Saturday, March 19, 2011

Chart of the Day: Deaths per Energy Source

Data in the chart above are from the Next Big Future blog.

Schumpeterian Gales of Creative Destruction: 10 Dying U.S. Industries on the Verge of Extinction

From the Special Report "Dying Industries" from IBISWorld:

"While the U.S. economy is headed further into recovery, not every industry is performing well. Industries go through life cycles, and largely speaking, these are growth, maturity and decline. Even in a recovery, declining industries continue to underperform, and within IBISWorld’s database of close to 700 industries, about 200 are in their decline phase. Of these 200, IBISWorld has identified 10 industries that may be on the verge of extinction in the United States:

1. Wired Telecommunications Carriers 
2. Mills 
3. Newspaper Publishing  
4. Apparel Manufacturing 
5. DVD, Game & Video Rental  
6. Manufactured Home Dealers 
7. Video Postproduction Services 
8. Record Stores 
9. Photofinishing 
10. Formal Wear & Costume Rental 

Friday, March 18, 2011

Lots of Snow in Minneapolis: 73 Inches

Minneapolis has had 73 inches of snow this winter, the second snowiest winter since 1891.

Exhibit A: Car buried in snow at Ron's Auto Repair at the corner of 38th Street and 37th Avenue South:

Great CPI Graph from WSJ

Great graph above that accompanies a story in today's WSJ on yesterday's CPI report.  The width of the bars represent the weights of different components in the CPI, and the height of the bars represent inflation rates (blue) or deflation rates (red) over the 12-month period ending in February 2011.  Obviously, gasoline prices have risen the most over the last year (almost 20%), but rent and the cost of home ownership have remained fairly flat, and some prices are showing deflation: phone services, video and audio, apparel and data technology.  

Interestingly, the CPI category "food at home" has gone up by 2.85% from Feb. 2009-Feb. 2010, but the category "food away from home" has only gone up by 1.56% over the same period.  Maybe that's because restaurants and fast food outlets have been reluctant to raise prices during what might be viewed as a "fragile recovery," and they have absorbed some of the wholesale food price increases.  Just one example: McDonald's still has maintained its Dollar Menu for the last several years without raising prices. 

More Amazing Before and After Photos of Japan

Before and after satellite photos of Japan, from the NY Times.

HT: Ryan Stinson

The Dangerous Downsides of Government Subsidies

From today's WSJ, a quote from law professor Glenn Reynolds that originally appeared on his InstaPundit blog:

"The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle-class people go to college and own homes, then surely if more people go to college and own homes, we'll have more middle-class people. But homeownership and college aren't causes of middle-class status, they're markers for possessing the kinds of traits—self-discipline, the ability to defer gratification, etc.—that let you enter, and stay, in the middle class. Subsidizing the markers doesn't produce the traits; if anything, it undermines them."

MP: Another downside of government subsidies for middle class markers like homeownership and higher education is that those subsidies have distorted those markets and help fuel housing and college tuition bubbles, see chart above.     

Posted at 30,000 feet on a Delta flight to Minneapolis-St. Paul.  

Manufacturing Fetishists and the Worrying Class

Don Boudreaux highlights an excellent BBC article about the manufacturing fetish of the "Worrying Class":

"The Worrying Class in developed countries laments: "We don't make anything any more." They fear that, as more people find employment in services, their nation loses the ability to provide for itself and gives up the "good jobs" which sustain the middle class. 

They obsess about exports and trade imbalances while making a fetish of manufacturing and the blessings it brings to their country. But a quick look at the data shows that the developed world actually makes a great deal of stuff. The United States alone produces roughly 20% of all the world's manufactured goods. We may not make many toys or cell phones any more, but we do make most of the world's artificial knees and hips, medical scanners and jet aircraft. Those sound like good jobs to me.

Manufacturing fetishists also ignore the fact that many factory jobs were actually not very good jobs at all. Those jobs may have offered a fairly good wage for a low-skilled position, but they were dull, dirty, sometimes dangerous and had very little chance for advancement. The service jobs the worriers dismiss as "hamburger flipping" actually offer better wages, better working conditions and much greater opportunity than assembly line work.

I wonder how many of the worriers want their children to grow up to tighten bolts in a factory instead of going to university and getting a job in the service sector? The worrier's core error is the idea that manufacturing makes "real wealth" while service jobs only move things around. This is simply wrong. There's nothing less real about service jobs. Doctors, accountants and personal trainers create value for their customers just like auto workers do."

MP: We also need to update our outdated views about manufacturing jobs in an Information Age.  When many people think of manufacturing jobs, they think of Rust-belt factory jobs in the steel or auto industry that were common in the Machine Age.  But when the Information Age started in 1971 with the commercial introduction of the microchip, that all changed.  For example, here are some of the largest U.S. manufacturers, based on sales in 2010: Hewlett-Packard, IBM, Microsoft, Dell, Apple, Intel, Sun, Texas Instruments, and ADM.  Manufacturing today has gone high-tech. 

Thursday, March 17, 2011

Rail Traffic Continues Ongoing Weekly Gains

U.S. rail traffic continues to show consistent weekly gains, and the most recent week was no exception, here's from today's report from the American Association of Railroads:

March 17, 2011 – "The Association of American Railroads (AAR) today reported rail traffic gains for the week ending March 12, 2011, with U.S. railroads originating 292,164 carloads, up 1.3 percent compared with the same week last year. Intermodal volume for the week was also up, totaling 216,828 trailers and containers, up 6.5 percent compared with the same week in 2010."

