Tenure: Economic Anomaly That Protects Laziness

From today's Wall Street Journal article "How to Succeed in Teaching Without Lifetime Tenure: The Franklin W. Olin College of Engineering attracts 140 applicants for every faculty position. And they can even be fired" (paid subscription may be required to view full article, but see first comment below):

"Franklin W. Olin College of Engineering in Massachusetts is showing what's possible when a school sheds tenure, one of the most antiquated and counterproductive employment policies in the American economy. Instituted at a time when people in most professions remained in the same job for life, tenure today is an economic anomaly. The policy protects laziness and incompetence — and rewards often obscure research rather than good teaching."

Right-to-Work vs. Forced Unionism States in 2009

The Bureau of Economic Analysis just released state-level GDP data for 2009, and the chart above shows how individual states were affected by the economic downturn.  Real GDP declined in 38 states in 2009, and overall GDP for all states declined by -2.14%. 

Here's a comparison of right-to-work states vs. forced unionism states for real economic growth in 2009:

Right-to-work states: -1.66%

Forced unionism states: -2.42%

All states: -2.14%

In other words, the decline in economic growth in forced unionism states (-2.42%) was 0.76% worse in 2009 than the decline in right-to-work states (-1.66%).  Further, of the ten states that experienced positive growth in 2009, only two were forced unionism states (Alaska and W. Virginia) and eight were right-to-work states (Nebraska, N. Dakota, S. Dakota, Arkansas, Louisiana, Virginia, Oklahoma and Wyoming).  The three top states with the highest growth in 2009 were all right-to-work states: Oklahoma (6.6%), Wyoming (5.4%) and North Dakota (3.9%).    

Quote of the Day

"Economics and finance might be science, if it weren’t for people."

AEI's Alex Pollock

China's Single-Child Adults Too Selfish for Marriage?

From economic theory we know that monopolists, when insulated from market competition, can get away with charging high prices and offering poor service.  A single child has a form of "monopoly power" on his or her parents' time, affection, attention and financial resources, and without competition from rival siblings, can often exercise that monopoly power by behaving selfishly and narcissistically.  Of course the parents can play a role by pampering their only child, but the stereotypical outcome is that only children (monopolists) become "spoiled."

There are now reports that China's divorce rate is soaring (Beijing's divorce rate is almost 40%), possibly because China's spoiled "single-child monopolists" may be "too selfish for marriage" as adults.

According to a recently-divorced 24-year old Chinese woman:

 

"Marriage requires forgiveness, understanding, tolerance and compromise. Yet we post-1980s generation neglect this entirely. No one will compromise. We just argue. Of all my friends who are married, 100 percent are unhappy."

And looking to the future she has this telling comment: "Next time I'll look for a husband with siblings."

 

As they say, "competition breeds competence." 

How Did We Get in This Mess? "Reckless Departure"

 From an editorial by Ed Pinto (now at AEI) in the WSJ on August 17, 2010:

"In 1995, HUD announced a National Homeownership Strategy built upon the liberalization of underwriting standards nationally. It entered into a partnership with most of the private mortgage industry, announcing that "Lending institutions, secondary market investors, mortgage insurers, and other members of the partnership [including Countrywide] should work collaboratively to reduce homebuyer downpayment requirements."

The upshot? In 1990, one in 200 home purchase loans (all government insured) had a down payment of less than or equal to 3%. By 2006 an estimated 30% of all home buyers put no money down.

"The financial crisis was triggered by a reckless departure from tried and true, common-sense loan underwriting practices," Sheila Bair, chair of the Federal Deposit Insurance Corporation, noted this June. One needs to look no further than HUD's affordable housing policies for the source of this "reckless departure." If the mortgage finance industry hadn't been forced to abandon traditional underwriting standards on behalf of an affordable housing policy, the mortgage meltdown and taxpayer bailouts would not have occurred."

MP: A good summary of how the political obsession with affordable housing caused a lot of the problems in the real estate and mortgage industries, and led to the financial meltdown. 

Weekly Rail Traffic Continues Steady Gains vs. 2009

The volume of weekly rail traffic continues to register improvements over last year, and the gains in Week 45 (November 8- 13) announced today by the American Association of Railroads were 5.8% for carloads (297,269), and 11.9% for trailers and containers (232,888 intermodal units) compared to the same week of 2009.  

