Paul Ryan on Fixing Entitlements

Rep. Paul Ryan: "We’re really on the cusp of trading our free market democracy, the American idea, for a cradle-to-grave social welfare state that will bankrupt us."

100-Point Increase in SAT = $2,350 for Egg Donors

Top Students Earn Big Money for Egg Donations

"Holding all else equal, such as demand for in vitro fertilization within a state and donor agency variables, Levine found that each increase of 100 SAT points in the average for a university increased the compensation offered to egg donors at that school by $2,350."

There Are No Other Major Retailers Willing to Come to the South Side of Chicago, Except One

CHICAGO — "Wal-Mart Stores Inc. has won the support of dozens of church ministers in its long-running battle to expand in Chicago, a sign of how the recession has softened skepticism of the retailer in a community desperate for jobs. The ministers, most of them African-Americans together representing thousands of congregants, are pressuring the city council to grant approval for a Wal-Mart "supercenter"—a store with a full grocery that also sells general merchandise—on the city's South Side. The ministers who support Wal-Mart say that if the city council doesn't act favorably on an ordinance that would allow the Chatham Wal-Mart, they will campaign against elected officials.

"The reality of the day is that there's no other retailer willing to come to the community," said Alderman Howard Brookins, a Democrat whose ward includes the development. "As the economy has faltered, there has been a renewed appreciation among customers for the Wal-Mart brand," said Julie Murphy, a Wal-Mart regional general manager involved in the company's recent effort to build support in the city."

Why Inflation Concerns Are Overblown: Annual M2 Growth Falls Below 1%, Lowest Rate Since 1995

Federal Reserve data show that the M2 growth rate on an annual basis fell in the week ending March 15 to 0.85%, the lowest money growth rate since May 1995 (see graph above). Notice also in the graph above that M2 growth in 2001 was actually above 10% for a longer period of time, than the money supply growth in early 2009. Further, there has been a much sharper decline in money growth in the last year than the decline between 2002 and 2005, when the growth rate fell but never went below 2.5%. In each of the last 10 weeks, M2 growth has been below 2.5%. Considering that average annual inflation never got higher than 3.4% in 2005 following the 10% M2 increase in 2001, so it just doesn't seem like there's enough money growth to create inflationary pressure now, at least nothing higher than maybe 3%.

Dallas Fed President Robert McTeer seems to agree in his Forbes article "Why Inflation Worries Are Overblown":

"It will no doubt come as a surprise to many that money growth has been moderate since its initial explosion at the end of 2008 (see chart above). That’s because they hear so much about the expansion of the Fed’s balance sheet, which would normally imply an expansion of bank reserves and money. Fed assets have more than doubled with virtually all the increase taking place in late 2008. The asset expansion has produced a sharp rise in bank reserves, and hence the monetary base, which is composed of bank reserves and currency outside the banking system.

However, banks have not used those reserves to expand loans and investments at a rate large enough to produce rapid money expansion. Instead, banks have accumulated reserves far in excess of the amount required to back their deposit liabilities. This accumulation of “excess reserves” is no doubt the result of banker uncertainty and fear about their viability during the period of crisis. In particular, banks are remaining more liquid than regulations require to protect their remaining capital. Virtually all of the expansion in the Fed’s assets are matched by an expansion of excess reserves—excess from a regulatory standpoint, but obviously not excess to the bankers themselves since they are holding them voluntarily."

Updates: Thanks to Scott Grannis for his most recent M2 post here from earlier today, and for adding one additional week of money supply data that doesn't appear at the St. Louis Fed website, but does appear here at the Fed. The growth rate in M2 in the week ending March 15 was 0.85%, the first time since May 1995 of M2 growth below 1%.

Markets in Everything: Lost iPod Touch Bidding War

Thanks to Mary Ritenour.

3 Reasons Healthcare Reform Won't Cut Deficit

From Reason.tv.

Jobless Claims (4-wk. Avg.) Fall to 18-Month Low

WASHINGTON, March 25 (Reuters) - "The number of U.S. workers filing new applications for unemployment insurance fell sharply last week, while the number of those on continued benefits was the lowest since December 2008, a government report showed on Thursday.

The decline in initial claims last week pushed them into a range that analysts reckon signals labor market stability. The labor market has lagged the economy's recovery from its worst downturn since the 1930s, but payrolls are expected to grow this month as the government steps up hiring for the 2010 census.

