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Those surging home prices - again

2013-05-01T16:01:00.001-04:00

I guess the word "surge" can mean different things to different people. For example, when I referred to the Hudson River surging on the night Sandy hit the NYC metro area, I meant that it actually rose over its banks and swallowed parts of places like Hoboken, Weehawken, Edgewater etc in New Jersey.

I did not mean that the river stayed pretty much flat.

So, when I see CBS news claim Case-Shiller: U.S. home prices surging, I think that Case-Shiller price index is really pointing up — not staying flat.

But, by now, I know better. So, I plotted the trends in both the 20 City Composite Price Index and the Sales Pair Counts to see there really was any upward movement in either actual sales of homes or the prices those homes are fetching.

Here is the chart:

The vertical blue line corresponds to when the Democrats took over both houses of the Congress (January 2007) and the vertical magenta corresponds to the first inauguration of President Obama (January 2009).

The green squiggly line is the 20-City composite price index from S&P's Case-Shiller. I hope it is clear that it has been relatively flat with some downward swings since President Obama took office. I say "I hope" because apparently this is not so clear to a lot of people in the media or even to the people who put together S&P's press releases.

The price index stood at 143.11 in February 2009. Today, its value is 146.57. That means, nominally, prices have increased 2.4% since then. However, cumulative inflation since 2009 is about 9% according to the CPI Inflation Calculator.

That means, in inflation-adjusted terms, today's price index is about 6% lower than it was in February 2013.

That is not a surge. That is the doldrums.

The salmon colored bars represent actual sales activity by month. Clearly, some months are more active (say, August) than others (say, February), but if you can detect an upward trend in sales activity, I have an improbability drive I'd like to sell you.

Is attacking America the same as attacking a specific American?

2013-04-23T16:55:00.001-04:00

Seriously, for example, is there a difference between stealing someone's credit card to charge some stuff and pawn it versus stealing a CIA agent's credentials to access sensitive national security information and passing it along to enemies of the United States?

One is theft. The other is espionage and most likely treason.

When a gang member in Rahm Emmanuel's Chicago shoots some innocent kid, that's murder.

When someone detonates a bomb in the middle of a crowd for the purpose of demoralizing the American public along with killing and hurting a bunch of them, that is terrorism. If the terrorists are following the directions of a foreign power, it is also an act of war. If the terrorist is an American following the directions of a foreign power, it is also very likely treason.

Attacking America is different than just harming a specific American.

Therefore, the perpetrators are not ordinary criminals.

The President's crew is engaged in an effort to conflate this very straightforward observation with military tribunals:

Q Some Senate Republicans — lastly, Jay — are saying that the Boston suspect should be treated like an enemy combatant. Is that something that you guys have looked at or made a determination on?

MR. CARNEY: He will not be treated as an enemy combatant. We will prosecute this terrorist through our civilian system of justice. Under U.S. law, United States citizens cannot be tried in military commissions. And it is important to remember that since 9/11, we have used the federal court system to convict and incarcerate hundreds of terrorists. The effective use of the criminal justice system has resulted in the interrogation, conviction and detention of both U.S. citizens and noncitizens for acts of terrorism committed inside the United States and around the world."

Let's recall why military commissions were established. Following the September 11 attacks, the U.S. was capturing a lot of non-Americans on battlefields, safe houses, traveling between various locations etc. Clearly, at least some of these individuals had potential knowledge of the inner workings of terrorist organizations which might be planning future attacks. Bringing them back to the U.S. might have accorded them rights normally associated with U.S. persons. For example, the detainees might have obtained access to information about how the information leading to their capture had been obtained. They could then pass this information back to their organizations so that whatever sources of information the U.S. had access to could be terminated. After, all the U.S. has a witness protection program for Mafia informants for a reason. Short of establishing U.S. witness protection programs for al-Qaida informants in foreign lands, isolating foreign detainees outside of the U.S. proper was the most expedient solution.

Therefore, the Bush administration moved them to a secure facility in Guantanamo Bay. This arrangement was immediately challenged by various groups, including the current president.

Military commissions were set up to have a formal mechanism whereby a group of outsiders could review if a given detainee should continued to be held at the Guantanamo Bay. They had nothing to do with convicting ordinary criminals. It was about removing enemies from the battlefield and extracting information from them.

The current president thought this was a bad idea, and promised to shut down the Guantanamo Bay facility. Last I checked, it was still open. However, the current president also chose to avoid sending further detainees there. Instead, whenever they identify a high value enemy, he orders drone operators to blow him and a bunch of relatives up from afar. In addition to the humanitarian concerns I have (why kill a bunch of little kids in the tribal areas of Pakistan on purpose?), this has the effect of shutting down any possibility of obtaining information from people who might be planning future attacks on the U.S.

Maybe that's why there was no intelligence about the attack on the Boston Marathon before the attack.

Given that I was wrong, and the Boston attack is associated with al-Qaida, I believe this was not a one-off. I am assuming they have other teams in place in other cities to carry out similar attacks when the time comes. Information is more important than ever. Unfortunately, that is going to be in short supply if the administration continues to treat terrorists serving a foreign power the same as an ordinary American criminal while using sources of information for drone target practice.

In scientific computing, batch processing is king

2013-04-19T06:59:00.002-04:00

Reinhart & Rogoff are out with their response to the critique by Herndon et al. Fine. Whatever.

I have never been a fan of Excel-jockeying. In fact, I do consider any study that depends on manipulating data in an Excel worksheet to be unscientific. Not only does Excel automatically change too many things behind one's back, but using a pointy-clicky interface also means you do not put together, however simple, a script that records the operations you performed on the data to get the result you got, and a log file of the actual output you generated.

Put simply, when it comes to scientific work, batch processing is king. Anything else, I have to take your word for what you did. Or, when it comes to the case of Carmen Reinhart and Kenneth Rogoff, they had to take the word of some R.A. whom they asked to do the Excel-jockeying.

I have mentioned before that I do not consider government budget deficits and debt to be the determinants of economic growth. The argument against big government does not depend on debts and deficits and it may not be possible to make the argument empirically because big government can produce high GDP numbers on paper.

So, in short, I find both the point and counter-point uninteresting and distracting from the main issue. But, something in Reinhart & Rogoff's response attracted my attention:

It is utterly misleading to speak of a 1% growth differential that lasts 10-25 years as small. If a country grows at 1% below trend for 23 years, output will be roughly 25% below trend at the end of the period, with massive cumulative effects.

For example, if the GDP grows at 1% for 25 years, at the end of the period, it will be 28% higher than the starting point. If it grows at 2% for 25 year, it will be 64% higher than the starting point, and if it grows at 3% for 25 years, it will be 109% higher than the starting point, representing more than a doubling.

So, the U.S. seems to have gone from mostly around or above 3% annual growth in real GDP, to about 2% in the recent years.

The reason for that is not current debt. It is the shadow the government sector (Federal, state, local) casts on the rest of the economy which feeds it.

The Rational Reason to Hope the Boston Marathon Bombing is not al-Qaida

2013-04-18T17:21:00.000-04:00

As I mentioned earlier, I do not think it is likely that al-Qaida is behind the Boston Marathon Bombing.

I am a little perturbed, however, someone called David Sirota said:

you should hope the bomber was a white domestic terrorist. Why? Because only in that case will privilege work to prevent the Boston attack from potentially undermining progress on those other issues.

James Taranto, as usual, does an excellent job of handling this nonsense. As a Turkish Muslim immigrant to the United States, who has never been discriminated against based on his national origin and religious beliefs who supports real immigration reform now, I find that argument idiotic beyond belief. It is the kind of statement only a clueless person who lives in his own bubble can come up with.

Still, while we wait for the FBI to tell us about the suspects, I cannot help but hope that the bombing was not the work of al-Qaida.

Because if it were, this was just the beginning. A rehearsal, possibly. Because if it were, we now have to think about independent, isolated cells in other cities. If this is al-Qaida, we're looking at possible a crescendo.

