Monday, October 29, 2007

Harvesting Cash: Urban Farming in Mpls.-St. Paul

From the Minneapolis-St. Paul StarTribune:

Year after year, the federal government sends farm subsidy checks to homes nestled in some of the most expensive neighborhoods in Minneapolis, far from any corn or soybean field.

The urban payments total millions of dollars out of the nearly $1 billion sent to Minnesota farmers in 2005, according to federal records sent to the Star Tribune under a Freedom of Information Act request.

The flow of federal largesse comes thanks to rules that allow landowners -- including some 2,000 in the Twin Cities metro area -- to collect subsidies without farming the land themselves, a legal and increasingly common practice as farm ownership has consolidated over the past few decades.

See map above of urban "farmers" in the Minneapolis-St. Paul metro area receving farm subsidies.

(HT: JJ Howe)

Global Stock Market Capitalization Sets New Record

Carpe Diem Exclusive!

According to global stock market statistics from the World Federation of Exchanges, the world stock market capitalization reached an all-time record of $59.74 trillion in September 2007 (see graph above, click to enlarge). Comared to last September, world stock markets have increased in value by 31% over the last year, adding $14 trillion of new stock market wealth to the world economy in just the last 12 months.

Over the last five years, almost $40 trillion of stock market wealth has been created, as the global market capitalization rose from about $20 trillion in September of 2002 to almost $60 trillion in September 2007.

In other words, more global wealth (measured by stock market value) was created in the last 5 years ($40 trillion total, or almost $6,000 for every person on the planet) than was created during the thousands of years it took to create the first $35 trillion of stock market value, a level reached in 2000.

Not a bad record for globalization and the significant amount of wealth created in its wake.

Historic Milestone:Indian-American Elected as Gov.

Hindustan Times: The Indian-American community passed another milestone with the election on Saturday of Bobby Jindal to the governorship of Louisiana, the highest US political post any Indian community member has won.

Jindal, 36, will also be the youngest governor in the US and the first non-white to rule Louisiana since the end of the US civil war.

Washington -- Bobby Jindal made history on October 20 when Louisiana voters chose him, the son of Indian immigrants, as their next governor. He is the first Indian American to be elected as a state’s chief executive.

(HT: Sanil Kori)

Carpe Diem Milestone

This CD post was cited on Greg Mankiw's blog over the weekend.

Trading Places: Computers Now Rule in Chicago

Open-outcry pit trading (pictured above) traces its roots to 1848, when the Chicago Board of Trade was founded to trade agricultural futures contracts. But computers and electronic trading are rapidly replacing the 159 year-old tradition.

-- With the consolidation of the Chicago Board of Trade and the Chicago Mercantile Exchange, the pork belly pit, formerly emblematic of Chicago's open-outcry commodity trading, will close and begin operating exclusively by computer.

The open-outcry pits of other low-volume markets, including cash dairy products and South American bean futures, are also closing. Many traders believe that all commodity markets will inevitably follow suit.

Since 2000, open-outcry has declined from about 90 percent of the trades at the exchanges to roughly 22 percent.

Sunday, October 28, 2007

Why Income Inequality Has Increased and Why It Really Doesn't Matter

From "Making Sense of Income Inequality" by Diana Furchtgott-Roth:

1. Percent of bottom quintile households who own their homes free of debt: 30%

2. Percent of top quintile households who own their homes free of debt: 17%

3. Percent of top quintile households who have two or more earners: 75%

4. Percent of bottom quintile households who have multiple earners: 2.6%

5. Average age of those in the lowest income quintile: 54 years

Conclusion #1: One reason that the top quintile of households collects more income is that these households tend to have more full-time earners. Census data show that the top quintile has two income earners per household, whereas the bottom quintile has about one earner for every two households. This means there are more than four times as many full-time workers in the top fifth of the income distribution as there are in the bottom fifth.

Women now earn well over half of all B.A. and M.A. degrees, plus half of all medical and law degrees. With higher numbers of well-educated women in the workforce, marriage often combines two medium-earning single-person households into one high-earning two-person household. Such demographic changes have increased both the number and relative wealth of two-earner couples.

Conclusion #2: The average age of the bottom 20% by income (54 years) suggests that the bottom quintile is actually a mix of: a) very young low-income earners and b) many older retirees who are probably in one the top quintiles by wealth (they own their homes free of debt at almost twice the rate as the top 20% by income) even though they might be quite wealthy and living off accumulated savings and investments.

Conclusion #3: In a dynamic economy like the U.S., people typically move among income groups as they grow older and advance in their careers, so a snapshot view of income statistics does not reflect Americans’ true well-being. Given the reality of income mobility, some low-income households arguably are not poor. They may be students who have yet to enter the workforce and whose earnings will rise, or wealth retirees.

Most people, even Bill Gates, Tiger Woods, Oprah and Howard Stern, start in the lowest income quintile early in their lives and careers, advance into one of the higher qunitiles as they become successful, and drop back to one of the lower quintiles by income later in life, even though they might be in one of the top quintiles by wealth.

Private School Tuition: 1/3 to 1/2 Less Than Publics

Using data from this U.S. 2006 Department of Education report, the graph above (click to enlarge) shows average tuition at private schools (elementary and secondary) vs. average per pupil spending for public schools (elementary and secondary) for the 2003-2004 school year.

Average private school tuition ($6,600) was about 1/3 less than the spending per pupil in public schools ($9,620) in 2003-2004 (the most recent year available), and average Catholic school tuition ($4,254) was less than half of public school spending per student.