The four-week moving average of new claims, which irons out week-to-week volatility, fell 11,000 to 453,750."

MP: Based on the new revised jobless claims data, the four-week moving average fell to its lowest level last week (543,750) since September 13, 2008, and has now fallen by 175,500 from the peak last April of 643,000. Although there are many predictions of continuing weakness in the labor market, the worst is definitely behind us, and the trend in jobless claims over the last year suggests a gradual return to labor market stability, as the Reuters article reports.

Adjusted for the size of the labor market, jobless claims (4-week average) have now fallen to around 0.30% of the labor force. During the last two recessions (1990-1991 and 2001), that level of jobless claims (as a share of the labor force) was reached when the recessions had definitely ended, and in both cases signalled the beginning of the end to the two "jobless recoveries" that followed those two recessions. More analysis to follow on this topic.

Markets in Everything: Market-Based Beer and Food Pricing at NYC Restaurant

NEW YORK (Reuters) - "What's the value of a pint of beer? Let the market decide, says a new restaurant in Manhattan where prices for food and beverages will fluctuate like stock prices in increments according to demand."

"The Exchange Bar & Grill, set amid the bustling shops and pubs of the Grammercy Park neighborhood, is replete with a ticker tape flashing menu prices in red lettering as demand forces them to fluctuate."

Durable Goods Orders Increase for Third Month

WASHINGTON (MarketWatch) - "Demand for U.S.-made durable goods rose a seasonally adjusted 0.5% to $178.1 billion in February, the third straight increase in a key forward-looking indicator, according to Commerce Department data released today. New orders for machinery and civilian aircraft were strong in February, while new orders for autos, defense goods and electronics declined. The 0.5% increase in durable goods orders was weaker than the 1.7% gain expected by economists surveyed by MarketWatch. However, January's orders were revised higher, from a 2.6% gain to 3.9%. December's orders were also revised higher."

MP: New orders for durable manufactured goods in February reached the highest level ($178.1 billion) since November 2008 (see top chart above). The 12-month percentage change in February of 10.9% followed an 11.9% increase in January, which was the highest annual increase in new orders for durable goods and equipment from U.S. manufacturers since September 2006, more than three years ago (see bottom chart). The last time there were two consecutive double-digit monthly increases in durable goods orders was four years ago in the spring of 2006.

Add this to the growing list of V-shaped signs of economic recovery, especially in the U.S. manufacturing sector.

Job Approval of the 111th Congress: Only 17.4%

Real Clear Politics.

U.S. Financial Markets Return to Pre-Crisis Levels

The CBOE Volatility Index (^VIX) closed at 16.35 today, the lowest closing value since May 15, 2008 and the second lowest closing value since July 2007, more than two-and-a-half years ago (see top chart above). The VIX has closed at or below 17.0 for five consecutive days, for the first time since July 2007.

The Bloomberg U.S. Financial Conditions Index (BFCIUS) has closed above or close to 0.50 for the last nine days, for the first time since June 2007 (see bottom chart above).

Taken together, the return of these two important market indicators of: a) stock market volatility (VIX), and b) the overall conditions in U.S. financial and credit markets (BFCIUS), to their pre-crisis levels of the summer of 2007 provide further evidence that the worst is far behind us, and U.S. financial markets are once again stable and healthy.

Milton Friedman in 1978 Discussing Equal Pay Act

"The free market, by enabling people to compete openly, is the most effective device that has ever been invented for making people pay for their prejudices, and thus for making it costly for them to exercise it. What you do when you impose equal pay for equal work law, is that you make the expression of prejudice costless, and as a result you harm the people you intend to help."

Thanks to Matt Bixler.

Health Care Reform Will Raise, Not Lower, Deficits

"Last Thursday, the Congressional Budget Office reported that health care reform legislation would, over the next 10 years, cost about $950 billion, but because it would raise some revenues and lower some costs, it would also lower federal deficits by $138 billion. In other words, a bill that would set up two new entitlement spending programs — health insurance subsidies and long-term health care benefits — would actually improve the nation’s bottom line.

Could this really be true? How can the budget office give a green light to a bill that commits the federal government to spending nearly $1 trillion more over the next 10 years?

The answer, unfortunately, is that the budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed. So fantasy in, fantasy out.

In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The health care reform legislation would raise, not lower, federal deficits, by $562 billion."

~Former CBO Director Douglas Holz-Eakins (and currently president of the American Action Forum), writing in the NY Times

Food, Clothing, Housing Costs at All-Time Lows?

