Saturday, January 20, 2007

Disappearing Middle Class?

We hear a lot of handwringing these days about the "disappearing middle class," and how the benefits of the current economic expansion are going disproportionately going to "the rich." How does the middle class of the U.S. compare to countries in Europe?

In the graph above from the blog Back Talk, those in the lowest 10% in the U.S. have about the exact same disposable income as those in the lowest 10% in Europe. At the other end of the scale, the highest 10% in the U.S. have much higher disposable incomes than the highest 10% in Europe. All of these measures are relative to the U.S. median disposable personal income (which is set to 100).

Are only the rich making off like bandits? Well, look at the middle class (i.e., look at the median). The European in the middle makes only about 73% of what the American in the middle makes.

That's how America's economy distributes its benefits across the economic spectrum (relative to other nations). Those at the bottom of our economic ladder are similar to those at the bottom of other industrialized nations. One would imagine that, in all of these nations, the government tries to ensure that the basic needs of the poor are satisfied (e.g., adequate food, uncrowded living conditions, plumbing, electricity, etc.) without going much further than that. But as you start moving up the economic ladder, you are better off here in America. And that would appear to be true starting pretty far down on that ladder (somewhere below the median for sure).

Got Any LPs?

Long-playing (LP) records are gathering dust in the homes of many music lovers (like me), who hope to hear their contents one day on a CD player or iPod.

Now, an updated version of another audio relic, the phonographic turntable, may provide a fairly inexpensive way to do that. Two new consumer turntables on the market at $200 or less connect directly to computers to transfer cherished vinyl to MP3 files and CDs.

Read more in
NY Times.

Tax Subsidies for the "Rich?"

Federally backed student loans regularly go to the wrong people – in 2003-04, nearly 30% of students from families earning more than $100,000 a year got them – and they make tuition more expensive for everyone. And while federally subsidized loans – on which Democrats are now focusing after promising to cut rates on all federal student loans during the campaign season - go to fewer wealthy families, they still tend to benefit well-off students and those whose parents understand how to game the system.

Read more
here.

What Do "Meatlifting" and Meth Have in Common?

Meatlifting is a grave problem for food retailers: According to the Food Marketing Institute, meat was the most shoplifted item in America's grocery stores in 2005. (It barely edged out analgesics and was a few percentage points ahead of razor blades and baby formula.)

Meat's dubious triumph is due in part to a law enforcement crackdown on methamphetamine use. Meat used to be the shoplifting runner-up to health-and-beauty-care items, a category that includes cough medicines containing pseudoephedrine, a key ingredient in home-cooked meth.

In 2003, for example, a quarter of shoplifted products were HBCs, while meat took second place at 16 percent. But states began passing laws that require stores to move medicines containing pseudoephedrine behind secure counters. That was enough to cut the pinching of HBCs, which fell by 11 percent between 2003 and 2005.

Read more here in
Slate.

See Faces of Meth
here, you won't believe it.

Friday, January 19, 2007

Corn Prices Hit Ten-Year High at $3.95/bu

1. Ethanol is already one of the most coddled and protected industries in America. Before even pulling into the filling station American taxpayers have already paid between $1.04 and $1.45 in government subsidies for each gallon of ethanol, according to a report from the Global Subsidies Initiative. That adds up to an annual total of about $6 billion. Read more here in today's NY Sun.

2. Skyrocketing prices for corn on the world market have pushed up the price of the humble tortilla, the mainstay of the Mexican diet, by nearly a third in the past three weeks, to 35 cents a pound in Mexico City and even higher in other parts of the country. Some economists blame the increased demand for corn from ethanol plants in the United States, and it is true corn prices in the States last week reached their highest point in a decade (see graph above). Read more from NY Times article
Cost of Corn Soars, Forcing Mexico to Set Price Limits.

Detroit Public Teachers, Private School Choices


What would you conclude about the quality of product or service X under the following circumstances?

1. The employees of Airline X and their families are offered free airline tickets as an employee benefit. The employees refuse to travel with their families on Airline X and instead pay full fare on Airline Y when flying.

2. The employees of Automaker X are offered a company car at a substantial discount and they instead buy a car at full price from Automaker Y.

3. Employees at Health Clinic X and their families are offered medical care at no additional cost as a benefit and yet most employees of Clinic X pay out-of-pocket for medical services at Clinic Y.

In each case, the employees' willingness to pay full price for a competitor's product or service and forgo their employer's product or service at a reduced price (or no cost) makes a strong statement about the low quality of X. What makes the inferior quality of X even more obvious is that the employees at Firm X, since they work in the industry, would have better information about product (service) X and product (service) Y than the average person.

