Tuesday, January 25, 2011

We're In A New Super-Cycle of Global Economic Growth. World Economy Could Double by 2027

The Standard Chartered Bank in London recently released an interesting study called "The Super-Cycle Report, which suggests that in 2000 we entered a new "super-cycle" of global economic growth that will last until 2030, where "super-cycle" is defined as:

“A period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanization and technological innovation, characterized by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world.”  

From the paper's introduction:

1. The first super-cycle took place during the second half of the 19th century, from 1870 until 1913, the eve of the First World War. At that time, the world economy witnessed a significant step-up in its rate of growth, rising 2.7% on average annually in volume, or real, terms. That was a full 1% higher than the average growth rate seen during the previous half-century. America was the big gainer, moving from the fourth largest to the largest economy. 

2. The second super-cycle was after the Second World War until the early 1970s. World growth averaged a huge 5% per annum, again in real or inflation-adjusted terms. Japan and the Asian tigers saw the biggest gains over this time. Japan, for instance, moved from 3% to 10% of the world economy.

The rapid growth seen during both of these periods reflected a number of factors. In particular, the first super-cycle saw greater use of new technologies that had emerged during the Industrial Revolution, and the emergence of a new major economy in terms of the USA. The second super-cycle reflected many factors, in particular the post-Second World War reconstruction, involving investment, rebuilding and catch-up, plus both the emergence of a sizeable middle class in the Western world and of exporting nations across Asia. That cycle was also characterized by cultural shifts and a baby boom. A super-cycle would also appear to need the backdrop of relative peace, or certainly no global war, and stable monetary policies.

The third super-cycle started – in our view – in 2000. The period between the second and third super-cycles, from the early 1970s to 2000, was characterised by ongoing economic challenges in the West, a slowdown in Japan, the collapse of the Soviet Union, debt and currency crises in Latin America, and the relatively small size of China and India, both of which were in the early stages of opening up. There was no dynamic driver for the world economy. In 2000 the world economy was $32 trillion in size. Now, following the global recession and financial crisis, the world economy is almost twice the size of a decade ago. There was a significant contraction as a result of the crisis and global recession, but now the world is back to its pre-recession peak. Next year, based on conservative growth assumptions, this could rise to $64.7 trillion. Global trade has also recovered to pre-recession levels.

By 2030 – the time period for this analysis – we believe that the world economy, on the projections laid out here, would rise to $308 trillion, which would equate to $129 trillion in today's prices and dollars, and would be $143 trillion, keeping prices constant but allowing for some emerging-market currency appreciation (see chart above).

These are big numbers. Really big."

MP: If these estimates are accurate, it would mean that the global economy will double from its current size of $62 trillion to $126 trillion by 2027. 

MinuteClinic Goes Viral, It Plans to Double the Number of Its Retail Clinics Over the Next 5 Years

DRUG STORE NEWS — "CVS Caremark's retail-based clinic operator, MinuteClinic, is experiencing exponential gains in utilization and posted a 22% increase in acute visits during the past year, according to Larry Merlo, CVS Caremark president and COO.
The increase, which reflects visits in comparable clinic locations, is especially significant in light of the lack of flu-related illnesses. MinuteClinic currently operates more than 550 clinics in 55 markets and, going forward, its important role in the U.S. healthcare system undoubtedly will grow increasingly vital. 

"Going forward, MinuteClinic will take on added significance," Merlo told investors. "Think about the growing shortage of the primary care physician population, along with the 32 million uninsured coming online with some type of coverage beginning in 2014."

MinuteClinic is gearing up to meet the increased demand by opening more clinics at a rate of about 100 clinics per year, beginning this year. This growth plan will enable the company to double the number of clinic locations over the next five years. By 2015, MinuteClinic estimated it will operate about 1,060 clinics in 100 markets."

MP: Maybe this is how we'll deal with the coming doctor shortage

IEA: A New Superabundance of Game-Changing Shale Gas Will Provide 250 Years of Natural Gas

BBC News - "The world may have twice as much natural gas than previously thought, according to the rich nations' think tank the International Energy Agency (IEA). The world may have 250 years of gas usage at current levels thanks to "unconventional gas" from shale and coal beds, Anne-Sophie Corbeau, senior gas expert at the IEA told BBC News. Estimates may even be revised upwards.

Studies are underway into newly-recoverable sources, Ms. Corbeau said. "The gas story is huge.
A few years ago the United States was ready to import gas. In 2009 it had become the world's biggest gas producer. This is phenomenal, unbelievable."
The U.S. achieved the change through a technological breakthrough in which firms found a way of using tiny explosions to free gas previously trapped in a common rock - shale. Miss Corbeau said other nations were now rushing to replicate the U.S. success by exploiting gas currently trapped in various types of rock where it was thought to be impossible to access."

MP: The chart above shows monthly natural gas production in the U.S., which just set a new all-time record high in October last year.

HT: CME Group Twitter

Occupational Licensing Gone Wild

Public Enemy and Criminal Barber Dale Smith

An 82-year old Oregon barber (pictured above) with more than half a century of experience cutting hair (he was first licensed in 1957) is accused by government authorities in Oregon of "criminal barbering" because his government license to cut hair inadvertently expired in 2006.  Now state regulators want him to go back to barber school and pass a series of exams before he will be allowed to cut hair again legally. His barber shop is currently shut down to protect the public from getting their hair cut by this unlicensed, criminal barber.  

HT: Wayne Sanman 

See related CD post here of armed government SWAT team raids on Florida barber shops last November.  

