CARPE DIEM Professor Mark J. Perry's Blog for Economics and Finance THURSDAY, JUNE 30, 2011 Quote of the Day: Unbelievably Loopy Economics; CAP Finds That Demand Curves Slope Upward "The Center for American Progress, often called the think tank for the Obama White House, recently recommended another increase in the minimum wage to $8.25 an hour. Though the U.S. unemployment rate is 9.1%, the thinkers assert that a rising wage would "stimulate economic growth to the tune of 50,000 new jobs." So if the government orders employers to pay more to hire workers when they're already not hiring, they'll somehow hire more workers. By this logic, if we raised the minimum wage to $25 an hour we'd have full employment." ~WSJ editorial Posted 10:25 PM Post Link 115 Comments How The Economic Miracle of Chile Increased Life Expectancy by Almost 22 Yrs. in Just Half a Century The top chart above helps to document graphically what has accurately been described as the “the economic miracle of Chile.” Up until the early 1980s, when the first round of economic reforms (1974–1983) were starting to have a positive effect, Chile’s economic performance was among the weakest of the Latin American countries, with annual increases of real GDP per capita averaging only 0.70% from 1913 to 1983. Additional economic reforms in 1985 and 1990 that included trade liberalization supercharged Chile’s economy, and annual growth in per capita output since 1983 has averaged an impressive 4.0% per year. Before the economic reforms, with only 0.70% annual growth, it took almost an entire century for living standards to double in Chile; living standards now double every 19 years with 4.0% real growth, and that’s a real economic miracle! A major factor in Chile’s amazing economic success has been its active pursuit since the 1990s of becoming one of the world’s most open and free markets. To help overcome its natural handicap of being a small and remote country, Chile has become a world leader in free trade, demonstrated by its free trade agreements with more than 50 countries around the world, giving its consumers and companies access to more than half of the world’s markets. The bottom chart above illustrates a major benefit of Chile's miraculous economic turnaround: a significant increase in life expectancy relative to its South American neighbors. In 1960, life expectancy in Chile was only 57 years, much lower than Venezuela (59.5 years), Paraguay (63.8 years) and more than five years below Argentina (65.2 years). By 2009, life expectancy in Chile increased to 78.7 years, the highest in all of the Americas except for Canada (80.89 years) and the United States (79.43 years). That's an amazing increase of almost 22 years in life expectancy for Chileans, from 57 to 78.7 years, in just half a century. Bottom Line: The "Chilean economic miracle" demonstrates that free market capitalism and free trade are the best paths to prosperity and a long life. Thanks to Charles Musick for providing the life expectancy data. Posted 9:45 PM Post Link 32 Comments New Milestone for "New Age of Energy Abundance" Natural gas production in the U.S. set another new monthly record in April according to data released yesterday by the Energy Information Administration. Gross withdrawals of natural gas increased to an all-time high of 78.58 billion cubic feet (Bcf) per day in April, up by 0.54% from the 78.16 Bcf a day in March, and up by almost 7% from production in April last year (see chart above). This new natural gas production record is another new milestone for the ongoing success of the hydraulic fracturing method of extracting natural gas from deep shale rock that is bringing about a new age of energy abundance in the United States. Posted 12:59 PM Post Link 32 Comments North Dakota's Booming Oil Economy If there's any doubt that domestic drilling of oil and gas generate huge and significant positive economic benefits (more jobs, income, output, tax revenues, etc.), the booming economy in North Dakota provides a convincing case study. The Peace Garden State's economy is doing so well on so many different measures, here are some highlights of its ongoing economic success: 1. Monthly oil production dipped slightly in April, but is above its year-ago level by 23% and above the April level two years ago by 78.5% (see chart above). Oil production this year has averaged more than 10.5 million barrels per month, which is double the monthly production levels in 2008, and triple the levels from five years ago. 2. Oil-related employment in North Dakota has more than doubled in just two years, from 6,800 jobs in May 2009 to 15,200 jobs in May of 2011. While the national economy struggles with another "jobless recovery," North Dakota has continued to add jobs, and not just oil-related jobs. The overall state employment level reached an all-time high in May and is 2.5% above the June 2009 level when the recession ended. 3. In the first quarter of 2011, North Dakota led the country with a 6.9% increase in personal income. Second place Wyoming at 2.6% wasn't even close, and North Dakota's increase was almost four times the national average of 1.8%. 4. In 2010, North Dakota led the country with a 7.1% increase in real state GDP, almost three times the national average of 2.6%, and two full percentage points above the 5.1% growth for second-place New York. 5. North Dakota continues to lead the country with the nation's lowest jobless rate. In May, North Dakota's unemployment rate of 3.2% was lower than second-place Nebraska's rate of 4.1% by almost a full percentage point, and was almost six percentage points below the national rate of 9.1%. 6. As a result of North Dakota's booming oil-based economy, tax collections from 2009-2011 have exceeded projections by $237.5 million. Through May, sales tax collections exceeded projections by 13% and income tax revenues by 10.6%. Bottom Line: North Dakota's impressive economic success clearly illustrates some of the benefits of domestic energy production: more jobs, record economic growth, huge gains in personal income, and even more tax revenues. There's no reason that the economic success of North Dakota can't be duplicated elsewhere, if we would only open up more U.S. land and off-shore areas to domestic energy exploration and drilling. Posted 9:30 AM Post Link 24 Comments WEDNESDAY, JUNE 29, 2011 But At Least the Politicians Care... In Theory. Current teenage unemployment rates for May 2011: All teenagers: 24.2% Black teenagers: 40.7% Male black teenagers: 45.1% Female black teenagers: 35.9% To paraphrase Larry Elder, let's sum up. Politicians and the mainscream media ignore market forces, don't care about the reality that demand curves slope downward, and overlook the significant adverse impacts of raising the minimum wage on teenage