Oil prices are not Taxes!!

Thursday, March 18, 2004 | 11:07 AM


Over the past 2 days, I heard Treasury Secretary John Snow, CNBC commentator James Cramer, and several other heads engage in Orwellian Newspeak, claiming: "OIL PRICES ARE A TAX ON CONSUMERS ."

I've addressed this extensively in the past, and you can (and should) read it here:
Oil price rises are not tax increases

Enough of this nonsense!

Thursday, March 18, 2004 | 11:07 AM | Permalink | Comments (0) | TrackBack (1)
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Can radical Islam can win?

Tuesday, March 16, 2004 | 06:25 AM


Interesting commentary from The Asian Times: Spain's elections show why radical Islam can win:

"Radical Islam has scored its first unambiguous victory against the West, and it should have been visible at a long distance (Why radical Islam might defeat the West, July 8, 2003). Winston Churchill's quip that the appeaser hopes the crocodile will eat him last does not apply when the prospective victim expects to be in another world before the crocodile comes around . . .

Spain's death-knell sounded long before the train bombings in Madrid, however. No country in the world is more determined to disappear. The country's fertility rate of 1.12 live births per female is the lowest in the world. As recently as 1975, at the death of strongman Francisco Franco, the fertility rate stood at 3 births per female in 1976. By 2050 Spain will have lost a quarter of its population. Germany and Italy, whose fertility rates fell earlier than Spain's, will lose a third, according to economist Anthony Scholefield."

Give the whole thing a look.

by Spain's elections show why radical Islam can win
Asia Times Online, March 16, 2004

You can see a recent list of SPENGLER's writings here

Tuesday, March 16, 2004 | 06:25 AM | Permalink | Comments (1) | TrackBack (0)
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Money, Gold, and the Great Depression

Friday, March 12, 2004 | 06:15 AM

With all the mayhem of the past few weeks, several Fed speeches got overlooked. The one I found most intriguing was not from Big Al; Rather, it was one of Governor Ben S. Bernanke barnburners, titled "Money, Gold, and the Great Depression" (H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia):

"During the Depression years and for many decades afterward, economists disagreed sharply on the sources of the economic and financial collapse of the 1930s. In contrast, during the past twenty years or so economic historians have come to a broad consensus about the causes of the Depression. A widening of the geographic focus of Depression research deserves much of the credit for this breakthrough. Before the 1980s, research on the causes of the Depression had considered primarily the experience of the United States. This attention to the U.S. case was appropriate to some degree, as the U.S. economy was then, as it is today, the world's largest; the decline in output and employment in the United States during the 1930s was especially severe; and many economists have argued that, to an important extent, the worldwide Depression began in the United States, spreading from here to other countries.

However, in much the same way that a medical researcher cannot reliably infer the causes of an illness by studying one patient, diagnosing the causes of the Depression is easier when we have more patients (in this case, more national economies) to study. To explain the current consensus on the causes of the Depression, I will first describe the debate as it existed before 1980, and then discuss how the recent focus on international aspects of the Depression and the comparative analysis of the experiences of different countries have helped to resolve that debate."

Let's have a look at a graphic depiction of the relationship between gold and the U.S. dollar over the past 4 years.

Take a look at this chart:

Note the horizontal purple lines where each chart broke out from (or broke down from). The purple circles represent the dollar peak (top) and the recent gold low (bottom).

And yes, if you think there's something not-quite-right about reading Fed Speeches for fun, you may be on to something . . .

Remarks by Governor Ben S. Bernanke
At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia
March 2, 2004
Money, Gold, and the Great Depression

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Presidential Job Worries (historical)

Saturday, March 06, 2004 | 02:19 PM
employment_index_term_beginning.bmp Source: The Dismal Scientist

The intersection between economics and politics continues, with this rather fascinating chart via The Dismal Scientist. They note:

"The jobs situation under the current President Bush is looking more like it did under his father, who failed in his reelection bid in 1992, than in the successful reelection campaigns of Presidents Clinton (1996) and Reagan (1984)."
Other data should also be concerning the White House. Polls continue to show the President lagging Kerry by 1 to 6 points. Some GOP strategists have been dismissive of this early polling data, suggesting that incumbents often lag behind their challengers for extended periods of time. And that argument is somewhat appealing right about now -- after an opponents' primary campaign has run, but before the incumbent's reelection campaign has started up.

