Archive for the 'Economics' Category

The GM Recall Record

It’s staggering:

For those who are just tuning into the GM recall saga, some quick facts. GM has issued 44 recalls in North America this year alone. More than 20 million vehicles have been affected worldwide—a tremendous figure that surpasses total annual vehicle sales in the U.S. The recall pace has snowballed since the start of the year, with only two issued in January, but 14 so far this June for some 4.2 million vehicles. With half of the year left to go, GM is already looking at $2 billion in total recall-related charges.

While some recalls have been over more severe issues than others, the breadth and scope of GM’s fiasco this year reveals a shocking safety crisis. At its current rate, GM is on track to shatter the entire auto industry’s record for most vehicles affected in recalls in a single year, explains Michael Schultz, an industry analyst at the Center for Automotive Research. “It’s unprecedented,” says Schultz, who also expects that the company isn’t done yet. “I anticipate there’s going to be more until they have literally nothing else possible to issue a recall on,” he says.

The Changing Rich

Larry Summers writes:

When Forbes compared its list of the wealthiest Americans in 1982 and 2012, it found that less than one tenth of the 1982 list was still on the list in 2012, despite the fact that a significant majority of members of the 1982 list would have qualified for the 2012 list if they had accumulated wealth at a real rate of even 4 percent a year. They did not, given pressures to spend, donate, or misinvest their wealth. In a similar vein, the data also indicate, contra Piketty, that the share of the Forbes 400 who inherited their wealth is in sharp decline.

Assortive Mating And Inequality

Via Matthew Yglesias:

Among college-educated people, in particular, the tendency is not so much to marry within your community as to marry within your educational cohort. Every once in a while you do see a college graduate married to a high school dropout (my parents, for example), but it’s quite rare. Since incomes are normally measured on the household level for statistical purposes, it matters quite a bit to big-picture national trends. In particular, “assortative mating” of this kind is a major driver of household-level income inequality.

How big? Jeremy Greenwood, Nezih Guner, Georgi Kocharkov, and Cezar Santos report in a new paper that if in 2005 the matching of husbands and wives had been random, the Gini coefficient—the most common summary measure of income inequality—would have been 0.34 rather than its real-world 0.43, a difference of almost 25 percent.

Quote Of The Day

“Three studies examined Americans’ perceptions of incomes and income inequality using a variety of criterion measures. Contrary to recent findings indicating that Americans underestimate wealth inequality, we found that Americans not only overestimated the rise of income inequality over time, but also underestimated average incomes. Thus, economic conditions in America are more favorable than people seem to realize. Furthermore, ideological differences emerged in two of these studies, such that political liberals overestimated the rise of inequality more than political conservatives. Implications of these findings for public policy debates and ideological disagreements are discussed. – Marginal Revolution

On Mexico Opening Up Oil Sector To International Investors

“Mexico has mismanaged its oil to the detriment of us all, said José Luis Luege. Ever since the government proposed opening the oil sector to foreign partners, leftists have been marshaling “pseudo-nationalist arguments” that equate letting foreign oil companies develop Mexican oil fields with stiffing our own citizens. They have it exactly backward. Besides North Korea, Mexico is the only country in the world that doesn’t allow foreign commercial partners in the oil industry—even communist Cuba does. That’s because the industry poses investment risks that only private companies can take. Pure nationalization of our oil hasn’t worked: At the turn of the 20th century, Mexico was a top oil producer, behind only the U.S. and Russia. But since the state nationalized production under Pemex in the 1930s, our oil industry has been “bankrupt and inefficient,” as “terrible corruption” has siphoned off funds that should go to exploration and infrastructure. Pemex has been systematically “looted by a bloated union structure” and corrupt officials, who together have “defrauded the nation.” Only by amending the constitution to allow companies besides Pemex to invest in our oil fields will we be able to reap real profits “for all Mexicans.”” — Via The Week

Indian International Student On The Most Surprising Things About America

A worthwhile post overall, but this one stood out:

An almost-classless society: I’ve noticed that most Americans roughly have the same standard of living. Everybody has access to ample food, everybody shops at the same supermarkets, malls, stores, etc. I’ve seen plumbers, construction workers and janitors driving their own sedans, which was quite difficult for me to digest at first since I came from a country where construction workers and plumbers lived hand to mouth.

Also, (almost) all sections of society are roughly equal. You’ll see service professionals owning iPhones, etc. as well. This may be wrong but part of it has to do with the fact that obtaining credit in this country is extremely easy. Anybody can buy anything, for the most part, except for something like a Maserati, obviously. As a result, most monetary possessions aren’t really status symbols. I believe that the only status symbol in America is your job, and possibly your educational qualifications.

Full post can be found here. This point reminded me of this post from economist Don Boudreaux. Both articles are wothwhile reads.

Question For Supporters Of The Minimum Wage

Given by economist Don Boudreaux:

In the U.S. in 1948, quoting my colleague Walter Williams, “the unemployment rate for white 16-17 year olds was 10.2 percent while that for blacks was 9.4 percent. Among white 18-19 year-olds, unemployment was 9.4 percent and for blacks it was 10.5 percent.” Today (October 2013) the unemployment rate for white 16-19 year olds is 19.4%; the unemployment rate for black 16-19 year olds is 36.0% – nearly double the rate of white teenage unemployment. (In 2006 – the year before the current recession began – the unemployment rate for white 16-19 year olds was 13.2%; the unemployment rate for black 16-19 years olds was 29.0% – slightly more than double the rate of white teenage unemployment.)