Steady weekly improvements in Warren Buffet's single-most favorite indicator ("rail traffic") indicate that there are ongoing increases in the demand for raw materials, commodities, parts, grains, lumber and other inputs, which will translate into future increases in final output.  In other words, the increases in raw materials moving around the country by rail can only mean one thing: overall economic activity is picking up.   

Leading Index, NY Fed Predict Continued Growth

The Conference Board's Index of Leading Indicators increased again in October, marking the fourth straight monthly gain in the gauge of future economic activity, and the 17th increase out of the last 19 months going back to April 2009 when the recession was winding down.  Back-to-back monthly gains of 0.5% in the Leading Index in September and October suggest that the economic recovery will stay on track through the end of this year and continue to improve through next spring.  According to the Conference Board, "the indicators are suggesting a mild pickup this spring." 

In the last week, the Conference Board has also reported improvements in the leading indicators for China (+0.6%), U.K. (+0.3%) and Korea (0.8%), and declines for Spain (-0.1%) and Japan (+0.3%).  

In another recent forecasting release for the U.S. from the NY Fed, its updated Treasury model through October continues to predict almost no chance of a recession through October of 2011. 

Weekly Jobless Claims Fall to 26-Month Low

The Department of Labor reported today that the four-week average of initial unemployment claims fell to 443,000 for the week ending November 13, which is the lowest level since the first week of September 2008, more than two years ago (see chart above).  The number of workers continuing to receive jobless benefits fell to 4,353,250 last week on a four-week average basis, the lowest level in almost two years since early December 2008. 

Although it could be a lot better, the trends in jobless benefits are certainly moving in the right direction, and point to a labor market that is gradually recovering.    

U.S. Consumers Move Towards Online Shopping

The Census Bureau just released new data on E-commerce sales for the third quarter of 2010, here are some highlights:

1. As a share of total retail sales in the third quarter ($978.7 billion), E-commerce sales ($41.5 billion) reached a new record high of 4.2% (see chart).  That compares to about a 2% share in 2004 and 1% in 2000.  

2. E-commerce sales of $41.5 billion in the third quarter of 2010 was the first time U.S. consumers spent more than $40 billion shopping online in a three-month period, and was also a new record for quarterly E-commerce sales.

3. Compared to the third quarter last year, E-commerce sales this year were up by 13.6% vs. an increase of 6% for total retail sales over the same period.  

4. Online shopping increased by 4% in the third quarter compared to the second quarter, vs. a 0.8% increase for all retail sales.  

Cleveland Fed Median CPI: No Inflationary Pressure

According to the Cleveland Fed's report today, its median CPI measure of prices increased by only 0.50% in October over the same month last year, the same as the year-over-year rate for each of the last three months (August - October).  October marked the 26th consecutive month  that the median CPI annual inflation rate dropped or stayed the same, and the 0.50% inflation rate in six out of the last seven months is the lowest year-to-year inflation rate in the history of the Cleveland Fed's series back to 1984 (see chart above).  In contrast, the regular CPI from the BLS increased by 1.2% over the last year (October 2009 to October 2010), and has held steady at between 1.1 and 1.2% for the last five months. 

Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the Cleveland Fed's research), and neither the median CPI from the Cleveland Fed nor the CPI from the BLS is showing any signs of inflationary pressures.

2 Milestones in Mexico's Futile Drug War: 10,000 Deaths This Year, and 1st Drug War Refugee Camp

1.The death toll from Mexico's drug war passed the 10,000 mark in early November, reaching 10,035 killed since the start of the year.  At that pace (1,000 per month), there will be around 12,000 deaths in 2010 from the War on Drugs (including so far this year 52 soldiers, 637 police officers, 276 minors, 326 decapitated victims, almost 800 victims who were tortured before being executed, etc.), which could more accurately be called "The War on Innocent Mexican People Because of Insane Drug Laws."  One thousand drug-related murders per month would be more than 33 killings every day, and more than one murder every hour of each day. 

The 12,000 drug-related murders in Mexico this year will bring the drug death toll in the last five years to about 30,000 (see chart above) as a result of drug laws in Mexico and the U.S.  In contrast, there have been "only" 4,561 combat-related American deaths in Afghanistan and Iraq combined since 2001.

