Professor Mark J. Perry's Blog for Economics and Finance
Tuesday, February 09, 2010
The Two Americas: Public Sector vs. Private Sector
Note: This post was inspired by Michael Jahr's post on the Mackinac Center's website, "Economy Contracts, Government Expands."
According to a December report from the BLS, state and local government employers spent an average of $39.83 per hour worked ($26.24 for wages and $13.60 for benefits) for total employee compensation in September 2009. Total employer compensation costs for private industry workers averaged $27.49 per hour ($19.45 for wages and $8.05 for benefits), see chart above. In other words, government employees make 45% more on average than private sector employees.
According to another BLS report, compensation for private industry workers has increased by 6.9% between December 2006 and December 2009, compared to a 9.8% increase for government workers (state and local) over the same period.
According to an analysis by USAToday (thanks to Michael Jahr for the pointer), "The number of federal workers earning six-figure salaries has exploded during the recession, according to an analysis of federal salary data." For example, the number of federal employees making $100,000 or more has increased by 120,595, from 262,163 employees in December 2007 to 382,758 in June 2009, for a 46% increase. The number of federal workers making $150,000 or more has more than doubled since the recession started, from about 30,000 to more than 66,000 (see chart above).
USA Today also reports that "When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000." That's a 168,900% increase!!
The final chart below shows the average unemployment since December 2007 for government workers (3%) and private-sector workers (7.9%), so the private sector has faced a jobless rate more than twice as high as the rate for government workers over the last several years.
MP: By every labor market measure, the public sector has done quite well and even expanded during the recession compared to the private sector. This has prompted Michael Jahr of the Mackinac Center to wonder whether recent government policies could lead to a long-run hollowing out of the private sector, i.e. could we be in the early stages of the "Detroitification" of the country?
Josh Barro writes for the Manhattan Institute about the "Two Americas" and the "sharp difference between two classes of employees: those who work in the private sector and those who work for the government. Workers in the public sector have experienced a very different recession from those in the private sector."
Monday, February 08, 2010
Historical Statistics for Minerals and Commodities
The chart above shows the real price of aluminum annually back to 1900. Despite the fact that the real price of aluminum had fallen from $14,000 per ton in 1900 by 64% to less than $5,000 per ton in 1937, Alcoa Aluminum was charged with "illegal monopolization" of the aluminum market by the Justice Department in 1938 (see details here "United States vs. Alcoa").
10th Monthly Increase in Miami Home Sales
"In December, 8,259 new and resale houses and condos closed escrow in the metro area encompassing Miami-Dade, Palm Beach and Broward counties. That was up 19.1% from November and up 41.3% from 5,846 in December 2008, according to MDA DataQuick (see chart above). December marked the tenth consecutive month in which the region's overall sales rose on a year-over-year basis.
The median price paid for all new and resale houses and condos sold in December was $155,000, the same as in November but down 22.5 percent from $200,000 in December 2008. It was the smallest year-over-year decline for the overall median sale price since the median fell 22.2%, to $210,000, in November 2008."
For-Profit Colleges Change Higher Ed's Landscape
Interesting article in today's Chronicle of Higher Education, here are some excerpts:
At a time when American public higher education is cutting budgets, laying off people, and turning away students, the rise of for-profit universities has been meteoric.MP: The chart above (data here) shows the 600% increase in the Apollo Group's stock (University of Phoenix) since 2000, compared to the flat return for the S&P500.
Enrollment in the country's nearly 3,000 career colleges has grown far faster than in the rest of higher education—by an average of 9 percent per year over the past 30 years, compared with only 1.5 percent per year for all institutions, according to an industry analyst. For-profit universities now educate about 7 percent of the nation's roughly 19 million students who enroll at degree-granting institutions each fall. And the proportion rises to 10 percent, or 2.6 million, if you count students who enroll year round. Just this academic year, the University of Phoenix eclipsed California State University as the second largest higher-education system in the country, with 455,600 students as of this month—behind only the State University of New York.
Proprietary schools charge a lot more than public colleges—an average of $14,174 this year, compared with $2,544 at public two-year institutions and $7,020 for in-state tuition at public four-year institutions, according to the College Board. But students frequently choose proprietary schools over public colleges because for-profits do so much to limit the hassle of enrolling and applying for aid, and because students can take the classes they need quickly and get on with their lives.
The biggest player among those is the Apollo Group. Its flagship University of Phoenix has morphed from an institution with 25,100 students in 1995 to one with 455,600 today. That means that 15 years ago Phoenix was about the same size as George Washington University. Now it is larger than the entire undergraduate enrollment of the Big Ten.
The stocks of publicly held for-profit education companies have outperformed the Standard and Poor's 500 by about 40 percentage points in each of the past two years. And companies like Stifel Nicolaus that analyze the market predict that the sector will continue to enjoy a "significant tailwind." Indeed, BMO Capital Markets predicted in the fall that revenue from the for-profit sector would rise by 10 percent per year through 2014.
Sunday, February 07, 2010
Canada's Jobless Rate Falls to 8-Month Low in Jan.
Feb. 5 (Bloomberg) -- "Canada gained almost three times as many jobs as expected in January, led by part-time positions for youth, pushing the unemployment rate down to the lowest since September.
