Monday, December 28, 2009

Updated historical home price graph

For those who are interested, I have finally gotten around to updating my home price graphs. The national graph now has a new feature: pre-bubble trend lines.

Click on the graph to view the full-sized version.

Tuesday, December 22, 2009

PETA is sexist

People for the Ethical Treatment of Animals (PETA) degrades women. Ha!

Friday, December 18, 2009

Money is the root of much good

Despite the widespread belief that "money is the root of all evil," The Economist points out that money's virtues outweigh its vices:
There is a tendency to look back on the pre-industrial era as an idyll. But if you think life was great before sordid commericalism appeared, you should try being a peasant. Life was a combination of back-breaking work, few human rights, illiteracy, short life expectancy and little chance for advancement (especially for women). It is no coincidence that all these things have improved in our more sophisticated economy. ...

Societies that have destroyed their money, like Zimbabwe, have not moved into a post-materialist world; they are full of famine, disease and brutality.
Most people recognize that it is better to be wealthy than to be poor. However, far too many people think of the world's wealth as being fixed—that if you have more money, it forces me to have less. That is not the way the economy works. Humanity grows wealth over time. The more productive we are—through harder work, better education, greater innovation, and more efficient use of resources—the faster the economy grows and the wealthier we all become.

Without money, wealth, and economic growth, we would not have refrigeration for food, airplanes for travel, running water for sanitation, or computers for learning. Man's desire for money, and his willingness to employ his productive resources in order to obtain it, gradually makes the world a better place.

Saturday, December 12, 2009

Public schools: Elites vs. the middle class

Another reason to favor school choice over the public school monopoly, from Wikipedia:
Randall Collins contributed the idea of credentialism to the study of class-based differences in educational attainment. Collins maintains that public schools are socializing institutions that teach and reward middle class values of competition and achievement. Anglo-Protestant elites are selectively separated from other students and placed into prestigious schools and colleges, where they are trained to hold positions of power. By teaching middle-class culture through the public education system, the elite class ensures a monopoly over positions of power, while others acquire the credentials to compete in a subordinate job market and economy. In this way, schools of medicine, law, and elite institutions have remained closed to members of lower classes.
Thus, as I interpret this paragraph, the hypothesis says prestigious private schools teach how to lead, while the public school monopoly teaches how to serve.

Thursday, December 10, 2009

How to attain social status

Scientific American has an interesting article on what causes people to have or lack social status:
Recent work by social scientists has tackled the topic, elucidating behavioral differences between low-status and high-status individuals, and the methods by which those at the bottom of the totem pole are most successful at climbing to the top. ...

Low-status people are much more sensitive to being socially rejected and are more inclined to monitor their environment for threats. Because of this vigilance toward protecting their sense of self-worth, low-status individuals are quicker to respond violently to personal threats and insults. ...

Those who are effective in attaining status do so through behaving generously and helpfully to bolster their value to their group. In other words, low-status individuals’ aggressive and violent behavior is precisely the opposite of what they should be doing to ascend the societal totem pole. ...

People afford greater status to individuals who donate more of their own money to a communal fund and those who sacrifice their individual interests for the public good. Demonstrating your value to a group—whether through competence or selflessness—appears to improve status. Anderson and Aiwa Shirako suggest that the amplifier for this effect is the degree to which one has social connections with others. ...

They showed that individuals who behaved cooperatively attained a more positive reputation, but only if they were socially embedded in the group. Those who behaved cooperatively, but lacked connections went unnoticed. ... Those who were selfish and well-connected saw their reputation diminish. ...

The sum of these findings can begin to explain the troubled circumstances of those lowest in status. ... Instead of ingratiating themselves to those around them – this is the successful strategy for status attainment – low-status individuals may be more prone to bullying and hostile behavior, especially when provoked.
So, to attain a high socioeconomic status, in addition to getting an advanced degree in a high-paying field, you should be helpful to those around you.

Saturday, December 5, 2009

The November 2009 unemployment rate declines

The economy keeps getting better (or less bad). The unemployment rate actually fell in November, down to 10.0% compared to 10.2% a month earlier:

The year-over-year percent change in initial jobless claims has fallen below zero, which means employed workers are safer than they were a year ago:

November's month-over-month change in nonfarm payrolls was just about zero, the best it's been since December 2007:

Compare the above graph with a graph of ADP's numbers.

The year-over-year percent change in aggregate weekly hours worked is rising:

Permabears must be growling at the improving data.

Thursday, December 3, 2009

November 2009 monthly job loss numbers from ADP

According to the ADP Employment Report, the month over month rate of job losses continued to decline in November. This graph shows the number of job losses in thousands:

Here are ADP's comments on the numbers:
Nonfarm private employment decreased 169,000 from October to November 2009 on a seasonally adjusted basis, according to the ADP National Employment Report®. ...

November was the eighth consecutive month during which the decline in employment was less than in the previous month. Although overall economic activity is stabilizing, employment usually trails economic activity, so it is likely to decline for at least a few more months.
Keep in mind that we need 100,000-200,000 job gains each month just to keep up with population growth.

Tuesday, December 1, 2009

Prof. Brent White: Walk away

A law professor encourages people to walk away from their homes:
Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong.

That's the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

White argues that far more of the estimated 15 million American homeowners who are underwater on their mortgages should stiff their lenders and take a hike. ...

Better yet, you can default "strategically." Buy all the major items you'll need for the next couple of years — a new car, even a new house — just before you pull the plug on your current mortgage lender.
Scenario #1: You walk into a bank and take a bunch of money that doesn't belong to you. This is called theft.

Scenario #2: You take out a loan, promising to pay it back. Then, after you have the money, you decide not to pay it back. How is this not also theft?

I can completely understand not paying back a loan if you lose your job and are unable to pay back the loan. I can also understand if you get sick and end up with huge medical bills that make it impossible to pay back a loan. I can even understand not paying back a loan if the bank deceived you regarding what your payments would be.

However, if you decide not to pay back the loan simply because you overpaid for your house, then I consider that the moral equivalent of theft.

