Wednesday, April 30, 2008

Recession Odds Fall On Intrade

The chart above (click to enlarge) shows the falling odds of a 2008 recession, based on futures trading on over the last 14 days. From a 70% chance of a 2008 recession on April 17, the odds have now fallen below 45%.

World's Most Worthless Currencies

#1 is the new 10,000,000 Zimbabwe dollar banknote (pictured above), which is currently worth less than $4. See the list here.


According to today's Bureau of Economic Analysis report, "Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.6% in the first quarter of 2008, according to advance estimates. In the fourth quarter, real GDP also increased 0.6%."

Pussy Willow Sunday

Our group was in Togliatti, Russia on Palm Sunday (April 20 this year according to the Russian orthodox calendar) and we visited a Russian Orthodox church and were surprised to see people carrying pussy willows instead of palm branches (which do not grow that far north).

Tuesday, April 29, 2008

Result of U.S. War on Drugs: PRISON NATION

The United States leads the world in prisoner production. There are 2.3 million people behind bars. China, with four times as many people, has 1.6 million in prison.

In terms of population, the United States has 738 people in prison for every 100,000, while the closest competitor in this regard is Russia with 611 (see chart above,
data available here). I'm struck by this figure: 487 in Cuba. The median global rate is 125.

What's amazing is that most of this imprisoning trend is recent, dating really from the 1980s, and most of the change is due to drug laws. From 1925 to 1975, the rate of imprisonment was stable at 110, lower than the international average, which is what you might expect in a country that purports to value freedom. But then it suddenly shot up in the 1980s. There were 30,000 people in jail for drugs in 1980, while today there are half a million.

From Prison Nation by Llewellyn Rockwell, via Division of Labour

Strippers Can't Compete with Internet

TORONTO, April 28 (UPI) -- The number of strippers and strip clubs in Toronto is declining, with former dancers blaming the Internet for putting them out of work.

An economics lesson here in low barriers to entry, competition and contestable markets?

Are Inflationary Concerns Inflated?

Inflation: Food
Inflation: Energy
Inflation: All Items Less Energy and Food
The charts above are from the St. Louis Federal Reserve, using CPI data from the BLS, and show the percent change from a year ago, from 2000 - 2008. Is it possible that inflationary fears are inflated? Consider that:

1. Food inflation fell in both February and March 2008.

2. Energy inflation fell in both February and March, and is lower in 2008 than in 11 months in 2005 and 2006.

3. Inflation for all items less food and energy is lower in 2008 than in 10 months in 2006 and 2007.

Bad Auto Investments / Weight Inequality

Monday, April 28, 2008

Economics of College

In the first of a three-part series on the "Economics of College," economist Thomas Sowell asks, "How many people would go to college if they had to pay the real cost of all the resources taken from other parts of the economy? Probably a lot fewer people."

Part 1 here, Part 2 here and Part 3 here.

$100 Int'l. Phone Call in 1973 Now Costs Only $1.60

ECONOMIST--The cost of a phone call abroad has dropped dramatically in the past three decades, thanks to market liberalization and advances in technology. A one-minute fixed-line call from America has fallen by 98.4% in real terms since 1973 (see chart above).

In other words, an international phone call that cost $100 in 1973 now costs only $1.60 (adjusted for inflation), and a call that cost $10 now costs only 16 cents.

Russia's New Consumer Nation: Wal-Mart Drools

BENTONVILLE, ARKANSAS/MSNBC - Wal-Mart is moving closer to a possible expansion into Russia with the appointment of an experienced European executive to scope out possibilities in a vast retail market worth more than $140 billion a year in food sales alone.

From a related Reuters article, Wal-Mart Chief Executive Lee Scott said at the company's analyst meeting last October that Wal-Mart hoped to be in Russia "at some point in the future." Scott called Russia a "growing consumer nation," and he said consumers there have shown a propensity to spend while in other developing countries they tend to save.

MP: If you thought the oil and gas markets are booming in places like Russia, check out the consumer and retail sector stock index in Russia compared to the oil/gas sector stock index in Russia (see graph above, data available here)! From what we heard in Russia at visits to both Ford and GM headquarters in Moscow, Russia will probably overtake Germany this year as both Ford and GM's #1 European market for vehicle sales.

Every Sales Receipt in Russia Gets Ripped!

I've been to Russia now four times, and one of the most interesting and unusual retail practices in stores there is the Russian sales clerks' habit of tearing almost every sales receipt before they hand it to you or set it down on the counter (see picture above).

