Tuesday, January 31, 2012

The Fed's Low Rate Policy Is Delaying The Economy's Healing

From Real Clear Markets, "The Bernanke Fed Is Killing the Economic Patient" by John Tamny:
Indeed, in wreaking havoc with the cost of credit, the Fed is repelling the very savers whose savings would author the economy's rebirth. In attempting to keep the cost of credit low, the Fed is paradoxically making credit tight. David Malpass alluded to this in the Wall Street Journal last week with his comment that despite low rates, available credit hasn't increased except for the bluest of blue chip companies that are seen as good credit risks even at low rates of interest.

Cheap credit on its own is fine, but when interventionists make it artificially cheap, it's the equivalent of the Italian government decreeing that the price ceiling for Ferrari's will be $10,000. In that case, there would be lots of willing Ferrari buyers, but no Ferrari's to buy. Credit is no different. The high rates that would bring in the savers (on the way to lower interest costs down the line) are not being allowed, thus explaining tight credit despite "low" rates of interest.

Monday, January 30, 2012

US Government Underpays Workers With Doctorates And Overpays High School Graduates

According to a recent CBO study, the Federal Government pays, on average, 48 percent more for benefits for its workers than the private sector. Worker productivity was not considered in the analysis so the implicit assumption is that a public worker and a private sector worker in similar jobs in similar time periods have equal outputs.

Employees with only a high school degree were the most overpaid in wages and benefits and workers with a professional degree or doctorate were the most underpaid in wages and benefits compared to equivalent workers in the private sector.

From CBO, "COMPARING THE COMPENSATION OF FEDERAL AND PRIVATE-SECTOR EMPLOYEES" January 2012:

Wages
Differences in wages between federal employees and similar private-sector employees in the 2005-2010 period varied widely depending on the employees' level of education.
  • Federal civilian workers with no more than a high school education earned about 21 percent more, on average, than similar workers in the private sector.

  • Workers whose highest level of education was a bachelor's degree earned roughly the same hourly wages, on average, in both the federal government and the private sector.

  • Federal workers with a professional degree or doctorate earned about 23 percent less, on average, than their private-sector counterparts.
Overall, the federal government paid 2 percent more in total wages than it would have if average wages had been comparable with those in the private sector, after accounting for certain observable characteristics of workers.

Benefits
The cost of providing benefits—including health insurance, retirement benefits, and paid vacation—differed more for federal and private-sector employees than wages did, but measuring benefits was also more uncertain.

  • Average benefits for federal workers with no more than a high school diploma were 72 percent higher than for their private-sector counterparts.

  • Average benefits for federal workers whose education ended in a bachelor's degree were 46 percent higher than for similar workers in the private sector.

  • Workers with a professional degree or doctorate received roughly the same level of average benefits in both sectors.
On average, the benefits earned by federal civilian employees cost 48 percent more than the benefits earned by private-sector employees with certain similar observable characteristics.

The complete CBO report follows:
Comparing the Compensation of Federal and Private Sector Employees

Sunday, January 29, 2012

Incentive Compensation In Banking Was Not The Cause of Excessive Risk Taking

My comment to "Change incentives instead of regulating outcomes" by Russ Robert on Cafe Hayek blog:
Pay both as to amount and type, e.g. straight commission (performance bonuses) versus fixed salary, is a signaling mechanism to the prospective employee marketplace. Commission based pay attracts a more risk taking, performance oriented worker compared to a fixed salary worker.

Banking is a low margin, capital constrained business, especially in comparison to businesses outside of the financial services arena. The net interest margin in banking is around 3-4 percent while many consumer and industrial product businesses have gross margins of 40 percent or more. Non-banking businesses usually do not face capital or equity issues.

Low margins and capital constraints push banks into high volume, high leverage and efficient capital and funds uses, such as securitization. High volumes increase risk because in banking often the volume at a given risk level is fixed and the easiest way to increase volume is by increasing risk.

Banks use incentive compensation to signal to the prospective employee marketplace that they need high performance, volume generating, risk taking employees. If the regulators and government eliminate or curtail the use of incentive compensation, banks will just find other ways to signal to the future employee marketplace their need for risk taking, high volume performers and the banks will find other ways to compensate successful employees other than through incentive compensation.

Left unchecked by too big to fail or possible bankruptcy, the underlying economic forces of banking created the push for higher volumes and risk taking in banking. The incentive compensation was just a signal to filter the prospective employee marketplace. Removing incentive compensation will not change the underlying economic forces of banking and will not stop the search for high volumes and the consequential risk caused by higher volumes. Banks will find other ways to signal and adequately compensate the desired employees.

Friday, January 27, 2012

Union Membership At Lowest Level

From Bloomberg, "Union Membership Falls to Record Low 11.8%" by Holly Rosenkrantz:
Labor unions represented 6.9 percent of employees in private companies, unchanged from 2010 and down from 7.2 percent in 2009, according to data released today by the Bureau of Labor Statistics.

