CARPE DIEM Professor Mark J. Perry's Blog for Economics and Finance WEDNESDAY, JUNE 30, 2010 #1 and #2 American-Made Cars: Toyota and Honda #1 Toyota Camry #2 Honda Accord "Cars.com's American-Made Index rates vehicles built and bought in the U.S. Factors include sales, where the car's parts come from and whether the car is assembled in the U.S." For 2010, the #1 American-made car is the Toyota Camry for the second year in a row, followed by the Honda Accord. Toyota has two other models in this year's top ten, the Tundra at #7 and the Sienna at #10; and Honda has the Odyssey at #6. So the two "foreign car companies" - Toyota and Honda - captured half of the top ten spots for American-made cars in 2010, just like last year. Isn't it a bit ironic that the two "most American-made" cars would get towed from the UAW parking lot pictured below? And what about these vehicles built by the "Canadian Auto Workers" - Chevy Camaro, Chrysler 300, Dodge Challenger, Dodge Charger - wouldn't they get towed? Update: The Mazda 6, Mitsubishi Eclipse, Mitsubishi Galant, and Toyota Corolla are all built by the UAW in the United States - would these union-made vehicles actually get towed? Posted 10:47 PM Post Link 47 Comments A New Economic Index: The Coffee Indicator "As economists look for clues on the direction of consumer spending, they may want to look into how much Americans are willing to spend on their coffee. Majestic Research tracks anonymous credit-card data, and can see how much consumers spend by category and store, and it broke out the average dollar transactions at Starbucks and Dunkin’ Donuts. The data show that during the worst of the recession consumers spent less at the two coffee outlets, but as the employment picture started to improve people were willing to spend more per transaction (see chart above)." Read more here. Posted 5:18 PM Post Link 4 Comments Restaurant Activity Softens in May, But Outlook Remains Pos. as Capital Spending Rose to 2-Yr. High "The outlook for the restaurant industry softened in May, as the National Restaurant Association's comprehensive index of restaurant activity fell below 100 for the first time in three months. The Association's Restaurant Performance Index (RPI) - a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry - stood at 99.7 in May, down 0.7 percent from April’s level of 100.4. In addition, the RPI fell below 100 for the first time in three months, which signifies contraction in the index of key industry indicators. Although the sales and customer traffic indicators softened in May, capital expenditure activity rose to its highest level in nearly two years. This, along with a continued positive outlook for sales and the overall economy, signals that restaurant operators remain optimistic that business conditions will improve in the months ahead." Posted 12:59 PM Post Link 0 Comments Markets in Everything: Oil Spill Souvenirs South Florida Brothers Selling Oil Spill Souvenirs. HT: Adam Evans Posted 12:55 PM Post Link 2 Comments The French Candlemakers' Petition From a Petition From the French Manufacturers of Candles: "We (French candlemakers) are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun. We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat." ~French economist Frédéric Bastiat writing in 1845. Bastiast was born today in 1801. Just like we shouldn't complain about a foreign rival like the sun "dumping" light on us for free or below cost, we also shouldn't complain about foreign countries "dumping" goods in the U.S. below cost, and we shouldn't complain about currency "manipulation" that makes goods cheaper to U.S. consumers and companies, and we shouldn't complain about free gifts or foreign aid from other countries. In addition to highlighting the economic fallacies of protectionism and promoting the economic benefits of free trade, Bastiat also facetiously proposed laws forbidding the use of everybody's right hand, based on the false assumptions that more difficulty means more work and more jobs, and more work produces more wealth. Posted 6:52 AM Post Link 16 Comments TUESDAY, JUNE 29, 2010 Chicago's Only Wal-Mart Has Improved Its West Side "Now that it appears Chicago's South Side will be getting a Wal-Mart, what will it mean for that community? The store is scheduled to open in early 2012 at 111th and Doty in Pullman. CBS-TV 2's Jim Williams went to the only current Chicago Walmart on the West side to see how it has affected that neighborhood." Watch the video here to see the positive effect Wal-Mart has had on Chicago's west side by creating more than 400 good-paying jobs, making the neighborhood safer, and helping to revitalize the area and bring in new stores including a Menards Home Improvement store, a CVS pharmacy, two new banks and an Aldi Grocery Store. Area alderwomen Emma Mitts credits Wal-Mart for attracting many new stores to the neighborhood, and says that "traffic is so heavy on the weekends that it's hard to get up and down the strip, and that's a good thing and I'm so grateful for it." Although Wal-Mart frequently gets blamed for putting local merchants out of business when the open a new store, this story provides some evidence to the contrary - by stabilizing a rough area on Chicago's West Side and attracting thousand of customers for "everyday low prices," at Wal-Mart actually helped to attract new businesses to this Chicago neighborhood, including direct competitors like Menards, CVS and Aldi. In other words, Wal-Mart provides many significantly "positive externalities" and "spillover benefits" to the communities in which it operates, even though it frequently gets more attention for some of the "negative externalities" and "spillover costs" it might impose. For neighborhoods like the west side of Chicago, it sure looks like the positive externalities (jobs, tax revenues, great safety, more commercial activity, etc.) far outweigh any negative externalities. Posted 8:41 PM Post Link 33 Comments Case-Shiller Reports Highest Yearly Gain Since 2006 Highlights of today's Case-Shiller report for April home prices: 1. Annual growth rates of all 20 MSAs and the 10- and 20-City Composites improved in April compared to March 2010. 2. The 10-City Composite is up 4.6% from where it was in April 2009, and the 20-City Composite is up 3.8% versus the same time last year (see top two charts). These two year-to-year improvements were the highest annual percentage gains since September 2006. 3. 18 of the 20 MSAs and both Composites saw improvement in prices as measured by April versus March monthly changes. 