Supposedly, this practice goes back to the Soviet days, when most stores had the merchandise behind counters and glass cases. To make a purchase, you would ask an employee to get the merchandise for you and prepare a sales receipt, which you take to a second employee/cashier. After you paid, you would take the receipt back to the first employee to pick up your stuff. Then that employee would tear the receipt, to finalize the transaction, and prevent customers from trying to come back and get a second item later for free.

Although no longer necessary, the "receipt-tearing" practice continues to this day at almost every retail store in Russia out of an old Soviet-era habit! Makes it a little inconvenient when you need to present receipts back in the USA for reimbusement!

ABCDs in India

NPR: In this broadcast we talk to a bunch of American-born Indians and their local friends who discuss what it's like to come "home" and what it's like to be invaded by Americans who want to rediscover their "Indian-ness". The locals have a nickname for these Americans —they call them "ABCDs." That's an acronym for American-Born Confused Desis. Desi is slang for an Indian guy or gal, and the term basically means kids from America who return a little mixed-up about who they are.

The conversation, as you'll hear here, explores all kinds of issues: the advantages of an American accent in India, the value (and limits) of Western experience in attacking pollution and poverty, the importance (or not) of movies and popular culture in creating social change, and why Indian women (some of them) like beef-eating men.

Free Trade

"Freer Trade Could Fill the World’s Rice Bowl," by Tyler Cowen in The NY Times

"America Needs to Make a New Case for Trade," by Lawrence Summers in The Financial Times

Saturday, April 26, 2008

LA Food Fight: Black Market Bacon Dogs

Amid the hustle and bustle of downtown Los Angeles, there exists another world, an underground world of illicit trade in—not drugs or sex—but bacon-wrapped hot dogs. Street vendors may sell you an illegal bacon dog, but hardly anyone will talk about it, for fear of being hassled, shut down or worse.'s Drew Carey catches a bacon dog bust on tape.

Quote of the Day: Government Doesn't Make Gas

The government takes over 40 cents a gallon in taxes for gasoline, far more than the profit per gallon made by oil refiners like Exxon. And the government doesn’t make any gas for you.

~Temple University Economics Professor
Bill Dunkleberg

New Cars Today: More Options At Lower Prices

What is remarkable and amazing is that as "car options considered to be essential to car shoppers" have increased significantly between 1985 and 2007 (see chart above), new car prices have: a) increased much less than the general price level during that period, b) been relatively flat since about 1993, and c) decreased slightly since 1996 (see chart below). Supposedly, the Bureau of Labor Statistics adjusts for changes in quality over time, but I'm not sure that the series "CPI: New Cars" accurately captures all of the improvements in the quantity and quality of vehicle options over time.

Bottom Line: Car buyers have gotten more and more options over time, while vehicle prices have been flat, reducing the overall cost of owning a car. Gasoline might be getting more expensive, but real car prices are a baragin. Looking at the graph below, if vehicle prices had increased at the same rate as the "CPI for All Items" since 1985, new car prices in 2008 would be almost double today's prices.

Friday, April 25, 2008

Russia vs. USA: Smoking and Obesity

Two big, very noticeable differences between Russia and the USA:

1. Everybody here in Moscow smokes. Well, almost everybody.

2. Nobody here in Moscow is overweight. Well, almost nobody. Our MBA group sat in the Food Court in a popular mall near Red Square, drinking $2 beers, and watched Russians walk by for about 45 minutes looking for somebody who could be considered either "overweight" or "obese." In that time, we only saw a few Russians, out of many hundreds who walked by, who would be considered overweight, and not a single obese person. Even after being in Moscow for 4 days, I don't think we've seen a single obese Russian, and very, very few overweight Russians. Maybe that's because they all smoke?

McDonald's and Customer Service in Russia

While visiting the American Chamber of Commerce in Russia (in Moscow) yesterday, President Andrew Sommers told our group a wonderful story that really captures the old Soviet-era mentality towards customer service.

When McDonald's opened its first restaurant in the Soviet Union in 1990 near Moscow's Pushkin Square (pictured above, still the largest McDonald's in the world, with 27 cash registers and seating capacity of 700), it went through an extensive training program for the new workers. Of course, customer service, which was a brand new concept for the Soviets, was extensively emphasized for the new McDonald's employees.

After several days of training about customer service at McDonald's, a young Soviet teenager asked the McDonald's trainer a very serious question: "Why do we have to be so nice to the customers? After all, WE have the hamburgers, and they don't!"

There's still a little bit of that mentality left in Russia, and although customer service here is still not up to US standards, it's gotten much better than my last visit in 2003.