The problem is, its not true. The Economist magazine cites the pollster Gallup, which reviewed the historical correlation between polling data and Presidential electoral success:

"According to Gallup, every incumbent since Truman has been ahead of his eventual challenger at this point in the cycle -- all except Gerald Ford, who lost."
Combine that little polling factoid with the graphic above, and its not too hard to understand why the White House strategists are starting to get a little concerned.

John Kerry Grabs the Prize
March 6 - 12th, 2004 (p 25)

Bad News for Bush.
Augustine Faucher
The Dismal Scientist, May 5, 2004

By the way, at $30 per month, Dismal is a pretty worthwhile service if you need access to any of their data sets or commentaries.

Saturday, March 06, 2004 | 02:19 PM | Permalink | Comments (0) | TrackBack (1)
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Time: Not on the Recording Industry's Side II

Wednesday, February 18, 2004 | 05:56 AM


We previously noted a chart out of the WSJ detailing the many competing demands on the consumer's time.

Consider this data within the context of decreasing CD sales. Yet another reason sales are down: lack of time. There are simply many more attractions and forms of entertainment for the consumer dollar:

"The scramble for consumer attention is having ripple effects for other industries as well, particularly technology and advertising. So much is changing so quickly that NBC's head of research, Alan Wurtzel, predicts the period of 2003-2005 will in the future be seen as a "watershed change ... the beginning of a very different era."

Media options aren't just competing with each other. Consider this: Since 1973, the median number of hours that people say they work has jumped from 41 a week to 49, according to Harris Interactive, which does an annual survey of adults about their work and leisure time. That has mostly come out of people's leisure time, which has dropped from 26 to 19 hours a week over the same period, Harris reported."

Source: WSJ

Note who is failing to respond here:

"Media companies are scrambling to adapt to the new realities. While viewing of traditional broadcast TV is down dramatically in recent years, people are spending a lot more time watching cable and satellite channels, lifting overall household viewing over the past decade. Not surprisingly, the companies that own broadcast networks are buying up major cable channels. General Electric's NBC now owns Bravo and has agreed to buy USA and Sci-Fi. Walt Disney Co., which owns ABC, also owns ESPN and ABC Family channel. Viacom Inc. owns MTV and Nickelodeon along with CBS.

As videogames siphon off young male viewers, some media companies may expand into that industry, possibly by buying existing videogame makers such as Electronic Arts, maker of such popular games as The Sims and Madden Football. Time Warner's Warner Bros. recently announced formation of an interactive gaming division. Viacom Chairman Sumner Redstone has accumulated a significant personal stake in Midway Games Inc., a videogame maker.

Surprise! The music industry is nowhere to be found amongst the media groups seeking diversification into other venues.

And as we've previously discussed in a different context, one simply cannot oversimplify a complex mulitvariate system to one simple cause and effect equation.

Lastly, consider two other consumer technologies: DVR and Satellite Radio. These both are part of a trend where harried entertainment consumers are taking more control over the viewing/listening habits:

Technologies that help consumers manage and maximize their own time are gaining popularity, including cable-TV "on-demand" services that let viewers order movies or TV shows on their own schedule rather than a network's. The spread of low-cost DVD players is having a similar effect, as is TiVo and other "personal video recorders," which also let viewers skip through commercials. Such devices are now in roughly just 2% of U.S. households but growing fast, and increasingly available as part of cable-TV boxes.

This shift from passive to active consumption works against tightly scripted radio playlists. Yet another tastemaker -- radio -- is in the process of being marginalized.

Buddy, Can You Spare Some Time?

Wednesday, February 18, 2004 | 05:56 AM | Permalink | Comments (2) | TrackBack (1)
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China Feeds the Beast: the U.S. Appetite for Cheap Goods and Borrowed Capital

Sunday, February 01, 2004 | 09:20 AM

In case you missed it, there was a fascinating (and long) piece in Friday's WSJ: "As China Surges, It Also Proves A Buttress to American Strength."

