better for the world’s poor and for the credibility of the World Bank’s mission if he did the unexpected. He should reorient World Bank policies around the insights of a Peruvian economist Hernando de Soto, and perhaps install de Soto in the prestigious post of World Bank chief economist.

Millions of poor who operate small businesses in the developing world exist in a legal grey zone. They have no clear, legal title to assets against which they can borrow to expand and grow. And they are always in danger that a visiting policeman or petty official will stop by to extract a bribe for looking the other way.

This is not a trivial matter. De Soto estimates that the amount of “dead capital” in untitled assets held by the world’s poor is at least $9.3 trillion — far in excess of anything the developing world can lend, offer, or even invest. In Egypt, de Soto estimates the poor own 55 times the amount of all foreign direct investment in that country since the time of Napoleon.

In essence, the World Bank is like a county agriculture-extension agency trying to irrigate a dry plain, while Hernando de Soto is the geologist patiently explaining that underneath is an immense and untapped water table."

more here.

Chavez Driving Capital from Venezuela to the U.S.

South Florida is a prime destination as Venezuelans rush to move their money out of the reach of Hugo Chávez. Venezuelan economist Emilio Medina-Smith, who studies capital flight, estimates that $1 billion has left the country monthly for the past three years, a big increase from Chávez's first years in power.

Read more here in Business Week.

Criss Angel Exposed; And He Joins Cirque du Soleil

Criss Angel's Mindfreak TV show started its third season a few weeks ago on the A&E network, and during last week's show he made a Lamborghini vanish while driving more than 100 m.p.h., after practicing making a go-kart disappear in front of a live audience on top of a parking garage in Las Vegas. Due to a mistake in a camera angle, and the wonderful technology of cable TV recording devices, slow motion reveals his secret, watch it here.

Cirque du Soleil will feature a new show with Criss Angel, opening at the Luxor Resort and Casino in Las Vegas in the summer of 2008. Cirque du Soleil is working with Criss Angel "to fuse his revolutionary illusions and mind-blowing artistry with acrobatics, dance, puppetry, music and poetry to tell a story, taking audiences on a bizarre and fascinating journey."

The Blogosphere and Business Week's Info Tech 100

Graphic above is from from Business Week, as part of its report on "The Info Tech 100" in the July 2 issue, here is the list of the top 100 IT firms globally, based on four criteria: return on equity, shareholder return and revenue growth (which were given equal weight), and total revenues (which was weighted). Here is another ranked list, with interactive features for ranking and sorting.

#1 Info Tech firm, 2007: Amazon (due largely to ROE of 71%)

# of companies in the top 100 from China: 0

# of companies in the top 100 from U.S.: 45

# of companines in the top 100 from India: 6

# of companies in the top 100 from Japan: 8

Americans Are Most Generous People on Planet

Americans are the most generous people in the world, measured by charitable giving as a percent of GDP. Americans give twice as much (1.67% of GDP) as the next most charitable country, the U.K. at 0.73%, according to this study by the Charities Aid Foundation (chart above is taken from the study). Americans give almost 12 times as much as the French and almost 8 times as much as the Germans. In fact, Americans give more as a percent of GDP than France, Germany, Turkey, New Zealand, Singapore and the Netherlands COMBINED!

And charitable giving in the U.S. set another record in 2006 at almost $300 billion, about the same amount as the GDP of Denmark, Greece, Austria or Norway.

Read more about it here in
The WSJ and here in USA Today.

Bad News Sells II

According to Donald Lambro in "A Worsening Economy? No Way:"

Seventy percent of Americans now say the economy is getting worse, a belief contradicted by a growing workforce, increased wages and household wealth, and a stock-market rally that has boosted worker-retirement investments.

Why are Americans still so sour on the economy when it remains quite sturdy and promises faster growth in the months to come?

One big reason: the almost universally negative reports in the national news media. Americans still get a sense of the economy's health from the nightly network news shows where positive facts about the U.S. economy never get reported.

See a previous related CD post "
Bad News Sells."

Housing Market Continues to Soften

From today's WSJ: "Existing-home sales dipped during May to their lowest level in nearly four years, while inventories climbed and prices fell a 10th straight time.