Moscow: Most Expensive City? Not For Tourists

CNN--Moscow is supposed to be the most expensive city in the world to live in, and is 34.4% more expensive than New York City. But I don't think that translates to Moscow being the most expensive city for a tourist to travel to. In fact, our group has found Moscow to be relatively inexpensive, probably much cheaper than NYC for most items.

For example, the Moscow Metro subway system has to be the best value, and maybe the most efficient system in the world. A 10-fare pass costs 165 rubles, which is about 70 cents per trip (including as many transfers as you need), and the trains come literaly every couple minutes, so you never have to wait more than a minute or so for the next train.

There are 12 different lines connecting all parts of the city, 176 stations, and more than 7 million passengers on an average weekday! The stations have to be the most ornate in the world, with marble floors and walls, stained glass, chandaliers, etc., it's more like being in a church or museum or bank lobby than a subway station (see photo above).

Dinner tonight at an excellent restaurant on the famous Arbat Street for two cost only about $40 with 2 drinks each, and we bought beer last night for $2 at a food court in an upscale mall next to Red Square.

Moscow: It's Booming and You Can Feel the Energy

Chinese author Mian Mian said that "As a city, Shanghai is like a beautiful young bitch who loves money."

After being in Moscow for 3 days, I think the same could be said about this incredibly dynamic and energetic city, with construction going on everywhere and the economy absolutely booming! A lot has changed in just 5 years since I was here last in 2003, and Moscow has to be one of the most energetic and dynamic cities in the world today. It's absolutely electric here, you can feel the energy!

Try to visit Moscow if you ever get a chance, although you still need an official letter of invitation to travel here, and therefore tourists of any kind are somewhat scarce here.
It's much easier to get here if you're either on business or some kind of educational or cultural trip - I'm travelling with 13 MBA students from University of Michigan-Flint, with an invitation from our partner institution - the Togliatti Academy of Management, where I taught for part of a semester in 1999. It's certainly not the "Iron Curtain" any more, but it's still like a flimsy "shower curtain" I guess.....

Two on McCainomics

John McCain sure sounds like a tax rate-cutting fiscal conservative. His tax proposals, detailed in this speech last week, seem to extend the Reagan-Bush legacy of lower marginal rates across the board, and special emphasis on supply-side incentives (see various tax breaks below). But this article contrasts McCain the candidate with McCain the Senator.

Elsewhere, the New York Times profiles McCain's chief economic adviser, Douglas Holtz-Eakins. The article argues McCain's policy proposals focus mainly on the revenue side, without addressing spending:
The problem is that the campaign has been far, far more detailed about its tax cuts, which would worsen the deficit, than its spending cuts, which would reduce it. Mr. McCain has proposed the elimination of the alternative minimum tax (at a cost of $60 billion a year), new child tax deductions ($65 billion), a corporate tax cut ($100 billion) and faster write-offs for corporate investments in new equipment ($50 billion to $75 billion).
But in academia, Mr. Holtz-Eakin is known for empirical work that questions the productivity of government expenditures. Here is an ungated example.

Wednesday, April 23, 2008

Earth Day Hysteria: Most Original Predictions Were Stunningly Wrong

Another Earth Day is upon us. This is a good time to look back at predictions made on the original Earth Day about environmental disasters that were about to hit the planet.

Most Earth Day predictions turned out to be stunningly wrong. In 1970, environmentalists said there would soon be a new ice age and massive deaths from air pollution. The New York Times foresaw the extinction of the human race. Widely-quoted biologist Paul Ehrlich predicted worldwide starvation by 1975.

Read more here from the Washington Policy Center.

Russia Motor Vehicle Market is Booming!

After meeting with GM's President in Russia yesterday, our group of 14 UM-Flint MBA students visited Russia's largest Chevy dealer yesterday in Moscow, where they also sell Hummers, Saab, Opels and Cadillacs (including STS and CTS models made in Lansing, Michigan). The dealer sells about 1,000 vehicles per month, and was hoping to close 40 deals yesterday. Sales this year have doubled compared to last year.

For new car sales, prices are fixed by GM and not negotiable. Salespeople are paid a fixed salary, and do not receive commissions for each sale, but do have some incentives for excellent customer service ratings. About 40% of the vehicles are financed through banks, typically for 5 years at interest rates of about 10-14% right now (inflation is about 12% here).

Vehicles at the Chevy dealer range from the $10,000 Chevy Spark (pictured above) to the $100,000 Cadillac Escalade.