unemployment. But hey, at least they care. In theory. Especially for minorities. Posted 10:08 PM Post Link 31 Comments Wal-Mart Gets the Gold Medal For Employee Safety Company OSHA Enforcement Inspections, 2006-2011 Employees Inspections per 100,000 Employees Ford 389 164,000 237.2 Home Depot 406 189,390 214.4 Lowes 247 161,000 153.4 Costco 99 82,000 120.7 Whole Foods 26 45,300 57.4 Target 203 355,000 57.2 McDonald's 69 400,000 17.3 Walmart 215 2,100,000 (1,400,000 U.S. only) 10.2 (or 15.4 U.S. only) The table above shows: a) the number of OSHA enforcement inspections over the last five years for a sample of large U.S. companies, along with b) the number of employees at those companies (from Yahoo! Finance), and finally c) the number of OSHA inspections per 100,000 employees at those companies. Note that when adjusted for the number of employees, Walmart has the best safety record by far among the group of retailers and manufacturers (Ford). Walmart's main competitor Target has almost six times more OSHA enforcement inspections, and Costco has twelve times as many. Conclusion: Wal-Mart has a much better safety record than Target, Home Depot, Lowes, McDonald's, Whole Foods, Costco and Ford, when measured by inspections per employee, and therefore gets the Gold Medal for employee safety. Update: Even after adjusting for Walmart's U.S. employees only (1.4 million), and not adjusting any of the other companies for U.S. employees only, Walmart still comes out ahead with the best safety record per 100,000 employees. Posted 9:43 PM Post Link 11 Comments On Behalf of Eyebrow Threaders, The Institute for Justice Goes Up Against The AZ Cosmetology Cartel The video above is about the Institute for Justice's latest heroic effort to defend small businesses and entrepreneurs against economic protectionism, empower individuals to earn an honest living, and promote economic liberty. Here's a summary: "Eyebrow threading is a natural and safe method of hair removal that uses a single strand of cotton thread to remove unwanted hair, most commonly from the eyebrows, with no chemicals, dyes, hot wax or sharp objects. But state bureaucrats have decided that threaders cannot practice their trade without first obtaining an unnecessary and expensive government license. The Arizona Board of Cosmetology is now requiring skilled threaders to obtain an aesthetician license, which requires at least 600 hours of classroom instruction—not one hour of which teaches or tests threading—and that can cost over $10,000. But threaders do not need full-blown cosmetology training. That is why a group of five threaders have filed Gutierrez v. Aune, a lawsuit to vindicate their economic liberty, which is the right to earn an honest living free from unreasonable government regulation. This lawsuit continues the Institute for Justice Arizona Chapter’s ten-year fight to vindicate economic liberty as a fundamental and constitutionally protected right under the Arizona Constitution." Related: The Arizona Republic newspaper defends the eyebrow threaders' right to earn an honest living in an editorial today titled "Leave Eyebrow-threaders Alone." Posted 9:10 AM Post Link 3 Comments TUESDAY, JUNE 28, 2011 2,000 Yrs. in One Chart: 23% of all Goods, Services Made Since 1 A.D. Were Produced This Decade! The chart above is from The Economist and shows a "population-weighted history of the past two millennia" based on "economic output" and "years lived." According to The Economist: "By this reckoning, over 28% of all the history made since the birth of Christ was made in the 20th century. Measured in years lived, the present century, which is only ten years old, is already "longer" than the whole of the 17th century. This century has made an even bigger contribution to economic history. Over 23% of all the goods and services made since 1AD were produced from 2001 to 2010." MP: It also looks like more economic output was produced in the 20th century than in the previous 19 centuries combined. HTs: Robert Kuehl and Steve Bartin Posted 10:33 PM Post Link 80 Comments Inconsistencies in Reporting U.S. Trade Data? Is the BEA Following the Cash, or the Goods and Assets? The BEA released data today on the "U.S. Net International Investment Position at Yearend 2010" with these highlights: The U.S. net international investment position at yearend 2010 was -$2,471.0 billion, as the value of foreign investments in the United States ($22,786 billion) continued to exceed the value of U.S. investments abroad ($20,315 billion). There was a -$74.6 billion change in the U.S. net investment position from yearend 2009 to yearend 2010 that primarily reflected net foreign acquisitions of financial assets in the United States that exceeded net U.S. acquisitions of financial assets abroad. Foreign acquisitions of financial assets in the United States were $1,245.7 billion in 2010, up substantially from $335.8 billion in 2009. U.S. acquisitions of financial assets abroad were $1,005.2 billion in 2010, up substantially from $139.3 billion in 2009. MP: This analysis seems to depart from the way the BEA calculates trade data in the following way: 1. When U.S. imports (cash out) exceed exports (cash in), it gets reported by the BEA as a "trade deficit" because the accounting logic is based on following the cash, and not the goods. Because the "cash out" for imports is greater than the "cash in" for exports, there is a "net cash outflow" from the U.S. to our trading partners, and we call this a "trade deficit." 2. When the BEA calculates the international investment position, it seems to depart from following the cash, and switches to following the assets. The fact that the value of foreign investments in the United States ($22,786 billion) exceeds the value of U.S. investments abroad ($20,315 billion) means that there has been a net inflow, or capital surplus, into the U.S. of $2,471 billion. And yet the BEA reports this as a negative -$2,471 billion because of the switch from following the cash (+$2,471 billion inflow) to following who ends up with the assets. Likewise, the BEA reports a -$74.6 billion annual change in the U.S. net investment position for 2010 because of a $74.6 billion capital inflow, or as the BEA stated because "net foreign acquisitions of financial assets in the United States exceeded net U.S. acquisitions of financial assets abroad" last year. Why the switch from following where the cash ends up (and not goods) when reporting trade data for the U.S., to following where the asset ownership ends up (and not the cash) when reporting the net international investment position for the U.S.? If the government reported trade statistics the way it reports our net investment position, the BEA would follow where the goods end up and not where the cash ends up. In that case, it seems like