2. As a Result of the War on Drugs, Mexico Has Its First Displaced-Persons Camp (source)

"When Hurricane Karl struck south-eastern Mexico in September, around 3,500 people left their homes to escape flooding. Last week, it was the north-east of the country that saw a displaced-persons camp sprout up. But the 400 people who are currently holed up in the event hall of the Lions Club, a charity group in the border city of Ciudad Miguel Alemán, were not relocated by act of God. Instead, they have fled from a man-made disaster: the fierce battle between the area’s two warring drug gangs, the Zetas and the Gulf “cartel,” for control of trafficking and dealing in the nearby town of Mier.

The drug gangs have plundered the well; burned the city’s police station, several businesses and dozens of vehicles; hung a dismembered corpse in a public park; and engaged in regular firefights.  Schools have closed, and even the local government has abandoned its offices in favour of safer quarters in Ciudad Miguel Alemán, 15km away. 

Many smaller municipalities along the border have also become virtual ghost towns this year. But the recent flare-up in Mier happened so quickly that some residents did not have time to arrange for a place to stay. In response, the town’s government-in-exile established a shelter at the Lions Club, and offered the room to those with nowhere to go."

MP: Can there be any rational, logical solution to stop this insanity other than the obvious one - legalization?

Single, Childless Women Now Earn MORE Than Men: Do We Really Need MORE Federal Legislation?

In 2009, the Consad Research Corporation conducted a comprehensive study on the gender wage gap for the Department of Labor, and produced a 95-page report titled “An Analysis of the Reasons for the Disparity in Wages Between Men and Women.” This is from the report’s foreword:

There are observable differences in the attributes of men and women that account for most of the gender wage gap. These variables include:

1. A greater percentage of women than men tend to work part-time.

2. A greater percentage of women than men tend to leave the labor force for child birth, child care and elder care.

3. Women, especially working mothers, tend to value “family friendly” workplace policies more than men.

4. Women may value non-wage benefits more than men do, and as a result prefer to take a greater portion of their compensation in the form of health insurance and other fringe benefits.

The study concludes that “the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers.”

And yet the Senate will vote this week on “The Paycheck Fairness Act,” which according to the American Association of University Women is a critical piece of legislation that “can help create a climate where pay discrimination is not tolerated, and give the new administration the enforcement tools it needs to make real progress on pay equity.”

Read more here at The Enterprise Blog about how The Paycheck Fairness Act Will Fatten Paychecks for Trial Lawyers, Not Women. 

Update: The Paycheck Fairness Act failed in the Senate today - 60 votes were needed to move the bill forward and the supporters had only 58 votes.  

Billion Prices Project @ MIT

"The Billion Prices Project @ MIT is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research. We currently monitor daily price fluctuations of ~5 million items sold by ~300 online retailers in more than 70 countries. 

BPP Database Key Facts 

Statistics updated every day

5 million individual items

70 countries

Started in October of 2007

Supermarkets, electronics, apparel, furniture, real estate, etc.

Data collection: Our data is collected every day from online retailers using a software that scans the underlying code in public webpages and stores the relevant price information in a database. The resulting dataset contains daily prices on the full population of products sold by individual retailers, allowing us to observe every single price change that takes place. Our data includes information on product descriptions, package sizes, brands, special characteristics (e.g. “organic”), and whether the item is on sale or price control. 

Example: The chart above shows daily price indexes for the U.S. from July 2008 through November 15, 2010, comparing the BPP Index to the Consumer Price Index.

See WSJ article here on the BPP.   

Used Car Prices Reach Record High in October

Used car prices reached a record high in October according to Manheim Consulting's Used Vehicle Index (see chart above) and also Edmunds.com, which reported the average used car price reached a record high of $18,570 last month.  From a CNN article:

"According to Karl Brauer, an analyst for automotive website Edmunds.com, those preferring used cars over new fall into two categories: buyers who are forced to economize and others who can afford new but decide to hold off because "there's a bit of a stigma to spending." Or, as Tom Webb, chief economist for Manheim Auto Auctions, put it: "It's cool to be frugal."

Here are some of the factors reported by CNN that have pushed used car prices to record levels:

1.Improvements in design, materials and manufacturing mean that today's vehicles can be operated safely longer than ever, which helps used vehicles retain their value longer.  

2. Manufacturers have squeezed new-vehicle discounts, giving consumers incentives to shift to used cars for better deals.  