The overall union membership rate was 11.8 percent, down from 11.9 percent in 2010. That figure reflects both public and private-sector workers. The rate of unionization in the public sector was 37 percent.

Economically, The Best Greenhouse Gas Policy Is To Impose No Controls For 50 Years

From The Wall Street Journal Opinion Page"No Need to Panic About Global Warming: There's no compelling scientific argument for drastic action to 'decarbonize' the world's economy."
Even if one accepts the inflated climate forecasts of the IPCC, aggressive greenhouse-gas control policies are not justified economically.

A recent study of a wide variety of policy options by Yale economist William Nordhaus showed that nearly the highest benefit-to-cost ratio is achieved for a policy that allows 50 more years of economic growth unimpeded by greenhouse gas controls. This would be especially beneficial to the less-developed parts of the world that would like to share some of the same advantages of material well-being, health and life expectancy that the fully developed parts of the world enjoy now. Many other policy responses would have a negative return on investment. And it is likely that more CO2 and the modest warming that may come with it will be an overall benefit to the planet.
The entire statement printed in The Wall St Journal from which the above quotation is taken was signed by the following 16 scientist: Claude Allegre, former director of the Institute for the Study of the Earth, University of Paris; J. Scott Armstrong, cofounder of the Journal of Forecasting and the International Journal of Forecasting; Jan Breslow, head of the Laboratory of Biochemical Genetics and Metabolism, Rockefeller University; Roger Cohen, fellow, American Physical Society; Edward David, member, National Academy of Engineering and National Academy of Sciences; William Happer, professor of physics, Princeton; Michael Kelly, professor of technology, University of Cambridge, U.K.; William Kininmonth, former head of climate research at the Australian Bureau of Meteorology; Richard Lindzen, professor of atmospheric sciences, MIT; James McGrath, professor of chemistry, Virginia Technical University; Rodney Nichols, former president and CEO of the New York Academy of Sciences; Burt Rutan, aerospace engineer, designer of Voyager and SpaceShipOne; Harrison H. Schmitt, Apollo 17 astronaut and former U.S. senator; Nir Shaviv, professor of astrophysics, Hebrew University, Jerusalem; Henk Tennekes, former director, Royal Dutch Meteorological Service; Antonio Zichichi, president of the World Federation of Scientists, Geneva:

Thursday, January 26, 2012

The Biggest US Government Subsidies Are The Employer Healthcare Deduction, The Pension Contribution Deductions And The Home Mortgage Interest Deduction: Let's Eliminate Them

The biggest loss of tax revenue to the US government are the subsidies to the middle class. They are according to the CBO:
  1. $675 billion from the elimination of the Exclusion of Employers' Contributions for Health Care, Health Insurance Programs, and Long-Term Care Insurance Premiums:
  2. $600 billion from the elimination of the Net Exclusion of Pension Contributions and Earnings:
  3. $500 billion from the elimination of the Deduction of Mortgage Interest on Owner-Occupied Residences:
  4. $400 billion from the elimination of the Reduced Rate of Taxation on Long-Term Capital Gains and Dividends:
  5. $275 billion from the elimination of the Earned Income Tax Credit:
  6. $225 billion from the elimination of the Deduction of Nonbusiness State and Local Government Income Taxes, Sales Taxes, and Personal Property Taxes.
.As I said in my March 11, 2011 blog post, "Major Sources Of Increased Income Tax Revenue Opportunities:"
The major sources of tax revenue mentioned above [Items 1 - 6 listed above] reduce the deficit about half, but will have a greater impact going forward as the deficit is expected to shrink.
***
There are few if any other options that would produce as much tax revenue for the US. Plus, elimination of most of these 'income tax expenditures' would reduce investment, consumption and incentive distortions that exist in the US economy. Increases to the personal income tax rate or the corporate tax rate are unlikely to produce an equivalent amount of new tax revenue.
So, Mr. President, let's eliminate the middle class subsidies to cut our deficit in half, to eliminate investment distortions, to restore growth in the US economy and to restore market discipline and market prices to the health insurance and housing markets.

Wednesday, January 25, 2012

Jealousy And Self-Entitlement Are Not Reasons To Raise Taxes

My comment to The Wall Street Journal Opinion piece, "Romney's Fair Share: The candidate's tax return is an argument for tax reform."
Mitt Romney did not forcibly take one dollar from me or anyone else in making his income and wealth. I am sure he is also paying more in taxes than the value of government services he is getting.

He went to college and has two advanced degrees. Most top 1 percenters have college degrees and many have graduate degrees, as opposed to most of the bottom 1 percenters who do not have college or high school degrees. He worked in a very competitive field at a job where the hours are long, no stopping at 40 hour workweeks in consulting, no overtime pay and no guaranteed weekends and holidays off, and the work and bosses are very demanding.