That doesn't mean any other terrorist organization cannot stage subsequent attacks. However, their attacks are unlikely to have the kind of global consequences that would be created by repeated attacks by isolated independent al-Qaida cells in the U.S.

If al-Qaida can create an image that they are basically toying with the American psyche, that will have far-reaching consequences, especially following the impotent responses to the attack on the U.S. Embassy in Cairo and the Consulate in Benghazi.

That is why I hope this is a domestic group rather than the first in a series of attacks organized in the strongholds of Berlin, Paris, Istanbul, Cairo, and the mountains of Afghanistan and tribal areas of Pakistan.

It is a rational hope.

Could the Boston bombings be the work of al-Qaida?

2013-04-16T08:32:00.001-04:00

Our thoughts and prayers are with those affected by the cowardly bombing at the Boston Marathon yesterday and with all victims of terrorism around the world.

Since I first heard about the explosions, I have been wondering if this could have been the work of al-Qaida. In the case of the Oklahoma City bombing, it was obvious that Muslim terrorists were not behind it (despite the chorus of voices who got really excited about that possibility at the time). Simply put, no matter what the real toll in human lives, blowing up some Federal bombing in a city which does not evoke images of America the Satan in the eyes of the bearded cave dwellers is not something on which they would risk their reputations.

Terrorists are driven to destroy what they regard as symbols of power. That is why places like New York City, Washington D.C., Chicago, and Los Angeles are at greater danger from Muslim terrorists than, say, Ithaca, NY is. It doesn't mean those other cities are immune to attacks from individual crazy Muslim terrorists, but they are unlikely to be targets of organized terrorism.

Boston is a very important city in American history, but it does not symbolize much to an average person born in the Middle East. On the other hand, it is not completely off their radar either as one of the planes taken over on 9/11/2001 had originated from Boston's Logan Airport.

In addition, terrorist attacks by Muslim terrorists tend to be followed immediately or pretty soon afterward by bragging and claims of responsibility. The apparent silence following this one is odd. They might be thinking the attack failed to create panic and slaughter on the scale they wanted and therefore not eager to "take credit."

Further, if this were an attack by al-Qaida or similar Muslim terrorist group, I am not sure why the administration would be so quiet about it. I know, they have tried to gloss over some past attacks and attempts, but I still don't see what incentive they would have to be so completely silent on it.

On the other hand, Tax Day, The Boston Tea Party, Patriots' Day evoke powerful imagery for an American.

Therefore, I find it far more likely that the attack would have been carried out by a homegrown individual or group whose focus is what's happening in the U.S. rather than anything associated with al-Qaida.

In fact, I somewhat hope that is the case, for if this was al-Qaida, it signals that they have learned some things I was hoping would have escaped them owing to their obsession with big, dominant symbols of American power.

Did China just tell the U.S. to shut up and behave?

2013-04-08T10:49:00.000-04:00

In addition to surreal stories trumpeting the meteoric rise of the U.S. housing market, the U.S. press seems to be taken by another fiction. I am specifically referring to stories which claim that China is issuing threats to North Korea.

I do not speak Chinese but I was able to locate a story through english.gov.cn:

"As the current situation on the peninsula is complicated, China opposes any action that would undermine peace and stability on the peninsula," Hong said.

It seems, immediately afterwards, the U.S. canceled a missile test:

WASHINGTON (AP) -- Amid mounting tensions with North Korea, the Pentagon has delayed an intercontinental ballistic missile test that had been planned for next week at Vandenberg Air Force Base in California, a senior defense official told The Associated Press on Saturday.

It makes no sense to act like a chicken when people are playing chicken with you. It gives them a sense that they can get away with worse and worse. We saw examples of this early on during the conflict in Bosnia where Bill Clinton, NATO, the U.N., and the Europeans issued threat after impotent threat against the Serbs, and then got out of the way of every massacre. Eventually, Bill Clinton decided to intervene in Kosovo, but by that time the Serbs knew his words carried no weight, so the Bill Clinton ended up ordering of wholesale bombardment of the Serbian population, killing pregnant women and little children from the air and the bombing of the Chinese embassy in Belgrade.

Had the Clinton administration not clearly broadcast the message that the U.S. will chicken out when the going gets tough, had the U.S. intervened strongly and decisively during the Siege of Sarajevo, instead engaging in pinprick attacks against Serbian forces, their word would have been taken much more seriously.

Immediately following Operation Enduring Freedom and Operation Iraqi Freedom, every little despot knew that the U.S. administration meant what they said. The Iranians came clean with their nuclear program, and Gaddafi renounced [Libya's] possession of weapons of mass destruction, decommissioning its chemical and nuclear weapons programs.

Since then, there has been a concerted effort by the Democrats and their allies in the media to undermine U.S. credibility in the world. The President has not been shy about stating his belief that the U.S. should cut and run out of conflict zones without obtaining decisive victories. U.S. forces have been in Europe since the end of the Second World War, making sure the Nazis could not stage a comeback and standing against the expansion of the Soviet Union. What then justifies conceding the entire Middle East to the Russians and their friends in Iran and Syria?

Contrary to the stories being pushed by the friends of the administration, North Korea is not an isolated country:

Out of these webs of proliferation activities, it is the Iran-North Korea connection that has been emerging as the most virulent, immediate threat. As business partners, they are a particularly neat fit. Iran, with its visions of empire, has oil money. Cash-hungry North Korea has nuclear technology, an outlaw willingness to conduct tests, and long experience in wielding its nuclear ventures to extort concessions from the U.S. and its allies. Both countries are adept at spinning webs of front companies to dodge sanctions. Both are enriching uranium. The stage is set for North Korea, having shopped ever more sophisticated missiles to Iran, to perfect and deliver the warheads to go with them.

Notice how, following the statement from China that China opposes any action that would undermine peace and stability on the peninsula,, the U.S. responded by canceling a missile test, while the North Koreans took steps to end cooperation with South Korea.

It certainly looks like the Chinese just told the U.S. to behave.

Is there any news on the unemployment front?

2013-04-05T12:10:00.000-04:00

It's been interesting watching some of the reactions to the latest unemployment claims report:

In the week ending March 30, the advance figure for seasonally adjusted initial claims was 385,000, an increase of 28,000 from the previous week's unrevised figure of 357,000.

and the March employment situation report

Nonfarm payroll employment edged up in March (+88,000), and the unemployment rate was little changed at 7.6 percent …

The civilian labor force declined by 496,000 over the month, and the labor force participation rate decreased by 0.2 percentage point to 63.3 percent.

You get the picture.

We had a ride for the last few months of 2012 owing to Third World election economics, amplified by QE3, and so there were a few spikes in "good" directions at various opportune times, but the U.S. economy is in the doldrums. There is boom in stock market indices because there is a lot of free money floating around —I find it cute that the Obama administration keeps helping the really rich get richer— but everything else, with the exception of natural gas, has been flat.

In the coming months, expect more flat. Just plain flat. You'll know everything that matters is flat because every minute change from a previous low will be trumpeted as a sign that things are getting better. But key indicators will remain flat.

Take a look at the household survey data: In March 2012, 141.4 million people were employed. In March 2013, that number was 142.7 million. That's about 1.3 million more people employed in a year. But, over the same period, the civilian noninstitutional population grew by 2.4 million. As a result, employment to population ratio was 58.3% in March 2012, and it is 58.2% today.

In March 2007, a couple of months after Democrats took control of Congress, employment was at 145.3 million and civilian noninstitutional population was at 231 million, giving an employment to population ratio of 62.9%.

Yes, in absolute numbers the fact that 2.6 million fewer people are employed today than right after Democrats took office may not look like a huge deal. But that four percentage point difference in employment to population ratio represents 9.8 million people.

9.8 million.

I thought Mr. President's stimulus was supposed to prevent this.