Keep in mind that being underwater doesn't mean you can't afford the monthly payments. It just means that the value of your house has fallen by more than the amount of your down payment (and any subsequent principal payments). A person who stiffs their lender because their investment didn't turn out as expected is scum. Just because you can steal from a bank doesn't mean you should steal from a bank.

Thursday, November 19, 2009

U.S. economy in sustained, gradual recovery

Don't believe the impatient fear mongers. A slow, but steady, recovery is in process. From Bloomberg:
The U.S. economic recovery will extend into next year as manufacturing expands and the pace of firings abates, reports today indicated.

The Conference Board’s index of leading indicators, a gauge of the outlook for the next three to six months, rose 0.3 percent in October, preserving a string of gains that began in April. Other reports showed claims for jobless benefits held at a 10-month low and Philadelphia-area manufacturing accelerated.

The rally in stock prices, low short-term interest rates and slowing job losses that propelled the leading index signal consumer confidence and spending are likely to stabilize, limiting the risk the economy will retrench. The data supported Treasury Secretary Timothy Geithner’s forecast today that the emerging expansion will be sustained into 2010.

“It’s very clear that the economy is now expanding, but I don’t see it being a vigorous expansion,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, who correctly forecast the leading index. “We are seeing a gradual improvement, but the key word is ‘gradual.’”

Saturday, November 14, 2009

Why eminent domain should be used sparingly

This is karma:
The private homes that New London, Conn., took away from Suzette Kelo and her neighbors have been torn down. Their former site is a wasteland of fields of weeds, a monument to the power of eminent domain.

But now Pfizer, the drug company whose neighboring research facility had been the original cause of the homes' seizure, has just announced that it is closing up shop in New London.

To lure those jobs to New London a decade ago, the local government promised to demolish the older residential neighborhood adjacent to the land Pfizer was buying for next-to-nothing. Suzette Kelo fought the taking to the Supreme Court, and lost. Five justices found this redevelopment met the constitutional hurdle of "public use." ...

Scott Bullock, Kelo's co-counsel in the case, told me: "This shows the folly of these redevelopment projects that use massive taxpayer subsidies and other forms of corporate welfare and abuse eminent domain."
The City of New London forcibly took people's homes away from them and got what in return? A field of weeds and jobs that are gone in a decade? Screw the City of New London.

Saturday, November 7, 2009

How the crisis could change economic theory

Here's an interesting look at how the housing bubble may change macroeconomic theory.
The crisis exposed the inadequacy of economists' traditional tool kit, forcing them to revisit questions many had long thought answered, such as how to tame disruptive boom-and-bust cycles. ...

"We could be looking at a paradigm shift," says Frederic Mishkin, a former Federal Reserve governor now at Columbia University.

That shift could change the way central bankers do their job, possibly leading them to wade more deeply into markets. They could, for example, place greater emphasis on the amount of borrowing in the economy, rather than just the interest rates at which borrowing is done. In boom times, that could lead them to restrict how much money various players, ranging from hedge funds to home buyers, can borrow.

Friday, November 6, 2009

October 2009 unemployment and jobless numbers

The unemployment rate has reached the highest level since the early 1980s, rising to 10.2% in October 2009. The last time the U3 (official) unemployment rate was this high was April, 1983. (As a kid back then, it really didn't seem that bad—although I'm doing well now, too.)

Initial weekly unemployment insurance claims continue to improve—or more precisely, they are getting worse at a slower rate. This graph shows year-over-year numbers. Ideally, we'd like the YoY numbers to be below zero for an extended period of time.

The government's job loss numbers show a continuing, but slowing, contraction in the job market. Remember, we need monthly job gains of 100,000-200,000 just to keep up with population growth.

For conspiracy theorists who don't believe the government's numbers, here are the monthly job loss numbers as measured by Automatic Data Processing, Inc.

Thursday, November 5, 2009

Home buyer tax credit = more global warming

According to Harvard economist Edward Glaeser, Congress and the White House are intent on harming the planet:
ENVIRONMENTALISTS who are worried about global warming should pay attention to the congressional debate about extending the home buyers tax credit. Federal tax policies toward housing have long encouraged Americans to emit more carbon. President Obama could do the country, and the planet, a service by either refusing to sign the extension of the $8,000 credit or by insisting that it be accompanied by offsetting reductions in the home mortgage interest deduction.

According to the Residential Energy Consumption Survey, per person energy use in owner-occupied housing is 39 percent higher than in rental units. Energy use, per household member, is 49 percent higher in single-family detached houses than in apartments in buildings with more than five units. These differences reflect the strong connection between home size and energy use. The average four-bedroom house consumes 72 percent more electricity than the average two-bedroom house.

Yet the tax code encourages Americans to live in big, energy-guzzling homes, instead of thrifty apartments, and Congress seems intent on further unbalancing the federal budget to egg on home buyers.

Friday, October 30, 2009

Cash for Clunkers cost $24,000 per car has analyzed the car sales numbers during the Cash for Clunkers program and estimated that the marginal cost was $24,000 of our tax dollars for each new car sold:
A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site ...

The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.
The average rebate value mentioned above seems like bad rounding. It appears the average rebate was closer to $4,348. Here's the math:

$3 billion overall cost ÷ 690,000 cars sold = $4,348 per car total cost

(690,000 / 125,000) × $4,348 = $24,000 per car marginal cost

In an example of regulatory capture (government regulators protecting the industry they are supposed to regulate), the Department of Transportation is defending Cash for Clunkers (i.e. "Car Allowance Rebate System") by saying that it was good for the auto industry:
"It is unfortunate that has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone," said Bill Adams, spokesman for the Department of Transportation. "There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most."
Note that what's good for car dealers is not necessarily what's good for the overall economy, just as what's good for Realtors is not necessarily what's good for the overall economy. Like the first-time home buyer tax credit, Cash for Clunkers is nothing more than wasteful corporate welfare.

The White House has come out with a weak, short-term-oriented defense of the program. Notice, however, that for the most part the left-wing economics bloggers who are usually quick to defend the White House against faulty economic reasoning (e.g. Paul Krugman, Mark Thoma, Calculated Risk) are remaining silent on this one. In fact, left-leaning economist Jeffrey Sachs is out with his own criticism of Cash for Clunkers' supposed climate benefits. Sachs actually makes the mistake of measuring total cost, rather than marginal cost, so the program is actually 5.5 times more wasteful than the numbers he complains about.

