The good (red), and the not so good (blue), from Global Insight.
“Our command over resources in the world is measured by our real income, not real GDP. Improved terms of trade–cheaper imports–raises our real income even if it does not affect productivity or output. The goal of economic policy should be to maximize the present value of real income. It’s just as important to give US consumers access to cheap foreign goods as it is to make real GDP bigger.”Business Week blogger Michael Mandel:
“Now, this is a fascinating alternative perspective, since it seems to imply that real income growth should be the headline number for economic policy, and not real GDP growth.”
The graphs above show: a) real GDP growth, which was only 0.70% in the first quarter of 2007, and was 2-2.5% in the last three quarters of 2006, and b) the annualized growth rate of monthly real disposable income over the same period, which has grown at above 4% for the last two quarters. Over the last 10 quarters, real GDP growth has averaged 2.9% compared to 3.4% for real disposable income, or at a half percent higher rate.
Bottom Line: According to real disposable income, the U.S. economy is doing quite well and is growing at a healthy 4% rate this year, but that economic health and vitality is apparently not being captured by real GDP growth, which measures production. We should pay more attention to real income growth, and less attention to real GDP growth.
Number of hotel rooms, entire country of India: 100,000
From today’s NY Times:
“Marriott International Inc., the top U.S. hotel operator, said today it would more than triple its hotel portfolio in India by the end of 2010 as it cashes in on rising business and leisure travel. Marriott, which manages nearly 2,900 hotels under brands including Ritz-Carlton and Residence Inn, will manage 21 properties by 2010 in India’s underserved market (Marriott Mumbai pictured above).”
From today’s Hindustan Times:
“The Marriott properties in India will cut across Mumbai, Goa, Hyderabad, Chennai, Bangalore, Gurgaon, Noida, Kolkata, Ahmedabad and Pune. In all, the 21 properties will offer 5,222 rooms. The idea is to cater to all kinds of demands, both from customers within India as well as from other countries.”
Bottom Line: As globalization and outsourcing increase India’s income and standard of living, its demand for U.S. products and services increases. Exhibit A: Marriott’s expansion in India.
1. Create your own fireworks display here on your computer screen, turn up the volume and go crazy!
2. From today’s WSJ: Nearly all the celebratory explosions set off by Americans — from the lowly New Year’s firecracker to next week’s mighty Fourth of July mortar — originate in Liuyang, China, a county nestled into the red hills and bamboo forests of Hunan.
What would Lou Dobbs and the protectionists say about using foreign fireworks to celebrate the 4th of July? Doesn’t the outsourcing of fireworks to China cost a lot of American jobs?
There are several previous CD posts on congestion pricing for traffice: here, here and here, based on the principles that: a) anytime you have congestion it’s because of a failure to apply market pricing, and b) market pricing helps to elminate or reduce congestion.
The WSJ has an article about congestion pricing on I-394 in Minneapolis that introduced HOT (high-occupancy toll) lanes in 2005, where tolls range from 25 cents to $8, varying with the amount of congestion in order to keep traffic moving along at close to 55 miles an hour.
“HOT lanes work like this: Sensors in the pavement track the number of cars and their driving speed. When traffic slows, computers increase the toll to discourage other cars from entering the lanes. Toll amounts are displayed on huge digital signs and debited from an electronic smart card inside the driver’s vehicle. At the height of rush hour, drivers can pay around $3 to $5. Carpoolers, buses and motorcycles still use the lane with no toll.
Now the idea is picking up speed across the U.S., with plans under way in more than a dozen cities and states. If all of the express lanes are built, millions of American commuters could face less driving misery every day.”
Now who would have expected the People’s Republic of Minnesota to be at the country’s forefront of market solutions to traffic congestion? See a previous post here on Minnesota’s anti-market solutions to textbook pricing and foreign-made flags.
Traditional philanthropy is collective, tribal, even. The donor feels noble; paternalism reigns; poverty is perpetuated. Extending the institutons of economic liberty — even to the limited degree that this has occurred in China and India — has done more good than would have been achieved had Mr.Gates liquidated Microsoft and shipped all that money to Africa.
The tragedy of Gates-style philanthropy is less that it will do little good but, rather, that he has abandoned the entrepreneurial skills used so creatively in his truly significant wealth-creation work at Microsoft. Had he employed similar skills in dealing with the problems of Africa, he would not simply replicate the tried and failed policies of traditional paternalistic aid. Rather, he would be examining the barriers — political, cultural, tribal — that block entrepreneurial activity throughout Africa and explore ways to remove them. Could we, for instance, out-compete the oligarchs and tyrants by creating prizes that would bypass the bureaucracy and achieve success in health- and wealth-creation, in reducing corruption?