But don't let the title of this page 1 above the fold article mislead you -- this is a far more nuanced and interesting discussion than you may guess from the header.

"Though America is sometimes loosely called an empire, it defies the imperial economic script described by Lenin (who called imperialism "the highest form of capitalism"). The U.S. doesn't seek vassal states as outlets for surplus capital. In an anomaly for such a powerful nation, America sucks in money from abroad. With its large national debt and trade deficits, the U.S. binds not by lending but by borrowing and by importing."

That's a fascinating take; I've never quite seen it put exactly that way. NYU prof Niall Ferguson notes "If you are dependent on the willingness of others to hold your assets, there is a limit to how unilaterally you can act. [The US] status as a "hyper-debtor" makes this "hyper-power" oddly reliant on weaker partners."

The Journal goes on to describe how PC peripheral maker Logitech exemplifies a "Microcosm of the Global Economy." Note the economic benefits to each player -- the U.S., U.S. Consumers, China, Chinese labor -- in this discussion of U.S./Chinese bilateral trade arrangement:

"Logitech's Suzhou parts warehouse is a microcosm of the global economy, and helps explain why China reinforces America's role as ringmaster. Piled to the ceiling on blue metal shelves are boxes marked with the logos of foreign companies, from big U.S. multinationals to a small Belgian billiard company that makes trackballs.

One of Logitech's big sellers is a wireless mouse called Wanda, which sells to American consumers for around $40. Of this, Logitech takes about $8, while distributors and retailers take $15. A further $14 goes to suppliers that provide Wanda's parts: A Motorola Inc. plant in Malaysia makes the mouse's chips, and America's Agilent Technologies Inc. supplies the optical sensor. Even the solder comes from a U.S. company, Cookson Electronics, which has a factory in China's Yunnan province next to Vietnam.

Marketing is led from Fremont, Calif., where a staff of 450 earns far more than 4,000 Chinese employed in Suzhou. China's take from each mouse comes to a meager $3, which covers wages, power, transport and other overhead costs.

Other Chinese-made products rely less on U.S. components and use Japanese, Korean or Taiwanese parts instead. But, in many cases, the upshot for China is the same: Foreigners get the bulk of the money. They supply many of the parts, often own the plants in China that assemble them, and get a markup on sales abroad. Foreign companies account for more than three-quarters of China's high-tech exports. The Chinese Ministry of Commerce's ranking of "China's" top 10 exporters includes two American companies -- Motorola and hard-drive maker Seagate Technology."

That makes the following chart somewhat incomplete. How would it look if the U.S. firms exporting from China to the U.S. were more accurately accounted for?


What makes the situation all the more dynamic -- and potentially destabilizing -- is America's borrowing habits as a nation:

"The U.S. has been a net capital importer since at least the 1980s. This is in stark contrast to Britain at the height of its imperium before World War I, when the British had net foreign assets valued at 150% of their own GDP. America, though often described as Britain's successor as the world's dominant power, does the opposite. Recent figures from the Commerce Department's Bureau of Economic Analysis show that foreign holdings of U.S. stocks, bonds and other assets exceeded America's foreign assets to the tune of $2.3 trillion -- or 22% of GDP -- at the end of 2002.

"America is certainly a hegemon and may be occupying Iraq but, economically at least, it does the opposite of what Lenin described as imperialism," says Angus Maddison, a British economist whose many books include a survey of the world economy over the last millennium."

Consider how this impacts the overall financial situation, both here and abroad:

"China didn't create this potentially unstable edifice, but it does, at least for the time being, help to keep it upright. China has loans outstanding to the U.S. government of more than $120 billion, in the form of Treasury debt that China owns. It holds probably that much again in Fannie Mae and other dollar-denominated debt securities.

Contrast that with what U.S. companies have invested in Chinese plants and equipment -- not a direct comparison, by any means, but revealing nonetheless. This "foreign direct investment" stood at $10.2 billion at the end of 2002, according to the Bureau of Economic Analysis, about one-twenty-fifth the level of China's U.S.-securities holdings. The Chinese government offers a much higher figure for U.S. investment in China but still far below the value of Chinese holdings of U.S. debt."