Not only was the average private school tuition between 1/3 and 1/2 less than the cost per public school student, the private schools had on average 18% more teachers per 1000 students (72.25 in private schools vs. 61 in public schools) in 2003-2004.

Bottom Line: Private schools can educate students at a lower cost, with more teachers per 1000 students, than the public schools. Reason: Private schools must have significantly fewer non-instructional administrative employees, and therefore significantly lower administrative expenses than their public counterparts.

Bloated, Costly Public School Administrations

A previous post documented the 10X increase in the real cost per public school student from 1929-2007. Why has the cost of public education increased so much in real terms?

One important factor is the increase in the number of public school employees in relation to student enrollment. From the Cato Institute report "Saving Money and Improving Education":

"As shown in the graph above (click to enlarge), student enrollment in public schools grew by 13% between 1979 and 2000. During the same period the total number of school employees grew by 61%, and the number of teachers grew by 35%. Nationally, public schools now have about 1 employee for every 8.1 students, and teachers make up only 40% of total school employees."

From my article "The Educational Octopus":

Consider the following cases of bloated, costly public school administration.

1. The Chicago Board of Education, which has 3,300 employees, is larger than the entire Japanese Ministry of Education.

2. The New York City public schools system has 250 times as many administrators as the New York Catholic school system (6,000 administrators in public school system versus 24 in Catholic school system), even though New York public schools have only four times as many students as the Catholic schools.

3. Administrative costs have exploded since World War II as the number of school districts has declined, from over 100,000 districts in 1945 to fewer than 16,000 in 1980. As school districts have consolidated and grown in size, they have become increasingly bloated--more top-heavy, more bureaucratic, more centralized, less efficient--and more costly to administer.

Saturday, October 27, 2007

The Energy-Efficient Economy Can Handle $100 Oil

Oil prices hit a record high of $92 a barrel on Friday and some analysts say oil could climb pass $100 soon. U.S. Treasury Secretary Paulson said yesterday that the continued rise in oil prices was "not a positive" for the economy, but downplayed its impact, noting both employment and the economy were still growing.

Not long ago, the general consensus would have probably been that $100 oil would certainly cause the economy to go into a recession, and yet we're almost at that point now, and the economy continues on its expansionary path, as Paulson suggests, with output and employment growing at a fairly health pace. What gives?

Perhaps one explanation is that the economy is getting so much more energy efficient all the time, see the graph above of our energy consumption (thousand Btus) per real dollar of GDP from 1949-2006, using these data from the EIA.

Compared to the early 1980s when the real price of oil was about the same as today, we are now about twice as energy efficient, requiring only about 1/2 of the energy consumption per dollar of real GDP in 2006 (8.75 Btus per dollar of real GDP) as in 1980 (15.13 Btus per dollar of real GDP).

Bottom Line: The energy-efficient economy of today is much better able to absorb higher energy prices than in the past. Although high oil prices crippled the economy in the 1970s and early 1980s, and contributed to three serious recessions between 1973-1982, the energy-efficient Energizer Bunny Economy of the 21st Century just keeps humming along.

And You Thought Oil Prices Were High?

(Note: Graph and post have been updated.)

Using these data from the U.S. Department of Education and oil prices from Global Financial Data, the graph above (click to enlarge) shows expenditures per pupil in public elementary and secondary schools from 1929-2007, adjusted for inflation, and oil prices during the same period, also adjusted for inflation. Both series are price indexes set to equal 100 in 1929.

The data for public school spending are only available through the 2001-2002 school year from the Department of Education, and I was unable to find a comparable series through 2007, but I extended the series from 2002 through 2007 by assuming that the trend in spending for education would continue (about a 3% per year real growth rate).

Conclusion #1: Oil prices in real dollars have increased 2.4X since 1929 (the inflation-adjusted price index in the graph above goes from 100 to 240).

Conclusion #2: On the other hand, the average cost of educating a student in U.S. public schools today is about 10X the cost in 1929, measured in real dollars (the inflation-adjusted price index in the graph goes from 100 to 1000).

Conclusion #3: Consider also that the quality of a barrel of oil has probably remained the same since 1929, and we probably can't say that about the quality of public school education over the last 78 years. For example, see this 8th grade exam from 1895; how many high school students could pass this today?

Nissan To Export Low-Cost India-Made Cars to U.S.

(Bloomberg) -- Nissan Motor Co., Japan's third-largest automaker, eventually may export low-cost, Indian-built cars to the U.S. to tap demand in the world's biggest vehicle market.

The autos may sell for less than $5,000, even after modifications to meet U.S. safety and emissions standards, Chief Executive Officer Carlos Ghosn told reporters yesterday at the Tokyo Motor Show. The models probably will cost about $3,000 in India and would go on the market there in 2010, Ghosn said.

At a fraction of the $25,000 average for new passenger vehicles in the U.S., the cars may win customers as higher gasoline prices boost sales of smaller, more fuel-efficient models. Nissan is studying plans to build the car with Bajaj Auto Ltd., India's second-biggest motorcycle maker.

Now that's globalization for you: A Japanese car company, headed by a CEO who was born in Brazil, grew up in Lebanon and educated in France, teaming up with an Indian motorcycle company to produce vehicles in India, for sale in the U.S.!

(HT: Sanil Kori)

Meet the New Russian Price Controls, Same As....

Financial Times: Russia is introducing Soviet-style price controls on some basic foods in an effort to prevent spiralling prices from denting the Putin administration’s popularity ahead of parliamentary polls in December.

