Carpe Diem

***Thursday*** morning links

usoil1. Chart of the Day. US oil production surged last week to 8.84 million barrels per day, the highest level since March of 1986, more than 28 years ago. At the current pace of increases, daily US oil production should top 9 million barrels within the next few months, a level of crude oil output the US hasn’t experienced since 1973.

2. Fact of the Day. The average full professor at Harvard earned more last year ($203,000) than the average US CEO ($178,400).

3. Food Markets in Everything. a) “Eat authentic food in local homes” – Feastly is a marketplace of quality home-cooked meals and b) Gusto, a UK recipe kit subscription and grocery delivery service.

4. Who’d a-Thunk It? Federal employees who expose government waste, fraud and abuse are having a tough time in the “most transparent administration in history.”

5. Quotation of the Day. From former Mexican president Vincente Fox speaking about legalization of weeds, “God bless the state of Washington, the state of Colorado, that have had the ambition to look for the right answer to the problem.”

6. Great Moments in Government Overreach. a) Chinatown Bus Pioneer Fung Wah Is Being Strangled by Federal Bureaucracy and b) A small California winery’s use of volunteer workers puts it out of business after the state issues $115,000 in fines.

cartoon7. Cartoon of the Day. From Gary Varvel.

8. Video of the Day. From the “Factual Feminist” – AEI’s Christina Sommers – “Are video games sexist?”

Carpe Diem

Who-d a-thunk it? Demand for rides from San Francisco’s traditional taxi cartel has dropped 65% in the last two years?

Engadget is reporting that there’s been a 65% drop in demand for rides from San Francisco’s taxi cartel – it’s called the “Uber effect” and is part of the “creative destruction” from the on-demand ridesharing services like Uber and Lyft that are disrupting the traditional, government-enabled, anti-consumer taxi model of the past:

Hailing a ride has never been easier — just take out your phone, tap on an app and wait for your internet-wrangled chauffeur to arrive. Companies like Uber and Lyft are reinventing the transportation industry, and traditional taxi services are feeling it. According to Kate Toran, interim Taxis and Accessible Services director for the San Francisco Municipal Transportation Agency, the average taxi is only making about 504 trips per month. Two years ago (specifically, in March of 2012) the average trip per taxi averaged at 1,424.

HT: Rob Port and Hitssquad

Carpe Diem

Robert Reich makes 36% more than average CEO and gets $40k for a one-hour talk vs. average worker pay of $46k/year

reichFormer Labor Secretary Robert Reich is currently a professor of public policy at the University of California-Berkeley and he was paid $242,613 in 2013 according to this University of California database. According to this link provided in an article by the Daily Caller, Professor Reich is scheduled to teach only one undergraduate class this fall semester – Public Policy 260 – that meets only one day a week (Monday) for two hours (12 – 2 p.m.). That works out to about $2,500 for each hour of lecture time that Professor Reich will spend with UC-Berkeley students this semester, or about the same amount as the average adjunct college professor gets paid for teaching an entire one-semester 15-week class ($2,700 according to this AAUP report)!

As the Daily Caller reported yesterday, Professor Reich took time off from his hectic one-course, two-hour a week teaching schedule to berate and excoriate American CEOs and Harvard Business School in a post on the Harvard Business Review blog for allowing “a pay gap between CEOs and ordinary workers that’s gone from 20-to-1 fifty years ago to almost 300-to-1 today.”

As I reported earlier this year on CD in a post about the never-ending claims of “excessive CEO pay” and the alleged 300-to-1 pay gap between CEOs and ordinary workers (modified and updated slightly):

We can get a more accurate and complete picture of CEO compensation in the US by looking at wage data released recently by the Bureau of Labor Statistics in its annual report on Occupational Employment and Wages for 2013. The BLS report provides “employment and wage estimates by area and by industry for wage and salary workers in 22 major occupational groups, 94 minor occupational groups, 458 broad occupations, and 821 detailed occupations,” including the occupational category “chief executives.” In 2013, the BLS reports that the average pay for America’s 248,760 chief executives was only $178,400. The multi-million dollar salaries of the CEOs of the 200-350 S&P500 firms reported recently represent only one out of about every 1,000 firms in the country (or 1/10 of 1%) that have a CEO at the head. The larger sample of almost a quarter-million CEOs reported by the BLS gives us a much better understanding of “average CEO compensation.”