Home resales fell to a 5.99 million annual rate, a 0.3% decrease from April's revised 6.01 million annual pace, the National Association of Realtors (NAR) said Monday. April's rate was originally estimated at 5.99 million.

The median home price was $223,700 in May, down 2.1% from $228,500 in May 2006. The median price in April this year was $219,800. The 2.1% drop marked the 10th consecutive year-over-year price decline.

Inventories of homes rose 5.0% at the end of May to 4.43 million available for sale, which represented an 8.9-month supply at the current sales pace (see chart above, click to enlarge). There was an 8.4-month supply at the end of April, which was unrevised from a previous estimate."

MP: Although they don't get as much attention as median home price and number of homes sold, I think the housing inventory measures probably give us the best insight into the condition of the housing market.

In 2004, there was an average inventory of 2,244,000 homes for sale, homes were selling at the rate of about 564,800 per month, meaning that there was 4.3 months supply of houses at the current sales pace, according to the NAR.

By May 2007, the inventory of homes for sale has almost doubled to 4,431,000, which represents a 8.9-months supply at the current monthly sales rate of 500,000 (see chart above).

Although the NAR doesn't report national figures on the "average time on the market," it would be safe to assume that since both a) the inventory of homes and b) the months supply of homes has more than doubled since 2004, the average time on the market before a home sells has probably also doubled.

And You Thought Gas Prices Were High.. "Agflation"

The chart above shows prices for retail gasoline prices and wholesale milk prices over the last year, using data from the EIA (monthly gas prices) and Global Financial Data (monthly average corn prices paid to farmers), both converted to a price index that equals 100 in June 2006. As the data show, gas prices are about the same as a year ago, while milk prices have increased by 50% in the last 12 months. And more milk price increases are coming...

today's WSJ: "On Friday, the Agriculture Department, which regulates the minimum milk prices received by farmers, set the price that processors will have to pay for drinkable milk in July at $20.91 per hundred pounds of milk, up 17% from the June price and up 84% from a year earlier.

In the U.S., some dairy farmers are raising milk prices to offset the higher prices they pay for cattle feed as corn prices rise. Corn is a key feed ingredient.

In May, the average price of a gallon of whole milk in the U.S. was $3.26, up 6.2% from $3.07 a year earlier, according to the Labor Department.

Cheese prices are also starting to rise and Pizza Hut recently raised the price of a regular cheese pizza."

Sunday, June 24, 2007

Price Spikes Imply Competition, Not Monopoly

When gas prices spike sharply upward, economic illiterates everywhere are quick to see evidence of collusion or monopoly power among the oil companies. In fact, big gas price spikes are evidence of exactly the opposite. Colluders and monopolists don't have to wait for changes in supply and demand to hike their prices; they squeeze us up to the limit all year round. Sure, changes in demand and supply give them a little more leeway, so prices still fluctuate - but only a relatively small amount.

A monopolist always has price-sensitive consumers - because if they're not price sensitive, he'll keep raising his prices until they are. Therefore, even when market conditions change, a monopolist can rarely afford to prices very much. Big price fluctuations are evidence of competition, not monopoly.

~Economist Steven Landsburg, p. 137 in "More Sex is Safer Sex"

MP: In other words, we assume monopolists/colluders/cartels are greedy and will therefore always charge the "maximum price the market will bear." If the market for gas was able to bear a price of $3.25 per gallon when gas prices spiked about May 22, then that same market would have also been able to bear a price of $3.25 a month ago before that (instead of the actual price of $2.58), or 4 months before that when prices were at $2.18. That is, a true monopolist or cartel would have been able to charge $3.25 per gallon for the last several years, and they wouldn't have had to wait for some shock like refinery outages, hurricanes, political unrest, or rising demand in China and India as an excuse for raising prices.

And if the oil industry was truly a cartel/monopolist, why would they have lowered gas prices from $3.60 in Michigan a month ago on May 22, to prices as low as $2.62 in Michigan today, according to (see chart above). If the market was able to bear $3.60 a month ago, a true monopolist/cartel would NOT have lowered the price by $1 per gallon over the last month.

Friday, June 22, 2007

Food Prices Soar Thanks To "Big Corn"

From Thursday's IBD:

Rising demand for greener energy began competing in earnest with the food supply in the last year or so. That sent per-bushel corn prices soaring to around $4 a bushel from a historical average closer to $2.

