America's Poorest 5% = India's Richest 5%

Catherine Rampell features the chart above today on the Economix blog, taken from a new book "The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality" by Branko Milanovic.  The chart shows the relationship between a) the distribution of income by "ventiles" (5% groups) for the U.S., Brazil, China and India on the horizontal axis and b) the percentile of world income distribution on the vertical axis.  As Catherine comments:

"Notice how the entire line for the United States resides in the top portion of the graph? That’s because the entire country is relatively rich. In fact, America’s bottom ventile is still richer than most of the world: That is, the typical person in the bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants (see dashed line in graph).

Now check out the line for India. India’s poorest ventile corresponds with the 4th poorest percentile worldwide. And its richest? The 68th percentile. Yes, that’s right: America’s poorest are, as a group, about as rich as India’s richest. Kind of blows your mind, right?"

MP: Yes, and shouldn't it also blow away a lot of our misguided concern about rising income inequality in the U.S.? 

 

Source: http://mjperry.blogspot.com/

TED: Understanding the Rise of China

Speaking at a TED Salon in London, economist Martin Jacques asks: How do we in the West make sense of China and its phenomenal rise? The author of "When China Rules the World," he examines why the West often puzzles over the growing power of the Chinese economy, and offers three building blocks for understanding what China is and will become.

Source: http://mjperry.blogspot.com/

"Big Sugar" Cartel Cost Consumers $4.5B Last Year

In a recent Wall Street Journal letter titled “The Sugar Program Makes Sense,” the American Sugar Alliance’s chief economist claimed that “sugar policy operates at no cost to the government and is projected to do so for the next decade.” While it’s true that U.S. sugar producers haven’t tapped American taxpayers directly since the beet sugar farmers raked in more than $240 million in farm subsidy payments from 2000 to 2005, U.S. sugar policy did force American consumers to pay out $4.5 billion last year in higher sugar prices to support the “Big Sugar” cartel.

Read more here of my Enterprise Blog post today "Sugar Policy: Sweet Deal for Producers, Sour Deal for Consumers."


Source: http://mjperry.blogspot.com/

The Demise of America’s Manufacturing Sector Has Been Greatly Exaggerated

By: Mark Perry

We hear all the time about the “decline of U.S. manufacturing” (84,000 Google hits) and “the death of American manufacturing” (15,400 Google hits). Similarly, there are frequent claims that “nothing is made in America anymore,” because all of the manufacturing jobs and production have been outsourced to places like China, Mexico, and Korea. Such claims about U.S. manufacturing have been circulating so persistently and for so long, that most people now blindly accept these myths, even though the empirical evidence provides a completely different story—a thriving and growing U.S. manufacturing sector.
While it is true that the United States has lost more than 7 million manufacturing jobs since the late 1970s, that’s happened at the same time that U.S. manufacturing output has continued to expand and grow to new record levels almost every year. And in comparison to other countries, the United States remains by far the world’s largest manufacturer.
The chart below of the world’s top eight countries for manufacturing output, using international data on global output from the United Nations, helps to tell the ongoing success story of America’s manufacturing sector.

Note the following:

1. America’s manufacturing output, measured in constant 2005 dollars, has continued to increase in almost every year since 1970, except recently for recession-related decreases in 2001 and 2008-2009. In every year since 2004, manufacturing output in the United States has exceeded $2 trillion, and that’s twice the output produced in America’s factories back in the early 1970s. If the U.S. manufacturing sector were a separate country, its enormous size would rank today as the sixth-largest economy in the world, just behind France, and ahead of the U.K., Italy, and Brazil. And while manufacturing growth has been relatively flat in recent years for Japan and the European countries (Germany, U.K., France, and Italy), America’s manufacturing continues to grow at its long-term trend of 2 percent per year, on average.

2. Despite recent gains in China’s manufacturing output—it surpassed Germany in 2001 and Japan in 2007 to become the world’s second-largest manufacturer—U.S. manufacturing output in 2009 was almost 46 percent higher than China’s ($2.15 trillion vs. $1.48 trillion). And even with recent gains in manufacturing output in places like China, Korea, and Brazil, the United States still produced more than 20 percent of global manufacturing output in 2009, which is just slightly less than America’s 21 percent share in 1990, and not too much lower than America’s 25 percent share of world factory output in the early 1970s.

3. In 2009, the United States produced manufacturing output equivalent to the output of Japan (#3), Germany (#4), U.K. (#5), and Italy (#6) combined, and output equivalent to the next 11 countries ranked from #7 to #17 combined: Korea, France, Canada, Mexico, India, Russia, Brazil, Spain, Australia, Turkey, and Indonesia.

The next chart shows the really amazing part of America’s manufacturing success story—the incredible, increasing productivity of America’s manufacturing workers. The average American factory worker is responsible today for more than $180,000 of annual manufacturing output, which is double the $90,000 output per worker in 1993 and triple the $60,000 annual amount in 1972. Those increases in worker productivity are a direct result of the ongoing capital investments in productivity-enhancing technology, computer equipment, robotics, and automation.

Bottom Line: The decline, demise, and death of America’s manufacturing sector has been greatly exaggerated. America still makes a ton of stuff, and we make more of it now than ever before in history, but we’re able to do it with a fraction of the workers that would have been required in the past. We’re still the world’s leading manufacturing economy by far, thanks to the world-class productivity of American manufacturing workers, the most productive in the world. Instead of bashing China, Korea, and Mexico for competing against our manufacturing sector and exaggerating the decline of our manufacturing sector, Americans should take more pride and celebrate our status as the world’s leading manufacturer.