In its monthly release on vehicle sales, Manheim Consulting reports that in addition to a healthy used car market, "new vehicle sales suggest a solidifying recovery."  

It's also important to recognize that U.S. automakers like Ford have been significantly more profitable in 2009 ($2.7 billion profit) and 2010 ($6.4 billion profit in the first three quarters of 2010), even with significantly fewer units sales than in 2008 when it lost almost $15 billion and 2007 when it lost $2.7 billion.  The focus on cost reductions over the last several years (e.g. getting hourly labor costs down from $78 to about $52) are now translating into strong profits for Ford and GM and have helped the U.S. automakers experience a strong, and ongoing rebound.    

Update: According to CNBC, GM made a profit of $3,000 per vehicle in the third quarter of 2010.

Human Development: Mississippi Ranks Above Italy

The chart above is from The Economist, and shows that in terms of "human development" (heath, education and wealth), many U.S. states (Connecticut, NY, Wyoming, California, Illinois and Florida) rank ahead of Australia, Switzerland, Canada and Japan, and even more amazing is that Kentucky ranks ahead of France, Arkansas ranks ahead of the U.K., and Mississippi ranks ahead of Italy. 

Perks and Company Parties Stage a Comeback

1. Company parties stage a comeback as economy recovers and dark mood eases.  Source.

"With growing signs of an economic recovery, Chicago employers are again warming up to holiday parties. After two years of cutbacks, layoffs, bailouts and outright bankruptcies, the return of this annual ritual signals that corporate managers are more confident about business prospects and feel a need to invest again in morale, reward and recognition."

2. Perks at work are reappearing.  Source.

"Miss the free office soft drinks, commuter subsidies — and yes, even those year-end holiday parties? Don't despair. The workplace perk is beginning to make a comeback. During the recession, many cost-conscious companies furloughed fringe benefits such as holiday fetes, bonuses and free snacks. But now that the economy is improving, some perks are slowly being reinstated."

 HT: Steve Bartin 

Quote of the Day

“Capitalism without failure is like religion without sin—it doesn’t work.”

~Alan Meltzer

Freight News: Lots of Positive Signs

1. Passenger traffic at Los Angeles International Airport (LAX) increased by 4.1% in September above last year, and 5.2% above September 2008.  The 4.7 million passenger count in September was the highest for that month since the 4.8 million passengers in September 2007.  

Freight traffic at LAX in September was 8.1% higher than last year, and 10.3% above the same month in 2008.  The 157,466 tons of air freight this year was 8.6% below the 172,238 tons in the pre-recession month of September 2007. 

2. "The volume of containers handled by the Port of Savannah in October increased 16.7 percent to 273,296 20-foot equivalent units compared to the same month last year.The overall total of freight handled by all Georgia ports reached a new monthly record of 2,347,260 tons, which represented an increase of 9.8 percent compared with last October."

3.  The ports of Los Angeles and Long Beach recorded strong growth again in October, indicating that the peak-shipping season in the trans-Pacific this year had some staying power.  Containerized imports in Long Beach were up 33.5 percent compared to October 2009. Imports were up 5 percent over September 2010.  Imports in Los Angeles increased 3.19 percent compared to October 2009, which was the strongest month for imports last year. Imports in Los Angeles were down 7 percent from September 2010. 

October was the busiest month of the year so far for exports from Long Beach. Exports increased 26.3 percent compared to October 2009, and they were up 9 percent over May, which was the previous high point in 2010. Exports in Los Angeles were flat compared to October 2009, but exports were up 8 percent from September 2010.  See related post here by Scott Grannis.

4. Shipping volume at the Port of Seattle was up by 18.5% in October compared to the same month last year, following double-digit percentage gains in every month this year.  The number of fully loaded outbound containers in October of 55,552 was the highest for the year, and the highest in a single month going back to at least 2008. 

5. Total tonnage at the Port of Portland increased in September by 14% above last year, and year-to-date total tonnage at Portland is 36% above last year.

Oct. Retail Sales Back Close to Pre-Recession Levels

Given the strong increases in year-over-year sales tax collections in October for many states like Virginia (6.5%), Georgia (7.4%) and Texas (6.6%), it shouldn't be surprising that retail and food sales increased by 7.3% in October above last year (see bottom chart above).  The October increase in retail sales follows a similar 7.4% increase in September, suggesting that consumers are gradually gaining confidence and starting to spend again.  