Those higher costs also trickled down to beef, milk, fruit and a host of other staples. May food prices rose 4.7% from a year earlier, according to the latest consumer price index. The cost of eating out rose only slightly less.

The Agriculture Department said consumer food prices will rise 3% to 4% this year, notably faster than last year's 2.3% gain.
Tighter world grain supplies on top of extra ethanol demand could send those numbers even higher.

Quote of the Day: Faculty Ideologues

The story about the Duke athletes and District Attorney Nifong was not simply a riveting drama. It was in its searing way an educational event, not just about prosecutorial ambition run amok, but about a university world -- reflective of many others -- where faculty ideologues pursued their agendas unchecked and unabashed. Here was a nearly successful legal lynching, applauded by a significant chunk of the Duke faculty, proud to display their indifference to questions of guilt or innocence.

~Dorothy Rabinowitz in today's WSJ

Thursday, June 21, 2007

Backyard Stonehenge: Amazing Video!

Watch an amazing Discovery Channel video of a Michigan guy near Flint, a retired construction worker named Wally Wallington, who thinks he has cracked the method used to build Stonehenge - working in his backyard. In the video, he stands a 19-ton concrete monolith upright all by himself using nothing but wood, some rocks, sand, and a garden hose. He also uses a variation of his technique to move a pole barn by himself more than 300 feet!

Here is the Discovery Channel link (you'll have to watch a 30-second commercial).

Here is the link to the same segment on YouTube.

Quote of the Day: Environmentalism as Religion

"I don't recycle my trash because my time is too precious for me to spend it sorting such items into different containers. I never criticize those who do recycle, but environmentalists point accusing fingers at us nonrecyclers. In environmentalists' eyes, those who unquestioningly disregard the value of one resource (time) in order to spend it on the conservation of other resources (wood, plastic and glass) are righteous while those of us who value and conserve time are sinners."

~George Mason University economist Don Boudreaux in today's
Pittsburgh paper.

As the late, great blues artist Clarence "Gatemouth" Brown sang, "My time is expensive, baby. I'm tryin' to make it last." Gatemouth clearly understood opportunity cost, and probably didn't recycle.

Wanna Bet? Political Futures Contracts At Intrade

Hillary Clinton's falling chances of becoming president in 2008:

Fred Thompson's rising chances to be the Republican candidate:
Graphs above are based on actual political futures contracts trading in the "Prediction Market" at in Ireland, during the last 30 days.

Intrade currently offers about 100 futures contracts for the 2008 elections in the U.S.

Remedial Economics for Bill Gates?

Harvard economist Robert Barro writing in the WSJ, and ABC 20/20 reporter John Stossel writing in his weekly column both think that Bill Gates need some remedial economic education on free markets and wealth creation.

Barro: "Bill Gates is the richest man in the world, but he may not understand the vital role wealth creation plays in society."

Stossel: "Dropping out of college didn't stop Bill Gates from making tons of money, but it kept him from classes where he might have learned about the beauty of spontaneous market processes."

A Freaky Freakonomics Update

If you read the book "Freakonomics," you'll know who Roland G. Fryer is (how about that suprise ending!), and you'll probably be interested in this story about him in today's NY Times, reporting on his new position as "chief equality officer" for the NYC public schools. If you haven't read the book yet, I recommend it.

Read the Freakonomics blog post here.

Outsourcing Destroys Jobs? 10m U.S. Jobs in 6 Yrs.

From yesterday's IBD editorial "Outsourcing Myths":

The media love victims. So when industries began moving jobs once done here to low-cost labor havens like India and China, pundits and reporters portrayed it as a devastating blow to America's traditional working class.

In 2005's "Outsourcing America," TV's Lou Dobbs warned that outsourcing was "nothing less than a direct assault on hard-working middle-class men and women in this country."

Chances are, if you've been fed a steady diet of this, you think outsourcing is a disaster. Well, you've been seriously misinformed. Outsourcing is in fact a big contributor both to recent productivity growth and to rising incomes for average workers in the U.S.

