N. Dakota, Michigan? 2 Fastest-Recovering States

Nov. 2 (Bloomberg) -- "Michigan’s economy is recovering from the recession at the second-fastest pace in the U.S., lifted by reviving carmakers and local manufacturers, according to a new Bloomberg index that tracks the pace of state growth.

The home to the U.S. automobile industry was topped only by North Dakota, where an oil boom is raising incomes and boosting government coffers at the nation’s quickest rate. California, Massachusetts and Illinois round out the top five in the Bloomberg Economic Evaluation of States Index (BEES), which uses data on real estate, jobs, taxes and stock prices to gauge the growth rate in 50 states and the District of Columbia.

BEES tracks growth by compiling data on six components that are given equal weight: job creation, personal income, tax revenue, housing prices, mortgage delinquencies and the performance of Bloomberg stock indexes that track the share prices of locally based companies.  The BEES index, updated quarterly, is a measurement of growth, not absolute performance, so a slowing economy with low unemployment may rank below a battered state on the mend.

Some of Michigan’s improvement reflects the severity of its decline. It ranked last in the BEES index in the decade through 2010, a period when it was the only state to lose population. In September, it still had unemployment of 11.1 percent, two percentage points above the U.S. average.

Seventy percent of Michigan employers said they expected the state’s economic outlook to improve over the next 18 months, while only 46 percent expected such gains for the national economy, according to a survey released last month by Business Leaders for Michigan. Mortgage delinquencies dropped at the fourth-fastest pace in the U.S., and personal income and employment growth ranked in the top third, according to data compiled by Bloomberg."

In a separate news story, Michigan Gov. Rick Snyder was quick to point out that Michigan's ranking as second-fastest improving state in the country could “serve as a catalyst" for further business expansion and attract new investment.

HT: Mike W.

Outsourcing Goes Into Reverse: More Reshoring

DETROIT NEWS -- "A Royal Oak bead company expects to double its sales and bring jewelry manufacturing business back to America through a partnership with a design and manufacturing firm in Grand Rapids. Collegiate Bead Co., a 2-year-old manufacturer of licensed college and sorority beads and other collegiate jewelry, has joined with Terryberry LLC to bring the jewelry to market and expand its product line.

After manufacturing in China for a year, Collegiate Bead founder Dave Schowalter decided to bring the manufacturing back to Michigan.

The move goes against the outsourcing trend — something Burroughs Payment Systems Inc. in Plymouth also bucked a year ago, when it decided to locate six customer service representatives in Michigan after initially moving the work to India."

HT: Mike W.

CNBC Segment on Energy Economics

Facts on the cost of generating electricity (per kilowatt hour):

Natural gas: 3.5-4.5 cents

Coal: 4-5 cents
Hydro: 4 cents
Nuclear: 8 cents
Wind: 7-9 cents
Solar: 15-50 cents

Question: Why as a country are we investing billions of dollars in the most expensive option (solar) and ignoring the cheapest (natural gas), especially when the U.S. is the "Saudi Arabia of natural gas"? 

HT: Warren Smith

"Markets" in Everything: Free Clothes Online

5 Websites To Find Free Clothes So You Don’t Have To Go Naked.

China Manipulates Its Currency To the Advantage of U.S. Consumers and Businesses Buying Its Products

At an event hosted last week by The Aspen Institute "Is U.S. Trade Policy Helping or Hurting Manufacturing?" featuring former U.S. Trade Representative Susan Schwab and Jared Bernstein, there was a lively debate on a number of issues relating to trade and manufacturing. While there were differences of opinions on most topics, there was a strong consensus (including among the attendees) on one topic: China is a currency manipulator. Here are the details of that consensus, as I understand it:

1. China manipulates its currency by keeping the dollar overvalued and the yuan undervalued.

2. That currency manipulation gives China an economic advantage that harms the U.S.

3. The U.S. and other countries should individually or collectively take steps to persuade or force China to stop its manipulation.

4. Solutions to China’s currency manipulation range from direct legislation like the bill passed in the Senate that will impose stiff tariffs on Chinese goods if the Treasury finds evidence of currency manipulation, to other forms of indirect pressure on China to persuade it to stop manipulating its currency.