Monday, January 24, 2011

Copper Prices Rise to Record Highs, Thefts Rise Too

Paul Kedrosky reported yesterday that copper thefts are rising again, due to the all-time record high prices in recent months.  The chart above displays monthly copper prices back to 1980, and shows that copper prices have tripled from $1.40 per pound at the end of 2008 to recent highs this month approaching $4.50 per pound.  

According to a Google News search, there have been 545 news stories in just the last week containing the phrase "copper theft," and that compares to 665 stories during the entire year of 2009 when copper prices were between $1.50-$3.00 per pound, and 1,750 stories last year as prices rose above $4 per pound by the end of the year. 

NABE Survey: Economic Recovery Gaining Strength; "Net Rising Index" for Jobs Highest in 12 Years

WASHINGTON (AP) — "Industry economists say the U.S. economic recovery is gaining strength, with more firms expressing positive hiring plans than in over a decade. A new survey from the National Association for Business Economics finds that economists are more hopeful about overall economic growth, the job market and demand for companies' products and services by many measures than they have been since the start of the Great Recession.

The survey found that business decisions are now "being driven by the fundamentals of an improving economy," said Shawn DuBravac, an economist with the Consumer Electronics Association who analyzed the findings.

The quarterly survey includes the views of 84 economists for private companies and trade groups who are NABE members. The data are reported by broad industry group. Many results are expressed as Net Rising Index, or NRI — the percentage of panelists reporting better outlooks minus the percentage whose outlook is bleaker. The number of economists who saw hiring by their firms increasing over the next six months was 42 percent, compared with 7 percent who expected to lay off workers. The NRI of 35 was the highest in the 12 years that the question has been asked."

Dopey Strange: Protecting Us from Low Prices

Co-directed, co-produced, and co-written by Don Boudreaux. I nominate this movie for an Academy Award.

"Big Sugar" Cartel Cost Consumers $4.5B Last Year

In a recent Wall Street Journal letter titled “The Sugar Program Makes Sense,” the American Sugar Alliance’s chief economist claimed that “sugar policy operates at no cost to the government and is projected to do so for the next decade.” While it’s true that U.S. sugar producers haven’t tapped American taxpayers directly since the beet sugar farmers raked in more than $240 million in farm subsidy payments from 2000 to 2005, U.S. sugar policy did force American consumers to pay out $4.5 billion last year in higher sugar prices to support the “Big Sugar” cartel.

Read more here of my Enterprise Blog post today "Sugar Policy: Sweet Deal for Producers, Sour Deal for Consumers."

New Journal: The Journal of Universal Rejection

About the Journal
The founding principle of the Journal of Universal Rejection (JofUR) is rejection. Universal rejection. That is to say, all submissions, regardless of quality, will be rejected. Despite that apparent drawback, here are a number of reasons you may choose to submit to the JofUR:
  • You can send your manuscript here without suffering waves of anxiety regarding the eventual fate of your submission. You know with 100% certainty that it will not be accepted for publication.
  • There are no page-fees.
  • You may claim to have submitted to the most prestigious journal (judged by acceptance rate).
  • The JofUR is one-of-a-kind. Merely submitting work to it may be considered a badge of honor.
  • You retain complete rights to your work, and are free to resubmit to other journals even before our review process is complete.
  • Decisions are often (though not always) rendered within hours of submission.
Instructions for Authors
The JofUR solicits any and all types of manuscript: poetry, prose, visual art, and research articles. You name it, we take it, and reject it. Your manuscript may be formatted however you wish. Frankly, we don't care.

HT: Donald Coffin

There's A Coming Doctor Shortage. But Why?

From a recent Wall Street Journal editorial by Dr. Herbert Pardes, president and CEO of New York-Presbyterian Hospital:

"The doctor shortage was fostered in 1996 when Congress capped the number of new doctors Medicare would pay to train, a practice that continues to this day.

Health-care reform will add an estimated 32 million people to the ranks of the insured, driving them to seek medical attention that in the past they may have avoided due to expense. The aging population will also create much greater demand. The number of seniors who need more medical care is expected to soar to 72 million by 2020—nearly double today's number.

According to a 2010 report by the Association of American Medical Colleges, the increased demand means that our nation will need an additional 130,000 doctors, both general-practice physicians and specialists, 15 years from now. That's about 20% more doctors than we have currently.

Right now we train roughly 16,000 doctors a year. To keep pace with demand, this nation will need to train an additional 6,000 to 8,000 each year for the next 20 years. If we increased the number of training slots today, it would take seven to 10 years for the new doctors to see patients (four years of medical school, plus three years of residency and additional specialty training)."

MP: The chart above shows that the number of medical school graduates peaked at about 16,000 per year in the early 1980s, long before any Congressional cap of Medicare funding in 1996 for training doctors. Since the early 1980s, the U.S. population has increased by almost 80 million people, a 36% increase, which has taken place at the same time that the growth in the number of medical school graduates has been near zero.

Why is it that we only hear about current or pending doctor shortages, but we never hear about shortages of other highly-trained professional like lawyers, engineers, computer programmers, Ph.D. history or political science professors, architects, economists, accountants, etc.  For some professionals like lawyers and history professors, we actually hear about huge and rising surpluses.  On the other hand, we hear all the time about the proliferation of for-profit universities like the University of Phoenix, so the market for private, for-profit education is expanding and growing nationally to offer education for nurses and other medical careers. 

Q: What is it about the medical profession that prevents it from supplying an adequate number of doctors to meet the rising demand, when every other profession seems able to accomplish that outcome?   Why has the number of medical school graduates been basically flat for 30 years?  I'm guessing that there must be restrictions that prevent the number of medical schools from increasing, but I'd welcome comments about this.