4. The strongest year-to-year price gains were in California, with San Francisco leading the 20 MSAs with an 18% increase from April 2009-April 2010, followed by San Diego (11.7%) and Los Angeles (7.8%). Strong gains were also reported for Minneapolis (9.5%), Washington D.C. (7.3%), Cleveland (6.8%) and Phoenix (5.5%), see table above (click to enlarge). Posted 1:32 PM Post Link 5 Comments Highest ASA Staffing Index Level in 85 Weeks American Staffing Association -- "During the week of June 14–20, 2010, temporary and contract employment increased 1.11%, pushing the index up one point to a value of 91 (see top chart above). At a current index value of 91, U.S. staffing employment is 32% higher than the level reported for the first week of the current year and is 25% higher than the same weekly period in 2009 (see bottom chart)." MP: The ASA index of 91 for the week of June 14-20 is the highest level in 85 weeks, since late October 2008, and is also the ninth consecutive week of an annual gain above 20%, and the eighteenth week of double-digit gains. Posted 12:54 PM Post Link 0 Comments Email Use Declines, Especially for 18-34 Year Olds "Online Canadians have reported a significant decline in the number of weekly emails received, according to the latest Ipsos Interactive Reid Report. The average number of email received in the past week (including spam) has declined by 35% from 198 in late 2008 to 129 today. Study author Mark Laver noted that ‘when you look at some of the new communications platforms, such as Facebook, Twitter and Messenger, that have taken off in the last few years the decline in email usage is really not that surprising, what is surprising is the size of the decline that is happening.’ Generally, 18-34 year olds do everything more online than their older counterparts. However, this age group now receives the fewest emails each week with an average of 116. Those respondents with high school educations or less also receive significantly fewer emails each week." MP: Compared to Q4-2007 (226 average emails per week), email use in Canada during the first quarter of this year is about half that amount (129 average weekly emails). Posted 7:38 AM Post Link 2 Comments MONDAY, JUNE 28, 2010 Markets in Everything: Lion Meat Burgers MESA, Ariz. - People are feeling the World Cup fever all over the globe. The South Africa tournament has captivated fans, and now a Mesa, Arizona restaurant is paying homage to the host country with a special menu item. But by offering that item, the owner has received threats. Cameron Selogie is selling burgers made from lion meat, starting Wednesday at Il Vinaio in Mesa. The big cat is not illegal to eat in the U.S., and the African lions used to make the burgers were actually raised on a free-range animal farm in the Midwest. HT: John Stossel via Coyote Blog. Posted 2:52 PM Post Link 16 Comments Quote of the Day "Hillsdale College is one of the last true meritocracies. There's no place on its application for racial identity, and it doesn't know the racial make-up of its student body until it shows up on campus in the fall. 'The purpose of education is not diversity,' Hillsdale President Larry Arnn says. 'It's truth.'" ~Detroit News Posted 8:56 AM Post Link 23 Comments Consumer Spending Makes a Comeback One of the bright spots in today's report on Personal Income and Outlays was the significant improvement in May for real personal consumption expenditures, especially for durable goods (cars, appliances, business equipment, electronic equipment, home furnishings and fixtures, housewares, photographic equipment, recreational goods, sporting goods, etc.). Compared to last May, real consumption expenditures increased last month by 2.6%, which is the highest year-to-year gain since August 2007, 33 months ago (see top chart). For durable goods the annual increase in May was 11.4% compared to last year, following an 11.5% increase in April. The last time consumer expenditures on durable goods increased by more than 11% was in July 2005, and the last time there were two consecutive monthly increases above 11% was in 2002 (see chart above). These increases in consumer expenditures, especially for "big-ticket items," are consistent with the last week's report on consumer sentiment, which just reached its highest level this month since January of 2008. Posted 8:37 AM Post Link 7 Comments Top-Down Collectivism Fatigue: Let's Turn Around "According to Hayek, order can emerge not just from the top down but from the bottom up. The American people are suffering from top-down fatigue. President Obama has expanded federal control of health care. He'd like to do the same with the energy market. Through Fannie and Freddie, the government is running the mortgage market. It now also owns shares in flagship American companies. The president flouts the rule of law by extracting promises from BP rather than letting the courts do their job. By increasing the size of government, he has left fewer resources for the rest of us to direct through our own decisions. Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. We join with others to produce the goods and services we enjoy, all without top-down direction. The same is true in every sphere of activity that makes life meaningful—when we sing and when we dance, when we play and when we pray. Leaving us free to join with others as we see fit—in our work and in our play—is the road to true and lasting prosperity. Hayek gave us that map. Hayek never said that totalitarianism was the inevitable result of expanding government's role in the economy. He simply warned us of the possibility and the costs of heading in that direction. We should heed his warning. I don't know if we're on the road to serfdom, but wherever we're headed, Hayek would certainly counsel us to turn around." ~George Mason economist Russ Roberts in today's WSJ Posted 7:51 AM Post Link 44 Comments Chicago Fed Index: "Mature Economic Recovery" "The Chicago Fed National Activity Index edged lower to +0.21 in May from +0.25 in April. Production indicators continued to make strong contributions to the index in May, while weaker contributions from employment- and housing-related indicators accounted for the slight decrease in the index from April. The index’s three-month moving average, CFNAI-MA3, rose to its highest level since March 2006, increasing to +0.28 in May from +0.05 in April (see chart above). May’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. Moving above +0.20, the index’s three-month moving average in May also reached a level historically associated with a mature economic recovery following a recession. With regard to inflation, the CFNAI-MA3 in May indicates limited inflationary pressure from economic activity over the coming year." Posted 7:44 AM Post Link 1 Comments SUNDAY, JUNE 27, 2010 Optical Illusions Posted 10:55 PM Post Link 6 Comments