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.

Sunday, April 13, 2008

Bulgaria: New Location for Outsourcing Film Scores

As the American film industry cuts costs, orchestras in Prague, Budapest and Sofia are picking up recording contracts for Hollywood scores, or those of French and Italian blockbusters.
A Balkan country known for its skilled musicians and low labour costs,
Bulgaria has become an attractive spot for outsourcing film scores.

"Compared to the United States or even Western Europe, our prices are five times lower."

What About High-Skill Immigration Zones?

PITTSBURGH--Last year was bad. This year, even worse -- a crush of applications, but a dearth of H-1B visas awarded to employers who say they need to import educated foreign workers to occupy high-tech positions that can't be filled by American workers.

This month, companies across the U.S. began filing petitions for 85,000 available work visas, which will be awarded through a random lottery. Last year, 133,000 petitions were received over two days in April before closing the application window. This year, immigration services accepted petitions for a full business week starting April 1, meaning the number of petitions could exceed 200,000.

The limitations are especially crippling to cities such as Pittsburgh, many businesses here argue, because drawing an educated immigrant class is the city's best short-term hope for population and economic growth, since the native-born population keeps dropping.

What if the cap remained in place across most of the country but was lifted for places that are lagging economically -- Detroit, Buffalo, Cleveland and Pittsburgh? It's a strategy being bounced around by think tanks and immigration advocates. Immigration lawyer Richard T. Herman says we should call them "High-Skill Immigration Zones," patterning the relief from H-1B caps after a similar visa program that allows foreign investors to plant their money more easily in economically "distressed" regions.

See related CD post: Help NOT Wanted in US: National Self-Sabotage

Price Discrimination for Eyeglasses

A firm engaged in price discrimination faces two practical problems. The first is the problem of distinguishing customers who will buy the good at a high price from those who will not. One solution is said to be used by optometrists. When the customer asks how much a new pair of glasses will cost, the optometrist replies, "Forty dollars." If the customer does not flinch, the doctor adds "for the lenses." If the customer still does not flinch, he adds, "each."

~David Friedman's Price Theory textbook (copyright 1990)

Copper: The New Underground Currency

MINNEAPOLIS--As copper prices surge above $4 per pound (see chart above), thieves in Minneapolis are ransacking house after house in search of copper they can sell to scrap dealers for as much as $20,000 a month.

Thieves most often hit foreclosed homes, but not always. They broke into Keili Mac's Minneapolis home while she was out of the country and took copper gas pipes. They left the gas on, the house exploded and the city demolished it. The victim returned to find her house gone.

Election Year: Economic Hypochondriacs Unite

During presidential elections, when candidates postulate this or that "crisis" for which each is the indispensable and sufficient cure, economic hypochondria is encouraged, so a sense of suffering is rampant.

Deranged by the entitlement mentality fostered by a metastasizing welfare state, Americans now have such low pain thresholds that suffering is defined as a slight delay in beginning a subsidized retirement often lasting one-third of the retiree's adult lifetime.

Subprime mortgages are a small minority of mortgages, and only a minority of subprime borrowers are not making their payments. Casting this minority of a minority as victims of "predatory" lending fits the liberal narrative that most Americans are victims of this or that sinister elite or impersonal force, and are not competent to cope with life's complexities without government supervision.

The politics of this may, however, be more complex than the compassion chorus supposes. The 96 percent of mortgage borrowers who are fulfilling their commitments, often by scrimping, may be grumpy bystanders if many of the other 4 percent -- those who found the phrase "variable rate" impenetrably mysterious -- are eligible for ameliorations of their obligations.

What next? Adults still burdened with student loans have not yet announced their entitlement to relief, but as they watch this subprime drama, might.

~From George Will's column "Fooling Ourselves into Entitlements"

Cartoon of the Day

Click to enlarge.

Saturday, April 12, 2008

IMF: Mild Global Slowdown, Strong Rebound

IMF--Global growth is projected to slow to 3.73% in 2008, ½% lower than at the time of the January World Economic Outlook Update and 1¼% lower than the 4.94% growth recorded in 2007. Moreover, growth is projected to remain broadly unchanged in 2009 (see chart above). The U.S. economy will tip into a mild recession in 2008 as the result of mutually reinforcing cycles in the housing and financial markets, before starting a modest recovery in 2009 as balance sheet problems in financial institutions are slowly resolved.