And whatever those restrictions are that have kept the number of medical graduates fixed at the same level for thirty years in the face of a rising and aging population, they have to be a major factor in the rising costs of medical care. If we had artificially restricted the number of auto mechanics or hair stylists at early 1980 levels, we'd be complaining today with the rising costs of car repair and hair cuts. 

Sunday, January 23, 2011

International Study: Most Affordable Housing? Saginaw, MI. Least Affordable Housing? Hong Kong

The "7th Annual Demographia International Housing Affordability Survey: 2011" was just released for metropolitan markets in Australia, Canada, New Zealand, U.K., U.S. and Hong Kong, based on housing and income data for the 3rd quarter of 2010 for 82 major metropolitan markets (those with more than 1,000,000 population).  "Housing Affordability" is based on the median house price divided by gross annual median household income, and here are some of the results:

1. Housing affordability in 2010 was little changed from previous years, with the most affordable housing markets being in the United States and Canada. The United Kingdom, Australia and New Zealand continue to experience pervasive unaffordability.

2. The most affordable major market was Atlanta, with a median house price of $129,400, and a Median Multiple of 2.3 (see chart above). Indianapolis ($120,200) and Rochester, N.Y. ($121,500) tied for 2nd most affordable major market, at a Median Multiple of 2.4. Cincinnati, Cleveland and Detroit tied for 4th most affordable, with a Median Multiple of 2.5, followed by Buffalo, Las Vegas and St. Louis at 2.6. Eleven other US major markets were rated affordable, including fast growing Dallas-Fort Worth, Houston, Jacksonville and Nashville.

3. All major markets in Australia and New Zealand, as well as Hong Kong were severely unaffordable. Hong Kong ranked as the least affordable major market (82nd), with a median multiple of 11.4 (see chart above). Sydney ranked second most unaffordable, at a Median Multiple of 9.6 (81st), having slipped behind last year’s most unaffordable market, Vancouver at 9.5 (which ranked 80th). Melbourne ranked 79th, with a Median Multiple of 9.0. Plymouth & Devon, San Francisco, London and Adelaide all had Median Multiples of more than 7.0.

Why does housing affordability matter?

"The cost of unaffordable housing extends to metropolitan area competitiveness. This is illustrated by an analysis of housing costs, using the Median Multiple, for more than 500 United States metropolitan areas. Between 2000 and 2009, the more unaffordable metropolitan areas lost 9.6 percent of their residents (4.7 million) by domestic migration to other areas, nearly 10 percent of their 2000 population. By contrast, the less expensive metropolitan areas gained 4.2 million domestic migrants (2.3 percent of their population). Of course the migration of households between metropolitan areas is the result of a number of factors. But the unprecedented housing affordability differences that have developed in US metropolitan areas are strongly associated with domestic migration trends. All things being equal, households will be drawn to less costly metropolitan areas and away from more costly metropolitan areas, as they seek to enhance their overall standard of living."

What cities in the U.S. have the most affordable housing? See chart below, Saginaw, Michigan is #1, Flint, Michigan is #2 and four out of the top six cities are in Michigan:

What contributes to high or low housing affordability?  Land use regulation is one factor, and as expected, the more (less) restrictive the land use regulation, the higher (lower) the housing affordability, see chart below:

Quote of the Day

"The moral code, the moral compass of the state-controlled media is something to behold. Now, some of you may not know the 2009 Nobel Peace Prize winner hosted a state dinner last night (January 19) for Hu Jintao of China. Hu Jintao is holding the 2010 Nobel Peace Prize winner in prison in China. Not making it up. The 2009 Nobel Peace Prize winner hosted a dinner for the guy holding the 2010 Nobel Peace Prize winner in prison, and the media does not get the irony of this at all. They're too busy running around chasing Sarah Palin and radio talk show hosts over 'civility.'"

~Rush Limbaugh

Port of L.A. Sets New Export Record in 2010

"Year-over-year container traffic at the Port of Los Angeles surged 16 percent in 2010, with a record number of exports leading the way. Port exports rose 10.3 percent in 2010 to 1,841,274 TEUs compared to 1,668,911 in 2009 and surpassed the previous container export record of 1,782,502 TEUs in 2008 (see chart above). Meanwhile, imports increased 12.8 percent in 2010 (3,973,933 TEUs) compared to 2009 (3,524,386 TEUs)."

With this 16 percent increase in 2010 container volumes, the Port of Los Angeles is putting people back to work and doing its part to help President Obama meet his goal to double national exports over the next five years,” said Mayor Antonio Villaraigosa. “This is good news not only for Los Angeles, but cities across the nation."

See related CD post here.

World Industrial Output is Above Pre-Recession Level and International Trade Is Not Far Behind

The chart above is based on data from the World Trade Monitor (CPB Netherlands Bureau for Economic Policy Analysis) and shows monthly World Industrial Production and World Trade from January 1991 to November 2011.  As the chart shows, global output has made a complete recovery from the sharp decline of 12% from March 2008 to February 2009, and output is now almost 3% above the March 2008 peak.  Global trade suffered an even-greater 20% drop over approximately the same period, from April 2008 to February 2009.  There has since been a 24% recovery in international trade, but it's still about 1% below the April 2008 peak.   

Bottom Line: Within the next few months, we can expect global trade to reach its pre-recession level, and then both global output and global trade will have experienced a complete recovery from the Great Recession. 

Saturday, January 22, 2011

Quote of the Day

"The welfare state has done to black Americans what slavery couldn't do, what Jim Crow couldn't do, what the harshest racism couldn't do. And that is to destroy the black family."