Link to Micro/Macro Ch. 4

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Is Basic Health Care a ‘Right’?

Here’s a letter to the Boston Globe:

Ronald Pies, MD, asserts that every individual has a “right” to “basic health care” – meaning, a right to receive such care without paying for it (Letters, Dec. 26).
The rights that Americans wisely cherish as being essential for a free society require only the refraining from action.  Your right to speak freely requires me simply not to stop you from speaking; it does not require me to supply your megaphone.

Not so with a “right” to “basic health care.”  Elevating free access to a scarce good into a “right” imposes on strangers all manner of ill-defined positive obligations – obligations that necessarily violate other, proper rights.  For example, perhaps my “right” to basic health care means that I can force Dr. Pies away from his worship service in order that he attend (free of charge!) to my ruptured spleen.  Or perhaps it means that I have the “right” to pay for my health care by confiscating part of his income.  If so, how much of his income does my “right” entitle me to confiscate?  Who knows.

And if Dr. Pies is planning to retire, do I have the “right” to force him to continue to work so that the supply of basic health care doesn’t shrink?  If Dr. Pies should die, am I entitled – again, to keep the supply of basic health care from shrinking – to force his children to study and practice medicine.

Does my right to basic health care imply that I can force my neighbor to pay for my cross-country skiing vacation on grounds that keeping fit is part of basic health care?
Talking about “rights” to scarce goods and services sounds right only to persons who are economically illiterate, politically naive, and suffering the juvenile delusion that reality is optional.

Sincerely,
Donald J. Boudreaux

Source: http://cafehayek.com/2010/12/is-basic-health-care-a-right.html

Why We Have a Health Care Cost Problem and Why It Will Only Get Worse: Other People's Money

The chart above shows why we have a health care cost problem. Patients have little direct connection in paying for their care, and their role has fallen significantly. Meanwhile, the government's involvement has grown, as has that of the insurance industry.

Because so many Americans rely on an insurance policy or a government program to pay their health care bills, the internal governors that temper the rest of their purchases are turned off. When a visit to the doctor's office or a diagnostic test costs them a mere $10 or $20 co-payment out of pocket — or there is no charge at all — cost has little impact on their decision to see a doctor. "By not knowing the full costs associated with health care, consumers demand more and 'overuse' it," Kenneth E. Thorpe explained a few years back in Health Affairs.

Americans would be more judicious in seeking health care — they would self-ration — if the right incentives were in place. An effective way to cut overuse and bring down costs would be to encourage through public policy the use of health savings accounts. If consumers used HSAs to pay the full amount for medical care at the point of service rather than letting employer-funded insurance or a government program pay the bills, the demand would fall.

The Democrats' health care legislation, however, puts more distance between Americans and the payment process and promotes dependence on government. That will only drive down consumers' out-of-pocket expenses even further and force overall health care spending upward. Under such a regime, the system will be worse off than it is now.

~Investor's Business Daily

Why We're a Divided Nation

By Walter Williams

http://www.JewishWorldReview.com | Some Americans have strong, sometimes unyielding preferences for Mac computers, while most others have similarly strong preferences for PCs and wouldn't be caught dead using a Mac. Some Americans love classical music and hate rock and roll. Others have opposite preferences, loving rock and roll and consider classical music as hoity-toity junk. Then there are those among us who love football and Western movies, and find golf and cooking shows to be less than manly. Despite these, and many other strong preferences, there's little or no conflict. When's the last time you heard of rock and roll lovers in conflict with classical music lovers, or Mac lovers in conflict with PC lovers, or football lovers in conflict with golf lovers? It seldom if ever happens. When there's market allocation of resources and peaceable, voluntary exchange, people have their preferences satisfied and are able to live in peace with one another.

Think what might be the case if it were a political decision of whether there'd be football or golf watched on TV, whether we used Macs or PCs and whether we listened to classical music or rock and roll. Everyone had to comply with the politically made decision or suffer the pain of fines or imprisonment. Football lovers would be lined up against golf lovers, Mac lovers against PC lovers and rock and rollers against classical music lovers. People who previously lived in peace with one another would now be in conflict.

Why? If, for example, classical music lovers got what they wanted, rock and rollers wouldn't. Conflict would emerge solely because the decision was made in the political arena.
The lesson here is that the prime feature of political decision-making is that it's a zero-sum game. One person's gain is of necessity another person's loss. As such, political allocation of resources is conflict-enhancing, while market allocation is conflict-reducing. The greater the number of decisions made in the political arena, the greater the potential for conflict. It would not be unreasonable to predict that if Mac lovers won, and only Macs could be legally used, there would be considerable PC-lover hate toward Mac lovers.

Most of the issues that divide our nation, and give rise to conflict, are those best described as a zero-sum game where one person's or group's gain is of necessity another's loss. Examples are: racial preferences, school prayers, trade restrictions, welfare, Obamacare and a host of other government policies that benefit one American at the expense of another American. That's why political action committees, private donors and companies spend billions of dollars lobbying. Their goal is to get politicians and government officials to use the coercive power of their offices to take what belongs to one American and give it to another or create a favor or special privilege for one American that comes at the expense of some other American.

You might be tempted to think that the brutal domestic conflict seen in other countries can't happen here. That's nonsense. Americans are not super-humans; we possess the same frailties of other people. If there were a catastrophic economic calamity, I can imagine a political hustler exploiting those frailties, as have other tyrants, blaming it on the Jews, the blacks, the conservatives, the liberals, the Catholics or free trade.