MP: The chart above shows the consistent upward trend in both carloads and intermodal units over the last two years. The ongoing increases in shipping reflect the increasing demand for raw materials, inputs, supplies, grains, metals, chemicals, paper, lumber, iron, etc., which will contribute to future increases in final manufactured goods, real output growth, and job gains.   

Cleveland Fed Median CPI Inflation Only 1%

According to the Cleveland Fed's report today, its median CPI measure of prices increased by 1.0% at an annual rate in February over the same month last year (see chart above).  In contrast, the regular CPI increased by 2.1% over the last year (February 2010 to February 2011), according to the BLS report this morning

Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the Cleveland Fed's research), and the median CPI from the Cleveland Fed is not yet showing any strong signs of inflationary pressures.  The most recent 12-month inflation rate of 1.0% based on the median CPI is still way below the 3.05% average inflation rate for that series going back to 1984. 

Socialist Rant on Why D.C. Doesn't Need Wal-Mart

The quote above is from the editorial "Walmart's Arrival a Bad Deal for District," which appears in the current edition of the Dupont Current (p. 11), a neighborhood paper in Washington, D.C. 

Q: Should those restrictions also apply to other retailers operating in DC like Target, McDonald's, Burger King, CVS Pharmacy, Barnes and Noble, Chipotle, Panera Bread, Home Depot, Starbucks, etc.? 

HT: Colin Grabow

Adjusted Jobless Claims Update: Good News

It's been awhile since I featured this pair of charts above showing: a) the number of jobless claims vs. the size of the U.S. labor force (top chart), and b) jobless claims as a share of the labor force (bottom chart), both updated through February (BLS data here and here). 

The top chart shows why unadjusted jobless claims are meaningless: the size of the U.S. labor force has almost doubled over the last 42 years, from 77.57 million in 1968 to the current level of more than 153 million. The bottom chart shows jobless claims adjusted for the size of the U.S. labor force. Jobless claims averaged 406,250 in February, which is 0.2651% of the February labor force of 153,246,000, and is a 2-1/2 year low (lowest since July 2008). Jobless claims as a percent of the labor force have declined the last 6 months in a row, and in 10 out of the last 12 months. Since the peak of 0.415% in March of 2009, adjusted claims have fallen consistently to the current level of 0.265%,

This measure of initial jobless claims, adjusted for the increasing size of the U.S. labor force over time, shows that jobless claims peaked during this recession above the levels of the last two recessions (1990-1991 and 2001), but were never anywhere close to the levels of the previous three recessions in the mid-1970s and early 1980s, and about the same as the 1969-1970 recession. The sharp reduction in adjusted jobless claims from the March 2009 high of 0.415% follows the same pattern of sharp reductions at the end of each of the last six recessions.

Bottom Line: Adjusted jobless claims in recent months are at about the exact same levels as during the last two post-recession expansions in 1992-1993 and 2002-2003 (see red line in the bottom graph), and suggest that conditions in the labor market are actually better than the unadjusted number would suggest.  See Scott Grannis' post today for a similar analysis. 

Coincident Economic Activity Indexes, By State

Coincident economic activity indexes for each U.S. state (and an index for the entire country) were updated today through January by the Philadelphia Fed, and are available online from the St. Louis Fed hereThe chart above compares the economic conditions in the U.S. to the economy of North Dakota. 

Description: "The Coincident Economic Activity Index includes four indicators: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing and wages and salaries. The trend for each state's index is set to match the trend for gross state product."

HT: CME Group via Twitter

Leading Economic Indexes Point to Future Growth

The Conference Board reported today that its Leading Economic Index (LEI) for the U.S. increased in February for the 23rd consecutive month (see chart above).  February's LEI, at 113.4, was 0.8% above January's index level, and follows a 0.1% increase in January, a 1.0% increase in December, and monthly increases in every month back to April 2009.

Says Ataman Ozyildirim, economist at The Conference Board: “With February’s large gain, the U.S. LEI returned to the strengthening upward trend that began last September. The LEI is pointing to an economic expansion that should gain more momentum in the coming months. In February, improvements in labor markets, financial components, and consumer expectations more than offset falling housing permits.”

Says Ken Goldstein, economist at The Conference Board: “Latest data point to an improving economy, one that will continue to gain strength through the summer. The economy continues to encounter strong headwinds. One headwind is the sharp rise in food and energy prices. Still, the way inflation will move is unclear, given the degree of slack in the overall economy, and especially in the labor market.”

MP: The increase in the U.S. LEI for February follows recent reports from the Conference Board that the January LEI increased in Spain (0.9%),  China (0.3%), U.K. (0.4%), Korea (1.3%), and Japan (1.3%). 

Jobless Claims Fall, Job Market Gradually Improving

The Department of Labor reported today that jobless claims (4-week average) fell last week to 386,250, the lowest level since the second week of July 2008, more than 2-1/2 years ago (see chart above).  From the Associated Press:

"The four-week average for claims dropped to 386,250. That was the lowest level since July 2008, providing evidence that the job market is on a more solid footing. The benefits report showed that the number of people receiving regular unemployment benefits fell by 80,000 to 3.71 million. That was the lowest level since the week of Sept. 27, 2008.