The Case-Shiller Fiction Faction

2013-03-26T11:11:00.001-04:00

The January 2013 numbers for S&P's Case-Shiller index are out. A quick scan of Google News headlines reveals many trumpeting the "biggest increase" etc since some arbitrary date, e.g. Home Prices in 20 U.S. Cities Climb by Most Since June 2006. I pondered the question of whether the U.S. housing market can be rejuvenated by trying to generate self-fulfilling expectations.

Here is a line chart of the seasonally adjusted 10- and 20- city composites:

Clearly, the index is basically flat, with minor fluctuations based, since the first bottom in May 2009. After that, the index touched similar seasonally adjusted values in May 2010. That is, the celebration in the media is actually about going back to May 2010 prices!

Also, note that in January 2012 both the seasonally adjusted and not seasonally adjusted series were near or at their all time minimums since the Democrats took over Congress (January 2007).

Now, I do expect a bit of a boost to U.S. housing markets given that the E.U. seems intent on destroying the European banking system:

The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

The question then is, are there enough Russian mobsters, Arab sheiks, and European politicians to create another housing bubble in the U.S.?

Oh, sorry, I forgot, money is free!

Investing in Turkey: Risks & Rewards

2013-03-22T13:02:00.001-04:00

DISCLAIMER: I am not an investment professional or adviser. The following describes my thoughts and observations on the country specific risks and rewards in relation to long term investments in Turkey and is not intended to offer any investment advice. If you are considering putting your money into an investment in Turkey, or anywhere else for that matter, consult with professionals.

I recently attended a seminar on The Incentive Program of Turkey. The Department of State also offers some notes on the investment climate in Turkey.

Rewards to investing in production in Turkey

First, take a look at the map below (courtesy of the CIA World Factbook) to put Turkey's geographical location in context. The city of Istanbul joins the continents of Asia and Europe. To repeat the old cliche, Turkey forms a bridge between the East and the West.

Just looking at the list of destinations served by Turkish Airlines gives one a good idea of the markets one can reach from Turkey. Not only is Turkey well connected with Europe, but locating there brings major population centers in Asia and Africa within reach.

In some cases, being in such easy reach of such countries means one doesn't even have to officially export to those countries. The ease of travel brings with it the so-called "suitcase trade" which began in earnest in the late 80s and early 90s when citizens of former Iron Curtain countries started traveling to trade stuff in open bazaars in Istanbul. For example, a former Soviet officer might have brought Soviet army coats and bought leather goods and other items not commonly found in those countries to take back and sell.

Today, a similar potential exists for countries in North Africa and the Middle East where there is immense potential for economic growth and very little domestic industry to satisfy new consumer demands. In addition, goods produced in Turkey, a predominantly Muslim country, might be more attractive to populations of Muslim countries, even if they bear a non-Turkish brand.

This is not to say the Turkish domestic market by itself is not attractive. On the contrary, the stable currency and rapid economic growth experienced over the past decade in addition to the much younger population composition than in Europe means increasing demand for consumer goods. Even with the oppressive sales taxes, Turks spend a lot of money on everything from clothing to electronics to cars.

Turkey has invested a lot in infrastructure over the past decade. Areas that used to be served by low quality two lane country roads now have separated highways connecting them with larger commerce centers. There is vast untapped potential in historically poorer sections of the country, especially in the east and southeastern regions. Established centers of commerce such as Istanbul, Izmir, Antalya and the capital Ankara, are teeming large groups of ambitious young professionals who frequent shiny new shopping centers with a lot of disposable income: According to the World Bank, Gross National Income (PPP, current international $) almost doubled from about $8,700 in 2003 to $16,940 in 2011.

So, locating production in Turkey can bring a firm closer to a young population living in a growing economy with good infrastructure and highly educated workforce as well as proximity to other large markets such as rich Gulf countries, Russia and former Soviet Republics, Europe and North and even Central Africa. In most cases, compared to those countries, Turkey offers a more predictable legal environment, easier access to financial markets, and more open trade.

Risks to investing in Turkey

All of the points above and even more were well outlined in the presentation of the official from the Ministry of the Economy of Turkey during the seminar.

What was not highlighted were the risks that are mostly out of the control of the Government of Turkey. Chief among those is the region where Turkey is located. If you look at the map again, all the wonderful potential represented by the countries within easy reach of Turkey comes with real and present risks. North and Central Africa are unstable. Iran is collaborating with North Korea in its nuclear program and threatening to wipe out Israel. Rich Arab countries face dangers of domestic instability due to Iran's meddling. Syria is in active civil war right across the border from Turkey. In Northern Iraq, the Kurds are at odds by the Central Iraqi government which is now basically a client of Iran. The Turkic former Soviet Republics, such as Azerbaijan, Turkmenistan, Kazakhstan etc are run by authoritarian governments where rules are arbitrary, and unrest is not uncommon including the long lasting conflict between Azerbaijan and Armenia.

Many, if not all, of these hot and lukewarm conflicts present a danger of spilling over into Turkey. Along the Southern border, there are already more than 100,000 registered Syrian refugees living in camps or rented private accommodations. Given the porous border, with a local population well versed in smuggling stuff in either direction, there is no accounting for how many others have crossed into Turkey. Back in January, there were a number of stories of Syrians crossing into Turkey, renting vehicles in Mediterranean tourist towns, and taking them back into Syria to use as improvised fighting vehicles. Most of these refugees are not allowed to work, and as the civil war shows no signs of abating, their situation can be a source of conflict.

In addition, while recent developments in the process of bringing peace to the region, Turkey's southeastern and eastern provinces, along the borders with Syria, Iraq, and Iran, face the danger of unrest due to clashes between Government forces and armed Kurdish guerrillas. In most Southeastern towns, the PKK can basically order shop-owners to shut-down at a moment's notice. While the security situation has improved by orders of magnitude since the 90s, the threat of interruption of commerce or sabotage is still present.

Over the past few years, Iran has made threatening noises regarding missile defense systems placed on Turkish soil. And, while economic activity between Turkey and Russia has been expanding over the past few years, Russians have also made noise about such systems. On top of that, the Russian government supports the Assad regime in Syria, while the Turkish government actively works against it. Turkey has some control over Russia's access to the Mediterranean. The crisis in Cyprus has opened a way for Russia to establish a serious presence in the Mediterranean. Given the Montreux Convention rules Turkey may have to sit back and watch while the Russians firm up their presence in the Eastern Mediterranean, in a safer location than Syria, which may enable them to project their influence in North Africa with greater ease.

Domestically, the only political opponents of the current government favor more government control over markets and less open trade. From afar, it seems to me that the only alternatives presented to the current policies involve going back to the mindset of a state planing organization, tighter price and wage controls, greater income redistribution. To be frank, I am not a fan of the current government's policies either, but that is because I believe the only way to create growth and wealth in the long run is for the government to stick with ensuring security, order, and a well functioning court system through which private parties can enforce contracts. In recent years, the Turkish government has extended more and longer tentacles into many private areas, chief among them real estate, where the government comes in and builds large residential complexes that compete directly with existing real estate. When one looks at Turkish newspapers, not a day goes by without a new regulatory regime is announced in many areas of economic activity. Consumption taxes are high. A gallon of regular unleaded gasoline costs almost $10 at current exchange rates. A brand name 40" TV which you can buy for about $600 in the U.S. costs about $900 in Turkey. Cell phone bills are almost doubled over the plan cost due to taxes. So, while the Turkish economy has become much more open and much more dynamic than any time in its history, the government is by no means small. Plus, efforts to integrate with the European Union mean regulations regularly flowing from Brussels to Ankara.

Incentive Programs

The incentive programs that were the topic of the seminar I attended are targeted toward firms that are interested in establishing physical production facilities in Turkey. They have a distinct import substitution feel to them in that firms that would like to produce in Turkey goods that are already imported by Turks are given certain preferences. This seems to be motivated by a desire to close Turkey's trade deficit.