The best thing the president and Congress can do to reduce the potential for conflict and violence is reduce the impact of government on our lives. Doing so will not only produce a less-divided country and greater economic efficiency, but bear greater faith and allegiance to the vision of America held by our founders — a country of limited government. Our founders, in the words of Thomas Paine, recognized that, "Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one."

Budget Crisis Rhetoric By Thomas Sowell

Government budget crises can be painful, but the political rhetoric accompanying these crises can also be fascinating and revealing. Perhaps the most famous American budget crisis was New York City's, back during the 1970s. When President Gerald Ford was unwilling to bail them out, the famous headline in the New York Daily News read, "Ford to City: Drop Dead." President Ford caved and bailed them out, after all. The rhetoric worked.

That is why so many other cities and states-- not to mention the federal government-- have continued on with irresponsible spending, and are now facing new budget crises, with no end in sight. What would have happened if President Ford had stuck to his guns and not set the dangerous precedent of bailing out local irresponsibility with the taxpayers' money? New York would have gone bankrupt. But millions of individuals and organizations go bankrupt without dropping dead. Bankruptcy conveys the plain facts that political rhetoric tries to conceal. It tells people who depended on the bankrupt government that they can no longer depend on that bankrupt government. It tells the voters who elected that bankrupt government, with its big spending promises, that they made a bad mistake that they would be wise to avoid making again in the future. Legally, bankruptcy wipes out commitments made to public sector unions, whose extravagant pay and pension contracts are bleeding municipal and state governments dry. Is putting an end to political irresponsibility and legalized union racketeering dropping dead?

Politics being what it is, we are sure to hear all sorts of doomsday rhetoric at the thought of cutbacks in government spending. The poor will be starving in the streets, to hear the politicians and the media tell it. But the amount of money it would take to keep the poor from starving in the streets is chump change compared to how much it would take to keep on feeding unions, subsidized businesses and other special interests who are robbing the taxpayers blind. Letting armies of government employees retire in their fifties, to live for decades on pensions larger than they were making when they were working, costs a lot more than keeping the poor from starving in the streets. Pouring the taxpayers' money down a thousand bottomless pits of public and private boondoggles costs a lot more than keeping the poor from starving in the streets. Bankruptcy says: "We just don't have the money." End of discussion. Bailouts say: "Give the taxpayers a little rhetoric, and a little smoke and mirrors with the book-keeping, and we can keep the party rolling."

One of the political games that is played during a budget crisis is to cut back on essential services like police departments and fire departments, in order to blackmail the public into accepting higher tax rates. Often, a lot more money could be saved by getting rid of runaway pension contracts with public sector unions. Bankruptcy can do that. Bailouts cannot. What the public needs are current policemen and current firemen, not retired policemen and retired firemen, much less bureaucrats retired on inflated pensions.

The political temptation to create extravagant pensions is always there, not only at state and local levels, or at the federal level, but in countries around the world. Why? Because pensions are benefits that can be promised for the future, without raising the money to pay for them. Politicians get the votes of those to whom pensions are promised, without losing the votes of taxpayers-- and they leave it up to future government officials to figure out what to do when the money is just not there. It is a sure-fire guarantee of political irresponsibility. All of this works politically only so long as the voting public accepts budget crisis rhetoric at face value, without bothering to stop and think about what it means and implies.

Source: http://www.JewishWorldReview.com |

U.S. is Still the World's #1 Manufacturer

Source: mjperry.blogspot.com

 

 

 

 

 

 

 

 

 

 

 

 

The chart above shows the U.S. share of world manufacturing output, annually from 1970 to 2009, based on data from the United Nations.  There has been a recent decline in America's share of world manufacturing output, from 25.3% a decade ago in 1999 to 16.82% in 2008, but note several important facts about the chart:

1. The U.S. share of world manufacturing output was amazingly constant between 1970 and the early part of this decade, and as recently as 2006 was above 20%.  It sure seems like we've been hearing about the "decline of U.S. manufacturing" for the last several decades or longer, when the factual evidence suggests that it's actually only a very recent phenomenon - and that's only when measured by our share of rising global manufacturing output.  Given the recent phenomenal economic and manufacturing growth in places like China, Brazil, India, Russia, and Korea, among others, it would only make sense that our share of world factory output has declined in recent years (but notice it did jump up a bit 2009). 

2. In terms of the total amount of manufacturing produced in a year, the United States still leads the world in annual manufacturing, see chart below for the 2009 rankings of the top seven countries in the world for factory output.
   

In 2009, the United States produced almost 14% more manufacturing output than second place China, and produced almost as much ($2,334 billion) as Japan, Germany, Italy, France and the U.K. combined ($2,762 billion). 

3. Although it's true that the U.S. has lost more than 7 million manufacturing jobs, from an employment level of more than 19 million manufacturing jobs in the late 1970s to fewer than 12 million jobs today, that's happened at the same time that U.S. manufacturing output has continued to expand and grow.  In 2009, the U.S. produced more manufacturing output, $2.334 trillion, than ever before in history (nominal dollars), see chart: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bottom Line: The many stories about the "death of America's manufacturing sector" have been greatly exaggerated.

America's $15T Economy and Population

The Economist has a great interactive map that compares the economic output of American states to the economic output (GDP) of entire countries, which helps put the ridiculously large U.S. economy (GDP of about $15,000,000,000,000) into perspective.  The map also compares the population of U.S. states to comparable countries. 