During our trip to Togliatti where we visited GM's joint venture with AutoVAZ, we learned that the average autoworker here makes about $800 per month, and the average age of the Russian autoworkers is about 24 years old (some of them look almost like high school students!).

U.S. Unemployment is Short and Rare

Pundits and the media continue to barrage us with recession claims, but unemployment data still do not support this. The graph above shows U.S. unemployment rates over the past 50 years. Note how the sharply the unemployment rate spikes upward at the onset of recessions.

Where is the spike for 2008? So far, there isn't one. In fact, the unemployment rate for March 2008 is just 5.1%, significantly below the long run (50-year) average of 5.9%.

In addition, unemployment duration in the U.S. continues to be relatively short. The median duration of unemployment as of March 2008 is only 8.1 weeks: so the typical worker is only out of work for about two months! And as the pie chart below shows, unemployment lasts less than fourteen weeks for two-thirds of the unemployed.

Vehicle Options: USA (1985 vs. 2007) vs. Russia

On Tuesday in Togliatti, Russia, I toured the production facility of the Chevy Niva (pictured above), a joint venture between GM and Russia's AutoVAZ. The vehicles are one of the best-selling SUVs in Russia right now, and there is a 3-month waiting list to get the vehicles. This situation is somewhat unique to the Niva, most other vehicles in Russia are available immediately. The Nivas sell for about $16,000 and there are only two models and one option: with A/C, or without A/C. Also, there are NO radios available in either model, although the Nivas come radio-ready, with wiring and everything except the audio equipment. It seems that in the Russian market, consumers prefer to purchase their own radio/stereo equipment as an after-market option. It might also be the case that some customers prefer radio only, others prefer audio cassette tapes, and some others prefer CD players.

When in Moscow today, I asked the President of GM Russia why GM/AutoVAZ didn't raise the price of Nivas to reduce the 3-month waiting list, and she said that Russian Niva consumers would easily tolerate a 3-month wait, but many would NOT tolerate a price increase. Go figure.

Related: The fascinating chart below is from a USAToday article last week, showing the significant increase in options considered "essential" to car buyers in the USA, 1985 vs. 2007. Notice that in 1985, fewer than 9% of car buyers considered car radios to be an essential option, vs. 96% today - what a difference 22 years makes!

Another difference: almost 100% of the cars in Russia are standard transmission, vs. almost 0% in the USA, and it seems that the acceptance of automatic transmissions here is a long way off - Russian drivers love their manual transmissions!

The Credibility Tax

Against the 2003 tax cuts? Think it's a good idea for income taxes to be higher? Well, you don't need to wait for some new tax legislation, or the expiration of the 2003 tax cuts. You, or Hillary, or Obama, can pay higher taxes right now. Jeff Lord explains how here.

HT: Tim Groseclose

Price Discrimination: Russians Get a Discount

Blogging From Moscow: It is well-known here that Russians often get discounts to museums, cathedrals and other culturally important national and historic landmarks. But how do Russians get the discount?

One common method here of price discrimination is illustrated in the picture above (click to enlarge), which shows a sign at St. Issac's Cathedral in St. Petersburg, Russia. The top sign says "ENTRANCE TO THE MUSEUM" in Russian. If you can read Russian, you enter to the left and go to a ticket counter that has a lower entrance fee than if you speak English, and enter to the right.

Monday, April 21, 2008

Hello From Red Square

Russian Paintings Fetch Top Dollar in New York

RUSSIA TODAY--Works by Russian artists have fetched more than $17 million at Christie's auction house in New York, $5 million more than organizers had been expecting.

Experts say there's been soaring interest in Russian art recently. Sotheby’s sales of Russian works have quadrupled in the last four years.

MP: More bling... in Russia.....

Russia Gains 50 Billionaires in 12 Months

The number of Russian billionaires has almost doubled in a year to reach 110, Forbes magazine reported, bolstering the country's reputation for conspicuous wealth.

MP: Bling, bling, it's the new "blingshoviks!" A post from the heart of Russia, in Togliatti, on the Volga River, behind the old "Iron Curtain."

Friday, April 18, 2008


Checking in from the Atlanta airport, on my way to Togliatti, Russia. I will post as I get a chance over the next 10 days during my travels to Russia!!

Thursday, April 17, 2008

The 15% Depreciation of the USD vs. China's Yuan

Chinese Yuan/USD, 5-year trend.