The country’s biggest food retailers and producers have reached an agreement, expected to be signed with the Russian government on Wednesday, to freeze prices at October 15 levels on selected types of bread, cheese, milk, eggs and vegetable oil until the end of the year.

Drearily predictable consequences of price controls, according to the Streetwise Professor:

Shortages, empty shelves, lines in stores, black markets in foodstuffs. I expect that these developments will lead, in turn, as day follows night, to publicity/propaganda campaigns against “speculators” and “hoarders,” likely accompanied in today’s increasingly shrill and paranoid political environment by some physical attacks on enterprising black marketeers (most likely ethnic minorities.)

In other words, it's "deja vu" all over again in Russia, or "meet the new Soviet-style price controls, same as the old Soviet-style price controls."

Friday, October 26, 2007

Does Learning Economics Make You Happy?

The answer is Yes, according to this economist at the Blue Matter blog, via Marginal Revolution.

Rodrick Flip-Flop, But Econ-Blogs Are Here to Stay

Dani Rodrick on why the best economics blogs might be on their way out.

Dani Rodrick the next day on why the econ-blogosphere is healthy and will keep on going.

Competition and "Capitalized Medicine" Work

Lo and behold, competition works -- even in health care.

The Labor Department recently reported that the inflation rate for prescription drugs dropped to 1% over the past year. That's a 30-year low, well below inflation, and a salve for consumers used to price increases.

It's also no accident. Two big things changed in prescription drugs last year. One is a surge in the use of generics. The other is a fierce retail war among Wal-Mart, Publix and other retail-pharmacy giants, each seeking a bigger share of the market.

The decline in drug prices shows that when things go right in health care -- when competitive markets are allowed to function -- prices respond favorably for consumers, just as they do in other sectors of the economy. So while politicians and pundits in Washington dream up the next grandiose health care reform, smart consumers know that the most effective health care solutions may be right around the corner at their local retailer.

~By Robert Goldberg in today's Seattle Post-Intelligencer

MP: More government control and additional regulations won't solve the health care problems nearly as effectively as more competition and less regulation. "Capitalized medicine" is much better than "socialized medicine," and results in lower drug prices and greater access, as this example illustrate.

World's Top 10 Most Liveable Cities

Click here to see Internaional Herald Tribune's list and slide show. There is only one city in the U.S., can you guess which one?

The Economy in Recession? Not in 2007

From columnist David Wessel's column in yesterday's WSJ: "Three-Ingredient Recipe for Recession":

"When we look back next year at this time, it will be clear what caused the recession of 2007-08.

It was basically a triple whammy: Housing prices kept falling, oil prices kept rising and both lenders and borrowers grew more cautious after five years of incaution. The combination was simply too much even for the impressively resilient U.S. economy. The Federal Reserve saw it coming, but couldn't move swiftly enough."

According to the NBER, the national authority on business cycles:

A recession is a significant decline in activity spread across the economy, lasting more than a few months, visible in: a) industrial production, b) employment, c) real personal income, and d)wholesale-retail trade sales. A recession involves a substantial decline in output and employment. In the past 6 recessions, industrial production fell by an average of 4.6 percent and employment by 1.1 percent.

Those four monthly economic variables identified by the NBER as the most important recessionary indicators are graphed above (click to enlarge), from 2002- Fall 2007, and would provide no support for the notion that the U.S. economy is headed for recession, at least not yet.

Industrial production, real sales and real income are all growing at a healthy annual rate of 2.5% over the last 5 years, with no sign of slowing down, and employment has been growing about 1.50% over the last 4 years, the average rate for the last 50 years. So the most current economic indicators suggest a healthy economy, expanding at the average rate of an expansionary economy. (I'll update the graph above in another month or two.)

Trading on places odds of a recession this year at 4.5%, rising to 36% in 2008. But for the variables that are most important to the NBER, there is no recession in sight yet. Unless falling housing prices, rising oil prices, and credit tightening start producing adverse effects on employment, output, personal income and retail-wholesale trade, the economic expansion that started in December 2001 will continue uninterrupted into 2008.

Thursday, October 25, 2007

Economics of Outsourcing: MN Goes Global

BANGALORE, INDIA -- Minnesota Gov. Tim Pawlenty's trade trip took a welcome turn today, as the governor learned that Indian firm Essar Global has officially closed on its acquisition of Minnesota Steel Industries and will proceed with plans to build a $1.6 billion taconite-to-steel mill on the Iron Range.

News of the historic deal filtered to the trade mission staffers as they toured the massive campus of the software firm Wipro here, in an area known as Electronic City.

Wipro is "considering increasing the number of jobs in Minnesota and perhaps putting a production development or a training center in Minnesota. So we are going to continue to have dialogue with them about that," Pawlenty said. Wipro currently has 1,600 workers in Minnesota, generating about $100 million in annual revenues from work done in the state.

Wipro does sizeable business with several of the companies represented on the trade mission, including 3M, IBM, and Best Buy, as well as Northwest Airlines and Target Corp, Banerjee told the trade delegates.

Bottom Line: Trade works both ways. Outsourcing from the U.S. TO India provides Indian companies with the dollars and resources to invest IN the U.S., like this deal.

"This will be one of the largest investments in the state. If you look at a $1.6 billion investment in Northern Minnesota, this is certainly one of the largest investments in a very long time," Pawlenty said.

It's very likely that without outsourcing TO India over the last decade, this investment of $1.6 billion in MN would have never happened. Lou Dobbs, listen up.

(HT: JJ Howe)

DEA Failed, But Weak $ Raises Price of Cocaine?