Just like the first-time home buyer tax credit, Cash for Clunkers is a handout of our tax money to the special interests who lobby Congress.

Monday, October 26, 2009

Health care reform will hurt those it is intended to help

George Mason University economics professor Tyler Cowen argues that the proposed health care reforms will be harmful. Here's his summary:
We’re on the verge of enacting a policy that is due to explode, penalizing many of the very people that it was ostensibly designed to help.

Saturday, October 24, 2009

Starting salary by category of college major

Here is a graph of starting salaries by general category of college major. These are the starting salaries for bachelor's degrees. Notice that technology-oriented degrees pay substantially more than other degrees. Business and science degrees take up the middle of the pack. Liberal arts and education majors are at the bottom.

Source: NACE Salary Survey, Fall 2009

If a student goes on to business school, law school, or medical school, the choice of undergraduate major would generally lose its influence on salary. Some natural complements are a liberal arts bachelor's degree combined with a law degree, a health sciences bachelor's degree combined with a medical degree,* or a liberal arts, sciences, or business bachelor's degree combined with an M.B.A.

One case in which the undergraduate degree continues to have a large influence on salary is the powerful mix of an engineering or computer science bachelor's degree combined with an M.B.A. This is because managers with both technical and business skills are needed at many computer, aerospace, and industrial companies.

I wonder how seeing a graph like this in high school might have affected my choice of college major. Probably not much since my multiple requests for a computer in high school were denied by my then-Luddite parents. Thus, I was intimidated by computers when I entered college.

People who like this post may also be interested in a previous blog post of mine, earnings by level of education.

* I have no idea how stringent the prerequisites are for medical school.

Thursday, October 22, 2009

ObamaCare would increase health care burden

The Office of the Actuary, part of the U.S. Department of Health and Human Services, exposes the hard truth about ObamaCare:
The nation's medical costs will keep spiraling upward even faster than they are now under Democratic legislation pending in the House, a report from government economic experts concluded Wednesday. ...

Unlike previous estimates that have focused mainly on the legislation's impact on the federal deficit, the actuaries' report looked at total costs, public and private, over the next 10 years. It found that the nation's health care tab would increase somewhat more rapidly with the legislation than if nothing is done. The main reason: Newly insured people will seek medical care. ...

Health care would account for 21.3 percent of the U.S. economy in 2019, slightly more than an estimated share of 20.8 percent of the economy if no bill passes. Economists have warned such increases are unsustainable.

"With the exception of the proposed reductions in Medicare ... (the legislation) would not have a significant impact on future health care cost growth rates," the report said. Moreover, it's "doubtful" that proposed Medicare cuts will stay in place, the analysts concluded.
If I remember correctly, the House bill includes the public option. This casts serious doubt on the Democrats' claim that the public option would reduce health care costs.

Tuesday, October 20, 2009

The definition of High Broderism

"Broderism," named after Washington Post columnist David Broder, is a word invented by left-wing bloggers to express contempt for bipartisanship and political centrism among elected officials. A quick Google search for "Broderism" turns up lots of left-wing blogs and websites, but no right-wing ones and few moderate ones. Basically, if someone uses the word "Broderism," you can expect that they hate Senator Joe Lieberman.

Variants: "Broderism," "High Broderism," and "Higher Broderism."

Tuesday, October 13, 2009

Unemployment to remain high for years

According to a survey of professional forecasters conducted by the Philadelphia Fed, the unemployment rate is expected to remain abnormally high for at least three more years.

When looking at the graph above, keep in mind that from the mid-1990s until 2007, unemployment generally ranged from 4-6%, with NAIRU (essentially the natural rate of unemployment) being about 5%. Furthermore, since 1947 there have only been three times when the unemployment rate exceeded 8%: the mid-1970s, the early 1980s, and now.

These numbers echo, but are worse than, a recovery prediction I quoted six months ago:
Even if the recession miraculously ended tomorrow, economists estimate that at least three years would pass before full employment returned and output rose enough for the economy to operate at full throttle.

Monday, October 12, 2009

How to create better financial regulation

Lots of people like to blame stuff like the current financial crisis on the opposing political party. For example, note how Republicans like to blame the housing bubble, which caused our current troubles, on the Community Reinvestment Act and Democrats like to blame it on lax Bush administration regulation.

The truth is that nobody of any political affiliation likes to step in and take away the punchbowl when everyone's partying. Just look at the failure of anyone to do anything about this decade's housing bubble under President Bush or the stock market bubble that occurred during Bill Clinton's second term.

Bubbles are caused by human nature. Since regulators are human beings, they are as susceptible as anyone else. How many home-owning regulators of any political affiliation would have wanted to reign in the rapid rise in housing prices, for example?

Instead what are needed are mathematical rules, such as requiring home buyers to make 20% down payments when buying homes. (Note that under President Obama and a Democratically-controlled Congress, the FHA is actively encouraging absurdly low 3.5% down payments.)

Larger down payments would encourage home buyers to care less about monthly payments and more about overall price. They also would give home owners a bigger buffer to protect themselves when home prices fall. They would also force home buyers to have more skin in the game, so they will be less inclined to just walk away when their home price falls.

All financial institutions should be required to maintain sufficient capital reserves, not just traditional banks. The required reserve ratio should automatically rise during booms and fall during busts. Countercyclical reserve policy like this would help stabilize both the financial system and the money supply.

Finally, teaser rates should be outlawed. Teaser rates are intended to take advantage of people's innate susceptibility to hyperbolic discounting. If someone isn't willing to buy a home based on the regular interest rate and the regular monthly payments, then they shouldn't be buying the home.

Thursday, October 8, 2009

My thoughts on a second economic stimulus package

Some economists and politicians are advocating a second economic stimulus package. Here are my thoughts on a second stimulus.

State governments likely have better ideas than Congress regarding what are high value spending projects within each state. On the whole, pre-existing state spending was likely already going to the highest-value projects available. Since state governments are now being forced by circumstances to drastically cut back at a time when Congress's stimulus package is in effect, this suggests that Congress massively misallocated capital with the first stimulus.