Personally, I have never warmed up to the idea of import substitution. Once a government fulfills its basic duties of providing security and law and order, people can make longer term production, consumption, saving, and investment plans. Obsessing about whether specific goods are produced at a specific location leads to a misallocation of resources. I stand by this point of view whether it involves rescuing GM or giving special incentives to firms to, say, make their TV sets in Turkey. But, that is neither here nor there, so let's move on.

The incentive programs vary by region and industry. The region that is given the highest preference, Region 6, includes the provinces Ağrı, Ardahan, Batman, Bingöl, Bitlis, Diyarbakır, Hakkari, Iğdır, Kars, Mardin, Muş, Siirt, Şanlıurfa, Şırnak and Van, all of which are historically poorer regions of Turkey, closer to conflict zones.

This historically neglected status also presents opportunities for finding a cheaper labor force that is willing to work hard and a firm producing goods that are likely to be demanded by the local populace can benefit from the high potential growth rates that generally come from starting with a lower base as well as taking advantage of cross-border trading opportunities.

It is hard to tell the actual effect of the incentives on a given firm's bottom line, as they are listed as offsets from the status quo and one needs to be intimately familiar with the existing structure to be able evaluate each incentive in each region. That is, it is one thing to say program X in region Y will lower labor costs by Z%. It is a whole different ball game figuring out what they would be without the incentives and then comparing those costs with potential profits, taking into account the availability of other alternatives for the specific production activity.

That requires getting in touch with people who at least have a firm grasp of the laws and regulations in Turkey. The Ministry of the Economy has a an office to provide details. In addition, in the U.S., the office of the commercial attache at the New York Consulate or the office of the commercial counselor at the Turkish Embassy in Washington D.C. can provide assistance.

Conclusion

As I said at the outset, I am not qualified to offer investment advice. I have no clue if it would be a good idea for a specific business to invest in Turkey. I have tried to outline my perspectives on the risks and rewards associated with investing in production facilities in Turkey. I believe there are huge untapped opportunities both in Turkey and the region. But, then, they only represent a potential and they are subject to risks one does not often face when building production facilities in places like the U.S. However, now that EU has established that it has no qualms about confiscating bank accounts to rescue troubled banks —and I really would never have thought 10 years ago that I would say such a thing— Turkey, which weathered the international financial crisis rather well, might represent a better location to reach European markets than any country in the EU.

I tried to outline some factors that are hard to control for and that must be taken into account by anyone contemplating a project that may pay off in five or maybe 10 years. I do have a soft spot in my heart for the country of my birth, but I did try to give as unbiased a perspective as I could.

Should minimum wages keep up with average labor productivity?

2013-03-20T19:17:00.000-04:00

Thanks to Elizabeth Warren, we have now an amazing view of economic stupidity displayed in Senate hearings on the minimum wage. Her staff posted her questions to a Dr. Dube (warning: his profile photo is 4.8 Mb) on YouTube.

Senator Warren asks, if we started in 1960, and we said that as productivity goes up, as workers are producing more, then the minimum wage is going to go up the same. And, if that were the case, the minimum wage would be about $22/hour. So, my question today, with minimum wage about $7.25/hr, is what happened to the other $14.75? It sure didn't go to the worker.

This type of question is raised rather often. It assumes that if one widget was being produced using one hour of labor ten years ago, and, now, one hour of today's labor produces two widgets, then the worker should be paid twice yesterday's wage.

First, here is how the Bureau of Labor Statistics explains how productivity is measured:

Productivity: These productivity measures describe the relationship between real output and the labor time involved in its production. They show the changes from period to period in the amount of goods and services produced per hour. Although these measures relate output to hours at work of all persons engaged in a sector, they do not measure the specific contribution of labor, capital, or any other factor of production. Rather, they reflect the joint effects of many influences, including changes in technology; capital investment; level of output; utilization of capacity, energy, and materials; the organization of production; managerial skill; and the characteristics and effort of the work force.

Here is a simple example to explain what that means. Suppose Liz earns a living shoveling snow from driveways. On her own, armed with just a shovel, say, she can clear two maybe three long driveways in a morning. Now, Bobby comes along and hires her to work in his snow removal business. Part of the business' capital includes a powerful truck equipped for plowing snow. Also, the business has invested in software that optimizes Liz's route so to minimize time traveling between various locations where her services are needed. Liz's productivity soars by orders of magnitude.

Should Liz's hourly rate go up proportionately?

Later on in the video, Senator Warren asks another question that reveals her ignorance of how competitive markets work. She asks a restaurant owner why he can't raise the prices of his menu items to cover a higher minimum wage.

A competitive market is characterized by price-taking behavior. That is, no individual producer can raise the price she charges unilaterally because close substitutes exist. Of course, a higher minimum wage, keeping everything else constant, would shift the cost curves of all individual firms in that market, which would reduce supply. That is, at each and every price level, fewer restaurant meals would be provided. That would lead to a higher price and lower output in the restaurant sector. The whole sector would shrink.

The senate committee also called a few restaurant owners who were not well equipped to overcome Senator Warren's demagoguery regarding just a 4 cent increase, just en 8 cent increase, etc. When the cost of producing something increases for all producers, keeping everything else constant, the market output for that thing shrinks. In terms of the composition of employment, such a change would lead to some employees previously hired at the minimum wage being let go, in favor of higher wage individuals. That is, a higher minimum wage would hurt precisely those workers who are marginally employable. In addition, it would hurt restaurants that offer lower cost alternatives more than it would higher end restaurants, the kind Washington politicians like to enjoy.

Dr. Dube and others in the economic profession have made good careers writing about how minimum wage increase do not have a huge negative effect on employment or hours worked etc. And, he dutifully mentions those points during this hearing. Of course, the ranges of minimum wage changes they have been able to look at have been restricted to what happened in the past. The changes they can look at are in a rather narrow band.

This is important because of the Senator's opening line: There are some, in positions of power, who really do believe that one could raise the minimum wage to $22/hr with no real negative effects. In urban areas, places like car washes, diners, small construction contractors, and various other producers have shifted, where they can, to using illegal aliens in preference for poor minority workers. This is plainly visible if one is not afraid to look.

Clearly, a minimum wage of $22/hr would induce many more to work in the shadow economy, off the books.

Proxies in Marcott et al. 2013

2013-03-19T21:25:00.003-04:00

A recent paper by Marcott et al. has generated some attention. For example, New York Times wrote Global Temperatures Highest in 4,000 Years:

Global temperatures are warmer than at any time in at least 4,000 years, scientists reported Thursday, and over the coming decades are likely to surpass levels not seen on the planet since before the last ice age.

Of course, given that humans have measured and recorded temperatures only recently and only where they lived or traveled for most of that time, a natural question arises: "How do they know that?"

Basically, to look at temperatures before the 20th century, one uses proxies. These are measurements, whether they are tree rings or ocean sediments, which researchers think are correlated with prevailing temperatures at past times. Of course, while it is possible today to have databases that record hourly temperatures at various locations, the resolution of such proxies tends to be lower. Sometimes, when both proxy and real temperature series exist for a location, the proxies may not correlate well with observed temperatures etc. Even if modern day correlations are good, given the lack of variation in some proxies over decades or some times centuries, it is hard to compare today's temperatures, which wiggle a lot more, with data points from the past.

Marcott et al. (2013) helpfully provide an archive of the proxies they used. Steve McIntyre has already exposed some problematic issues with their method.

I just wanted to look at the prevalence of recent proxy data points. To that end, I wrote a Perl script to process the spreadsheet the authors provide. There are a few gotchas, but the main problem with automated processing of that file is that some of the sheets contain what seem to be stray or unused entries far below the actual data tables. I hope I caught all the problems, but, I did not compare every output line with the relevant location in the spreadsheet, so, if there are any errors, they are all mine.

Most of the time, these proxies are plotted with connecting lines between data points. With this many series and data points, that makes it really hard to see the how much actual data there is and how much of the space is taken by connecting lines. So, I extracted two columns for each proxy used: "Published Age" and "Published Temperature" and plotted all points in a scatter plot. The horizontal axis is published age (years before present) in log scale and the vertical axis is the published temperature. "Years before present" means the closer a point is to the vertical axis, the more recent it is. Using log scale for age makes it easier to distinguish data points closer to the present.