Compared to a year ago, spending in all major categories have improved, with especially large gains in motor vehicles (14%), building materials (12.2%) and sporting goods (6.7%).  The $373 billion in consumer spending in October was the highest monthly total since August of 2008, more than two years ago (non adjusted for inflation).  October retail sales were only 2% below the $380 billion peak in November 2007 before the recession, and at this pace, retail sales will be above pre-recession levels within the next few months.     

Markets in Everything: Handwritten Notes for $3

You knew this was inevitable....

Handwritten thank you notes are truly remarkable in this age of IMs and emails. But who has time to sit down and write them? The ThankThank company helps busy professionals send handwritten notes to customers efficiently for $3 per note (see sample above). 

Schumpeterian Creative Destruction: 10 Products, Businesses Being Destroyed by the Smartphone

The following are the 10 products which smartphones are killing.

1. PDAs

2. Flip video cameras

3. MP3 Players

4. Digital cameras

5. Handheld video games

6. GPS

7. Regular cell phones

8. PCs

9. Watches

10. Remote controls

HT: Instapundit

The Pending 26% Tax Hike on the Middle Class

In today's "The Gartman Letter" Dennis points out what will happen if the "Bush Tax Cuts" expire:

1. All income tax rates will go higher with the bottom rate moving up from 10% to 15% while the top rate shall go up from 35% to 39.6% (see chart above comparing 1999 and 2008 tax rates).

2. The tax credit for children will drop from $1000/child to $500. 

3. The standard deduction for married couples will be cut. 

4. Capital gains taxes will go up from 15% to 20%.

5. Dividends, which now are taxed at a lower rate than earned income will rise to that same level. 

6. The one year “exemption” in estate taxes ends but with a $1 million exemption, and the tax rate goes to 55%.

The chart below is from The Tax Foundation and compares annual individual income taxes paid before and after the "Bush tax cuts" by various income groups:

Despite all of the political rhetoric about "tax cuts for the rich," this analysis shows that federal income taxes have fallen for groups at all income levels as a result of the Bush tax cuts, compared to the 1999 tax rates under Clinton.  And therefore, taxes for all groups would go up if the current tax rates expire at the end of the year (see percentage increases in taxes for each group above). 

And in fact, the group in the chart above that would experience the largest percentage increase in taxes would be the married taxpayers with $50,000 of household income (clearly middle class by most definitions) - they would pay 26.7% more in taxes if the Bush tax rates expire. By contrast, "rich" single taxpayers with income of $125,000 would pay only 10% more in taxes. In other words, some middle-class taxpayers received twice the tax cut on a percentage basis as some of "the rich" under the Bush tax rates, and that group would suffer the most with higher taxes if the current federal income tax rates expire.  

Consumer Greed Causes Trade Deficit With China

"What about the argument that American producers are undercut by cheap goods imported from low-wage countries like China? Whose fault is this? The answer is easy. If American consumers refused to buy goods produced in China, there would be no Chinese-made goods on store shelves. 

American consumers who prefer lower prices to higher prices are the true enemy of American companies and their unions whining about "free but fair trade." They should show up in front of Walmart and other sellers of foreign products and denounce American consumers who buy foreign-made products. That would be honest. The "free trade but fair trade" lobby finds it more effective to pursue their agenda by stealth — namely intimidate and bribe congressmen into enacting tariffs and quotas."

~Walter Williams

From the CD Comments: "Grammar Hall of Shame"

Here's some background, here's the rule:

1. The State of Maine has decided it must insure that all of it's dairies make a profit.

2. India's inflation rate is about 14% and it's agricultural tariffs average 32%.

3. When Apple moves it's $4 production cost to Vietnam… 

4. They’ve just released a fantastic report on China and it’s emerging cities.

5. It may not make sense, but a country that can print it's own money should never default on it's debts.

6. ….recognizing it's shortcomings would serve us all well.

7. Nuclear has it's own set of disposal issues….

8. Vast land areas would have to be converted to it's growth to replace any meaningful amount of gasoline…

9. China has no "communist" system today.  It's Communist Party is that in name only.

10. Nearly all technology is highly dependent on public funding for it's existence.

What's up with the "growing misuse of that puny piece of punctuation," which Arianna Huffington called "America's Apostrophe Catastrophe?"

Quantitative Easing Explained

HT: Mike Carlson