If Congress creates a second economic stimulus package, it should only consist of more aid to the states and extended unemployment benefits. Congress should avoid a bunch of bells, whistles, and pet projects. Stuff like cash for clunkers and subsidies to transfer existing homes from one person to another are just real-life examples of the broken window fallacy.

Wasteful spending harms long-term economic growth just to avoid short-term pain. On the other hand, when states are forced to cut useful investment spending (e.g. education and infrastructure), then it harms the economy in both the short-term and the long-term.

Warren Buffett described the first stimulus package as a mix of Viagra and candy. Aid to the states and extended unemployment benefits would be pure Viagra. Most other spending options would be candy.

Monday, September 28, 2009

Economists should stop ignoring bubbles

Yale economist Robert Shiller has constructive criticism for his own profession:
The widespread failure of economists to forecast the financial crisis that erupted last year has much to do with faulty models. This lack of sound models meant that economic policymakers and central bankers received no warning of what was to come.

As George Akerlof and I argue in our recent book Animal Spirits, the current financial crisis was driven by speculative bubbles in the housing market, the stock market, energy and other commodities markets. Bubbles are caused by feedback loops: rising speculative prices encourage optimism, which encourages more buying and hence further speculative price increases — until the crash comes.

You won’t find the word “bubble,” however, in most economics treatises or textbooks. Likewise, a search of working papers produced by central banks and economics departments in recent years yields few instances of “bubbles” even being mentioned. Indeed, the idea that bubbles exist has become so disreputable in much of the economics and finance profession that bringing them up in an economics seminar is like bringing up astrology to a group of astronomers.

The fundamental problem is that a generation of mainstream macroeconomic theorists has come to accept a theory that has an error at its very core — the axiom that people are fully rational.

Friday, September 25, 2009

The problem with health care costs is the insurance

The Democrats' health insurance reform proposals will magnify the problems that make health care so expensive:
The administration's plan will impose mandates that employers provide coverage, mandates that individuals obtain coverage, and mandates about the form this coverage will have to take. These will remove the freedom to choose one's health-insurance plan, because government, in its effort to correct perceived inequities, will dictate which health-care services must be covered and which health-care providers must be used. ...

The mandates will lead to large increases in the cost of health insurance for everyone. Research studies have shown that as people become insured, especially under a health plan that offers broad coverage and low copayments, they consume more health-care services. The best estimates indicate that each newly insured person will approximately double his or her health spending.

With 30 million to 40 million newly insured persons under the administration's plan, aggregate health-care demand will increase significantly. But when demand expands prices increase. ...

The mandates will also have adverse additional longer-run consequences. According to provisions in both House and Senate bills, mandated plans must have low copayments and provide coverage of health-care services that is at least equal in scope to a typical, current employer-sponsored plan. But these are the very flaws that are responsible for high and rising health-care costs...

Comprehensive, low-deductible, low-copayment insurance has brought us to where we are today. The administration's plan to expand and lock-in this flawed paradigm will ultimately defeat the goal of making health services more affordable for everyone.
Again, insurance is what causes health care to be so expensive, because it encourages the population as a whole to purchase more health care services than it otherwise would. Increased demand then pushes up prices. As I quoted economist Martin Feldstein in an earlier blog post:
Since a typical 20% copayment rate means that an extra dollar of health services costs the patient only 20 cents at the time of care, patients and their doctors opt for excessive tests and other inappropriately expensive forms of care.
By the way, here's a list of reform ideas that the Democrats are ignoring. Here's a functioning national health care system that results in far lower costs than the European-style health care systems that the Democrats want to emulate.

Friday, September 18, 2009

Real health care reform: break down the state barriers

The Democrats don't want real health insurance competition. They just want a government takeover of the health insurance industry (i.e. a single payer system). If they did want real competition, they wouldn't need a "public option". All they'd have to do is break down the state insurance barriers that prevent health insurance from being sold across state lines.

Notice the question that the White House repeatedly ducks in this interview:

For more of my blog posts on the subject of health care, click here.

Sunday, September 6, 2009

Recession may not be over

Last month, as the unemployment rate took a reprieve from its upward spike, I speculated that the recession might be over. Friday's release of the August unemployment rate showed a resumption of the upward spike, suggesting that the end of the recession may be yet to come.

Here's a graph of the official unemployment rate over the past ten years. Gray bars indicate recessions:

Here's a graph of the official monthly job loss numbers during this recession:

For conspiracy theorists who don't trust the government, here are the job loss numbers from the private ADP Employment Report. Notice that ADP measures job losses in August as being roughly 50% higher than the BLS numbers:

Saturday, August 22, 2009

An economic recovery forecast

The Economist makes its prediction for the shape of the economic recovery:
A gloomy U with a long, flat bottom of weak growth is the likeliest shape of the next few years.
They also have a discussion about the housing market here.

Thursday, August 20, 2009

The cause of America's high health care costs

Harvard economist and John Bates Clark Medal-winner Martin Feldstein identifies the cause of America's high health care costs:
Budget considerations aside, health-economics experts agree that private health spending is too high because our tax rules lead to the wrong kind of insurance. Under existing law, employer payments for health insurance are deductible by the employer but are not included in the taxable income of the employee. While an extra $100 paid to someone who earns $45,000 a year will provide only about $60 of after-tax spendable cash, the employer could instead use that $100 to pay $100 of health-insurance premiums for that same individual. It is therefore not surprising that employers and employees have opted for very generous health insurance with very low copayment rates.

Since a typical 20% copayment rate means that an extra dollar of health services costs the patient only 20 cents at the time of care, patients and their doctors opt for excessive tests and other inappropriately expensive forms of care. The evidence on health-care demand implies that the current tax rules raise private health-care spending by as much as 35%.

The best solution to this problem of private overconsumption of health services would be to eliminate the tax rule that is causing the excessive insurance and the resulting rise in health spending. Alternatively, Congress could strengthen the incentives in the existing law for health savings accounts with high insurance copayments. Either way, the result would be more cost-conscious behavior that would lower health-care spending.
I have previously made the case for greater use of health savings accounts here.

