Carpe Diem

World Economy Growing At Fastest Rate Since ’80s

The chart above uses international macroeconomic data on real GDP growth from the USDA’s Economic Research Service. Over the last four years, the world economy has grown at an annual average rate of 3.6%, the fastest growth in real world output over a four-year period in almost twenty years (see shaded areas above). If there is any kind of slowdown in global economic growth, it sure hasn’t shown up yet in real GDP data.

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Compelling, But False Tale of Middle-Class Decline

The American middle class is fighting for its life — or at least that’s what Lou Dobbs would have you believe. The CNN anchor’s rants about “the war on the middle class” are probably the most prominent examples of such economic doom-saying, but he isn’t alone. Democratic presidential candidates pepper their debates with references to the assault; leading liberal thinkers argue that supply-side conservatives captured the Republican Party during the Reagan administration and implemented policies that continue to privilege the super rich today. They tell a compelling tale of middle-class decline. Pity it isn’t true.

Read more of the article “5 Myths About the Poor Middle Class” in the Washington Post

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Foreign Buyers Snap Up 2nd Homes in the U.S.

The events of 2007 have made the U.S. much more affordable for international home buyers. Severe dollar declines against the euro and pound have made U.S. homes much cheaper for Europeans. But even foreign buyers without that sort of currency advantage are benefiting from sharp drops in housing prices at a time when problems in mortgage lending are keeping many Americans out of the market.

At the same time, many foreign real estate markets, especially in Europe, have experienced sharp increases in home prices.

Read more here.

(HT: Ben Cunningham)

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Ethanol’s Role in The Growing “Dead Zone”

JEFFERSON, Iowa - Because of rising demand for ethanol, American farmers are growing more corn than at any time since World War II. And sea life in the Gulf of Mexico is paying the price.

The nation’s corn crop is fertilized with millions of pounds of nitrogen-based fertilizer. And when that nitrogen runs off fields in Corn Belt states, it makes its way to the Mississippi River and eventually pours into the Gulf, where it contributes to a growing “dead zone” — a 7,900-square-mile patch so depleted of oxygen that fish, crabs and shrimp suffocate.

Note: 7,900 square miles is larger than the states of Rhode Island, Delaware and Connecticut combined!

HT: Chris Douglas

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The U.S. Economy Could Handle $15 Gas?

According to Professor Gregory Clark, chair of the Department of Economics at the University of California, Davis, writing in yesterday’s Sacramento Bee:

With energy five times as expensive as at present we would take a substantial hit to incomes. Our living standard would decline by about 11%. But we would still be fantastically rich compared to the pre-industrial world.
That may seem like a lot of economic hurt, but put it in context. Our income would still be above the current living standards in Canada, Sweden or England.

My “back of the envelope” analysis shows that per-capita U.S. GDP would drop by about 13% if gas was selling for $15 per gallon, assuming that annual per-capita consumption remains at the current level of about 464 gallons. At $3 per gallon, per capita spending on gasoline is about $1400, and annual spending would rise to almost $7,000 at $15 per gallon. If we assume that the increased per-capita spending on gasoline of $5,560 annually would reduce our living standard by that amount, we can estimate that per capita-GDP would fall from from $43,223 to $37,655, and we would still be above U.K., Sweden and Canada (see chart above).
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English and The Spontaneous Order of Language


If you speak English, you know words from at least a hundred different languages. That’s because English has borrowed words from languages everywhere, and continues to do so.

All living languages borrow, though not to the same degree. Each new word brings its own color to the mosaic of the language, just as each new person does to a population, making it richer and vibrant.

We see words derived from Greek, Latin, Spanish, French, etc. every day, but this week we’ll look at a few words from languages that are not so well known — Javanese, Coptic, Tamil, Shelta, and Hawaiian — and also learn a little about those languages.

From a previous CD post:

Number of words in the English language: 500,000 according to the number of words in the Oxford English Dictionary. There are supposedly another 500,000 uncataloged technical and scientific terms. By comparison, most estimates indicate that German has a vocabulary of about 185,000 words and French and Spanish have fewer than 100,000 words.

Best thing about the English language, and the main reason for its rich vocabulary?

Nobody is in charge! Human languages in general, and English in particular, are perfect examples of “spontaneous order,” the spontaneous emergence of self-organization and order out of seeming chaos. And perhaps it’s because English has been the language most open to borrowing words from other languages that is has developed the most extensive and richest vocabulary.

The opposite approach to allowing a language to develop according to spontaneous order, is that of the French Academy, which actively tries to limit the French vocabulary and prevent the “anglicisation” of the French language.

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Hey, The Goldilocks Economy Can Handle $500 Oil And We’d Still Be Richer Than UK, Canada, Sweden

Study of the long economic history of the world suggests two things. Cheap fossil fuels actually explain little of how we got rich since the Industrial Revolution. And after an initial period of painful adaptation, we can live happily, opulently and indeed more healthily, in a world of permanent $100-a-barrel oil or even $500-a-barrel oil.

UC-Davis economist Gregory Clark explains in today’s Sacramento Bee.

(HT: Marginal Revolution)

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Soviet Light Bulb Story, Revisited

Hey, it’s a little slow for new postings, so I thought I’d recycle an interesting post from last December about the market for used light bulbs in the Soviet Union, especially because: a) I’m taking a group of MBA students to Russia in April 2008, b) Russia’s Putin is Time Magazine’s “Man/Person of the Year,” c) my MBA students in MGT 551 are studying price controls in CH 4 of the Gwartney textbook and d) I didn’t have a lot of regular readers last year at this time. Here it is:

Economists generally oppose price controls because they distort markets, and cause either shortages (e.g. rent control) when there is a price ceiling, or surpluses (e.g. minimum wage) when there is a price floor. Shortages (excess demand) and surpluses (excess supply) represent an inefficient use of scarce resources, and economists support market prices because they eliminate shortages and surpluses, and therefore lead to efficiency.

From the Soviet Union, there are many examples of distortions and inefficiencies from its long history of price controls, but here is a real classic.

Light bulbs, like most other basic goods and staples in the Soviet Union, were often in short supply because the official price was below the market price, resulting in excess demand and prolonged shortages. As a result of the chronic light bulb shortage, an informal, black market developed in the USSR for used, burned-out light bulbs. That is, Soviet citizens would actually pay a positive price for a light bulb that didn’t work.

How would it be possible for a burned-out light bulb to have a positive price, when it would normally just be thrown out? Of what use could anybody have for a used light bulb? Think about it first, and read the answer here.