What's omitted from this discussion is long term security of U.S. Treasuries: They have long been regarded as the safest bet in an unsafe world. Any political discussion of deficits, trade imbalances, and world standing must also acknowledge that for more than a century, U.S. Treasuries have been considered the place where wealthy nations sheltered their cash in times of uncertainty. Even if that was due to a confluence of factors, including fortunate geography, one cannot overlook the "flight to safety" of Treasuries.

So China's large holdings are not nearly as altruistic or even unexpected as implied. But what is a realistic concern is what might happen if the nature of our relationship with this giant Communist country ever dramatically changed:

America's addiction to foreign money hands China and other potential adversaries a weapon, some influential voices warn. Among them is Aaron Friedberg of Princeton University, an authority on Britain's imperial decline who is now a national security adviser to Vice President Dick Cheney. Mr. Friedberg wrote in a 2000 article in Commentary that China could one day dump its dollar assets to "trigger a run on the dollar, an increase in U.S. interest rates and perhaps a stock-market crash."

The real danger to the U.S. is that as a nation we are ceding an enormous amount of authority over our future to the good wishes of a foreign power. Of course, if China were to ever harm the US economically, they would be only hurting themselves. (Of course, that was cold comfort to the frog).

At least, that's how it appears today. No one knows what both countries will look like in 25 years; Consider how China appeared a mere 25 years ago (Hard to imagine what a difference a 1/4 century makes amongst superpowers!)

The world confronting China
Leader Deng Xiaoping Hu Jintao
Fashion icon Jiang Qing Gong Li
Oil imports 0 3 MILLION
Annual U.S.-China trade $2.3 billion $177 billion (a)
Trade balance $1.1 billion surplus for U.S. $123 billion deficit for U.S. (a)
Currency Nonconvertible Convertible in trade (b)
Stock trading None Two exchanges (c)
Unresolved territorial claims Hong Kong, Macao, Taiwan, Soviet border region,
South China Sea islands
Taiwan, South China Sea islands
Notes: (a) December 2002 through November 2003; (b) Beijing pegs yuan at 8.28 to a U.S. dollar; (c)Shanghai and Shenzhen, listing 1,287 stocks in all

Table courtesy of: WSJ research

As China Surges, It Also Proves A Buttress to American Strength
Andrew Higgins
ALL STREET JOURNAL, Friday,January30,2004

Sunday, February 01, 2004 | 09:20 AM | Permalink | Comments (0) | TrackBack (0)
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Is Disney/Pixar the sequel to Apple/NeXT ?

Friday, January 30, 2004 | 12:57 AM

Pixar to Disney: Buh-Bye !

Jobs gives Eisner the fin . . .

The WSJ called it a "stunning blow." CNN/Money quoted an analyst who said "It makes it look like Eisner did something wrong again." And of course, former chairman of Disney's animation Roy Disney piled on (I'm paraphrasing here): "The breakup would be bad for Disney shareholders long-term; Eisner failed to nurture the relationship with Pixar."

But here's the money quote -- from Jobs:

"After 10 months of trying to strike a deal with Disney, we're moving on. We've had a great run together -- one of the most successful in Hollywood history -- and it's a shame that Disney won't be participating in Pixar's future successes."

While everyone is chatting about likely suitors -- Viacom, Warner Brothers, Sony and MGM are said to be interested -- the larger story is being overlooked: It was Jobs who broke off the negotiations, catching Disney execs unaware. The timing of the Pixar announcement was impeccable, and certainly not coincidental, as it was reported Thursday that senior Disney management's had again taken hefty pay raises -- despite the company underperforming.

Its no coincidence these came out the same day - This is Jobs attempt to embarrass Eisner; the Disney CEO is considered by some to be amongst the most overpaid / underperforming CEOs in recent corporate history.

The more interesting aspect of this story is the probability that Jobs is angling for Eisner's gig. And not passively either. This is hardly a "Hey, if you ever decide you need a new CEO, you know my number." This was more of a "When are going to throw da bum out?" move by Jobs.

And why not? The Apple / Pixar chief craves the accolades given to execs like Bill Gates or Eisner. He does not think that Wall Street or the public appreciates his contributions -- and he may be somewhat correct in that assessment. Capturing the Disney CEO position would be Jobs' coup de grace.