He is paying his legal amount of taxes.

He is what American opportunity is all about; get educated, learn skills, work hard, excel in a competitive industry, make money.

Am I jealous? Yes, somewhat.

Do I wish I had his income or wealth? Yes.

Is his money invested and helping our economy grow? Yes.

Nothing he does or has done has made the rest of us poor.

Our politicians and their hands in the til, our failed education policy and government run educational system, our overly generous benefits for union and government workers, our government regulations that stifle entrepreneurship and business formations and the lack of skills, motivation, discipline and drive in many of today's workers have made many of us poorer than we ought to be

President Obama and many of the 99 percenters have an attitude that they are entitled and that society owes them something. Nobody automatically owes anybody anything.

Nothing done by Romney or in the way he made his money justifies the government, you or me taking more of his wealth or income than he already legally pays.

The government will waste the extra money on a failed education system, on more generous government worker benefits, on political paybacks disguised as subsidies, on incentives not to work, etc.

Jealousy and self-entitlement are not reasons to raise Romney's or any other wealthy person's taxes.

Nike's I Love Football Superbowl Commercial With Dennis Hopper

The Superbowl is coming. New England Patriots versus the New York Giants, Tom Brady against Eli Manning, Bill Belichick versus Tom Coughlin.

A rarely seen, but terrific 1995 Superbowl commercial for Nike with Dennis Hopper about the game of football.

After Obama's Speech, Odds Double For Independent Or Third Party Candidate

The Intrade odds that Palin, Trump, Bloomberg, Paul or Bachmann will run for President as an Independent or 3rd party candidate jumped 102.7 percent after President Obama's state of the union speech.

The odds jumped 19 points from 18.5 to 37.5 percent.

Tuesday, January 24, 2012

US Producing More Oil And Gas In Spite Of Obama's Anti Fossil Fuel Policies

The US Energy Department said that net imports of energy will reduce from 22 percent in 2010 to 13 percent by 2035. Much of the growth in domestic energy is from the intensive drilling in North Dakota and in spite of Obama's policies to deny offshore and federal land drilling permits.

From Bloomberg, "Obama Claiming Credit for Fossil-Fuel Gains Angers Industry" by Jim Efstathiou Jr. and Aaron Clark:
Onshore oil and gas production on federal lands directly under Obama’s control is down 40 percent compared to 10 years ago, according to Spencer Pederson, a spokesman for Representative Doc Hastings, a Washington Republican and chairman of the House Natural Resources Committee. In 2010, the U.S. signed the fewest number of offshore drilling leases since 1984.
***
In a January report, the American Petroleum Institute in Washington said that in two years the number of new leases to drill on federal lands declined 44 percent to 1,053 in 2010. The report blamed “new rules, policies and administrative actions that are not conducive to oil and natural gas production.”

Lower imports are the result of lower demand, and increasing production has come despite Obama’s policies, according to Jack Gerard, American Petroleum Institute President. The U.S. needs a “course correction” on energy policy that includes faster permitting on federal lands in the West and in the Gulf of Mexico, he said.
***
Much of the growth [in domestic energy] has come from North Dakota, where oil producers have spurred a fivefold increase in output by using intensive drilling practices in the Bakken, a geologic formation that stretches from southern Alberta to the northern U.S. Great Plains. [Emphasis Added.]

US Inequality Proponents Misleadingly Use Percentile Group Changes Instead Of Tracking Same Families Over Time

My comment posted on Rortybomb, "Changes in the Wealth and Income of Those at the Bottom Over the Past 30 Years" by Mike Konczal:
"whatever is going on for the average American, there are a huge group of Americans worse off, in absolute and relative terms, in the wages they get in the current market economy and with the wealth they’ve tried to build."

Your conclusion is unsupported by the charts.

The charts shows differences in amounts held or earned by percentile groups, but it is not measuring the difference in wealth or income among the same families. The Census definition of family is related individuals living together.

Having more young people move out of their parent's homes, more divorces, more cohabitation for which a family measurement does not combine the partners income or wealth, more dual earning husbands and wives, and more retirees and especially more older retirees would produce much of your results. Immigration differences will also affect the inequality measurements.

Many studies show that the top earners and wealth holders are not static over a decade or longer. There is considerable churning at the top, middle and the bottom with many moving out of their initial percentile ranking by several deciles. Longitude studies that track families, households or individuals over time show income and wealth gains as one moves from new entrant into the workforce to experienced worker to dual worker household to retiree. They also show a decline in family income as one enters retirement or divorces and a wealth loss in retirement and after divorce.

Over long time periods, 30 years, of measured inequality and wealth changes, we have a changing amounts, and changing relative weights, of new entrants, established workers, married, divorced and retired.