the BEA would report our "trade deficit" instead as a "trade surplus." Reason? We acquire more output produced in foreign countries in a given quarter or year than the output our trading partners acquire that was produced in the U.S. during that time period. In terms of which country ends up with the most "stuff" on net, the U.S. would be running a "trade/stuff/output surplus," and not a deficit. It's only because the BEA tracks which country ends up with the most "money" on net, and not the most "goods" on net, that the BEA reports a "trade deficit" for the U.S. Alternatively, if the BEA reported the U.S. net international investment position the way it reports trade data, shouldn't it be reporting a positive $2,471 billion net investment position overall and a positive $74.6 surplus for 2010? The BEA is apparently reporting the the U.S. currently has both a "trade deficit" and an "international investment" deficit? How can that be? Posted 10:06 PM Post Link 12 Comments Chart of the Day: Motorcycle Deaths by Age The chart above shows the percentage of annual motorcycle deaths represented by the youngest age group (< 29 years) and the oldest group (> 50 years), according to annual data from the National Highway Traffic Safety Administration for the years 1975 to 2009. In 1975, 80% of motorcycle fatalities were in the youngest age group and that percentage fell over time; only 3% of the deaths were in the older age group in 1975 and that share increased over time (see chart). It's interesting to note that by 2009, the share of motorcycle deaths for the older group (31%) exceeded the share of deaths for the younger group (26%) for the first time ever. I assume these trends in motorcycle deaths reflect the popularity of motorcycles among the baby boom generation, who started driving motorcycles when they were younger and have continued to drive bikes as they age. Meanwhile, if motorcycles have become less popular among young people in their 20s, the two demographic trends would explain why the share of motorcycle deaths represented by the 50+ age group is increasing, and was greater in 2009 than the younger age group's share of deaths. Posted 7:52 PM Post Link 8 Comments The Iron Law of Intervention Economist Art Carden identifies what he calls an Iron Law of Intervention in his recent Forbes column: "If you want to make a problem worse, pass a law to fix it." Art illustrates the law by explaining how price gouging laws actually make conditions much worse, not better, for the victims of natural disasters like the recent tornadoes in Alabama and Missouri. Other examples of the Iron Law would be: a) rent control laws, which worsen shortages of affordable housing, and b) minimum wage laws that make unskilled workers worse off, not better off. Posted 2:53 PM Post Link 37 Comments Semi-Annual Grammar/Punctuation/Spelling Rant: Why Is This Simple Grammar Rule SO Difficult? Please indulge me in my semi-annual supercilious grammar - punctuation - spelling rant. Here's some background, here's the rule, and here are some recent examples below from CD comments of the misuse of "it's" for "its." Excuse my snobbish confusion, but I still can't figure how or why such a simple rule (from about the third grade maybe?) gives so many intelligent people so much trouble? "It's" is a contraction for "it is" and if you can't substitute "it is" for "it's" you should be using "its" (possessive) and not "it's." 1. You simply list every evil regime you can think of and then credit it's existence and it's crimes to the U.S. 2. The fact that the US imports most of it's oil from Canada and not the Saudis is irrelevant. 3. The age of the US truck fleet is at it's highest level since the interstate highway system. 4. That was were I was headed with my question about government and it's role. 5. That is natural law in it's pure form. 6. If you took the whole earth and broke it up into piles of it's constituent components.... 7. Any state that wants to operate it's own system with it's own rules can do so including their own version of block grants. Suggestion: Spend just five minutes thinking about this rule, and you'll know it and "own it" for life, and the misuse of it's will "stand out like a sore thumb" when you see it in print. Comments welcome. Posted 8:53 AM Post Link 50 Comments Posted 7:47 AM Post Link 11 Comments MONDAY, JUNE 27, 2011 Food Deserts in DC? No Problem, Let Walmart Handle It. Bonus: Thousands of New Jobs As Well The United States Department of Agriculture has recently released a "Food Desert Locator," which is an interactive Internet mapping tool that pinpoints low-income neighborhoods across the United States with high concentrations of residents who have limited access to a local supermarket or large grocery store. From the USDA's May 2, 2011 press release: "About 10 percent of the 65,000 census tracts in the United States meet the definition of a food desert. These food desert tracts contain 13.5 million people with low access to sources of healthful food. The majority of this population—82 percent—live in urban areas. This new Food Desert Locator will help policy makers, community planners, researchers, and other professionals identify communities where public-private intervention can help make fresh, healthy, and affordable food more readily available to residents." MP: Who needs "public-private intervention" to make "fresh, healthy and affordable food more readily available" in poor neighborhoods when you have Walmart willing to do a "private intervention" by opening stores in food deserts and solving the problem? A case in point: The pink shaded areas on the map above show the food deserts in the Washington, D.C. metro area. Walmart is planning to open four new stores next year in the Washington area, and two of them are in the city's food deserts (see map above). And Walmart will not only solve the poor neighborhood's food desert problem, it will also address some other problems like bringing 1,200 new permanent jobs to the District with benefits available to full and part-time associates, 400 constructions jobs to build the stores, and affordable $4 prescription drugs. Bottom Line: If you care about poor people, are concerned about food deserts, and want more Americans to have jobs, you just gotta love Walmart. For all of its ongoing efforts to eliminate food deserts and bring affordable, fresh and healthy food to poor neighborhoods across the country in cities like Chicago and Washington, D.C., I hereby nominate Walmart for the 2011 Nobel Peace Prize. Posted 9:21 PM Post Link 28 Comments How Big U.S. Companies Would Rank as Countries Based on 2010 sales revenue, Business Insider has a list of how 25 of America's largest companies compare to the GDP of entire countries in 2010, here are the top three: 1. With 2010 