Median priced existing single-family home in the Midwest (January 2010): $127,200

Monthly payment with 20% down payment and 5.1% mortgage: $553

Qualifying annual income required to buy a $127,200 home: $26,544

Median annual family income in Midwest: $59,961

Midwest Housing Affordability Index: 225.9%

MP: I'm not sure if that's a record high for Midwest home affordability (most recent data here), but it seems pretty amazing that: a) the typical Midwest family has more than twice the income necessary to purchase a median priced home, b) the median priced home in the Midwest is so low ($127,200), and c) it's possible to purchase a median-priced Midwest home with less than $27,000 of household income (assuming a 20% down payment of $25,440).

That would mean that a married couple both working at Wal-Mart full-time (34 hours per week), at an average hourly wage of $9.68, would have household income of about $33,000, almost $6,000 more income than the $27,000 required to buy a median-priced house in the Midwest. Of course, the Wal-Mart couple very likely wouldn't have the $25,000 down payment, but they wouldn't necessarily have to buy the median priced home and they wouldn't necessarily have to put 20% down.

With all of the talk about stagnant or declining wages, increasing income inequality, the disappearing middle class, etc. the fact that the typical household in the Midwest has more than twice the income necessary to buy a typical house suggests that it really can't be all that bad. As I reported recently, clothing is cheaper than ever before in history (less than 3% of disposable income in 2009), and food is cheaper than ever before (9.6% of disposable income in 2008). With home prices and mortgage rates so low, it's also likely that housing costs as a share of disposable income are also at historical lows (update to follow).

Children, Our Most Precious Commodity and Unions

"Gallup has been polling public opinion about unions since the 1930's. Last year, for the first time, less than half (48 percent) of those surveyed approved of unions. Fifty one percent said unions "mostly hurt" the U.S. economy and 39 percent said they "mostly help." The percentage of the nation's private sector work force that belongs to a union has dropped precipitously. In the 1950's, over 30 percent belonged to unions. Today it's a little over seven percent.

But in our public schools, the direction is completely opposite. In 1960, about 35 percent of public school teachers belonged to unions and today it's twice that at 70 percent.

Is it not counterintuitive that most Americans feel unions hurt us, that we allow increasingly fewer goods and services produced in our private sector to be controlled by unions, but we turn increasingly more of our most precious commodity -- our children and their education -- over to a union-controlled workforce?"

~Star Parker

Almost All of the Gender Wage Gap Can Be Fully Explained and Yet Legislation is Pending to "Make Real Progress"

In 2007, the ratio of the median earnings of women and the median earnings of men was 79.6 percent, reflecting a raw gender wage gap of 20.4 percent.

From the 2009 study "An Analysis of the Reasons for the Disparity in Wages Between Men and Women," prepared by the Consad Research Corporation for the Department of Labor:

"In the political domain, the values calculated for the raw gap have been interpreted by many people as a clear indication of overt wage discrimination against women, and have been advanced as a justification for proposed policies mandating equal pay or comparable worth. In the economic domain, the values calculated for the raw gap have been the stimulus for a substantial amount of scholarly research that has attempted to identify the sources of the observed differences in earnings, and to evaluate their relative importance.

There are observable differences in the attributes of men and women that account for most of the wage gap. Statistical analysis that includes those variables has produced results that collectively account for between 65.1 and 76.4 percent of a raw gender wage gap of 20.4 percent, and thereby leave an adjusted gender wage gap that is between 4.8 and 7.1 percent. These variables include:

1. A greater percentage of women than men tend to work part-time. Part-time work tends to pay less than full-time work.

2. A greater percentage of women than men tend to leave the labor force for child birth, child care and elder care. Some of the wage gap is explained by the percentage of women who were not in the labor force during previous years, the age of women, and the number of children in the home.

3. Women, especially working mothers, tend to value “family friendly” workplace policies more than men. Some of the wage gap is explained by industry and occupation, particularly, the percentage of women who work in the industry and occupation.

4. Research indicates that 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.

5. More of the raw wage gap could be explained by including some additional variables within a single comprehensive analysis that considers all of the factors simultaneously; however, such an analysis is not feasible to conduct with available data bases.