Unless one controls for normal life events, and establishes equal weight at the beginning and end of the period, then the different amounts of normal life events in the beginning and ending time periods will cause much of all the supposed inequality measurements.

If opportunities for wealth and income gains did not exist for new workforce entrants in the US, I would expect an increase in emigration and a decrease in immigration as one sees in other countries without economic opportunities. Yet, the US has a low emigration rate and a high immigration rate.

Monday, January 23, 2012

Will The High Quality Of US Healthcare Decline As ObamaCare Inevitably Fails?

The comment I posted to The Wall Street Journal, "Should Everyone Be Required to Have Health Insurance?"
Most of the uninsured fall into the following categories. They are either 18-24 years old, non-citizens, the rich who are self-insured, people who are enrolled in insurance through their job or privately but are in a waiting period before benefits kick in, or people who are eligible for state or federal medical programs but have not enrolled, such as medicaid, chip, etc.

The percentage of medically uninsured individuals in the US has remained relatively constant for 30 years and probably longer, at around 14-16 percent of the US population, despite outreach efforts to increase enrollments in federal and state programs.

The people who have no alternatives and cannot afford insurance, what we think of as uninsured, make up about 1/4 to 1/3 of the often-cited total of uninsured. We are talking about 5 percent or less of the US population that need some backstop coverage. There was never a need for ObamaCare. There are other, much less intrusive solutions for providing medical care to this small group.

The real problem facing the US is that the US government cannot afford to keep paying the costs of free healthcare because its costs are rising faster than inflation and because the workforce-retiree balance is shifting to fewer workers and more retirees, making Medicare unfundable as it is.

ObamaCare does not solve the problem of runaway medical costs. The mandate will not solve that problem. There are not enough uninsured people to make medical care affordable as it is configured in the US.

Price controls and rationing never work. Obamacare will fail, The question is will it cause the high quality of US medical care to decline as it fails?

Saturday, January 21, 2012

Manufacturing Speed, Flexibility And Availability Of A Skilled Workforce Is Why US Plants Have Moved Overseas; Not Labor Costs

The international comparative competitive advantage for manufacturing is not in the US and is now in China And Southeast Asia. Those areas have the speed, the flexibility, the manufacturing facilities to make quick product changes and a readily available skilled workforce. Labor costs are not the reason manufacturing has left the US and moved overseas.

From The New York Times, "How U.S. Lost Out on iPhone Work" by Charles Duhigg and Keith Bradsher:
In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.
***
For [Apple CEO] Mr. [Timothy D] Cook, the focus on Asia “came down to two things,” said one former high-ranking Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.” The result is that “we can’t compete at this point,” the executive said.
***
“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”
***
...building the iPhone in the United States would demand much more than hiring Americans — it would require transforming the national and global economies. Apple executives believe there simply aren’t enough American workers with the skills the company needs or factories with sufficient speed and flexibility. Other companies that work with Apple, like Corning, also say they must go abroad.
***
“We shouldn’t be criticized for using Chinese workers,” a current Apple executive said. “The U.S. has stopped producing people with the skills we need.”

Thursday, January 19, 2012

End Of US Consumer Deleveraging Near But Unlikely To Spur Growth: McKinsey

From McKinsey Quarterly, "Working out of debt: An update of our research on the efforts of developed countries to work out from under a massive overhang of debt shows how uneven progress has been. US households have made the greatest gains so far." by Karen Croxson, Susan Lund, and Charles Roxburgh:
Historical precedent suggests that US households could be up to halfway through the deleveraging process, with one to two years of further debt reduction ahead. We base this estimate partly on the long-term trend line for the ratio of household debt to disposable income. Americans have constantly increased their debt levels over the past 60 years, reflecting the development of mortgage markets, consumer credit, student loans, and other forms of credit. But after 2000, the ratio of household debt to income soared, exceeding the trend line by about 30 percentage points at the peak (Exhibit 1). As of the second quarter of 2011, this ratio had fallen by 11 percent from the peak; at the current rate of deleveraging, it would return to trend by mid-2013. Faster growth of disposable income would, of course, speed this process.

Exhibit 1

***
Nonetheless, after US consumers finish deleveraging, they probably won’t be as powerful an engine of global growth as they were before the crisis. That’s because home equity loans and cash-out refinancing, which from 2003 to 2007 let US consumers extract $2.2 trillion of equity from their homes—an amount more than twice the size of the US fiscal-stimulus package—will not be available. The refinancing era is over: housing prices have declined, the equity in residential real estate has fallen severely, and lending standards are tighter. Excluding the impact of home equity extraction, real consumption growth in the pre-crisis years would have been around 2 percent per annum—similar to the annualized rate in the third quarter of 2011. [Emphasis Added.]