Employment rose by 43,000 last month, Statistics Canada said today in Ottawa, and the unemployment rate fell to 8.3%. The median forecast of 22 economists surveyed by Bloomberg was for a 15,000 gain in employment and a jobless rate of 8.5%."
MP: The unemployment rate in Canada has now declined three months in a row, and has decreased in four out of the last five months, reaching the lowest rate in January (8.3%) since April of 2009 (8%).
Saturday, February 06, 2010
Verizon Wireless Cure for Health Care Reform
"Sadly, neither version of the healthcare plans in front of Congress allow space for healthy competition. The various health insurance “exchanges” and byzantine combinations of subsidies and penalties that the proposed legislation contains will only further restrict competition. Restrictions force insurance companies to offer only those plans that meet government approval.
If a bill passes, the result would be the equivalent of forcing every American to buy a cellphone, even if they didn’t want one. Those who have phones would see their plan costs soar, spending more for features they don’t want and inferior customer service. Washington should seriously consider the success of the cellphone industry’s model. Making health insurers more consumer-friendly requires competition.
By changing tax law to break the link between employment and health insurance and by abolishing laws that prevent purchasing health insurance across state lines, Washington could turn a doomed system around. More competition would give consumers more options and enable them to switch providers more easily, which would create much stronger incentives for good customer service than just complaining to a monopoly.
The sooner Congress realizes that the prescription is not more government regulations but a dose of real competition, the sooner we can restore some health to the health insurance industry."
~Steve Horwitz in the Christian Science Monitor
MP: The chart above shows the percent change in the CPI since 1998 for all items (+34%) compared to the CPI for medical services (+60%, almost twice the overall rate of average price increase) vs. a -36.4% decrease in the CPI for cell phone services since 1998.
From today's NY Times:
"Women have represented about 57% of enrollments at American colleges since at least 2000, according to a recent report by the American Council on Education (see chart above for BA degrees, data here). Researchers there cite several reasons: women tend to have higher grades; men tend to drop out in disproportionate numbers; and female enrollment skews higher among older students, low-income students, and black and Hispanic students."
From the article "Feminists Still Defending Radical Gender Inequality in Education":
"There was a time, of course, when feminists railed against gender inequality in a wide variety of areas, and rightly so. What possible reason could there be for inequalities based on sex in education, the workplace, academia, government, etc.? And they had a good point; there was no legitimate reason.
But the instant the shoe gets onto the other foot, the principle of gender equality vanishes from feminist discourse. Funny how that happens. Indeed, when it comes to the radical gender equality in education, feminists tie themselves in rhetorical knots justifying the very thing they were screaming about just 30 years ago.
Once feminists pretended to care about gender equality, but when that principle could conceivably benefit men, all of a sudden they’re not. There’s a word for that – hypocrisy."
Male Workers Still Outnumber Women 52% to 48%
The New York Times reports today that "Women Now a Majority in American Workplaces":
For the first time in recorded history, women outnumber men on the nation’s payrolls. This benchmark is bittersweet, as it comes largely at men’s expense. Because men have been losing their jobs faster than women, the downturn has at times been referred to as a “man-cession.”
Women’s new majority in the nation’s workplaces comes decades after women first began trading in their aprons for pantsuits in droves, and it reinforces expectations that women will continue on the path to pay parity.
“Important milestones remain to be achieved, but women’s surpassing 50 percent of employment is something that historians will note for years to come,” said Casey B. Mulligan, an economics professor at the University of Chicago who has been tracking the recession’s effects on both sexes.
1. On a seasonally adjusted basis, the percent of women on nonfarm payrolls in January was 49.9% (see Table B-5 of the BLS report), so women were not a majority on a seasonally adjusted basis.
2. More importantly, the nonfarm payroll data excludes almost 9 million American workers including the self-employed, unpaid family workers, agricultural workers, and private household workers, who are all included in the more comprehensive household survey. The two charts above shows employment levels and employment shares by gender, using the BLS monthly household survey data back to 1948.
The top chart shows historical employment levels by gender (household survey), and for January 2010, there were almost 7 million more men employed than women: 72,516,000 men vs. 65,817,000 women. The bottom chart displays employment shares by gender and shows that men held 52.42% of all jobs in January.
3. Gender parity by employment level/share really doesn't have anything to do with gender parity for pay, since even with employment gender parity there will still be gender differences in hours worked, career choices, family roles, career interruptions, etc.
4. For women's jobs to come at the expense of men's jobs requires a fictitious labor market with a fixed number of jobs, so the writer has committed the "fixed pie fallacy." As Milton Friedman reminds us, “Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”
M2 Growth Falls Below 2% for 1st Time Since 1995
Quotes of the Day: Politicians in Wonderland
1. The big question that seldom— if ever— gets asked in the mainstream media is whether these are a net increase in jobs. Since the only resources that the government has are the resources it takes from the private sector, using those resources to create jobs means reducing the resources available to create jobs in the private sector.
So long as most people do not look beyond superficial appearances, politicians can get away with playing Santa Claus on all sorts of issues, while leaving havoc in their wake— such as growing unemployment, despite all the jobs being "created."