REUTERS (May 8, 2007) -- Billions of dollars in aid to Colombia have failed to drive up the price of cocaine on American streets, according to the head of the top U.S. anti-narcotics agency.

Officials in Washington have said crop spraying and military pressure on drug-smuggling guerrillas and paramilitaries would make cocaine more expensive in the United States following a U.S.-backed offensive launched in 2000.

But the Drug Enforcement Administration's chief said that a higher price -- a key indicator of success in the war on drugs -- had failed to sustain itself for long.

According to this report by the Drug Enforcement Administration (DEA), wholesale cocaine prices increased 11% in the U.S. between January and June 2007 from from $20.85 to $23.04 per gram, and retail prices increased 15% from $145.42 to $166.90 per gram of pure cocaine during the same period.

The DEA concludes "Cocaine availability in the United States has fallen significantly, as indicated by an increase in the price per pure gram since December 2006."

Before the DEA takes too much credit for "winning the War on Drugs," and making cocaine less available, it might also consider that the significant decline in the value of the dollar vs. the Colobmian peso might be playing a role in rising dollar prices for cocaine. For example, the graph above indicates that the dollar fell by 27% from the fall of 2006 to the summer of 2007, and by 13% during the first half of 2007, the exact period that the DEA reported a 11-15% decrease in the dollar price of cocaine in the U.S.

Apparently the weak dollar might have done more to raise cocaine prices than the billions of dollars spent by the DEA.

And for an analysis of why rising cocaine prices might actually make the drug problem worse (increased violence, users switching from powder to crack cocaine, or from cocaine to cheaper meth, increased drug trafficking because of higher prices, etc.), not better,
read this.

Wednesday, October 24, 2007

The U.S. Middle-Class is Alive and Well

From "The Myth of Middle-Class Job Loss" in today's WSJ:

The assertion that the American middle-class is disappearing along with manufacturing jobs is, put simply, based on an outdated view of how the economy operates, and is empirically wrong.

Here's the bottom line: For three-quarters of the workforce (women and the top half of male earners), economic growth (since 1979) translated into earnings gains. But for male workers in the bottom half of the earnings distribution, the decline of unionized manufacturing employment has led to the drying up of some middle-class jobs for those with no post-secondary education.

For the clear majority of the workforce, then, the job market has become more welcoming, not less so.

Tuesday, October 23, 2007

MN Governor Goes Global, Columnist Doesn't Get It

1. NEW DELHI - Minnesota Governor Tim Pawlenty (pictured above) made history today by signing India's first sister-state agreement, tying Minnesota to the Indian state of Haryana, the most prosperous section of the country.

The Minnesota delegation is on the way to Bangalore and will meet with Minnesota companies already doing business in India, such as General Mills, ADC Telecommunications, IBM and 3M.

2. Meanwhile, back in Minnesota, popular StarTribune columnist Nick Coleman isn't quite so global-minded about Minnesota's participation in the global economy, and is actually fretting over 15 new Ford F-150 trucks that were "imported" to Minneapolis from Colorado by Flatiron Constructors, the company building the new I-35W bridge over the Mississippi River near downtown Minneapolis. And I'm not making it up, he actually uses the term "imported" in his column today "
I-35W Bridge is Local, But New Flatiron Trucks Are Imported."

MP: Actually, Ford F-150 pickup trucks are built in Kansas City, Norfolk, Detroit and Louisville, and would have therefore been "imported" from Missouri, Virginia, Michigan or Kentucky to Colorado, before being "imported" to Minnesota from Colorado.

CSM: Halt the Gold Rush to Corn Fuel

The Christian Science Monitor joins the NYTimes, WSJ, IBD and Rollingstone Magazine and comes out today against corn ethanol, the "state religion":

Corn. There's nothing like eating it right off the cob at a picnic. It's also great as flakes, fritters, or a muffin. And it's feed for livestock. But there's one thing corn should not be: A solution for global warming or a way to reduce America's dependency on foreign oil. To take corn out of cereal bowls and put it into our gas tanks isn't an answer to global warming.

Quote of the Day: Prestige Versus Education

Of the CEOs of the 50 largest American corporations surveyed in 2006, only four had Ivy League degrees. Some -- including Michael Dell of Dell computers and Bill Gates of Microsoft -- had no degree at all.

~Economist Thomas Sowell in today's column "Prestige Versus Education"

India's Global Reach; Its "Carpe Diem" Moment

From Fortune Magazine's article "India's Global Reach":

Once sheltered from overseas competition by a government fearful of foreign domination, Indian companies now are building global empires with impressive speed, ramping up exports, striking cross-border corporate alliances, snapping up firms in the U.S., Europe, and emerging markets, and attracting billions in foreign portfolio capital to India.

India's largest IT-services companies, which count on foreign customers for more than 90% of sales, remain at the vanguard of India's outward expansion. In little more than a decade, firms like Wipro, Infosys Technologies, and Tata Consultancy Services have evolved from niche players handling basic debugging projects for foreign multinationals into giants in their own right, with operations in every major foreign market, tens of thousands of employees, and equity valuations in the tens of billions of dollars.

From the same issue of Fortune, an article "Google Goes To India":

Google's experiment in replicating its Silicon Valley workplace indulgences and luring back the Indian talent that helped fuel the dot-com boom in the U.S. is a deliberate strategy. This is not outsourcing in the usual sense of seeking cheaper labor. Rather, it's a brain drain in reverse.