Emerging Markets, Weak Dollar to the Rescue

Bloomberg--International Business Machines, the largest computer-services company in the world, said Wednesday that profit in the first quarter had jumped 26% on strong orders overseas, far exceeding analysts' expectations. IBM has cut its dependence on U.S. clients by expanding in faster-growing countries such as Brazil, Russia and China, where sales climbed 26% last year.

RTT News--Healthcare products maker Johnson & Johnson (JNJ) on Tuesday reported a 40% rise in its first-quarter profit on higher sales in its consumer business and in the absence of a charge that was incurred in the year-ago quarter. The first-quarter results also included a favorable currency impact.

Johnson & Johnson's total U.S. sales were up 2.8% to $8.48 billion from $8.25 billion in the first quarter of 2007. International sales contributed $7.72 billion to the sales, rising 13.7% from $6.79 billion in the previous-year quarter.

Recession Odds On Intrade Fall from 70% to 20.5%?

Not sure what's going on here, but the odds of a 2008 U.S. recession on just fell from 70% to 20.5%.

The Accountants' Full-Employment Tax Code

From Don't Mess With Taxes: Above is a graphic showing the number of pages in the tax code from its inception in 1913, when the code contained 400 pages. That number held pretty steady until 1945, when it ballooned to 8,200 pages. The code hit 14,000 pages by 1954 and there was no stopping it. So far this year, we're up to 67,506 pages of tax law.

HT: Ben Cunningham

The Rich: The Most Mobile People in World income, capital gains, and estate taxes are key concerns, watch out for state taxes. New York State is considering a millionaire's tax—something tried in New Jersey with mixed results.

"People picked up and moved," Jack Meola, a tax attorney and partner at Amper Politziner & Mattia says of the New Jersey experience. "The rich are the most mobile people in the world. I have clients with no state domicile. They're doing business all over the world. They've put their homes in trusts, so they personally have no jurisdiction. One client lives on a boat. Most move to nontaxing jurisdictions, like Las Vegas and Florida."

These mobile individuals set up trusts so that when their businesses are sold, they don't feel a tax pinch.

For the state, the effort backfires, he notes. Diminishing populations of wealthy individuals result in a trickle-down effect that builds pressure on low-income people to carry the tax impact.

Economics 101: If you tax something, you get less of it.

(Via Taxing Tennessee)

Dallas Fed: Selling Our Services to the World

DALLAS--Americans can maintain good jobs and high living standards by exporting their services to the world, according to the Federal Reserve Bank of Dallas' 2007 annual report essay. U.S. companies are prepared to meet the world's growing demand for services, Dallas Fed President and CEO Richard Fisher says in an opening letter.

"We export more services than any other nation -- by a long shot," Fisher writes. "Better still, most of what we sell abroad are highly valued services -- industrial engineering, entertainment, health care, and the work of architects, lawyers and other professionals."

With their rising incomes and large populations, China and India may provide the biggest potential marketplaces for U.S. services. "The emerging giants we sometimes fear may offer our greatest opportunity," says the report.

Most of our workers are already in the service sector, where they've been dealing with people, not machinery or land. "The combination of diversity and experience puts us ahead of most other countries in the ability to deliver services to a global marketplace.

Federal Reserve Bank of Dallas 2007 Annual Report

Video: Opportunity Knocks: Selling Our Services to the World

Richard W. Fisher speech "Selling Our Services to the World"
Chart above was created using these data.

Carpe Diem on CNBC

Thanks to Larry Kudlow for mentioning Carpe Diem last night on CNBC, he featured the graph above from this CD post on mortgage resets (graph courtesy of Dennis Gartman).

Only 2 Banks Have Failed in 2008

Number of FDIC-insured banks in U.S.: 8,533

Number of FDIC-insured banks that have failed in 2008: 2

Economic Hysteria

Annual Growth, Commercial Bank Loans, to 4/14/08

Media hysteria over the mortgage crisis is almost certainly misleading countless people about prospects for the real economy.

The focus of the gloomy economic news is on a "credit crisis" or "financial crisis." Yet postwar US financial crises have never resulted in economic disaster. Think of the savings & loan (S&L) crisis of 1986-1995 — a period that also saw Black Monday (Oct. 19, 1987), when Dow stocks fell 22.6%. The S&L crisis lasted from 1986 to 1995, and was undoubtedly the worst US financial crisis since World War II (see chart above of bank failures). Yet the real economy grew by 2.9% a year over that period.

Some papers can't get anything right. An April 6 New York Times piece ("Almost as if The Sky Were Falling," on stock prices) claimed that the "focal point for the stock market's difficulties" is that "banks have been reluctant to lend money to one another, or to anyone else."