Source: mjperry.blogspot.com

Adjusted for Increases in Income & Fuel Efficiency, Gas Today is Almost 50% Below Record High

From Mark Perry at Carpe Deim



Yesterday's CD post of a graph of 1,000 gallons of gas as a percent of per-capita disposable income (top graph above) shows that we're still nowhere near record highs for gasoline, when measured as a share of income.
Warren Meyer at Coyote Blog thoughtfully suggested adjusting the analysis to account for the significant increases in fuel efficiency over time, see middle chart above, which shows the 64% increase in fuel efficiency from the early 1980s to 2005.
The bottom graph above shows the results of Warren's analysis (see his chart here), which calculates the percent of per-capita disposable income required to buy enough gasoline to drive 15,000 miles, at the average fuel efficiency in each month from 1980 to 2008. This adjustment for increased fuel efficiency makes the initial results even more dramatic.
After adjusting for: a) higher incomes and b) greater fuel efficiency since 1980, we are nowhere near record highs for gas. In fact, to match the 13.75% level in 1980 when average fuel efficiency was only 16 mpg (and gas was $1.26 per gallon and per-capita disposable income was $8,575), gasoline today would have to reach $7.53 per gallon, almost twice today's prices!
Bottom Line: Gas prices today are almost 50% below the record highs of 1980, after adjusting for higher incomes today and much greater fuel efficiency.

Time Cost of Gas Is Less Than Half the Cost in 1940

From: John Perry at Carpe Deim

A comment by Gale Pooley on this CD post suggested adjusting the cost of gas to account for increases in worker productivity over time, and the chart above does just that.  It shows the time cost of a gallon of gas, measured by the number of minutes of work at the average hourly manufacturing wage (BLS data here) required to purchase a gallon of gas at the nominal, retail price in each year between 1939 and 2010 (EIA data here).  

It took just slightly less than 9 minutes of work at the average hourly wage of $18.56 last year to purchase a gallon of gas at the average price of $2.77 per gallon in 2010.  That's a lower time cost than in all of the years between 1939 and 1958, and less than half the time cost of gas in the 1939-1941 period. 

Top Ten Reasons Trade is Good for America

From John Murphy's original Chamber post, supplemented by Cato's Dan Ikenson (in bold):

1. The United States is the number one manufacturing nation in the world, and that success depends on exports. And since over half of the total value of U.S. imports consists of “intermediate goods” (products that are used as inputs for further value-added activity), manufacturing success also depends on imports.

2. The United States is the world’s number one services exporter and has been since services trade data have been tracked. And one of the reasons that foreigners are able to purchase American services is because they have been able to earn dollars by selling goods to American businesses and consumers.

3. U.S. agricultural exports support nearly a million jobs in the United States. And, agricultural and manufactured imports have made life’s necessities and conveniences more affordable to hundreds of millions of Americans.

4. 95 percent of the world’s consumers lives outside the United States…as do 95 percent of the world’s workers, who produce many of the goods Americans consume as imports less expensively than Americans can, freeing up U.S. resources for investment, innovation, and consumption of the higher value products and services that Americans produce.

5. FTA countries purchased more than 40 percent of U.S. exports in 2009. And imports from those countries have helped extend families’ budgets and reduced the costs of production for U.S. business relying on inputs from those countries.

6. Since the creation of the WTO in 1994, U.S. exports of goods and services have doubled to more than $1.5 trillion. And real U.S. GDP has increased by 50 percent.

7. Imports support millions of U.S. jobs in retail, research, design, sourcing, transportation, warehousing, marketing and sales…and in manufacturing.

8. U.S. exports to China have quadrupled over the past 15 years, and China is now the 3rd largest market for U.S. exports. And U.S. imports from China, too often wrongly portrayed as evidence of U.S. profligacy or decline, have enabled U.S. industries that require access to lower-cost labor for economic viability to be born, to blossom, and to spark the advent of new products and industries.

9. U.S. companies with overseas investments account for 45 percent of all U.S. exports. And foreign companies operating in the United States employ 5.6 million Americans, support a payroll of $408.5 billion, provide compensation that is 33% higher than the U.S. average, account for 18% of U.S. exports, pay U.S. taxes, support local charities, and act as investment magnets in communities across the country.

10. Trade supports 38 million jobs in the United States–more than one in five American jobs. And most Americans enjoy the fruits of international trade and globalization every day: driving to work in vehicles containing at least some foreign content; talking on foreign-made mobile telephones; having extra disposable income because retailers like Wal-Mart, Best Buy, and Home Depot are able to pass on cost savings made possible by their own access to thousands of foreign producers; eating healthier because they now can enjoy fresh imported produce that was once unavailable out-of-season, etc.

HT: Mike Munger, who summarizes it well: "More trade is more good. Restricting trade is bad. It's not complicated."

Source: http://mjperry.blogspot.com/

How 2000 year old decisions are affecting NASA rocket

Unanticipated Influences

In the United States the standard railroad gauge (distance between the rails) is 4 feet, 8.5 inches. That’s an exceedingly odd number, so why was  that gauge used? Because that’s the way they built them in England, and English expatriates built the US Railroads.

Why did the English build them like that?

Because the first rail lines were built by the same people who built the pre-railroad tramways, and that’s the gauge they used.

Why did “they” use that gauge then?

Because the people who built the tramways used the same jigs and tools that they used for building wagons, which used that wheel spacing.

Okay! Why did the wagons have that particular odd wheel spacing?

Well, if they tried to use any other spacing, the wagon wheels would break on some of the old, long distance roads in England, because that’s the spacing of the wheel ruts.

So who built those old rutted roads?

Imperial Rome built the first long distance roads in Europe (and England) for their legions. The roads have been used ever since.

And the ruts in the roads?

Roman war chariots formed the initial ruts, which everyone else had to match for fear of destroying their wagon wheels. Since the chariots were made for Imperial Rome, they were all alike in the matter of wheel spacing.