MCAT Scores for Medical Students by Gender The chart above is based on average MCAT scores by gender for students admitted to U.S. medical schools in each year between 2002 and 2009 (data here). Men consistently have higher MCAT scores (30.975 average score for the 2002-2009 period) than women (29.5375 points) by an annual average of 1.4375 points for this period. In the most recent year of 2009, men scored higher on average by 1.50 points (31.6 men vs. 30.1 women), which is a statistically significant difference with a t-statistic of 25.08 from a "difference of means test" (prob = 0.0000). Posted 3:58 PM Post Link 4 Comments Medical School Acceptance Rates, 2007-2009 Here's a new chart (click to enlarge) with updated data from the Association of American Medical Colleges on medical school acceptance rates for Asians (data here), whites (data), Hispanics (data) and blacks (data) during the period 2007-2009, based on various combinations of MCAT scores (24-26 and 27-29) and GPAs (from 3.00 to 3.59). For example, for applicants with an MCAT score between 24-26 and a GPA between 3.00 and 3.19, only 1 out of every 25 Asian applicants was accepted, compared to about one out of every 11 white applicants, one of out every three Hispanics, and more than half of black applicants with those same credentials. Thanks to Walt G. for the help pointing out the links to the data. Posted 2:23 PM Post Link 32 Comments Manhattan Apt. Sales Up by 80% in Second Quarter WSJ -- "Sales of Manhattan apartments picked up during the second quarter of 2010, to the fastest pace since the summer of 2008, an illustration that the market has been recovering during the spring selling season, usually the busiest time of the year. A Wall Street Journal review of closed-sales filings with New York City Department of Finance shows that during the second quarter, which ends June 30, sales were running 80% above the pace reported a year ago (see chart above). Analysts said there has likely been a modest recovery in prices as well. During the spring season, the pickup in Manhattan co-op sales was particularly strong, with co-op sales hitting the highest pace since the summer of 2007." HT: Bill Posted 1:59 PM Post Link 0 Comments Markets in Everything: $10-$30 to Cut in Line WSJ -- "Several airlines are selling the chance to jump to the front of check-in lines, boarding queues and even security lines for about $10 to $30 per flight. Perks that used to be reserved only for elite-level frequent fliers and first-class passengers are now up for grabs to those who'll pay to jump the line. Lots of travelers are buying." Posted 7:24 AM Post Link 5 Comments SATURDAY, JUNE 26, 2010 The Avertible Catastrophe in the Gulf "The Dutch know how to handle maritime emergencies. In the event of an oil spill, The Netherlands government, which owns its own ships and high-tech skimmers, gives an oil company 12 hours to demonstrate it has the spill in hand. If the company shows signs of unpreparedness, the government dispatches its own ships at the oil company’s expense. “If there’s a country that’s experienced with building dikes and managing water, it’s the Netherlands,” says Geert Visser, the Dutch consul general in Houston. In sharp contrast to Dutch preparedness before the fact and the Dutch instinct to dive into action once an emergency becomes apparent, witness the American reaction to the Dutch offer of help. The U.S. government responded with “Thanks but no thanks,” remarked Visser, despite BP’s desire to bring in the Dutch equipment and despite the no-lose nature of the Dutch offer — the Dutch government offered the use of its equipment at no charge. Even after the U.S. refused, the Dutch kept their vessels on standby, hoping the Americans would come round. By May 5, the U.S. had not come round. To the contrary, the U.S. had also turned down offers of help from 12 other governments, most of them with superior expertise and equipment — unlike the U.S., Europe has robust fleets of Oil Spill Response Vessels that sail circles around their make-shift U.S. counterparts. The Americans, overwhelmed by the catastrophic consequences of the BP spill, finally relented and took the Dutch up on their offer — but only partly. Because the U.S. didn’t want Dutch ships working the Gulf, the U.S. airlifted the Dutch equipment to the Gulf and then retrofitted it to U.S. vessels. And rather than have experienced Dutch crews immediately operate the oil-skimming equipment, to appease labour unions the U.S. postponed the clean-up operation to allow U.S. crews to be trained. A catastrophe that could have been averted is now playing out." ~Lawrence Solomon in The National Post HT: Pete Friedlander Posted 10:38 PM Post Link 29 Comments FRIDAY, JUNE 25, 2010 FL Home Sales Increase For 21st Month Year-to-Year, Median Prices for Third Straight Month ORLANDO, Fla., June 22, 2010 – "Sales of existing homes in Florida rose 18 percent in May, marking 21 months that sales activity has increased in the year-to-year comparison, according to the latest housing data released by Florida Realtors. A total of 16,745 single-family existing homes sold statewide last month compared to 14,172 homes sold in May 2009 (see chart above). The statewide existing-home median price of $140,400 in May was slightly higher – by $300 – than April's statewide existing-home median price of $140,100. It marks the third month in a row that the statewide existing-home median price has increased over the previous month's median." Posted 8:04 PM Post Link 21 Comments Small Drop vs. April but May Trucking Increased 7.2% vs. Last Year, 6th Consecutive Annual Gain ARLINGTON, VA — "The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 0.6 percent in May, which was the first month-to-month drop since February of this year. This followed an upwardly revised 1 percent increase in April. The latest reduction put the SA index at 109.6 (see chart above). Highlights include: 1. Compared with May 2009, SA tonnage increased 7.2 percent, which was the sixth consecutive year-over-year gain. In April, the year-over-year increase was 9.5 percent. 2. Year-to-date, tonnage is up 6.2 percent compared with the same period in 2009. 