Wednesday, January 18, 2012

Real Tragedy Of The Keystone XL Pipeline Denial

From Brookings, "Keystone XL Rejection: The Road Not Taken" by Charles K. Ebinger and Govinda Avasarala:
On the other hand, because the Canadian oil sands will be developed one way or another (the United States cannot determine Canadian energy policy, and the Canadians will develop their resources), the administration’s decision will not have any impact on additional emissions from their production.
***
This brings us to the real tragedy of this fiasco: it should never have become such a high-profile debate in the first place. The United States has long been importing oil—both conventional (crude oil) and unconventional (like the oil sands)—from Canada. Any proposed expansion of imports from a stable ally such as Canada should have raised very few eyebrows. Moreover, the oil would likely displace demand for heavy oil from Venezuela and Saudi Arabia, whose oil tends to be heavier in nature and suitable for the complex refineries of the Gulf Coast. Decreasing imports from both countries is largely considered to be a good thing. Finally, concerns over pipeline safety and leakages are generally overblown but also easily resolved through sounds construction and proper monitoring and regulation.

The Myth of The Decline Of The US

From The New Republic, "Not Fade Away: Against the myth of American decline." by Robert Kagan:
Did the fundamentals of America’s relative power shift so dramatically in just a few short years?

The answer is no. Let’s start with the basic indicators. In economic terms, and even despite the current years of recession and slow growth, America’s position in the world has not changed. Its share of the world’s GDP has held remarkably steady, not only over the past decade but over the past four decades. In 1969, the United States produced roughly a quarter of the world’s economic output. Today it still produces roughly a quarter, and it remains not only the largest but also the richest economy in the world. People are rightly mesmerized by the rise of China, India, and other Asian nations whose share of the global economy has been climbing steadily, but this has so far come almost entirely at the expense of Europe and Japan, which have had a declining share of the global economy.

Optimists about China’s development predict that it will overtake the United States as the largest economy in the world sometime in the next two decades. This could mean that the United States will face an increasing challenge to its economic position in the future. But the sheer size of an economy is not by itself a good measure of overall power within the international system. If it were, then early nineteenth-century China, with what was then the world’s largest economy, would have been the predominant power instead of the prostrate victim of smaller European nations. Even if China does reach this pinnacle again—and Chinese leaders face significant obstacles to sustaining the country’s growth indefinitely—it will still remain far behind both the United States and Europe in terms of per capita GDP.

Stock Analysts Make Investment Recommendations On Not Just What Managers Say, But How They Say It

From The Journal Of FINANCE, "The Power of Voice: Managerial Affective States and Future Firm Performance" by William J Mayew and Mohan Venkatachalam:
We measure managerial affective states during earnings conference calls by analyzing conference call audio files using vocal emotion analysis software. We hypothesize and find that, when managers are scrutinized by analysts during conference calls, positive and negative affects displayed by managers are informative about the firm's financial future. Analysts do not incorporate this information when forecasting near-term earnings. When making stock recommendation changes, however, analysts incorporate positive but not negative affect. This study presents new evidence that managerial vocal cues contain useful information about a firm's fundamentals, incremental to both quantitative earnings information and qualitative “soft” information conveyed by linguistic content. [Emphasis Added].
Investment markets are very efficient.

Tuesday, January 17, 2012

Large Sample of Students Finds No Link Between Junk Food In School And Obesity: Authors Withheld Study For Two Years

From "STUDY SUGGESTS JUNK FOOD IN SCHOOLS DOESN’T CAUSE WEIGHT GAIN AMONG CHILDREN" in ScienceBlog:
[Jennifer] Van Hook and her coauthor Claire E. Altman, a sociology and demography doctoral student at Pennsylvania State University, used a subsample of 19,450 children who attended school in the same county in both fifth and eighth grades (the 2003-2004 and the 2006-2007 school years).

The authors found that 59.2 percent of fifth graders and 86.3 percent of eighth graders in their study attended schools that sold junk food. But, while there was a significant increase in the percentage of students who attended schools that sold junk food between fifth and eighth grades, there was no rise in the percentage of students who were overweight or obese. In fact, despite the increased availability of junk food, the percentage of students who were overweight or obese actually decreased from fifth grade to eighth grade, from 39.1 percent to 35.4 percent.
The sad part of the study is that the authors withheld the results for two years because it not fit their preconceived notions that junk food sold in schools increases obesity among children.
“We were really surprised by that result and, in fact, we held back from publishing our study for roughly two years because we kept looking for a connection that just wasn’t there,” said Jennifer Van Hook, a Professor of Sociology and Demography at Pennsylvania State University and lead author of the study
***
...we expected to find a definitive connection between the sale of junk food in middle schools and weight gain among children between fifth and eighth grades. But, our study suggests that—when it comes to weight issues—we need to be looking far beyond schools....