~Professor Walter Williams

Free Trade Among U.S. States Doesn't Work

A few weeks ago, I had some editing fun with Ian Fletcher's anti-free trade position.  Here's  s0me editing of Ian Fletcher's new book "Free Trade Among American States Doesn't Work: What Should Replace It and Why":

"The fundamental message of this book is that nations U.S. states, including the U.S. Virginia, Florida and Michigan, should seek strategic, not unconditional integration with the rest of the world economy United States economy. Economic openness within the United States, like most things in life, is valuable up to a point—but not beyond it.  Fairly open trade among U.S. states, most of the time, is justified. Absolutely intra-national free trade among American states (or even intra-state free trade, intra-county free trade, intra-city free trade, intra-neighborhood free trade or intra-household free trade),100 percent of the time, is an extremist position and is not. The difference between the two is rational protectionism for American states to promote fair inter-state trade, instead of unrestricted free inter-state trade."

Update: See Don Boudreaux's excellent "Open Letter to Ian Fletcher," where he accepts Fletcher's position that "free trade doesn't work," and therefore refuses to buy and import a copy of Fletcher's book into his household.  

Quote of the Day: Open, Good. Closed, Bad.

“In a nutshell, the key formula for the coming age is this: Open, good. Closed, bad. Tattoo it on your forehead. Apply it to technology standards, to business strategies, to philosophies of life. It's the winning concept for individuals, for nations, for the global community in the years ahead. 

If the world takes the closed route, it starts a vicious circle: Nations turn inward. The world fragments into isolated blocs. This strengthens traditionalists and leads to rigidity of thought. This stagnates the economy and brings increasing poverty. This leads to conflicts and increasing intolerance, which promotes an even more closed society and a more fragmented world. 

If, on the other hand, the world adopts the open model, then a much different, virtuous circle begins: Open societies turn outward and strive to integrate into the world. This openness to change and exposure to new ideas leads to innovation and progress. This brings rising affluence and a decrease in poverty. This leads to growing tolerance and appreciation of diversity, which promotes a more open society and a more highly integrated world.”

~Futurist and Global Business Network chairman Peter Schwartz and journalist Peter Leyden in the July 1997 issue of Wired magazine, from the article “The Long Boom.”

Tunisia's Revolutionary Blogger and Freedom Fighter: Lina Ben Mhenni, "A Tunisian Girl"

Cuba's got a revolutionary blogger and freedom fighter - Yoani Sanchez, who blogs at "Generacion Y," and has been frequently featured on Carpe Diem. This morning I heard about Yoani's counterpart in Tunisia - 22-year old Lina Ben Mhenni (pictured above), who blogs at "A Tunisian Girl," and who was featured on NPR this morning.  In an interview, Lina discusses how Facebook, Twitter and blogs played an important role in spreading information and helped bring down the president's regime.   

NPR -- "Blogging in Tunisia has traditionally been a risky business. Online activists have been subject to harassment, imprisonment and targeted “phishing” attacks by the government in the past. But this week's turmoil has ushered in a period of relative openness. Lina Ben Mhenni runs the blog A Tunisian Girl, which, until now, was banned in her own country. During the protests, she risked her safety, criticized the government on her blog and published images of the dead."

I wrote this about Yoani Sanchez in 2009, and it could probably apply equally to Lina Ben Mhenni:

"When the history of Cuba’s freedom movement is written, it’s likely that Yoani Sanchez will be recognized as a national hero and freedom fighter, the equivalent of Lech Walesa in Poland and Vaclav Klaus in the Czech Republic. Yoani Sanchez demonstrates that we should never underestimate the power of one courageous individual with a computer, a blog, and intermittent access to the Internet, or the individual’s power to change the world in the Information Age, especially with a message of freedom and individual liberty. The fact that the president of the United States, who is often recognized as the most powerful person in the world, has praised Yoani Sanchez’s blog and responded to her questions is a remarkable and historical event. Intellectual figures like Milton Friedman, Friedrich von Hayek, and Thomas Jefferson would be proud of Yoani Sanchez and her powerful message of individual freedom in one of the only remaining regimes of totalitarianism left in the world."

If You Tax Something, You Get Less of It

CHAMPAIGN – "The founder of Jimmy John's Gourmet Subs said he has applied for Florida residency and may recommend that his corporate headquarters move out-of-state as a result of the Illinois tax increases enacted last week.

Friday, January 21, 2011

Markets in Everything

1. $200 for tickets NOT to see the Superbowl.

2. NOT what the Doctor ordered, order your own lab tests.   

Friday Positive Economic News Roundup

1. The U.S. hotel industry’s occupancy increased last year by 5.7%, from 51.9% in 2009 to 57.6% in 2010. "2010 will be known as the year of demand recovery,” said industry spokesman Mark Lomanno.

2. Shipping at the Port of Portland increased by 27.6% in 2010, and by 34.6% at the Port of Seattle.

3. Passenger traffic at Dulles International Airport increased by 4.7% in November 2001 compared to the same month in 2009. 

4. Hong Kong International Airport (HKIA) set new annual records in 2010 for both: a) the highest-ever passenger count, which increased by 10.3% to to 50.9 million passengers, and b) cargo freight, which increased last year by 23.4% to 4.1 million tons. 

5. Rail traffic in the U.S. registered another improvement for the week ending January 15, with carload volume up 7.5% compared to the same week last year, and intermodal volume up by 5.8%.   

6.  Year-over-year container traffic at the Port of Los Angeles surged 16% in 2010, with a record number of exports leading the way.  Exports rose 10.3% in 2010 to 1,841,274 TEUs compared to 1,668,911 in 2009 and surpassed the previous container export record of 1,782,502 TEUs in 2008.

