Carpe Diem

Free Markets Are Good, But Foreign Firms Are Bad?


The Pew Research Center conducts a major international survey about every five years on the general public’s perception of trade and globalization. The most recent study was just released, based on responses from 45,000 people worldwide in 47 countries (more than 2,000 in the U.S.).

From the study: “Overwhelmingly, the surveyed publics see the benefits of increasing global commerce and free market economies. In all 47 nations included in the survey, large majorities believe that international trade is benefiting their countries. For the most part, the multinational corporations that dominate global commerce receive favorable ratings. Nonetheless, since 2002 enthusiasm for trade has declined significantly in the United States, Italy, France and Britain, and views of multinationals are less positive in Western countries where economic growth has been relatively modest in recent years.

Just 59% of Americans say trade with other countries is having a good effect on the U.S., down sharply from 2002, when 78% believed it was having a positive impact.”

Interestingly, these results are consistent with the recent trend reported in the Wall Street Journal that “Republican voters believe free trade is bad for the U.S. economy by nearly a two-to-one margin, a shift in opinion that mirrors Democratic views.”

Notice in the chart above (click to enlarge), that in many countries like the U.S., Canada, UK, France, Germany, Spain, Sweden and Italy, people inconsistently express strong support for both: a) trade and b) free markets, but very weak support for “foreign companies.”

In the U.S., 70% of the respondents have a favorable view of “free markets,” but only 45% have a favorable view towards “foreign companies.” In the U.K. and Italy, those percentages are 72% (free markets) vs. 49% (foreign companies) and 73% vs. 38%, respectively.

What’s up with that? Aren’t “foreign companies” an intergral part of “free markets”? Without foreign companies, we wouldn’t have “free markets,” we would have “closed markets” and a closed economy.

Carpe Diem

Is Wall Street Now Conducting Monetary Policy?

From Larry Kudlow’s very interesting column today “Anatomy of a Fabulous Fed Flip-Flop“:

On the afternoon of Aug. 7, the Federal Reserve chair was an inflation hawk — according to the unchanged FOMC policy statement — fearful of adding liquidity to the markets. By day’s end on Aug. 9, however, he was leading the liquidity charge, initiating a process that would help unlock the credit seize-up that started in late-July.

Using the Freedom of Information Act, Ken Thomas, researcher and lecturer at the University of Pennsylvania’s Wharton school, was able to get Bernanke’s calendar of phone calls and meetings at the time the flip-flop occurred.

Over the next few weeks, Bernanke participated in no fewer than 35 separate conference calls with fellow Fed operatives — a complete departure from his earlier no-conference-call style. And he got the liquidity ball rolling. As we now know, the Fed started pouring liquidity into the system on Aug. 9.

Exhibit A: See the chart above (click to enlarge) showing the significant drop in effective Fed Funds rate on August 9 to 4.68%, at a time the official target rate was 5.25%. During the entire month of August the effective Fed Funds rate was 5.02%, almost a quarter point below the official target. Simply put, the Fed implemented an unannounced “secret” rate cut to 5% in August, under pressure from Wall Street.

But is this a good outcome? Kudlow seems to think so, and says that “the academic Bernanke became a hands-on market participant through his contacts with Rubin, Paulson, the hedgies and others. He reached out to savvy financial-market players, who put him in touch with the real world.”

Doesn’t this call into question the concept of “central bank independence?” Most economists consider it desirable to have central bank decisions insulated from political pressure from politicians seeking short-term political goals, so that the central bank can do what is best for the economy in the long run. But shouldn’t the central bank also be insulated from pressure from hedge fund managers and investment bankers on Wall Street, which is apparently exactly what happened in August? Wouldn’t an official inflation target insulate the Fed from Wall Street pressure?

Comments welcome.

Carpe Diem

Picture’s (Yes, I Know) of the Day: D’oh!

At this middle school in “Floriduh” there are multiple signs with this wording in its parking lots. If you have to make a grammatical blunder, at least don’t make it in front of a school!

Here are a few more…..


Just wondering, are the grammar rules about the proper use of it’s vs. its really that hard to learn? Isn’t that something you are supposed learn in elementary school, maybe about third grade?

Carpe Diem

Rising Unemployment, But Education Pays Off

Employment rose in September, and the unemployment rate increased slightly to 4.7%, the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor reported today.
AP: “The bump up in the unemployment rate from 4.6%in August came as hundreds of thousands of people streamed back into the labor market. That new rate of 4.7% the highest since the summer of 2006, is still considered low by historical standards.”

The BLS also reports the unemployment by educational attainment in Table A-4 of its report, shown above in the chart (click to enlarge). Notice that the unemployment rate for those with some college has actually decreased from August to September from 3.7% to 3.4%, and has stayed the same for workers with a college degree (2.0%). For high school graduates, the jobless rate has increased by .40% from 4.3% in August to 4.6% in September, and for workers without a high school diploma the rate increased by .70%, from 6.7% to 7.4%.

