Carpe Diem

Want A World of Idiots? Taxpayer Bailout Will Work

A taxpayer bailout of distressed homeowners would be expensive, unfair to the vast majority of homeowners and renters who have made prudent financial decisions, and set a troubling precedent that would invite reckless behavior in the future. What’s more, a bailout will not stop the inevitable correction in home prices, and is unlikely to prevent the associated economic repercussions.

It is self-evident that any bailout fund will be complex to administer, as well as arbitrary and unfair. While the plight of many who were caught up in the housing mania is tragic, a bailout package would almost certainly reward the least deserving. Those facing the greatest risk of foreclosure — and presumably those who would get most of the taxpayer aid — are those who bought a much more expensive house than they could afford, spent the equity of their once-affordable home, or lied about their income to qualify for a loan they otherwise would not have received.

Policies designed to suspend the laws of economics inevitably produce unintended consequences. Today’s housing bust is itself the unintended consequence of an easy Federal Reserve monetary policy designed to cushion the economy from the fallout of the bursting of the tech bubble. Congress should reject a taxpayer bailout.

From today’s WSJ editorial by Andy Laperriere

Bottom Line: If we make the world safe for idiots (and reckless borrowers) with taxpayer bailouts, we’ll create a world full of idiots (and reckless borrowers).

Carpe Diem

November Car Sales Rise: Good News or Bad News?

According to Motor Intelligence, light vehicle sales in November were 16.2 million unit on a seasonally-adjusted annual rate (SAAR), see chart above (click to enlarge). That exceeded the average estimate of 15.9 million in a survey of eight analysts and 12 economists.

Compared to October, sales on a SAAR basis increased by 2.6% in November, and compared to November 2006, sales increased by close to 0.50%. During the last year, auto sales (SAAR) have averaged 16.2 millions per month, the same as sales in November. Given the subprime mortgage crisis, and all of the talk about credit tightening, rising oil prices and a pending recession, vehicle sales of 16.2 million units in November seems like pretty good news, doesn’t it?

Well you would never know that from the media reports today, here are some examples:

November auto sales weak

US Nov. auto sales weak; Ford, GM cut output

US auto sales weaken in Nov. as caution mounts

Carmakers warn of tougher times ahead in US

Pessimism Over ’08 Could Crimp Auto Production

US auto sales fall 2% in November

Auto prospects for 2008 look grim

Carmakers report so-so November, expect weak 2008

Weak November a hint of what’s to come for auto industry in 2008

Carpe Diem

Fraser: US Drug Policies Produce Better Outcomes

From a new study by Canada’s Fraser Institute (news release here, full report here) titled “Cost Burden of Prescription Drug Spending in Canada and the United States”:

Even though Canadian prices for brand name drugs are lower than U.S. prices for identical drugs (by 51% on average), consumers in both countries spend roughly the same percentage of their personal income on drugs because the price of Canadian generics is more than double U.S. prices for identical drugs (115% more expensive).

The root causes of high generic drug prices in Canada are government policies that shield retail pharmacies and generic drug manufacturers from competitive market forces that would naturally put downward pressure on generic drug prices.

(HT: NCPA)

Carpe Diem

World Stock Markets Set Another New Record

According to recently released global stock market data from the World Federation of Exchanges, world stock market capitalization reached another all-time record of $63.1 trillion in October (see graph above, click to enlarge). The $3.3 trillion monthly increase in stock market value from September was the second largest monthly increase in history, just slightly behind the $3.4 trillion record set in December 1999 at the height of the Dot-com boom.

Compared to last October, world stock markets have increased in value by 33.4%, adding almost $16 trillion of new stock market wealth to the world economy in just the last 12 months.


Over the last five years, more than $42 trillion of stock market wealth has been created, as the global market capitalization rose from about $20.4 trillion in September of 2002 to more than $63 trillion in October 2007. In other words, more global wealth (measured by stock market value) was created in the last 5 years ($42 trillion total, or almost $6,500 for every person on the planet) than was created during the thousands of years it took to create the first $35 trillion of stock market value, a level first reached in 2000 (see chart above).

Among the world leaders for increases in stock market capitalization from October 2006-October 2007 (measured by percent increase in local currency) were the Shanghai SE Index (+366%), Luxembourg SE (+163%), Hong Kong (+102%), India (+88%), Brazil (+85%), and Peru (+81%).

Bottom Line: Let’s assume that losses from the subprime mortgage crisis reach $300 billion over the next year as predicted, and those losses spread to other countries, as has already happened. Compared to the $16 trillion of global stock market wealth created in the last year, those subprime mortgage losses would be only 1.875% of the increase in world stock market capitalization. Stated differently, for every $1 of loss in the subprime mortgage market, more than $53 of new wealth has been created elsewhere in world stock markets.

And compared to the total stock market capitalization of $63.1 trillion, the subprime losses of $300 billion would be less than 1/2 of 1%. It’ll probably take a lot more than a $300 billion credit problem to unsettle the $14 trillion U.S. economy and the $63 trillion world stock market!

Carpe Diem

Where Is The Outrage Over Foreign Grad Students?

According to this WSJ editorial from last week, foreign students received 33% of all research doctorates awarded by U.S. universities in 2006, up from 25% in 2001, and foreign students earned 44% of science and engineering Ph.D.s.

Given their past hostility to globalization and outsourcing, where are protectionists like Lou Dobbs, Pat Buchanan and John Kerry? Shouldn’t they be complaining vociferously that foreigners are taking away research and teaching assistantships from Americans at U.S. research universities? Where is the outrage over “Benedict Arnold American university and college presidents” taking away funding from American graduate students and giving it instead to so many foreigners? After all, most doctoral students receive funding in the form of research or teaching assistantships, so aren’t these foreign students taking away jobs from Americans?

What is the difference between Microsoft shifting its employment of Ph.D. software engineers from the U.S. to research centers in Bangalore, and the U. of Chicago, Cal Tech and M.I.T. increasing the percentage of acceptances and financial support for engineering students from India in their Ph.D. programs?

If Microsoft’s hiring of an Indian engineer takes away a job from an American engineer, don’t the foreign students earning 44% of science and engineering doctorates likewise take away opportunities from American students to attend graduate school?

Q: Where is the outrage?