Monday, January 16, 2012

Christie Takes Lead On Intrade For Republican VP Slot

Intrade prices give Chris Christie, the current NJ governor, the greatest chance of becoming the Republican Party nominee for the Vice Presidency.

Chris Christie leads with a 29.5 percent chance of becoming the VP nominee for the Republican Party in the 2012 presidential election. Marco Rubio is in second place with a 22 percent chance.

Sunday, January 15, 2012

Let's Not Romanticize Business: My Comment To Kling's "Business Experience" Post

My Comment to "Business Experience" by Arnold Kling on EconLog:
Let's not romanticize business.

Business people are doing stupid things all the time and some demand unachievable things from their workers. Some companies even try to bring products to market before all the details are worked out and all the kinks in the design and necessary inputs are resolved. Many products fail. Many bosses are tyrants.

The difference is that in business, the marketplace and the consumer will not buy and will punish a business for a product that does not work or is not developed.

In politics, voters do not bring the same negative consequences to politicians that the market brings to companies. A politician who introduces and votes for legislation that requires the use of a non-existent fuel, and penalizes its non-use, can be reelected because he says he was trying to help the environment or his local economy, even without achieving measurable positive results. He can even put the blame for failure on the companies by saying they are not investing enough in new technologies or are delaying implementation of better strategies for more profit. It becomes his word against that of greedy business.

Consumers are much more discerning about what products they buy with their hard-earned dollars than they are with their votes for politicians.

The discipline of the marketplace distinguishes business from politics.

Saturday, January 14, 2012

Cocaine Trade Shifts Out Of Colombia To Other SA Countries To Meet US Demand

As economists understand, suppliers will always attempt to find ways to meet demand, especially in a profitable, established market. Legalizing cocaine and other illicit drugs and taxing it would do more to win the US war on drugs than all our attempts to criminalize its use and production and limit its availability.

From The Wall Street Journal, "Cocaine: The New Front Lines: Colombia's success in curbing the drug trade has created more opportunities for countries hostile to the United States." by John Lyons:
fundamental shift in the cocaine trade that is complicating U.S. efforts to fight it. Once concentrated in Colombia, a close U.S. ally in combating drugs, the cocaine business is migrating to nations such as Peru, Venezuela, Ecuador and Bolivia, where populist leaders are either ambivalent about cooperating with U.S. antidrug efforts or openly hostile to them.

Since 2000, cultivation of coca leaves—cocaine's raw material—plunged 65% in Colombia, to 141,000 acres in 2010, according to United Nations figures. In the same period, cultivation surged more than 40% in Peru, to 151,000 acres, and more than doubled in Bolivia, to 77,000 acres.
***
Ironically, the shift is partly a by-product of a drug-war success story, Plan Colombia. In a little over a decade, the U.S. spent nearly $8 billion to back Colombia's efforts to eradicate coca fields, arrest traffickers and battle drug-funded guerrilla armies such as the Revolutionary Armed Forces of Colombia, or FARC. Colombian cocaine production declined, the murder rate plunged and the FARC is on the run.

But traffickers adjusted. Cartels moved south across the Ecuadorean border to set up new storage facilities and pioneer new smuggling routes from Ecuador's Pacific coast. Colombia's neighbor to the east, Venezuela, is now the departure point for half of the cocaine going to Europe by sea.

US Suffers Huge Job Loses Even In Prosperous Times

From The Wall Street Journal, "The Truth About Bain and Jobs: Job creation and destruction are both relentless. The small difference between the two is what we call prosperity." by Holman W Jenkins:
the work of economists Steven J. Davis and John Haltiwanger. Their painstaking research has revealed a side of America's dynamism that isn't always pretty. Between 1977 and 2005, years roughly overlapping Mr. Romney's business career, some 15% of all jobs were destroyed every year, even as total jobs grew by an average of 2% a year. Job creation and destruction are both relentless, the authors showed in paper after paper. The small difference between the two is what we call prosperity.[Emphasis Added.]

Thursday, January 12, 2012

My Economix Comment On Krueger's Income Inequality Policies

My comment posted on The New York Times, Economix, "Obama Adviser’s View of Unequal Opportunity" by John H Cushman Jr:
Alan Krueger is totally debunked when you look at the consumption side versus the income side of US households.

A producer has two choices. Give generous raises and keep prices high to support those higher wages of a few, or lower prices to sell more, make the product more affordable to the masses and not give as generous raises.

Over the last 40 years, more and more households in the US have been able to afford LCD TVs, air conditioning, cell phones, microwaves, buy affordable clothing at Kohl's, Wal-Mart, Target, dine out at the Applebee's and Red Lobsters, etc.

Plus, the US has the lowest food prices in the world as measured by the number of work hours needed to afford food.

It is not what goes into your pocket that counts. It is what that money can buy that counts.