I can't draw any conclusions from this plot, other than to note the relative paucity of proxy values for recent times.

If you want to look at individual series in context, you might want to try the excellent viewer Nick Stokes put together.

Destroying Europe's banking system in the name of bailing out Cyprus

2013-03-18T17:16:00.001-04:00

I had really not been paying any attention to the the bailout game in Europe until I heard about the news of the Cypriot government's intention to confiscate deposits.

At this point, all the prevarication regarding the distinction between small accounts versus large ones does not matter. The banking business is one that is built on trust. Trust that when someone puts some money in a bank, that money is safe. That is money already earned, already taxed.

When authorities even contemplate out loud the possibility of confiscating some part of individuals' accounts, that trust evaporates. If people can get their money out, they will. If they can't, there won't be any reason to put new money into a bank account.

What puzzles me is the all the effort to bail out a small country's banking sector, only to completely undermine it. It would have been far more preferable to let whatever was going to crash and burn go ahead and crash and burn.

Eurogroup's statement on March 16th is not comforting:

Against this background, the Eurogroup considers that – in principle - financial assistance to Cyprus is warranted to safeguard financial stability in Cyprus and the euro area as a whole by providing a financial envelope which has been reduced to up to EUR 10bn. The Eurogroup would welcome a contribution by the IMF to the financing of the programme.

Checking IMF's web site yields an equally cryptic statement:

I (Christine Lagarde) welcome the agreement reached today to address Cyprus' economic challenges. The IMF has always said that we would support a solution that is sustainable, that is fully financed, and that appropriately allocates the burden sharing. I believe that the agreed package meets these three objectives. On this basis, I intend to make a recommendation to our Executive Board for the IMF to contribute to the financing of the package.

A contemporaneous report by the BBC states:

People with less than 100,000 euros in Cypriot bank accounts will have to pay a one-time tax of 6.75%, while those with more will have to pay 9.9%. It is expected to raise 5.8bn euros in additional revenue

EUBusiness provides some more backgorund:

The debt rescue package, which was agreed after some 10 hours of talks in Brussels, is significantly less than the 17 billion euros Nicosia had initially requested.

So, basically, the EU could not put together 17 billion Euros together to save a tiny island nation from supposed financial calamity. This is similar to throwing a cement block, instead of a life-preserver, at someone who's gone overboard while a boat is still anchored at the pier. Chances are, the person will get wet, her clothes will be ruined, but she'll be able to swim to safety—except, she gets hit by the cement block you so helpfully tossed her way!

There are two problems with the plan: First, it signals that the Eurozone or whatever they are calling themselves today, cannot put together measly sums. Second, it signals to everyone throughout Europe, that money they have already earned, and been taxed on, is not safe in banks because at any time, someone in Brussels can decide they should pay their "fair share" to save bankers, financiers, and politicians.

The plan has no redeeming qualities. If other European governments do not want their taxpayers' money to be used to save irresponsible entities, they should just not engage in bailouts and rescues, instead of causing bank runs while at the same time signaling to the rest of the world that no one's property is safe throughout Europe.

PS: Please let me know if you can find the actual text of the agreement between Cyprus, the Eurogroup, and the IMF. The Web Portal of the Government of Cyprus is silent on this.

PPS: The Wall Street Journal explains how Cypriots' deposits are going to be used to rescue Russian interests: Nicosia presumably wished to minimize the burden on large depositors, many of them Russian, so as not to derail progress on renegotiating a €2.5 billion loan from Moscow.

Federal Government versus Private Sector Employment

2013-03-08T20:11:00.001-05:00

The Employment Situation press release for February 2013 is out. It is useful to put some numbers in slightly longer term perspective than these month-to-month reports.

First, note that private sector payroll employment in February stood at 111.4 million compared to 113.7 million in February 2008. Still, the trajectory is up which is better than down. On the other hand, it is disappointing to note that, at a seasonally adjusted 135.1 million, total payroll employment is still short of the 137.6 million promised in the Stimulus.

Following the report, I heard various commentators on various radio and TV shows bring up rising private sector employment and declining government employment. I feel some perspective is sorely needed in this area. So, let's break down employment levels by sectors provided by the BLS, and look at February employment levels by sector since 2007 (some of you will remember that as the year Democrats took control of Congress.

In February 2010, private employment stood at 7.2% lower than it had been in 2007. In strong contrast, federal government employment had swelled by 5.1% compared to 2007. Later that year, aided by the vibrant Tea Party movement, the Republicans won a majority in the House and made important gains in the Senate.

Since then, federal government employment has come down from those heights, but it is still 2.3% higher than 2007 levels. Yes, private employment has increased, but it is still 1.6% below the 2007 level. In fact, federal government employment except the U.S. postal service is up 11.2% since 2007.

What will be the function of those extra federal employees other than to micro-manage the private sector even more intensely?

Wunderbar: Real per capita US GDP was $7 higher than we had thought!

2013-02-28T11:21:00.000-05:00

Using the same data sources I listed in U.S. real GDP per capita is almost back to 2006 levels and the updated 2012 real GDP figure available from the BEA, we find that real per capita GDP in the U.S. in 2012 was $13.6 trillion 2005 dollars divided by 315.1 million resident population.

Rounding up, that comes to about $43,134 2005 dollars.

That is almost seven dollars higher then we had previously thought before the second revision to the 2012 fourth quarter GDP estimate.

Still, even with this change, 2012 real per capita US GDP falls short of the 2006 level by a whopping $36.

Can self-fulfilling prophecies lift up the U.S. housing market?

2013-02-28T08:00:00.000-05:00

One of the privileges of doing my Ph.D. at Cornell was the opportunity to share a beer or two with influential economists such as Karl Shell. His work influenced many areas of economics. He and David Cass introduced the concept of a sunspot equilibrium in the economy.

My understanding of the failings of a statist economy is mainly motivated by personal experience growing up in a stagnant economy in permanent crisis mode. However, the occasional conversation with Karl, preceded and followed by a lot of reading, helped me understand mechanisms behind certain types of sudden crises.

For example, I believe the initial crisis in the U.S. was so deep not just because of the so-called fundamentals. The best way to explain this is to point out the difference between Sully and the crew who was "managing" the economy at the onset of the crisis.

There is no way around it: The situation on board Flight 1549 was bad. Success was not guaranteed. Those are givens. However, in a world hundreds of people can die trampling each other just trying to run out of a night club, following a great belly landing on a river, the passengers on board evacuated in an orderly fashion.

Would the same have happened if Sully had come on the intercom and screamed: "We are going down!!! We have no engines, and the plane is going down!!! I am going to try to land you in the middle of a half frozen river and then the plane will sink!!! Run for the exits!!!"

My guess is, he could have put that aircraft down just as skillfully, and still everyone would have died because they would have done no better than partiers at a night club if they had been whipped into a panicked frenzy.

Well, early in 2008, that's exactly what Poulson & Bernanke, Co. did. Aided by those who thought they would benefit from such a crisis during the 2008 election, they created panic. It wasn't that there was no crisis. Far from it. However, for whatever reason, they amplified the crisis by not being able to keep their heads screwed on straight. Pouring free cash into the financial system, causing uncertainty etc.

Subjectively, I believe they did this because it felt good: They were the people everyone looked to for solutions. They were going to fix everything. However, this is where the difference between their and Sully's positions becomes important: In contrast to Sully, their success in surviving the crisis and thriving afterwards was literally not vital to them. In fact, the worse the crisis experienced by others, the more important people like Bernanke would become.

Self-fulfilling expectations

The idea behind self-fulfilling expectations is simple: If everyone believes gas prices will rise tomorrow, they all try to buy it while it's cheap, driving the price up. Or, if everyone believes houses will be cheaper tomorrow, everyone postpones their purchases, and house prices fall.