2. Whatever position people take on health care reform, there seems to be a bipartisan consensus— usually a sign of mushy thinking— that it is a good idea for the government to force insurance companies to insure people whom politicians want them to insure, and to insure them for things that politicians think should be insured. Contrary to what politicians expect us to do, let's stop and think.
Why aren't insurance companies already insuring the people and the conditions that they are now going to be forced to cover? Because that means additional costs— and because the insurance companies don't think their customers are willing to pay those particular costs for those particular coverages.
It costs politicians nothing to mandate more insurance coverage for more people. But that doesn't mean that the costs vanish into thin air. It simply means that both buyers and sellers of insurance are forced to pay costs that neither of them wants to pay. But, because political rhetoric leaves out such grubby things as costs, it sounds like a great deal.
Friday, February 05, 2010
Anti-Greed Michael Moore Wants Taxpayer Money
State Sen. Nancy Cassis, R-Novi, is asking Moore to withdraw his application from the Michigan Film Office, which would reimburse up to 42% for costs associated with filming in the state. Cassis, who is chair of the Senate Finance Committee, said Moore shouldn’t be treated differently from any other filmmaker applying for the tax credits, but said his public criticisms of corporate welfare ring hollow if he asks for taxpayer dollars. Cassis said the Michigan Film Office told her Moore qualified for $1 million in tax credits.
“He got caught in his own rhetoric and double standards,” Cassis said. “He decried capitalism and big corporations getting government handouts, and he asked for a handout himself from all the taxpayers of Michigan. He presented himself as a defender of the poor and downtrodden, and government should not be supportive of corporate welfare, but he himself is taking money from taxpayers.
She continued, “Michael Moore, if you stand by your position in 'Capitalism: A Love Story,' then withdraw your application from the film office for refunds at the expense of and subsidized by Michigan taxpayers.”
Moore has not responded to media attempts to get his comments, and appears to be "just as elusive as the subject of his breakthrough movie ‘Roger and Me' " according to Kathy Hoekstra of the Mackinac Center who broke the story last week that Moore applied for the tax subsidy."
Markets In Everything: Online Exam Proctoring
ProctorU is a revolutionary new service to help students take exams online. Using almost any webcam and computer, students can take exams at home, at work, or anywhere they have internet access. Connect one-on-one with your proctor, follow their instructions, and take exams from the comfort of your own home.
Temp Workers, Overtime Signal Gradual Recovery
Two positive signs from today's BLS employment report are:
1) Manufacturing overtime hours for January increased to 3.5 hours, reaching the highest level since August 2008 (see graph). This marks the tenth month in a row that overtime hours have either increased or stayed the same as the previous month, following 16 months of declines (or no change) in average overtime hours.
2) The number of temporary help workers increased in January by 52,000 to the highest level since December 2008 (see graph above), and temporary workers increased for the sixth consecutive month for the first time since 2005. The 227,000 increase in temporary jobs since August is the largest 6-month increase since that data series started in 1990.
Both of those indicators signal a labor market that is slowly recovering, and strongly suggest that the worst is behind us.
Thursday, February 04, 2010
Phoenix, Las Vegas Home Sales Hit 4 Year Highs
1. Sales of existing homes in the Phoenix region rose to the highest level for a December in four years as home price measures trended lower and investor activity rose. A total of 8,826 new and resale houses and condos closed escrow in the combined Maricopa-Pinal counties metropolitan area in December, up 3.3% from November and up 30.5% from a year ago. December’s total sales were the highest for that month since December 2006, when 11,341 homes sold. Total home sales have increased on a year-over-year basis for 12 consecutive months.
2. The number of homes that resold in the Las Vegas region in December shot up to its highest level for that month in five years amid robust sub-$200,000 sales and strong demand from investors. A total of 5,316 new and resale houses and condos closed escrow in the Las Vegas-Paradise metro area in December, up 11.1% from November and up 33% from a year earlier. December’s sales total was the highest for that month since December 2006, when 5,780 homes sold. December marked the 16th consecutive month in which total sales have risen on a year-over-year basis.
Even in Michigan: Hope of Economic Recovery
Comerica Bank’s Michigan Economic Activity Index rose 4 points in December, fully reversing the decline in November. The fourth quarter average was up 2.3% from the third quarter and up 9% compared to the second quarter, which was the cyclical low. The Index averaged 74 for all of 2009, 13 points below the 2008 average.
“The broad-based improvement evidenced in our Index since May surfaced again in December, with seven out of nine variables contributing positively to the Index,” said Dana Johnson, Chief Economist at Comerica Bank. “Bolstered by a rise in steel production, as well as more favorable auto sales, December’s Index erased November’s dip, the only decline in the Index since its May 2009 low. Looking to 2010, our Index should continue to trend higher as a rebound in the state’s auto sector evolves into a more broadly-based recovery.”
MP: If there's hope for the Michigan economy, there's hope for the rest of the country.
Markets in Everything: Bathroom Sex at Restaurant
TORONTO STAR -- Mildred's Temple Kitchen in Toronto is inviting customers to have sex in its bathrooms. The Valentine's weekend promotion takes uncomfortable but electrifying sex from the close confines of an airplane and transfers it to the unisex stalls of the Hanna Ave. restaurant.