Note: The IMF is predicting U.S. real GDP to grow at .50% in 2008 and .60% in 2009, and is predicting a mild slowdown in world real GDP growth in 2008 (3.73%) and 2009 (3.76%), with a strong rebound to about 5% world growth in 2010-2013 (data here). Even a global "slowdown" to 3.7-3.8% in 2008-09 would still be above the average world GDP growth since 1980 of 3.53%, and would be far above (more than double) the world GDP average growth of only about 1.6% during the last four U.S. recessions (see dark shaded areas above).

If there is a global slowdown and a recession in the U.S. this year, it will potentially be relatively mild compared to previous slowdowns/recessions, and strong economic growth in the U.S. and world will resume shortly. Perhaps a stronger, more stable global economy, with significant growth in emerging economies will help prevent long, deep recessions in the U.S.?

World GDP Share:Emerging Economies Surpass US

The chart above was created using World GDP data from the IMF, U.S. GDP data from the BEA via FRED, and 2008 forecasts from the IMF for world GDP and U.S. GDP. The U.S. share of world GDP fell below 26% in 2007 for the first time since 1996, and is expected to fall below 25% in 2008 (24.76%) for the first time since 1980.

Reason? The significant growth in the emerging market economies, especially in the last five years. The emerging economies surpassed the U.S. in 2007 for share of world GDP (see chart below): U.S. share fell to just below 26% vs. the emerging economies' share of 27.4%.

Rolling Back Gov't: Lessons from New Zealand

When a reform government was elected in New Zealand in 1984, it identified three problems: too much spending, too much taxing and too much government.

We asked some fundamental questions of government agencies. The first question was, “What are you doing?” The second question was, “What should you be doing?” Based on the answers, we then said, “Eliminate what you shouldn’t be doing” - that is, if you are doing something that clearly is not a responsibility of the government, stop doing it.

When we started this process with the Department of Transportation, it had 5,600 employees. When we finished, it had 53. When we started with the Forest Service, it had 17,000 employees. When we finished, it had 17. When we applied it to the Ministry of Works, it had 28,000 employees. I used to be Minister of Works, and ended up being the only employee.

Some of the things that government was doing simply didn’t belong in the government. So we sold off telecommunications, airlines, irrigation schemes, computing services, government printing offices, insurance companies, banks, securities, mortgages, railways, bus services, hotels, shipping lines, agricultural advisory services, etc. In the main, when we sold those things off, their productivity went up and the cost of their services went down, translating into major gains for the economy.

We achieved an overall reduction of 66% in the size of government, measured by the number of employees. The government’s share of GDP dropped from 44 to 27%.

Read more from Maurice P. McTigue (formerly a member of New Zealand's Parliament, and also Minister of Employment) here.

What Credit Crunch?

WALL STREET JOURNAL--The credit crunch has made it harder for Americans to indulge in their love affair with debt. So what are they doing? Borrowing more.

While tighter lending standards have cut off all but the most credit-worthy borrowers from auto loans and home loans, many people are turning to credit cards and tapping more of their home-equity lines of credit to dig themselves in deeper.

The rise in borrowing shows just how addicted the U.S. consumer has become to credit. Even as borrowers are cut off in one area, they promptly look for new sources.

Comment: Consumer credit at U.S. banks is growing now by almost 6% on an annual basis, close to double the rate two years ago when growth was below 3.5% (see chart above). Whether or not the increase in consumer credit is a good thing is certainly subject to debate, but it seems clear that the media focus on a "credit crunch" is way overblown. As I've asked before: What credit crunch?

Update: The graph shows the annual growth rate in the monthly series "Total Consumer Credit Outstanding" from the Federal Reserve, available here via FRED, calcuated as the percentage change from the same month in the previous year.

Assorted Links: Globalization, Outsourcing, India

1. Indian consulates in the U.S. now outsource all visa applications to a private company - Travisa. Not so long ago, getting a visa from the Indian consulates across the country was a nightmare; now, applicants are all smiles thanks to the smooth functioning of the method of outsourcing such requests. MP: Invisible hand at work, can we do this with the Department of Motor Vehicles?

Republican Legislation: No more passport outsourcing. U.S. passports currently use foreign components and are assembled with a computer chip inside the cover in Thailand.

Iowa Public Radio officials are deflecting criticism for outsourcing volunteer-based fundraising efforts to a call center in California.

India court approves quota plan: Under the plan the lower castes' share of places in educational institutions would more than double to nearly 50%.

Toyota Expands in India: Toyota is building its second plant in India to increase production in a growing market. The plant, which will cost more than $340 million, is to open in 2010 with an initial annual production capacity of 100,000 vehicles, including the Corolla subcompact.