Companies are finally hiring more after months of sluggish job creation. Employers added 192,000 jobs in February, the biggest gain in nearly a year. The unemployment rate dropped to 8.9 percent, the lowest point since April 2009.

Stronger job growth was a major reason the Federal Reserve this week offered its most optimistic assessment of the economy since the recession ended. Fed policymakers said the recovery was on "firmer footing" and the jobs market was improving gradually."

The Cheapest Gas in the World: 12 Cents a Gallon

Gasoline in Venezuela costs about 12 cents a gallon, well below the $4 a gallon or more paid in most of the industrialized world, but those low prices are bankrupting the oil-driven economy. Read more here.

Wednesday, March 16, 2011

End Gov't. Subsidy of 30-Year Fixed-Rate Mortgages

From AEI's Ed Pinto, writing in today's Real Clear Markets:

"Given two spectacular failures of U.S. housing finance tied to the 30-year fixed-rate mortgage in the last 20 years (MP: The S&L crisis and the recent housing/financial meltdown), and the attendant cost to taxpayers of two massive bailouts, the housing industry should be required to show why it needs government support again.

History has shown--and simple economics would anticipate--that a government subsidy for a freely prepayable 30-year fixed-rate mortgage is not good policy. This subsidy causes most borrowers to choose the 30-year fixed-rate loan, since in general it offers a fixed low monthly payment with a government-subsidized free prepayment option. Supporters point to the apparent stability it provides to borrowers. This stability is akin to the eye of a hurricane."

MP: Ed points out that the 30-year fixed-rate mortgage would likely be offered by private lenders in a mortgage market that was not distorted by government policies and intervention. But those 30-year  mortgages would be priced accordingly, likely with higher interest rates than any other mortgage product, especially for mortgages with no pre-payment penalty.  For example, here's a schedule of mortgage options that might be offered today, based on true market rates:

1. 6.00% 30-year fixed-rate term with no prepayment fee
2.  5.625% 30-yr. fixed-rate term with a 3%-2%-1% prepayment fee
3. 5.375% 30-yr. amortization with 15-yr. fixed-rate term and 3%-2%-1% prepayment fee
4.  5.375% 15-year fixed-rate term with no prepayment fee
5. 5.125% 15-year fixed-rate term with a 3%-2%-1% prepayment fee
6. 5.00% 7-year ARM with 30-year amortization underwritten at fully indexed 7-year rate with no prepayment fee
7. 4.75% 7-year ARM with 30-year amortization underwritten at fully indexed 7-year rate with a 3%-2%-1% prepayment fee

Bottom Line: It's not that the 30-year fixed-rate mortgage is inherently bad, but it's the government support and subsidy of those mortgages that has distorted mortgage and housing markets, and contributed to two serious banking and financial crises. We shouldn't end the 30-year fixed-rate mortgage, but we should end the government support and subsidy of those mortgages.

North Dakota is America's Economic Superstar

From Dennis Cauchon at USAToday:

North Dakota, the state with the nation's lowest unemployment rate, capped a decade of economic prosperity with dramatic population growth in its biggest cities. The superstar of North Dakota is its economy. The state's unemployment rate hasn't touched 5% since 1987 (see chart above). The state's per capita income rose over the decade from 38th in the nation to 17th, the biggest advance of any state.

"We've had an absolutely stellar few years," says University of North Dakota economist David Flynn. "In all honesty, when you look ahead, we should continue to do well for quite a while."
North Dakota is enjoying an oil boom in the western part of the state, drawing workers from across the country. Williston, in oil country, grew 17.6% to 14,716. The oil windfall has created a $1 billion state budget surplus.

Agricultural — 90% of the state's area is used for farms and ranches — is productive and profitable, making the state a top exporter of wheat and other crops. Federal agriculture subsidies add nearly $1 billion a year. North Dakota is one of the few states to add manufacturing jobs over the decade. Bobcat, maker of farm and construction equipment, is headquartered in the state.

"We don't have big factories like Gary, Ind., or steel mills that are hard to retool," Flynn says. "We have smaller plants that are some of the most efficient in the world." When factories closed elsewhere, production was often moved to North Dakota."

U.S. Life Expectancy Rose to Record High in 2009

ATLANTA (AP) -- "U.S. life expectancy has hit another all-time high, rising to 78.2 years (see chart above). The estimate of 78 years and 2 months is for a baby born in 2009, and comes from a preliminary report released today by the Centers for Disease Control and Prevention.

About 2.4 million people died in the United States in 2009 - roughly 36,000 fewer deaths than the year before. Deaths were down for a range of causes, from heart disease to homicide, so experts don't believe there's one simple explanation for the increase in life expectancy. Better medical treatment, vaccination campaigns and public health measures against smoking are believed to be having an impact.

U.S. life expectancy has been generally increasing since at least the 1940s, though some years it held steady and a few times it temporarily dipped.

More good news from the report: The infant mortality rate hit a record low of 6.42 deaths per 1,000 live births, a drop of nearly 3 percent from 2008."

HT: Robert Kuehl

10-Year History of PPI Inflation: Is There a Case?