Thursday, January 20, 2011

We Should Take More Pride in Our Manufacturing Dominance; We Still Make LOTS of Stuff Here

There are frequent claims that “nothing is made in America anymore,” because all of the manufacturing jobs and production have been outsourced to places like China, Mexico, and Korea (for example, Donald Trump makes that claim, as Don Boudreaux points out here). Such claims about U.S. manufacturing have been circulating so persistently and for so long, that most people now blindly accept these myths, even though the empirical evidence provides a completely different story—a thriving and growing U.S. manufacturing sector. (For example, see yesterday's front page WSJ article about manufacturing being the "shining star of this recovery.")

The chart above is featured today on The Enterprise Blog, and helps to illustrate America's "manufacturing might" as the world's largest manufacturing nation, by FAR. 

In my post, I conclude that:

"The decline, demise, and death of America’s manufacturing sector has been greatly exaggerated. America still makes a ton of stuff, and we make more of it now than ever before in history, but we’re able to do it with a fraction of the workers that would have been required in the past. We’re still the world’s leading manufacturing economy by far, thanks to the world-class productivity of American manufacturing workers, the most productive in the world. Instead of bashing China, Korea, and Mexico for competing against our manufacturing sector and exaggerating the decline of our manufacturing sector, Americans should take more pride and celebrate our status as the world’s leading manufacturer."

Traffic Volume Increases in Nov. for Sixth Month

The Federal Highway Administration reported today that travel on all roads and streets in the U.S. for the month of November was estimated at 241.8 billion vehicle miles, which is 1.1% above the same month last year, and almost 5% higher than the traffic volume in November 2008.  What makes those November traffic increases especially noteworthy is that the price of gas in November last year averaged $2.86 per gallon, which was 8% above the November 2009 price of $2.65, and 33% above the November 2008 price of $2.15 (data here). Consumers and commercial drivers appear to be able to absorb the higher gas prices and still continue to increase driving as the economic recovery strengthens. 

The November traffic increase was the sixth consecutive monthly increase compared to the same month last year starting in June 2010, and the eighth increase in the last nine months starting in March 2010.

On a moving 12-month total basis, the annual vehicle-distance traveled through November 2010 was 2,998 billion miles, the highest 12-month total since July 2008, almost two and-a-half years ago (see chart).

Following a sharp decline in U.S. traffic volume (moving 12-month basis) that started in late 2007 and ended at a cyclical low in May 2009, traffic volume has been gradually increasing as both personal and commercial travel on U.S. roads and highways have rebounded (see graph above).  The ongoing improvements in vehicle miles since the summer of 2009, which is taking place despite rising gas prices, indicate that the economy recovery is sustainable and gaining momentum.

Leading Index: Economy Is Gaining Momentum

The Conference Board reported today another sharp increase in its Leading Economic Index (LEI) for the month of December, as the index rose to the highest-ever level of 112.4 last month (see chart above).  The December gain of 1% follows a 1.1% improvement in November, a 0.4% increase in October and a 0.55% gain in September.  From the cyclical low of 97.9 in March 2009, the Leading Index has improved by 13.5 points.  Here's more:

Ataman Ozyildirim, economist at The Conference Board said: “While the LEI points to an economic expansion that is gaining further traction, its components still suggest the expansion path may be uneven. December’s gain was led by housing permits, the interest rate spread, initial claims for unemployment insurance and consumer expectations. The large increases in December and November show that, after a brief pause in the second quarter of 2010, the LEI is resuming the upward trend that began in March 2009.”

Says Ken Goldstein, economist at The Conference Board: “The four-month rise suggests the economy now has some wind in its sails; however, it still faces some strong headwinds in the medium-term. Overall economic activity is likely to continue to gain momentum in 2011.”

Banks Report More Signs of Stability and Growth

NEW YORK (AP) -- "Americans are starting to get their household finances in order. In an encouraging round of earnings reports, major banks say fewer mortgages are going bad, credit card defaults are down and more people are paying the bills on time.

One of the nation's largest consumer lenders, Wells Fargo, said Wednesday that 29 percent fewer loans went bad in the last three months of 2010 than the year before. And late payments on loans considered likely to default declined for the first time since 2008. Late payments on credit cards issued by Bank of America, JPMorgan Chase and Citigroup also improved at a record pace at the end of last year, according to an analysis by Barclays Capital. The reports are a sign that Americans are feeling more comfortable about their finances. 

"There are signs of stability and growth," said JPMorgan CEO Jamie Dimon.

The bank news comes after a holiday shopping season in which spending was the strongest since 2006, and auto sales grew 11 percent last year, the first gains since 2005. Taken together, the spending indicators are the "strongest showing for consumers since the peak years of the last expansion," and signal that the economy is "near a threshold of self-sustaining growth," analysts at Citi Investment Research & Analysis said in a report earlier this month."

HT: Steve Bartin

An End to the Dreaded Stadium Beer Line


These two videos show the amazing “Bottom’s Up Draft Beer Dispensing System," which “pours” a draft beer nine times faster than traditional methods and dramatically reduces spillage. It's made by a Washington start-up company named GrinOn Industries, whose president Josh Singer saw it a way to end the dreaded stadium beer line, according to Yahoo Sports.

"The key is the use of a cup that features a hole at the bottom and small, circular magnet that rests over it. When placed on the system, the magnet is lifted up by the pressure-driven beer. The cup fills up until the weight of the liquid pushes the magnet back down over the hole (see video above). The cup can then be lifted off and the beer consumed as normal. A single stand has been able to deliver 56 draft beers in one minute, an unofficial world record (see video below)."