Friday, April 11, 2008

10 Businesses Facing Extinction in 10 Years

According to (from September 2007):

  • Record stores
  • Camera film manufacturing
  • Crop dusters
  • Gay bars
  • Newspapers
  • Pay phones
  • Used bookstores
  • Piggy banks
  • Telemarketing
  • Coin-operated arcades

(HT: Ben Cunningham)

No Matter What Price You Charge, Watch Out....

According to U.S. antitrust laws:

These very simple guidelines, you can rely upon: You're gouging on your prices if you charge more than the rest. But it's unfair competition if you think you can charge less! A second point that we would make to help avoid confusion... Don't try to charge the same amount, that would be collusion!

From The Incredible Bread Machine

Help NOT Wanted in US: "National Self-Sabotage"

THE ECONOMIST--Consider the annual April Fool's joke played on applicants for H1B visas, which allow companies to sponsor highly-educated foreigners to work in America for three years or so. The powers-that-be have set the number of visas so low—at 85,000—that the annual allotment is taken up as soon as applications open on April 1st. America then deals with the mismatch between supply and demand in the worst possible way, allocating the visas by lottery. The result is that hundreds of thousands of highly qualified people—entrepreneurs who want to start companies, doctors who want to save lives, scientists who want to explore the frontiers of knowledge—are kept waiting on the spin of a roulette wheel and then, more often than not, denied the chance to work in the United States.

This is a policy of national self-sabotage. America has always thrived by attracting talent from the world. Some 70 or so of the 300 Americans who have won Nobel prizes since 1901 were immigrants. Great American companies such as Sun Microsystems, Intel and Google had immigrants among their founders. Immigrants continue to make an outsized contribution to the American economy. About a quarter of information technology (IT) firms in Silicon Valley were founded by Chinese and Indians. Some 40% of American PhDs in science and engineering go to immigrants. A similar proportion of all the patents filed in America are filed by foreigners.

The United States is already paying a price for its failure to adjust to the new world. Talent-challenged technology companies are already being forced to export jobs abroad. Microsoft opened a software development centre in Canada in part because Canada's more liberal laws make it easier to recruit qualified people from around the world. This problem is only going to get worse if America's immigration restrictions are not lifted. The Labour Department projects that by 2014 there will be more than 2m job openings in science, technology and engineering, while the number of Americans graduating with degrees in those subjects is plummeting.

How do you win the global talent wars when Congress is already in the hands of the idiocracy?

MP: Good question, Economist.

New Storage Technology: 500,000 Song iPod!!

TIMES ONLINE--Scientists at IBM say they have developed a new type of digital storage which would enable a device such as an MP3 player to store about half a million songs - or 3,500 films - and cost far less to produce. In a paper published in the current issue of Science, a team at the company's research centre in San Jose, California, said that devices which use the new technology would require much less power, would run on a single battery charge for "weeks at a time", and would last for decades.

At present the most capacious iPod - the 160GB iPod Classic - can store 40,000 songs.

IBM said the technology was still "exploratory" at this stage, but that it expected devices which used it to be on the market within ten years.

And You Thought Gas Prices Were High?

WASHINGTON, D.C. -- The American LegislativeExchange Council (ALEC) released its 14th edition of the Report Card on American Education: A State-by-State Analysis, which covers the schoolyears 1985-1986 thru 2006-2007. This comprehensive guide ranks the educational performance of the school systems in the states and the District of Columbia with Minnesota placing first and the District of Columbia last. Findings include:

Based on a variety of indicators, ALEC's 2007 Report Card has found no direct correlation between conventional measures ofeducation inputs, such as expenditures per pupil and teacher salaries, and educational outputs, such as average scores on standardized tests. For instance, class sizes today are 15% smaller than they were 20 years ago, yet of the 10 states that experienced the greatest decreases, only one (Vermont) is found among the highest performing states in the rankings.

Even with dramatic increases in the amount of educational resources spent on primary and secondary education over the past 2 decades--expenditures have risen nationally to an all-time high of $9,295 per pupil--student performance has improved only slightly; 69% of American eighth-graders are still performing below proficiency in math and 71% in reading, according to the 2007 National Assessment of Education Progress.

The latest results of comparison among participating nations of the OECD peg American students’ achievement levels in science below dozens of other countries including Croatia, Latvia, and mainland China. In fact, the United States scores below the combined average of all countries observed.