Now, lately, there has been a lot of talk, pointing to recent upticks in the U.S. housing market as signs of recovery. "Everything is up compared to a year ago. OMG! Recovery!"

Well, if you actually look at, say, Case-Shiller, you'll notice that January 2012 was actually a low-point since the beginning of the crisis. In fact, it was a lower low than the low we experienced in the immediate aftermath of the crisis.

This leads me to ask if the powers that be are trying to orchestrate a recovery in beliefs. You know, I am speculating perhaps that they are reasoning along the lines of "if everyone believes there is a recovery in the housing market, the housing market will recover. The resulting wealth effect from rising home values will stimulate the economy etc etc."

Sounds reasonable, right?

After all, if people's beliefs got us in a hole, can they not also get us out?

Not so fast.

So jumped in a hole because you believed there was a crazy saber-toothed monster chasing you, and, now that you've had time to think, you realize that there was no crazy saber-toothed monster. The belief that caused you to jump in the hole is gone.

But you are still in a 10-foot deep hole with straight up walls, you know, the kind you saw in Silence of the Lambs.

While it took no effort to jump down the hole, it is going to take a lot to climb out of it.

It doesn't take much for people to go to a bank and ask to withdraw their money. It doesn't impose too much of an additional burden to postpone the purchase of a home.

But, to actually pay the fix cost of entering a mortgage contract, to furnish the home, to keep it up … those take real resources. In a stagnant economy with per capita real GDP is around 2006 levels, with a job market in the doldrums, with significant uncertainty looming in the horizon, believing that the crisis has passed will not be enough by itself to lead to recovery.

That's my explanation for why everyone associated with this administration wants the free cash to banks and financial institutions to continue flowing. In its simplest form, it seems to be an attitude of "fake it till you make it".

Can it succeed? Can the powers that be convince enough people to believe that the housing market is on the rise, therefore, they should jump in while the prices are low?

The fact is, the general level of consumer prices has risen 14% since 2006. So, if a piece of property that was $200,000 in 2006 would now have to go for $228,452 to make up just for the inflation during the interim period. I showed yesterday that there are precious few metropolitan areas and states where prices have caught up with their 2006 levels.

Can we get out of the hole just by believing that it is time to get out of it? If we could, why didn't we do it before?

Housing market recovery by state

2013-02-27T12:24:00.000-05:00

Once again, looking at data provided by the Federal Housing Finance Authority, this time looking at changes in housing prices by state.

State	Change between 2006Q4 and 2012Q4
ND	up 29.6%
DC	up 13.1%
TX	up 10.1%
SD	up 7.1%
OK	up 6.6%
WV	up 6.0%
AK	up 3.6%
WY	up 3.3%
CO	up 2.6%
NE	up 2.2%
LA	up 1.9%
IA	up 1.8%
MT	up 1.2%
KY	down 0.2%
KS	down 1.2%
IN	down 3.9%
VT	down 4.7%
AR	down 4.9%
TN	down 5.4%
PA	down 5.6%
NY	down 6.5%
AL	down 7.6%
ME	down 7.9%
MS	down 7.9%
MO	down 8.6%
NC	down 9.5%
HI	down 9.9%
MA	down 10.5%
SC	down 10.8%
OH	down 11.4%
UT	down 11.9%
WI	down 12.2%
VA	down 12.9%
NM	down 14.6%
CT	down 15.8%
MN	down 16.7%
WA	down 17.2%
NH	down 17.7%
ID	down 19.3%
OR	down 19.5%
NJ	down 19.6%
GA	down 19.7%
DE	down 19.8%
IL	down 19.9%
MI	down 20.6%
MD	down 21.0%
RI	down 24.2%
AZ	down 37.0%
CA	down 37.6%
FL	down 39.6%
NV	down 51.1%

Housing prices are up in 13 states compared to the last quarter before the Democrats took control of the Congress.

Highest increases are in North Dakota (29.6%), Washington, D.C. (13.1%) and Texas (10.1%).

Largest drops are in Nevada (51.1%), Florida (39.6%), California (37.6%), and Arizona (37.0%).

Prices in New York State are down 6.5%, Connecticut down 15.8%, and New Jersey down 19.6%, since the Democrats took control.

Where have housing markets recovered?

2013-02-27T11:53:00.000-05:00

Let's look at data provided by the Federal Housing Finance Authority, specifically, data for the 25 Largest Metropolitan Statistical Areas through 2012Q4.

To compare today to the last quarter before the Democrats took control of the Congress, I'll rebase all series so that the seasonally adjusted value for the fourth quarter of 2006 is 100. Therefore, the difference between the fourth quarter value for 2012 and that for 2006 will give me the change in prices in percentage points.

Metropolitan Statistical Area	Change between 2006Q4 and 2012Q4
Houston-Sugar Land-Baytown, TX	up 21.3%
Pittsburgh, PA	up 11.0%
Denver-Aurora-Broomfield, CO	up 8.2%
Dallas-Plano-Irving, TX (MSAD)	up 7.7%
Philadelphia, PA (MSAD)	down 9.6%
Washington-Arlington-Alexandria, DC-VA-MD-WV (MSAD)	down 11.6%
St. Louis, MO-IL	down 12.0%
New York-White Plains-Wayne, NY-NJ (MSAD)	down 13.7%
Cleveland-Elyria-Mentor, OH	down 15.2%
Nassau-Suffolk, NY (MSAD)	down 15.2%
Seattle-Bellevue-Everett, WA (MSAD)	down 16.9%
Baltimore-Towson, MD	down 18.9%
Minneapolis-St. Paul-Bloomington, MN-WI	down 19.6%
Atlanta-Sandy Springs-Marietta, GA	down 19.9%
Edison-New Brunswick, NJ (MSAD)	down 20.9%
Warren-Troy-Farmington Hills, MI (MSAD)	down 23.7%
Santa Ana-Anaheim-Irvine, CA (MSAD)	down 24.5%
San Diego-Carlsbad-San Marcos, CA	down 24.6%
Chicago-Joliet-Naperville, IL (MSAD)	down 29.8%
Los Angeles-Long Beach-Glendale, CA (MSAD)	down 31.9%
Oakland-Fremont-Hayward, CA (MSAD)	down 34.7%
Miami-Miami Beach-Kendall, FL (MSAD)	down 37.4%
Tampa-St. Petersburg-Clearwater, FL	down 37.5%
Phoenix-Mesa-Glendale, AZ	down 37.5%
Riverside-San Bernardino-Ontario, CA	down 46.9%

Home prices are down in fully 21 out of the 25 largest metropolitan statistical areas since the Democrats took control of Congress.

Haven't you heard?! Case-Shiller is headed for the heavens!

2013-02-26T11:30:00.000-05:00

Thus reads the most recent press release from S&P:

all three headline composites ended the year with strong gains

Then, you have:

"Home prices ended 2012 with solid gains," says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. "Housing and residential construction led the economy in the 2012 fourth quarter. In December's report all three headline composites and 19 of the 20 cities gained over their levels of a year ago. Month-over-month, 9 cities and both Composites posted positive monthly gains. Seasonally adjusted, there were no monthly declines across all 20 cities.

Yes, Mr. Chairman, you can be the Captain of the Cheerleading Squad!

In other news, The Government's S&P Lawsuit Could Sink McGraw-Hill:

By seeking $5 billion in penalties from Standard & Poor's as punishment for inflating credit ratings, the Obama administration turned its fraud suit into a potential corporate death penalty case.

Rest assured, I am not accusing the S&P of cooking the books. I am, however, accusing both the S&P and their cheerleading counterparts in the subservient press of trying to cast every single bit of news in the framework of the anemic recovery fairy tale.

For some perspective, here are some charts, showing both the not seasonally adjusted and seasonally adjusted versions of the Case-Shiller home price index since January 2007 (when the Democrats took control of Congress):

Is there anyone among you who is willing to say anything other than "home prices have fluctuated a little but remained flat since bottoming out in April 2009"?