The Liberty Village restaurant proposes its modern bathrooms become one of the "101 places to have sex before you die."
Fortune 500 Firms in 1959 vs. 2009; 86% Are Gone
What do the companies in these three groups have in common?
Group A. American Motors, Studebaker, Eastman Kodak, Maytag and National Sugar Refining.
Group B. Boeing, Campbell Soup, Deere, IBM and Whirlpool.
Group C. Cisco, eBay, McDonald's, Microsoft and Yahoo.
All the companies in Group A were in the Fortune 500 in 1959, but not in 2009.
All the companies in Group B were in the Fortune 500 in both 1959 and 2009.
All the companies in Group C were in the Fortune 500 in 2009, but not 1959.
Here's the complete database of the Fortune 500 every year from 1959-2009.
Comparing the Fortune 500 in 1959 to 2009, I find that there are only 72 companies that appear in both lists. In other words, only 14% of the Fortune 500 companies in 1959 were still on the list fifty years later in 2009, and 86% of the companies have either gone bankrupt, merged, gone private, or still exist but have fallen from the top 500 companies (ranked by gross revenue). That's a lot of churning and creative destruction, and it's probably safe to say that many of today's Fortune 500 like the ones listed above will be replaced by new companies in new industries by the year 2059.
Thanks to Nick Schulz for the idea. The 50 year database is a great resource and I might try some additional analysis, this was just a quick start.
Physician Compensation Data for 68 Specialties
The highest and lowest five specialties are presented in the chart above (from John's blog).
Jobless Claims in Perspective: Adjusted for Workforce Today's Claims Are Below 1992 Level
WASHINGTON (MarketWatch) -- "First-time filings for state unemployment benefits climbed to their highest level since mid-December last week, defying the forecasts of economists who had expected a sharp downturn, government data showed Thursday. For the week ended Jan. 30, initial claims rose 8,000 to stand at 480,000, according to the Labor Department. A closely watched barometer for U.S. employment, claims had spiked earlier in January. However, economists have thought that the increase would quickly be reversed.
The claims data may cause economists to become more pessimistic about the U.S. employment report for January -- pivotal for jobseekers, investors and Washington policy makers alike -- that will be released by the government on Friday morning. It is starting to look as though the downward trend in claims, which has been key to the story of payroll gains in the next few months, has stalled but we need more data to be sure," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Other economists said the backlog problem was centered in California and may be cleared up in coming weeks. This week, the government said only that there were no reports of unusual factors that might have influenced the data. The four-week moving average for initial claims, designed to smooth out fluctuations in the weekly data, rose to 468,750, up 11,750 (see chart above), the highest level since the week ended Dec. 5."
MP: Following 19 straight weekly declines, jobless claims (4-week moving average) have increased for the last three weeks and are at the highest level in eight weeks.
See Scott Grannis' post on why this recent "hiccup" doesn't mean anything. In his post Scott writes: "In fact, if you adjust claims for the size of the workforce (which is 21% larger today than it was then), today's level of claims is about 5% lower than than the average level of claims in the first half of 1992."
Human Ingenuity and Advances in Engineering Have Turned the U.S. Into Saudi Arabia of Nat Gas
"How ironic that during the ‘drill, baby, drill’ demonstrations as gasoline prices spiked in 2007 and 2008, a silent revolution with natural gas was already underway that will make those concerns largely irrelevant.
By marrying and perfecting two processes into a technology called horizontal fracking, engineering has virtually created, from nothing, new natural gas resources, previously regarded as inaccessibly locked in useless shale deposits. Suddenly, the mammoth shale formations in Texas, Pennsylvania, Ohio, New York, North Dakota, and elsewhere have the potential to produce abundant amounts of gas for decades to come.
Human ingenuity has turned theoretical gas reserves — too costly ever to be exploited — into practical resources. And just in time. Less than a decade ago, experts were noting that conventional natural gas production had begun to plateau, despite annual increases in the number of wells drilled."
~Max Schulz writing in the American.com
MP: The chart above shows natural gas production (data here) in the United States, which recently overtook Russia as the #1 gas producer in the world.
Capitalism Created the Middle Class and They Still Have it Pretty Good
"In the run-up to the release of his new budget, President Obama painted a dire picture of the middle class. It has, he said, 'been under assault for a long time ... '
It's certainly true that the past two years have been tough for many middle-class Americans. Many of them have lost jobs and homes, seen their investments decline and, more broadly, faced new uncertainties about incomes.
Families are suffering in every community – but the entire middle class under assault? Don't believe it. No hard evidence points to a general decline in living standards for the average American family. Perhaps, having it so good for so long has created expectations, some of them a bit unreasonable. Consider:
•America's middle class lives in bigger and better-equipped homes than ever before, with appliances of all kinds, air conditioning, big-screen televisions, computers, DVD players, digital cameras and so much more (see chart above, "The Spread of Products into U.S. Households").
•Nine in 10 households own a car – better equipped, more durable and more fuel efficient than any in history.
•Cell phones once cost $4,200, but they're now less than $100. Nearly every pocket and purse holds a cell phone, many now with Internet access.
•In real terms, the average family's net worth has tripled since 1970, even after the past two years of declines in housing prices and stocks.