Wednesday, January 19, 2011

Shale Gas Will Rock the World: October Natural Gas Production Sets Another New All-Time U.S. Record

According to data from the EIA, more natural gas produced was produced in October - 2,330,551 million cubic feet - than in any previous month in U.S. history (see chart above). I couldn't find this reported elsewhere, so I'm claiming this as a "Carpe Diem exclusive"!

As John Tierney reported recently in the New York Times

"The really good news is the discovery of vast quantities of natural gas. It’s now selling for less than half of what it was five years ago. There’s so much available that the Energy Department is predicting low prices for gas and electricity for the next quarter-century."

"Domestic proved reserves of oil and natural gas increased significantly in 2009. U.S. natural gas proved reserves increased by 11 percent in 2009 to 284 trillion cubic feet. This is their highest level since 1971, despite an approximate one-third decline in the prices used to assess economic viability for 2009 reserves as compared to the prices used in 2008. U.S. crude oil plus lease condensate proved reserves rose 9 percent to 22.3 billion barrels in 2009, regaining 1.8 billion barrels of the 2.3 billion barrel decline in 2008. These increases demonstrate the possibility of an expanding role for domestic natural gas and crude oil in meeting both current and projected U.S. energy demands."

As Amy Myers Jaffe wrote in the Wall Street Journal:

"We've always known the potential of shale; we just didn't have the technology to get to it at a low enough cost. Now new techniques have driven down the price tag—and set the stage for shale gas to become what will be the game-changing resource of the decade.

I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry—and change the world—in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy."

Four Videos

1. A young British dude tries to see if he can make a basic appliance like a toaster to demonstrate the advantages of comparative advantage, specialization and the fallacy of economic self-sufficiency.

2. Watch how a memory chip is made, starting in Utah, ending in Asia, and then available in your local retail store.

3. Dan Mitchell on how to save Social Security with Personal Retirement Accounts.

4. "Random Walk Down Wall Street" author Burton Malkiel appears on John Stossel's show to debate index investing vs. managed funds with a Fox Business reporter. I think Burton wins.

Tuesday, January 18, 2011

Architecture Billings Index Continues Positive Momentum, Reaches Pre-Recession Level in Dec.

Washington, D.C. – January 19, 2011 – "On the heels of its highest mark since 2007, the Architecture Billings Index (ABI) jumped more than two points in December. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the December ABI score was 54.2, up from a reading of 52.0 the previous month. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 62.6, up slightly from a mark of 61.4 in November."

“This is more promising news that the design and construction industry is continuing to move toward a recovery,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. However, historically December is the most unpredictable month from a business standpoint, and therefore the most difficult month from which to interpret a trend. The coming quarter will give us a much better sense of the strength of the apparent upturn in design activity.”

MP: The New Project Inquiries Index is at the highest level since July 2007 and the Billings Index is the highest level since November 2007, so both indexes are now above their pre-recession levels. 

Markets in Everything: "Invasivore" Dinner Menu

Let Them Eat Carp.

HT: Matt Peer

Empire Index Shows High Level of Optimism

The New York Federal Reserve reported today that "the Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved in January. The general business conditions index rose 2 points to 11.9 (see chart above). The new orders index moved up 10 points to 12.4, and the shipments index surged 18 points to 25.4. After a sharp decline last month, the inventories index rose above zero. Employment indexes also climbed into positive territory. Both the prices paid and prices received indexes rose, pointing to an acceleration in both input prices and selling prices. 

Future indexes conveyed a high level of optimism, with the future general business conditions index advancing to a level not seen since early 2010, while future price indexes climbed to multiyear highs. Future indexes were at relatively high levels, suggesting that manufacturers widely expected conditions to continue improving over the next six months. The future general business conditions index rose 10 points to 59.0, with 61 percent of respondents expecting conditions to be better in six months."
MP: Actually, according to the New York Fed's historical data, the Future Conditions Index in January at 58.95 was the highest level since early 2004 (see chart above). 

Monday, January 17, 2011

U.S. Schools Are Still Ahead—Way Ahead

From Duke/Harvard/Berkeley professor Vivek Wahwa, writing in Bloomberg;

"The independence and social skills American children develop give them a huge advantage when they join the workforce. They learn to experiment, challenge norms, and take risks. They can think for themselves, and they can innovate. This is why America remains the world leader in innovation; why Chinese and Indians invest their life savings to send their children to expensive U.S. schools when they can. India and China are changing, and as the next generations of students become like American ones, they too are beginning to innovate. So far, their education systems have held them back.

My research team at Duke looked in depth at the engineering education of China and India. We documented that these countries now graduate four to seven times as many engineers as does the U.S. The quality of these engineers, however, is so poor that most are not fit to work as engineers; their system of rote learning handicaps those who do get jobs, so it takes two to three years for them to achieve the same productivity as fresh American graduates.As a result, significant proportions of China's engineering graduates end up working on factory floors and Indian industry has to spend large sums of money retraining its employees. After four or five years in the workforce, Indians do become innovative and produce, overall, at the same quality as Americans, but they lose a valuable two to three years in their retraining.

Let's keep improving our education system and focus, in particular, on disadvantaged groups. Education is the future of our nation. But let's get over our inferiority complex. America is second to none. Rather than in mastery of facts learned by rote and great numbers of accomplished martinets, its strength lies in the diversity and innovation that arise in an open, creative society."

Markets in Everything: Cars As Virtual Piggy Banks

GLOBAL POST -- Argentines are buying cars in record-breaking numbers this year, but not necessarily because they're burning to drive. With currency markets uncertain and inflation expected to reach 30 percent in 2011, Argentines are trying to find places to park their savings.

