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Thomas Sowell lists 28 of his favorite quotations on his website, and these are three of my favorites from his list:
1. “Half the harm that is done in this world is due to people who want to feel important. They don’t mean to do harm– but the harm does not interest them. Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves.” ~T.S. Eliot
2. “Everybody has asked the question. . .’What shall we do with the Negro?’ I have had but one answer from the beginning. Do nothing with us! Your doing with us has already played the mischief with us. Do nothing with us! If the apples will not remain on the tree of their own strength, if they are wormeaten at the core, if they are early ripe and disposed to fall, let them fall! I am not for tying or fastening them on the tree in any way, except by nature’s plan, and if they will not stay there, let them fall. And if the Negro cannot stand on his own legs, let him fall also. All I ask is, give him a chance to stand on his own legs! Let him alone!” ~Frederick Douglass
3. “Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.” ~C. S. Lewis
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|Rank||Company||Market Cap (B)||Country||Market Cap (B)|
|4||Berkshire Hathaway||$360||Europe (Euronext)||$3,319|
|5||Microsoft Corporation||$348||Hong Kong||$3,233|
|6||Johnson & Johnson||$287||Canada||$2,094|
|7||Wells Fargo & Co.||$282||China||$2,072|
|10||Procter & Gamble||$231||Switzerland||$1,495|
|11||JP Morgan Chase||$216||Australia||$1,289|
|15||Verizon Communications||$205||South Africa||$934|
|19||Bank of America||$173||Saudi Arabia||$483|
Sources: Yahoo!Finance and the World Federation of Exchanges
I’ve written a series of posts trying to put into perspective how ridiculously large the nearly $18 trillion US economy (measured by GDP) really is, by comparing the economic output of large US metro areas to the GDPs of entire countries here and by comparing the economic size of US states to the GDP of entire countries here.
The table above display data that help put into perspective how ridiculously big the largest US companies are, by comparing their market capitalizations (the market value of all shares outstanding) to the values of the entire stock markets of various countries. Here are some observations:
1. America’s largest company by market capitalization is Apple with a current valuation of $693 billion. That market cap of one US company is more than the market capitalization of the entire stock markets of Saudi Arabia ($483 billion) and Mexico ($480 billion). Although not shown here, Apple’s market cap is also greater than the entire stock markets of Thailand ($430 billion), Indonesia ($422 billion) and Russia ($386 billion).
2. The market capitalization of America’s two largest companies, Apple and ExxonMobil, at more than $1 trillion, is greater than the entire stock markets of Spain ($993 billion), South Africa ($934 billion) and Taiwan ($851 billion).
3. The market capitalization of America’s three largest companies (Apple, ExxonMobil and Google) at more than $1.4 trillion is greater than the entire stock market of Australia and is worth almost as much as all of the stocks traded on the Swiss stock exchange (nearly $1.5 trillion).
4. As a separate country, the market capitalization of America’s 10 largest companies at $3.475 trillion would be the fourth largest stock market in the world, ahead of Euronext (Netherlands, Belgium, UK, France and Portugal), Hong Kong and Canada, and just behind China.
5. As a separate country, the market capitalization of America’s 20 largest companies at $5.4 trillion would be the second largest stock market in the world, ahead of No. 3 Japan ($4.4 trillion) and behind only the valuation of the entire US stock market (NYSE and NASDAQ).
6. The market capitalization of all US stocks at $26.3 trillion is equal to the combined value of the next ten largest stock markets that includes all of the countries from No. 2 Japan through No. 11 Australia. (HT: Citizen Buddy in the comments.)