What then should we conclude about the quality of public education in Detroit given the following facts? Public school teachers send their own children to private schools at a rate 50% higher than average--18.5% of public educators' children in Detroit are in private schools compared to 12.8% for all families.

Read today's editorial in the Detroit News
here.

Quotes of the Day

"From the point of view of physics, it is a miracle that 7 million New Yorkers are fed each day without any control mechanism other than sheer capitalism."

~John Holland, scientist, Santa Fe Institute


"I am convinced that if the market system were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aims, this mechanism would have been acclaimed as one of the greatest triumphs of the the human mind."

~Friedrich Hayek, Nobel economist


"It is something of a miracle that individual selfish decisions (in a market economy) must lead to a collectively efficient outcome."

~Steven Landsburg in the Armchair Economist

Bollywood's New Capitalist Hero

From today's WSJ: "Guru," the latest Bollywood blockbuster by the respected director Mani Ratnam, is that rare film -- perhaps Bollywood's first -- in which free markets are lauded as a force for good. Aliens emerging from the Taj Mahal would be less surprising.

"Guru" stars Abhishek Bachchan as Gurukant Desai, a character inspired by Dhirubhai Ambani. Ambani was that rare tycoon who went from rags to riches during the worst years of India's license raj, building
Reliance Industries, which today is India's largest private-sector company. In the era in which Ambani flourished, the state strangled private enterprise with licenses, regulations and sundry restrictions.

School Choice Research

The vast majority of sound empirical studies comparing competitive education markets to state-run school monopolies give the edge to markets. A few find no significant differences, and only the tiniest percentage find any sort of advantage to government operated schools. Moreover, the superiority of free market education is not limited to higher student achievement, but extends to a variety of positive social effects as well.

From Cato Institute's "A Quick Guide to theScholarly Literature on School Choice" by Andrew Coulson.

Thursday, January 18, 2007

Dorganonomics

“America cannot be great if most of its workers are in the service sector or cashiering at Wal-Mart,” Senator Byron Dorgan (D-North Dakota) declares in his book "Take This Job and Ship It," who also has an anti-trade letter in today's WSJ where he says: "There is a growing public sense that blind support for unfettered "free trade" in Washington has cost our country dearly."

From a
review by Cato Institute's Daniel Griswold: "Most Americans do work in the service sector — about 80%, in fact — and most of those jobs pay much better than a retail cashier. In fact, the American middle class is built on good paying service jobs. Knock on the doors of any middle-class neighborhood and you will meet teachers, insurance agents, engineers, managers, bookkeepers, firefighters, police officers, small-business owners, and truck drivers.

As a nation grows wealthier, the share of the workforce in agriculture invariably falls and the share in the service sector rises. The share in manufacturing typically rises and then falls. According to the World Bank, countries with the lowest share of the work force in the service sector include Uganda, Vietnam, Romania, Sri Lanka, Indonesia, and Mongolia. Countries with the highest share in the service sector include, along with the United States, Sweden, Switzerland, Canada, Hong Kong, Japan, and Luxembourg. The first group is among the poorest nations, the second among the richest. Apparently one goal of Dorganomics would be to shift America from the rich group to the poor group."

Free Trade: Most Important to Promote Growth

Job outsourcing works both ways: outsourcing by foreign companies has created more than 6.5 million jobs for American workers -- with the Honda automobile plant in Ohio and BMW factory in South Carolina being two prime examples.

In short, trade helps people while protectionism hurts them.

Imports give people a wider choice of goods, often at lower prices; protectionism helps local industries maintain higher prices at the expense of broad social and economic prosperity.

Milton Friedman was right when he said ''Free trade is the most important single way to promote growth,'' and the protectionists in the new Congress are wrong.

From today's
Miami Herald, a commentary by Pete DuPont.

Resilient US Economy

A tight labor market is pushing up many workers’ wages, consumers are spending more at their local shopping malls and the skid in the housing market is easing in some areas of the country.

Together, the findings are consistent with some other signs of a muted but healthy expansion — including job growth and rising stock prices — that have come into clearer focus recently.

Read more here from today's NY Times Business section article "
Some Signs of Economic Resilience Seen."

Sound Economics = Unsound Politics

"The British historian Thomas Macaulay observed that free trade, one of the greatest blessings which a government can bestow, is in almost every country unpopular. Indeed, sound economics often makes for unsuccessful politics. That free trade is a great benefactor is one of the most convincingly established truths of economic science.