So the United States standard railroad gauge of 4 feet, 8.5 inches was derived from the original specifications for an Imperial Roman war chariot. So the next time you are handed a specification and wonder what horse’s a** came up with it, you may be exactly right, because the Imperial Roman war chariots were made just wide enough to accommodate the back ends of two war horses.

The point to this story?

When you see a Space Shuttle sitting on its launch pad, there are two big booster rockets attached to the sides of the main fuel tank. These are solid rocket boosters, or SRBs. The SRBs are made by Thiokol at their factory at Utah. The engineers who designed the SRB would have preferred to make them a bit fatter, but the SRBs had to be shipped by train from the factory to the launch site. The railroad line from the factory happens to run through a tunnel in the mountains. The SRBs had to fit through that tunnel.
The tunnel is slightly wider than the railroad track, and the railroad track, as you now know, is about as wide as two horses’ behinds.

So, a major Space Shuttle design feature of what is arguably the world’s most advanced transportation system was determined over two thousand years ago by the width of a horse’s a**!

Source: http://www.financialjesus.com/

For Us to Complain About Limited Resources is Like a Trillionaire Complaining About His Allowance

Here's some new support of resource economist Julian Simon's optimistic view that resource scarcity wouldn't ever be a problem, even with a growing world population, because of the power of innovation, discovery, human ingenuity, entrepreneurship, substitutes, and technological progress to overcome any resource shortages:  the ocean floor might contain reserves of minerals vastly greater than those on land. 

"It's easy to be a pessimist in a world full of calamities. But for those worried about the continuing availability of natural resources, data from the ocean makes a good case for optimism, says economic geologist Lawrence Cathles.  

In a review paper published June 23 online in the journal Mineralium Deposita, Cathles, Cornell professor of earth and atmospheric sciences, writes that while land-based deposits may be a dwindling source of valuable minerals, deposits on the ocean floor could power humanity for centuries.

The minerals, including sulfur, copper, zinc, iron and precious metals, are contained in volcanogenic massive sulfide (VMS) deposits that form on the ocean floor where tectonic plates pull apart and allow magma (molten rock) to invade the Earth's 3.7-mile- (6 kilometer-) thick crust. The magma heats seawater to 662 degrees Fahrenheit (350 degrees Celsius) and moves it through the ocean crust via convection; and the seawater deposits the minerals where it discharges along the ridge axis.

"We are not resource limited on planet Earth. For a human on Earth to complain about resources is like a trillionaire's child complaining about his allowance or inheritance. It just doesn't have much credibility in my view," he said.  "I think there's real risk if we don't really carefully, and in a credible way, articulate that there are enough resources for everybody," he added. "We don't have to fight over these things." 

 

Sources: http://mjperry.blogspot.com/ and Che is Dead

Not Really 'Made in China'

Source: WSJ

 

The iPhone's Complex Supply Chain Highlights Problems With Trade Statistics

BEIJING—One widely touted solution for current U.S. economic woes is for America to come up with more of the high-tech gadgets that the rest of the world craves.

Associated Press

Researchers estimated the iPhone added $1.9 billion to the U.S. trade deficit with China last year. Above, an Apple store in Palo Alto, Calif.

Yet two academic researchers estimate that Apple Inc.'s iPhone—one of the best-selling U.S. technology products—actually added $1.9 billion to the U.S. trade deficit with China last year.
How is this possible? The researchers say traditional ways of measuring global trade produce the number but fail to reflect the complexities of global commerce where the design, manufacturing and assembly of products often involve several countries.
"A distorted picture" is the result, they say, one that exaggerates trade imbalances between nations.
Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China's contribution is the last step—assembling and shipping the phones.
So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month.
A spokeswoman for Apple said the company declined to comment on the research.

European Pressphoto Agency

Two academic researchers have found that Apple's iPhone actually added $1.9 billion to the U.S. trade deficit with China last year.

The result is that according to official statistics, "even high-tech products invented by U.S. companies will not increase U.S. exports," write Yuqing Xing and Neal Detert, two researchers at the Asian Development Bank Institute, a think tank in Tokyo, in their report.
This isn't a problem with high-tech products, but with how exports and imports are measured, they say.
The research adds to a growing debate about traditional trade statistics that could have real-world consequences. Conventional trade figures are the basis for political battles waging in Washington and Brussels over what to do about China's currency policies and its allegedly unfair trading practices.
"What we call 'Made in China' is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries," Pascal Lamy, the director-general of the World Trade Organization, said in a speech in October. "The concept of country of origin for manufactured goods has gradually become obsolete."
Mr. Lamy said if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half.
To correct for that bias is difficult because it requires detailed knowledge of how products are put together.