That is, the unemployment rate of black teenagers in 1948 was comparable to that of white teenagers, and about 2.5 times higher than the overall unemployment rate of 3.8%. Today, the unemployment rate for black teenagers is much higher than that for white teenagers, and nearly 5 times higher than the overall unemployment rate of 7.3%. (In 2006, the year before the current recession began, the unemployment rate for black teenagers was 6.3 times higher than the overall unemployment rate of 4.6%.)

How do you explain these data? Are American employers more prejudiced in 2013 than in 1948 against teenagers? More importantly, are Americans more racist in 2013 than they were in 1948?

These facts about teenage unemployment are straightforwardly explained by the standard economic theory that predicts that a legislated minimum wage causes the lowest-skilled, most poorly educated, or otherwise least-desirable workers to be the first to be fired and the last to be hired. What is your alternative explanation?

Minimum Wage Study

“new evidence based on methods that let the data identify the appropriate control groups leads to stronger evidence of disemployment effects, with teen employment elasticities near −0.3. We conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.” — David Neumark, J.M. Ian Salas, William Wascher, via Greg Mankiw

On Working Holidays

“Which is just to say that in a diverse nation with more than 300 million citizens, opinions are going to vary on the pros and cons of extended business hours. How strapped for cash are you? Where does your family live? What’s your relationship with them like? How sentimental are you about specific holiday rituals? People will differ. This Thanksgiving there are going to be people with jobs at the Gap who wish they weren’t working Thanksgiving but feel that they’d lose their jobs if they weren’t willing to take an extra shift. There are also going to be people with jobs at Radio Shack who wish they could earn some extra cash and get out from under that credit card debt. I’m not persuaded that there’s a first-order question of social justice here one way or the other.” — Matthew Yglesias

Quote Of The Day

“A few years back, Robert Ohsfeldt of Texas A&M and John Schneider of the University of Iowa asked the obvious question: what happens if you remove deaths from fatal injuries from the life expectancy tables? Among the 29 members of the OECD, the U.S. vaults from 19th place to…you guessed it…first. Japan, on the same adjustment, drops from first to ninth.” — Forbes Magazine Commentary

Unemployment Insurance Affect On Unemployment

“We exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed — the micro effect — we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively”. — new NBER paper

Quote Of The Day

“The influence of the California Teachers Association was rarely more apparent – or more sickening – than in the defeat of SB1530. The union showed its willingness to defend an expensive and cumbersome process for firing bad teachers at almost any cost – even if that means school districts must continue to spend exorbitant sums of time and money to dismiss teachers in cases involving sex, drugs or violence with students.” -SF Gate, on the teachers union recent campaign effort against SB1530

Quote Of The Day

“It’s not just bathroom tissue that’s lacking: In recent months, food items such as cooking oil and powdered milk have nearly disappeared from store shelves. But even after a decade of price controls, foreign-exchange restrictions, runaway inflation, currency devaluations, blackouts and takeovers of more than 1,000 companies or their assets, the government still claims the private sector is at fault for the deficiency in consumer staples. The Manpa asset grab came a week after Maduro introduced the new regulatory committee, which will address product hoarding and other abuses that he blames for missing goods.” — Bloomberg, on toilet paper shortages in Venezuela

The Coming Manufacturing Boom – In Mexico

Via Yglesiais:

They say that “[a] tipping point was reached in 2012, when average manufacturing costs in Mexico, adjusted for productivity, dropped below those of China.” In other words, rising real wages for Chinese manufacturing workers mean that unit labor costs in Mexico are now just as low. Meanwhile, thanks to NAFTA and geography, it’s much cheaper to export American natural gas to Mexico than to ship it to Asia through LNG ports. So right now “electricity costs are around 4 percent lower in Mexico than in China, for example, while the average price of industrial natural gas is 63 percent lower.” Add to that the fact that Mexico has an advantageous location in terms of shipping products to American and Canadian consumers and the logic looks pretty compelling—Mexico is going to be the factory location of choice for many companies.

More here.

Quote Of The Day

“One of the Obama arguments at the time was that the rush in the stimulus program was needed to avoid a Great Depression. This was and is highly doubtful (though, yes, it is widely accepted). The US economic emergency in late 2008 and early 2009 wasn’t really an aggregate demand crisis but a financial crisis. The chaotic failure of Lehman Brothers had led to an intense panic and credit squeeze. The Fed therefore needed to flood the markets with liquidity, which it rightly did, in order to unwind the panic. The Fed’s action was the real difference with 1933 (when the Fed allowed the banks to fail). It was the Fed, not the fiscal stimulus, which prevented a fall into depression.” — Jeffrey Sachs, Responding to Paul Krugman and Crude Keynesianism

Quote Of The Day

“Ironically, the minimum wage creates a reserve army of the unemployed. That in turn allows employers to be less thoughtful, helpful, and kind. It destroys the civilizing effect of competition by muting it. That encourages exploitation. It reduces the cost to employers of racism or cruelty. Before the increase, being obnoxious or racist made it much harder to find employees. A minimum wage makes it easier to indulge in bad behavior. The costs are lower. Before the minimum wage, a cruel, selfish employer might have had to mentor his employees or train them or be nice to them despite his nature. Now he won’t have to. He can still get workers to work for him. Even more cruelly, the minimum wage encourages workers to exploit themselves. They work harder and put up with more abuse from the boss because the minimum wage reduces the alternatives that are available.” — Economist Russ Roberts