3. ATA Chief Economist Bob Costello said that truck freight tonnage is going to have ups and downs, but the trend continues in the right direction. “Despite the month-to-month drop in May, the trend line is still solid. There is no way that freight can increase every month, and we should expect periodic decreases. This doesn’t take away from the fact that freight volumes are quite good, especially considering the reduction in truck supply over the last couple of years.” HT: Red Bund Posted 3:05 PM Post Link 2 Comments Most Favorable Mich. Survey About Jobs in 5 Years NEW YORK (Reuters) - "Consumer sentiment rose in June to its highest since January 2008 while reports of job losses were down sharply from a year ago, a survey showed on Friday. A gauge of current economic conditions also rose to its highest since January 2008, according to the Thomson Reuters/University of Michigan's Surveys of Consumers. The final June reading on the overall index on consumer sentiment rose to 76 from 73.6 in May. The figure was above the median forecast of 75.5 among economists polled by Reuters, which was also the reading in early June. Reports of job losses fell by half since last June, from 65 percent of respondents to 29 percent, the survey showed. "The June 2010 survey recorded the most favorable news heard by consumers about jobs in five years," Richard Curtin, director of the surveys, said in a statement." Posted 9:38 AM Post Link 11 Comments The Wealth of Nations "The wealth of nations, according to Adam Smith, the founding father of the market economy, is not measured in GDP or cash reserves. Rather, it "consists in the cheapness of provision and all other necessaries and conveniences of life." By that standard, American wealth in general, and the wealth of poor Americans, has skyrocketed in the last half-century, and the government had relatively little -- though certainly not nothing -- to do with it. And it's not just that consumer items are cheaper than ever, they're also better than ever. An iPhone today isn't just better than yesterday's phones, it's better than yesterday's cameras, calculators, portable stereos and computers. Many of the standard features on a 2010 Honda Accord were considered luxury items 10 years ago and almost unimaginable 20 years ago." ~Syndicated columnist and AEI colleague Jonah Goldberg Posted 5:58 AM Post Link 11 Comments U.S. Energy Policy Should Include "YIMBY" "Whether more exploration on federal lands would make the U.S. energy independent is debatable, but more onshore development would certainly be safer. In early June there was a blowout in western Pennsylvania. Did you see it on the nightly news? No, because it was capped in 16 hours. The Texas Railroad Commission, the state agency that regulates oil and gas production there, recorded 102 blowouts of oil and gas wells since the start of 2006, resulting in 10 fires, 12 injuries, and two deaths. None of those made the nightly news either. The largest oil spill on Alaska's North Slope in 2006 was from a pipeline leak. It dumped only 6,357 barrels and had no disastrous impacts. When kids play baseball, there is a risk that windows will get broken. Playing on baseball fields rather than in sand lots, however, lowers the risk considerably. Putting so much onshore land off limits to oil and gas development is like closing baseball parks. More windows will be broken and more blowouts result where they are difficult to prevent and stop. Enforcement of stricter safety regulation on deepwater drilling may reduce disasters like the current one in the Gulf. But the only real way to reduce the risk of catastrophic spills is to say yes to drilling in our backyard." ~Terry Anderson in today's Wall Street Journal Posted 5:46 AM Post Link 13 Comments THURSDAY, JUNE 24, 2010 Conference Board: Eight Leading Indexes Increased Over the last two weeks, The Conference Board has released leading economic indexes for the following eight countries, which all registered increases in April (and May for the U.S.): 1. The U.K. leading economic index increased by 0.6 percent in April to 102.2 (2004 = 100), following gains of 1.1 percent in March and 0.6 percent in February. 2. The Korea leading economic index increased 0.2 percent in April. 3. The leading economic index for Spain increased 0.2 percent in April. 4. The leading index for the United States increased 0.4 percent in May, following no change in April, and a 1.4 percent rise in March. 5. France increased 0.8 percent. 6. The leading index in Germany rose sharply again in April by 1.6%, and it has been rising for more than a year now. 7. Australia increased 0.1 percent in April. 8. Mexico increased 0.7 percent in April. Posted 10:23 PM Post Link 7 Comments Some Minority Chances of Acceptance to Medical School Almost 10 Times Higher Than White/Asian. Data are now available from the Association of American Medical Colleges (AAMC) on acceptance rates at medical schools for all students (data here) and acceptance rates for minority students (Hispanic, Black or Native American, data here), by MCAT and GPA, for the years 2007-2009 aggregated. From those data, I was able to create the table above for the acceptance rates for non-minorities (I'm assuming white and Asian), and compare to the acceptance rates for minorities, for those applicants with an MCAT score of 24-26 and a GPA between 3.00 and 3.19. See updated post here. Posted 9:32 PM Post Link 25 Comments Mortgage Rates Set Record Low 4.69% Mortgage rates (30-year fixed) fell this week to 4.69%, according to data released today by Freddie Mac, setting an all-time record low, going back to at least 1964 (see chart above, data here). Posted 5:10 PM Post Link 5 Comments Weekly Rail Traffic Continues to Improve WASHINGTON, D.C. – "The Association of American Railroads (AAR) today reported that intermodal volume on U.S. freight railroads for the week ended June 19, 2010, reached its highest level since the 45th week of 2008. Intermodal traffic totaled 227,985 trailers and containers, up 21.2 percent from last year but down .2 percent from 2008. Compared with the same week in 2009, container volume increased 23.2 percent while trailer volume rose 10.5 percent. Compared with the same week in 2008, container volume was up 8.8 percent while trailer volume fell 32.8 percent. Combined North American rail volume for the first 24 weeks of 2010 on 13 reporting U.S., Canadian and Mexican railroads totaled 8,837,265 carloads, up 10.3 percent from last year, and 6,225,829 trailers and containers, up 12.5 percent from last year." MP: The weekly report on rail traffic shows promising signs of continued improvements in rail freight activity, with intermodal traffic far above last year's level by 21.2%, and almost back to the same level of traffic for Week 24 of 2008 (lower by only 0.20%). Container volume is up both from the same week in 2008 (by 8.8%) and the same week in 2009 (by 23.2%). Trailer volume is also above last year's level, but down by 33% from 2008. Combined North American (Canada, U.S. and Mexico) rail activity is up by double-digit percent increases for carloads, trailers and containers. Posted 12:03 PM Post Link 9 Comments Hospitals Feeling Competition from Retail Clinics? 