~Fred L. Smith, President of the Competitive Enterprise Institute, Letter-to-the-Editor in today’s WSJ
Number of millionaires worldwide in 2006: 9,500,000
Number of millionaires in India in 2006: 100,000 (1 lakh)
Percent increase, Indian millionaires from 2005: 20.5%
Number of U.S. millionaires in 2006: 3,200,000 (32 lakhs)
Percent increase, American millionaires from 2005: 8.3%
Source: 2007 World Wealth Report
Read a Times of India article here and a WSJ article here.
Tim Worstall has this TCS post about how to make gifts to the U.S. government, and writes “When a campaigner (MP: or Warren Buffet) tells you in his speech that he thinks taxes should be raised, smile sweetly and ask him how much he added to his tax bill last year. After all, if he thinks you should pay more taxes shouldn’t he already be doing so voluntarily himself?”
And here is the link to the Treasury’s website with instructions for citizens who wish to make a general donation to the U.S. government into an official account called “Gifts to the United States.”
“This account was established in 1843 to accept gifts from individuals wishing to express their patriotism to the United States. Money deposited into this account is for general use by the federal government and can be available for budget needs. These contributions are considered an unconditional gift to the government. Financial gifts can be made by check or money order payable to the United States Treasury and mailed to the address below.”
Gifts to the United States
U.S. Department of the Treasury
Credit Accounting Branch
3700 East-West Highway, Room 6D17
Hyattsville, MD 20782
Warren Buffet, take note.
First, Mankiw points out that Buffet’s low 17.7% tax rate was because of the 15% maximum tax rate on dividends and capital, which was a large share of Buffet’s taxable income, compared to his receptionist, who probably had only ordinary income taxed at the higher rates, and very little dividend income. Further, Mankiw points out that corporate income is subject to double taxation, and Buffet ignored the first round of taxes on corporate profits at rates up to 35% before Mr. Buffet could receive his dividend checks and pay his 15% tax.
Further, if Buffet thinks 30% is a better, more “fair” rate for rich people like himself, he doesn’t have to wait for any changes in the tax code, he can simply write a check to the IRS for an additional $5,658,000 to make up the difference between what he actually paid (17.7% tax rate) and what his receptionist paid (30%). He could have done this to set an example, and then encouraged Hilary Clinton and the 600 Wall Street bankers and money managers attending his talk to do the same.
Turn over your iPod and you’ll see that it’s “assembled in China.” But that doesn’t mean that most of the profits or revenue go there. In fact, only about $2 (less than 1%) of the $299 retail price of a 30GB iPod goes to China (see chart above, click to enlarge), and more than half ($163) goes to American companies and workers, according to a recent study funded by the Sloan Foundation, using “teardown” data from Portelligent.
For a fee of $1950, the company Portelligent provides a complete “full teardown” report for electronic goods like the iPod, cameras, cell phones, etc. Several recent articles discuss Portelligent’s “iPod teardown,” which identifies the 451 individual parts in a 30GB iPod, the companies that make the parts, and the countries where the parts are made.
As one would expect, the iPod is a highly globalized product, with parts coming from all over the world: Japan, Phillipines, Taiwan, S. Korea, with finally assembly taking place in China.
Beyond the interersting factoids about the iPod’s worldwide components, this study has some very important trade statistic implications as well.
From Computerworld: “Given that the product is manufactured overseas, one might assume that most of the value goes there. In fact, the brand that creates the product reaps a substantial portion of the returns. And when iPods are shipped to the U.S. for sale here, 55% of the purchase price goes back to U.S.-based firms. How ironic, then, that the federal government attributes most of the iPod’s value to China, boosting the trade deficit when it receives the smallest slice of the pie.”
From Professor Hal Varian: “This illustrates the futility of summarizing such a complex manufacturing process by using conventional trade statistics. Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to its bilateral trade deficit with the Chinese.”
Bottom Line: Our $250 billion “trade deficit” with China is probably hugely overstated because of misleading trade calculations used by the Dept. of Commerce. If the import value of the iPod is overstated by a factor of 75X, think of all of the other similar products imported from China that are probably also grossly overstated!