Carpe Diem

Despite Media Reports to the Contrary: U.S. Retail Sales Are Actually Increasing, Not Falling

The Commerce Department today reported that: 1) total retail sales in December 2007 were 4.1% above December 2006, 2) sales for the 12 months of 2007 were up 4.2 percent% from 2006, and 3) total sales for the October through December 2007 period (QIV) were up 4.9% from the same period a year ago. All of those three measures suggest that retail sales are strong and healthy. But you would never know that from the media headlines:

December Retail Sales Slide 0.4% (WSJ)

US December Retail Sales Down 0.4% (CNN)

US Retail Sales Unexpectedly Declined in December (Reuters)

Consumer Spending Slowdown Deepens (AP)

US Retail Sales Fall in December (BBC)

Report Feeds Recession Worry (AP)

Reason: All of these reports focused on the decline in retail sales from November to December, which is actually fairly typical: In more than half of the last 8 years (5 out of 8), retail sales have either declined from November to December (2001, 2003, 2007) or remained flat (2000 and 2005).

Bottom Line: The chart above (click to enlarge) shows the annual growth in retail sales from the same month in the previous year, from 2001-2007. Over the last 18 months, there has actually been a positive, upward trend in retail sales, not a recessionary decline, see arrow above!

Carpe Diem

Drive What I Mandate You Should, Not What I Drive

Most of the presidential candidates support hiking federal fuel efficiency laws. But do they practice what they preach about fuel efficiency when it comes to the vehicles they drive? Hardly. A review of some of the vehicles the candidates drive appears in today’s Detroit News editorial by R. Burr and H. Payne:

Mike Huckabee: “When it comes to his own vehicles, the Baptist minister strays from his scripture of fuel efficiency.” Vehicles includes a 2007 Chevy Tahoe (16 mgp, pictured above) and a Chevrolet Silverado (12 mpg) two of the biggest light trucks on the planet.

John McCain: Vehicles include a Lexus (his wife’s) and a CTS Cadillac (18 mpg).

Barack Obama: Travels with a Secret Service convoy of Chevy Suburban SUVs (12 mpg). His personal vehicle was a gas-guzzling, 340 horsepower Chrysler 300C (17 mpg) until he was exposed, and he bought a more politically correct Ford Escape SUV hybrid (27 mpg).

John Edwards: Now drives an Escape hybrid (30 mpg) after he was inconveniently caught driving a bigger SUV last summer while preaching that Americans should sacrifice their SUVs.
Carpe Diem

People Pay With Time, Not Money, For Health Care

The RAND Health Insurance Experiment shows that:

1. Patients are responsive to out-of-pocket costs; if people face a high deductible, rather than first-dollar coverage, they will reduce their health care spending by about 30%.

2. This reduction in health care spending has no effect on the patient’s health care in most cases.

3. Patients reduce their spending not by comparing the marginal value of various medical services with other uses of money; rather, they reduce their spending by deciding not to initiate care in the first place.

Why #3?

According to John Goodman, the “Father of Health Savings Accounts”:

The health care system is a bureaucratic, institutionalized structure, in which normal market processes have been systematically suppressed. Since most people pay with time, not money, when they buy care, providers are not competing on price or quality. Since price and quality data are not available, patients find it impossible to trade off money against health services, the way they would do in a normal market. Hence, their only real choice is whether to enter the system at all. And the higher the expected cost of entry, the less likely they are to do so.

Sources: NCPA and John Goodman’s Blog

Carpe Diem

Ethanol:Profitable Only With Tax-Breaks and Tariffs

Current grain-based ethanol production systems damage soil and water resources in the U.S. and are only profitable in the context of tax breaks and tariffs.

The current focus on ethanol from corn illustrates the risks of exploiting a single source of biomass for biofuel production. A growing percentage of the U.S. corn harvest – 18% in 2006 – is directed towards grain ethanol production. This has not only resulted in record-high corn prices, it has produced strong incentives for continuously-grown corn, higher-than-optimal use of nitrogen fertilizers, the early return of land in conservation programs to production, and the conversion of marginal lands to high-intensity cropping. All of these changes exacerbate well-known environmental problems associated with intensive agriculture.

From The Ecological Society of America’s policy statement on “Biofuel Sustainability.” The Ecological Society of America is the country’s primary professional organization of ecologists, representing 10,000 scientists in the United States and around the world.

Carpe Diem

Conspicuous Consumption and Race: $500 Sneakers

Do blacks actually spend more on consumerist indulgences than whites? And if so, what, exactly, makes black Americans more vulnerable to the allure of these luxury goods?

Three economists from the University of Chicago and Wharton have taken up this rather sensitive question in a recent unpublished study, “Conspicuous Consumption and Race.” Using data from the Consumer Expenditure Survey for 1986-2002, they find that blacks and Hispanics indeed spend more than whites with comparable incomes on what the authors classify as “visible goods” (clothes, cars, and jewelry). A lot more, in fact—up to an additional 30%. The authors provide evidence, however, that this is not because of some inherent weakness on the part of blacks and Hispanics. The disparity, they suggest, is related to the way that all people—black, Hispanic, and white—strive for social status within their respective communities.

Read more here in Slate.

Carpe Diem

Quote of the Day: Thomas Sowell

In the 1970s, severe government restrictions on building became common in coastal California. With supply restricted and demand not restricted, it was inevitable that prices would soar beyond many people’s ability to pay.