The government's own computation of inequality, GINI coefficients, show that there has been no change in inequality over last 30+ years.

Economists who push an inequality agenda like to use the 1970s as a starting point because that is the low point for some inequality measures. However, those same measures today, which purportedly show high inequality, are no higher than they were around 1920.

WW I, 1920s recession, the Great Depression, WW II, and the high inflation rates of the 1970s made many of the rich poor, lowering inequality measures.

Obama's and Krueger's policies will only make the rich poor without any benefit. Their policies to undo inequality will not allow the poor to buy more.

Conservatives Are Largest Ideological Group in US

From Gallup, "Conservatives Remain the Largest Ideological Group in U.S." by Lydia Saad:
Political ideology in the U.S. held steady in 2011, with 40% of Americans continuing to describe their views as conservative, 35% as moderate, and 21% as liberal. This marks the third straight year that conservatives have outnumbered moderates, after more than a decade in which moderates mainly tied or outnumbered conservatives.

Tuesday, January 10, 2012

Hybrid Auto Sales Slow: Not Enough Fuel Efficiency Gain To Justify Higher Price

Hybrid cars are not selling. Their subsidized cost is still too high. As gasoline engine cars have become more efficient the fuel savings from switching to a hybrid automobile is not enough to offset the price premium for a hybrid vehicle.

From Bloomberg, "Hybrids in U.S. Lose Appeal to Gas-Efficiency" by David Welch and Jeff Green:
Hybrid sales slowed last year to 2.2 percent of U.S. auto sales, from 2.4 percent in 2010, according to researcher LMC Automotive.

Hybrid Challenge

The challenge with selling hybrids is that gasoline engines have become more efficient and the cost of hybrids haven’t come down fast enough to justify the added expense for many buyers, said David Champion, senior director of the Auto Test Center at the Yonkers, New York, magazine Consumer Reports.

Monday, January 9, 2012

Housing Permit Regulations Increase Home Price Volatility And Negatively Affect Current And Prospective Owners

From The Federal Reserve Board Finance and Economics Discussion Series, "Supply Constraints and Housing Market Dynamics " by Andrew Pacioreky:
[Housing] supply constraints increase volatility through two channels: First, regulation lowers the elasticity of new housing supply by increasing lags in the permit process and adding to the cost of supplying new houses on the margin. Second, geographic limitations on the area available for building houses, such as steep slopes and water bodies, lead to less investment on average relative to the size of the existing housing stock, leaving less scope for the supply response to attenuate the effects of a demand shock. My estimates and simulations confirm that regulation and geographic constraints play critical and complementary roles in decreasing the responsiveness of investment to demand shocks, which in turn amplifies house price volatility.
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That said, what is striking about volatility is that it negatively affects current owners as well as prospective future ones. This volatility particularly hurts homeowners looking to cash out -- often, the old -- and younger, less wealthy buyers seeking their first homes. Other owners may be at least partially hedged, to the extent that the price of their current home covaries with the price of their desired future one (Sinai and Souleles 2005, Paciorek and Sinai 2010), but even hedged owners face problems if they end up "underwater" on their mortgages (Ferreira, Gyourko and Tracy 2010).

US On Track For $1.2 Trillion Budget Deficit

From CBO's "MONTHLY BUDGET REVIEW: Fiscal Year 2011:"
The federal budget deficit was $320 billion in the first quarter of fiscal year 2012, CBO estimates, $49 billion less than the deficit recorded in the same period in fiscal year 2011. But $26 billion of that difference resulted from shifts in the timing of certain payments because the regular payment dates fell on weekends or holidays; otherwise, the deficit would have declined by only $23 billion. Receipts were up by 4 percent, compared with those in the same period a year before. Adjusted for timing shifts, outlays were essentially unchanged. Later this month, CBO will issue new budget projections spanning the period from 2012 through 2022.

Friday, January 6, 2012

Its Gallons Per Mile And Not Miles Per Gallon That Determines Fuel Economy

My comment to "How Do Consumers Spend Engine Efficiency Advances? On Bigger, Faster Cars" by Donald Marron:
Actually fuel economy would have increased by 37.8 percent. One should use fuel per mile and not miles per gallon to compute fuel savings. So for every 100 miles driven, at 23 miles per gallon, the car will us 4.35 gallons. At 37 miles per gallon, a car driven 100 miles will use 2.7 gallons. The fuel savings is 1.65 gallons per 100 miles or 1.65/4.35 or 38 percent fuel savings. The fuel savings is not the 60 percent as mentioned by Knittel. It is a common error caused in part by the unfortunate use by the EPA of miles per gallon instead of gallons per mile.

I am surprised AER or reviewers did not ask for a change.

Just think of an engine performance improvement from 30 mpg to 60 mpg. Under EPA and Knittel’s math that is a 100 percent energy improvement usage. In other words, the car no longer needs gas to run since it uses 100 percent less gas.