revenues of $414 billion, Walmart would rank as the world's 26th largest economy, right behind #25 Norway, which produced $422 billion of GDP last year. 2. Exxon would rank as the world's 30th largest economy with $355 billion of revenue, ahead of Thailand's $319 billion of GDP. 3. Chevron would rank #46 in the world with $196 billion in sales last year, ahead of the Czech Republic's GDP of $192 billion. HT: Robert Kuehl Update: Please note that sales revenue and GDP are measures of different types of economic activity and are not directly comparable in a pure economic or scientific sense. Consider this to be more of an amusing comparison that allows us to put the billions of dollars of revenue that Walmart or ExxonMobil generate every year into some context by comparing those dollar amounts to the annual output of entire country, giving us an appreciation of the size of America's largest companies. Posted 2:03 PM Post Link 69 Comments #1, #2 American-Made Cars: Toyota and Honda Rank 2011 Make/Model U.S. Assembly Location Rank 2010 1 Toyota Camry Georgetown, Ky.; 1 Lafayette, Ind. 2 Honda Accord Marysville, Ohio; 2 Lincoln, Ala. 3 Chevrolet Malibu Kansas City, Kan. 5 4 Ford Explorer Chicago, Illinois 5 Honda Odyssey Lincoln, Ala. 6 6 Toyota Sienna Princeton, Ind. 10 7 Jeep Wrangler Toledo, Ohio 9 8 Chevrolet Traverse Lansing, Mich. 9 Toyota Tundra San Antonio, Texas 8 10 GMC Acadia Lansing, Mich. Sources: Automaker data, Automotive News, dealership data, and National Highway Traffic Safety Administration "CarCars.com's American-Made Index (AMI) recognizes cars and trucks that are built here, have a high amount of domestic parts and are bought in large numbers by American consumers (see top ten above). Despite stagnant sales, the Toyota Camry and Honda Accord remain atop this year's American-Made Index. Falling domestic parts content axed Ford's popular Escape and Focus, but the Dearborn MI automaker's redesigned, Chicago-built Explorer hit the ground running and entered the list at fourth place. Detroit's full-size pickups, once a dominant force on the AMI, remain off the chart. The F-150 held a commanding No. 1 spot in the first three years that Cars.com compiled the index, with domestic parts content as high as 90 percent. Alas, today's Michigan- and Missouri-built F-150 bears only 60 percent domestic content rating. Similarly, the Chevrolet Silverado, which held second place for much of the F-150's reign, has just 61 percent domestic content. Chrysler's Ram 1500 pickup's 70 percent domestic content fares better, but it still falls short of the AMI's 75-percent cutoff." MP: Three out of the top five, and four out of the top six American-made cars are built by the Japanese automakers Toyota and Honda. Out of the top ten American-made cars, half are built in the U.S. by Toyota and Honda, three by Toyota and two by Honda. Update: Isn't it a bit ironic that many of the "most American made" cars would get towed from the two UAW parking lots in Flint, MI pictured below? And what about the 17 vehicles on the UAW’s 2011 Vehicles Guide built in Canada by unionized members of the "Canadian Auto Workers" - including the Chevy Camaro, Chrysler Town and Country, Dodge Challenger, Lincoln Town Car - wouldn't they be considered "foreign cars" subject to getting towed by UAW Local 659? And the following vehicles on the list that are built by UAW workers in the U.S. for Japanese automakers Mazda and Mitsubishi would apparently be approved at either lot: Mazda6, Mitsubishi Eclipse, Mitsubishi Eclipse Spyder, Mitsubishi Galant, Mazda B-series, and the Mitsubishi Endeavor? Update: See Don Boudreaux's Open Letter to the President of UAW Local 599. Posted 7:49 AM Post Link 34 Comments SUNDAY, JUNE 26, 2011 Sunday Links 1. Intrade contracts for Obama to be re-elected next year are now trading at 56%, the lowest re-election odds since early January 2011 (see chart above). (HT: Steve Bartin) 2. Made in China: The new San Francisco-Oakland Bay bridge. 3. Children with Medicaid are far more likely than those with private insurance to be turned away by medical specialists or be made to wait more than a month for an appointment, even for serious medical problems. Reason? Lower payments by Medicaid, delays in paying, and red tape. 4. Increased worldwide demand is fueling a Kentucky bourbon boom, thanks in part to a growing middle class in emerging markets. (What would Ian Fletcher, author of "Free Trade Doesn't Work" say?) 5. The U.S. military spends $20 billion annually on air conditioning in Iraq and Afghanistan. 6. The Great Corn Con: "In its myriad corn-related interventions, Washington has managed simultaneously to help drive up food prices and add tens of billions of dollars to the deficit, while arguably increasing energy use and harming the environment." I think author Steven Rattner is agreeing with RollingStone Magazine that "Ethanol is not just hype -- it's dangerous, delusional bullshit." Posted 5:26 PM Post Link 23 Comments Quote of the Day: Thomas Sowell on the Cavemen At Cafe Hayek, Don Boudreaux quotes economist Julian Simon: “Natural resources are not finite in any meaningful economic sense, mind-boggling though this assertion may be. The stocks of them are not fixed but rather are expanding through human ingenuity.” Here's a related quote about natural resources from economist Thomas Sowell in his book "Knowledge and Decisions": "The cavemen had the same natural resources at their disposal as we have today, and the difference between their standard of living and ours is a difference between the knowledge they could bring to bear on those resources and the knowledge used today." Posted 8:12 AM Post Link 110 Comments THURSDAY, JUNE 23, 2011 Some Non-Strategic Thinking About a Non-Problem Gasoline prices have been dropping steadily for the last six weeks, and the current price of $3.62 per gallon (national average) is the lowest in three months and almost 8% below the recent peak of close to $4 per gallon in early May (see chart above). America's stock of crude oil for the week ending June 17 was at the highest level (1.065 billion barrels) in more than four month since early February. So what's the administration's "solution" to the "non-problems" of rising oil supplies and falling oil and gas prices? Tap into America's "Strategic Petroleum Reserve" for 30 million barrels of oil, enough for about 36 hours of domestic consumption, while at the same time opposing any legislation that would allow greater access to domestic oil supplies, see Mark Green's post at the Energy Tomorrow blog titled "Non-Strategic Thinking." Mark quotes American Petroleum Institute president Jack Gerard on CNBC: "It's confusing as to why we would wait to this point to release part of the (SPR), but we've still failed to step forward and say let's