The main impetus behind severe restrictions on building is environmentalist zealots who demand that vast amounts of land be set aside as “open space” on which nothing can be built.
It is not uncommon for substantial proportions of all the land in an entire county — sometimes more than half — to be set aside as “open space.”


Environmentalists often talk as if they are trying to save the last few patches of greenery from being paved over, when in fact 90% of the land in the United States is undeveloped and forests alone cover more area than all the cities and towns in the country combined.

Read more here.

Carpe Diem

Paul Krugman Has Predicted 9 Out of the Last None Recessions Under Bush Administration

1. “Right now it looks as if the economy is stalling…” — Paul Krugman, September 2002

2. “We have a sluggish economy, which is, for all practical purposes, in recession…” — Paul Krugman, May 2003

3. “An oil-driven recession does not look at all far-fetched.” — Paul Krugman, May 2004

4. “A mild form of stagflation – rising inflation in an economy still well short of full employment – has already arrived.” — Paul Krugman, April 2005

5. “If housing prices actually started falling, we’d be looking at an economy pushed right back into recession. That’s why it’s so ominous to see signs that America’s housing market … is approaching the final, feverish stages of a speculative bubble.” — Paul Krugman, May 2005

6. “In fact, a growing number of economists are using the “R” word [i.e., "recession"] for 2006.” – Paul Krugman, August 2005

7. “But based on what we know now, there’s an economic slowdown coming.” – Paul Krugman, August 2006

8. “This kind of confusion about what’s going on is what typically happens when the economy is at a turning point, when an economic expansion is about to turn into a recession” – Paul Krugman, December 2006

9. “Right now, statistical models … give roughly even odds that we’re about to experience a formal recession. … The odds are very good — maybe 2 to 1 — that 2007 will be a very tough year.” – Paul Krugman, December 2006

Bottom Line: In other words, to paraphrase Megan McArdle, Paul Krugman has predicted nine out of the last none recessions under the Bush administration.

(Source: The Q&O Blog, via the Mighty Angus at Kids Prefer Cheese.)

Update: According to LyinginPonds, Paul Krugman ended up as the #2 most partisan columnist in 2007 (tied with Joe Conason), right behind the #1 most partisan columnist: Ann Coulter.

Carpe Diem

Predatory Borrowing With Fake Paycheck Stubs

From George Mason economist Tyler Cowen writing in today’s NY Times:

There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70% of recent early payment defaults had fraudulent misrepresentations on their original loan applications. One study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also 5 times as likely to go into default.

Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers. Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation of income and assets. As long as housing prices kept rising, it didn’t seem to matter.

In other words, many of the people now losing their homes committed fraud. And when a mortgage goes into default in its first year, the chance is high that there was fraud in the initial application, especially because unemployment in general has been low during the last two years.

As an example of how easy it is to submit fraudulent income data with fake paycheck stubs, you can buy software for $70 from FakePayCheckStubs (see ad above) to “print out personalized instant paycheck stubs for your new or existing business! Authentic looking stubs will FOOL EVERYONE or 100% Money Back Guarenteed! (sic)”
Carpe Diem

Competition Breeds Competence and Lower Prices

The 2008 North American International Auto Show (NAIAS) started today in Detroit. From the NAIAS website:

More than 6,700 journalists from 62 countries and 42 United States attended the NAIAS 2007 Press Days. Almost 30% of media attendees were from outside the U.S. In addition to Europe and Asia, many media came from a wide variety of countries from all over the globe including Azerbaijan, Argentina, Chile, Croatia, Egypt, Ecuador, Jamaica, India, Latvia, Moldavo, Peru, Rwanda, Turkey, Venezuela and Yugoslavia, to name just a few.

And one of the main things that draws these journalists is the sheer number of vehicle debuts showcased at the NAIAS. The NAIAS has hosted 1,049 North American and worldwide vehicle introductions – which is a fancy way of saying that these vehicles were seen for the first time in the world or in the U.S. at the NAIAS. Media know that if they want to capture a photo of a vehicle the first time it is debuted, their best bet is the NAIAS (see picture above from this year’s show).

The positive news about the 2008 NAIAS is a real “breath of fresh air” for Michigan. We hear a lot in Michigan about the loss of manufacturing and UAW jobs here, the decline of the automobile industry in Michigan, losses and declining market share for Ford and GM, the highest unemployment rate in the country (7.4%), etc.

One of the most under-appreciated, unreported and unrecognized facts about the automobile industry is captured in the chart above (click to enlarge), showing the Consumer Price Index (CPI) for All Items from the BLS, vs. the CPI for New Cars from 1995-2007.

Notice that since 1995, consumer prices have increased by 40%, an annual rate of 2.6% for consumer prices on average. However, new car prices have FALLEN by about 2% over the last 13 years, meaning that new cars are much more affordable today than in 1995. If new car prices had increased at the same rate as the average product in the CPI, new car prices today would be 40% higher than they are today! Keep in mind that wages and income have increased at a rate equal to, or higher than, the CPI, meaning that cars are about 42% MORE AFFORDABLE today, relative to income and average prices, THAN IN 1995!

Despite the financial troubles for the UAW and the Big Three, American consumers have benefited tremendously from the intense foreign competition in the auto industry. Except for electronic goods, what other consumer products are actually cheaper today than in 1995? Not too many.

Bottom Line: Competition in the auto industry (or any industry) breeds competence, to the great benefit of the U.S. consumer. Without the significant discipline of foreign competition, we’d probably be paying 40% more for our American cars today.