For the larger sample of CEOs reported by the BLS, their average pay of $178,400 last year was an increase of only 0.88% from the average CEO pay of $176,840 in 2012. In contrast, the BLS reports that the average pay of all workers increased by 1.42% last year to $46,440 from $45,790 in 2012. That’s right, the average worker last year saw an increase in their pay that was more than 60% greater than the increase in pay for the average US CEO. And the “CEO-to-worker pay ratio” for the average CEO compared to the average worker is only about 5-to-1, nowhere close to the pay ratio of 331-to-1 ratio reported by the AFL-CIO using the 350 highest-paid CEOs in the country or the 300-to-1 ratio that Robert Reich claims.

So at the same time that Reich complains about the excessive compensation of a small group of a few hundred highly paid CEOs, he actually makes 36% more than the average CEO in the US for lecturing a few hours a week (see chart above). Even considering additional work preparing lectures and grading papers or exams, it’s probably safe to assume that Professor Reich is putting in 50-60 hours per week like the majority of America’s CEOs for his very generous pay of more than a quarter-of-a-million dollars per year.

In addition to his annual CU-Berkeley salary of $242,613, Professor Reich is also a popular speaker on the nation’s lecture circuit, and he commands a handsome speaking fee of $40,000 for a one-hour talk (including Q&A) plus first class travel for one or two people from California, hotel accommodations for up to two nights, ground transportation, meals and incidentals. That’s the quote I got today from one of Professor Reich’s speaking bureaus for his fee to give a presentation as part of a “university program” — it’s possible that he charges even more for corporate events. So we have the former labor secretary complaining about a pay gap between CEOs and average workers, when he gets almost as much in compensation for a one-hour talk as the average American worker earns working full-time for an entire year (see chart above)! If he gives only six speeches a year, his annual income approaches half-a-million dollars a year, putting him solidly in America’s “top 1%” by income – a group the “class warrior” frequently criticizes (see examples here and here). .

As I said in a previous post, I think it’s actually great that Robert Reich gets a market-based fee for his speeches, and I applaud him for commanding $40,000 per one-hour speech that allows him to enjoy a very comfortable life in the “top 1%.” But it then seems deeply hypocritical when he complains that airlines are “deeply exploitative” when they use market-based, surge pricing (see post at the link above) or when he complains that the pay for several hundred CEOs relative to the average worker’s pay is excessive. In all cases – Robert Reich’s $242,613 UC-Berkeley salary, his $40,000 speaking fees, CEO pay, airline pricing, and the average worker pay – those salaries, prices and fees are not determined independent of the market, but in each case primarily determined by market forces. Therefore, it seems deeply inconsistent for Reich to complain about the market forces that determine CEO pay, airline surge pricing and average worker pay, but then take advantage of those same market forces to earn a $242,613 salary for teaching one class per semester and charge $40,000 for a one-hour talk and enjoy life in the “top 1%.” And in any discussion of CEO pay we should remember that the average CEO in America earned only $176,400 last year (not multi-millions of dollars), received an increase in salary less than the average worker, and earned only about 5 times more than the average worker (not 300X more).

HT: Steve Bartin, see his post today about Robert Reich here.

Carpe Diem

Understanding America’s ridiculously large $17 trillion economy by comparing US metro areas to entire countries