"Those who can buy property, but those who can't buy cars," said Hernan Valdez, who bought a new Peugot. He said many of his friends bought cars this year, too.

Fueled by record soy and corn harvests last year as well as strong Brazilian demand for Argentine-made cars and manufactured goods, Argentina is one of Latin America's fastest growing economies. Its GDP is forecast to grow between 7 and 9 percent this year. Yet Argentina also has Latin America's second highest inflation rate, next to Venezuela. The national statistics agency reports annual inflation at 11.1 percent (see chart above), but private analysts say Argentina's actual inflation rate is closer to 26 percent and set to increase with government spending ahead of next year's presidential election.

With banks only providing 8 percent annual interest rates, Argentines are turning to cars as virtual savings banks. In most places in the world, a new car depreciates in value as soon as it leaves the lot, but not in Argentina.  For example, an Argentine consumer can buy a car for 50,000 pesos, use it for one year, and sell it the next year for almost the same price or more. In Europe or the United States, cars leave about 20 percent of their value when they leave the lot, said Hernan Dietrich, owner of one of Argentina's largest car dealerships.

"Here the loss is absorbed by inflation and the equation balances out," Dietrich said. "So many people have decided to buy a car if they don't have another way to save."

Top Ten Best Selling Cars and Trucks, 2010

From Ward's Automotive, the Top Ten Best Selling Cars and Trucks for 2010:

1Toyota Camry327,804Ford F Series528,349
2Honda Accord282,530Chevy Silverado370,135
3Toyota Corolla/Matrix266,082Honda CR-V203,714
4Honda Civic260,218Dodge Ram Pickup199,652
5Nissan Altima229,263Ford Escape191,026
6Ford Fusion219,219Toyota RAV4170,877
7Chevy Malibu198,770Chevy Equinox149,979
8Hyundai Sonata196,623GMC Sierra129,794
9Ford Focus172,421Ford Edge118,637
10Chevy Impala172,078Chrysler Town & Country112,275

Sunday, January 16, 2011

Don't Blame Greed for the Housing Bubble; That Would Be Like Blaming Gravity for Plane Crashes

 From "The House That Uncle Sam Built: The Untold Story of the Great Recession," by Pete Boetke and Steve Horwitz:

"The Fed’s low interest rates, combined with Fannie and Freddie’s government-sponsored purchases of mortgages, made it highly and artificially profitable to lend to anyone and everyone. The banks and mortgage companies didn’t need to be any greedier than they already were. When banks saw that Fannie and Freddie were willing to buy virtually any loan made to under-qualified borrowers, they made a lot more of them.

Greed is no more to blame for these bad mortgages than gravity is to blame for plane crashes.  Gravity is always present, just like greed. Only the Federal Reserve’s easy money policy and Congress’ housing policy can explain why the bubble happened when it did, where it did.

Of further significance is the fact that Fannie and Freddie were under great political pressure to keep housing increasingly affordable (while at the same time promoting instruments that depended on the constantly rising price of housing) and to extend opportunities to historically “under-served” groups. Many of the new mortgages with low or even zero-down payments were designed in response to this pressure (see chart above). Not only were lots of funds available to lend, and not only was government implicitly subsidizing the purchase of mortgages, but it was also encouraging lenders to find more borrowers who previously were thought unable to afford a mortgage."

Test Your Civics IQ

Are you more knowledgeable than the average citizen? The average score for all 2,508 Americans taking the following Civics test was 49%; college educators scored 55%. Can you do better?  The 33 questions on this Civics Quiz were taken from the 2008 Civic Literacy exam.

HT: Mike Munger

Update: See Mike Munger's explanation of question #33 at the link above.   

The Changing Meaning of Medical Insurance, and How 3rd Party Payments Distorted U.S. Medicine

From Milton Friedman's excellent 2001 article "How to Cure Health Care": 

"We have become so accustomed to employer-provided medical care that we regard it as part of the natural order. Yet it is thoroughly illogical. Why single out medical care? Food is more essential to life than medical care. Why not exempt the cost of food from taxes if provided by the employer?

Employer financing of medical care has caused the term insurance to acquire a rather different meaning in medicine than in most other contexts. We generally rely on insurance to protect us against events that are highly unlikely to occur but that involve large losses if they do occur—major catastrophes, not minor, regularly recurring expenses. We insure our houses against loss from fire, not against the cost of having to cut the lawn. We insure our cars against liability to others or major damage, not against having to pay for gasoline. Yet in medicine, it has become common to rely on insurance to pay for regular medical examinations and often for prescriptions.

This is partly a question of the size of the deductible and the copayment, but it goes beyond that. "Without medical insurance" and "without access to medical care" have come to be treated as nearly synonymous. Moreover, the states and the federal government have increasingly specified the coverage of insurance for medical care to a detail not common in other areas. The effect has been to raise the cost of insurance and to limit the options open to individuals. Many, if not most, of the "medically uninsured" are persons who for one reason or another do not have access to employer-provided medical care and are unable or unwilling to pay the cost of the only kinds of insurance contracts available to them.

If the tax exemption for employer-provided medical care and Medicare and Medicaid had never been enacted, the insurance market for medical care would probably have developed as other insurance markets have. The typical form of medical insurance would have been catastrophic insurance (i.e., insurance with a very high deductible)."

From the conclusion:

"The high cost and inequitable character of our medical care system are the direct result of our steady movement toward reliance on third-party payment. A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes.

