Carpe Diem

Remember: The Government Has No Money to Give

Appearing before Congress, Mr. Bernanke told Democrats what he thought they wanted to hear. The former academic economist blessed a “fiscal stimulus package,” as long as it is “explicitly temporary.” How new federal spending can be “temporary,” he didn’t say, as if a dollar collected in taxes or borrowed and then spent can be recalled.

We’re all for putting more money in the hands of the poor and moderate earners, especially via stronger economic growth that will give them better paying jobs. But the $250 or $500 one-time rebate check they may now receive has to come from somewhere. The feds will pay for it either by taxing or borrowing from someone else, and those people will have that much less to spend or invest themselves. We are thus supposed to believe it is “stimulating” to take money from one pocket and hand it to another.

~Today’s WSJ Staff editorial

Not to mention that the transfer of $250 or $500 from rich to poor won’t be neutral, it will involve a net loss to the economy, due to the inefficiencies of the transfer, i.e. the “leaky bucket effect” noted by economist Arthur Okun in 1975. According to Okun, “The money must be carried from the rich to the poor in a leaky bucket. Some of it will simply disappear in transit, so the poor will not receive all the money that is taken from the rich.”

Carpe Diem

Global Stock Market Wealth in 2007 Sets Records


According to data just released by the World Federation of Exchanges, global stock market capitalization reached a new record of $60 trillion in 2007 (see top chart above). The increase in stock market value of $10 trillion during the year also established a new all-time record for the largest annual increase of global stock market wealth in history, beating the previous record of a $9.66 trillion increase in 2006 (see bottom chart above).

Consider also that $38.2 trillion of world stock market value was created between 2002-2007 ($22.5 to $60.7 trillion). In the chart above, notice that world stock market value in 1999 set a new record of $35 trillion before declining for three consecutive years (2000, 2001, 2002) during the Dot.com bust.

Think about it: It took the entire history of the world until 1999 to create the first $35 trillion of stock market wealth; and then more than that amount of wealth was created ($38.2 trillion) in just the most recent five-year period from 2002-2007! Not a bad record for wealth creation, largely because of globalization and the most significant spread of free market capitalism in history.

Carpe Diem

Premium SUV Market Is Booming in India

General Motors India (GMI), the Indian arm of the US automobile manufacturer, has entered the premium SUV segment, by launching Chevrolet Captiva this week, its new sports utility vehicle for the Indian market.

The Chevrolet Captiva (pictured above) is priced to compete with Honda CR-V -which is sold at Rs 18.4 lakh ($47,000), Pajero – priced at 18.8 lakh ($48,000)and Nissan X-Trails – it’s priced at Rs 23 lakh ($58,000). The 2-litre diesel driven Captiva will be available to the customers for Rs 17.74 lakh (about $45,000).


Following the launch of the $2,500 Tata Nano in India earlier this week, the introduction of the Chevy Captiva in India suggests that both the low-end and high-end vehicle markets are profitable and thriving in India’s booming, red-hot economy.

This is the other side of outsourcing and globalization that Lou Dobbs, John Kerry and John Edwards seem oblivious to. Who is buying $50,000 Chevy SUVs in India? Perhaps it’s a manager or executive at Bangalore-based Infosys or Wipro, who got promoted and received bonuses based on providing BPO services to a U.S. corporation, and now can afford to buy a $50,000 vehicle from GM?

Carpe Diem

Zimbabwe Introduces New 10 Million Dollar Note

What happens when you have 50,000% inflation? The 200,000 note in Zimbabwe, pictured below, is worth only 3 cents, and you need new 10,000,000 notes.

Johannesburg/Harare - President Robert Mugabe’s government, stricken by chronic hyperinflation, announced today it will introduce a 10 million Zimbabwe dollar note (along with 1 million and 5 million notes). Economists said it was the highest denomination of any currency in the world.

The issue of new notes follows nearly three months of banking chaos as cash dried up and queues, sometimes hundreds of meters long, became a permanent feature outside commercial banks.

Zimbabwe is in its 10th year of economic crisis, marked by the world’s highest rate of inflation, the fastest shrinking gross domestic product in a country not in a state of war, the most rapidly collapsing currency and unemployment of over 80%.

Economists said the disappearance of cash was a result of inflation estimated at 50,000% – the government has banned publication of official figures – that forces shoppers to pay with brick-sized bundles of near-worthless notes for a few simple groceries.