Sunday, August 16, 2009

Why Singapore's health care system beats ObamaCare

Singapore's health care system is entirely different than anything the Democrats are trying to do. Singapore's health care system is one libertarians should love, because people there pay for their own health care out of their own pocket. Singapore's health care system is basically a system of health savings accounts for everyone, combined with catastrophic (high-deductible) health insurance. There is also free health care for the poor, analogous to Medicaid in the U.S.

Why is Singapore's health care system superior to ObamaCare? Let's compare Singapore to the Democratic Party ideal (Western Europe and Canada).

Singaporeans live longer than people in the Western European countries whose health care systems the Democrats want to copy:

Singapore's health care system costs less than those in the Western European countries that the Democrats want to copy:

Government spending on health care is lower in Singapore than in the U.S. This is something the small-government crowd should love and the ObamaCare crowd should hate:

While some Democrats are trying to abolish health savings accounts in the U.S. (the Republicans introduced them a few years ago, but they are rarely used), Singapore is evidence that universal health savings accounts are superior to any kind of "public option" or "single payer system".

The reason health savings accounts are so successful is because they get supply and demand working the way they should. This doesn't occur when someone else (e.g. an insurance company or the government) pays the bill.

It is a false choice to believe that the only health care options we have are either big-government or the status quo. Universal health savings accounts provide a third alternative.

Data source.

To learn more about Singapore's health care system, click here.

Update: The Washington Post has an article with more details about the Singaporean health care system. Also according to Wikipedia, "Singapore was ranked 6th in the World Health Organization's ranking of the world's health systems in the year 2000."

Wednesday, August 12, 2009

A better health care system than ObamaCare

I recommend this editorial from the CEO and co-founder of Whole Foods: The Whole Foods Alternative to ObamaCare.

Here's a summary:
  • Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs).
  • Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits.
  • Repeal all state laws which prevent insurance companies from competing across state lines.
  • Repeal government mandates regarding what insurance companies must cover.
  • Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year.
  • Make costs transparent so that consumers understand what health-care treatments cost.
  • Enact Medicare reform.
  • Finally, revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help the millions of people who have no insurance and aren't covered by Medicare, Medicaid or the State Children's Health Insurance Program.

Saturday, August 8, 2009

Recession is ending; may be over

The number of new job losses continues to decline. Compare these U.S. Bureau of Labor Statistics job loss numbers with the numbers from Automatic Data Processing, which I published on Wednesday.

The unemployment rate is no longer spiking. It may drift upward at a slower pace if we have a jobless recovery, but the end of a sharp upward spike has historically been a sure sign of the end of a recession.

Weekly initial unemployment insurance claims peaked about a month ago. This graph shows the year-over-year percentage change for emphasis.

Finally, the bulk of the economic stimulus package is yet to be spent. That's a lot of money that will be dumped into the economy over the next year or two.

Wednesday, August 5, 2009

July 2009 ADP employment report numbers

Source: Automatic Data Processing, Inc.

It looks like the recession is slowly ending, but it will still take a while. Note that job gains need to be positive just to keep up with population growth. The government's numbers come out on Friday.

Thursday, July 16, 2009

CBO: ObamaCare won't reduce health care costs

The Congressional Budget Office again hands the Democrats a massive dose of reality:
The health reform bills released so far would increase government spending on health care without sufficiently reining in health care costs.

And at least initially they aren't likely to significantly lower premiums for the majority of Americans with employer-sponsored health insurance.

That's the sobering takeaway from testimony Thursday by Congressional Budget Office Director Douglas Elmendorf.
Although ObamaCare won't reduce health care costs, it will increase taxes (although last year the Obama campaign promised they wouldn't do such a thing) and it will increase the national debt, so that's a benefit, right?

ObamaCare will also fine people who don't buy health insurance, regardless of how expensive health insurance gets.

Tuesday, July 7, 2009

Do the leading economic indicators suggest a recovery?

Here is a look a several important leading and coincident economic indicators. Leading indicators help forecast the future of the economy several months in advance. Coincident indicators reflect the current state of the economy.

Leading Indicators

The most reliable leading indicator is the slope of the Treasury yield curve. The slope is typically measured by the spread between the 10-year Treasury bond yield and the 3-month Treasury bill yield. An inverted yield curve (long-term rates lower than short-term rates) suggests a recession within the next year. Meanwhile, an upward sloping yield curve (long-term rates perhaps 1.0% or more higher than short-term rates) suggests a growing economy within the next year. I don't have a graph of the yield curve, but the spread is currently 3.33%, which suggests we are headed for a recovery.

New capital goods orders are a sign of a near-term recovery or decline. Here is the year-over-year percent change.

New building permits are another leading indicator. Due to the fact that we still have a housing bubble, I don't expect permits to turn around before the recession ends. Expecting housing to lead us out of this recession is like expecting technology to lead us out of the 2001 recession.

Coincident Indicators

While leading indicators forecast the future of the economy and thus tick up before a recovery, coincident indicators reflect the current state and thus should not tick up until the economy is actually recovering.

Year-over-year non-farm payrolls are still dropping like flies.

Year-over-year industrial production is still plunging.

Yet the year-over-year change in consumer sentiment is surprisingly strong, probably caused by the recently rising stock market (or vice-versa).

Monday, July 6, 2009

Has Obama's fiscal stimulus package been effective so far?

Back when President Obama was arguing for the fiscal stimulus package, his economic team created a graph forecasting the effects of the fiscal stimulus. The blue lines below show the expected unemployment rate with and without the fiscal stimulus. The maroon dots show the actual unemployment rate so far.

The fact that the unemployment situation is substantially worse than expected didn't prevent President Obama from bragging back in late May that, "In these last few months, the American Recovery and Reinvestment Act has saved or created nearly 150,000 jobs."

It is impossible to empirically measure how many jobs have been saved, so the "saved or created" numbers Obama uses are complete fabrications based on the White House's own shifting macroeconomic estimates. No matter how bad things get, Obama can always claim—without evidence—that things would have been worse, therefore he saved jobs. The gullible news media have been falling for it.