Gallons per mile does not increase as fast as miles per gallon. Going from 30 to 60 mpg is a 100 percent improvement in mpg but only a 50 percent improvement in gallons used per mile.

We care about the number of gallons of gasoline we use, gallons per miles, not mpg. Using fewer gallons is the energy efficiency and environmental goals.

If EPA used gallons per mile instead of mpg, consumers actually would see how few gallons we save in government mandated fuel economy measures for driving an a so called energy efficient auto.

Thursday, January 5, 2012

Its Called A Power Law Distribution: Many Fundamental, Natural Events Follow It And Yet People And The NY Times Are Surprised

Network, cell phone and other traffic and uses follow power law distribution rules, where a few use a lot. The power law distribution is a naturally occurring event, like binomial distributions, and many naturally occurring processes conform to power law rules. It is a fundamental rule of many natural processes and it is not a surprise when it turns up. The only surprise is when people rediscover power law rules and get upset and demand something be done about it. Even letters, words and word sizes (number of letters) follow power law rules, as does the Internet and income distributions.

From The New York Times, "Top 1% of Mobile Users Consume Half of World’s Bandwidth, and Gap Is Growing" by Kevin J O'Brien:
The world’s congested mobile airwaves are being divided in a lopsided manner, with 1 percent of consumers generating half of all traffic. The top 10 percent of users, meanwhile, are consuming 90 percent of wireless bandwidth.
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The imbalance in mobile phone consumption is another example of a relatively small group of individuals dominating the consumption of a particular resource. The United States, with less than 5 percent of the world’s population, consumes about 23 percent of the world’s daily oil production, according to American government figures. Japan, Germany and Italy, whose populations together make up less than 4 percent of the world’s total, accounted for 31 percent of global natural gas imports in 2010, according to the International Energy Agency.
Also, see my recent post on this blog, "US Income Inequality And Pareto Distributions."

Wednesday, January 4, 2012

27 Percent Probability US In Recession, Atlanta Fed Finds

From The Atlanta Fed Center for Research on Economic and Financial Cycles, "Real Time Analysis of the U.S. Business Cycle" by Marcelle Chauvet, professor of economics at the University of California, Riverside, and research director of the Center for Research on Economic and Financial Cycles:

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The most recent probability of recession from the DFMS [Dynamic Factor Markov Switching] model is for September 2011, which uses information up to December 2011. The probability that the U.S. economy is in a recession as of September 2011 is 27.4 percent.

Monday, January 2, 2012

With Consumption Equality, Income Equality Is Unimportant

From The Wall Street Journal, "The Rise of Consumption Equality: Getting rich requires serving a mass market, which means the rest of us can buy what the rich buy." by Andrew Kessler:
Yes, some people have more than others. Yet as far as millionaires and billionaires are concerned, they're experiencing a horrifying revolution: consumption equality. For the most part, the wealthy bust their tail, work 60-80 hour weeks building some game-changing product for the mass market, but at the end of the day they can't enjoy much that the middle class doesn't also enjoy. Where's the fairness? What does Google founder Larry Page have that you don't have?
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Just about every product or service that makes our lives better requires a mass market or it's not economic to bother offering. Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve. It's the Pages and Bransons and Zuckerbergs who have made the unequal equal: So, sure, income equality may widen, but consumption equality will become more the norm.

More Trust Increases Value Of Information Technology: Leads to More Corporate Decentralization And Delegation

From Harvard Business School Working Knowledge Newsletter, "The Organization of Firms Across Countries" by Carmen Nobel:
  • If a firm is headquartered in a country where trust is prevalent (such as Sweden), it is much more likely to decentralize its decision making than if it is headquartered in a country in which trust is rarer (such as India). In short, higher trust leads to more decentralization.

  • Trust also enables a firm to hire a large number of plant managers, because the CEO will feel comfortable delegating decisions to their direct reports without spending too much time on supervision. Thus, higher trust increases firm size.

  • Higher trust increases the marginal value of information technology's effect on productivity.
Full research paper, "The Organization of Firms Across Countries" by Nicholas Bloom, Raffaella Sadun, John Van Reenen.

Gift Card Offers Increase Blood Donations: Applicable To Organ And Bone Marrow Donations

From "THERE WILL BE BLOOD — IF DONORS ARE COMPENSATED" in ScienceBlog:
The study found that an advertised offer of a $5 gift card increased the likelihood of giving among people with a history of donating by 26 percent; a $10 gift card produced a 52 percent rise; and a $15 card caused an uptick of 72 percent. The offer of gift cards even caused people to motivate others to donate, including people who previously had never given blood.
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the research has implications beyond blood reserves. It suggests that some form of compensation, though on a greater scale, could bring a much-needed boost to the supplies of organs, body parts, and bone marrow for transplants.