The economic case for free trade is essentially the case for voluntary exchange in general: no one freely enters into an exchange, whether as buyer or seller, unless he expects to emerge better off as a result of that exchange. Furthermore, the ability to exchange a single product one has produced for the many things one would like to consume makes possible the division of labor and the manifold expansion of production capacity that it permits. There is no economic reason why these gains do not apply equally to potential traders on different sides of national boundaries."

~ "Why Managed Trade Is Not Free Trade," By Robert Batemarco

The Chinese Are Coming

Detroit News: A Chinese automaker called Changfeng Group Co. is displaying five vehicles in its exhibit at the Detroit auto show, which opens to the public on Saturday.

Detroit News: China surged past Japan to become the world's No. 2 vehicle market after the United States last year as car purchases by newly affluent drivers jumped 37 percent.

Detroit News: To protect against this growing threat (of Chinese cars), industries and policymakers are likely to push for tougher legislation in the new Congress to protect U.S. industries.

Wednesday, January 17, 2007

$40B Budget Surplus in December

According to the CBO, as reported in the WSJ: "For the first three months of fiscal 2007 through December, federal tax revenues climbed 8.1%, building on double-digit revenue increases in the previous two years. Corporate income taxes were up a remarkable 22.2% in the first fiscal quarter, showing that the government continues to grab a nice chunk of the rising business profits that so many of our politicians like to deplore. Individual income taxes rose 8.8%, thanks to strong wage and salary growth. Much of this revenue comes from "the rich," believe it or not."

"The deficit has in fact declined by some $165 billion over the past two fiscal years, and according to the most recent data has continued to fall in the first quarter of fiscal 2007. The latest Treasury estimates for January show that tax receipts in December were $18 billion higher than a year earlier, helping to boost the budget surplus for the month to $40 billion, up from $11 billion a year ago."

Fair Trade = Protectionism

From an article by George Mason economist Walter Williams:

"Some people justify their calls for protectionism by claiming that they're for free trade but fair trade. That's nonsense. Think about it: When I purchased my Lexus from a Japanese producer, through an intermediary, I received what I wanted. The Japanese producer received what he wanted. In my book, that's a fair trade.

Of course, an American auto producer, from whom I didn't purchase my car, might whine that it was unfair. He would like Congress to impose import tariffs and quotas to make Japanese-produced cars less attractive and available in the hopes that I'd buy an American-produced car. In my book, that would be unfair."

MP: Based on past experience, whenever somebody calls for "fair trade," it's a sure bet that what they really want is some kind of protectionism for an inefficient domestic producer or industry.

Quote of the Day II

“When China's prime minister, Wen Jiabao, visited India for the first time last April, he didn't fly into the capital, New Delhi -- as foreign leaders usually do. He flew directly from Beijing to Bangalore -- for a tech-tour -- and then went on to New Delhi.

No U.S. president or vice president has ever visited Bangalore.”

~Thomas Friedman, NY Times article June 8, 2005

Quote of the Day

"When buying and selling are controlled by legislation, the first things to be bought and sold are legislators."

~P.J. O'Rourke

Time-Honored Washington Maxim Raises Tuition

The Democrats' eagerness to cut interest rates on student loans reflects a time-honored Washington maxim: If it's good, it should be subsidized. In this case, as in most others, the truth is just the opposite: If it's good, there's no need to subsidize it.

According to U.S. Census data, the average college graduate earns about $1 million more over his lifetime than the average high school graduate. That's a pretty good payoff for the investment in tuition, whether the money is borrowed at the rate promised by the Democrats (3.4%), at the current government-subsidized rate (6.8%), or even at the market rate (now between 7% and 11%).

Aid supporters also note that the cost of attending college has been rising faster than the rate of inflation for the last two decades. Yet easy money at taxpayers' expense fuels this escalation. Basic economic theory tells us that boosting the demand for a product or service, which is what government loans and grants effectively do, tends to raise its price.

Read more
here from Reason Magazine.

Tuesday, January 16, 2007

GM vs. Toyota, Nascar Style

After years of expanding its presence in the United States and beyond, the Toyota Motor Company of Japan recently issued a 2007 forecast that would make it first in global sales, ahead of General Motors.

And now, Toyota is about to begin competing with its American counterparts on yet another level: Nascar’s premier circuit, the Nextel Cup.

From
today's NY Times.