That said, the bulk of the stimulus package takes effect in late 2009 and in 2010, so we should not expect it to have had much economic impact yet.

Sunday, July 5, 2009

ADP Employment Survey graph

Here is Automatic Data Processing's measurement of the monthly job losses during the recession. Compare this with Friday's graph of the government's job loss numbers.

Unlike last month, ADP and the government are in close agreement this month. ADP says 473,000 job losses in June and the government says 467,000 job losses.

Friday, July 3, 2009

Job losses jump

Job losses and the unemployment rate are key signs of economic decline or recovery. There is mixed news on the employment front. Job losses jumped unexpectedly, but the rate of increase in the unemployment rate slowed:
The battered U.S. labor market took a step backwards last month as employers trimmed more jobs from their payrolls in June, according to a government report Thursday.

There was a net loss of 467,000 jobs in June, compared with a revised loss of 322,000 jobs in May. This was the first time in four months that the number of jobs lost rose from the prior month.

The June job losses were also far worse than the forecast of a loss of 365,000 jobs by economists surveyed by

The unemployment rate rose for the ninth straight month, climbing to 9.5% from 9.4%, and hitting another 26-year high. Economists had been expecting that the unemployment rate would hit 9.6%.

Nearly 3.4 million jobs have been lost during the first half of 2009, more than the 3.1 million lost in all of 2008.
Job losses since the recession began:

The unemployment rate over the past five years:

The reason they can disagree is because they are measured differently. The job loss number is probably more reliable than the unemployment rate.

Thursday, July 2, 2009

Leading Economic Index graph

The Conference Board Leading Economic Index attempts to forecast upcoming changes in the economy. Notice the slight uptick over the past two months.

Economist and blogger Rebecca Wilder notes more signs of recovery here and here.

Saturday, June 13, 2009

The Democrats' health care hypocrisy

When Bill Clinton ran for president back in 1992, he used Hawaii as an example of a successful health care system that was a role model for the rest of the country. Here is what he had to say during the October 15, 1992 presidential debate:
Now, let me say, some people say we can't do this but Hawaii does it. They cover 98% of their people and their insurance premiums are much cheaper than the rest of America...
Now see Hawaii Congressman Neil Abercrombie's current description—from a recent email—of the poor shape of Hawaii's health care system, and thus the need for a national plan:
It's no secret. There's a healthcare crisis in Hawaii, and in the rest of the country. Medical bills are getting larger and more families are facing bankruptcy. Though most people over 65 are covered by Medicare, one of every four people in Hawaii under 65 has no health insurance, and probably has not seen a doctor in the last two years. Not only are families burdened by the costs, but healthcare providers are in dire straits, too. Our community hospitals will have to come up with $62 million this year to stay in business.
I wonder how long the U.S. will have its new, wonderful universal health care system before it becomes a crisis that needs to be fixed with more government involvement.

You should also know that since 1974 in Hawaii, employer-sponsored health care kicks in when employees work at least 20 hours per week. The result? For many low wage jobs, employers only hire for 19 hours per week. This leaves many low wage workers unable to find a full-time job. As someone who used to be a low wage worker in Hawaii, I can tell you that given the choice between universal health care or the ability to afford a roof over my head, I'd much prefer the latter. (Managing two part-time jobs is difficult, especially when they have flexible hours.)

Tuesday, June 9, 2009

Treasury bond yields are predicting an economic recovery

Treasury bond yields predict a near-zero probability that we will be in a recession 12 months from now:

When the Treasury yield curve is steep (long-term rates much higher than short-term rates), it suggests a strong economy going forward. When the Treasury yield curve is inverted (long-term rates lower than short-term rates), it suggests a recession ahead.

In late 2006 and early 2007, the yield curve became inverted. At the time, many pundits suggested that because of unique conditions, it may be a false positive. These pundits turned out to be very wrong. Now when pundits suggest that because of unique conditions, the currently steep yield curve may be a false positive, I am not inclined to believe them.

Don't argue with the yield curve.

Monday, June 8, 2009

Recession expected to end by Q4 2009

Based on the "US Economic Growth by Quarter" bets at, here are the probabilities that real GDP growth will be positive in a given quarter. It looks like people are expecting the recession to be over by the fourth quarter of this year, give or take a quarter.

Sunday, June 7, 2009

The number of new job losses is slowing

The number of new job losses per month is slowing, but the economy is still losing jobs.

This graph shows new job losses per month, not cumulative job losses:

Even when job gains per month rise above zero, the unemployment rate is likely to keep increasing, because it takes about 150,000 new jobs per month just to keep up with population growth.

Monday, June 1, 2009

The current recession in context

The ultra-bearish are frequently claiming that another Great Depression is right around the corner. Many of the most pessimistic economic commentators have almost gleefully been comparing the current recession to the Great Depression. To give readers a sense of how not bad the current recession is, here is the decline in GDP of several major recessions vs. the Great Depression:

I have occasionally compared the current recession to the early 1980s recession (1981-1982), arguing that the early 1980s recession was worse. The graph above makes the current one look worse. However, the graph above seems to be a peak-to-trough measurement. The early 1980s recession was the fourth in a series of recessions in which the unemployment rate didn't fully recover before the next recession hit, resulting in a peak unemployment rate that was significantly higher than the current unemployment rate. (And before the conspiracy theorists out there claim we can't compare the current unemployment numbers to those of previous decades, you're wrong.)

That said, it seems very likely that the current recession will be the longest since the Great Depression. Even though it looks like the current recession may be on its last legs, the unemployment rate may very likely reach the second highest level since 1948, and could possibly go higher than that of 1982. In the latter case, it would unambiguously be the worst recession since the Great Depression —But it would be a far cry from what our grandparents and great-grandparents experienced during the 1930s.

Note: I notice that Cornell University (my parents' alma mater, BTW) law professor William Jacobson linked to a previous unemployment post of mine. I agree with his thoughts, so I encourage you to read his post.

Friday, May 22, 2009

There's a good reason why the Detroit automakers are failing

Harvard economics professor Greg Mankiw is car shopping and has the following thoughts on the Detroit automakers:
I got a copy of the Consumer Reports auto issue (April 2009).