The BLS released data today on the Producer Price Index for February.  Looking at the 10-year history in the graph above of annual price increases for the major components of the Producer Price Index, it seems like it would be hard to make a really strong case for producer price inflation.  The crude material component of the PPI is falling, and the other components have turned up a little bit recently at annual rates, but are still below the levels in 2007, and about the same as in 2003, 2004, 2005 and 2006. 

The chart below for the overall PPI annual inflation rates over the last ten years shows a similar pattern: A slight increase in recent months for PPI inflation, but still below the levels in March, April and May, below the 2008-levels, and about the same as the 2004-2005 period.  And for the PPI level, 195.5 in February, that's still almost 5% below the peak of 205.5 in July 2008.  

Q: Based on the data, is there really a strong case for concern about rising PPI inflation?  


The Great Deflation: Computer Prices

Matt Yglesias posted yesterday about the "falling price of computer power" and highlighted the chart above from this website showing falling prices for Apple products over the last five years.  

The chart below shows the downward trend in computer prices over a longer period of time using the BLS series "CPI: Personal Computers and Peripheral Equipment" (data here).  Compared to the CPI for Personal Computers of  129.4 in January 2006 when the iMac above was selling for $1,299, the index value for the CPI in January 2011 was 43.6% lower  at 72.95.  That decline tracks pretty closely with the 36.2% drop in Apple prices over the same period, from $1,299 to $829.  

Over a longer period of time, like the full history of the CPI series for personal computers back to December 1997, personal computer prices have fallen by 93.5% (see chart below).  In other words, assuming that the CPI series accurately captures quality improvements, computer equipment that cost $1,000 in December 1997 could be purchased today for only $65.  Alternatively, as a very rough approximation, computer equipment purchased today for $1,000 would have cost $15,300 back in 1979. 
HT: Steve Bartin

Housing Affordability Reaches All-Time High in Jan.

Rising prices for oil, gas and food are making those items less affordable these days, but housing is a different story - there's probably never been a time when it's been more affordable than today.  Data from the National Association of Realtors show that its composite Housing Affordability Index reached an historical high of 191 in January of this year.  Thanks mostly to falling home prices, a family with the median income of $61,533 had almost twice (191%) the income needed ($32,208) to qualify for a 30-year, fixed-rate mortgage at 4.82% to purchase the median priced single-family home in January ($159,400), assuming a 20% down payment.    

Here's one way to see how affordable housing is today: In 2008, the monthly payment on the median-priced home then of $196,600, financed at the prevailing mortgage rate then of 6.15% with a 20% down payment would have been $958.19.  For today's median-priced home financed at 4.82% the monthly payment would be 30% less, at only $670.60.  Especially for first-time home buyers, housing has never been more affordable, and those $200-300 monthly savings compared to payments in 2008 will more than offset rising gas and food prices.  

Record-high housing affordability just doesn't seem consistent with the inflationary pressures that many seem concerned about, does it?  For example, the inflationary periods in the late 1970s and early 1980s were periods of rising home prices (double-digit increases for 11 consecutive quarters in the late 1970s) and rising mortgage rates (reaching 18.5% in 1981), and we've got almost just the opposite today. Rising and record-high housing affordability seems more consistent with deflation than inflation?

The New Equal Pay Day for Single Young Men

According to some research released last fall, there is now a "reverse gender wage gap" in favor of single, young (under the age of 30), childless female workers in America's large cities that is as high as 21% in Atlanta and 20% in Memphis.  Inspired by the National Committee on Pay Equity's "Equal Pay Day" for women, I am proposing a new "Equal Pay Day for Single Young Men." 

For example, the average single, young male in Memphis will have to work from January 1 of 2010 until today (March 16) this year to earn the same income as the average female in his peer group earned last year.  Find out more here at The Enterprise Blog.

Cheapest Houses in America/Detroit, Starting at $1

1. The 8 Cheapest Houses in America: "Today's dilemma: A sandwich or a house. They both cost $7." (Note: 5 of the 8 cheapest houses are in Michigan.)

2. Here are 32 homes in Detroit for $500 or less, including the one above for $1

HT: Greg Allar

Update: Here's a related article and another slide show about Detroit's abandoned homes.  (HT: Dn Quiggs)

Tuesday, March 15, 2011

Eminent Domain: Boxing Gym for Kids Fights Back

Video above is from the Institute for Justice with this background:

"A San Diego-area boxing gym that serves at-risk kids is showing what it takes to fight for what is right and to win. The Community Youth Athletic Center (CYAC) has had to endure a series of low blows by National City's local government in a case that time and again demonstrated how difficult it is for California property owners to defend themselves against tax-hungry governments and land-hungry developers bent on eminent domain for private gain."

Related article in Sports Illustrated:

"Carlos Barragan and his son Carlos Jr. don't torture dogs, don't inject 'roids and don't bet on sporting events they ref. They've never run from the law or the tax man or a grand jury. What they do run is a little boxing gym for kids in National City, Calif., between the Mexican border and the San Diego barrios.

So why is the city trying to shut them down?  Luxury condos, that's why."