Bottom Line: We can think of the market capitalization of a company’s stock as a market-determined measure of the value that company creates for consumers – the greater value created for consumers, the more profits generated, the higher the stock price and the greater the market capitalization. Ultimately, it’s the dollar votes cast by consumers everyday in the marketplace that determine a company’s profits, stock price and market capitalization. Companies like Apple, ExxonMobil, Microsoft, Google and Walmart are worth billions of dollars individually, and trillions of dollars collectively, because they have been successful at creating billions of dollars in value for millions of consumers. And in the global marketplace, nobody has been more successful at creating value for consumers than America’s largest companies, which is reflected in the fact that many of our individual companies have a greater market valuation than the combined value of all of the companies publicly traded on the stock exchanges of many other countries.
To paraphrase author Gregory Zuckerman when he described surging American energy production: For all of the criticism the country has fielded for losing its edge in innovation, the ridiculously large market valuation of American companies outlined in the table above is a reminder of the deep pools of ingenuity, risk taking, and consumer-driven entrepreneurship that remain in the country. The successes of American corporations is attributable to creativity, bravado, and a strong desire to get really wealthy. It doesn’t get more American than that. Indeed, the huge rewards promised in the market-driven American economy provide strong incentives for the remarkable achievement that is reflected in market valuations for American companies that top hundreds of billions of dollars in dozens of cases. The market caps of America’s largest companies are ridiculously large because they are ridiculously successful, more than companies anywhere else on the planet, at creating value for consumers here and across the globe.
US middle class has disappeared into higher-income groups; recent stagnation explained by changing household demographics?
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Over the last few years, I’ve featured a series of posts analyzing the distribution of US household incomes by the shares of various income categories, see the most recent post here. In those posts I alternatively calculated the category “middle-income” as: a) $25,000 to $75,000, b) $35,000 to $75,000 and c) $50,000 to $100,000 based on Census Bureau data on household income available here. Regardless of the exact measure of “middle-income,” I was able to show that the share of “middle-income” American households has been declining since the mid-1960s — not because more households were falling into a “lower-income” category, but rather because more and more US households were moving into an “upper-income” category.
A recent New York Times article has re-visited this topic, and the article’s title reveals their rather pessimistic conclusion that the “Middle Class Shrinks Further as More Fall Out Instead of Climbing Up.” Here’s how the article starts:
The middle class that President Obama identified in his State of the Union speech last week as the foundation of the American economy has been shrinking for almost half a century. In the late 1960s, more than half of the households in the United States were squarely in the middle, earning, in today’s dollars, $35,000 to $100,000 a year. Few people noticed or cared as the size of that group began to fall, because the shift was primarily caused by more Americans climbing the economic ladder into upper-income brackets.
But since 2000, the middle-class share of households has continued to narrow, the main reason being that more people have fallen to the bottom. At the same time, fewer of those in this group fit the traditional image of a married couple with children at home, a gap increasingly filled by the elderly.
This social upheaval helps explain why the president focused on reviving the middle class, offering a raft of proposals squarely aimed at concerns like paying for a college education, taking parental leave, affording child care and buying a home.
The New York Times uses the income category $35,000 to $100,000 (in constant 2013 dollars) as its definition of “middle class” household income, and the chart above shows that income group’s share of all US households in every year from 1967 to 2013, along with the annual shares of “lower-income” households (below $35,000) and “upper-income” households (above $100,000). Here’s what the data show:
1. From 53% in 1967 (and a slightly higher 54.7% in 1968), the share of “middle-income” US households earning between $35,000 and $100,000 (in 2013 dollars) has been gradually decreasing over the last half-century as the NY Times points out. Over the 47-year period between 1967 and 2013, the share of “middle-income” American households has fallen by ten percentage points, from 53% in 1967 to about 43% in 2013. So the Census Bureau data on household income reveal a definite decline in the share of “middle class” households in America, confirming the reports we hear all the time about the “disappearing middle class” (47,000 results from a Google search).
2. But where did the disappearing middle class go? Did they fall into the lower-income category? Not at all, because the share of “lower-income” US households earning less than $35,000 also fell over the last 47 years by about five percentage points, from 39.3% of all US households in 1967 to 34.4% of households in 2013.