•Tap water's free, but Americans still buy 8.6 billion gallons of bottled water a year.
•Obesity has replaced hunger as the most pressing dietary concern.
Innovation and trade continually drive down the real cost of goods and services and increase the productivity of each hour of work. As this capitalist engine churns onward, the scarcity that plagued mankind for millennia has given way to the abundance that's the foundation of today's vast middle class.
The capitalist system literally created the middle class, and the best way to maintain and improve our living standards lies in keeping it functioning at peak efficiency. Government largesse, no matter how high-minded or well-intended, isn't going to do much for the majority of middle-class families. They have to pay their own way – as always."
~From Dallas Fed Economist W. Michael Cox's article, "The Middle Class Still Has It Pretty Good."
MP: In the graph above, notice how it took almost an entire century for the telephone to become commonplace and reach 90% of all households, compared to the cell phone, which took about a decade to reach 90% ownership.
Milton Friedman on Steel Tariffs and Trade in 1978
Milton Friedman gives a concise and lucid argument for free trade at Utah State University in 1978.
At this link, you can watch Nucor (America's largest steel producer) CEO Dan Dimico's (salary of $3 million per year) argue on "60 Minutes" for trade protectionism for the U.S. steel industry. It gets interesting starting about 8:30 when Dimico responds to being called a protectionist by Leslie Stahl.
HT: Matt Bixler
Wednesday, February 03, 2010
Disruptive Innovation from the Invasion of the Retail Health Clinics: A 20X Increase in 9 Years
From the conclusion section of a recent study from the Deloitte Center for Health Solutions titled "Retail Clinics: Update and Implications":
"Retail clinics represent a new channel to deliver primary care services more conveniently and at lower cost to consumers. Clinic services are safe and effective, due in large measure to medical management programs that are evidence-based and supported by electronic medical records.
As a new entrant, retail clinics represent a threat to many traditional health care industry stakeholders; however, to consumers, health plans and employers they offer an important care alternative with a strong value proposition.
We expect this new sector to mature while growing its scope of services, locations and impact on population-based health status. Meanwhile, the emergence of retail clinics presents challenges and benefits to others in the industry:
• For local physicians and hospitals, developing a retail strategy that offers competitive pricing, services and value propositions to health plans, employers and consumers will be a requisite.
• For health plans, data suggests that retail clinics are here to stay; they can be safely promoted to enrollees/employers as a valuable part of benefit design.
• For consumers, retail clinics offer an alternative to inaccessible primary care services, inappropriate visits to emergency rooms and unnecessary health care expenditures.
In conclusion, the growth and evolution of retail clinics reflect opportunities for disruptive innovation and an improved value proposition for the U.S. health care system."
MP: The chart above shows the projected phenomenal growth in retail health clinics according to Deloitte for years through 2014 and Merchant Medicine for 2015. There have even been some studies predicting that the number of clinics could reach 6,000 by next year, but that seems unrealistic. But the growth trend in retail clinics is nothing short of phenomenal - going from just 200 clinics in 2006 to possibly 4,000 by the year 2015 - a twenty-fold increase in just nine years!!
While Congress debates its "overhaul" of the U.S. healthcare system, there is already a market-based overhaul happening with the explosion of cost-saving, convenient health clinics around the country. If only this explosion of retail clinics had happened five or ten years ago, we probably wouldn't even be having to tolerate hearing about how Obama, Pelosi and Reid are going to "fix" our health care system.
Affirmative Action: Costly and Counterproductive
In the debates and court cases on using affirmative action to increase minority enrollment at highly selective colleges, it has been a self-evident article of faith among supporters of affirmative action that the educational experience is deficient and inferior without sufficient minority representation, and can therefore be enhanced and improved by artificially increasing minority enrollment, usually by lowering admissions standards for targeted groups. These proponents usually suggest that all students benefit from affirmative action, including both the majority-race students at selective, elite colleges, and minority student groups at those colleges.
That position is now being challenged with contrary statistical evidence in a forthcoming paper in Economic Inquiry "Does the River Spill Over? Estimating the Economic Returns to Attending a Racially Diverse College," by two Duke University professors Peter Arcidiacono and Jacob Vigdor. Here are some key excerpts:
Introduction: "For more than a quarter century, the belief that diversity contributes to the quality of undergraduate and graduate education has motivated court opinions and college policies regarding racial preferences in admissions. Surprisingly the social sciences have provided very little evidence to support or refute this claim. Such evidence would clearly be of great interest both to policy makers and to scholars conducting more general studies of the impacts of affirmative action on higher education."
Summary: "Do white and Asian students at elite schools benefit from the presence of Under- Represented Minority students on campus or in the college classroom? While not all the evidence in this article suggests that interracial exposure is uniformly negative, it strongly suggests that the predominant policy tool designed to increase the representation of minority groups, affirmative action, has a negative net impact on students not directly targeted by the program.
Using data on graduates of 30 selective universities, we find only weak evidence of any relationship between collegiate racial composition and the postgraduation outcomes of white or Asian students. Our empirical results cover a broad range of outcomes, including earnings, educational attainment, and satisfaction with both one’s life and one’s job. Across these varying specifications, we fail to find any significant evidence that white or Asian students who attend more diverse colleges do better later in life. Moreover, the strongest evidence we uncover suggests that increasing minority representation by lowering admission standards is unlikely to produce benefits and may in fact cause harm by reducing the representation of minority students on less selective campuses.
