Professor Mark J. Perry's Blog for Economics and Finance
Saturday, May 21, 2011
Thailand's Train Track Market
Here's a longer video (with narration) of the Maeklong Market in Thailand that operates alongside the train tracks (shorter version was posted a few days ago).
Statistics on the Amazing Volume of Online Activity
Facebook: Users submit 650,000 comments every minute
YouTube: 35 hours of video are uploaded every minute
eBay: $2,000 of transactions every second
Google: 34,000 searches per second
Twitter: 1,600 Tweets per second
Apple: 3 billion apps downloaded from users in 77 countries.
Future: By 2024 the world’s enterprise servers will annually process the digital equivalent of a stack of books extending more than 4.37 light-years to Alpha Centauri, our closest neighboring star system in the Milky Way Galaxy.
~Technology Liberation Front blog
Friday, May 20, 2011
Here's One Way to Eliminate Ticket Scalping
Update 2: Just to clarify, I'm not against ticket scalping. The strongest opponents of ticket scalping are usually musicians and their managers, concert promoters, and venue owners. Ironically, it's those very critics of ticket scalping who have the power to reduce or eliminate ticket scalping by: a) raising ticket prices and/or b) increasing the number of tickets available for sale. By offering 350,000 tickets for sale in L.A., some at very high prices, Prince may have successfully reduced, or largely eliminated, ticket scalping for his shows. I applaud Prince's approach and suggest that it become a model for other musicians.
What Recession? Miami Tourism Soars in 2010
Current Intrade Odds to Run for President
Mitch Daniels: 70%
Michelle Bachmann: 89%
Mitt Romney: 99%
Tim Pawlenty: 99%
Chris Christie: 14%
Rick Perry: 30%
Sarah Palin: 35%
Vladimir Putin (Russia): 66%
Markets in Everything: Post-Rapture Pet Rescue
"When the Rapture comes what's to become of your loving pets who are left behind? Eternal Earth-Bound Pets takes that burden off your mind. We are a group of dedicated animal lovers, and atheists. Each Eternal Earth-Bound Pet representative is a confirmed atheist, and as such will still be here on Earth after you've received your reward. Our network of animal activists are committed to step in when you step up to Jesus.
Friday Economic Updates
4. New Jersey — Some $913.4 million in new state tax revenue has been collected or is expected to come in through next July, which offers a possible answer to some of the state’s immediate budget problems.
Coming Soon to America: Increased Wait Times?
In March, 34,639 people, or 11% of the total, waited more than that time to receive inpatient treatment, compared with 27,534, or 8.3%, in March 2010 – an increase of 26% – Department of Health statistics show. Similarly, in March this year some 11,243 patients who underwent treatment had waited for more than six months, compared with 7,841 in the same month in 2010 – a 43% rise."
Thursday, May 19, 2011
4 of Our Top 5 Imports Have Fallen in Price
The chart above shows the top five imports and exports at the Port of Los Angeles for 2010, based on the number of loaded containers. This Business Insider story points out that the top five U.S. exports are raw materials, while the top five imports are finished goods.
Something else about the top five imports that might be interesting is to compare the changes in the price indexes for those items over the last ten years (April 2001 to April 2010) to the overall change in the CPI during that period:
CPI: Furniture: -11.6%
CPI: Toys: -43.3%
CPI: Apparel: -7.2%
CPI: Footwear: 3.3%
CPI: Auto parts: +35.9%
It's probably not a coincidence that the top imports coming through the L.A. Port are some of the products that have fallen the most significantly in real price over the last decade, to the great benefit of America's consumers. Remember that countries don't trade with each other at the national level, people trade; and t's American consumers who are shopping globally for the best price and value. For furniture, clothing, footwear, and toys, cost-conscious American consumers are wisely taking advantage of the falling real prices for those items that are imported from overseas, and that bargain-hunting consumer behavior ("consumer greed") is being reflected in the import volumes at the L.A. Port.
Amazon: Kindle ebooks Outsell Printed Books
"Big Computer" Made Almost $100 Billion in 2010
The "Big Five" made almost $68 billion in profits last year. No, not the "Big Five" oil companies that have been in the news lately for making $77 billion last year in profits. I'm talking about that other "Big Five": Microsoft ($18.7 billion), IBM ($15 billion), Apple ($14 billion), Intel ($11.4 billion) and Hewlett-Packard ($8.8 billion). And when you add the next five most profitable computer companies - Google ($8.5 billion), Cisco ($7.8 billion), Oracle ($7.7 billion), Dell ($2.63 billion) and Ebay ($1.8 billion) - the "Big Ten" raked in almost $100 billion last year in "windfall" profits last year ($96.1 billion), boosted by strong demand for IT products as the U.S. and global economies recovered from the Great Recession.
Suppose that Congress next investigated "Big Computer" for earning almost $100 billion in record profits last year, and imposed a higher tax burden on the "Big Ten."
Q: What would likely happen to computer prices for the "Big Ten's" products; and what would likely happen to "Big Ten" spending on capital equipment and research? A: Prices would probably be higher and investment spending would probable be lower. And that's exactly what would likely happen to oil prices and investment spending by the other "Big Five."