Google chose Bangalore in 2004 as the site of its first R&D center outside the U.S., says Sukhinder Singh Cassidy, who heads Google's Asia operations from the company's Mountain View, Calif., headquarters, in part "because so many Googlers who are Indian want to move back to India and participate in India's growth."

There may be no Chinese or Russians in these offices. But there is a wide range of diversity nonetheless. These Googlers aren't just Indians. They're Sikhs, Hindus, Muslims, Buddhists, Christians, and Jains. As the cream of India's talent crop, they speak English, but they also speak Hindi, Tamil, Bengali, Telugu, and several more of India's 22 officially recognized languages. "In the U.S., because you live in a fairly segregated society, you have to do something explicit to build diversity," Ram says. "We don't."

MP: It's "Carpe Diem" time in India.

The "Silver Tsunami" of Retiring Baby Boomers

WASHINGTON (Reuters) - Retired school teacher Kathleen Casey-Kirschling on October 15 became the first ripple in a "silver tsunami" of retiring baby boomers applying for pension benefits that threatens to overwhelm U.S. government finances.

Casey-Kirschling was born one second after midnight on January 1, 1946, and will receive her first Social Security check in February 2008 as the first wave of baby boomers turns 62 next year and becomes eligible for early retirement benefits.

Social Security Commissioner Michael Astrue said the agency is bracing for some 80 million Americans to apply for retirement benefits over the next two decades.

The unsustainable pyramid/Ponzi scheme is starting to crumble...

Monday, October 22, 2007

A Lesson in Lower Healthcare Costs from the UK?

Here's something the U.S. can learn from the U.K. about lowering healthcare costs, improving efficiency and increasing access:

Allow pharmacists to dispense certain drugs without a prescription from a physician? The Food and Drug Administration is inviting comment on just such a proposal. The idea is to add a new class of "behind the counter" drugs that consumers could buy after consultation with a pharmacist.

Other countries, including Britain, already use this system to dispense drugs that do not require sophisticated diagnosis and prescription.

Continue reading here.

Inconvenient Truth: Global Warming Saves Lives

Global warming was blamed for 35,000 deaths in Europe's August 2003 heat wave. Cold, however, has caused 25,000 deaths a year recently in England and Wales--47,000 in each winter from 1998 to 2000. In Europe, cold kills more than seven times as many as heat does. Worldwide, moderate warming will, on balance, save more lives than it will cost--by a 9-to-1 ratio in China and India. So, if substantially cutting carbon dioxide reverses warming, that will mean a large net loss of life globally.

~From George Will's Column "An Inconvenient Price"

George Will applies some common sense, solid economic thinking, and cost-benefit analysis to global warming, and concludes that efforts to battle global warming by reducing human greenhouse gas emissions, such as those endorsed by Al Gore, could probably be accomplished, but at what price? Probably at a very costly and inconvenient price far greater than any benefits.

Will concludes "If nations concert to impose antiwarming measures commensurate with the hyperbole about the danger, the damage to global economic growth could cause in this century more preventable death and suffering than was caused in the last century by Hitler, Stalin, Mao and Pol Pot combined. Nobel Peace Prize, indeed."

Masonomics: "Markets Fail. Use Markets."

Arnold Kling describes "Masonomics" (the economic approach of the George Mason University Department of Economics) this way:

At the University of Chicago, economists lean to the right of the economics profession. They are known for saying, in effect, "Markets work well. Use the market."

At MIT and other bastions of mainstream economics, most economists are to the left of center but to the right of the academic community as a whole. These economists are known for saying, in effect, "Markets fail. Use government."

Masonomics says, "Markets fail. Use markets."

I'm down with that.

Meet The New Farm Bill, Same As the Old Farm Bill

From today's Washington Post: "This was the year the antiquated and expensive farm subsidy program was to be reformed. A growing chorus has turned against the $16 billion annual subsidy, and yet the 2007 farm bill is pretty much the same as previous versions."

What's wrong with farm subsidies and who's against them? Here's a list from the Post article:

1.Most of the farm subsidies go to 150,000 big corporate farms rather than the small farmers for whom the program was designed during the Depression, further hastening the death of the small family farm.

2. Major business lobbies, including numerous Fortune 500 companies, have attacked the farm bill because it is blocking a multibillion-dollar global trade deal.

3. International charities oppose farm subsidies in the U.S. because they undermine poor foreign farmers, who can't compete against subsidized American crops.

4. Environmentalists want the program changed because it rewards farmers who are among the nation's biggest water polluters.

5. Parents worried about obese children, and the growing cult of foodies -- from celebrity chefs to urbanites newly addicted to full-flavored tomatoes -- made impassioned pleas for the money to go toward local and organic produce.

6. Surging prices for corn, milk and other commodities have raised farmers' incomes and undercut arguments about the need for this expensive income transfer.

In other words, just about everybody is against farm subsidies in general and the 2007 farm bill in particular.

So who's in favor of farm subsidies? The "Iron Triangle" of: a) rich corporate farmers harvesting cash subsidies and addicted to the lucrative D.C.-style pork, b) the pork-pushing politicians catering to a well-organized special interest group in return for votes and contributions, and c) the bureaucrats at the Department of Agriculture whose jobs depend on distibuting the pork to the pork addicts.

And why doesn't this change? It's a perfect example of the "tyranny of the status quo."

Masonomics would explain it this way: "Governments do not face competitive pressure. They are immune from the "creative destruction" of entrepreneurial innovation. In the market, ineffective firms go out of business. In government, ineffective programs develop powerful constituent groups with a stake in their perpetuation."