Rank Top 20 US Metro Area Economies, 2013 2013 GDP (Billions) Comparable Countries 2013 GDP (billions)
1 New York-Newark-Jersey City, NY-NJ-PA $1,471,170 Australia $1,505,270
2 Los Angeles-Long Beach-Anaheim, CA 826,826 Turkey 827,200
3 Chicago-Naperville-Elgin, IL-IN-WI 590,248 Sweden 557,000
4 Houston-The Woodlands-Sugar Land, TX 517,367 Poland 516,120
5 Washington-Arlington-Alexandria, DC-VA-MD-WV 463,925 Argentina 488,000
6 Dallas-Fort Worth-Arlington, TX 447,574 Austria 415,000
7 San Francisco-Oakland-Hayward, CA 388,272 Thailand 387,000
8 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 383,401 Colombia 381,000
9 Boston-Cambridge-Newton, MA-NH 370,769 Venezuela 374,000
10 Atlanta-Sandy Springs-Roswell, GA 307,233 Malaysia 312,000
11 Seattle-Tacoma-Bellevue, WA 284,967 Nigeria 286,000
12 Miami-Fort Lauderdale-West Palm Beach, FL 281,076 Chile 277,000
13 Minneapolis-St. Paul-Bloomington, MN-WI 227,793 Iraq 229,000
14 Detroit-Warren-Dearborn, MI 224,726 Kazakhstan 220,000
15 Phoenix-Mesa-Scottsdale, AZ 209,523 Peru 206,000
16 San Diego-Carlsbad, CA 197,886 Czech Republic 198,000
17 San Jose-Sunnyvale-Santa Clara, CA 196,829 Romania 189,000
18 Denver-Aurora-Lakewood, CO 178,860 New Zealand 181,000
19 Baltimore-Columbia-Towson, MD 168,845 Ukraine 176,000
20 Portland-Vancouver-Hillsboro, OR-WA 163,692 Vietnam 170,000

The table above helps to put America’s ridiculously large $17 trillion economy (GDP in 2013) into perspective by comparing America’s largest 20 metro economies in 2013 based on data released today by the BEA) to the economies of entire countries with similar GDPs in 2013 (IMF data here via Wikipedia).

For example, the larger New York metro area produced almost as much economic output last year ($1.47 trillion) as the entire country of Australia ($1.5 trillion) and New York would be the 13th largest economy in the world as a separate nation; the LA metro area produced slightly about the same amount of economic output ($826 billion) in 2013 as the entire country of Turkey ($827 trillion) and LA would be the 18th largest economy in the world as a separate country; Chicago’s economy ($590 billion) is 6% larger than Sweden’s ($557 billion) and it would be the 20th largest national economy in the world, etc.

MP: This comparison provides another demonstration of how ridiculously large America’s $17 trillion economy really is by showing that the economies of America’s largest metropolitan areas are equivalent in economic size to the GDP of entire countries. In fact, 15 of America’s largest metro economies as separate nations would rank in the top 50 largest economies in the world and all 20 countries above would rank in the world’s 60 largest economies. It’s a demonstration that “free market capitalism is the best path to prosperity” because it was largely free markets and capitalism that propelled the nation from being a minor British colony into an economic superpower and the world’s largest economy.

Carpe Diem

Minimum wage proponents overlook the compliance costs and the non-monetary benefits of having a job at any wage

Here’s a cost to taxpayers of the minimum wage that isn’t usually considered by its advocates – the cost of enforcement. For example, in yesterday’s Seattle Times we learn that “Mayor Murray seeks a new office to enforce $15 wage, other laws“:

Now that Seattle has passed a series of high-profile laws to protect workers and increase their pay, the city must make sure that businesses understand and follow the new rules, Mayor Ed Murray said Monday as he proposed creating an Office of Labor Standards. The office would carry out education and enforcement duties related to Seattle’s Paid Sick and Safe Time Ordinance, adopted in 2011; its Job Assistance Ordinance, adopted in 2013 to limit the use of arrest and conviction records in hiring decisions; and its $15 minimum-wage law, adopted this year.

The proposal, which the City Council will take up as it puts together a new budget this fall, calls for an additional $511,000 in 2015 and $660,000 in 2016 to support the new office, which would house seven full-time positions, 5½ of them new. The money would come out of the city’s general fund.