Therefore, the increase in the September unemployment rate is entirely due to an increase in unemployment for workers with a high school degree or less. For workers with at least some college, unemployment rates are falling (some college, no degree) or stable (college graduates).
Carpe Diem

Yahoo Search for Foreclosures

I’m not sure how long this website has been going, but I just found the Yahoo! Real Estate website, where you can do a foreclosure search, by city and state, or zipcode. Here is a sample of some cities and the number of foreclosures currently available:

Las Vegas: 21,205
Chicago: 9,107
Detroit: 9,876
Minneapolis: 2,066
Miami: 6,614
St. Louis: 1,882
Cleveland: 8,006
Orlando: 12,448
San Diego: 7,764
Houston: 20,271

This seems like more evidence that house prices will continue to fall. Exhibit A: 21,205 foreclosed properties in Las Vegas!

Carpe Diem

Club For Growth: Symposium on Free Trade

The Club for Growth features a “Symposium on Free Trade” on its website, based on yesterday’s Wall Street Journal “Republicans Grow Skeptical On Free Trade,” which reported that “Six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports.”

I was one of the six respondents who commented on the WSJ article.

Carpe Diem

Three Related Stories, Let’s Connect The Dots

1. From today’s Detroit Free Press article “Taxes May Hinder Attracting Businesses“:

Selling Michigan as an attractive and low-cost place to do business just got a little harder.

The expansion of the state’s sales tax to many service providers will raise the cost of business-to-business transactions and could hurt Michigan’s enterprise reputation at a time when it can least afford it, economic development experts said Tuesday.

To be sure, the increase in taxes won’t necessarily deter companies interested in Michigan. Taxes are just one of several factors that affect businesses’ decisions about where to put a new factory or headquarters.

2. From today’s NYTimes article “More Doctors in Texas After Malpractice Caps“:

Four years after Texas voters approved a constitutional amendment limiting awards in medical malpractice lawsuits, doctors are responding as supporters predicted, arriving from all parts of the country to swell the ranks of specialists at Texas hospitals and bring professional health care to some long-underserved rural areas.

The influx has flooded the medical board’s offices in Austin with applications for licenses, close to 2,500 at last count.

“Doctors are coming to Texas because they sense a friendlier malpractice climate,” he said.

3. From U-Haul Reservations, a one-way rental from Austin, TX to Detroit, MI for a 26-foot truck is $661, and a one-way rental from Detroit, MI to Austin, TX is $1,583.

Bottom Line: Although taxes might not be the only factor for business location decisions, neither are malpractice limits for physicians’ locations. But the fact that thousands of physicians are going through the trouble of moving to Texas demonstrates that taxes and regulations do play a role in business location decisions. Many physicians are actually independent, small businesses who move to where the business climate is most friendly. Making Michigan’s business climate less friendly with higher taxes has to have some effect, the only question will be the size of that effect.

Given the difference in one-way truck rentals between Detroit and Austin, it sure seems like a LOT more people are moving out of Michigan to Texas, than the other way around.

Carpe Diem

Trade Gridlock Would Be A Lot Better

From today’s Wall Street Journal, front page article Republicans Grow Skeptical On Free Trade, “By a nearly two-to-one margin, Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president.”

For example, from the actual poll that was given to Republicans:

Statement A: Foreign trade has been good for the U.S. economy, because demand for U.S. products abroad has resulted in economic growth and jobs for Americans here at home and provided more choices for consumers.

Only 32% of Republicans agreed with this statement. Yikes!

Statement B: Foreign trade has been bad for the U.S. economy, because imports from abroad have reduced demand for American-made goods, cost jobs here at home, and produced potentially unsafe products.

59% of Republicans agreed with this statement. Yikes!

In another part of the poll on policy positions that a Republican president might take, 61% of Republicans agreed with the position “Favors tougher regulations to limit imports of foreign goods.” Yikes!

In other words, it looks like there will be upcoming bi-partisan consensus on anti-trade, pro-protectionist policy positions. That’s pretty scary when you have the Republicans agreeing with the Democrats that free trade is bad and protectionism is good. Legislative gridlock on trade would be a lot better, I agree with P.J. O’Rourke on this one. Here’s what he said:

“I like legislative gridlock. What I hate is bipartisan consensus. Bipartisan consensus is like when my doctor and my lawyer agree with my wife that I need help.”

Carpe Diem

More Trouble Ahead for Housing: 4-Year Decline

From today’s Wall Street Journal article “Home-Price Outlook Takes Another Shot: Trading on CME Indicates a Decline Into Late 2011″:

Traders on the CME expect home prices in 10 major cities to drop an average of about 10% from mid-2007 to November 2011, according to an analysis of prices for housing futures traded on the exchange.

The contracts have been trading since May 2006 but last month were adapted so that traders could bet on prices as long as 60 months into the future. The current contract prices show that traders expect prices in the Miami metro area in November 2011 to be down 28% from the mid-2007 level. The expected drops in other metro areas for the same period are 18% for Las Vegas, 12% for New York, 19% for San Diego, 26% for San Francisco and 13% for Washington, D.C. (see chart above).

MP: Below (click to enlarge) is an example of the current quotes for the Miami Housing Futures Contracts from the CME, showing November 2007 contracts trading at 251.80 and November 2011 contracts at 187.80, a -25.42% difference. If you expect Miami housing prices to fall by less than (more than) 25.42% between November 2007 and November 2001, you can take a long position (short position) on this contract and make money.