Further analysis suggests that affirmative action is actually counterproductive, if its goal is to improve the productivity of majority race students. Preferential admissions for certain groups may still have a role in higher education, but they should be understood for what they are: redistributive mechanisms that create benefits for the targeted racial groups but costs for others."
Markets in Everything: Student Auctions Virginity
TIMES ONLINE -- "A student has auctioned her virginity to a stranger for almost $32,000 to help fund her university tuition fees. The 19-year-old New Zealand woman offered her virginity to the highest bidder in an online auction on the www.ineed.co.nz website after she found herself desperate for money.
The student, who called herself "Unigirl", said that she was delighted with the outcome and thanked auction participants who had bid more than she expected. "Thank you to the more than 30,000 people who viewed my ad and to the more than 1,200 offers made," she said on the auction site yesterday. "I have accepted an offer in excess of $NZ45,000 ($32,000), which is way beyond what I dreamt."
A spokesman for the New Zealand police, Jon Neilson, said that no law appeared to have been breached."
MP: So it would be legal in New Zealand for her to sell her virginity online, but illegal for her to sell one of her kidneys?
Tuesday, February 02, 2010
Annual Cost Per Sugar Farm Job Saved = $826,000
A few days ago, I posted about tariffs doubling U.S. sugar prices (see chart above) and how those artificially high prices impose huge economic costs on the U.S. economy ($2.5 billion last year). Thanks to a comment from Ron H., I found a research paper "Employment Changes in U.S. Food Manufacturing: The Impact of Sugar Prices," that was published by the U.S. International Trade Commission in 2006. Here is a summary of the findings:
1. Employment in sugar containing products (SCPs) industries decreased by more than 10,000 jobs between 1997 and 2002 according to the BLS. Approximately 6,400 of these job losses can be attributed to confectionery plant closings and relocations abroad, where high U.S. sugar prices were cited as a significant contributing factor. During the same period, non-SCP food manufacturing employment grew by 31,326.
2. Approximately 987,810 people worked in sugar-using industries as of 2002. In contrast, there are 61,000 full-time equivalent jobs involved in the growing and harvesting of sugarcane and sugar beets. Studies suggest that the U.S. sugar program helps to maintain approximately 2,260 of these sugar industry jobs, many of which are growing and harvesting jobs, at an annual cost per job saved of $826,000. Therefore, the total economic cost to the U.S. economy of those jobs saved is about $1.9 billion per year.
3. For each one sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionery manufacturing jobs are lost.
4. For the confectionery industry in particular, evidence suggests that sugar costs are a major factor in relocation decisions because high U.S. sugar prices represent a larger share of total production costs than labor. In 2004, the price of U.S refined sugar was 23.5 cents per pound compared to the world price at 10.9 cents.
5. Many U.S. SCP manufacturers have closed or relocated to Canada where sugar prices are less than half of U.S. prices and to Mexico where sugar prices are about two-thirds of U.S. prices.
6. Plant closings and relocations have been accompanied by increasing SCP imports, which have tripled from $6.7 billion in 1990 to $18.7 billion in 2004.
Top 20 Business Blogs for January
How are these rankings compiled?
"The position of a blog in the Wikio ranking depends on the number and weight of the incoming links from other blogs. Our algorithm accords a greater value to links from blogs placed higher up in the ranking. A blog linking another blog is only counted once a month i.e. if blog A links to blog B 10 times in a given month, it is only counted as having linked to that blog once that month. The weight of any link decreases over time. Also, if a blog always links to the same blog, the weight of these links is decreased. Only links found in RSS feeds are counted. Blogrolls are not taken into account."
Canadian Politician Comes to U.S. for Heart Surgery
CANADA'S NATIONAL POST -- Newfoundland Premier Danny Williams will undergo heart surgery later this week in the United States. He is expected to be away from four to six weeks.
A decision to leave Canada for the surgery, especially if it is available here, raises questions about the Premier's confidence in Newfoundland's health care system.
MP: This raises the question: Where will U.S. politicians go for heart surgery if we ever adapt Canadian-style health care?
Thanks to Bob Wright.
Markets in Everything: Lord Ganesha U.S. Stamps
Usa-postage.com is proud to be the first company to offer customized postage with divine images that have specific appeal to the Indian community living in the United States. Commemorative sheets from Usa-postage.com are valid U.S. Postage produced by a technology called PC Postage.
HT: Sanil Kori
How To Make a Weak Economy Worse: Raise Taxes
"Mr. Obama might want to stick to a moderate approach. FDR's war against business played to the crowd, but it hurt the economy. While monetary policies impeded recovery in the late 1930s, it was the administration's assault on companies and capital that ensured the Depression's duration. By 1935, FDR decided that firms, especially big firms, were impeding recovery. They must now redeem themselves and save the economy by sacrificing—or else.