Quote of the Day, Joining the Innovation Fray

"Only 30 years ago, if you had a choice of being born a B student in Boston or a genius in Bangalore or Beijing, you probably would have chosen Boston, because a genius in Beijing or Bangalore could not really take advantage of his or her talent. They could not plug and play globally. Not anymore. Not when the world is flat, and anyone with smarts, access to Google and a cheap wireless laptop can join the innovation fray."

~ Thomas Friedman, from "The World is Flat"

The Poor Get Richer

From today's WSJ: Here's bad news for Lou Dobbs and those who oppose global free trade: Not only did the world-wide trend toward greater economic liberty hold steady over the past year, but the incomes of poor individuals across the globe are rising as result. The world isn't only growing richer. The gap between the per-capita income of have-not populations and that of the developed world is narrowing.

This good news for human progress is documented in the 2007 Heritage Foundation/The Wall Street Journal
2007 Index of Economic Freedom, released today. Neither another year of Islamic terrorism, nor record high oil prices, nor fear mongering on Capitol Hill about the China peril have been able to reverse a gradual global shift that reflects the basic human longing for individual liberty. While not all of mankind is participating in this advance, in those places where freedom has increased, people are becoming decidedly better off.

The 2007 Index finds that economically free countries enjoy significantly greater prosperity than those burdened by heavy government intervention. The per capita GDP of the top quintile of countries, ranked according to economic freedom, is now $28,000 while the bottom quintile is below $5,000. The associated higher GDP rates that come with economic freedom "seem to create a virtuous cycle, triggering further improvements in economic freedom. Our 13 years of Index data strongly suggest that countries that increase their levels of freedom experience faster growth rates," says the report.

#1 most economically free: Honk Kong (for the 13th straight year)
#157, most economically unfree: N. Korea
#4: United States

Something Fishy Going On

WSJ editorial: Economists of every political stripe agree that a higher minimum wage will cost some low-skill workers their jobs. But don't believe us; just ask Democratic Speaker Nancy Pelosi.

The House last week whooped through an increase in the minimum wage to $7.25, by a vote of 315-116. But, lo, included as part of this boon to the working man was a loophole: The new, higher wage floor applied to all of these United States and its territories -- save for the Pacific outpost of American Samoa. In the immortal words of Congressman Patrick McHenry (R., N.C.), "There's something fishy going on here."

It turns out that American Samoa has a big fish and tuna canning industry, specifically operations run by StarKist and Chicken of the Sea. Both companies are headquartered in California, and StarKist's parent is located in none other than Ms. Pelosi's own San Francisco district. So faster than you can say "middle class squeeze," Democrats rediscovered the eternal economic truth that a higher minimum wage can cost jobs and granted Samoa its reprieve.

Insead, a business school based outside Paris with campuses there and in Singapore, said the U.S. is the most innovative nation in the world when it comes to generating new ideas, adapting them quickly and profiting from them. Germany was a distant second.

The U.S. leads the second most innovative nation by almost a full point, putting it in a league of its own as far as global innovation is concerned," the Insead report said.

Read the WSJ story here.

Monday, January 15, 2007

Gas Prices Approach 3-Year Low

Michigan gas prices fall below $1.80, as low as $1.76 per gallon in Lake Orion.

Best Pictures of 2006

















Best pictures of 2006 from
Flickr, e.g. "Sunset at the North Pole" (below) and "Iceberg - Upsala Glacier - Argentina" (above).

Competition Breeds Competence

From today's WSJ, an article titled "Why India Needs School Vouchers:"

"On India's Republic Day, January 26, the New Delhi-based Centre for Civil Society will launch a campaign for school choice. It's an apt day for the event. While India's constitution guarantees universal and free education, the government has utterly failed that mission. It's time to encourage the private sector to step in."

New Websites Offer Private Flights

Because private jet passengers typically remain at their destinations for a few days, their pilots often fly back to their home airports after the drop-off. As a result, the nation's 5,000 or so private jets that offer charter flights travel empty 40% of the time.

Aircraft owners are happy to fill those planes even at greatly reduced prices, to help defray the high costs of maintenance and storage.

Get an online price quote at
OneSky for booking a flight on a private jet. Flint to Minneapolis at the end of January is $4500 (round trip) for a light jet that seats 5-7 people, Flint to Jacksonville, FL is $6,000 to $15,000 for a light jet at the end of January.

Other websites offering private jets are
Blue Star and Jets.com, both offer online quotes.

More Engineering Students in Mexico Than US

When American engineers talk about the need for the U.S. to better compete in the global economy, the discussion almost always centers on two countries: China and India. People rarely mention another country that is geographically closer to the United States: Mexico.