Empire State Manufacturing Continues to Improve

NY Fed -- "The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to improve in March. The general business conditions index inched up 2 points, to 17.5 (see chart above). The new orders and shipments indexes fell but remained above zero, while the unfilled orders index rose above zero for the first time in a year. Price indexes continued to climb, suggesting that price increases had accelerated. Employment indexes were positive and above their February levels, indicating that employment had expanded. Future indexes were little changed, as respondents continued to be strongly optimistic about the six month outlook, although future price indexes were sharply higher."

MP: The ongoing expansion of manufacturing activity in New York supports the notion that America's manufacturing sector continues to be the "shining star of the U.S. economic recovery," registering ongoing gains in output and employment.   

Jan. OECD Leading Index: Highest Level Since 2007

OECD (March 14) -- "Composite leading indicators (CLIs) for January 2011, designed to anticipate turning points in economic activity relative to trend, continue pointing to expansion in most OECD countries. The CLIs for Germany, Japan, and the United States continue pointing to robust expansion relative to trend. Signs of regained growth momentum characterise the CLIs for France and Canada. The CLI for the United Kingdom points to a slow but stable pace of expansion. The CLI for Italy continues pointing to a moderate downturn.

The CLIs for other major economies are little changed from last month’s assessment. The CLI for China continues pointing to the possibility of a moderate downturn. The CLI for Brazil remains near its long-term potential. The CLI for India continues pointing to a slowdown relative to trend and the CLI for Russia continues pointing to expansion."

MP: The January CLI reached 103.1, the highest level since May 2007 before the global economic slowdown.  Except for three monthly declines in May-July 2010, the CLI has been on a positive upward trend for almost two years now, since March 2009.  Compared to the cyclical low of 90.7 in February 2009, the CLI has increased by more than 12 points to 103.1 in January. 

Monday, March 14, 2011

Do We Need the 30-Year Fixed-Rate Mortgage?

That question is the title of a recent worker paper by Mercatus  Center economists Michael Lea and Anthony Sanders, and I think the simple answer is "No." 

The authors present evidence that the 30-year fixed-rate mortgage (FRM) is really a creation of U.S. government policy, and certainly wouldn't dominate the mortgage market without direct government support and intervention.  The authors write:

"The FRM has been supported by government policy since its introduction. FHA and later VA-insured mortgages were the dominant instruments until the 1960s. Rates were set administratively that made it difficult for non-insured loans to compete with government insured instruments. Federally insured savings-and-loan institutions were restricted to offering only fixed rate mortgages until 1980. The creation of Freddie Mac in 1970 was motivated in part to assist savings-and loans in managing the interest rate risk inherent with the FRM."

Later in the paper, they write:

"David Min, of the Center for American Progress, has written “the 30-year fixed-rate mortgage remains the gold standard for mortgages throughout the world, offering superior stability for both homeowners and financial systems.” If this is true why is the U.S. one of only two countries in the world with this instrument (only U.S. and Denmark have long-term, fixed-rate, no-penalty prepayable mortgages.)? And why is the U.S. the country most afflicted with a housing bust? Given the catastrophic condition of Fannie Mae and Freddie Mac, it is clear that the 30-year fixed-rate mortgage is outright dangerous and not a gold standard. Perhaps his musing should be rewritten to say “the 30-year fixed-rate mortgage remains the fool’s gold standard for mortgages throughout the United States, offering superior stability for some homeowners and potential catastrophe for U.S. and global financial systems.” 

What would the U.S. mortgage market look like without "government life-support" for the FRM?

"What would emerge as “standard” U.S.-mortgage instrument without the government support of the FRM? We think a rollover mortgage similar to that offered in Canada and several European countries is the likely candidate. This instrument offers short- to medium-term payment stability to borrowers. Borrowers can manage interest-rate risk by adjusting the fixed-rate term upon renewal. Min’s assertion that borrowers would be unable to refinance is not borne out by modern international experience. Borrowers could hedge the interest rate risk by locking in a forward rate in advance of renewal. German lenders offer
forward rates up to five years—certainly U.S. lenders with a deep derivative market could do the same. Alternatively, they can adjust the degree of risk by varying the length of the fixed-rate period.

A complete and robust housing-finance system should offer borrowers a menu of mortgage options—ranging from short-term ARMs for those borrowers who can handle payment change, to long-term FRMs for those borrowers who value payment stability. To assert that the FRM is the preferred alternative for most borrowers is naïve. Many borrowers have shorter-term time horizons and can handle some interest-rate risk. Min’s assertion that the switch to shorter duration instruments would lead to massive defaults if and when interest rates increase is not supported by international experience."

Related: In a recent post on the Enterprise Blog, AEI's Alex Pollock wrote about "The Dark Side of the 30-Year Fixed-Rate Mortgage," and I followed with "The Dark Side of the 30-Year Fixed-Rate Mortgage, Part II."  Like the Mercatus authors, I also point to Canada's system of 5-year mortgages, and note that Canada didn't have a single bank failure during our S&L crisis when 3,000 American banks failed (partly due to FRMs) and didn't have a single bank failure during our recent financial crisis.  