Given his success with iTunes, iPod and the Apple Music Store, he already is a power player in the entertainment side of things. Pixar would be his backdoor entry into the Disney executive suite. Like at Apple, he might work for $1 a year -- after trading his Pixar holdings for about $2.25B worth of Disney stock. Disney is a $50 billion company, while the much smaller Pixar has a market cap of about $3.5B (Jobs owns about half).

Will a Disney/Pixar merger be the sequel of the Apple/NeXT deal?
Its pure Jobs . . . Stay tuned . . .

UPDATE: 1/30/04 1:39EST

Will wonders never cease: We actually discussed this very subject only last month ("Jobs to become Heir Apparent at Disney?"). Here was our take, all the way back on December 3rd:

With a market value more than 10X that of its important partner -- Disney's cap stands at $43.99 Billion to Pixar's $3.81 Billion -- DIS should just get it over with and buy PIXR outright. That would resolve the future of the lucrative animation business, and solve the issue of who's gonna replace Eisner, in one fell swoop.

Eisner, who's already sucked out over a billion dollars in compensation from the entertainment giant's coffers over the past decade, could make a graceful exit. The alternative may be an ugly ego driven battle with the company's largest shareholders (Walt's heirs) that would make Carly Fiorina's battles with the Hewlett heirs look like a mah-jong scrum.

That turns out to be prescient -- and its even more true today . . .

UPDATE 2: 1/30/04 2:49EST
A hardy hello to all you readers from Pixar. Appreciate y'all stoppin' by to read these humble musings. Feel free to tell me whether I'm smokin' crack or perhaps if I am on to sumpthin'.

Love your work . . .


UPDATE 3: 1/31/04 7:49am

Kudlow & Cramer weighed in on this very issue at the end of the show Friday nite. Mad props go to Larry for mentioning the Big Picture and this very discussion. (Too bad they ran out of time for a fuller discussion).

I love this angle of the story and would like to expand on it; Anyone interested in 750 - 1500 words as to why Disney must do this (or its toast!), you know where to find me.

The End: Pixar Breaks Up With Distribution Partner Disney
WALL STREET JOURNAL, January 29, 2004

Disney Discloses Chief's Raise and Some Details of U.S. Inquiry
NY Times, January 28, 2004

Pixar dumps Disney
CNN/Money, January 29, 2004: 7:20 PM EST

Pixar Says 'So Long' to Disney
02:47 PM Jan. 29, 2004 PT

Friday, January 30, 2004 | 12:57 AM | Permalink | Comments (1) | TrackBack (2)
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Best Buy Keeps Up the Heat on CD Price Competition

Wednesday, January 28, 2004 | 05:24 AM


More evidence of price competition, as Best Buy maintains price pressure. From this past weekend's circular:

CD Sale: $9.99 or less
•   Helmet Unsung: The Very Best of Helmet (1991-1997): $7.99
•   No Motiv Daylight Breaking: $8.99
•   Twista Kamikaze: $9.99
•   Baby Bash The Smokin' Nephew: $9.99
•   Tupac Resurrection: The Soundtrack: $9.99
•   Yes The Ultimate Yes: 35th Anniversary: $15.99 (Double CD)

And of course, the continued "DVDs that are cheaper than CDs" sale:
•   Swingers $9.99
•   Clerks $9.99
•   Grosse Pointe Blank $9.99 (which is one of my all time favorite comedies; I will swing by BB and pick this up this weekend).

Given our prior discussions on Peter Gabriel and Brian Eno, I may just splurge and drop $15.99 on Peter Gabriel's Growing Live. 134 minutes long -- looks great!

Best Buy still offers free shipping -- so if the weather is as bad as predicted (we got a foot of snow last nite), I can still pick 'em up from home.

Ain't competition grand?

UPDATE: 1/28/04 6:56 am
Since we are all about competition here, Amazon has the Peter Gabriel DVD for $14.99. And since I earned a grand total of $24.76 as an Amazon Associate (buy something, people!) it looks like Amazon will get the Gabriel sale . . .