Mexico has quietly been building up its infrastructure over the past decade to educate more engineers and attract companies with advanced engineering design work. Some 451,000 students are currently enrolled in full-time undergraduate engineering programs in Mexico, up 20% since 2000.

American universities enroll 370,000 engineering undergraduates, a number that has barely inched up since 2000, even as the overall number of undergraduates has grown nationwide.

Multinational companies, including GE, Siemens and Honeywell, that once located facilities in Mexico to produce products are now opening up small operations for design and testing work, much of which is done by engineers. GE employs more than 500 engineers at a facility in Querétaro that designs and checks jet engines. Officials there expect to hire another 200 this year.

One reason for the hiring spree? Low salaries. Engineers fresh out of college in Mexico make around $15,000 annually; compare that with their U.S. counterparts, who graduate to $45,000-a-year jobs.

Read more
here.

Sunday, January 14, 2007

Piano Players

Dr. John and Christina Aguilera on Letterman, singing a duet of "Merry Christmas Baby." Wow!

Dr. John singing "
Such a Night" with "The Band" in the movie "The Last Waltz," directed by Martin Scorcese.

Diana Krall singing "
Charmed Life."

The Falacy of the Escalation of Commitment

"Escalation of commitment" is the phenomenon where people increase their investment in a decision despite new and often overwhelming evidence suggesting that the original decision was flawed, deficient and wrong."

Exhibit A: Mike Nifong.


From 2% to 3.3% Growth in Real GDP

Economists are upgrading their forecasts for the U.S. economy after a series of surprisingly strong reports suggesting the so-called "soft landing" may be over and growth is accelerating.

Lehman Brothers chief economist Ethan Harris on Friday boosted his forecast for fourth quarter 2006 growth to an annualized rate of 3.3%, a leap from the firm's prior call for just 2% growth:

"With the last of the major data in, we are now revising fourth quarter GDP to an above-trend 3.3 percent. A wide range of indicators have been stronger than expected. Most important have been the strong consumption data and the surprising improvement in the trade balance."

Outsourcing Health Care Isn't Always Cheaper

From today's NY Times ("Company Clinics Cut Health Costs"): "Frustrated by runaway health costs, the nation’s largest employers are moving rapidly to open more primary care medical centers in their offices and factories as a way to offer convenient service and free or low-cost health care.

Within the last two years, companies including Toyota, Sprint Nextel, Florida Power and Light, Credit Suisse and Pepsi Bottling Group have opened or expanded on-site clinics. And many other employers are adding or planning to add even more clinics.

For employees, on-site clinics can mean faster medical attention and lower out-of-pocket costs, since visits are usually free or carry only a small co-payment. For employers, on-site clinics can mean gains in worker productivity and lower health-insurance outlays."

Seems like win-win. Companies save money on health care costs, employees have access to convenient on-site health care and spend less time away from work for appointments, etc. The traditional practice of "outsourcing" medical care with employer-paid insurance insulates both the employer and the employee from the true costs of medical care, and gives neither much direct control over medical costs. Employer-paid on-site medical care makes everybody more cost conscious.


Cartels Aren't Forever

The diamonds above are real - but they are cultured diamonds that were produced in a laboratory, and might cost up to 75% less than similar diamonds from the DeBeers diamond cartel, and some have fewer flaws than natural diamonds. From today's WSJ:

"The $143 billion jewelry business -- and the would-be fiancés, Valentines and lovers of bling that it caters to -- are facing a shakeup. Lab-produced diamonds, once suitable only for industrial use, are being produced with color and clarity that match -- or exceed -- the quality of diamonds dug out of the earth. These lab-made diamonds have begun trickling into retailers at prices below those for natural diamonds of similar size and sparkle.

The long-term threat to established diamond producers: that mined diamonds could suffer the same fate as naturally occurring pearls. Cultured pearls, made when a small bead is inserted into a mollusk and grown, destroyed the natural pearl industry. Cultured pearls now account for more than 95% of all pearls sold globally, according to estimates by Gem World International, a research firm."

Read the WSJ article
here.

"The larger question is whether lab-grown diamonds will gain acceptance with consumers....."

Prediction: Given the general acceptance, by both men and women, of breast implants, isn't the general acceptance of "fake diamonds" probably inevitable? After all, wouldn't it be irrational behavior to accept synthetic, artificial breasts, but reject synthetic artifical diamonds? Comments welcome.