Comment: Based on data in the report from Table 1.6, real Per Pupil Expenditures for public elementary and secondary schools has increased from $6051 in 1985-86 to $9295 in 2005-2006, a 53.61% increase (see graph above). Over the same period, real inflation-adjusted gas prices rose by only 10.9% according to EIA data, from $2.24 per gallon in January 1986 to $2.484 per gallon in January 2006 (the mid-point in the school year). Even adding two more years of real gas price increases and using the January 2008 price of $3.059, real gas prices have only increased by 36.6% since January 1986, far below the 53.6% increase in real public school spending from 1985-86 to 2005-06.

And the quality of gasoline has stayed the same over the last 20 years, which is not necessarily the case with public schools. In fact, the graphs below show that increases in spending have either no effect on test scores (top graph below, taken from the report), or a negative effect on test scores (bottom chart below).

Thursday, April 10, 2008

Can Blogging Make You Smarter, Happier, and More Productive?

It's a few years old, but here's an interesting article from July 2006 in the Chronicle of Higher Education by UC-Berkeley blogger/professor/economist J. Bradford Delong, as part of a Chronicle series on the topic "Can Blogging Derail Your Career?":

The hope of all of us who blog is that we will become smarter, do more useful work, be happier and more productive, and will also impress our deans so they will raise our salaries. The first three hopes are clearly true: Academics who blog think more profound thoughts, have a bigger influence on the world — both the academic and the broader worlds — and are happier for it. Are we more productive in an academic sense? Maybe. We will see when things settle down.

Are our deans impressed? Not so far, but they should be. A lot of a university's long-run success depends on attracting good undergraduates. Undergraduates and their parents are profoundly influenced by the public face of the university. And these days, a thoughtful, intelligent, well-informed Web logger is an important part of a university's public face.

No Recession.......

......According to First Trust Advisors (economists Brian Wesbury and Robert Stein)

Summary: Despite a loss of payroll jobs in the past three months, it is likely that real GDP grew at about a 2% annual rate in the first quarter. While real GDP may slow to just 0.5% in the second quarter, we still expect a sharp rebound to 3%+ growth in the second half of 2008. In other words: No Recession.

Wal-Mart's International Sales Surge by 19%

Wall Street Journal--Wal-Mart reported today a 0.7% rise in U.S. same-store sales excluding fuel, the lower end of its forecast (see top chart above, click to enlarge). The firm's Sam's Club chain posted a 0.7% drop because of losing a day of sales to Easter closures. That hurt sales by 2 to 2.5 percentage points, the company said.

Wal-Mart's namesake chain had a 0.9% increase amid continued strength in groceries, health and wellness and entertainment. Wal-Mart described Easter sales as "good" despite the holiday's earliness this year shortening the season's selling period. Home-related sales remained weak.

What didn't make it into the WSJ's report was Wal-Mart's strong international performance (at stores in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the United Kingdom), with a 5-week sales increase of almost 19% (see bottom chart above), which might suggest that the economic slowdown in the U.S. has not spread internationally, and also suggests that U.S. companies can remain profitable from strong international sales despite a domestic slowdown.

“We are pleased with the overall performance of our International markets,” said Mike Duke, vice chairman responsible for Wal-Mart International. “We had strong sales performance in key countries, including the United Kingdom, Canada, Brazil and China.”

February Trade Report: U.S. Exports Show Strong Annual Growth, Imports Surge in February

Some positive aspects of today's trade report, despite CNBC news reports on "red ink" and "losing the trade deficit war."

1. On an annual basis, U.S. export of goods and services rose in February by almost 21%, from $125 billion in February 2007 to $151.4 billion in February 2008, according to trade data released today by the BEA. This is the strongest annual growth in U.S. exports in at least 15 years (see chart above). Over the same period, U.S. imports increased by 16.45%.

2. WASHINGTON--The U.S. trade deficit took a surprising turn upward in February as imports of cars and consumer goods surged despite the weakness of the economy. The U.S. deficit in international trade of goods and services increased by 5.7% to $62.32 billion from January's revised $58.96 billion, the Commerce Department said Thursday.

Update: From a comment on this post by Ironman, "Since a slowing economy typically demands fewer imported goods, while a growing economy demands more, the increase in goods in February suggests that the recent economic downturn might be milder than the headlines would otherwise seem to indicate."

Wednesday, April 09, 2008

CEO Pay Debate: Who Knows if $40M is Too High?

Washington Post business columnist Steven Pearlstein thinks CEOs are overpaid, and writes about it unconvincingly in his column "Off Balance at the Top." He also appeared on CNBC's "Kudlow & Company" tonight in this segment and said, "As a general rule, CEO pay levels are too high. $12 million is not outrageous, but $30 million, $40 million, $50 million, that's too high." Don Luskin then pretty much destroyed Pearlstein.