Wednesday, January 28, 2004 | 05:24 AM | Permalink | Comments (1) | TrackBack (0)
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Is the balance of scientific power shifting?

Friday, January 16, 2004 | 07:25 AM

"Will the United States' draconian response to the terrorist threat cause a fundamental shift in the international movement of researchers and perhaps even alter the global balance of scientific power?"

That's the very thought provoking question asked in an article over at Nature.com: Are we discouraging the greatest scientific assets we potentially could have here from setting up shop in the United States? What does this do to our technological advantages vis-a-vis other advanced nations?

Considering that the United States is the world's largest consumer of intellect, this has profound implications for our long term economic health.

click for larger graphic


"There have been enormous problems," says John Wright, who chairs the University of Wisconsin's chemistry department. Most of the students and postdocs whose applications to enter the United States have been questioned have eventually been let in. But Wright frets that the new immigration rules will deter future applications, weakening his department, which is currently considered among the best in the world. "The quality of research will decrease," he says.

People who were thinking about coming to the United States for graduate school are now thinking twice.

The United States is a nation of immigrants, and nowhere is this more evident than in the country's research labs. Strip away the legions of foreign PhD students, postdocs and tenure-track researchers, and the behemoth that is the US scientific enterprise would look much less impressive. What's more, in recent years, other countries have realized the value of attracting the best of the world's young researchers, and have started taking steps to compete more effectively in this marketplace. . ."

Consider this: Not only are we a "nation of immigrants," but so many of our leading technology companies -- especially in Silicon Valley -- are led (CEO/CTO/COO) by transplants from India, China and Taiwan. This will become even more acute as ever our technological industries require greater specific scientific knowledge -- Nanotechnology, Biotech, etc.

Our technological edge used to be a product of people Bachelor of Science Degrees -- tech and telecom engineers with an odd masters degree here and there. But the next generation of scientific advancements will veery likely be coming from Ph.D. and M.D. holders; Its the old saw about specialization, and its more true than ever: Advances are coming from people "who know more and more about less less."

"For some observers, these statistics are enough to set off alarm bells about the future health of US science. "We're at a critical juncture now, and I think everybody senses it," says Irving Lerch, director of international affairs with the American Physical Society in College Park, Maryland. Although the likely consequences of the visa delays remain a matter of debate, their main cause is clear new security procedures introduced following the terrorist attacks of 11 September 2001.

There's a perception that visas are too difficult to get and the United States is an unwelcome place - Victor Johnson

In the immediate aftermath of those events, the state department began expanding its 'Technology Alert List', designed to prevent dangerous technologies getting into the hands of terrorists or hostile states. It is now classified, but a version issued in August 2002 contained roughly 150 items, including such broad labels as 'microbiology', and common pieces of lab equipment such as low-energy lasers. So if you work on, say, infectious disease, or use relatively innocuous devices that have found their way onto the state department's list, your application to enter the United States is likely to be referred to the FBI and other federal agencies for a security review."

We are more than importers of oil and foreign made products; We are the world's largest consumers of intellectual firepower. Strategically, if the 9/11 attacks succeed even in the smallest way in stemming the tide of brainpower travelling to the U.S., they will have managed to cause far more economic damage -- over the long term -- than the physical destruction they wrought on that terrible day in NYC.

How significant of a problem is this? To give you an idea of what happens when the scientific and research talent of a nation decide to go elsewhere, consider Germany post-WWI. As David Warsh so cogently explains:

"Before the war, German science was superlative. Planck, Nernst and other members of the scientific elite correctly intuited that enormous power, economic and military, awaited those who solved the mysteries of quantum mechanics and special relativity. And indeed, not just the atom bomb but radar, television, semiconductors and computers lay directly down the path that Einstein had discovered. German science generally and Einstein himself remained in place throughout the 1920s, amid the frustrations, humiliations and froth of the Weimar Republic. For a dozen years, it seemed to the best Germans as though things might get better.

Instead they got worse — disastrously worse. In late 1932 the Nazis finally won control of the government. Before Hitler became chancellor, Einstein and his wife slipped out of Berlin on their way to Caltech for a semester of teaching, never to return. The rest is tragic dénouement. Most of the most talented people in German science left, and leadership shifted to United States. The Einsteins moved to the Institute for Advanced Study at Princeton; he spent the rest of his life on the sidelines."