The attacks started with taxes. In 1935, well before the "hatred" speech, FDR led Congress in passaging a law that replaced a flat rate on corporate income with a graduated rate—itself a penalty on larger firms. Personal income taxes went up, as did other rates (see charts above). In 1936 FDR signed into law the undistributed profits tax, which aimed to force reluctant firms to disgorge cash as dividends or by paying higher wages. This levy too was graduated, with a top rate of 27%.
The result of it all was the Depression within the Depression of 1937 and 1938, when industrial production plummeted (see chart below) and unemployment climbed back into the higher teens.
The 1930s story suggests not that any individual reform is wrong per se. It reminds us rather that frustrated presidents are inconsistent, that antibusiness policies are cumulative, and that hostility yields more damage than benefit. Presidents can choose between retribution and recovery. They cannot have both."
MP: In other words, the 1930s story suggests that if you want to have an unhappy ending, a "double-dip" recession, and stalled economic growth there's one sure way to do it: raise taxes during a fragile period of economic recovery. Like 2010.
Monday, February 01, 2010
It’s Not the 1930s Again; It's Not Even Close, Part II
Real Consumption Growth Rate: Highest Since 2007
The chart above shows the annual percent change from the same month in the previous year for real personal consumption expenditures (data here) from January 1970 through December 2009, as reported in today's Personal Income report from the BEA. December was the third consecutive month of a positive growth rate for real personal consumption, and the growth has been positive in four out of the last five months.
Further, the 1.77% growth rate in December was the largest monthly increase in real consumption since November 2007, the month before the recession officially started. Add this to the growing list of V-signs of economic recovery, and notice how it's similar to the V-patterns of recovery following recessions in 1975, 1980, 1982 and 1991.
See Scott Grannis for more analysis on why this growth in real consumption is a positive indicator, and one that suggests that job growth will follow.
Another Huge V-Sign of Economic Recovery: ISM Hits 5 1/2 Year High, Predicts GDP Growth = 5.5%
More from Brian Wesbury and Bob Stein:
"If this isn’t a V-shaped recovery, we don’t know what is. Today’s ISM Manufacturing report blew away consensus expectations, surging to the highest level since 2004. The increase in
the ISM shows that the strong real GDP growth of late 2009 was not some kind of one-off inventory-related fluke, but is continuing into 2010. According to the Institute for Supply Management, which publishes the ISM report, an overall index reading of 58.4 is
consistent with real economic growth at a 5.5% annual rate."
It’s Not the 1930s Again --- It's Not Even Close
From Brian Wesbury and Robert Stein:
"Since the financial turmoil began, many analysts, investors and pundits have fretted about a repeat of the Great Depression. However, it’s important to put things in perspective. Real GDP fell for four consecutive years (and by a total of more than 25%) between 1929 and 1933. Unemployment reached 25% (see chart above). Nothing today even comes close. GDP is now rising and we expect unemployment has peaked.
The reason the Great Depression became so great was because government policies were outrageously bad. The Federal Reserve, which was less than two decades old at the time, made huge mistakes, and allowed the money supply to decline by a third between 1929 and 1933. At the same time, President Herbert Hoover increased the top marginal income tax rate from 25% to 63% in 1932 – a more than 50% reduction in the incentive to work and invest.
The odds of repeating anything like the Great Depression are low and shrinking by the day. It’s not the 1930s, it’s not even close."
MP: In terms of the monthly unemployment rate, we haven't even come close yet to the peak of 10.8% in November and December of 1982, and the average annual rate of 9.3% for 2009 is less than the 9.7% average in 1982 by almost a full half point, and a full point less than the 12-month average of the 10.3% unemployment rate between mid-1982 and mid-1983 (data here).
More on Cash-Only Medicine: Like Being Born Again
TRAVERSE CITY, MI -- Oct. 1, 2006, marks the fifth anniversary of the date on which Michael Harris, MD, opted out of Medicaid and Medicare and rid himself of all commercial insurers. He put his urology practice on a strict cash-for-services basis in 2001 and he has not looked back (see his website here for Northern Institute of Urology).
"This is how you practice medicine," Dr. Harris told Urology Times in a recent interview. "All the bureaucracy that is inflicted on a typical medical practice today contributes absolutely nothing to the care of the patient. All it does is hamper performance."
See related CD post.
See related story "Opting Out is Like Being Born Again, MDs Say."
Personal Savings Reaches 11-Year High in 2009
According to today's BEA report on "Personal Income and Outlays," personal savings (percent of disposable personal income) was 4.8% in December, and the average savings rate for 2009 was 4.575%, the highest annual average rate since 5.26% in 1998.
Sunday, January 31, 2010
No Corkscrew or Bottle Opener? No Problem
Location, Location, Location
Here's a 5 bedroom, 5 bathroom, 3,000 square foot house in Flint, Michigan for $74,900. With a 20% down payment, and a 30-year mortgage at the current rate of 5.13%, the monthly payments would be $326.44 (principal and interest). It was built in 1928 and last sold in 2001 for $225,000.