1. Phoenix hospitals tout short emergency-room wait times in their advertising. 2. Baltimore hospitals try to improve emergency wait times. According to Merchant Medicine, Arizona has 54 retail clinics operated by Minute Clinic, Take Care and the Little Clinic, and Maryland has 29 retail clinics operated by Target, Minute Clinic and ImmediCare. Could hospitals in these states be responding to competition from the increasing number of retail health clinics, which are projected to continue to grow in the future (see chart above)? Posted 8:39 AM Post Link 9 Comments Markets in Everything: $1,000 for a Place in Line NY Post -- "The Big Apple has iPhone fever -- and it's gotten so bad that places in an all-day, all-night line to get one are going for more than the pricey gadget itself. A full day before the latest update to the multimedia cellphone was scheduled to go on sale, lines snaked around the Apple flagship store on Fifth Avenue at 59th Street. Some high-tech fans actually lined up on Tuesday for today's launch of the iPhone 4. The crowd included several entrepreneurs who were hawking their places in line for $1,000 -- for a phone whose top price is $299." HT: Carlo DiPietro Posted 7:52 AM Post Link 2 Comments WEDNESDAY, JUNE 23, 2010 The Jones Act and Its Visible Victims "The bottom line lesson is nothing good can come from trade restrictions except windfall gains by a small group of beneficiaries, shipping companies and their unions that come at the expense of a much larger number of people -- customers who ship and passengers who travel. The only good news is that the Gulf disaster is making the victims of such restrictions (like the Jones Act) visible." ~Walter E. Williams Posted 7:42 AM Post Link 7 Comments TUESDAY, JUNE 22, 2010 Colombia: Rags-to-Riches Success, With a Booming Bull Market That Leads World for 10-Yr. Returns Both the Wall Street Journal and Investor's Business Daily had editorials today about the presidential election in Colombia, which should also receive some attention for its record-setting, booming stock market rally. Colombia's MSCI Index topped 900 for the first time last Friday, and registered gains yesterday and today, closing at an all-time record high today of 909.25 (see chart above, data here). The bull market in Colombia is especially impressive when you consider that its market stagnated for the entire decade between 1994-2004, reached a low of 42 in December 2000, before it skyrocketed to almost 600 by early 2006, and then went over 800 last year and over 900 this year. On a year-to-date basis, Colombia's market has increased 15%, which is the world's highest stock market return since January. Colombia's one-year return of 47.5% isn't too bad either, although Mexico, Indonesia, Peru and Turkey have done slightly better. But when it comes to the average annual stock market return over the last ten years, no country in the world comes close to Colombia's return of 34.55%; not China (6.75%), not Turkey (2.66%), not Russia (13.24%), and not Brazil (14%). In fact, the only country that even comes remotely close is neighboring Peru with a 23.6% average annual return since June 2000. The WSJ and IBD focus mostly on Juan Manuel Santos' landslide victory on Sunday's (note that most other countries vote on weekends, and that weekday voting in the U.S. is unique), but point out some important economic lessons about free markets and free trade: IBD: "Santos is probably most dangerous for Venezuela's Hugo Chavez, because Colombia's rags-to-riches success story is so dramatic — showing that any beat-up nation can drag itself out of misery through markets — and because Venezuela and Colombia are such close neighbors. Word gets out about how well things are going in Colombia and it spreads fast in Venezuela. Santos need never fire a shot at Venezuela to slay Chavez's revolution because the power of the markets will do it for him. Santos is also planning something that is likely to give Chavez — and for that matter, President Obama, something to think about — a forging of a more assertive Pacific alliance with free-market Chile and Peru, as well as the nations of the Pacific Rim. Given Obama's dithering on free trade — and the fact that Canada on Tuesday, has just finalized its pact, and it's obvious Colombia is going to prosper with or without its friends or enemies." WSJ - "This triumph in Colombia also ought to echo in Washington, where Democrats in Congress and the White House continue to deny a vote on the U.S.-Colombia free trade agreement. One liberal Democratic excuse has been concerns about Mr. Uribe's (current president) security policies, but Colombia's people have now spoken. Like Mr. Uribe, Mr. Santos wants the free trade deal to force his country to face the discipline of global competition and turn Colombia into the next Chile or Taiwan. Such progress would further reduce the FARC's appeal, and it is certainly in the U.S. national interest. This one shouldn't even be controversial. See CD post here on Colombia, where I pose the question: With incredible export opportunities awaiting U.S. manufacturers in booming, emerging markets like Colombia (see chart above), with the huge potential to create much-needed jobs for America’s workers, and with universal support from almost every sector of the economy, what could possibly be holding up the Free Trade Agreements with Panama, Colombia and Korea? Posted 9:40 PM Post Link 26 Comments ASA Staffing Index at 82-Week High The American Staffing Association released its weekly update today on hiring trends for temporary help and contract work, with the following comment: "During the week of June 7–13, 2010, temporary and contract employment increased 1.96%, pushing the index up one point to a value of 90. At a current index value of 90, U.S. staffing employment is 30% higher than the level reported for the first week of the current year and is 25% higher than the same weekly period in 2009." MP: For the 22 weeks since the beginning of the year, the ASA staffing index has increased (or stayed the same) for 20 of those weeks, and declined in only two. The index values of 90 for both the week of May 17 and the week of June 7 mark the first time in 82 weeks (since the week of November 10, 2008) that the ASA index has been at the 90 level. While still below 2008 levels, the gradual upward trend in the staffing index starting about a year ago signals gradual, but ongoing improvements in the labor market for temporary positions and contract work. Temporary help employment tracked by the ASA is considered to be an accurate leading indicator of employment trends. According to the ASA, temporary job increases typically lead gains in broader employment growth by three months when the