Imagine if the same situation existed in professional sports: Any player could travel to any team they wanted -- regardless of existing contract. The best players would gravitate to the team with a combination of the best coaches, deepest bench, best stadiums, the smartest playbooks, and the highest salaries -- in short, the team that offered best chance to win and the greatest possibility of personal advancement. That team would be an unstoppable powerhouse.

Now transpose that metaphor to Science: The country with the greatest possibility for professional advancement, highest quality scientific research, broadest personal political freedoms, and the strongest economic incentives will attract the best scientific minds in the world. That has been the situation in the United States for the past 100 years or so. But that is what's at risk in the immediate future. It is, quite simply put, an extremely bad idea to put obstacles to the "brain supply chain" . . .

UPDATE: 1.18.04 10:23pm: Rob over at BusinessPundit notes that the Europeans are having a similar problem -- only for very different reasons.

As one door closes...
Geoff Brumfiel (with David Cyranoski, Carina Dennis, Jim Giles, Hannah Hoag and Quirin Schiermeier)
Nature 427, 190 - 195 (15 January 2004)

The Color of the Flower
David Warsh, Editor
economicprincipals.com, January 18, 2004

How To Plug Europe's Brain Drain
Jeff Chu
TIME, January 19, 2004 | Vol. 163 No. 3

Labor Supply and the "Brain Drain": Signs from Census 2000
Paul D. Gottlieb
The Brookings Institution, Center on Urban and Metropolitan Policy, January 2004

Friday, January 16, 2004 | 07:25 AM | Permalink | Comments (2) | TrackBack (3)
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Augmented Unemployment Rate

Saturday, January 10, 2004 | 06:42 PM

Total non-farm payroll employment, on a seasonally adjusted basis, was 130.1 million last month -- virtually unchanged. These disappointing employment numbers were barely moments old, when the excuse making began.

My favorite rationalization came from Tony Crescenzi (who's bond commentary I typically enjoy). TC had written a chest pounding missive a mere 24 hours prior, noting that the employment report could potentially yield 300,000 new jobs.

I've been wrong countless times; I can't recall being off by 99.7% in less than 24 hours recently (if ever).

In all fairness to Tony, he had written on Thursday "Such a [positive] report seems likely within the next three months, and we could even see it in the December employment report due Friday. A gain of nearly 300,000 is quite possible."

So his prediction could conceivably come true within the next 2 reports (February or March).

For more objective observers, this enormous disappointment is revealing of two things: First, the difficulty for traditional economists to make predictions in this very untraditional cycle. Predictions are difficult enough to make under the best of circumstances, especially when they are, as Yogi Berra noted, about the future. Given our perspective that this cycle is anything but normal, it is extrordinarily challenging to make reliable forecasts.

Secondly, the lack of new jobs reveals what a bogus stat the present "Unemployment Rate" is. Amongst the many Enron like statistics the government generates, this one is the silliest. Indeed, it is so misleading, that another statistic must be considered along side of it: "The Augmented Unemployment Rate."


Note that the actual unemployment rate is 9%. This is a more accurate measure of unemployment than new unemployment claims. Oh, it's as massaged as any other governmental statistical fiction; But at least its a measure of what the other fictions tries to hide: The hard number of unemployed workers. (For more details on how this number is constructed, see TheStreet.com's definition at bottom).

The Augmented Unemployment Rate includes the discouraged, the underemployed, the part timers. For anyone concerned with the macro impact of the labor pool as consumers, this number is for you. It also provides a more accurate detail as to the health of the Job market.

You can see why this distinction is so significance in Friday's Labor Situation report. The headline number looked good -- "unemployment" dropped to 5.7%. But the Labor Department reported that the "unemployment rate fell because hundreds of thousands of people gave up looking for work," The Washington Post noted. "The unemployment rate fell to 5.7 percent in December, a 14 month low, from 5.9 percent in November. But that reflected the decisions of 309,000 people to either stop working or stop looking for jobs, which means they are no longer counted as part of the labor force."