6. This study leads to the unambiguous conclusion 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."

MP: And yet the House passed the Paycheck Fairness Act in 2009, and the Senate recently held hearings on an identical version of the bill, which is described here by the AAUW:

"A much needed update of the 45-year-old Equal Pay Act, the Paycheck Fairness Act is a comprehensive bill that would create stronger incentives for employers to follow the law, empower women to negotiate for equal pay, and strengthen federal outreach, education and enforcement efforts. Championed by longtime AAUW friend Rep. Rosa DeLauro (D-CT), the bill would also deter wage discrimination by strengthening penalties for equal pay violations and by prohibiting retaliation against workers who ask about employers' wage practices or disclose their own wages. Together with the Ledbetter bill, this critical piece of legislation 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."

Real progress on pay equity? According to the Department of Labor study, pay equity is a reality already and there is no wage discrimination once all relevants factors are considered.

Thanks to Christina Sommers.

Why Obamacare Won't Work: It Will Be Rational for People and Companies to Drop Insurance, Pay Fine

Last November, Martin Feldstein pointed out a fatal flaw of Obamacare in the Washington Post: It will be rational for individuals and companies to drop their current health insurance, pay the penalties, and wait to purchase insurance when they get sick:

A key feature of the House and Senate health bills would prevent insurance companies from denying coverage to anyone with preexisting conditions. The new coverage would start immediately, and the premium could not reflect the individual's health condition.

This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums. (Separate accident policies might develop to deal with the risk of high-cost care after accidents when there is insufficient time to buy insurance.)

In an attempt to prevent this, the draft legislation provides penalties for individuals who choose not to buy insurance and for employers that do not offer health insurance. But the levels of these fines are generally too low to cause a rational individual to insure.

Consider: 27 million people are covered by health insurance purchased directly, i.e. outside employer-based plans. The average cost of an insurance policy with family coverage in 2009 is $13,375. A married couple with a median family income of $75,000 who choose not to insure would be subject to a fine of 2.5 percent of that $75,000, or $1,875. So the family would save a net $11,500 by not insuring. If a serious illness occurs--a chronic condition or a condition that requires surgery--they could then buy insurance. Since fewer than one family in four has annual health-care costs that exceed $10,000, the decision to drop coverage looks like a good bet. For a lower-income family, the fine is smaller, and the incentive to be uninsured is even greater.

The story is similar for single people. The average cost of an individual policy is $4,800. An individual with earnings of $50,000 would face a fine of $1,250 and would therefore save $3,550 by not insuring.

In short, for those who are now privately insured through employers or by direct purchase, there would be substantial incentives to become uninsured until they become sick. The resulting rise in the cost to insurance companies as the insured population becomes sicker would raise the average premium, strengthening that incentive.

MP: What would make this choice to drop insurance and pay the penalty even more rational is the convenient, low-cost availability of basic health care from 1,200 retail clinics around the country for basic, routine health care.

America's Weak Dollar Policy Amounts to the Biggest Currency Manipulation in Human History

The US Dollar depreciated by 37% between 2002 and 2008 (data here), see graph above.

Tough talk from abroad, an editorial in the London Telegraph:

"Obama has called on China to adopt a more "market-oriented exchange rate." The US Treasury Department, meanwhile, has set a mid-April deadline to decide whether China truly is a "currency manipulator," warning that America could impose new levies on Chinese products if that's judged to be the case.

The president is playing with fire. For one thing, his country is being kept afloat by China's willingness to keep buying U.S. government debt. Obama really should tread carefully. At the same time, the US is now at risk of sparking what could be an all-out trade war.

The reality is that America's "weak dollar" policy – its long-standing practice of allowing its currency to depreciate in order to lower the value of its foreign debts – amounts to the biggest currency manipulation in human history. At the same time, the U.S. has, for years, shamefully stalled on various rulings passed by the World Trade Organisation that show America to be breaching global trade rules.

Chinese inflation is now at 2.7% – close to the official 3% target. Beijing will eventually allow the yuan to rise, but in its own time and in order to tackle inflation and not because of US pressure. America needs to act smarter and get its own economic house in order. Obama has decided instead to lash out at China in a desperate attempt to placate a U.S. electorate increasingly mindful of their president's failings."

MP: The U.S. has also stalled the free trade agreements with Panama, Colombia and South Korea, which were passed in 2007 and are now languishing into a fourth year.

China and U.S.: There Really Is NO Trade Imbalance

Click to enlarge.