In addition to ignoring the compliance costs of the minimum wage, Warren Meyer outlines some of the non-monetary benefits that are overlooked by minimum wage proponents of having a job at any wage, even if it’s an unpaid internship:

One of the mistakes people make in economic analysis, in my opinion, is that they sometimes miss non-monetary benefits. A great example is how labor law and the minimum wage is structured — there are many benefits of having a job to a young, unskilled, unemployed person.  That job may teach valuable industry-related skills and will almost certainly help teach some basic life skills (like how to show up on time every day and how to work with others in an organization toward shared goals).  For my kids when they were 15 or 16, these non-monetary benefits dominated, and I would have been happy if they worked for free in exchange for such skills. That used to be the whole point of unpaid internships, until the government started essentially banning them. Unfortunately, the government considers only money in computing the minimum wage, and ignores all these non-monetary benefits.

Carpe Diem

More on the ‘imaginary hobgoblin’ of ‘rising income inequality’ with new data from today’s Census report

incomeshare

giniWe hear all the time about “rising income inequality” in America (there are about 1 million Google search results for that term), about “the rich getting richer and the poor getting poorer,” the “stagnant or disappearing middle class,” all of recent income gains going to the rich,” the lack of income mobility and other narratives of pessimism. And yet, nobody seems to have shared those negative narratives with the Census Bureau, which released new data today on “Income and Poverty in the US: 2013,” because some of those data tell a slightly different story.

1. The top chart above shows the shares of total income earned by the top 20% and top 5% of US households from 1993 to 2013 (from Table A-2). In 1993, 49% of total income went to the top quintile of US households, and 20 years later in 2013, the share of income going to the top 20% has increased to only 51%. Likewise, in 1993 the share of total income going to the top 5% of US households was 21%, that share had increased to only 22.2%. Interestingly, the 22.5% share last year was slightly lower than the 22.4% of income that went to the top 5% in 2001. Over the last two decades, the income share of the top 20% (top 5%) has been remarkably stable at about 50-51% (21-22%) and there has been no statistical evidence of “rising income inequality” according to this measure.

2. The bottom chart above shows annual Gini indexes of income inequality (a statistical measure of income dispersion that quantifies income inequality on a range from 0% for complete equality to 100% for complete inequality) for US households from 1993 to 2013 (also from Table A-2). Like the first two measures above, the Gini index measure of income dispersion reveals that there has been no significant trend of “rising income inequality” for US household income in recent decades – the Gini index in 1993 was 0. 454 and in 2013 it was 0.476, a slight decrease from 0.470 in 2010 and 2011 and 0.477 in 2012, and has shown remarkable stability for the last several decades.

MP: Whether we look at Census Bureau data on the share of total income going to the top fifth and top 5% of American households, or Census data on Gini coefficients for U.S. household income, there is absolutely no statistical support for the commonly held view by the public, academia and the mainstream media that income inequality has been rising in recent years or decades. A more accurate description of income inequality over the last several decades would be to say that it “flat-lined” starting in about 1993.

So why are we even having this national debate about solutions to the “non-problem” of rising income inequality that doesn’t even exist by these Census Bureau measures? Maybe it’s another example of what H.L. Mencken called an “imaginary hobgoblin“:

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

See previous CD post on this topic here.

Carpe Diem

Markets in everything: Mobile doctor service in LA makes house calls

According to its website, homemd is a unique mobile doctor house call service in Los Angeles.  Dr. Renee Magaña brings the age old experience of doctor house calls back into the modern world. You will receive the best of care in the convenience and privacy of your own home or office.

Here’s a news report on homemd and Dr. Magaña from the CBS TV station in Los Angeles – “Are House Calls The Latest Health Craze? Local Doctor Capitalizes On Time-Strapped Angelenos With HomeMD.”

Another example of innovative, market-based medicine, something we would probably see a lot more of in the absence of a government takeover of the US medical system.