bring long-term supply to the marketplace, create American jobs at a time when we have 9.1 percent unemployment and produce millions of dollars of federal revenue at time when we're struggling with a debt and deficit crisis. ... Just yesterday the administration sent a letter to Capitol Hill opposing a permitting bill that was designed to expedite permits in Alaska to produce oil and natural gas. We are getting a confused message." Larry Kudlow is rightly skeptical and suspicious of the "government solution" to the "non-problem" and wonders if the IEA delivered a "QE3 quick fix to save Obama’s skin?" and concludes "Lord save us from short-run government fixes. Haven’t we had enough of them?" Posted 7:47 PM Post Link 210 Comments WEDNESDAY, JUNE 22, 2011 "In Loco Parentis": Mandatory Flotation Devices "People who hope to beat the summer heat by swimming, floating or boating on rivers in King County (Washington state) must wear a life vest or face an $86 fine. A divided County Council on Monday passed a personal flotation device ordinance by a five to four vote. Opponents said it was an intrusive move by "big government." "This council sometimes thinks it's everybody's mom," said Councilwoman Kathy Lambert, who voted "no." Supporters said the new rule will save lives." Source. Posted 5:41 PM Post Link 46 Comments May Real Estate Sales Were Booming in Florida, Especially in Miami, Where "Home Sales Go Nuts" Nationally, home sales fell in May by 3.8% from April and by 15.3% from May last year, but the real estate market in Florida was booming in May, with strong gains statewide in condo sales, but especially in the Miami metro area. Statewide, Florida Realtors just reported that existing home sales increased by 3% in May and sales of existing condos rose 17%, both compared to a year ago. The median sales price for existing homes in Florida decreased by 5% in May to $135,500 from $142,900 a year ago, but the median price fro homes sold in May increased by almost 3% from April. In the Miami metro area, the May increases in home and condo sales were even stronger. The Miami Herald is reporting that there were "875 sales of existing single-family homes, and 1,420 condo sales in May, increases of 20 percent and 46 percent from last May, respectively. Compared to April, home sales were up 5.4 percent in Miami-Dade and up 1.1 percent in the condo market." Here's another news story with the title "Miami Home Sales Go Nuts." Foreign buyers are helping to fuel the increase in Miami real estate sales, here's a Bloomberg story about strong demand for Miami homes and condos from Brazilian investors, who are taking advantage of the 45% appreciation of Brazil's currency since 2008. Posted 1:34 PM Post Link 13 Comments TUESDAY, JUNE 21, 2011 Texas Turns Off Lights on Federal Lightbulb Ban "State lawmakers have passed a bill that would allow Texans to skirt federal efforts to promote more efficient light bulbs, which ultimately pushes the swirled, compact fluorescent bulbs over the 100-watt incandescent bulbs many grew up with. The measure, sent to Gov. Rick Perry for consideration, lets any incandescent light bulb manufactured in Texas - and sold in that state - avoid the authority of the federal government or the repeal of the 2007 energy independence act that starts phasing out some incandescent light bulbs next year." "Let there be light," state Rep. George Lavender, R-Texarkana, wrote on Facebook after the bill passed. "It will allow the continued manufacture and sale of incandescent light bulbs in Texas, even after the federal ban goes into effect. ... It's a good day for Texas." Source. Posted 2:13 PM Post Link 61 Comments Markets in Everything: Cash-Only Doctor Renegade Minnesota doctor -- makes same-day house calls, spends 30 minutes with each patient, and accepts payment in cash, checks, eggs, wine, pork sausage, pickles, homegrown tomatoes, or homemade pies, but not insurance, Medicare or Medicare. Posted 1:27 PM Post Link 116 Comments MONDAY, JUNE 20, 2011 MIT's BPP Monthly Inflation Rate Falls to 5-Mo. Low and TIPS Breakeven Spread Falls to A 6-Month Low The Billion Prices Project @ MIT has just been updated with daily price data through June 1, and is reflecting moderating inflationary pressures that have fallen to a new 5-month low (see chart above of monthly inflation rates since 12/25/2010). From a high of about 0.85% for the monthly inflation rate through late February, inflation has fallen to about 0.32% for the month ending June 1, and has been trending steadily downward for the last three months to the lowest level since late January. From a statement issued by the BPP @ MIT group: "We had been anticipating a slowdown in the all-items CPI, which was reflected in the BLS announcement a few days ago. The annual inflation rate appears to be stabilizing around 3.5%." Another market indicator showing moderating inflationary pressures is the 10-year Treasury breakeven spread between yields on nominal and indexed Treasuries, which fell today to 2.17%, the lowest level since December 10, 2010 more than six months ago. Bottom Line: Inflationary pressures are falling. Posted 7:17 PM Post Link 34 Comments Another Reason For Companies to Leave California Last week I posted about the record number of companies leaving California (5.4 per week this year), and here's an AP news story "Wave of Lawsuits Over Seats Hit Retail Stores," about a recent development that might give companies in the Golden State even more incentive to leave (or not move there in the first place, or not expand operations there): "Enterprising trial attorneys by the dozen are using an obscure California labor law requiring retailers such as Wal-Mart, Home Depot and Target to have enough seats on hand for their workers. Superficially, the allegations appear to be little more than a nuisance. But armed with two recent appellate decisions that allow workers and their lawyers to use California's novel "private attorney general" provision, the retailers are facing millions of dollars in damages. A first violation calls for as much as $100 per employee per pay period and double that for subsequent violations." Posted 10:12 AM Post Link 16 Comments Markets in Everything: Fishing Pole with Video The makers of FishEyes have created a rod and reel that features an integrated wide-angle video camera at the end of the line, sitting just above your bait. Posted 8:14 AM Post Link 14 Comments What Happens on the Internet Every Minute "Let's say that it takes you exactly one minute to read this post. In that time, over 6,600 photos will be uploaded to Flickr, about 70 new domains will be registered, over 1,200 new ads will be created on Craigslist, and more. Find out here what happens on the Internet every 60 seconds (see graphic above, click to enlarge)." Posted 8:07 