If banks were reluctant to lend to "anyone else," then bank loans wouldn't have increased by 8% percent (as Fed data say they have) since last August (and by more than 10% since last year, see chart above), when the mortgage crisis first emerged. The phrases "credit crisis" and "credit crunch" are not about bank loans, as most suppose, but about difficulties in selling or valuing exotic securities.

~Cato Institute's
Alan Reynolds

Marching Backward on Trade

On economic grounds, there's no reason to reject the Colombia free trade agreement. Colombia's exports already enter the U.S. market duty-free under the 1991 Andean Trade Preference Act. Meanwhile, many U.S. exports to Colombia face stiff tariffs -- up to 35% on autos, 15% on tractors and 10% on computers -- most of which would ultimately go to zero under the agreement.

The tariffs dampen demand for U.S. exports by raising their price and putting them at a competitive disadvantage. Whirlpool annually exports about $50 million worth of refrigerators, washer-dryers and dishwashers to Colombia from plants in Ohio, Arkansas and Iowa. On a $1,000 refrigerator, a 20% tariff raises the retail price $200 in a fiercely competitive market with appliances also supplied by local firms and imports from Korea and elsewhere.

MP: That seems like a real no-brainer. The U.S. has everything to gain (eliminating tariffs on U.S. exports to Colombia), and nothing to lose.

Yet, it's politically convenient to oppose the free trade agreement with Colombia because the popular imagery is that trade destroys U.S. jobs. The loss of almost 4 million U.S. manufacturing jobs since 1998 seems easy to explain by cheap imports or the flight of plants to Mexico, China and other poorer countries. The truth is murkier: Although this has occurred, job losses also stem from greater efficiency (fewer workers producing more goods, see chart above using these data) and slumping domestic demand (for communications equipment and computers after the dot-com bust and for housing materials and vehicles now). Nor has falling factory employment crippled overall U.S. job creation.

Robert Samuelson in today's Washington Post article "Marching Backward on Trade"

Wednesday, April 16, 2008

India's New Billionaires: Builders or Robber Barons?

Investor's Business Daily.

Unfortunately, the last two sentences were chopped: "India is a much more prosperous country today, and has a much larger middle class, with its abundance of billionaires, than it was ten year ago, when billionaires were scarce. When the Forbes list of world billionaires comes out next year, India should aspire for many more billionaires, since it will be a sure sign that more wealth is being created for everybody."

AGI: Oil Would Be $65 If USD Had Remained Strong

From the American Geological Institute(AGI):

The chart above shows the spot market price of crude oil per barrel (BBL) in US dollars and in euros from 2001 to today. The price of oil has grown faster relative to the dollar than to the
euro. Yet, a portion of the rise in oil prices is due to the fall of the value of the dollar. The graph also shows the number of barrels of crude oil per cost of an ounce of gold, demonstrating the parallel growth in commodity pricing.

If the US dollar had remained strong in the global economy, oil might, in theory, be around $65 per barrel. However, oil is priced in dollars, and oil prices continue to rise. The impact of increased oil prices can not be ignored in the US economy, and, in turn, can further weaken the dollar. Resource economics is a complex feedback loop where today’s resource boom is driven by many external factors. This complex system bears watching by all geoscientists.

Average Work Week

THE ECONOMIST--South Korean workers toil for over 45 hours every week on average, nearly seven hours longer than workers in any other OECD country. Americans put in 15% more hours on average than workers in the western (richer) bit of the European Union. Poorer Eastern Europeans work considerably longer. Flexible arrangements for part-time workers, generous welfare systems and a limit on the working week all contribute to western Europe's seeming indolence. But where more people work part-time the average working week is likely to be shorter. The Netherlands, where 45% of workers are part-timers, the highest proportion in any OECD country, has the shortest working week.

Industrial Production Growth Suggests No Recession

According to today's Federal Reserve release, industrial production grew in March at annual rate of 1.6% compared to the same month last year. Industrial production growth in March was higher than expected, and suggests that the U.S. economy is not in recession (see chart above showing industrial production growth in the last two recessions).

From First Trust Advisors: :"Industrial production surprised to the upside in March, undermining the theory the US is in recession. In the past six recessions – periods accumulating to about 5½ years – industrial output has only increased in six of those months. In the 2001 recession, industrial output did not climb even once."

Bloomberg story here.

Passing the Peak of Mortgage Resets

Thanks to Dennis Gartman of the Gartman Letter for the chart above, showing that we are currently passing the peak of adjustable mortgage resets, and "from this point onward the monthly figures actually become reasonable instead of burdensome."