3. The biggest shift in household income between 1967 and 2013 took place for the share of American households earning $100,000 or more, which almost tripled from only a 7.7% share of US households in 1967 (1 in 13 households) to a 22.5% share of US households in 2013 (almost one in four). That nearly 15 percentage point increase in the share of US households earning $100,000 or more between 1967 and 2013 (from 7.7% to 22.5%) came about from a 10 percentage point decline in middle-income households (from 53% to 43%) and a 5 percentage point decline in lower-income households (from 39.3% to 34.4%). So as I concluded before, a large part of the middle class did disappear, but they didn’t fall down to a lower-income class, they rose into the upper-income class!
4. Here’s another way to understand the dynamic income shift over the last half century that elevated millions of American households into a higher income category. Whereas “middle class” US households were so numerous in 1967 that they outnumbered “upper class” US households by a ratio of almost 7-to-1, so many American “middle class” households had moved to the “upper class” by 2013 that the ratio of middle-income to upper-income households had fallen to less than 2-to-1. Stated differently, in 1969 there were almost 700 “middle class” US households to every 100 “upper-income” households; but by 2013 there were fewer than 200 “middle class” households per 100 “upper-income” households reflecting the movement of millions of US households who had climbed up the economic ladder to a higher income group. It was an amazing period of increased prosperity, upward mobility and an unprecedented increase in the number and share of American households going from “middle class” to “upper class.” The NY Times does acknowledge that many Americans were rising into higher income brackets through the last part of the last century, but focuses mostly on the recent stall in that rise since the turn of the century.
It’s evident in the graph above that the income shares of US households have stabilized in recent years and that the upward trend in the share of upper-income US households flattened out starting around the turn of the century. It’s also the case that the share of US households in the lower-income category stopped declining around 2000 and has increased from 30.7% in 2000 to 35% in 2011 before declining to 34.4% in 2013. In other words, over the last decade it does appear that the previous positive trends that were characterized by a shift of US households from lower-income and middle-income categories into the upper-income category have stalled. But that recent stagnation shouldn’t stop us from appreciating the fact that over a longer period of time, Census data on income distribution reveal evidence of rising income levels for a rising share of American households as the chart above illustrates.
Question: What accounts for the recent struggles of the middle class and stagnating median household income (see chart above) that the New York Times describes as a “social upheaval” from more households “falling to the bottom”? Here are five possible demographic reasons that could explain why median household income has stagnated over the last decade, and which therefore might help explain the claims about a “shrinking and struggling middle class.”
1. The Census Bureau measures “household income” and not “household compensation.” As fringe benefits, especially medical care coverage and health insurance, make up an increasing share of employee compensation, it’s likely that employee compensation, and therefore “household compensation,” has been increasing over time for most US households even though money household income has been stagnant.
The size and composition of households have changed over time in fundamental ways that distort a comparison of “median household income” over time. For example:
2. The average household size has decreased from 3.28 members in 1967 to 2.62 members in 2000 to a record low 2.54 members in 2013.
3. The share of households with two earners has decreased from 45% in 2000 to only about 39% in 2013, while the share of households with one earners increased from 35% to 37%, and the share of households with no earners increased 20% to 23.7% over that same period (see chart above). Those changes have taken place over the last decade during the exact same period that median household income has stagnated or fallen.
4. Retirees as a share of the US population have increased from 14.75% in 2003 to a record high 16.6% in 2013. That demographic shift has also taken place at the same time that real US median household income has declined (see chart above).
5. The number of average weekly work hours per household declined by more than 10% between 2000 and 2013, from 48.3 hours in 2000 to 43.3 hours in 2013, which would potentially help explain a large part of the 8.6% decline in real median household income over that period (see chart above).
Bottom Line: In other words, important demographic changes that have taken place over the last decade or longer might account for stagnating household income because the average US household today, compared to a household even a decade ago, is: a) smaller, b) has fewer earners on average and is more likely to have no earners, c) is more likely to be a retiree household on a fixed income, d) contributes fewer average weekly work hours, and e) receives a greater share of their compensation in the form of non-taxable fringe benefits.