In 2 Weeks USA Will Be #1 for OECD Tax Rates

Corporate Tax Rates in OECD Countries
Country2010 Rate2010 Rank2000 Rate2000 Rank
United States39.2239.36
New Zealand3083316
United Kingdom28133023
Czech Republic19253119
Slovak Republic19282925

"There is increasing recognition in Washington that the U.S. corporate tax rate is out of step with the lower tax rates of most industrialized and emerging nations. Indeed, 2011 marks the 20th year in which the U.S. statutory tax rate has been above the simple average of non-U.S. countries in the Organization for Economic Cooperation and Development (OECD).  It is now well known that with a combined federal and state corporate tax rate of 39.2 percent, the U.S. has the second highest overall rate among OECD nations (see chart above). Only Japan, with a combined rate of 39.5 percent, levies a higher rate.

The U.S. is less than a month away from having the highest overall corporate tax rate in the industrialized world, when Japan lowers its top rate on April 1. Remarkably, 2011 marks the 20th year in which the statutory U.S. corporate tax rate has exceeded the simple average of the non-U.S. OECD nations and the twelfth year in which our rate has exceeded the weighted average OECD rate. 

Already this year, Canada has lowered its corporate rate in a bid to have the lowest rate among the major G-7 nations. Great Britain too is scheduled to reduce its rate on April 1 in order to avoid losing more corporate headquarters to low-tax jurisdictions such as Ireland, Switzerland, and the Netherlands."

HTs: Instapundit, Newsalert, and TaxProf

60 Minutes: $125,000 for Public School Teachers?

CBS News --"With state after state confronting massive budget problems, several governors have been looking to extract whatever they can from public employees like teachers, going after benefits packages and guaranteed job security that unions have won for them. But would teachers be willing to give up those protections for a chance to earn a lot more money?

There's a school in New York City that's trying to prove just that. It's a bold new experiment in public education called "TEP," which stands for The Equity Project, a charter school that is publicly funded but privately run. It's offering its teachers $125,000 a year - more than double the national average.

TEP aims to prove that attracting the best and brightest teachers and holding them accountable for results is the essential ingredient to a school's success. Could this school become a national model for the future of public education? That's the $125,000 question."

Daylight Saving Time Costs $2 Billion Per Year

Here's a slightly updated post from last year at this time:

In 2008, economist William F. Shughart did a back-of-the envelope calculation and estimated that the opportunity cost of daylight savings time was $1.7 billion per year: 

"Although it is unclear what benefit Americans derive from adjusting their timepieces twice a year, the costs they bear are clear. As the Benjamin Franklin adage goes: Time is money, and time spent resetting clocks and watches is time that cannot be devoted to other, more valuable uses. Switching between daylight saving and standard time has what economists call an ‘‘opportunity cost.’’

Economists typically value the opportunity cost of a person’s time at his or her wage rate. The U.S. Department of Labor’s Bureau of Labor Statistics reports that the average American’s hourly wage was $17.57 in September 2007. Assuming that it takes everyone 10 minutes to move all of their clocks and watches forward or backward by an hour, the opportunity cost of doing so works out to $2.93 per person. Multiplying that number by the total U.S. population (excluding Arizona) yields a one-time opportunity cost for the nation of just under $860 million—or, to be more precise, $858,274,802. Since clocks must be changed twice every year, this back-of-the-envelope calculation must be doubled, to approximately $1.7 billion annually."

MP: Since 2008, the average hourly wage has increased about 10%, and the U.S. population has increased about 3%, so that would put the annual cost today of changing clocks twice a year at almost $2 billion ($1.92 billion).

Note: If we adjust the time cost of ten minutes per each housing unit (130 million)  instead of for each person, the cost would obviously be less - about $836 million.

Update: Tim Worstall points out by email that another cost to the U.S. DST is that we are not synchronized with Europe, partly as a result of the "Energy Policy Act of 2005."  We used to switch on the first Sunday in April and the last Sunday in October, which was  only one week different than Europe - last Sunday in March and last Sunday in October.  Following the 2005 legislation, we now switch on the second Sunday of March and the first Sunday in November.  So for the next two weeks, and for the first week of November, the U.S. will be on DST, but Europe will remain on regular time.  This lack of coordination for three weeks every year likely imposes additional costs on both the U.S. and European economies.  

Here's a detailed discussion of Daylight Savings Time at Wikipedia, which includes the world map above (click to enlarge).

The Law of Demand: Pirates Cut Ransom Demands

MOGADISHU, March 13 (Reuters) - "Somali pirates said they would lower some of their ransom demands to get a faster turnover of ships they hijack in the Indian Ocean.  Armed pirate gangs, who have made millions of dollars capturing ships as far south as the Seychelles and eastwards towards India, said they were holding too many vessels and needed a quicker handover to generate more income."

HT: Wayne Sanman

Sunday, March 13, 2011

More on the Rebound in U.S. Manufacturing

From The Economist, an article titled "Rustbelt Recovery," with this sub-title: "Against all the odds, American factories are coming back to life. Thank the rest of the world for that." Here's one key paragraph:

"For the first time in many years, American manufacturing is doing better than the rest of the economy. Manufacturing output tumbled 15% over the course of the recession, from December 2007 to the end of June 2009. Since then it has recovered two-thirds of that drop; production is now just 5% below its peak level."

Competition Is The Consumer's Best Friend

This was probably inevitable. Faced with all of the competition from Bolt Bus, Mega Bus, Chinatown Bus, DC2NY, Vamoose, etc. for cheap bus fares between cities like Washington, D.C. and NYC, the long-time industry leader Greyhound had to match the "predatory" fares and "cutthroat competition" of its new, upstart rivals.  