Market Magic: Everyday Miracles

That's the biggest lesson I've learned in 35 years of consumer reporting: The market performs miracles so routinely that we take it for granted. Supermarkets provide 30,000 choices at rock-bottom prices. We take it for granted that when we stick a piece of plastic in a wall, cash will come out; that when we give the same plastic to a stranger, he will rent us a car, and the next month, VISA will have the accounting correct to the penny. By contrast, "experts" in government can't even count the vote accurately.

That's why I talk about market magic.

~John Stossel

Tuesday, April 15, 2008

2007 Current Account Balances

From the CIA, ranked by country, from #1 China with a $363.3 billion surplus, to #164 U.S. with a -$747.1 billion deficit.

Guest Blogger Peter Schweizer Coming Soon to CD

Watch this week for the debut of guest blogger Peter Schweizer, who will help out over the next few weeks with posts on CD during my travels to Russia, where my access to the Internet might be somewhat infrequent. Peter is a research fellow at the Hoover Institution, and author of many books including my favorite, "Do As I Say, Not As I Do: Essays in Liberal Hypocrisy."

Peter's articles have appeared in The New York Times, Wall Street Journal, Los Angeles Times, USA Today, National Review, and Foreign Affairs, and he has appeared on ABC News, NBC News, CBS News, Fox News, CNN, MSNBC, CNBC and the BBC.

62 Million "Taxpayers" Will Pay NO Tax in 2008

The chart above is from the Joint Economic Committee's (JEC) report Overview of the Federal Tax System As In Effect for 2008, showing the distribution of taxpayers (including nonfilers and dependent filers) by marginal Federal income tax rate (MTR). The JCT staff estimates that approximately 62 million "taxpayers," or 37% of the 170 million taxpayers, will have no tax liability in 2008 and generally have a marginal tax rate of zero.

Q: Are you still a "taxpayer" if you don't pay taxes?

See related CD post here

(HT: Ben Cunningham)

Highest Foreclosure Rates: CA, NV and FL

RealtyTrac, the leading online marketplace for foreclosure properties, today released its March 2008 U.S. Foreclosure Market Report, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 234,685 properties nationwide during the month, a 5% increase from the previous month and a 57% increase from March 2007.

The report also shows one in every 538 U.S. households received a foreclosure filing during the month. Nevada, California, Florida has the top state foreclosure rates (see map above), and California, Florida, Ohio reported the highest foreclosure totals.

On Tax Day: The Tax Debate We Need To Have

Here's a cold reality that none of the presidential candidates want to tell you: a shrinking number of Americans are bearing an ever bigger share of the nation's income tax burden. In 2005 (the most recent year for which data is available), the bottom 40% of Americans by income had, in the aggregate, an effective tax rate that's negative: their households received more money through the income tax system, largely from the earned income tax credit, than they paid.

That means that the number of people who actually pay America's income taxes - totaling almost $1 trillion in 2005 - is surprisingly small. Of those who filed returns (themselves a subset of the population), just half accounted for 97% of the Treasury's total income tax revenue (see chart above). The top half's share of total payments has been growing steadily for the past 20 years. The top 10% of taxpayers kicked in 70% of total income tax. And the famous top 1% paid almost 40% of all income tax, a proportion that has jumped dramatically since 1986.

Did Bush cut taxes for the rich? Yes. But he cut taxes for the poor even more. If we look at the measure that really matters - the change in effective tax rates - the bottom 50% got a much bigger tax cut than the top 1%. Did the dollar value of Bush's tax cuts go mostly to the wealthy? Absolutely. It could hardly be otherwise. Since the well-off pay the overwhelming majority of taxes, any tax cut with a prayer of influencing the economy would have to go mostly to them. You could completely eliminate income taxes for the bottom half of the population, and the Treasury would hardly notice.

The real issues here are clear. One is having a shrinking minority of citizens pay most of Washington's bills. Social cohesion falls apart. The majority who pay nothing resent those with higher incomes; the minority who pay heavily resent those who don't pay.

~Geoff Colvin, Fortune Senior Editor


Monday, April 14, 2008

The "NY Times Jobless Rate"

According to Paul Krugman in today's (Apr. 14) NY Times: The official unemployment rate may be relatively low — but the percentage of prime-working-age Americans without jobs, which isn’t the same thing, is historically high.