One of the most obvious falsehoods about job outsourcing is that it raises unemployment. Huh? Since 2001, during which criticism of outsourcing has hit a crescendo, U.S. businesses and entrepreneurs have created 9.9 million new jobs (see chart above, click to enlarge). The current jobless rate of 4.5% is below the average in any of the last four decades.

This is nothing new. It's free trade. As Adam Smith wrote in "The Wealth Of Nations" in 1776, "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than buy." That goes for outsourcing, too.

How to Fix Politics

1. Give everybody 2 votes per election, 1 for your own district and 1 for any other district of your choice, to increase political accountability. If a Michigan senator gets too much pork for his home state, the suppliers of those dollar (voters in other states) can express their opinion at the polls.

2. Redraw the boundaries of congressional districts based on alphabet, instead of geography. Congressperson #1 would represent people with last names starting with AA through AE, #2 would represent AF through AH, etc., making it harder to bring home pork to a particular region.

3. Adjust federal income tax rates in each congressional district by the amount of spending your representative has voted for - the more spending, the higher the taxes in your district. That would sure help solve the "rational ignorance" problem.

4. Abolish withholding, and make ALL taxes due on April 15, including sales taxes, and provide an itemized statement of how much each taxpayer is actually paying for defense, agricultural subsidies, e.g. ethanol subsidies, etc.

From the chapter "How To Fix Politics," in economist Steven Landsburg's excellent book "More Sex is Safer Sex."

I'd add one more idea: Change voting day from the first Tuesday in November to the first Tuesday in April following April 15.

It's Deja Vu All Over Again

1. It has caused public respect for the law to plummet.
2. Even honest
police officers face hostility from the public because of a frivolous and unfair policy.
3. Because the profits are so high, many poor people find selling it an an attractive alternative to honest, legal work.
4. Immigrants and blacks face greater scrutiny and higher sentences than whites.

Sound the Drug War? It's actually about Prohibition from
John McWhorter's article in today's NY Sun:

We look back at Prohibition chuckling that people had to endure what they did for the prissy, puerile notion that no one should be able to have a drink. Yes, alcohol can be addictive. In excess, it harms health. It often ruins lives. Nevertheless, today, we assume that the response to those things hardly is to call for a dry America.

But when it comes to the war on drugs, most of America almost is robotically accepting of the idea that even talking about ending it is "politically unfeasible."

In fact, this passive position on the war on drugs represents a catastrophic failure of imagination, compassion, and plain common sense on the part of this great nation. It will look as grievously ridiculous in the history books as Prohibition does now.

Think of Nicholas Cage's alcoholic character in "Leaving Las Vegas" and Jamie Foxx's heroin-addicted role as Ray Charles in "Ray." Why, precisely, does the latter justify a policy that tears at the fabric of American society just as Prohibition did, and shows no more signs of success — even after having existed for decades longer? What might we learn from other countries' drug policies? Might we stress rehabilitation over interdiction?

Wednesday, June 20, 2007

Quote of the Day: Love Affair with Ethanol in D.C.

We already are paying thrice for Washington's love affair with corn-based fuel, in the form of: 1) higher taxes, 2) higher gasoline prices and 3) higher food prices. Yet because of the prodigious amounts of energy and fertilizer used in its cultivation, corn-based ethanol provides little or no net reduction in CO2 over the gasoline it displaces.

~Holman W. Jenkins, Jr. in today's WSJ article, "Pork, the New Green Meat"

Big Oil vs. Big Food/Big Corn

What does Congress do when we have soaring prices for gas and oil, and record profits for oil companies? They propose "windfall profits" taxes, price controls, and "price gouging" laws to prevent "unconscionable pricing."

What does Congress do when we have soaring food prices (see chart above, corn prices have doubled in the last two years, more than twice the 45% increase in gasoline prices), soaring farm land values, and record profits for farmers? They keep giving billions of tax dollars to farmers in the form of subsidies and price supports.

According to this Washington Post article today:

"A House panel voted unanimously yesterday to extend for five years the current system of payments to farmers and rejected a series of proposed changes. The action left in place the system of income supports and guaranteed prices that has cost taxpayers more than $70 billion since 2002."

Yesterday's vote by the House Agriculture subcommittee on general commodities signaled that the farm bloc is geared to defend the subsidies, despite record profits and soaring prices for commodities and farmland."