The ideal way to do that would be to reverse past actions: repeal the tax exemption of employer-provided medical care; terminate Medicare and Medicaid; deregulate most insurance; and restrict the role of the government, preferably state and local rather than federal, to financing care for the hard cases. However, the vested interests that have grown up around the existing system, and the tyranny of the status quo, clearly make that solution not feasible politically. Yet it is worth stating the ideal as a guide to judging whether proposed incremental changes are in the right direction."

Crazy Behavior in Winter

People in DC do some crazy things in the winter, see the picture above of a car parked in the building behind my apartment building, with its windshield wipers propped up in the air, allegedly to prevent the wipers from freezing on the windshield when it snows. I wrote about this last winter, see the post and picture here, I am still not at all convinced that this is an effective method to deal with winter snow.   And it hasn't even really snowed yet in DC this winter, and yet I have seen many cars like this one, with the windshield wipers up in the air.

I have also seen numerous people in the last few weeks walking around in shorts, even when the weather has been quite frigid, and I saw the same thing in Michigan in December.   

The City of Houston Puts a Stop to Private Charity: It's Illegal to Feed the Homeless Without a Permit

HOUSTON CHRONICLE --Bobby and Amanda Herring spent more than a year providing food to homeless people in downtown Houston every day. They fed them, left behind no trash and doled out warm meals peacefully without a single crime being committed. That ended two weeks ago when the city of Houston shut down their "Feed a Friend" effort for lack of a permit. And city officials say the couple most likely will not be able to obtain one.

Anyone serving food for public consumption, whether for the homeless or for sale, must have a permit, said Kathy Barton, a spokeswoman for the Health and Human Services Department. To get that permit, the food must be prepared in a certified kitchen with a certified food manager.  The regulations are all the more essential in the case of the homeless, Barton said, because "poor people are the most vulnerable to foodborne illness and also are the least likely to have access to health care."

HT: Pete Friedlander

Update: As West points out so perfectly in the comments, the homeless and poor people of Houston are also the least likely to have "access to, ya know, FOOD."

The Economics of Anti-Consumer, Protectionist Taxi Cartels: $624-850,000 for a NYC Medallion

The "priciest piece of aluminum in NYC" - a taxi medallion that is required to operate a single cab in NYC - reached a new record-high of $624,000 in December for an individual medallion (see chart above, data here), more than double the average price for a medallion in 2004. The average price for a corporate-owned taxi medallion reached a new record high of $850,000 at the end of last year. Here's a classic article about taxi regulation from Jeff Jacoby, written back in 1995 when the NYC medallions were selling for only $140,000:
The taxi business, after all, ought to be a model of free enterprise. There are plenty of buyers (passengers), plenty of sellers (drivers), and no barriers to entry beyond the price of a car. If it weren’t for government interference, the laws of supply and demand would govern the taxi trade with almost frictionless efficiency: Cabs would be plentiful, fares would be reasonable, and service would be available nearly everywhere it was wanted.

But governments do interfere. Taxi owners routinely get the state to kill their competition. “London’s first recorded taxi war, in 1636, did just that,” the Economist recalled some years ago. “Sparked by the resentment of Thames water taxis at growing competition from coaches on land, it led to a proclamation from King Charles I restricting the number of coaches to 50. Lucky coachmen were happy. Watermen were happy.” But customers got gypped.

A lot of medieval practices have been junked since 1636, but protectionist taxi regulations aren’t among them. Nearly every major US city (and thousands of smaller ones) chokes off access to the taxicab market. Exactly 11,797 taxicabs, for example, are permitted to operate in New York City — a figure that hasn’t budged since World War II. FDR was in his first term as president when Boston decreed that only 1,525 cabs would be permitted on its streets. Other than a few new medallions for wheelchair taxis, 1,525 remains the limit.

The results? Right out of Econ 101: The supply of taxi medallions is far lower than the demand, so their value long ago exploded to obscene levels. Today, the going rate is about $140,000 in New York; about $90,000 in Boston. Those who got medallions when the getting was cheap grew rich. Everyone else got shafted. Would-be cabbies are forced to choose between going deeply into debt to buy a medallion or paying murderous lease rates to somebody who owns one. “In essence,” write Chip Mellor and John Kramer of the Institute for Justice, “cab drivers become urban sharecroppers.”

Smackdown: John F. Kennedy vs. Milton Friedman

It's close to the 50th anniversary of President Kennedy's famous inaugural address on January 20, 1961, where he challenged Americans to "Ask not what your country can do for you - ask what you can do for your country."  In the following year, Milton Friedman challenged Kennedy's famous statement in the introduction of his 1962 book "Capitalism and Freedom," and suggested that Kennedy was wrong, because a "free man will ask neither what his country can do for him nor what he can do for his country."

"In a much quoted passage in his inaugural address, President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country." Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic "what your country can do for you" implies that government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny. The organismic, "what you can do for your 'country" implies the government is the master or the deity, the citizen, the servant or the votary. 

To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive.

The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather "What can I and my compatriots do through government" to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom?  And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect? 

Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp."

Saturday, January 15, 2011

Global Stock Markets Increase By 26% in 2010

The World Federation of Exchanges reported this week that the total value of equities trading on the world's major stock exchanges reached $54.9 trillion in December, the highest world stock market capitalization since May 2008 (see chart above).  During 2010 the world stock market value increased by 26%, or by $11.3 trillion over the 12-month period, from $43.6 trillion in December 2009. From the February 2009 cyclical low of $26.6 trillion, world equity values have more than doubled, and have gained back about $28.3 trillion of the $36.4 trillion lost during 2008 because of the global financial crisis.   

Further evidence of a global stock market recovery is shown in the chart below of the daily MSCI World Stock Market Index, which closed yesterday at 1308, the highest closing value since early September 2008.