According to a comment on this earlier CD post about Krugman and Don Boudreaux's response, Krugman was referring to the top chart above in the April 12 NY Times article by Floyd Norris "Many More Are Jobless Than Are Unemployed," which claims that "Men in the prime of their working lives are now less likely to have jobs than they were during all but one recession of the last 60 years. Most of them do not qualify as unemployed, but they are nonetheless without jobs."

Norris uses a "jobless rate," or "proportion of people without jobs," which can be calculated as: 1 - Male Employment Ages 25-54/Population. Using employment/population data for men, women and all workers aged 25-54 from the BLS (via Economagic), the "jobless rates" are calculated and displayed in the bottom chart above. The middle chart above shows this calculation for males aged 25-54, which matches the Norris graph at the top.

If Krugman did refer to that article as his source, there are a few problems:

1. Krugman says "the percentage of prime-working-age Americans without jobs is historically high," which is clearly not accurate. It would be more accurate to say that it is close to being historically low (see middle brown line above for "All Workers"). Krugman may have used Norris' data, but then mistakenly discussed the jobless rate for all workers aged 25-54 being high, when he should have been discussing men only aged 25-54.

2. When the data are displayed over a range from 0% to 70% (bottom graph) instead of a more narrow range from 2-16%, it's much clearer that the jobless rate for men aged 25-54 has been relatively stable at about 12% for the last 25 years. Further, the jobless rate for all workers aged 25-54 has been relatively stable at about 20% for the last 25 years, and jobless rate for women has been stable at about 28% for the last 20 years, and is close to an historical low.

Update: After exchanging emails with Norris, he calculated his "jobless rate" by first finding the number of men with jobs aged 25-54 in the household employment survey, and he then compared it to the civilian noninstitutional population for the same age group. Then he subtracted the employment/population ratio from 1 to calculate the "jobless rate." That calculation can be replicated by using the Employment/Population ratio from the BLS, and then subtracting that ratio from 1, see the middle chart above - it replicates Norris' top chart exactly.

What is Paul Krugman Talking About?

Paul Krugman in today's NY Times: The official unemployment rate of 5.1%, though rising, is still fairly low by historical standards. Yet economic attitudes are worse now than they were in 1992, when the average unemployment rate was 7.5%. Why are we feeling so down?

Our bleakness partly reflects the fact that most Americans are doing considerably worse than the usual economic measures let on.
The official unemployment rate may be relatively low — but the percentage of prime-working-age Americans without jobs, which isn’t the same thing, is historically high.

Don Boudreaux responds: Krugman is simply wrong to assert that the percentage of Americans of prime-working-age without jobs is "historically high" -- and misleading to suggest that, whatever this percentage might be today, that it is evidence of some major economy malady.

Comment: The labor-force participation rate for prime-working-age Americans has been relatively flat at about 83% for the last 20 years (see chart above, data available here), and is actually slightly higher so far this year at 83.10% (average from Jan-March 2008) than in any full year since 2002 (83.3%).

Don is correct - what is Krugman talking about? The percentage of prime-working-age Americans without jobs is close to an historical low, not an historical high!

50 Greatest Comedy Sketches of All Time

According to (with video links), including one of my favorites: "Buh-Weet Sings" from SNL, with classic songs like "Wookin' Pa Nub."

Inheritance is NOT The Main Driver: Rich Aren't Getting Richer, They're Getting More Numerous

WSJ--Study after study shows that most of today’s multi-millionaires made their wealth themselves, as opposed to inheriting it from their parents. PNC Wealth Management recently polled 1,500 Americans with $500,000 or more in investible assets and found that 69% of respondents made most of their fortune through work, business ownership or investments. Only 6% made their wealth by inheriting it, while 25% made it through a combination of inheritence and earnings (see chart above).

Other examples (also from WSJ):

1. According to a study of Federal Reserve data conducted by NYU professor Edward Wolff, for the nation’s richest 1%, inherited wealth accounted for only 9% of their net worth in 2001, down from 23% in 1989. (The 2001 number was the latest available.)

2. According to a study by Prince & Associates, less than 10% of today’s multi-millionaires cited “inheritance” as their source of wealth.

3. A study by Spectrem Group found that among today’s millionaires, inherited wealth accounted for just 2% of their total sources of wealth.

Each of these stats measures slightly different things, yet they all come to the same basic conclusion: Inheritance is not the main driver of today’s wealth. The reason we’ve had a doubling in the number of millionaires and billionaires over the past decade (even adjusted for inflation) is that more of the non-wealthy have become wealthy.

So it’s not just that the same old rich folks are getting richer. The more-important shift is that the rich are getting more numerous.