Sunday, October 21, 2007

The Narrowing and Often Disappearing Pay Gap

From today's NYTimes Business Section article "For Women, a Slow Narrowing of the Pay Gap":

"In 1979, women working full time made only 63 percent as much pay as men, according to data compiled by the Bureau of Labor Statistics. Now working women make 81 percent as much as men (see chart above). What is the reason for the disparity? Discrimination? Choices that women and men have made? That is not entirely clear."

Tables 1 and 4 of the original BLS report used by the NY Times helps to answer some of the questions posed above:

1. Controlling for marital status, and looking only at those workers who have "never married," the BLS reports that women earned 93.8% of what men earned in 2006 for full-time workers and 98.6% for part-time workers.

2. For workers in the 25-34 year old category, female earnings are 88.2% of male earnings.

A 2005 NBER study also helps answer the NY Times' questions:

"There is no gender gap in wages among men and women with similar family roles. Comparing the wage gap between women and men ages 35-43 who have never married and never had a child, we find a small observed gap in favor of women, which becomes insignificant after accounting for differences in skills and job and workplace characteristics."

Top Ten Signs the U.S. Economy is Healthy

1. Almost all mortgages are not in default.

2. Almost all workers in the labor force who care to work are not unemployed.

3. The largest percentage ever of American household units own their own homes.

4. The stock market, in both absolute terms (the number on the Dow) and relative terms (the relationship of price to earnings), reflects optimism and an extraordinary, robust level of profits.

5. The spread between the interest rate paid on risk-free Treasury issues and on the Merrill Lynch master junk-bond index is far, far less than it was in the dark days of the tech meltdown from 2000 to 2002. This is a sign of less than horrific fear about high-risk debt.

6. For all but the least qualified buyers, mortgage money is plentiful, and in fact the potential borrower is bombarded with offers.

7. Hotels are full.

8. Airplanes are full.

9. Casinos in Las Vegas are jam-packed.

10. There is still a long waiting list for Bentleys in Beverly Hills.

~From Ben Stein's article in today's NY Times Business Section, "The Gloomsayers Should Look Up"

Capitalism and Markets: Enablers of Civilization

Quote of the Day, related to the post below about the rising middle class in India:

When markets and human values work together, the gains are immense. The market economy and capitalism are among the greatest enablers of civilization. Our lives are comfortable instead of wracked with hard physical labor, chronic malnutrition, and massive losses of women and babies during childbirth, to cite just a few features or earlier times.

Imagine a time traveler from the eighteenth century visiting the life of Bill Gates. He would witness television, automobiles, refrigerators, central heating, antibiotics, plentiful food, flush toilets, cell phones, personal computers, and affordable air travel, among other remarkable benefits. But the most impressive features of Gates's life, from a historical point of view, are shared by most middle-class Americans today.

~From George Mason economist Tyler Cowen's book "The Inner Economist"

Saturday, October 20, 2007

Capitalism and The Rising Middle Class in India

The chart above (click to enlarge) is from a McKinsey Global Institute study "The Rise of India's Consumer Market" from May 2007, showing the expected changing patterns of 5 different income groups in India (shown above in constant 2000 Indian rupees), below in US dollars:

Deprived: Less than $2,250 in annual income

Apsirers: $2,250 to $5,000

Seekers (Middle Class): $5,000 to $12,500

Strivers (Middle Class): $12,500 to $25,000

Globals: > $25,000

Notice that:

1. The "deprived group" is expected to decrease from 77% of the Indian population in 1985 to only 3% by 2025.

2. India's middle class (seekers and strivers) is expected to increase from 8% of the population in 1985 to almost 60 percent of the population in 2025.

Conclusion: As a result of market capitalism and globalization India will experience a dramatic rise in its middle class and a significant reduction in its low-income, deprived group. Far from a story of the "rich getting richer and the poor getting poorer," free market capitalism in India will result in the "rich getting richer" and the "poor getting richer," the same story as the U.S.

(HT: Ray Titus and Sanil Kori)

Friday, October 19, 2007

Indian IT Firms Increase Outsourcing TO the U.S.

Indian IT and outsourcing companies earn revenues in dollars but pay most of their costs in rupees. Profit margins for these companies have been squeezed lately because: a) wages have been rising by 10-15% in India because of the high demand for workers and b) the dollar is trading at a 9-year low vs. the India rupee and has fallen by almost 15% in the last year.

Solution? Outsource to the U.S.

MUMBAI--Tata Consultancy Services plans to open two computer services centres in the U.S. in one of the biggest expansions by an Indian information technology outsourcing company in a developed market.

India’s largest computer services company, part of Tata Industries, said the first centre of 500-1000 people would open in Cincinnati, Ohio, by the end of this year or early next year, with the second to follow in late 2008 or early 2009 at an undisclosed location.

Bottom Line: Globalization works both ways.

Walking Away From Hate

Manhattan Institute fellow John McWhorter asks an interesting question and makes an interesting proposal:

Imagine if after the Jena incident, black kids had just taken the nooses down and kept on hanging out under that tree. Why is that such an unthinkable alternative to shouting it to the rooftops only to watch similar things keep happening nationwide anyway?

Hence my modest proposal. The next time — and there will be one, and another, and another — let it go. Not because it's okay, but because that is the way to discourage it from happening.

Thursday, October 18, 2007

Record Low Unemployment Rate in Arizona

PHOENIX - Woes in the home construction and mortgage industries grab the headlines, but a new report shows continued strength in Arizona's economy, with unemployment at a record low rate in September of just 3.3%, down from 3.7% in August and matching the previous low of 3.3% set 40 years ago in 1967.