economy is emerging from a recession (see chart above), and the continuing strength in temporary hiring hopefully signals future employment growth for the U.S. economy. Posted 1:49 PM Post Link 15 Comments June Richmond Fed Index Still in Record Territory "Manufacturing activity in the central Atlantic region expanded for the fifth consecutive month, according to the Richmond Fed’s latest survey. Looking at the main components of activity, shipments were virtually unchanged, while employment grew at a modest pace, and new orders grew more slowly. Other indicators varied." MP: Despite the 3-point drop from the all-time high of 26 in May to 23 in June (a "skid" in manufacturing activity according to this report), Richmond regional manufacturing in June is at the second-highest level in the history of the index back to January 1994. Posted 11:15 AM Post Link 11 Comments How Gov't. Created The Ironing Board Monopoly WASHINGTON POST -- There is one factory left in the United States that manufactures the basic ironing board, and its survival against Chinese competition demands unrelenting, production-line hustle. The company survives in part because it convinced U.S. trade officials that Chinese firms were unfairly dumping ironing boards into the United States at less than fair-market value; in response, the United States levied anti-dumping taxes of 70 to more than 150 percent on its Chinese rivals. But imposing tariffs on foreign goods also elicits loud protests, and not just from the foreign manufacturers who face the burden. Some U.S. retailers say that the tariffs have given the American factory, long the market leader in the United States, a near monopoly on ironing boards. And economists say that the tariffs push up prices for American consumers, who buy an estimated 7 million ironing boards each year. Some economists have also questioned whether such tariffs amount to good U.S. policy. "It doesn't make much sense to force millions of U.S. consumers to pay higher prices for ironing boards to save 200 jobs," said Howard Rosen, an economist at the Peterson Institute who has organized efforts to get retraining programs for workers displaced by the offshoring of jobs. "It would make more sense to help workers move to other jobs." MP: Isn't this an example of how government trade policy created an anti-consumer, anti-competitive monopoly? Shouldn't the Department of Justice investigate? HT: Steve Bartin Posted 9:10 AM Post Link 19 Comments What's Going On? Pageview Inflation? At the bottom of this article in today's Washington Post: This is NOT a very long article (< 1,400 words) so WHY do they stretch it out over FOUR separate web pages? Is this "pageview inflation," or for advertising reasons, or what explains this? Posted 8:22 AM Post Link 10 Comments The Good Old Days Are Now: Radio Shack Version In 1964, here's what the average American consumer could afford after working 152 hours (almost a full month) at the average hourly wage then of $2.50: a "moderately priced, excellent stereo system" from Radio Shack on sale for $379.95. In contrast, the typical consumer today working 152 hours at the current average hourly wage of $19 could afford this "cornucopia" of electronic goods: Read more here at the Enterprise blog. Posted 8:06 AM Post Link 13 Comments MONDAY, JUNE 21, 2010 "Spinal Tap" Grade Inflation in Law Schools NY TIMES -- "One day next month every student at Loyola Law School Los Angeles will awake to a higher grade point average. But it’s not because they are all working harder. The school is retroactively inflating its grades, tacking on 0.333 to every grade recorded in the last few years. The goal is to make its students look more attractive in a competitive job market. In the last two years, at least 10 law schools have deliberately changed their grading systems to make them more lenient. These include law schools like New York University and Georgetown, as well as Golden Gate University and Tulane University, which just announced the change this month. Some recruiters at law firms keep track of these changes and consider them when interviewing, and some do not. Law schools seem to view higher grades as one way to rescue their students from the tough economic climate — and perhaps more to the point, to protect their own reputations and rankings. Once able to practically guarantee gainful employment to thousands of students every year, the schools are now fielding complaints from more and more unemployed graduates, frequently drowning in student debt." HT: Michael Kelly Posted 10:43 PM Post Link 15 Comments Men Still Hold 52.8% of All Jobs From The Atlantic article "The End of Men": "Earlier this year, women became the majority of the workforce for the first time in U.S. history." That statistic gets cited by the media all the time, but it's not really accurate, at least not according to the BLS household employment survey, which is more comprehensive than the payroll survey, which doesn't include the self-employed. As of May 2010, there are almost 8 million more men (73.639 million) employed than women (65.781 million), and men hold almost 53% of all jobs (see chart above). Posted 8:19 PM Post Link 0 Comments SAT is Racist: Solution? Make The Test Harder. In a recent CD post, I featured some claims that the SAT test is sexist and "rigged to favor boys," even though the College Board's Board of Trustees is headed by a woman (Youlonda Copeland-Morgan, pictured above), and has slightly more women (16 members) than men (15 members). Now there's some new evidence that the SAT is also racially biased, and I guess therefore "rigged to favor whites," even though the current Chair of the Board of Trustees of the CollegeBoard (which owns the SAT) is black (Ms. Copeland-Morgan pictured above) and Lester Monts, the past chairman, is black. And this part of the new research seems especially confusing: There's a concept on test-taking research known as "differential item functioning" (DIF). A DIF question is one on which students "matched by proficiency" and other factors, have variable scores predictably by race, on selected questions. On some of the easier verbal SAT questions, two studies find that the DIF favored white students, but on some of the most difficult verbal questions, the DIF favored black students. The white advantage is larger such that the studies suggest scores for black students are being held down by the way the test is scored, and that a shift to favor the more difficult questions would benefit black test-takers. Posted 7:28 PM Post Link 8 Comments The Highly Transient Millionaires Key findings from a new study from The Tax Foundation "Income Mobility and the Persistence Of Millionaires, 1999 to 2007": 1. Using a panel of tax returns from 1999 through 2007, this report finds that nearly 60 percent of households in the bottom quintile in 1999 are in a higher quintile in 2007 (and more than 16 percent are in one of the top two quintiles in 2007). Roughly 40 percent of tax returns in the top quintile in 1999 are in a lower quintile in 2007 (and more than 14 percent moved down by two or more quintiles by 2007). 