Carpe Diem

1970s Stagflation? Don’t Buy It for a Nanosecond

The topic of stagflation was discussed tonight on CNBC’s “Kudlow and Company,” and guest John Browne, former member of British Parliament and ultra-stagflationist, argued that we are facing a “far, far worse situation than the 1970s,” and further predicted that we are “facing a massive recession.”

Larry Kudlow disagreed, and said “Stagflation is a total canard.”

The money supply data support Larry Kudlow, not John Browne. The chart above compares the growth of M1 during the peak of the stagflation period of the 1970s (the 85 month period from December 1974 to December of 1981) to the growth of M1 over the last 85 months, from January 2001 to January 2008. (M1 is set to equal an index value of 100 in the beginning month of each sample period.)

Notice that there is a significant difference between the two periods: During the 1970s, M1 grew by almost 60%, compared to a 24% growth during the last 7 years. And for the last 3.5 years, M1 has been flat, with almost 0% growth!

Like Larry Kudlow, when it comes to stagflation, “I don’t buy it for a nanosecond.” Not gonna happen.

Carpe Diem

Get Over It MDs: Wal-Mart Is Good for Your Health

“The medical establishment is opposed to drop-in clinics in Wal-Marts and other retail stores. But self-interested doctors need to get over their archaic ways of doing business,” says Dr. Rahul K. Parikh, a member of the American Academy of Family Practice, and the American Academy of Pediatrics, writing in

The medical community needs a second opinion. Retail clinics are good for American healthcare. By giving doctors a run for their money, they force us to do something we don’t do well: innovate. At their best, retail clinics can make doctors look like smart entrepreneurs instead of a self-interest group futilely trying to protect archaic ways of doing business.


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The Decline of Detroit vs. the Rise of Indianapolis

Fifty years ago, Detroit was the fourth largest city in the United States, with a population of 1.7 million people, and at $8,500 per year, one of the richest cities in terms of per capita income. It was 3.5 times the size of Indianapolis, the 26th largest city, whose income was almost identical on a per capita basis (see population chart above, click to enlarge). Today, Detroit and Indianapolis are the 11th and 12th largest cities, respectively, with Detroit’s population cut in half from 50 years ago (and losing 3,000 people per year this decade), while Indianapolis has grown by 70% during the same time frame. Remarkably, Indianapolis now has a per capita income 50% greater than Detroit’s.

How did this happen? One answer, according to the Mackinac Center for Public Policy, is that Detroit’s city government is far larger, more regulation prone, and more bureaucratic than Indianapolis’s city government: the ratio of residents to city employees, a key measure of city government productivity, is 50:1 in Detroit, one of the worst in the United States, but is 203:1 in Indianapolis, one of the best. More broadly, the central issue in political economy concerns the optimal delineation of the sphere of government activity versus that ascribed to markets, and in this essay we examine this question from the vantage point of municipalities.

Another answer: Indianapolis Mayor Stephen Goldsmith took office in 1992, committed to a turnaround based on privatization of city services, and creating a climate more conducive to entrepreneurship. During his eight-year tenure as mayor, the city’s population increased by nearly 50,000 residents, induced by a more business-friendly environment and its corollary, smaller government. The Indianapolis turnaround was engendered via a three-part program that included privatization and transparency.

From “
The Privatization of Public Services,” by John Chapman of the American Enterprise Institute.
Carpe Diem

Emerging Markets to the Rescue

NEW YORK ( computer and printer maker Hewlett-Packard reported strong gains in sales and earnings for its fiscal first quarter Tuesday, a sign that the tech giant is gaining market share against key rivals and that its cost cutting is paying dividends. Shares of HP surged nearly 6% in after hours trading.

For its first quarter, which ended in January, HP’s net revenue jumped 13% to $28.5 billion, ahead of the $27.6 billion that analysts were expecting.

The company said that 69% of its first-quarter revenue came from outside the United States. Revenue from emerging markets Brazil, Russia, China and India grew 35% from a year ago.
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Rich Individuals Should Pay More Taxes, But Wealthy Corporations Should Pay Less?

SAN FRANCISCOBill Gates Sr. — father of the co-founder of Microsoft who is the USA’s richest man — is fighting to keep Bush from killing the estate tax that hits the super-rich but also some small-business owners and farmers. His son agrees with him, as do billionaires Warren Buffett, David Rockefeller Sr. and others.

DES MOINES, Iowa (AP)An Iowa Senate committee has approved a bill to grant tax breaks to Microsoft — if the computer giant decides to put a project in Iowa.

As Taxing Tennessee points out, Bill Gates opposes eliminating the death tax but is quite happy to have local and state taxes eliminated for his company, Microsoft, which is holding more than $22 billion in cash, and made about $17 billion in profits last year.

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Collapse of Credit Markets? The Data Suggest Not

Harvard professor Martin Feldstein, writing in today’s WSJ:

The principle cause for concern today is the paralysis of the credit markets. Credit is always key to the expansion of the economy. The collapse of confidence in credit markets is now preventing that necessary extension of credit. The decline of credit creation includes not only the banks but also the bond markets, hedge funds, insurance companies and mutual funds.

The dysfunctional character of the credit markets means that a Fed policy of reducing interest rates cannot be as effective in stimulating the economy as it has been in the past. Monetary policy may simply lack traction in the current credit environment.

The collapse of the credit markets began last summer when the subprime mortgage crisis demonstrated that financial risk of all types had been greatly underpriced, that the market prices of complex financial assets overstated their true values, and that the credit scores provided by rating agencies are not to be trusted. Because market participants now lack confidence in asset prices, they are unwilling to buy existing assets, thus preventing current asset owners from providing credit to new borrowers.

Comment: What collapse/paralysis of the credit market? The most up-to-date banking data suggest otherwise.

According to quarterly banking data released yesterday by the Federal Reserve on “end of period levels” through the end of 2007 for all banks, bank credit/loan volume is at an all-time record for all types of credit (business, consumer, real estate)! See charts above, click to enlarge. If there is some paralysis/collapse of the U.S. credit markets, how can bank loan volume be at all-time historical record high levels?

Carpe Diem

Brick Wall of Resistance from the Teachers’ Union

New episode with Drew Carey:

Vikki Reyes has had it with Locke High, the school her daughters attend in the Watts neighborhood of Los Angeles. She walked in on class one day and recalls “the place was just like a zoo!” Students had taken control, while the teacher sat quietly with a book.

Frank Wells has also had it with Locke High. When he became principal he says gangs ruled the campus. He tried to turn things around but ran into a “brick wall” of resistance from the school district and teachers union.

Locke seemed destined to languish in high crime and low test scores until Wells, Reyes, and many reform-minded teachers joined with a maverick named Steve Barr in an attempt to break free from the status quo. Their battle is just one example of the charter school education revolt that’s erupting across the nation.

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Chief Economic Advisor to McCain: Dr. Phil Gramm

NEW YORK (Fortune)Economic conservatives should take heart. John McCain’s chief economic advisor – and perhaps his closest political friend – is the ultimate pure play in free market faith, former Texas Senator Phil Gramm (Ph.D Economics, University of Georgia, 1967).

If McCain follows Gramm’s counsel, and most of his current positions are vintage Gramm indeed, his policies as president would represent not just a sharp departure from the Bush years, but an assault on government growth that Republicans have boasted about, but failed to achieve, for decades.