Corn Yields Have Increased Six Times Since 1940
The chart above displays annual U.S. corn yields (bushels per acre) back to 1866 (USDA data here). After remaining flat between 1866 and 1939 at about 26 bushels per acre, corn yields started increasing dramatically in the 1940s due to the introduction of hybrid seeds, and the widespread use of nitrogen fertilizers and herbicides (source). By 2009, average corn yields had increased by more than six times to a record high 165 bushels per acre, before falling last year to 153 bushels per acre.
According to the Corn Farmers Coalition:
HT: Lee Coppock
Update: The chart below shows that real, inflation-adjusted corn prices have trended downward over time as corn yields have increased, from $16 per bushel in 1948 (2010 dollars) to about $4 per bushel in 2010.
Wednesday, May 18, 2011
Partisan Grading: Democratic Professors Are More Likely to Redistribute Grades Than Republicans
From a very interesting forthcoming paper in the American Economic Journal titled "Partisan Grading" by economists Talia Bar (Cornell) and Asaf Zussman (Hebrew University):
A different illustration of the relationship between political identification and grading egalitarianism is contained in the chart above. The figure displays mean grades by student SAT score ranges in courses taught by Republican and Democratic professors. The observed pattern is consistent with the hypothesis that Republican professors are associated with a steeper slope of the grade-ability profile, i.e. with higher returns to student ability.
Conclusion: We found that relative to their Democratic colleagues, Republican professors are associated with a less egalitarian distribution of grades and with lower grades awarded to Black students relative to Whites.
Professors control the allocation of grades which serve as the primary currency of academia. Our results suggest that the allocation of grades is associated with the worldview or ideology of professors. This finding may inform the public debate on potential reforms to university grading practices. To the extent that the application of objective standards is an important university goal, policy makers should consider limiting the discretion professors enjoy when it comes to grading and making it more difficult for them to use student characteristics as factors in the grading process.
Thanks to Norman Berger.
Two Shopping Trends
MP: With "free" shipping becoming increasingly common, why spend gas money to drive to a "brick-and-mortar" retailer?
TIPS Breakeven Spread Falls to Three-Month Low
The "breakeven rate" - the difference between 10-year nominal Treasury yields and 10-year Treasury Inflation Protected Securities (TIPS) yields - is one market-based measure of expected future inflation. As of yesterday the breakeven rate was 2.30%, down 30 basis points from the recent peak of 2.65% on April 11, and the lowest level in three months (since February 17).
Tuesday, May 17, 2011
Will Apple's Profits Be Investigated Next?
|Earnings Before Tax||$18.94B||$7.96B|
|Effective Tax Rate||42.20%||24.22%|
I wouldn't want to give Obama or Congress any ideas, but in the first quarter of 2011, Apple was more profitable than ExxonMobil based on both having a higher profit margin (24.27% vs. 9.30% for Exxon) and higher profits per employee ($128,470 vs. $127,392 for Exxon). In addition, Apple's effective income tax rate was only 24.22% compared to Exxon's 42.2% rate, so it must be getting some very generous tax breaks and subsidies?
If It Moves, Tax It. If It Keeps Moving, Regulate It.
D.C.-To-NYC Buses May Get More Expensive With New Regulations
"In D.C.'s Chinatown neighborhood, buses leave to or arrive from New York City at almost any hour. These buses have grown in popularity, thanks in large part to their low prices.
But starting this summer, D.C. can charge companies using curbside space a public space rental fee of $80,000 a year or more. Pete Pantuso, head of the American Bus Association, says that this fee will be passed along to the riders in the form of higher prices. And he says D.C. is using a booming local industry as an ATM."
MP: You knew this had to happen....
Tax Rates (%) X Tax Base = Tax Revenue ($)
An endless source of confusion seems to exist regarding the frequently used term "raising taxes" (e.g., do a Google search for "raising taxes on the rich" and you'll find almost 3 million results), which usually refers to a proposal to raise tax rates in an attempt to raise tax revenues. Not so fast. It doesn't always work that way, and frequently works in reverse - higher tax rates result in lower, not higher, tax revenue collected. Here's the relevant formula:
One explanation for the confusion is that the word "tax" appears in all three relevant terms in the equation, so it's easy to conflate the terms "raising taxes," "raising tax rates" and "raising tax revenues." What we know for sure is that higher tax rates create disincentives for the activity being taxed (income, capital gain, consumption), which will cause the "tax base" to shrink. Depending on how much the tax base shrinks in response to higher tax rates, tax revenue could increase, decrease or stay the same.
Any discussion about "raising or lowering taxes" is always incomplete without considering how changes in "tax rates" will affect the "tax base," which then determines how the amount of tax revenue actually collected with change.
Thomas Sowell addresses this issue masterfully in his column today, here are some excerpts:
Some Of Us Aren't Grossed Out By Profits
From David Harsanyi writing in NRO:
"Some of us, believe it or not, aren’t completely grossed out by the notion of profit — even a lot of profit. Strong earnings are good news not only for those dastardly Oil Barons, but for the millions of people who depend on the industry for their employment, as well as the vast number of Americans who rely on investments in oil to bolster their pension funds, retirement funds, college funds, etc.