Breaking down imports and exports in terms of the value-added from different countries can lead to some controversial conclusions. Some U.S. lawmakers, for instance, argue China needs to let its currency rise significantly against the U.S. dollar in order to reduce the trade gap between the two nations.
The value-added approach, in fact, shows that sales of the iPhone are adding to the U.S. economy—rather than subtracting from it, as the traditional approach would imply.
Based on U.S. sales of 11.3 million iPhones in 2009, the researchers estimate Chinese iPhone exports at $2.02 billion. After deducting $121.5 million in Chinese imports for parts produced by U.S. firms such as chip maker Broadcom Corp., they arrive at the figure of the $1.9 billion Chinese trade surplus—and U.S. trade deficit—in iPhones.
If China was credited with producing only its portion of the value of an iPhone, its exports to the U.S. for the same amount of iPhones would be a U.S. trade surplus of $48.1 million, after accounting for the parts U.S. firms contribute.
Other economists say some aspects of the researchers methodology may have led them to overstate their case. The study, for example, assumes that companies such as Toshiba Corp. and Samsung Electronics Co. that make components for the iPhone wholly assembled them in their home countries.
But many of Apple's suppliers have manufacturing facilities in China, so it's likely that some portion of the components they build for the iPhone are made in China as well.
The latest results are broadly similar to analyses made by the Personal Computing Industry Center at the University of California, Irvine, of the trade and manufacture of another Apple product, the iPod. That research also found that Chinese labor accounted for only a few dollars of the iPod's value, even though trade statistics credited China with producing its full value.
In a speech in September in New York, Chinese Premier Wen Jiabao cited that research to argue that trade tensions between the U.S. and China are overblown. Many of China's exports are products that are made in China on contract for foreign companies, he said, so the U.S. shouldn't criticize China for running a big trade surplus.
"Foreign-funded enterprises, including those of the United States, are major beneficiaries" of this system, Mr. Wen said.
—Loretta Chao contributed to this article. Write to Andrew Batson at andrew.batson@wsj.com


Read more: http://online.wsj.com/article/SB10001424052748704828104576021142902413796.html#ixzz1ABn87Ebi

Marshmallows and Patience

How many marshmallows would you have if you waited for 24 hours?

 Hint: 2^96

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

Quantitative Easing Explained

Truth Burst Forth in Radiant Light: The Astonishing Abundance of Lighting Since the Restoration

A young Joseph Smith is often portrayed reading the family bible under candlelight. His study and desire to know the truth led to the First Vision.  Great lights have burst forth with the Restoration of the Gospel Truths.

Another remarkable change since 1830 has been the astonishing abundance of lighting. An economic study suggests that the labor price of lighting since the Restoration has fallen by a factor of over 65,000.

Measuring Light

Light is radiation that stimulates the human eye. Light flux or flow is the rate of emission from a source. A unit of light flow is the lumen. Illuminance is the amount of light in an area. The unit of illuminance is the lux. One lux equals one lumen per square meter.

Measuring Cost

William Nordhaus analyzed the labor-time price of light through history. He created an index that measures the cost of buying 1,000 lumen hours in terms of labor hours. This method incorporates improvements in technology, labor productivity, and energy costs.¹

There have been a number of other significant improvements in lighting including reducing flicker, eliminating odors, and improving safety. These are special benefits and are not accounted for directly in the Nordhaus study, but nonetheless enhance the overall quality of lighting.

Historical Progress

Open fires were the earliest form of lighting the darkness. The labor price for 1,000 lumen hours required around 58 hours of labor. Oil lamps appear around 1750 B.C. and required 41.5 labor hours for 1,000 lumen hours.

A tallow candle in 1830 would generate 10 lumens for seven hours and cost around 1.3 cents. To produce 1,000 lumen hours would take over 14 of these candles for a total cost of 18.3 cents. Workers on the Erie Canal were paid 6.1 cents per hour. Consequently, the labor price for this standard quantity of illumination would be three hours.

A major improvement occurred in 1883 with the invention of the electric carbon filament bulb. The labor price for 1,000 lumen hours dropped to 45 minutes. In 1920 technology advanced again and tungsten replaced carbon in bulbs. The price dropped to 49 seconds. Compact Fluorescent bulbs were introduced in 1992 and the time price fell to 0.43 seconds. The most advanced technology today is light-emitting diodes, or LEDs. The price is 0.16 seconds.

Another way to think about this productivity improvement is that something that costs a penny today would cost $653 in 1830.

Lighting Productivity

In the 3,580 years prior to 1830, the labor price of lighting fell by a factor of 14, or at an annual rate of 0.073%.

In the 180 years since 1830, the labor price fell by a factor of 66,000, or at an annual rate of 6.36%.

After 1830 productivity increased by a factor of 87.

Sources: William D. Nordhaus, 1996. "Do Real-Output and Real-Wage Measures Capture Reality? The History of Lighting Suggests Not," NBER Chapters, in: The Economics of New Goods, pages 27-70 National Bureau of Economic Research, Inc.

Ph.D. Jobs: What's Hot (Econ), What's Not (History)

From today's Inside Higher Ed:

"During the 2009-10 academic year, the number of positions listed with the American Historical Association dropped by 29.4 percent, according to a study the group will release today. That follows a 23.8 percent drop the year before. Last year, the association announced that the number of listings it received -- 806 -- was the smallest in a decade; this year's total of 569 marks the smallest number in 25 years.

But in data also being released this week, the American Economic Association (AEA) is announcing that its job listings in 2010 recovered from a 21 percent decline in 2008. Further, the number of academic jobs exceeded the number in 2008. (Economics job listings include positions in the finance and consulting industries, in addition to academic slots.)

The total number of listings with the AEA rose to 2,842 in 2010, up from 2,285 in 2009, and only 43 jobs shy of the 2008 total. Because many of the 2008 openings that were listed were for searches that were subsequently called off, the AEA report -- prepared by John J. Siegfried, secretary-treasurer of the association -- says that it believes job openings are now above 2008 levels.

New academic jobs increased to 1,884 in 2010, up from 1,512 in 2009, and now exceed 2008 totals by 24. The vast majority of the academic jobs are at universities with graduate programs.  The top area of specialization in job listings, by far, was mathematical and quantitative methods, followed by microeconomics, macroeconomics and financial economics, international economics, and macroeconomics and monetary economics." 

 

Source: http://mjperry.blogspot.com/

The Federal Deficit: A Spending AND Revenue Problem

So, what can we learn from this chart?