Therefore, isn’t it possible that the “social upheaval” that has taken place over the last decade is really an “upheaval” in the size, composition and characteristics of a typical US “household” and not necessarily an era of reduced economic opportunities and less upward mobility for the middle class? At the very least, in any discussion about the “middle class” and “household income” we have to recognize that an “American household” is a dynamic concept that is constantly evolving and changing over time, and therefore distorts any comparisons between household incomes today to those of a decade or a generation ago.
Note: The New York Times did some ten-year demographic income trend comparisons based on household differences in age, education, race and family status, but didn’t really address the issue that the composition and characteristics of US households have changed quite dramatically over time, especially in the last decade.
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Proponents of the
minimum wage law government-mandated wage floor that guarantees reduced employment opportunities for America’s teenagers and low-skilled workers can’t possibly anticipate in advance all of the adverse and unintended consequences of artificially raising wages for unskilled and low-skilled workers. As an example of an adverse and unintended consequence that the citizenry of San Francisco didn’t anticipate last November when they overwhelmingly voted to increase the city’s minimum wage to $15 per hour by 2018, a San Francisco book store is closing. Reason? There’s a limit to how much a bookstore can increase book prices to offset higher labor costs because the publisher sets the list price of the book and it’s printed on the book cover.
From the website of Borderlands Books:
Borderlands is closing.
In 18 years of business, Borderlands has faced a number of challenges. The first and clearest was in 2000, when our landlord increased our rent by 100% and we had to move to our current location on Valencia Street. The steady movement towards online shopping, mostly with Amazon, has taken a steady toll on bookstores throughout the world and Borderlands was no exception. After that and related to it, has been the shift towards ebooks and electronic reading devices. And finally the Great Recession of 2009 hit us very hard, especially since we had just opened a new aspect to the business in the form of our cafe.
But, through all those challenges, we’ve managed to find a way forward and 2014 was the best year we’ve ever had. Overall, Borderlands has managed to defeat every problem that has come our way. At the beginning of 2014, the future of the business looked, if not rosy, at least stable and very positive. We were not in debt, sales were meeting expenses and even allowing a small profit, and, perhaps most importantly, the staff and procedures at both the bookstore and the cafe were well established and working smoothly.
So it fills us with sorrow and horror to say that we will be closing very soon.
In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018. Although all of us at Borderlands support the concept of a living wage in principal and we believe that it’s possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage. Consequently we will be closing our doors no later than March 31st.
Many businesses can make adjustments to allow for increased wages. The cafe side of Borderlands, for example, should have no difficulty at all. Viability is simply a matter of increasing prices. And, since all the other cafes in the city will be under the same pressure, all the prices will float upwards. But books are a special case because the price is set by the publisher and printed on the book. Furthermore, for years part of the challenge for brick-and-mortar bookstores is that companies like Amazon.com have made it difficult to get people to pay retail prices. So it is inconceivable to adjust our prices upwards to cover increased wages.
The change in minimum wage will mean our payroll will increase roughly 39%. That increase will in turn bring up our total operating expenses by 18%. To make up for that expense, we would need to increase our sales by a minimum of 20%. We do not believe that is a realistic possibility for a bookstore in San Francisco at this time.
The other obvious alternative to increasing sales would be to decrease expenses. The only way to accomplish the amount of savings needed would be to reduce our staff to: the current management (Alan Beatts and Jude Feldman), and one other part-time employee. Alan would need to take over most of Jude’s administrative responsibilities and Jude would work the counter five to six days per week. Taking all those steps would allow management to increase their work hours by 50-75% while continuing to make roughly the same modest amount that they make now (by way of example, Alan’s salary was $28,000 last year). That’s not an option for obvious reasons and for at least one less obvious one — at the planned minimum wage in 2018, either of them could earn more than their current salary working only 40 hours per week at a much less demanding job that paid minimum wage.