Page 15 was particularly enlightening. There, in their "Automakers report cards," Consumers Union summarized their findings for each of fifteen major car companies.

Dead last was Chrysler. CU recommended zero percent of the Chrysler vehicles they tested. That's right—zero. Second to last was General Motors. CU recommended 17 percent of GM models. By contrast, most other companies had half or more of their models get the thumbs up. Honda was the top ranked brand; CU recommended 95 percent of its models.

Is it any surprise that Chrysler and GM are now in the process of going out of business? From the perspective of the Consumer Reports advice, it looks like their business model was to count on the ignorance of the buying public about the quality of their products. Their bankruptcy should perhaps be viewed as a success of the market system.
I subscribe to Consumer Reports, and I had a similar thought when I read that issue, but didn't think to blog about it. Here's a scan I made of page 15. Ford is fourth from the bottom. Click on the image to see a full-sized version:

Why are we spending billions of taxpayer dollars to bail out these underperforming automakers again? Oh yeah, unions vote Democratic.

Monday, May 11, 2009

It's time to repeal the Patriot Act

The Patriot Act can take away American citizens' constitutional rights.

Friday, May 8, 2009

Democrats are hurting the poor

The public school monopoly keeps millions of the inner-city poor trapped in inter-generational poverty, because they can't get a decent education. The Democratic Party opposes systemic changes to this failing system.

Monday, May 4, 2009

The American vs. French economy

A lot of people on the far left are almost filled with glee claiming that American-style capitalism has failed. They leave out a few facts. First, this is just the downside of the business cycle. Our economy will be back to normal before you know it. Second, it was a quasi-governmental agency, the Federal Reserve, that is primarily responsible for the housing bubble, and thus the housing bust. Third, even in this downturn Europe's economy is doing worse than ours.

The benefit of the American economic system is that it produces greater economic growth (and thus greater overall wealth) in the long run, but the trade-off is that you get greater economic disparity.

Note: In the video, she claims that "the American way makes everyone better off." This overstates the case. The American way makes most people better off. In general, Americans are better off in the middle and top of the economic ladder, but worse off at the bottom.

Monday, April 20, 2009

The case for drug legalization

Clive Crook makes the argument for drug legalization:
Even a casual observer can see that much of the damage done in the US by illegal drugs is a result of the fact that they are illegal, not the fact that they are drugs. Vastly more lives are blighted by the brutality of prohibition, and by the enormous criminal networks it has created, than by the substances themselves. This is true of cocaine and heroin as well as of soft drugs such as marijuana. But the assault on consumption of marijuana sets the standard for the policy’s stupidity.

Nearly half of all Americans say they have tried marijuana. That makes them criminals in the eyes of the law. Luckily, not all of them have been found out – but when one is grateful that most law-breakers go undetected, there is something wrong with the law.
The prohibition of drugs causes violent crime for the same reason the prohibition of alcohol did in the 1920s: When people can't resolve their disputes via the legal system, they tend to resolve them with violence instead.

Even our President has used illegal drugs and turned out O.K. Imagine how much worse his life would have turned out if he had been thrown in jail to punish him for harming himself. The prohibition of drugs is far more harmful than the drugs themselves.

Wednesday, April 8, 2009

Full economic recovery will likely take years

Even after the recession ends, reaching potential GDP will likely take years:
As the recession grinds on, more and more of the nation’s means of production — its workers, its factories, its retail outlets, its freight lines, its bank lending, even its new inventions — are being mothballed.

This idled capacity, like baseball players after a winter off, takes time to bring back into robust use. So even if the recession miraculously ended tomorrow, economists estimate that at least three years would pass before full employment returned and output rose enough for the economy to operate at full throttle. ...

The mathematics are daunting. The shortfall is running at more than $1 trillion in annual sales and other transactions. Only once since the Great Depression has there been such a severe loss of output — in the 1981-82 recession — and after that downturn, it was seven years before the economy regained the lost production.

Recovery from the current recession could be similarly sluggish.

Tuesday, March 31, 2009

Internet fraud up 33% in 2008

Internet fraud rose by a third last year:
Internet-based rip-offs jumped 33 percent last year over the previous year, according to a report from a complaint center set up to monitor such crimes.

The total dollar loss from those crimes was $265 million. That's $26 million more than the price tag in 2007, the National Internet Crime Center said. For individual victims, the average amount lost was $931.

"This report illustrates that sophisticated computer fraud schemes continue to flourish as financial data migrates to the Internet," said Shawn Henry, the FBI's assistant director of the Cyber Division. ...

Henry said the figures show the need for computer users, in businesses and in homes, to be wary and use sound security practices while using the Internet.

The center said the top three most frequent complaints were about merchandise that wasn't delivered or payment that wasn't received, Internet auction fraud and credit/debit card fraud. Other scams include confidence frauds such as Ponzi schemes, check fraud, the Nigerian letter fraud and identity fraud.

Thursday, March 26, 2009

Wednesday, March 25, 2009

The Employee Free Choice Act: D.O.A.

A temporary victory for secret ballots:
ARLEN SPECTER of Pennsylvania, a moderate Republican, has more or less scuttled the chance of fundamental labour law reforms in 2009 by coming out against the Employee Free Choice Act.
There's nothing free about the Employee Free Choice Act. It would take away the guaranteed right to a secret ballot when deciding whether to unionize.

Feldstein: Recession will last well into 2010

Harvard economist, former Council of Economic Advisers chairman, and former National Bureau of Economic Research president Martin Feldstein thinks the recession will not end this year:
The recession in the United States will stretch well into next year, probably raising the need for another fiscal stimulus package at least as large as the first one, prominent economist Martin Feldstein said on Tuesday.

Feldstein, a Harvard University professor who is a member of President Barack Obama's Economic Recovery Advisory Board, told Reuters that the stimulus would offset only a relatively small piece of the likely fall in spending, exports and construction.

"I'm afraid that the economy will continue to slide down well into next year," Feldstein, a former head of the National Bureau of Economic Research, said in an interview in Beijing where he was attending a conference.

"I don't know when it will end, but the forecasts that it'll end later this year I think are too optimistic," he said of the recession. ...