HT: Mark McCraley

Carpe Diem

The economics of secondary markets: the case of Olive Garden’s unlimited, 7-week ‘Never Ending Pasta Passes’

pastaLast week the restaurant chain Olive Garden offered a limited supply (1,000) of pasta passes (the “Never Ending Pasta Pass”) for $100 that entitles diners to unlimited pasta at any Olive Garden restaurant nationwide during an upcoming seven-week period (September 22 to November 9), along with unlimited Coca-Cola, soup, salad and breadsticks. The pasta passes sold out immediately and guess what? The market value of seven weeks of unlimited pasta is apparently worth a lot more than $100 and there is now an active secondary market on eBay. The graphic above shows one completed auction for a Pasta Pass that had 23 bids and sold for $185.98. Other completed bids show the Pasta Passes selling for $180, $186.31, $191.50 and $175, so the market price seems to be converging at an average price of about $180-$185. Olive Garden is now saying that the pasta passes are not transferable and it’s trying to stop the secondary sales on eBay, but I don’t think that strategy is working because there are currently 26 listings on eBay for the pasta passes. Washington Post reporter Caitlin Dewey provides some sound economic analysis of the situation in her article “Olive Garden’s unlimited pasta pass ‘black market’ is actually a perfect illustration of why ticket-scalping works“:

Essentially, secondary markets develop to balance discrepancies between supply and demand, as created by the original ticket-venders. In this case, there are a limited number of Olive Garden pasta passes; the demand is high enough that people will pay incredible amounts of money for them; and yet — in its effort to generate social media buzz — Olive Garden sets the price point well below what the market is willing to pay. A mere $100 for seven weeks of pasta? That’s absurd. A plate of Olive Garden pasta is usually around $13. Even if you only use the pass three times a week during that period, and get one plate of pasta each time — which, let’s be real, does not even begin taking advantage of the deal — the pass is worth $273. At least. This, in essence, is the dirty economic secret of scalping, whether we’re talking about pasta or Beyonce tickets or anything else: Concert promoters and other sellers are quick to blame the scalpers for inflating prices, or companies, such as eBay and Craigslist, for failing to police them. In reality, the best way to stop people from reselling things is to charge more for those things to begin with. In an unsuccessful attempt to preempt the secondary market entirely, Olive Garden included a line about non-transferability in its pasta pass’s fine print. At the end of the day, though, there’s an easier solution: actually charge what people are willing to pay. For the pasta pass, that looks to be roughly $300.

MP: As I have pointed out many times before, we shouldn’t blame “tickets scalpers” for high prices on the secondary market, we should blame those who actually have direct control over the supply of tickets (or pasta passes) and the price of tickets (or pasta passes) – the sellers (artists, promoters, venues, sports teams, theaters, Olive Garden, etc.). There are only two reasons a secondary market exists for tickets (or passes) selling above face value: a) the sellers have under-supplied the tickets (or passes) relative to the demand, and/or b) the sellers have under-priced those tickets (passes) relative to the market price. If sellers want to eliminate the secondary market for tickets (passes) above face value, they can easily do that by increasing the supply of tickets (passes) and/or raising the price. In other words, the key factors: supply and price, are completely under the control of the sellers, and they therefore shouldn’t be blaming “ticket scalpers” and secondary markets when those markets only exist because of the sellers’ actions: under-supplying and/or under-pricing tickets/passes. Q.E.D.

Carpe Diem

Markets in everything: Philadelphia Eagles running back LeSean McCoy’s 20-cent tip receipt on eBay for $100k?

tipEagles running back LeSean McCoy stirred up some controversy about a week ago when he ate at the Philadelphia burger joint PTY (“Home of America’s Craaaziest Burgers”) with three friends and left a $0.20 tip on a $61.56 bill (see photo above). The controversy heated up when the owner of PYT posted a copy of the receipt on the restaurant’s Facebook page, and then things heated up even more when actor Charlie Sheen pledged $1,000 on Twitter for the server involved.

And now it’s gotten even crazier that the receipt in question is being auctioned off on eBay, here’s a link to the listing, where there’s been 141 bids since the listing opened on Saturday, and the bidding is approaching $100,000 (as of 6:30 p.m. ET) – with four days left until the auction ends!

What’s going on here?

Update: LeSean “Shady” McCoy defended his 20-cent tip by saying it was a deliberate statement on the quality of service he received at the restaurant. “I tip on my service,” McCoy told ESPN. “There’s a difference between good service and bad service and just having a bad day. There’s a big difference between just being rude and disrespectful. That’s how that went.”

When I asked “what’s going on here?” I was wondering how that receipt could possibly have a value of $99,990 (current high bid), and I’m sorry I didn’t make that clear!