Let me break from that consensus and present an alternative position:

In the best of all possible worlds for the U.S., China would use its labor and capital to manufacture consumer products like clothing, footwear, furniture, electronics and appliances and send $300 billion worth of these products to U.S. consumers for free every year, as a gift, or a form of foreign aid to the American people. In addition, the Chinese would produce and send to America another $100 billion worth of raw materials, parts, industrial supplies, inputs and natural resources at no charge, as a gift to American manufacturers every year.

Can there really be any argument that such an arrangement, where America would receive $400 billion worth of free goods every year from China, would be to the unquestionable economic advantage of the U.S.? (Note: That’s roughly the amount of goods we will purchase from China this year.)

However, that extreme Chinese generosity is probably not realistic. Here's a second best outcome:

Instead of sending $400 billion of goods annually for free, China offers an attractive alternative. It will send us $500 billion of goods every year, both consumer goods and industrial goods, but will sell us those manufactured goods at a substantial 20% discount, for only $400 billion. In that case, the amount of foreign aid will be less than the $400 billion in the first case, but will still be significant - a $100 billion gift every year from the Chinese people to the American people.

How will China generate the $100 billion in foreign aid to the U.S.? One way is to keep its currency undervalued to bring about the 20% discount on its products.

Which then raises the question: If China is willing to undervalue its currency and in the process provide $100 billion of foreign aid annually to the American consumers and businesses buying Chinese products, what’s the problem? Why should we complain?

And that is my main point: the "manipulation" of China's currency is actually to the distinct advantage of American consumers (especially low-income Americans) and American businesses buying products "made in China." They certainly aren't complaining about low-priced Chinese products, and in fact would be made worse off if China was forced to revalue its currency and in the process make its products more expensive to Americans.

So if neither American consumers nor U.S. import-buying businesses would benefit from a stronger yuan and a reduction in China's "foreign aid," who would really benefit? The same groups that always benefit from protectionist, mercantilist trade policies: domestic producers who compete against foreign rivals. 

We know from economic theory that protectionist tariffs produce benefits for domestic producers, but also higher costs for domestic consumers. Further, the costs to consumers from protectionism are greater than the benefits to producers, resulting in a net loss for the country and a reduction in its standard of living.

Likewise, I would argue that forcing China to appreciate its currency would be equivalent to a protectionist tariff on Chinese goods, and would make American consumers and import-buying companies, and the country as a whole, worse off.

Summary of my position on currency manipulation:

1. China's currency manipulation is a form of foreign aid, and to the direct advantage of millions of U.S. consumers, especially the poor and low-income groups, and to the direct advantage of thousands of American companies buying inputs from China. 

2. Forcing China to revalue its currency would benefit some American manufacturers competing with China, but would significantly harm those American consumers and businesses currently buying undervalued imports. On net, there would be more harm to American consumers than benefits to American manufacturers, making the country worse off.

3. Like other forms of mercantilism and protectionism, revaluing China’s currency would favor certain domestic producers over millions of consumers, but would make the U.S. worse off, not better off, on net.

4. Finally, instead of complaining, we should be thankful for China's foreign aid to Americans through an undervalued currency, overvalued dollar, and undervalued goods that save Americans billions of dollars every year.

Update: If you wouldn't object to China sending products to the U.S. for free, then on what basis would you object to currency manipulation that allows you to purchase undervalued Chinese imports at a huge discount and great bargain?  

2010 2011 BMW 5-Series F10 Interior Video

2010 2011 BMW 5-Series F10 Interior Video

Quote of the Day on Payday Loan Propaganda

"The mindset of the left was recently displayed in a big, front-page story in the October 30th issue of the San Mateo County Times. It was an investigative reporter's expose of the "payday loan" business and its lobbyists. According to the reporter: "In California lenders charge up to $45 in fees on a maximum $300 loan. This amounts to an interest rate of 460 percent, trapping some borrowers into a never-ending cycle of debt."

The 460 percent figure comes from imagining that the borrower is not just going to borrow the money for a couple of weeks, but is going to keep on borrowing every couple of weeks all year long. Using this kind of reasoning -- or lack of reasoning -- you could quote the price of salmon as $15,000 a ton or say a hotel room rents for $36,000 a year, when no consumer buys a ton of salmon and few people stay in a hotel room all year. It is clever propaganda, but do people buy newspapers to be propagandized?"

~Thomas Sowell