WaPo further observed that "the report dimmed growing optimism that the economy was expanding so robustly that job growth would come back strong." Not only was hiring flat in December, but previously reported figures were revised downward.

Here's the real problem: The 2001 recession officially lasted just eight months (March to November). Yet we see major employers continue to slash jobs. Even after massive stimulus prodded the economy to expand, business found ways to operate more efficiently. They are producing more goods and services, but with fewer workers. That's one reason we now have 2.4 million fewer jobs "than on the eve of the recession in February 2001, according to the Bureau of Labor Statistics."

It all falls back to whether this recession/recovery cycle is atypical or not. As noted yesterday, we had a longer than usual economic expansion, which included massive capital investment. This led to the world's largest speculative bubble ever. While it (temporarily) created enormous wealth, the bubble burst and the market collapsed. The Fed manipulated interest rates and money supply, artificially maintaining consumer spending, softening the blow of the downturn.

But alas, the piper must be paid. The businesses contraction continued, despite many interest rate cuts, until we reached historic levels of stimulus. That may be why the market reinflated, but the economy is not creating new jobs -- yet.

There is a silver lining in the form of "Temporary Employment" data -- the numbers continue to rise. That trend historically has been considered a precursor to permanent hiring. Hopefully, it foreshadows some kind of job creation.

But alas, it may not come to pass. Sung Won Sohn, chief economic officer for Wells Fargo, noted that temporary employment had risen by 30,000 jobs in December, and by 166,000 jobs in 2003: "Businesses appear to be hiring temporary workers increasingly as a substitute for permanent employees." Let's hope that this situation does not represent a permanent shift in employment practices.

In my entire career, I have never wanted to be more wrong about something than these present issues -- especially about the jobs aspect. I can't wait for someone to say to me in August of 2004, "See, you were wrong." Until then, this is the thesis I am working off of, all the while watching for signs which either confirm or contradict it.

The Street.com
Augmented Unemployment Rate

The Street.com
Economic Calendar: Jan. 5-9

Unemployment Rate Falls to 5.7%; Employers Added Just 1,000 New Jobs in December
Nell Henderson
Washington Post Staff, January 9, 2004

U.S. Department of Labor, Bureau of Labor Statistics
Employment Situation, December 2003

Odds Grow for a Blowout Jobs Report (sub req'd)
Tony Crescenzi
RealMoney.com, 01/08/2004 01:30 PM EST
URL: http://www.thestreet.com/p/rmoney/crescenzioncredit/10135790.html

Today's Employment Report Stands Alone (sub req'd)
Tony Crescenzi
RealMoney.com, 01/09/2004 02:35 PM EST
URL: http://www.thestreet.com/p/rmoney/crescenzioncredit/10136072.html

The Augmented Unemployment Rate:

"The augmented unemployment rate is a measure of labor-market conditions, devised by the Fed in 1999. It is an alternative to the regular unemployment rate, which has a narrower scope. Even so, the augmented unemployment rate still gets limited attention.

The regular unemployment rate, a component of the employment report, is calculated by dividing the (seasonally adjusted) number of unemployed by the labor force, which consists of the employed and the unemployed.

unemployment rate = unemployed / labor force

The augmented unemployment rate also takes into account jobless people who aren't counted among the officially unemployed because they haven't searched for work lately, but who would take a job if offered one. Call them job-wanters. It adds the job-wanters to the officially unemployed, and divides the sum by the sum of the labor force and the job-wanters.

augmented unemployment rate = (job-wanters + unemployed) / (labor force + job-wanters)

The Fed's Humphrey-Hawkins report began including this version of the augmented unemployment rate in February 1999.

As with the regular unemployment rate, the components of the augmented unemployment rate can be found in the employment report. Seasonally adjusted figures for the labor force, the employed, the unemployed and "persons who currently want a job" can be found in Table A-1.

The sum of the officially unemployed and the job-wanters is referred to by Fed officials as "the pool of available workers," and some newswires have begun to report the change in this total from the previous month.

via The Street.com

Thanks to Barry Hyman, Investment Strategist, BHI for the starting point on this.

Saturday, January 10, 2004 | 06:42 PM | Permalink | Comments (6) | TrackBack (6)
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