As the graphic above shows, Greyhound is now offering $15 fares between DC and NYC on the Uncommon Transport website, which is less than 50% of the "standard fare" of $35 listed on Greyhound's regular website for DC to NYC.  And for a route of approximately the same distance - DC to Charleston, WV (250 miles) - but without the intense competition of the 225-mile DC-NYC route, the one-way Greyhound fare is $109.  

Economic Lesson: Intense, even "cutthroat," competition is the consumer's best friend, and often the best regulator.

Amazing Before and After Photos of Japan

Even NAACP Is Opposed to Lowering Test Standards

DAYTON -- "The Dayton Police Department is lowering its testing standards for recruits. It's a move required by the U.S. Department of Justice The Soft Bigotry of Low Expectations after it says not enough African-Americans passed the exam.    

Dayton is in desperate need of officers to replace dozens of retirees.  The hiring process was postponed for months because the D.O.J. DOTSBOLE rejected the original scores provided by the Dayton Civil Service Board, which administers the test. 

Under the previous requirements, candidates had to get a 66% on part one of the exam and a 72% on part two. The D.O.J. DOTSBOLE approved new scoring policy only requires potential police officers to get a 58% and a 63%.  That's the equivalent of an ‘F’ and a ‘D’."

“The NAACP does not support individuals failing a test and then having the opportunity to be gainfully employed,” agreed Dayton NAACP President Derrick Foward."

HT: Bob Wright

Saturday, March 12, 2011

Obama Says U.S. Needs Progress for Men’s Equality

A little fantasy editing of this Bloomberg news article: 

"President Barack Obama said women men have made great some strides toward full equality with men women over the past 50 years, yet more progress is needed to close an economic, college degree, and labor market gender gap.

In his weekly radio and Internet address, Obama said women men are still more likely than men to live in poverty, are: a) are underrepresented in math and engineering education for college degrees at the associate’s, bachelor’s and master’s levels, b) are underrepresented by academic field for degrees in biology, communication, education, English, foreign languages, health professions, psychology, public administration, social sciences, visual arts, optometry, pharmacy, osteopathic medicine, veterinary medicine, and naturopathic medicine, and c) earn, on average, 75 8 percent as much as men less than women for the cohort of unmarried, childless workers under 30 who live in large cities, and d) are 20 percent more likely to be unemployed than women (over the last year).   

“We have to work even harder to close the gaps that still exist, and to uphold that simple American ideal: We are all equal and deserving of the chance to pursue our own version of happiness, he said.  The facts that: a) 150 women will earn college degrees this year for every 100 men, b) young, single women earn 8% more than single men, and c) the negative effects of unemployment and job losses in the last recession disproportionately affected men, demonstrates that a lot more progress is needed before we achieve full gender equality.”

Teachers Unions Explained

HT: Pete Friedlander

Markets in Everything: The Toepener

"The Toepener is a simple device that attaches to doors, enabling users to open the door with their feet. It is the ideal solution for exiting a public restroom. It provides a sanitary, hands-free alternative for users to open the door and avoid touching the handle."

The Toepener is being produced and marketed by a group of business students from the University of Minnesota

Markets in Everything: #1 Spot in Line for iPad 2

Mashable -- "College student Amanda Foote has turned the die-hard techie tradition of waiting hours, sometimes days, to be the first to purchase a new Apple product into a lucrative odd job. After nearly 41 hours of waiting in line for the iPad 2 release at Apple’s flagship store in New York, she sold her #1 spot for $900.

Foote sat through an entire day of rain, had a stranger help himself to a box of doughnuts she was eating, and slept a total of 3 hours and 10 minutes in the time between when she got in line at 5 p.m. Wednesday and when she left it at 9:00 a.m. Friday. She plans to buy tickets to a Lady Gaga concert with the cash that she earned.

The buyer, app developer Hazem Sayed, says he is planning on leaving for a business trip Friday evening and wants to have an iPad 2 (which starts at $499) with him."

MP: On eBay, an auction for an iPad 2  just ended at a price of $1,525 with 10 bids. Hey, isn't that "Apple scalping?"

Friday, March 11, 2011

Markets in Everything: 4th Amendment Clothing

T-Shirts printed with the 4th Amendment in Metallic Ink are available here for $45.  The website says that if you wear it, "They won't find anything except for a challenge to their unwarranted searches."

Also from the website:

"The Fourth Amendment to the Constitution of the United States, meant to prevent unwarranted search and seizure, is readable on TSA body scanners.

4th Amendment Wear. Assert your rights without saying a word."

HT: Ron H.

The Public Choice Lesson of Margarine. "I Can't Believe It Wasn't Legal to Sell Yellow Margarine"

The Wikipedia entry below on Margarine provides an excellent public choice lesson on rent-seeking by a special interest group that uses (hijacks?) the political process to enact legislation to protect that group (in this case the dairy industry) from the competition of more efficient or lower-cost rivals (in this case the margarine industry).  In this example, both of the groups are domestic producers (dairy and margarine), but the lesson would be exactly the same if it was the U.S. steel or tire industry seeking legislation (e.g. tariffs or quotas) to be protected from the competition of more efficient foreign rivals.  Here's the Margarine Lesson:
"Margarine can indicate any of a wide range of butter substitutes.  Margarine naturally appears white, or almost white, and by forbidding the addition of artificial coloring agents, legislators in some jurisdictions found that they could protect their dairy industries by discouraging the consumption of margarine. Bans on adding color became commonplace in the U.S., Australasia and Canada and, in some cases, those bans endured for almost 100 years. It did not become legal to sell colored margarine in Australia, for example, until the 1960s.