We have been here before … The seasonally adjusted value of the 20 city index was 148.49 in August 2010 compared to 145.95 in December 2012.

That is, with all the banana republic style election economics, with QE3 pumping free money into the pockets of a bunch of bankers and financiers, home prices are still down 1.7% from their previous free money high during the Obama administration.

Now, let's look at how much activity has been going on in the housing market. One measure of that is Case-Shiller's "pair counts". Essentially, it measures how many units are changing hands. There is no seasonal adjustment for this index, so you have to compare each month to the same month the year before: Month-to-month comparisons are not meaningful.

So, I looked at all December data since 2006, just before the Democrats took control of the Congress:

Home sales activity in December 2012 was down 33% from December 2006 according to the 20 City Composite. In addition, it is down 13% from its previous high during the Obama administrations first free money pumping campaign.

Looking at the 10 City Composite, things look even more drastic. Activity is down 38% compared to December 2006, and down 18% compared to December 2009.

Or, if you really want to scare yourself, look at the NYC area: Sales activity is down 62% since December 2006, and down 36% compared to its high in December 2009 during the Obama administration. Prices are down 24% since December 2006 and down 6% since December 2009.

Right, not much movement at all.

Federal Government Payroll, 1997 - 2011

2013-02-22T13:31:00.001-05:00

After looking at the Federal Government's payroll in yesterday's notes on employment and unemployment, I decided to look at how the payroll has changed over the years.

That meant heading over to the Census Bureau's Government Employment & Payroll site and downloading a bunch of text and Excel files. I decided not to go farther back that 1997 because there is no payroll information for 1996 although there is some information for prior years. I also decided to ignore the Department of Homeland Security for now, not because it doesn't matter, but because I'd like to look at it later.

The next task was to combine the information for various by government function (for details on survey methodology, see the Reference Documents section for each year — I am taking these numbers as given). Note that there are also naming inconsistencies across years, so I decided to write a Perl script to handle all of the data-munging:

The script adjusts the dollar amounts using the Consumer Price Index to 2011 dollars to make amounts comparable.

Overall, total Federal Government Payroll, excluding the Department of Homeland Security, grew from about $14 billion/month in March 1997 to about $16.1 billion/month in March 2011, representing an average annual growth rate of about 1%. In 2000 and 2010, there are spikes (presumably) corresponding to hiring of additional workers for the Census, but since the source tables only give a breakdown of the number of part-time vs full-time employees and not their payrolls, it is hard to figure out what goes where.

In any case, here is a look at how each component of the Federal payroll changed between 1997 and 2011:

And, here's a look at how the shares of some of the major components of the Federal Payroll changed over the same period. Note that National Defense/International Relations was about 26.9% of the Federal payroll in 1997. It fell to about 18.7% in 2011. The share of the U.S. Postal Service in the Federal payroll went down from about 27.7% in 1997 to 22.5% in 2011. Together, they accounted for 54.6% of the payroll in 1997 down to 41.3% in 2011.

Keep in mind that these are not total spending levels by category, just payroll numbers.

In March 2007, soon after the Democrats took control of the Congress, the Federal payroll was $187,812,057,852 (in 2011 dollars) on an annual basis. In March 2011, it was $193,423,318,200, corresponding to a 3% increase, after hitting a peak of $201,009,504,948 in 2010 (a Census year).

Notes on employment and unemployment

2013-02-21T19:31:00.001-05:00

It's been a while since I last looked at initial unemployment claims. So, let's see what's been happening since election day.

Back then, the largest initial unemployment claims number had been around 390,000. Scarcely two weeks after the election, the November 21 came in with 451,000, right during the period leading up to Thanksgiving and Black Friday. Were those all Obama's canvassers now looking for new jobs. Who knows?

The average since Memorial Day 2012 is around 372,000. Following that November spike, initial claims fell well below this average, and came in at about 330,000 in the January 24 report.

The latest advance figure is 362,000 which is exactly the same as the number from a corresponding week in 2012.

While the spike in November makes the chart look dramatic, the advance number of initial unemployment claims in the 5/31/12 report was 383,000 which means this week's number is 21,000 less. In fact, the number has been declining in almost a step-wise way since the crisis:

Some of that decline is due to the effects of the crisis dissipating. That is grounds for optimism.

On the other hand, looking at the bigger picture, I should note that, in 2008, there were 145,362,000 people employed in the U.S. In 2012, that number stood at 142,469,000. Almost 3,000,000 fewer people employed, five years after the beginning of the crisis in early 2008.

Looking at establishment data, total payroll employment in January 2008 was 138,056,000. According to preliminary figures, that number in January 2013 was 134,825,000. Keep in mind that we were told payroll employment would reach 137.5 million by the fourth quarter of 2010 by a President Obama who was pushing for the stimulus package.

Digging a little deeper, private payroll employment in January 2013 was 112,961,000 compared to 115,668,000 in January 2008 (2.3% less) and total government sector payroll employment was 21,864,000 in January 2013 compared to 22,388,000 in January 2008 (2.1% less).

Which brings us to the Federal Government. The president likes to refer to the entire government sector employment as payrolls shrank there about as much as they did in the private sector. He does not mention what happened to Federal Government payrolls.

In January 2008, there were 2,738,000 employees on Federal payrolls. In January 2013, that number had increased to 2,791,000, representing a 2% increase in the Federal payrolls. In fact, we started 2011, well after the Census spike had worked itself out, at 2,874,000 employees on Federal payrolls which represented a 5% increase from 2008 levels.

According to the Census Bureau, total Federal payroll for just March 2011 was $16,118,609,850 which comes to about $193,423,318,200 for the year 2011.

That represents about $1,400 per year per person employed in the private sector, just to cover the salaries and wages paid by the Federal government which sounds OK until you take into account the fact that the average tax revenue generated from the 111,583,866 returns with less than $75,000 AGI was about $1,245 according to 2009 tax statistics.

If you are curious, the 28,910,263 returns with more than $75,000 AGI generated on average $25,149 tax revenue.

The 3,924,490 returns with AGI greater than $200,000 generated an average Federal income tax revenue of $110,659.

The entire tax revenue collected from the 236,883 returns with AGI greater than $1,000,000 was $177 billion. Just not enough to cover the Federal payroll.

Clearly, we need more people making more than a million dollars a year if we are to continue funding the Federal payroll at these levels.

Is Chavez still alive?

2013-02-18T08:26:00.000-05:00

Maybe I am the only one who remembers Under Fire, but my suspicion meter shoots sky high when I see a politician supposedly posing in his sick bed with a current newspaper in hand.

Chavez's photos are available online at http://www.chavez.org.ve/. According to the limited EXIF information left in the files, they were digitized/transferred to a computer after 9:50 pm on February 14, and processed before noon the following day. They are in an odd 2:1 aspect ratio, so it is obvious they have been manipulated after the fact.

I do not think the photos show a man who was alive at the time they were taken. Take a good look, and judge for yourself. The following photos were downloaded from http://www.chavez.org.ve/ around 7 am on February 18th.

No official interpersonal comparisons of utility, please

2013-02-14T07:18:00.001-05:00

Mike Masnick over at TechDirt ponders whether using a measure of Gross National Happiness rather than Gross Domestic Product makes more sense.

Over the past few decades, I have had many opportunities to read and think about variants of the notion that we should not be measuring the total income generated or total value of goods and produced, but some measure of happiness.

I am one of those (apparently dying) breed of economists who is not fond of interpersonal comparisons of utility.

That is, I prefer an economic theory of preferences and choice that is based on statements such as:

I like A more than B
Person X likes B more than A

but not statements such as "I like A more than B by more than Person X likes B more than A. Therefore, if A is adopted, total happiness in the society will increase because my happiness will increase more than her happiness falls."

In a free market economy with negligible transactions costs, I really valued alternative A over B by more than Person X valued alternative B over A, I could provide a side-payment so that Person X would prefer (A + side payment) to B, and therefore we would both be made happier by adopting A unanimously.