2. The report also examines the persistence/transience of millionaires and finds that this group of taxpayers, which has been the focus of millionaire surtaxes among some states and some tax policy proposals at the federal level, is highly transient. Roughly 50 percent of those taxpayers who were millionaires at some point during the 1999 through 2007 period attained this status just once. In contrast, only 6 percent of this group of taxpayers were millionaires in all nine years (see chart above). 3. Millionaires are a highly transient group of taxpayers, and it appears that the realization of capital gains is at least one explanation. This income source tends to be lumpy and periodic and is a major explanation for why taxpayers reach millionaire status. Posted 8:57 AM Post Link 12 Comments More on The Jones Act Wall Street Journal -- President Obama has repeatedly said his Administration is doing everything in its power to expedite the oil clean-up and mitigate the damage. But in the two weeks immediately after the spill, 13 foreign governments reached out and offered their assistance. The U.S. response? Thanks, but no thanks. Blame it on the protectionist Merchant Marine Act of 1920, also called the Jones Act, that requires ships working in U.S. waters to be built, operated and owned by Americans. Michael Barone -- And what about the decision not to waive the Jones Act, which bars foreign-flag vessels from coming to the aid of the gulf cleanup? The Bush administration promptly waived it after Katrina in 2005. The Obama administration hasn't and claims unconvincingly that, gee, there aren't really any foreign vessels that could help. The more plausible explanation is that this is a sop to the maritime unions, part of the union movement that gave Obama and other Democrats $400 million in the 2008 campaign cycle. It's the Chicago way: dance with the girl that brung ya. Posted 8:40 AM Post Link 32 Comments CD Visits Break 4,000,000 Sometime earlier today, visits to CD went over the 4,000,000 mark. Thanks very much for your support! Posted 7:31 AM Post Link 10 Comments SUNDAY, JUNE 20, 2010 Progessive Income Tax = Tax on Going to College "In 1980, an American with a college degree earned about 30 percent more than an American who stopped education at high school. But, in recent years, a person with a college education earned roughly 70 percent more (see chart above). Meanwhile, the premium for having a graduate degree increased from roughly 50 percent in 1980 to well over 100 percent today. The labor market is placing a greater emphasis on education, dispensing rapidly rising rewards to those who stay in school the longest. For many, the solution to an increase in inequality is to make the tax structure more progressive - raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same individuals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect." ~Gary Becker and Keven Murphy, "The Upside of Income Inequality," from The American, May/June 2007. Posted 8:49 PM Post Link 18 Comments Happy Father's Day: It's Still a Mancession The top two charts above display monthly jobless rates by gender, and the third chart displays employment levels by gender, with the following key points: 1. Between 2002 and 2007, jobless rates were roughly equal by gender, except during the "jobless recovery" of 2002-2003 when male unemployment exceeded female unemployment, but never by more than 0.9% (July 2003). 2. Male unemployment reached 11.4% in October 2009, a record all-time postwar jobless rate high for men, exceeding the previous record high of 11.2% in December 1982. 3. Female unemployment is currently at 8.8%, and has been at that level for four out of the last eight months, but never higher. That's far below the record-high female jobless rate of 10.4% set in December 1982. 4. The May 2010 male-female jobless rate gap of 1.7% (10.5% male vs. 8.8% female) is down from the postwar record-high gap of 2.7% last August, but is still very high by historical standards. During (or following) the three previous recessions (1981-82, 1990-91, 2001), the peak male-female jobless rate gap averaged about 1%, and never exceeded 1.2% (April 1983). 5. During the 1970s, the female unemployment rate was generally higher than the male rate, and jobless rate gaps exceeded 2% during recessions, but in favor of men (see middle chart). 6. Between December 2007 and December 2009, household employment fell by almost 8.38 million jobs, and 68.5% of those were jobs held by men (5.74 million) and 31.5% were jobs held by women (2.64 million). During this two-year period, 217 men lost their jobs for every 100 women who lost jobs. Read more here about The Great Mancession of 2008-2009 (and it's still not yet over). Posted 10:08 AM Post Link 6 Comments SATURDAY, JUNE 19, 2010 How Cuba's "Blogostroika," the Internet, and Social Media Could Bring Down the Castro Regime "An increasing number of Cubans are disillusioned with socialism and are demanding change. One of the tools that Cubans are now using to recover their freedom of expression and association is the Internet, which has quickly given rise to a community of cyber-dissidents, despite the Cuban government’s efforts to make Internet use difficult. Now that the state is out of money and there are no more rights to exchange for benefits, the demand for freedom is on the rise. One of the tools that has helped people recover the opportunity to air their opinions is the Internet. Although a common citizen cannot contract for Internet at home, and the price of an hour’s connection in a public place exceeds two weeks’ wages, a web of networks has emerged as the only means by which a person on the island can make his opinions known to the rest of the world. Today, this virtual space is like a training camp where Cubans go to relearn forgotten freedoms. The right of association can be found on Facebook, Twitter, and the other social networks, in a sort of compensation for the crime of “unlawful assembly” established by the Cuban penal code. In a printed newspaper or magazine, on the radio or television, it is still impossible to publicize opinions that stray from the trite official script, but once connected to the Internet, many possibilities open up. Up until now, the most used are the independent blogs that have begun to appear. Most of the “direct readers” are abroad, and from there they email the articles and posts they like to their friends and family in Cuba, who copy and multiply them. The bloggers, for their part, put copies of their work on CDs and even distribute them on flash drives. Television stations received by illegal satellite report on the contents of the blogs and conduct interviews, showing the faces of the bloggers. In this way, in less than a year, a community of cyber-dissidents was created — a blogostroika, as it is also called." ~From Cuban blogger Yoani Sanchez's article "Freedom and Exchange in Communist Cuba," published by the Cato Institute. Posted 10:40 PM Post Link 15 Comments California Real Estate Recovery Continues in May Highlights from the DQNews report on May California home sales: 1. In May, 40,965 houses and condos were sold statewide, which was an increase of 9.3 percent from April (28,111), and up 4.9 percent from the 37,967 houses sold in May 2009 (see chart). 