1. our current deficit is driven by BOTH a dramatic increase in spending and a devastating decline in revenue.
2. the Bush tax cuts are not wholly to blame for the deficit. If revenue had held steady at 2007 levels, we’d still be looking at record deficits based only on the spending increases.
3. spending increases are not wholly to blame for the deficit. If spending had held steady at 2007 levels, we’d still be looking at record deficits.
4. compared to revenue, spending is relatively stable, increasing more or less steadily year after year.

That last one indicated to me that the federal government has more control over spending then they have over revenue. Because of this (in my humble opinion) it does make more sense to try to cut spending than to raise taxes, since we have more control over the spending side.

Source: http://www.politicalmathblog.com/

Julian Simon

Who: Julian Simon (1932-1998) was an American economist, a professor of business, and a Senior Fellow at the Cato Institute. Simon is best known for his work on population growth, natural resources, immigration, and technological change. Founded on a belief in mankind’s ingenuity and supported by overwhelming empirical evidence, Simon’s research develops an optimistic vision of liberated humanity.

Why he matters: Simon spent his career making the factual case for political and economic freedom, resisting the mainstream impulse to “solve” crises with central planning. When popular opinion was convinced that the future would see mass starvation and a dramatic decline in the global standard of living caused by a “population bomb,” Simon jumped into the fray to disabuse the public of ill-informed pessimism. Rather than bow to the conventional Malthusian wisdom about the consequences of population growth, Simon heralded humanity as “the ultimate resource.” More people means more innovation, more genius, more beauty, and more wealth,  said Simon. By Simon’s reasoning, natural resources are effectively infinite, because as a resource becomes more scarce, the rising price incentivizes innovation, eventually leading to the creation of substitutes and new technologies, then driving down prices. Resources are actually becoming less scarce over time, as Simon demonstrated in his famous bet with Paul Ehrlich.

This exceptional talent of Simon’s for debunking alarmist claims of catastrophe earned him the nickname, “The Doomslayer.” According to his research, the environment is getting cleaner, immigrants are making Americans wealthier, animal species aren’t endangered, and deforestation is less common than reforestation. Things are getting better all the time. And during his lifetime, Simon would gladly show the pages and pages of data to prove it.

When pressed to offer his own prediction of the future, Simon once said “this is my long-run forecast in brief: the material conditions of life will continue to get better for most people, in most countries, most of the time, indefinitely. Within a century or two, all nations and most of humanity will be at or above today’s Western living standards.

“I also speculate, however, that many people will continue to think and say that the conditions of life are getting worse.”

If you only read one thing by Julian Simon: The Ultimate Resource [updated as Ultimate Resource 2] (1980), available for free online.

Money and Happiness

Fair Trade vs. Free Trade

"Last summer, I purchased a 2010 LS 460 Lexus, through a U.S. intermediary, from a Japanese producer for $70,000. Here's my question to you: Was that a fair trade?

I was free to keep my $70,000 or purchase the car. The Japanese producer was free to keep his Lexus or sell me the car. As it turned out, I gave up my $70,000 and took possession of the car, and the Japanese producer gave up possession of the car and took possession of my money.

The exchange occurred because I saw myself as being better off and so did the Japanese producer. I think it was both free and fair trade, and I'd like an American mercantilist to explain to me how it wasn't.

Mercantilists have absolutely no argument when we recognize that trade is mostly between individuals. Mercantilists pretend that trade occurs between nations, such as the U.S. trading with England or Japan, to appeal to our jingoism.

First, does the U.S. actually trade with Japan and England? In other words, is it members of the U.S. Congress trading with their counterparts in the Japanese Diet or the English Parliament? That's nonsense. Trade occurs between individuals in one country, through intermediaries, with individuals in another country.

Who might protest that my trade with the Lexus manufacturer was unfair? If you said an American car manufacturer and their union workers, go to the head of the class.

They would like Congress to restrict foreign trade so they can sell their cars at a pleasing price and their workers earn a pleasing wage. As a matter of fact, it's never American consumers who complain about cheaper prices. It's always American producers and their unions who do the complaining. That ought to tell us something."

~Walter Williams

The French Candlemakers' Petition

From a Petition From the French Manufacturers of Candles:

"We (French candlemakers) are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun. 

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat."

~French economist Frédéric Bastiat writing in 1845.  Bastiast was born today in 1801. 

Just like we shouldn't complain about a foreign rival like the sun "dumping" light on us for free or below cost, we also shouldn't complain about foreign countries "dumping" goods in the U.S. below cost, and we shouldn't complain about currency "manipulation" that makes goods cheaper to U.S. consumers and companies, and we shouldn't complain about free gifts or foreign aid from other countries.

In addition to highlighting the economic fallacies of protectionism and promoting the economic benefits of free trade, Bastiat also facetiously proposed laws forbidding the use of everybody's right hand, based on the false assumptions that more difficulty means more work and more jobs, and more work produces more wealth.  

Technology and Manufacturing Productivity Improvements Have Destroyed 6 Million Jobs

Update: This BEA link shows that real manufacturing output (in billions of chained 2000 dollars) almost doubled in the 20 years between 1987 and 2007, from $866 billion in 1987 to $1,618 billion in 2007.

Update: Real output per worker (2007 dollars).

According to BEA data on manufacturing output (value added) and manufacturing employment, there has been a decline of more than six million manufacturing jobs from the peak of 20 million in 1979 to fewer than 14 million jobs in 2007 (see blue line in top chart above). During that same period, manufacturing output (value added) has increased by more than three times, from $544 billion in 1979 to $1.63 trillion in 2007 (see red line in top chart), not adjusted for inflation.