We already suffer from cardinal utility assumptions inherent in progressive taxation: "You have more than I do. Therefore, an extra dollar is worth less to you than it is to me. Therefore, government ought to take from you and give to me."

It seems to me advocates of a measure of "national happiness" do not like there to be a measure of lack of resources brought on about by such anti-growth policies. "Oh, sure, we don't have gas to put in our cars, but, see, we are happier because exercise makes you healthy, and what better way to get exercise than being compelled to ride a bicycle to work?"

Like it or not, a measure of output is less subject to manipulation by bureaucrats.

And, believe it or not, having extra stuff does make life better. Most people in the U.S. will not have the opportunity to fully be immersed in life without abundance (visiting poor countries during "Semester Abroad" and posing with little children in the village and then pontificating about how much happier they are in the comfort of your organic life style does not count). But a moment's reflection about the potential having all the extra "stuff" offers ought to convince honest parties that having more of every good is indeed better than having less of every good.

That is, some people may prefer the bundle (extra $1,000 income, 10 hours less time with loved ones) to the bundle ($1,000 less income, 10 hours more time with loved ones). Others may think that the additional income is not worth the lost time with loved ones. But, you won't find anyone seriously claiming that they wouldn't be made better off by having an extra $1,000 while being able to spend the same amount of time with loved ones. That's all "more is better" means in Economics.

And, producing more stuff enables everyone to have more. A growing pie means everyone can have more cake, instead of fighting over slices of a shrinking pie.

If you think you'll be happier in a country that produces $6,500 of stuff per person rather than a country which produces $50,000 of stuff per person, you have the option to permanently move to such a country.

However, should you choose to move to Bhutan, be careful of what you say. Criticism of the King leads to less national happiness.

I guess, that's the key word: NATIONAL. It is one thing to argue over a dollar measure of the value of all the goods and services produced in an economy to come up with a single number.

It is a whole other thing to try to reduce the sense of well-being of three hundred million or a billion people in to single number.

Such a quantification is the ultimate certification of the desire accept the destruction of the individual in service of the state.

It is a diabolical scheme.

Great news: U.S. real GDP per capita is almost back to 2006 levels

2013-02-12T18:30:00.001-05:00

I constructed a real GDP per capita series for the U.S. using Census Bureau population estimates (specifically, NA-EST2012-01-113 and NA-EST2009-01) and real GDP data provided by the Bureau of Economic Analysis by dividing the annual real GDP figure with the January 1 population estimate of the following year.

According to this rough and preliminary analysis, I have good news for everyone: The real U.S. GDP per capita in 2012 was $43,127 (in 2005 dollars) compared to $43,170 in 2006. Most of you remember 2006 as the year before the Democrats took control of Congress.

Well, isn't that wonderful?!

This got me curious. I wondered what would happened if I built a series consisting of the ratio of each year's per capita real GDP to the per capita real GDP five years prior to that. For example, the per capital real GDP in 2012 was $43,127. In comparison, per capita real GDP in 2007 was $43,573. That is, last year's per capita real GDP was 98.98% of the per capita real GDP in 2007.

I did this for the entire post-Second World War era which gave me an interesting series. As you can see from the chart, it turns out, the only years in which per capita GDP in a given year was less than what it was five years prior coincide with President Obama's reign.

In comparison, in 1966 per capital real GDP was almost 25% higher than it was in 1961. 1987 was almost 20% higher than 1982. 2000 was 15% higher than 1995 etc.

But, throughout the entire first term of President Obama, per capita real GDP never reached parity with levels five years prior.

In a couple of years, we'll be comparing the President's performance in his second term with his performance in his first term. That will ensure such parity.

We told you so.

Making Football "Safe"

2013-02-11T07:24:00.001-05:00

Recently, President Obama joined the crowd, making noises about how unsafe football is for players:

I'm a big football fan, but I have to tell you if I had a son, I'd have to think long and hard before I let him play football.

Hmmmm … Interesting approach to parenting there, a nice, good old fashioned, top-down command and control approach. Notice, how his son doesn't actually figure in to the decision: Mr. President will think long and hard before deciding whether to let his son play.

Well, makes sense, considering what we've been through since 2009.

As for safety and football … Well, I grew up playing soccer (which is considered the real football in the rest of the world) in the streets, in fields covered with rusty nails, broken glass, and sharp rocks etc, and enjoyed it thoroughly even though we rarely won and the balls we used were not even good enough for dollar stores in the U.S.

Occasionally, we'd get scraped knees and elbows, and, sometimes, someone would end up with something like a busted lip. It was by no means a "safe" activity. We had energy, we burned it somehow.

The fact everyone forgets is that football players at all levels self-select in to the sport. They are not rounded up, and sent to training camps by the authorities they way Ottomans used to round up promising Christian boys for the military, or technical occupations.

For players to choose to and be able to play, they must 1) Enjoy the game as it is; and 2) Be good at it. This is just a logical deduction based on the fact that players choose to play the game.

Banning a person with those preferences and those skills from playing football will not take away the preferences and the skills. Instead, they will just be channeled into another outlet.

Is the solution to the level of violence in the game then to make sure players' bodies are well-protected?

Economists have long known and pointed out that making vehicles safe for occupants in a crash situation would increase the tendency for drivers to drive less carefully. That is, by exogenously reducing the probability of an injury to vehicle occupants (the people whom the driver cares most about), safety regulations can have the effect of increasing the probability of accidents (and, therefore the probability of injury to others).

In fact, I used to often point out in "regulation" classes that the most effective way to reduce auto accidents would be to put an impaler in the steering wheel that is triggered in the case of a crash — the perfect anti-airbag.

All this talk about making football helmets safer for the wearer therefore seems misguided to me. After all, the less a player believes he's going to get an injury, the harder they are likely to play.

There are two alternatives: Either put all players in vats with gelatin nutrition etc and have them play games in their minds, capture the signals they generate, and project them onto a screen for others to watch.

Or, accept that there are risks associated with every activity.

Thanks Saturday Morning Breakfast Cereal for the inspiration for this post.

Are home prices going up?

2013-02-06T09:27:00.001-05:00

How is this for a "positive spin" on things? U.S. News and World Report loudly proclaims: "Case-Shiller: U.S. Home Prices Continue to Climb".

Single-family home prices in the nation's 20 largest metro areas rose year over year in November by the most in more than six years, an industry group reported Tuesday, adding further credence to the notion that the housing recovery is strengthening.

Most people have already seen or heard various forms of that paragraph with emphasis on "adding further credence to the notion that the housing recovery is strengthening".

Well, OK, so there was small upward movement between January 2012 and November 2012. But, as you'll see from the graph below, it can hardly be characterized as a "climb". After all, the index's peak since the beginning of President Obama's first term was in May 2010. That month, the 10-city index was at 160.54 compared to 157.33 in November 2012 and the 20-city index was at 147.54 compared to 144.99 in November 2012 (using seasonally adjusted monthly values). That was the end of another "climb" lasting for about 12 months, taking the 10-city index from a low of 152.22 back in May 2009. Soon afterwards, the Case-Shiller index started its "free fall", all the way down to 149.44 in January 2012 — in fact to a point even lower than before the stimulus and the QE1 and the QE2.

What has happened since then to lift Case-Shiller back to May 2010 levels? Well, we basically went through a Third World style election economy.

QE3 has basically given a way for the Fed to transfer "free" money to anyone who can show up at the door with mortgage backed securities. Great! What could go wrong with that?!

Without further ado, here is a look at the 10-city and 20-city composite home price indexes from S&P Case-Shiller Series between January 2006 (before the 2006 mid-term election victory by the Democrats) and November 2012 (the most recent date available):

In November 2012, we did not know that the U.S. economy was shrinking during the last quarter of 2012.

I would keep that in mind before I believe all the spin coming out from the usual quarters about how the housing market has finally recovered.