2. The median price for a California home sold in May was $278,000, up 9 percent from $255,000 in April and up 20.9 percent from $230,000 last May (see chart). 3. The year-over-year increase was the seventh in a row (starting in November 2009, which is likely the bottom for home prices in CA), following 27 months of year-over-year declines. 4. Of the existing homes sold in May, 35.5 percent were properties that had been foreclosed on during the past year, down from 38.1 percent in April and down from 50.2 percent a year ago (see chart). The last time foreclosure resales were as low was in March 2008, 27 months ago. MP: This report seems to have all of the key ingredients of a real estate market in full recovery mode: 1) increasing unit sales, 2) increasing median home prices for seven consecutive months, and 3) declining foreclosed homes as a share of sales (27-month low). Posted 10:41 AM Post Link 5 Comments Quote of the Day: Minimum Wage "The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that "water runs uphill," no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores." ~James M. Buchanan, 1986 Nobel laureate in economics, writing in the Wall Street Journal on April 25, 1996 Posted 9:59 AM Post Link 44 Comments Seattle Shipping Boom: +44.3% YTD from 2009 The chart above shows monthly shipping volume (TEUs = twenty-foot equivalent units, data here) at the Port of Seattle (America's 10th largest port, and third largest port on the West Coast). As might be expected, shipping at the Seattle port is dominated by trade with China, to the extent that more than half (56%) of the shipping volume (by dollar amount) is with China, and the almost $19 billion of shipping with China in 2009 was more than the value of shipping with the next 100 countries combined. Shipping volume for May (198,175 TEUs) was 57.4% above last year's shipping in May, and this follows year-to-year increases of 57.2% in April, 39.4% in March, 48.2% in February and 21.7% in January. Year-to-date, shipping volume at the Seattle port in 2010 is above last year by 44.3%. At this pace, annual Seattle shipping in 2010 will likely exceed both last year's shipping volume of 1.58 million TEUs and the 1.7 million TEUs in 2008. Posted 9:42 AM Post Link 6 Comments FRIDAY, JUNE 18, 2010 The Job-Killing Impact of Minimum Wage Laws II This CD post that featured a video on the job-killing impact of minimum wage laws generated some lively discussion, so I thought I would post the chart above showing evidence of the adverse effects of raising the minimum wage in the U.S. by 41% between 2007 and 2009. Of course, unemployment rates in general rose in 2008 and and 2009 due to the recession, so the chart above shows the "excess teenage unemployment" by taking the difference between: a) the teenage unemployment rate (data here) and b) the overall U.S. unemployment rate, i.e. teenage unemployment rate MINUS the overall unemployment rate. The "excess teenage unemployment rate" rose by about 5 percentage points, from about 11% to 16% following the 41% increase in the minimum wage from $5.15 in early 2007 to $7.25 by mid-2009. Bottom Line: As much as politicians and other advocates of the minimum wage might pretend otherwise, the laws of supply and demand (like the law of gravity) are NOT optional. Posted 8:48 PM Post Link 36 Comments The Companies Hiring The Most Right Now "Even as the U.S. economy struggles to emerge from last year’s recession, many large businesses are growing enough to hire hundreds of new employees. Forbes and Indeed.com, a website that aggregates job listings from online classifieds and company websites, compiled a list of the 10 companies with more than 2,500 employees that have the most job postings right now." HT: Steve Bartin Posted 12:58 PM Post Link 7 Comments Happy Father's Day: Welcome to the Mancession Cartoon by David Horsey. HT: Gettingrational Posted 10:32 AM Post Link 5 Comments Median CPI Annual Inflation Falls for 20th Straight Month to a Record Low of 0.5% = No Inflation According to the Cleveland Fed's report yesterday, the median CPI increased by only 0.50% in May over the same month last year, the same as April's annual increase of 0.50%. This was the 20th consecutive month that the median CPI annual inflation rate dropped or stayed the same, and the 0.50% inflation rates in April and May are the lowest year-to-year inflation rates in the history of the Cleveland Fed's series back to 1984 (see chart above). In contrast, the regular CPI has increased by 2.0% over the last year (May 2009 to May 2010). 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 is certainly not now showing any signs of inflationary pressures. In fact, a stronger case could be made for deflation right now than inflation, according to: a) the median CPI being at a 26-year low, and b) the decelerating growth of the money supply (annual growth of 2% or below each week since early March) , see chart below (data here). As "inflation skeptic" Bob McTeer (former Dallas Fed president) wrote in May on his blog: "To repeat the obvious, because others won’t, money growth is almost flat. Flat money growth does not cause inflation—especially when we have enormous slack in the economy along with rapid productivity growth and declining unit labor cost. We may get inflation in the next few years, but, if so, it will be based on money growth yet to happen. It hasn’t happened yet." For the "opposing view," see Scott Grannis's recent post "Inflation Pressures are Building in the Production Pipeline." Posted 9:08 AM Post Link 36 Comments About Me Name: Mark J. Perry Location: Washington, D.C., United States Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C. 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