"The fiscal stimulus is just not large enough to offset the downward pressure that comes from reduced consumer spending. So unless somehow fixing the financial markets is enough to offset that, which I very much doubt, I think there will be a need for another fiscal stimulus package at some point," Feldstein said.

Saturday, March 21, 2009

Friday, March 20, 2009

Map of legal drinking ages around the world

The United States has one of the highest legal drinking ages in the entire world. Western Europe has many of the lowest.

Click on the map to see a full-sized version:

Sweden does schools better

New York Times video: Even Sweden supports school choice.

Only in the U.S. is school choice a right wing vs. left wing debate. Many left-leaning European countries happily embrace school choice.

Thursday, March 19, 2009

The U.S. economic outlook

The Times of London gives its U.S. economic outlook:
The future of the US economy hinges on whether the $2 trillion of fiscal stimulus packages work. If so, this is the path we expect the US to take:

The last quarter, in which the US economy shrank by 6.2 per cent, will have been the bottom of the recession. In the current quarter the US economy will shrink by 5.8 per cent and by the end of December the US should be out of the recession.

Unemployment, however, which stands at 8.1 per cent, is expected to continue to rise until the end of 2010 at least, while the housing slump isn’t even at the halfway stage yet. House prices, on average, have lost about a quarter of their value.
By "bottom of the recession," I think they mean the period of deepest contraction. They obviously expect the U.S. economy to continue contracting at least through the current quarter, and perhaps beyond. They also obviously expect a jobless recovery, as happened after the past two U.S. recessions.

Wednesday, March 18, 2009

Meredith Whitney predicts bad year for banks

While many investors are calling a bottom in financials, banking analyst Meredith Whitney says not so fast. Meredith Whitney, in case you're unaware, was the first banking analyst to prominently point out the problems with the big banks.
A surge in borrower defaults and unemployment pressures will make 2009 an even uglier year for banks than last year, analyst Meredith Whitney said.

She predicted "breakups and M&As on a grand scale" as the industry seeks to remake itself in the face of all its capital pressures.

"I don't think this year is going to look any better than last year," Whitney said in an interview Tuesday on CNBC. "In fact it will look worse because there's so much credit coming out of the system."

Whitney, a former analyst at Oppenheimer who recently opened her own firm, is renowned for calling out the problems with banks' toxic assets before the issue became widespread.

As some have been predicting the worst may be over for the banking sector, Whitney countered that many of the statements about some of the big banks showing profits ignore the burden that additional writedowns will pose through the year. In particular, she said Citigroup's statement that it had turned a profit the first two months of 2009 might came back to haunt it once a fuller picture was presented.

Consumers also will face pressure as unemployment grows and banks and credit card companies start calling in credit lines to avoid getting stuck with even more bad debt.

"The probability of more people going into default is higher, so the banks are going to have a tough time," she said.
She also predicts that U.S. home prices will fall 40%+ peak to trough. I'd say she's dead-on accurate.

Saturday, March 14, 2009

On schools, Democrats oppose economic equality

The Agitator highlights the Democrats' policy of special privileges for the rich and powerful when it comes to educating children:
Why is it that the Democrats are all about government programs to reduce inequality... except when it comes to letting poor people send their kids to the same schools the kids of politicians attend?

The standardized testing data on the D.C. voucher program is inconclusive. But parents are overwhelmingly happy with the program. Which frankly is a hell of a lot better measure of its effectiveness. ...

The Democrats’ opposition to the D.C. voucher program is completely disingenuous. The program didn’t take a dime from the District’s public schools. Only New York and New Jersey spend more money per pupil than D.C. And D.C.’s public schools are horrible. Something isn’t right. And the solution isn’t to trap as many kids in those chronically failing schools as possible.
President Obama is unwilling to have his own daughters attend public schools (both when he lived in Chicago and now that he lives in D.C.), but he is perfectly willing to condemn poor African-American and Hispanic children to an inferior education and an economically disadvantaged future.

Thursday, March 12, 2009

Internet privacy law needed

Congressman Rich Boucher defends your online privacy:
US lawmakers have been itching for a good excuse to slap mandatory security guidelines on online behavioral ad targeting schemes, and apparently, they've found it.

Google's new plan introduced Wednesday to track individual users' browser history to target ads was just the ticket for Democrat Rep. Rich Boucher, the newly-minted chairman of the House subcommittee on communications and the internet.

The Virginia congressman said yesterday he's working on a bill that will put restrictions on how internet companies can collect, save, store, and share user information. ...

Boucher says he's working with other ranking members of the communications subcommittee, Republican Representatives Cliff Stearns and Joe Barton, on a bill to take privacy rules out of the hands of online ad agencies.

Friday, March 6, 2009

U.S. government spending as a percentage of GDP

This graph depicts state & local government spending (blue) and federal government spending (red), as a percentage of GDP, for the United States since 1890:


Thursday, March 5, 2009

A Republican alternative to Obama's health care plan

This morning on MSNBC's Morning Joe, Joe Scarborough asked what the Republicans could propose as an alternative to Obama's health care plan. That's the first time I've ever heard a Republican ask that question. The American health care system is disliked by the American public. If the Republicans don't propose a workable alternative, the Democrats will eventually win the health care debate. Someone out there please tell Joe Scarborough (and any other Republican politicians) that the answer is Singapore's health care system.

Through the use of mandatory health savings accounts, Singapore's health care system makes better use of the price system than the American health care system, which Republicans should like. This makes it cost less than the American system, while providing Singaporeans with better overall health than Americans.

From the libertarian EconLog blog:
The Singapore government spent only 1.3 percent of GDP on healthcare in 2002, whereas the combined public and private expenditure on healthcare amounted to a low 4.3 percent of GDP. By contrast, the United States spent 14.6 percent of its GDP on healthcare that year, up from 7 percent in 1970... Yet, indicators such as infant mortality rates or years of average healthy life expectancy are slightly more favorable in Singapore than in the United States... It is true that such indicators are also related to the overall living environment and not only to healthcare spending. Nonetheless, international experts rank Singapore's healthcare system among the most successful in the world in terms of cost-effectiveness and community health results.

For more info on Singapore's health care system, read here, here, here, and here.