A year ago, the highest denomination was 10,000 Zimbabwe dollars, then worth about $7, now worth about 1/3 of 1 cent (US). The new 10 million Zimbabwe dollar note is worth $3 (US). During the year there were three separate new issues of notes as inflation continued to soar, including the 200,000 note pictured above, which is worth worth only 6 cents (US).

The Zimbabwe Central Bank remained optimistic about the situation, and a spokesman said “As monetary authorities we once again assure the nation that we are in full control of the currency situation.”

Carpe Diem

2009: The Shallowest, Mildest Recession in History?

“Whether a recession occurs — a determination made by academic economists, usually after the fact — probably won’t affect most people. Economist Richard Berner of Morgan Stanley expects a “mild and short” recession, with peak unemployment of 5.6% or 5.7% in early 2009. The average unemployment rate of the past 50 years is 5.6%. This would be a setback, but not a disaster.”

~From Robert Samuelson’s article “Lollipop Economics” in today’s Washington Post

Good point, Robert. Even in the worst case scenario of a recession with a peak unemployment rate of 5.6-5.7% in 2009, it will be the first recession since WWII with an unemployment rate during a recession with a peak rate equal to only the historical average unemployment rate of 5.6% (since WWII). That is, in all of the ten past recessions since WWII (listed below), the peak unemployment rate was always above the average rate of 5.6% (see graph above, click to enlarge, recessions are shaded):

1948-1949: 7.9%
1953-1954: 6.0%
1957-1958: 7.5%
1960-1961: 7.1%
1969-1970: 6.1%
1973-1975: 9.0%
1980-1981: 7.8%
1981-1982: 10.8%
1990-1991: 7.8%
2001: 6.3%
2009?: ONLY 5.6-5.7%?

Bottom Line: A 2009 recession, as predicted by Morgan Stanley, with a peak unemployment rate of only 5.6-5.7% would be the mildest, shallowest recession since WWII, and maybe in U.S. history?
Carpe Diem

Number of Retail Health Clinics Nationwide = 1,000

According to Health Care Finance News: A recent survey of retail clinics in the nation set the number of such caregiving sites at nearly 1,000.

Number of states that have retail health clinics: 36

Fastest-growing, and largest retail clinic chain: Minute Clinics, operated in CVS Pharmacies (see photo above)

Number of Minute Clinics nationwide: 390

Second largest retail health chain: Take Care Clinics, operated in 136 Walgreens stores nationwide.
Carpe Diem

Industrial Production Growth Is Below Average, But Certainly Doesn’t Indicate Recession

The Federal Reserve released its report today on Industrial Production, which was flat in December versus expectations for a slight decline. The chart above (click to enlarge) shows the annual growth rate in monthly industrial production from the same month in the previous year. The annual growth from December 2006 to December 2007 was 1.58%, which was higher than growth in June (1.47%), August (1.41%) and October (1.52%).

The growth rate for industrial production averaged just below 2% in 2007, which is below the long-run average growth rate of 2.91%. Despite industrial production growth being below-average last year, there might be a mild slowdown, but there is still no evidence yet in this important recession-indicating variable that a recession has started. Unless and until we start seeing sharp declines in industrial production growth like during the last two recessions (see shaded areas above) in 1990-1991 and 2001, there won’t be a recession.

Bottom Line: Based on industrial production, there is no evidence yet that a recession started in late 2007.

Carpe Diem

Protectionism = Bullying = Extortion

Mitt Romney and John McCain battled over what the government owes to workers who lose their jobs because of the foreign competition unleashed by free trade. Surely we have fellow citizens who are hurt by free trade agreements, at least in the limited sense that they’d be better off in a world where trade flourishes, except in this one instance. What do we owe those fellow citizens?

One way to think about that is to ask what your moral instincts tell you in analogous situations.

Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy (protectionism) should not be designed to advance moral instincts that we all reject every day of our lives.

Bullying and protectionism have a lot in common. They both use force (either directly or through the power of the law) to enrich someone else at your involuntary expense. If you’re forced to pay $20 an hour to an American for goods you could have bought from a Mexican for $5 an hour, you’re being extorted. When a free trade agreement allows you to buy from the Mexican after all, rejoice in your liberation — even if Mr. McCain, Mr. Romney and the rest of the presidential candidates don’t want you to.

~From Steven Landsburg’s excellent article in today’s NY Times