AM Post Link 3 Comments SUNDAY, JUNE 19, 2011 Tiger Economics From an interview with Michael ‘t Sas-Rolfes at the Percolator Blog: "Conservation NGOs benefit from the tiger’s charismatic high profile as a means to raise funds, and conservation scientists like to study tigers, so one could argue that they have an incentive to prevent them from becoming extinct. By contrast, rural people living near tigers have to deal with threats to their livestock and children, and human-tiger conflict is a serious problem over most of the wild tiger’s range. Rural people have less of an incentive to conserve tigers, especially when offered large sums of money for tiger carcasses. I believe that the main challenge for tiger conservation is that people living next to wild tigers are the ones who actually control their destiny, and right now those people typically don’t benefit much from the presence of wild tigers. The people who do benefit are mostly far away and don’t have much real control over what happens to tigers. There is a mismatch between who pays the costs and who gets to benefit from tiger conservation. For something to be an asset, it has to be owned by someone. Right now most wild tigers are typically ‘owned’ by governments, but that is a weak and dispersed form of ownership, which does not benefit or incentivize specific people who control the wild tiger’s destiny. Those people are typically rural subsistence farmers and poorly paid government employees. By creating stronger property rights – i.e. more direct ownership of tigers – one could create ways for more specific groups, communities or agencies to control and benefit directly from tigers. Ways to benefit could include genuine “adopt-a-tiger” schemes, contractual agreements with local people, tourist viewing, and possibly trophy hunting (although this is currently banned). This would give tigers much greater asset value." Posted 9:05 PM Post Link 30 Comments Congrats to IBM for Surviving 100 Years of Intense Market Competition.... and Government Lawsuits IBM Stock Returns vs. Dow Jones Industrial Average, 1968-1985 (click to enlarge) IBM is celebrating the 100th anniversary of its founding on June 16, 1911. See a timeline here of "milestone events in one of the quintessential U.S. corporate success stories." It would be impressive enough for any U.S. company to still be profitable and successful even a decade or two after it started, but it's truly rare and extraordinary for a company to be around for an entire century like IBM, and survive two world wars, 20 recessions including the Great Depression, strong "gales of Schumpeterian creative destruction" and still be one of the largest and most successful companies in the world 100 years later. As Steven Pearlstein wrote in today's Washington Post: "IBM, almost uniquely among technology companies, has managed to survive a series of technological sea changes and make it to its 100th anniversary, which was celebrated last week in New York. Since 1911, as the world has progressed from the calculator and typewriter to the mainframe to the personal computer and now to the Internet, this corporate centurion remains at the top of its game and near the top of the technology heap." Successful companies like IBM (or Alcoa and Microsoft) that survive over many generations do so because of their extreme focus on innovation, bringing new products to the market, cost-cutting, productive efficiency, and engaging in super-competitive behavior. Even when they inevitably capture a large market share and become industry leaders, companies like IBM, Alcoa and Microsoft still face extreme market discipline, both from existing firms and from the potential threat of new competitors who stand ready to enter the market and challenge the market leader under the right market conditions. And to make it to its 100th anniversary, IBM not only had to survive intense market competition and "technological sea changes," but it also had to survive several antitrust cases brought by the U.S. government (like Alcoa and Microsoft), including one that lasted for more than a decade. From Wikipedia: "IBM's dominant market share in the mid-1960s led to antitrust inquiries by the U.S. Department of Justice, which filed a complaint for the case U.S. v. IBM in the United States District Court on January 17, 1969. The suit alleged that IBM violated the Section 2 of the Sherman Act by monopolizing or attempting to monopolize the general purpose electronic digital computer system market, specifically computers designed primarily for business. The case dragged out for 13 years, turning into a resource-sapping war of attrition. In 1982, the Justice Department finally concluded that the case was “without merit” and dropped it. But having to operate under the pall of antitrust litigation significantly impacted IBM's business decisions and operations during all of the 1970s and a good portion of the 1980s." MP: The chart above shows the history of IBM stock returns compared to the Dow Jones Industrial Average (DJIA) from 1968 to 1985. Perhaps this is a case of correlation and not causation, but during the entire time that IBM was being sued by the Department of Justice for exercising monopoly power, the return on IBM was about the same as for the entire DJIA. But as soon as the case was dropped, and IBM no longer had to divert resources to defend itself from government prosecution, the return on IBM stock rebounded. In the three years following the end of the government's lawsuit, IBM shares increased by 120%, or more than twice the 50% return on the DJIA during that period. Of course by the 1980s the computer industry was going through a major "technological sea change" and moving from mainframe computers to personal computers, and the potential threat of competition from young upstarts like Microsoft (founded 1975), Apple (founded 1976), Sun (founded in 1982), Cisco (founded 1984) and Dell (founded 1984) was becoming a reality and providing IBM with so much market competition that the government's monopoly case against IBM was becoming irrelevant. One of the lessons from IBM's 100 anniversary is that intense market competition is the best and most effective regulator possible, making vigorous enforcement of antitrust laws unnecessary. In the 13-year period from 1969-1982 that the government was harassing IBM, the twin forces of "technological sea changes" and market competition were much more successful and effective at challenging IBM's market dominance than the government's prosecution. And we can't overlook the financial damage to IBM from fighting an expensive 13-year battle against the Department of Justice (and the cost to U.S. taxpayers) - imagine if instead of spending millions, maybe billions of dollars fighting the government, IBM had invested those