Monday, May 16, 2011
The Economics of Globalization Are Changing Fast And Are Starting to Favor Moving Back to America
“Sometime around 2015, manufacturers will be indifferent between locating in America or China for production for consumption in America,” says BCG's Hal Sirkin. That calculation assumes that wage growth will continue at around 17% a year in China but remain relatively slow in America, and that productivity growth will continue on current trends in both countries. It also assumes a modest appreciation of the yuan against the dollar.
Markets in Everything: Pay-What-You-Want Panera
Motor Fuel Tax Rates for Selected Countries
|COUNTRY||GASOLINE TAX (Cents/Gallon)||DIESEL TAX (Cents/Gallon)|
Source: U.S. Department of Transportation (November 2010)
HT: Larry G
Are Oil Prices a Threat to the U.S. Economy?
No, according to this video presentation by Fisher Investments,where they feature three charts to support the position that today's high oil prices don't pose a threat to the economic expansion:
a) energy spending as a percent of disposable income is only 5.2% allowing to absorb temporarily high oil and gas prices, b) we have the most energy efficient economy in history, with oil consumption per real dollar of GDP at an all-time low, and c) while real output is now above its pre-recession level, U.S. oil consumption is 2 million bbls. per day below pre-recession levels. Taken together, these three factors explain why we're better prepared for higher oil and gas prices than ever before.
The Deleveraging of American Households
A week ago I featured the chart above showing that the household debt service ratio (red line) was 11.75% in the last quarter of 2010, which is the lowest ratio since the first quarter of 1998, and the household financial obligations ratio at 16.64% in Q4 2010 was the lowest since the first quarter of 1995.
Dennis Cauchon has an article in today's USA Today that offers some explanations for the trend in the graph above:
Real Profits of U.S. Manufacturing Corporations Have Recovered To All-Time Record-High Levels
Mike Mandel has a post "New Manufacturing Data Show Weaker Factory Recovery, Deeper Recession," where he presents some new Census data on factory shipments of manufactured goods through the first quarter of 2011. Mike concludes that "real shipments are still 15% below their peak, and asks "Now that hardly looks like a recovery at all, does it?"
For the manufacturing sector to have record-high profits today at a level of output 15% below the peak in 2007 is much better than the reverse - a record level of output with profits 15% below a 2007 peak. With record-high profits, American manufacturing corporations have the resources to make the very investments in research, technology and capital equipment that will allow them to become even more efficient, productive and profitable in the future. The future of America's manufacturing sector has never looked brighter.
Money-Making Speculators Must Stabilize Markets; Only Money-Losing Speculators Can Destabilize
"People who argue that speculation is destabilizing seldom realize that this is largely equivalent to saying that speculators lose money, since speculation can be destabilizing in general only if speculators sell when the currency (or commodity) is low in price and buy when it is high."
~Milton Friedman, Essays in Positive Economics (p. 175)
The chart above illustrates Friedman's point. The blue line above represents commodity (or currency) price movements over time in a market WITHOUT speculators (due to a government ban on futures trading, e.g. onions), and the red line represents that same market WITH the fictional destabilizing speculators (as portrayed by the media and politicians) now being allowed to trade. For speculators to destabilize that market, they would have to make prices more volatile over time, and that is what the red line illustrates - there are greater price swings, and greater price volatility (both up AND down) WITH speculators compared to price movements over time WITHOUT speculators.
But saying that speculators destabilize the market above is also the same thing as saying that destabilizing speculators must BUY when the market prices are at a HIGH point (driving them up even higher) and must SELL when the market prices are at a LOW point (driving them even lower). And as we all know, buying HIGH and selling LOW is a sure way to lose money, and speculators can then only be destabilizing if they are LOSING money, as Friedman points out, and therefore the chart above can NOT represent reality.
Conversely, if and when speculators are making money, they have to be buying low and selling high, which would be the same thing as saying that they are stabilizing markets and reducing price variability. And the more "excessive speculation" and "unfair profiteering" they are accused of, the GREATER the role speculators play in stabilizing prices and markets.
Bottom Line: If speculators are making money, they MUST be stabilizing markets. If speculators are losing money, they MUST be destabilizing markets (fictional chart above). But speculators can NOT make money and destabilize markets at the same time.
Minneapolis in the News
Edward Tufte: Information Sage/Graphics Guru
MP: I'm registered for his class this Wednesday in Arlington, VA.
Sunday, May 15, 2011
30-Year Mortgage Rates Fall to 6-Month Low
30-year mortgage rates have been falling since early February, and fell to a six-month last week of 4.63%, the lowest level since early December last year (data here). If rising inflationary pressures are building up in the economy, wouldn't we expect rising, not falling, 30-year mortgage rates?
The chart above shows the historical relationship between 30-year mortgage rates and annual CPI inflation over the last 35 years. One clear market signal that inflationary expectations are increasing will be rising, not falling, 30-year mortgage rates.