Carpe Diem

An Ordinary American Tests the American Dream

Christian Science Monitor:

In a test of the American Dream, Adam Shepard (pictured above) started life from scratch with the clothes on his back and $25. Ten months later, he had an apartment, a car, and a small savings.

The effort was inspired after reading “Nickel and Dimed,” in which author Barbara Ehrenreich takes on a series of low-paying jobs. Unlike Ms. Ehrenreich, who chronicled the difficulty of advancing beyond the ranks of the working poor, Shepard found he was able to successfully climb out of his self-imposed poverty.

He tells his story in “Scratch Beginnings: Me, $25, and the Search for the American Dream.” The book, he says, is a testament to what ordinary Americans can achieve.

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Impact of Cell Phones on Grain Markets in Niger

An interesting job market paper from a UC-Berkeley Ph.D. candidate Jenny Aker, “Does Digital Divide or Provide? The Impact of Cell Phones on Grain Markets in Niger.”

Abstract: Due partly to costly information, price dispersion across markets is common in developed and developing countries. Between 2001 and 2006, cell phone service was phased in throughout Niger, providing an alternative and cheaper search technology to grain traders.

The results provide evidence that cell phones reduce grain price dispersion across markets by a minimum of 6.4% and reduce intra-annual price variation by 10%. The primary mechanism by which cell phones affect market-level outcomes appears to be a reduction in search costs, as grain traders operating in markets with cell phone coverage search over a greater number of markets and sell in more markets. The results suggest that cell phones improved consumer and trader welfare in Niger, perhaps averting an even worse outcome during the 2005 food crisis.

Conclusion: Information technology is often considered to be a low priority when compared to other basic needs, such as food, water, shelter and health care . While basic needs cannot or should not be overlooked, cell phones could be a powerful development tool for farmers, traders and consumers.

Read a summary of the
paper here.

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Railroad Renaissance: Thanks in Part to China Trade

Wall Street JournalFor decades, railroads spent little on expansion, even tore up surplus track and shrank routes. But since 2000 they’ve spent $10 billion to expand tracks, build freight yards and buy locomotives, and they have $12 billion more in upgrades planned (see map above of recent upgrades).

Railroad operators are pressing for advantage over their main competitor, long-haul trucking, which has struggled with rising fuel prices, driver shortages and highway congestion. Railroads say a load can be moved by rail using about a third as much fuel as it takes to haul it by truck. And rail transport is becoming more efficient still, they say, as operators speed their lines and logistics companies build huge warehouse areas along routes.

Demand for rail service increased sharply when the U.S. economy and Asian imports surged starting in 2003. Now, increasingly, railroads are moving finished consumer goods, often made in Asia, from ports to major cities. Tight capacity on major routes enabled railroads to raise prices. The growth in freight volume has slowed along with economic growth, but shippers say they’re still planning to increase their use of rail transport because of the cost.

Comment: The way Lou Dobbs and others criticize international trade, you would think that trade with countries like China is a complete drain on the U.S. economy, almost as if American consumers somehow acquired goods made in China without any additional benefits for the U.S. economy. But this story suggests otherwise – many U.S. jobs are created and supported by trade with China, including jobs in the transportation industry. Further, Chinese goods are purchased at U.S. retail outlets like Macy’s, Wal-Mart and Target, creating and supporting U.S. jobs in the retail sector.

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President John F. Kennedy, Early Supply-Sider


Hillary and Barack, listen up!

In this video from August 13, 1962, when the highest marginal individual income tax rate was 91% and the highest marginal corporate tax was 52%, President John F. Kennedy announced his plan to introduce permanent, across-the-board tax cuts for both individuals and corporations. Kennedy argued that both “logic and equity” demanded tax relief for Americans, and that the dollars released from taxation would create new jobs, new salaries, and spur economic growth and an expanding American economy, thereby creating more tax revenues.

Kennedy’s supply-side tax cuts were passed, and by 1964 the top personal tax rate was 77%, dropping to 70% in 1965. In 1965, the corporate tax rates were reduced to 22% and 48%, from previous rates of 30% and 52%. The Kennedy tax cuts did help expand the economy, resulting in a 106-month economic expansion during the 1960s, the longest expansion in U.S. history until the 120-month expansion of the 1990s. Tax revenues grew by 65% from 1965 to 1970.