Comment 1: I guess that means that means Oprah is overpaid at $260 million, along with Tiger Woods ($112 million), Johny Depp ($92 million), Howard Stern ($70 million), Oscar De La Hoya ($55 million), Phil Mickelson ($51 million), Shaquille O'Neal ($35 million), Kobe Byrant ($34 million), etc.

Eugene Fama: If it’s a market wage, it’s a market wage. They may be big numbers; that’s not saying they’re too high. It’s easy to say that people are paid too much, but when you’re on the other side of the fence trying to hire high-level corporate managers, it turns out not to be so easy.

Thomas Sowell:
Many people who have never run one business for one day are nevertheless confident that they know corporate CEOs are not worth as much as they are paid.

Comment 2: There's a very good reason for that average CEO pay has risen by a factor of about 7X from 1980 -2003: there was about a 7X increase in the market capitalization of large companies during that period (see red line in graph above for market cap, vs. blue/green lines for CEO pay), according to this
forthcoming QJE article by NYU business professors Xavier Gabaix and Augustin Landier.

Kudlow & Co: Goldilocks Rocks in Texas

The CD graph above was featured on CNBC's "Kudlow & Company" tonight, during the segment "Texas Economics" (starting about 0:45) featuring Texas Governor Rick Perry (no relation!) discussing the recession-proof Texas economy. Texas had the lowest unemployment rate in February (4.1%) since the 1970s (see chart below from this CD post), and cities like Dallas and Houston are booming!

Subprimes Didn't Have PMI?

Question from a CD reader:

I am hoping you might be able to answer questions for me that have been bothering me since the sub prime lending crisis began last year. Why hasn't private mortgage insurance (PMI) kicked in to protect lenders whose loans have defaulted or are in foreclosure?

Answer: Subprime lenders don’t require private mortgage insurance (PMI), unlike traditional lenders, at least some subprime lenders, according to this website and this one.

Two Conflicting Stories?

WASHINGTON -- The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.

WASHINGTON -- Mortgage applications in the U.S. rose last week as purchases and refinancing increased. The Mortgage Bankers Association's index of applications to buy a home or refinance a loan rose 5.4% to 725.6 from 688.3 the prior week. The group's purchase index gained 8.1% percent and its refinancing gauge increased 3.4%.

Lower prices have made homes more affordable and rates on fixed mortgages have retreated over the last month after the Federal Reserve cut the benchmark and pumped money in credit markets.

Note: Through February, real estate loans at commercial banks (
Fed data here) are at an all-time high, and increased almost 10% (annual rate) compared to January.

Paul Krugman Comes Out Against "Demon Ethanol" in the NY Times. It's Now Official: Ethanol is a Scam

Paul Krugman in the NY Times, "Grains Gone Wild"

Where the effects of bad policy are clearest, however, is in the rise of demon ethanol and other biofuels. The subsidized conversion of crops into fuel was supposed to promote energy independence and help limit global warming. But this promise was, as Time magazine bluntly put it, a “scam.”

This is especially true of corn ethanol: even on optimistic estimates, producing a gallon of ethanol from corn uses most of the energy the gallon contains. But it turns out that even seemingly “good” biofuel policies, like Brazil’s use of ethanol from sugar cane, accelerate the pace of climate change by promoting deforestation.

And meanwhile, land used to grow biofuel feedstock is land not available to grow food, so subsidies to biofuels are a major factor in the food crisis. You might put it this way: people are starving in Africa so that American politicians can court votes in farm states.

OK, now that Paul Krugman's on board by coming out against ethanol, it's now official: Ethanol is a complete and total scam.

Anytime you have Paul Krugman agreeing on ethanol with such a diverse group as the
WSJ, Reason Magazine, the Cato Institute, Investor's Business Daily, Rollingstone Magazine, Christian Science Monitor, the New York Times, John Stossel, The Ecological Society of America, the American Enterprise and Brookings Institution, the Heritage Foundation, George Will, and Time Magazine, you know that ethanol has to be one of the most misguided public policies in U.S. history.

So who is left out there supporting ethanol? You sure won't find very many scientists, economists, policy groups, or editorial page contributors. But, ethanol has been very, very good to corn farmers and ethanol producers like Archer-Daniels-Midland (ADM), the largest producer of ethanol in the United States. ADM stock has quadrupled over the last five years, from about $10 to about $40 per share, and increase of 300%, while the S&P has only increased by about 50% during the same period (see chart above).