resources in research and new product development at a critical period when the industry was shifting from mainframes to PCs. Bottom Line: Congratulations to Big Blue for a major business milestone of surviving 100 years in the most competitive marketplace in the world, and for surviving several lawsuits brought by the most powerful government in the world. Posted 7:34 PM Post Link 21 Comments How About Europe Learning from Mississippi? In a New York Times editorial last year titled "Learning from Europe" Paul Krugman wrote: "The story you hear all the time about Europe — of a stagnant economy in which high taxes and generous social benefits have undermined incentives, stalling growth and innovation — bears little resemblance to the surprisingly positive facts. The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works. The European economy works; it grows; it’s as dynamic, all in all, as our own." The BEA recently released data for the amount of GDP produced by U.S. states in 2010 , which allows for a updated comparison of output per capita in U.S. states (Note: Per-capita GDP is provided by the BEA in 2005 dollars, and those amounts have been adjusted to 2010 dollars for comparison to other countries in 2010) to European countries (and Japan and Canada), see table below (international countries are adjusted for PPP). Key findings: 1.The European Union as a group ($32,700 GDP (PPP) per capita in 2010) ranks below America's poorest state, Mississippi ($32,764). 2. Even relatively wealthy (by European standards) Switzerland would rank #32 as a U.S. state, behind Georgia. The countries of Belgium and Germany would rank even lower at #46 and #47, and the U.K., Finland, and France would be close to the bottom of American states, below #48 South Carolina. 3. Spain, Italy, Greece and Portugal all rank below America's poorest state (Mississippi) for GDP per capita. MP: Paul Krugman's assessment of Europe's economic success bears little resemblance to the surprisingly negative facts, which are actually the opposite of what Krugman claims. With a few exceptions, the amount of economic output produced per person would rank most European countries among America's poorest states. And even America's poorest states like Mississippi and West Virginia would rank above average among the countries of Europe. When it comes to economic success, the data suggest that Europe has a lot more to learn from the U.S. than vice-versa. GDP per Capita: U.S. States vs. Europe, Japan and Canada, 2010 Rank GDP per Capita, 2010 District of Columbia $168,327 Luxembourg $81,383 1 Alaska $70,814 2 Delaware $69,880 3 Wyoming $68,162 4 Connecticut $66,022 5 New York $59,596 6 Massachusetts $58,339 7 New Jersey $55,715 8 Virginia $53,113 9 Colorado $52,205 Norway $52,013 10 California $51,905 11 North Dakota $51,882 12 Minnesota $51,238 13 Maryland $51,224 14 Washington $50,912 15 Illinois $50,581 16 South Dakota $49,741 17 Texas $49,119 18 Nebraska $48,708 19 Hawaii $48,697 20 Oregon $48,590 21 Louisiana $48,068 22 Iowa $46,791 23 Rhode Island $46,688 24 New Hampshire $46,295 25 Nevada $46,136 26 Kansas $44,621 27 North Carolina $44,568 28 Pennsylvania $44,471 29 Wisconsin $43,446 30 Indiana $42,266 31 Georgia $41,720 Switzerland $41,663 32 Utah $41,528 33 Vermont $41,290 34 Ohio $41,240 Netherlands $40,765 35 Missouri $40,515 36 Tennessee $40,239 37 Florida $39,988 38 Arizona $39,910 39 Oklahoma $39,724 Austria $39,634 40 New Mexico $39,475 Canada $39,057 41 Michigan $38,959 42 Maine $38,623 Ireland $38,550 Sweden $38,031 43 Kentucky $37,209 Denmark $36,450 44 Idaho $36,113 Belgium $36,100 Germany $36,033 45 Alabama $36,002 46 Montana $35,895 47 Arkansas $35,161 48 South Carolina $35,034 United Kingdom $34,920 Finland $34,585 France $34,077 Japan $33,805 49 West Virginia $33,738 50 Mississippi $32,764 European Union $32,700 Spain $29,742 Israel $29,531 Italy $29,392 Greece $28,434 Portugal $23,223 Posted 9:59 AM Post Link 75 Comments SATURDAY, JUNE 18, 2011 Saturday Links 1. "Lemonade stands are supposed to come with lessons — about camaraderie, teamwork, entre­pre­neur­ship. But sometimes the all-American rite of passage instead becomes a master class in government overreach," like near the U.S. Open as reported by the Washington Post (another story will appears on the front page the Sunday edition) and other media. 2. Estimate: Google's Les Paul doodle guitar cost companies around the world $268 million in lost productivity. 3. Hospitals Embrace Text Messaging of Emergency Room Wait Times 4. To increase efficiency, Hewlett-Packard is planning to shift part of its notebook production from China to Japan in the next few months. The Californian company plans to eventually manufacture all computers for sale in Japan in factories near Tokyo. 5. Get your soon-to-be-extinct incandescent light bulbs on Ebay or Amazon while they're still legal. (HT: Instapundit) 6. From Popular Mechanics: "101 gadgets that changed the world," from #1 (Mobile/Smartphone) to #101 (duct tape). (HT: Instapundit) Posted 12:47 PM Post Link 6 Comments FRIDAY, JUNE 17, 2011 Mapping the Dead from Mexico's Drug War This website tracks and maps the narco-related killings in Mexico, which now exceed 40,000 since the start of the Mexican drug war in December 2006. The map above (click to enlarge) shows the deaths in Mexico over just one 6-1/2 month period from May 15, 2010 to December 2010. Death maps for other periods are available at the website. Here's the map legend: The RED balloons are civilians. The RED balloons with a dot are politicians, and other high profile killings. The BLUE balloons are police officers and soldiers (and other law enforcement officials). The BLUE balloons with a dot are high ranking officers. The YELLOW suns represent car bombs and the 2 GREEN people represent mass graves. Posted 11:06 PM Post Link 16 Comments 40 Yrs. of Drug War Failure and 40k Dead in Mexico Related: The number of casualties from the War on Drugs in Mexico is estimated to be 40,000 since 2006, according to some sources. At the current rate of 10,000 deaths per year, the number of Mexicans killed in its drug war will soon approach the number of Americans killed in the Vietnam War. Posted 2:55 PM Post Link 8 Comments Companies Leaving California in Record Numbers California currently ranks #49 among U.S. states for "business tax climate" (Tax Foundation) and #48 for for "economic freedom" (Mercatus). It shouldn't be any surprise then that companies are leaving the "Golden State" in record numbers this year (see chart above) for "golder pastures" and more business-friendly climates in other states. From Joe Vranich: "Today, California is experiencing the fastest rate of disinvestment events based on public domain information, closure notices to the state, and information from affected