HT: Flint Expatriates Blog
Market-Based Health Care Reform: Cash Only Family Practice, No Insurance, House Calls for $90
Dr. James Eelkema, a longtime ER doc, has set up a cash-only family practice in Burnsville, MN called Timewise Medical:
"If you are insured, under-insured, or uninsured, we can see you for any medical issue. Lack of insurance should not be a barrier to quality care. Our fees are reasonable and we ask for payment at the time of service with a valid credit or debit card (Visa, MasterCard or Discover). We do not work with insurance companies, since their cost structure, rules and mandates can sometimes get in the way of a caring physician-patient relationship. Our overhead costs are kept low by not filing and tracking insurance claims, and we pass those savings on to you. You will receive a copy of the day’s note and a receipt which you may send to your insurance company to apply the charges toward your deductible."
Here's the price list, with office visits starting at $36 for one problem and $54 for two problems, a complete physical for $110, and house calls starting at $90.
Read a profile here in today's StarTribune.
MP: This approach sounds a lot more promising than 2,000 pages of government healthcare "reform," doesn't it?
Price Tags Are Merely Suggestions: Haggling's Back
Washington Post article.
HT: Paul Kedrosky
What's Up With That?
We had 6 inches of snow in DC yesterday and I took this picture today in the Adams Morgan neighborhood. Yesterday I saw at least five cars like this in Adams Morgan during the snowstorm, and I think it's a trend in other parts of the country as well. Growing up in Minneapolis-St. Paul, which gets probably the coldest weather and most snow of any major city in the U.S. in most years, I don't ever remember seeing this, and Minnesota is the one place where dealing with cold weather is elevated to a sophisticated science. Because of the harsh winters, most Minnesotans develop a high level of expertise when it comes to dealing with cold-weather car starting (tank heaters, starting spray), driving in snow, getting cars un-stuck from deep snow, etc. If lifting wiper blades off the windshield was such a great idea, why weren't Minnesotans doing it decades ago?
Here is some discussion on this topic, which mostly suggests that drivers are trying to prevent their wipers from getting stuck to the windshield, especially when getting out of a warm car. I don't think I ever experienced that being a big problem, and it somehow seems so unnatural and wrong to me, so I am currently unconvinced that this is a good idea. For those who do have troubles, maybe a better solution would be to simply install heavy-duty winter/snow wiper blades for $7. Comments?
Prof. Jack Miller writes about his experience teaching remedial writing at Normandale Community College (Bloomington, MN):
"Whatever their backgrounds, their writing problems fit into relatively few categories. Not surprisingly, they have little understanding of grammar and see it as a set of arbitrary “rules” concocted by sadistic pedants harboring grudges against the young. Punctuation is an equally baffling and dangerous area. There exists little understanding of it as a set of signals that facilitate the reader’s comprehension. Vocabulary is weak, perhaps stemming from the legions of teachers since elementary school who have feared above all that their students might suffer confusion or dismay.
Some are not sure what is done in the classroom—how to behave. They don’t know when or how to take notes. They perennially miss due dates, drift in late, drift out during the break not to return. They sabotage themselves and then seem to expect forgiveness and accommodation from their professors. Someone showing up one day after having been missing for five or six weeks, only vaguely recognized by the professor, will assume that a way can and will be found to bring him up to speed and on track with the rest of the class. Is all this the result of repeatedly being forgiven in the past? I think so.
Understanding the rudimentary conventions of research is minimal. Few are aware of what or how to quote from a source, or how and why to credit that source. Knowledge of plagiarism is far from certain, and finally there is the oft-noted paucity of a body of shared knowledge, thereby inhibiting what assumptions a writer can make about a reader. More than ever before, students live in an intellectual world of their own, a personal world where every individual’s baseline is likely to be different from that of most others and coincides with few. Coupled with extremely spotty historical knowledge, the factors outlined here make for a classroom of wide diversity, though not necessarily the “rich” diversity that college catalogues claim for their campuses."
HT: Capital Capitalism
Update: Could this be a factor? (Click to enlarge.)
Saturday, January 30, 2010
Sugar Tariffs Cost Americans $2.5 Billion in 2009
Of course, there's no free lunch, and this sweet trade protection comes at the expense of American consumers and U.S. sugar-using businesses, who have been forced to pay twice the world price of sugar on average since 1982 (27.2 cents for domestic sugar from beets vs. 13.8 cents for sugar from cane, see chart). How much does this trade protection cost Americans?
We can estimate the cost of sugar protection, using some additional data from the USDA (Table 1) about sugar:
1. Americans consume about 9.412 million metric tons (20.75 billion pounds) of sugar per year, and therefore every 1 cent increase in sugar prices costs Americans an additional $207 million per year in higher prices.
2. The U.S. produces about 6.9 million metric tons (15.4 billion pounds) of sugar annually, mostly from sugar beets.
3. Due to quotas, Americans are only allowed to import about 2.2 metric tons (4.85 billion pounds) of cane sugar every year, or about 23% of the total sugar consumed.
Bottom Line: The cost of most trade protection is largely invisible and hard to calculate, but the cost of sugar protection is directly visible and measurable, since the USDA and the futures markets regularly report prices for both high-cost domestic sugar and low-cost world sugar. Like all protection, sugar tariffs exist to protect an inefficient domestic industry (sugar beet farmers) from more efficient foreign producers (cane sugar farmers), and come at the expense of the U.S. consumers and the American companies using sugar as an input, and make our country worse off, on net.