Don Boudreaux picks a nit about "trade imbalances" with Jeremy Warner, who writes an otherwise excellent article in the London Telegraph about Paul Krugman's misguided suggestion of a 25% surcharge tax on China's imports American consumers and U.S. companies who buy goods from China for their low prices and great value:

"You write as if the alleged trade imbalances between the U.S. and China are real. They are not. The Chinese sell Americans goods; we pay with dollars; the Chinese then use many of these dollars to buy IOUs issued by Uncle Sam. Although the result is a measured U.S. current-account deficit with China, there’s no more any economically meaningful “imbalance” in such a result than there would be if, say, Texans lent a lot more of their dollars to Uncle Sam.

Talk of imbalances in trade diverts attention from the real problem: Uncle Sam’s gargantuan debt. That fast-accumulating debt is a huge problem. It is caused, though, not by trade with China but, rather, by Washington’s lack of fiscal discipline. Unless you believe that protectionism (and only protectionism) would induce Congress to be more fiscally disciplined, you should avoid all talk of imbalances in trade and instead talk of imbalances in political institutions that encourage politicians to give disproportionate weight to the demands of current voters and to ignore the resulting ill-consequences that will curse future generations."

MP: The graph above illustrates Don's point that there is no "trade imbalance" once all international transactions are accounted for:

1. In 2009, the U.S. imported more from China ($354 billion) than it exported ($93 billion), resulting in a "trade deficit" of -$263 billion on our "current account" (data here).

But that is only part of the international trade story, since there are also financial transactions that have to be accounted for, and that deficit on the current account has to be offset somehow, since all international trade has to balance (it's based on double-entry bookkeeping).

2. The offsetting balance came from the $263 billion capital account surplus in 2009, as a result of $263 billion of net capital inflow to the U.S. from China to buy our Treasury bonds and other financial assets.

3. The $263 billion capital account surplus exactly offsets the current account deficit.

Bottom Line: As Don correctly points out, there really is NO trade imbalance, when we account for: a) exports and imports of goods and services, AND b) capital inflows/outflows. Stated differently, the balance of payments is always ZERO. We buy more of China's goods than they buy of ours, but then China buys more of our financial assets (bonds and stocks) than we buy of theirs. So in the end, international trade with China, is balanced, not imbalanced.

Obamacare Odds on Intrade: 84%

Link. (Odds at 10:16 a.m.: 84%)

From 100-1 to 18-1: Improved Disparity for Double-Standard, Racist, Minimum Drug Sentencing?

"Last week by voice vote, the Senate unanimously approved a measure to reduce the infamous 100-1 disparity in federal mandatory minimum prison sentences for possession of crack versus powder cocaine. The new, improved disparity would be 18-1.

If the Fair Sentencing Act of 2009, authored by Sen. Dick Durbin, D-Ill., becomes law, there will be a five-year mandatory minimum prison term for 28 grams of crack cocaine -- instead of 5 grams today -- while the amount of powder cocaine that triggers five years would remain 500 grams (see top chart above, data here).

There is no logical reason for the sentence disparity. Whether in crack or powder form, it's still cocaine. But about 4 in 5 federal crack offenders are black (see bottom chart above). Last year, Asa Hutchinson, who was head of the Drug Enforcement Administration under President George W. Bush, righteously testified that the "disparate racial impact" of the cocaine-powder disparity undermines "the integrity of our judicial system.""

~Debra Saunders, "Crack Versus Powder Cocaine Should Not Be Black and White"

MP: Debra Saunders is exactly correct that there is nothing logical or sensible about the huge sentence disparity, it's nonsensical hysteria that is part of an insane War on Drugs. Keep in mind that crack cocaine is made by adding baking soda to powder cocaine, so that's a lot of extra jail time for a little Arm and Hammer.

Well, it now looks like there's a possibility that some sanity might actually prevail in Congress. No, let me rephrase that. There's a distinct possibility that the amount of insanity might be significantly lowered. If the Fair Sentencing Act of 2009 passes, it will lower the sentencing disparity from 100-1 to 18-1, which is an improvement, but still nothing close to parity or true fairness. Only in politics would a remaining sentencing disparity of 18-1 be called "fair," but I guess it's a step in the right direction.

Nobel economist Milton Friedman once called the minimum wage "the most anti-black law on the books," but I now disagree - the Anti-Drug Abuse Act of 1986 is the most anti-black law on the books, for its huge and disproportionate effect on blacks.

90 Seconds to Government Run Healthcare

From Reason.tv (via Cafe Hayek).