Canada.  Margarine was banned from 1886 until 1948 though this ban was temporarily lifted from 1917 until 1923 due to dairy shortages. Nevertheless, bootleg margarine was produced in the neighboring British colony of Newfoundland from whale, seal and fish oil by the Newfoundland Butter Company (which, in fact, produced only margarine) and was smuggled to Canada where it was widely sold for half the price of butter. The Supreme Court of Canada lifted the margarine ban in 1948 in the Margarine Reference.

In 1950, as a result of a court ruling giving provinces the right to regulate the product, rules were implemented in much of Canada regarding margarine's color, requiring it to be bright yellow or orange in some provinces or colorless in others.  By the 1980s, most provinces had lifted the restriction, however, in Ontario it was not legal to sell butter-colored margarine until 1995. Quebec, the last Canadian province to regulate margarine coloring, repealed its law requiring margarine to be colorless in July 2008.

United States. As early as 1877, the first states had passed laws to restrict the sale and labeling of margarine. By the mid-1880s, the U.S. federal government had introduced a tax of two cents per pound, and manufacturers needed an expensive license to make or sell the product.  Individual states began to require the clear labeling of margarine. The color bans, drafted by the butter lobby, began in the dairy states of New York and New Jersey. In several states, legislatures enacted laws to require margarine manufacturers to add pink colorings to make the product look unpalatable, but the Supreme Court struck down New Hampshire's law and overruled these measures in Collins v. New Hampshire, 171 U.S. 30 (1898).

By the start of the 20th century, eight out of ten Americans could not buy yellow margarine, and those that could had to pay a hefty tax on it. Bootleg colored margarine became common, and manufacturers began to supply food-coloring capsules so that the consumer could knead the yellow color into margarine before serving it. Nevertheless, the regulations and taxes had a significant effect: the 1902 restrictions on margarine color, for example, cut annual U.S. consumption from 120 million to 48 million pounds (60,000 to 24,000 tons). However, by the end of the 1910s, it had become more popular than ever.

The long-running rent-seeking battle between the margarine and dairy lobbies continued: In the U.S., the Great Depression brought a renewed wave of pro-dairy legislation; the Second World War, a swing back to margarine. Post-war, the margarine lobby gained power and, little by little, the main margarine restrictions were lifted, the most recent states to do so being Minnesota in 1963 and Wisconsin in 1967. Some unenforced laws remain on the books."

MP: It took almost 100 years for common sense and economic logic to prevail in the battle between the dairy industry and margarine producers, and that was a fight between two well-organized, well-funded, politically powerful domestic producers.  It will probably take a lot longer, if ever, for common sense and economic logic to prevail in the case of protectionist trade policy for foreign imports.  Reason? The two main groups who are adversely affected by protectionism: a) domestic consumers and b) foreign producers, are generally not well-organized or well-funded (domestic consumers) and not politically connected (foreign producers).     

Two Good Questions About Government Subsidies

David Harsanyi on ending government subsidies for National Public Radio and PBS:

"The function and purpose of government has been rather expansive over the past few decades. Do we really believe that providing tax subsidies for entertainment and journalism is one of the charges of government? The argument may have held up in the past, but in today's world it simply doesn't."

And from "The Ethanol Catastrophe: Biofuels Aggravate Global Warming and Cause Hunger. Why Won't the U.S. Stop Subsidizing Them?"

"The United States spends about $6 billion a year on federal support for ethanol production through tax credits, tariffs, and other programs. Thanks to this financial assistance, one-sixth of the world's corn supply is burned in American cars. That is enough corn to feed 350 million people for an entire year.

Biofuels were initially championed by environmental campaigners as a silver bullet against global warming. They started to change their minds as a stream of research showed that biofuels from most food crops did not significantly reduce greenhouse gas emissions – and in many cases, caused forests to be destroyed to grow more food, creating more net carbon-dioxide emissions than fossil fuels.

Some green activists supported mandates for biofuel, hoping they would pave the way for next-generation ethanol, which would use non-food plants. That has not happened. Today, it is difficult to find a single environmentalist who still backs the policy. Even former U.S. Vice President and Nobel laureate Al Gore—who once boasted of casting the deciding vote for ethanol support—calls the policy 'a mistake.'"

PHOTOS: Massive Earthquake Hits Japan

More than 40 photos here from the Boston Globe. 

HT: Paul Kedrosky

Cartoon of the Day

Thursday, March 10, 2011

Classic Milton Friedman Greed Lecture on CNBC

In this classic 1979 video, Milton Friedman famously “schooled” talk-show host Phil Donahue on the nature of greed and the virtues of capitalism.  Portions of this Friedman video are currently being featured on CNBC commercials.  I'll never get tired of watching this - it's Friedman at his best, and in his prime.