Because of the significant increase in manufacturing output accompanied by the huge decline in employment, the manufacturing output per worker increased more than four times, from $27,175 in 1979 to $115,750. The increase in worker productivity is one of the main contributing factors to the elimination of six million manufacturing jobs in the U.S. Simply put, we're producing more and more manufacturing output with fewer and fewer workers.

With that in mind, consider this re-write of a recent news story about China:

"The continuing trade imbalance with China increases in worker productivity has have contributed to the loss of over 5.3 million U.S. manufacturing jobs in the last decade, 300,000 of those in New York State. The Capital District manufacturing sector has declined by 28 percent during that same period, losing approximately 10,000 jobs, and 2,000 last year," said Sen. Charles Schumer, D-N.Y.

“There is no bigger step we can take to promote U.S. job creation, particularly in the manufacturing sector, than to confront China’s currency manipulation, our productivity improvements due to advances in technology like robotics” Schumer said. “This is not about China technology or productivity bashing. It’s about defending the people of New York and the United States from the ongoing increases in worker productivity taking place in America's factories that have contributed to the loss of millions of manufacturing jobs.”

“We have a job crisis in upstate New York and in America,” Schumer said. “China Technology and increased worker productivity is are fanning the flames.” The legislation Schumer proposes would impose new penalties on countries who manipulate their currency, manufacturers who introduce productivity-enhancing technologies as a way to increase output with fewer workers.

Bottom Line: There's really no difference between: a) being able to produce more manufacturing output in the U.S. due to productivity increases that allow us to take advantage of technology advances and employ fewer workers, and b) being able to increase our manufacturing output in the U.S. by taking advantage of low-cost labor in China and employing fewer American workers.

The first example substitutes more efficient capital for labor, and the second substitutes low-cost labor for high-cost labor, but the net result is the same: more output with fewer workers. Imposing penalties on low-cost Chinese manufacturers because some U.S. jobs are eliminated makes as much sense as imposing penalties on American companies that introduce technology (e.g. robotics) and in the process eliminate some U.S. jobs. 

 

Source: http://mjperry.blogspot.com

Made in USA Is Alive and Well: Manufacturing Goes High-End and the USA is Still the Global Leader

Despite downturn and dire outlook for factories, value of American-made goods still leads world.

WASHINGTON(AP) -- It may seem like the country that used to make everything is on the brink of making nothing. In January, 207,000 U.S. manufacturing jobs vanished in the largest one-month drop since October 1982 (see chart above). Factory activity is hovering at a 28-year low. Even before the recession, plants were hemorrhaging work to foreign competitors with cheap labor. And some companies were moving production overseas.

But manufacturing in the United States isn't dead or even dying. It's moving upscale, following the biggest profits, and becoming more efficient, just like Henry Ford did when he created the assembly line to make the Model T.

The U.S. by far remains the world's leading manufacturer by value of goods produced. It hit a record $1.6 trillion in 2007 -- nearly double the $811 billion in 1987. For every $1 of value produced in China's factories, America generates $2.50.

So what's made in the USA these days?

The U.S. sold more than $200 billion worth of aircraft, missiles and space-related equipment in 2007. And $80 billion worth of autos and auto parts. Deere & Co. sold $16.5 billion worth of farming equipment last year, much of it to the rest of the world. Then there's energy products like gas turbines for power plants made by General Electric, computer chips from Intel and fighter jets from Lockheed Martin. Household names like GE, General Motors, IBM, Boeing, Hewlett-Packard are among the largest manufacturers by revenue.

Several trends have emerged over the decades:

• America makes things that other countries can't. Today, "Made in USA" is more likely to be stamped on heavy equipment or the circuits that go inside other products than TVs, toys, clothes and other items.

• U.S. companies have shifted toward high-end manufacturing as the production of low-value goods moves overseas. This has resulted in lower prices for shoppers and higher profits for companies.

• When demand slumps, all types of manufacturing jobs are lost. Some higher-end jobs -- but not all -- return with good times. Workers who make goods more cheaply produced overseas suffer.

Once this recession runs its course, surviving manufacturers will emerge more efficient and profitable, economists say. More valuable products will be made using fewer people. About 12.7 million Americans, or 8% of the labor force, still held manufacturing jobs as of last month. Fifty years ago, 14.6 million people, or 28% of all workers, toiled in factories.

MP: Using slightly different data than the AP article, the chart above shows U.S. Manufacturing Output (Gross Value) from The Federal Reserve, and U.S. Manufacturing Payroll Employment from the BLS (via Economagic), monthly from 1972-2009. In the last 37 years, manufacturing output in real dollars has more than doubled, while manufacturing employment has dropped by more than 26%, resulting in an almost tripling of the amount of manufacturing output per manufacturing worker in the U.S., from less than $80,000 in 1972 to almost $240,000 per worker today (see chart below).

It's certainly the case that the U.S. leads the world in overall manufacturing output, and it's probably the case that when it comes to manufacturing output per person, nobody in the world comes close to the U.S.

You hear from a lot of people that the U.S. can't be a job-creating, world-class economy without a thriving and expanding manufacturing sector. In fact, except during recessions, the U.S. continues to produce more and more manufacturing output year after year. But because of increases in worker productivity year after year, we can produce more output with fewer workers.
It's a lot like the trend in agriculture that took place starting in the 19th century. We produce more and more food every year with fewer and fewer farm workers, due to increases in productivity. Instead of bemoaning the loss of manufacturing or farm jobs, we should be celebrating the increasing productivity of the American worker!
Thanks to Bob Wright.