employees in the three years since a specialized tracking system was put into place. Out-of-state economic development officials are traveling through the state to alert frustrated business owners and corporate executives to their friendlier business climate versus California's hostility toward commercial enterprises. From Jan. 1 of this year through this morning, June 16, we have had 129 disinvestment events occur, an average of 5.4 per week (see chart above). For all of last year, we saw an average of 3.9 events per week. Comparing this year thus far with 2009, when the total was 51 events, essentially averaging 1 per week, our rate today is more than 5 times what it was then. Our losses are occurring at an accelerated rate. Also, no one knows the real level of activity because smaller companies are not required to file layoff notices with the state. A conservative estimate is that only 1 out of 5 company departures becomes public knowledge, which means California may suffer more than 1,000 disinvestment events this year. The capital directed to out-of-state or out-of-country, while difficult to calculate, is nonetheless in the billions of dollars. The top five destinations are (1) Texas, (2) Arizona, (3) Colorado, (4) Nevada and Utah tied; and (5) Virginia and North Carolina tied. Based on the legislature’s recent rejection of business-friendly legislation and Sacramento’s implementation of additional regulations, signs are that California’s hostility towards business will only worsen. California is such fertile ground that representatives for economic development agencies are visiting companies to dissect our high taxes, extreme regulatory environment and other expenses to show annual savings of between 20 and 40 percent after an out-of-state move." See related news story here. Posted 2:49 PM Post Link 47 Comments Leading Economic Index Points to Ongoing Growth The Conference Board reported today that its Leading Economic Index (LEI) increased 0.8% in May to 114.7 (see chart above), with the largest positive contributions to the index coming from the interest rate spread, consumer expectations and building permits. The LEI has now increased in 25 out of the last 26 months starting in April 2009, with the only monthly decrease occurring in April of this year. According to economist Ataman Ozyildirim at The Conference Board: “The U.S. LEI rebounded in May and resumed its upward trend with a majority of the components supporting this gain. The Coincident Economic Index, a monthly measure of current economic conditions, continued to increase slowly but steadily. Overall, despite short-term volatility, the composite indexes still point to expanding economic activity in the coming months.” MP: Despite some recent signs of a temporary slowdown in certain areas of the economy, the ongoing upward trend in the Leading Economic Index that started in the spring of 2009 suggests that the economic expansion will continue through the rest of 2011 without interruption. Posted 1:50 PM Post Link 16 Comments Thanks to War on Drugs, U.S. is World's #1 Jailer This is a post to recognize the 40th anniversary of the day in 1971 that President Nixon declared that the U.S. government would start waging a "War on Drugs" war on peaceful Americans who chose to use intoxicants not approved of by the U.S. government (HT: Don B.). Q: Which repressive country puts the most people in jail for violating government laws? A. Iran B. Saudi Arabia C. Libya D. Egypt E. United States of America Well, it's not even close.............. World Rank, 2010 Country Prisoners per 100,000 Population #1 U.S.A. 743 37 Tunisia 297 52 Turkmenistan 224 53 Iran 223 61 Libya 200 61 Mexico 200 69 Colombia 180 70 Saudi Arabia 178 92 Bahrain 149 116 China 120 126 Venezuela 114 137 Iraq 101 140 Ethiopia 98 150 Egypt 89 156 Yemen 83 185 Syria 58 187 Afghanistan 56 198 Sudan 45 198 Pakistan 45 The table above shows how the 2010 U.S. prison incarceration rate (prisoners per 100,000 population) compares to some of the roughest countries in the world. The full list of 216 countries is here, the countries above were selected as some of the world's most repressive regimes (Iran, Saudi Arabia and Libya), some of the world's least economically free countries (Venezuela, Turkmenistan, Sudan, Afghanistan, according to the Heritage Foundation), and some countries with the biggest narco-terrorism problems (Colombia and Mexico). But none of them even come close to the incarceration rate of the World's #1 Jailer - the United States, largely because of the "War on Drugs" war against peaceful Americans using intoxicants currently not approved of by the U.S. government (see chart below). Note that in the full list of countries, neighboring Canada ranks #124 (117 prisoners per 100,000), and countries with liberalized drug laws like Portugal rank #128 (112 per 100,000) and Netherlands ranks #145 (94 per 100,000). Update: AIG claims that "There is ZERO evidence that this greater number of prisoners in the U.S. is due to the war on drugs." Here is some evidence: 1. "A major cause of such high numbers of prisoners in the United States system is that it has much longer sentences than any other part of the world. The typical mandatory sentence for a first-time drug offense in federal court is five or ten years, compared to other developed countries around the world where a first time offense would warrant at most 6 months in jail. Mandatory sentencing prohibits judges from using their discretion and forces them to place longer sentences on nonviolent offenses than they normally would have." 2. "One of the biggest contributors to the United States' spike is the war on drugs. Around 1980, the United States had 40,000 people in prison for drug crimes. After the passage of Reagan's Anti-Drug Abuse Act in 1986, incarceration for non-violent offenses dramatically increased. Part of the legislation included the implementation of mandatory minimum sentences for "the distribution of cocaine, including far more severe punishment for distribution of crack—associated with blacks—than powder cocaine, associated with whites." Under the Anti-Drug Abuse Act, users of powder cocaine can possess up to 100 times more substance than users of crack, while facing the same mandatory sentence. The Anti-Drug Act targeted low-level street dealers, which had a disproportionate effect on poor blacks, Latinos, the young, and women. The United States houses over 500,000 prisoners for these crimes. Ethan Nadelmann of the Drug Policy Alliance said, "We now imprison more people for drug law violations than all of Western Europe (with a much larger population) incarcerates for all offenses." Posted 9:00 AM Post Link 35 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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