She Can Get Your Kid into an Ivy

Michele Hernandez boasts that 95% of her teenage clients are accepted by their first-choice school. Her price: As much as $40,000 a student.

Read about it in the current issue of Business Week.

Wednesday, October 17, 2007

Hyphens Eliminated

A discussion was generated recently based on this post about grammar, and I corrected the spelling of "nitpicking" to "nit-picking," at the suggestion of a commenter.

Update from NYTimes: The Shorter Oxford English Dictionary, the scaled-down, two-volume version of the mammoth 20-volume O.E.D., just got a little shorter. With the dispatch of a waiter flicking away flyspecks, the editor, Angus Stevenson, eliminated some 16,000 hyphens from the 6th edition, published last month.

I'm not sure if the hyphen was elminated from "nit-picking," but chances are pretty good that it was one of the 16,000?....

Craigslist Meets Wall Street

Original Craigslist post: "Okay, I'm tired of beating around the bush. I'm a beautiful (spectacularly beautiful) 25 year old girl. I'm articulate and classy. I'm not from New York. I'm looking to get married to a guy who makes at least half a million a year."

From a repsonse on Craigslist (below original post): "Cutting through all the B.S., what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here's the rub, your looks will fade and my money will likely continue into fact, it is very likely that my income increases but it is an absolute certainty that you won't be getting any more beautiful!"

New response on Craigslist: "Though you did not mention the details of your occupation, it is clear that you are an investment banker and not a trader, as any good trader would understand that human courtships are based upon a semi-efficient open market, and not an investment banking cartel. However, your inability to grasp the realities of the dating market is not surprising, given that you have successfully employed the tools of collusion and market manipulation rather that true acumen in your supposed wealth generation."

Greg Mankiw Has Turned Off Comments on His Blog

He explains why here.

Airbus Delivers The First A380, With Double Beds

TOULOUSE, France (AP) — Nearly two years late, Airbus finally delivered its first A380 superjumbo on Monday, a revolutionary behemoth that includes luxury suites equipped with comfy double beds (pictured above).

Singapore Airlines fitted its jet with 471 seats configured in three classes: 399 economy class seats on both decks, 60 business class seats on the upper deck and 12 luxury suites on the main deck (two with double beds).

A standard return fare for a suite, created by French luxury yacht designer Jean-Jacques Coste, will cost around $7,160 on the inaugural Singapore-Sydney route. That's about 20-35% more than the current top-class fare. Each suite comes with sliding doors and self-adjustable roller blinds for privacy — with only a small fabric screen at the bottom to allow cabin crew to check on passengers.

Question: Will this have any effect the "
Mile High Club?" New rules? Increased membership?

State Fare: America's Offbeat Regional Foods

Check out this interactive map from National Geographic featuring some of America's offbeat regional foods like fry sauce, half-smokes, Texas caviar, and liver mush; recipes included.

(HT: Tom McMahon)

CME Introduces Emerging Markets Index Futures

Stock returns in the emerging markets have soared over the last 4 years (33% per year for the MSCI Emerging Markets Index) compared to the U.S. (10% annual return for the S&P500), see the chart above (both indexes are set to 1000 in October 2003).

In response to the increasing interest in investing in emerging markets and rising demand to hedge investments in those markets, the Chicago Mercantile Exchange (CME) is launching a new futures contract on emerging-market stocks.

Starting next Monday, the CME will offer futures contracts on the MSCI Emerging Markets Index, a free float-adjusted market capitalization index containing more than 800 stocks from 25 emerging markets.

Read more here.

Just another indicator of how: a) globalization is affecting investment patterns, and b) how markets respond quickly to demand for new products.

Surface Navigation Help for NYC Subway Riders

NEW YORK TIMES: It is one of those embarrassing, frustrating, infuriating experiences of everyday life that many New York subway passengers are loath to admit: that disorienting moment when they step onto the street, lost in a city they know — or think they know — perfectly well. Which way is Ninth Avenue, anyway?

Now the city is experimenting with a new way to help people go where they want to go without wasting more steps than they have to. The city and the private business improvement district for the neighborhood around Grand Central Terminal have installed compass-shaped decals on sidewalks, right where riders emerge from heavily used subway stairwells.

The gold-on-black decals are 24 inches in diameter, larger than a large pizza but smaller than a manhole cover. They carry two kinds of information: directions for north, east, south and west, and the names of the nearest streets (pictured above).

(HT: Sanil Kori)

Nitwitery: Force-feeding Ethanol As Energy Savior, Despite 1,700 Gallons H20 Per Gallon of Ethanol

WSJ Editorial: If the Senate's new "renewable fuels" mandate becomes law, get ready for a giant slurping sound as Midwest water supplies are siphoned off to slake Big Ethanol. House and Senate negotiators are preparing for an energy-bill conference, and if the Senate's language prevails, America's economy will be forced to consume more than five times current ethanol production.

Heavily subsidized and absurdly inefficient, corn-based ethanol has already driven up food prices. But the Senate's plan to increase production to 36 billion gallons by 2022, from less than seven billion today, will place even greater pressure on farm-belt aquifers.

Ethanol plants consume roughly four gallons of water to produce each gallon of fuel, but that's only a fraction of ethanol's total water habit. Cornell ecology professor David Pimentel says that when you count the water needed to grow the corn, one gallon of ethanol requires a staggering 1,700 gallons of H2O.