They sure don’t make Democrats the way they used to.

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Steven Landsburg: “Buy America” is Like Racism


University of Rochester Economics Professor Steven E. Landsburg argues convincingly on Fox News why it is a lot like racism for us to give preference with protectionist trade policy to total strangers born in Detroit over total strangers born in Japan or Mexico.

“Both major parties are infested with protectionists who would discriminate on the basis of national origin no less virulently than David Duke or any other racist would discriminate on the basis of skin color.”

Fox News guy doesn’t get it.

Carpe Diem

Show Us The Money

NY Times Editorial As the presidential campaign narrows and its costs skyrocket, detailed disclosure of financial resources becomes ever more important. Of the leading contenders, so far, only Senator Barack Obama has released his full income-tax returns — a level of disclosure once routine for candidates after the political corruption of Watergate.

The need for greater transparency regarding the income and overall financial dealings of candidates and their spouses was underscored by Mrs. Clinton’s recent decision to make a $5 million loan to her campaign. Such borrowing is a permitted practice under the campaign laws. But the campaign said the money came from her share of the Clintons’ joint resources, and that calls attention to the lack of information about their family finances. As a former president, Bill Clinton has been making millions annually giving speeches and traveling the globe ($7.5 million in 2005, see this CD post). What is publicly known about his business dealings is sketchy, and clearer disclosure of them is required to reassure voters that Mrs. Clinton’s candidacy is unencumbered by hidden entanglements.

The reluctance of Mrs. Clinton and Mr. McCain to reveal more about their finances ill-serves voters and the nominating process of both parties. It also sets a terrible precedent for future campaigns for important posts at the national and state level.

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Forget the Obituaries, U.S. Economy is Alive & Well

Monthly industrial production for January was released today by the Federal Reserve, and it was 2.3% above its January 2007 level (see graph above, click to enlarge). Industrial production is important because it is one of the recession-indicating variables watched by the National Bureau of Economic Research to determine the onset of a recession.

Comments:

1. Calculated on an annual basis from the same month in the previous year, January 2008 marked the 55th consecutive month of positive growth in industrial production. The last time annual growth in industrial was negative was June of 2003, more than 4.5 years ago (see chart above).

2. January’s 2.3% annual growth in industrial production was below the long-run trend of 2.9%, possibly indicating a mild slowdown in economic production, but certainly nowhere the negative growth rates in output associated with a recession, see the circled, shaded areas of recession on the graph above.

3. Since the summer of 2007, there has been a slight upward trend in the growth rate of output, further suggesting that the U.S. economy has not entered a recession.

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Detroit Real Estate Boom? 45.5% Increase in Sales

Detroit NewsSales of residential and condominium units in Detroit nearly doubled in January, compared with the same month a year ago, and the region overall got a nearly 15% bump. The city of Detroit led the gainers, posting a 45.5% increase in the month, with 736 closings.

Seven realtors who deal primarily in downtown Detroit area property said they have enjoyed some of their recent best sale months in December and January. Sales of houses and condominiums in Detroit jumped by a 33.9% in December 2007, compared to December 2006. No other market in the Metro Detroit area came close to that kind of increase last year.

Realtors credit tumbling prices, low interest rates and sales of foreclosed properties or properties hoping to avoid foreclosures.

Carpe Diem

The Geography of Recession/Slowdown: MT vs. MI

ECONOMISTYou won’t hear the R-word much in the modest governor’s mansion in Helena. The occupant, Brian Schweitzer, insists that Montana’s economy is in better shape than it has ever been. It has had one of the fastest rates of job growth in the country. The state is prospering on the back of booms in mining and farming, as well as steady growth in tourism. Paul Polzin of the University of Montana forecasts that the state’s economy will grow by 4.1% this year, the fifth consecutive year of growth above 4%. “We’ve been searching for realistic doomsday scenarios,” he says, “and we just can’t find any.”

Go to Michigan, by contrast, and it is hard to find anything but gloom. The collapse of America’s car industry, coupled with a nasty subprime mortgage bust, has left the state reeling. It has the highest unemployment rate in the country (7.6%) and the third-highest foreclosure rate, and was the only state to lose a large number of jobs in 2007. In the run-up to the state’s Republican primary (which he won) Mitt Romney traversed Michigan, promising to save voters from a “one-state recession.”