Slowly but surely, these problems are beginning to alert public opinion to the huge costs of force-feeding corn ethanol as an energy savior. The ethanol lobby is still hoping it can keep all of this under wraps long enough to shove one more big mandate through Congress, but the Members need to know the problems they'll be creating. We hope that House conferees, who did not include a new mandate in their energy bill, insist that any final bill is ethanol-free.

From a related story in yesterday's USA Today:

The tightest world grain stocks in about 30 years are contributing to rising food inflation, fueling worries about food shortages in some countries and straining international aid budgets. Prices are being pushed up by bad weather in a host of countries, surging world demand and a drive in the USA and abroad to devote more acres to corn for ethanol production, which has tightened supplies of some grains and tied crop prices more closely to energy prices.

Cutting the Umbilical Cord: Canadians Are Now Getting Richer Than Americans

Canadians might have to wait a long time for an MRI or surgery (see post below), but the Canadian economy will outperform the U.S. economy in 2008, according to this report from CIBC World Markets, a leading Canadian investment bank. Highlights of the report:

1. By the end of next year Canadians will get as much as a nickel back when they trade their loonies for greenbacks, the biggest premium for the C$ since 1960 (CIBC's forecast is C$0.95/USD for 2008).

2. U.S. housing prices will continue to fall on mounting foreclosures, while Canadian housing prices continue to rise on a surging domestic economy.

3. For the fourth year in a row, the resource-based TSX Stock (Canada's benchmark stock index) is set to outperform the S&P500 (see top chart above, click to enlarge).

4. Across a wide spectrum of assets, the tables have suddenly turned. Canadians are getting richer compared to their American neighbours, after having fallen so far behind during the IT-driven economy of the 1990s.

5. At the heart of this reversal of fortune is the huge shift in the global terms of trade over the last decade, which has seen economic value-added migrate from information technology back to resource rents under the ground. Nowhere is that shift more evident than when comparing soaring crude oil prices against stagnant or plunging technology prices. It takes only a third as many barrels of oil to buy a basic computer as it did at the start of the decade (see chart above), when Silicon Valley drove the world economy.

6. Real GDP growth in Canada (forecast of 2.7%) will surpass the US in 2008 (1.9%).

7. Today it’s not Russian or Mexican defaults that de-stabilize global credit markets, but defaults by homeowners deep inside the American heartland. The American economy has gone from the global engine of growth to the world economy’s Achilles heel in the space of a decade.

8. With the developing world, not the US, now driving global resource demand, the umbilical cord that has always connected the Canadian economy to the much larger American market is being severed.

Tuesday, October 16, 2007

Surgery Wait Times in Canada Hit Record High

Canadians waited longer than ever before (18.3 weeks) for non-emergency surgery in 2007, despite a multi-billion-dollar effort by government to speed up medical care, according to a report released yesterday by Canada's Fraser Institute. Highlights of the report include:

1. A typical Canadian seeking surgery had to wait 18.3 weeks in 2007 between referral from a general practitioner and treatment (averaged across all 12 specialties and 10 provinces surveyed), reaching an all-time record high, up from 17.8 weeks in 2006.

2. Ontario recorded the shortest waiting time overall at 15 weeks and Nova Scotia recorded the longest waits in Canada at almost 25 weeks.

3. The waiting time between referral by a GP and consultation with a specialist rose to 9.2 weeks from the 8.8 weeks recorded in 2006. The shortest waits for specialist consultations were in Ontario (7.6 weeks) and the longest waits for consultation with a specialist were recorded in Prince Edward Island (12.7 weeks).

4. The waiting time between specialist consultation and treatment—the second stage of waiting—increased to 9.1 weeks from 9 weeks in 2006. The shortest specialist-to-treatment waits were found in Ontario (7.3 weeks), while the longest waits were in Manitoba (12.0 weeks).

5. Between 2006 and 2007, large increases occurred in the waits for internal medicine (additional 4.9 weeks), gynaecology (additional 2.1 weeks), urology (additional 1.9 weeks), and otolaryngology (additional 1.8 weeks).

6. The median wait for a CT scan across Canada was 4.8 weeks. British Columbia, Alberta, Ontario, New Brunswick, and Nova Scotia had the shortest wait for CT scans (4 weeks), while the longest wait occurred in Manitoba (8 weeks).

7. The median wait for an MRI across Canada was 10.1 weeks (in other words, early 2008 if you call tomorrow). Patients in Ontario experienced the shortest wait for an MRI (7.8 weeks), while Newfoundland residents waited longest (20 weeks - in other words March 5, 2008 if you schedule tomorrow).

8. The median wait for ultrasound was 3.9 weeks across Canada. Alberta and Ontario displayed the shortest wait for ultrasound (2 weeks), while Prince Edward Island and Manitoba exhibited the longest ultrasound waiting time (10 weeks).

The Fraser Institute concludes that “The promise of the Canadian health care system is not being realized. The only way to solve the system’s most curable disease – lengthy wait times that are consistently and significantly longer than physicians feel is clinically reasonable – is for substantial reform of the Canadian health care system.”

MP: The disparity in wait times for surgery and other procedures like MRIs among Canadian provinces seems somewhat puzzling - isn't socialized medicine supposed to provide "free" and uniform medical care to all Canadians, regardless of which province they live in? Perhaps the significant geographical disparity in Canadian health care is because market prices and profits are suppressed under socialized medicine, resulting in an inefficient and uneven allocation of scarce medical resources?

Grammar Citation

From today's front page WSJ article on McDonald's in Russia:

"During morning hours, McDonald's used to offer it's typical lunchtime fare."