Although the major effects of the increasing minimum wage won’t be felt for a while, we’ve chosen to close now instead of waiting for two reasons. First, the minimum wage has already increased from $10.74 per hour to $11.05 (as of January 1st) and it will increase again on May 1 to $12.25. Continuing to pay the higher wage without any corresponding increase in income will expend the store’s cash assets. In essence, the store will have less money (or inventory) six months from now, so closing sooner rather than later makes better business sense. But more importantly, keeping up our morale and continuing to serve our customers while knowing that we are going to close has been very painful for all of us over the past three months. Continuing to do so for even longer would be horrible. Far better to close at a time of our choosing, keep everyone’s sorrow to a minimum, and then get on with our lives.
Bottom Line: Over several decades, Borderlands Books was able to survive a 100% rent increase, the effects of the Great Recession, and competition from Amazon, ebooks and electronic reading devices. But they won’t be able to survive the voter-endorsed
minimum wage law government-mandated wage floor that guarantees bookstores in the city will be forced to close down. And Borderlands Books is probably not an isolated case – many of the other book stores in San Francisco will likely face the same fate. In other words, the economic lesson here is “minimum wage, maximum sorrow” for San Francisco book stores.
HT: Charles Platt
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The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor.
The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequences of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by the consumers.
The consumers are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.
Here’s how I explained the role of ruthless consumers and the concept of “consumer greed” in a 2002 article for the Mackinac Center:
Here’s a dirty little secret about capitalism: consumers, not corporations, run the show. If you find something about the marketplace objectionable, it would be more appropriate to blame those who actually call the shots: the ruthless, cutthroat, and disloyal American consumers.Consumers are the kings and queens of the market economy, and ultimately they reign supreme over corporations and their employees. When corporations make mistakes and introduce products that consumers don’t want, which happens frequently, you can count on consumers voicing their opinions forcefully and immediately by their lack of spending.In a market economy, it is consumers, not businesses, who ultimately make all of the decisions. When they vote in the marketplace with their dollars, consumers decide which products, businesses, and industries survive—and which ones fail. It is therefore consumers who indirectly but ultimately make the hiring and firing decisions, not corporations. After all, corporations can make no money, hire no people, and pay no taxes unless somebody, sooner or later, buys their products.What consumer sovereignty in a free marketplace translates into is each person husbanding his resources for the greatest benefit to himself and his family, which in turn translates into the greatest efficiency in the consumption of the world’s scarce resources. If you don’t like the message of the marketplace, don’t assume that corporations and greed are to blame while consumer behavior and consumer greed play no role in the outcome. We should be thankful, in fact, that the marketplace puts consumers on such a powerful pedestal.
Bottom Line: Consumers ultimately run the market economy, and for that we should be thankful. Because what’s the alternative? The alternative is allow producers to run the economy, inevitably with the assistance of their government enablers who help erect barriers to entry and restrict competition for producers in the form of occupational licensing, protectionist trade barriers, artificial limits on the number of firms allowed to operate (e.g. taxi cartels), etc. In other words, the alternative to consumers running a capitalist market economy, is to have producers running an economy based on the corrupt, anti-consumer principles of “crony capitalism.”
Texas, the ‘great American job machine,’ is largely responsible for the +1.2M net US job increase since 2007
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The Texas Workforce Commission released state employment data today for the month of December, and job growth in the Lone Star State continues to lead, and in fact carry the nation’s improving labor market as the chart above shows. Here are some highlights of the December employment report for Texas:
1. Texas ended the year with the state’s largest ever year-over-year payroll gain with the eye-popping addition of 457,900 new jobs between December 2013 and December 2014. That’s more than 1,700 new payroll jobs that were added every business day last year in the Lone Star State, and 220 new jobs every business hour or almost 4 new jobs added every minute!
2. In just the last month of December, which marked the 51st consecutive month of employment growth, Texas added 45,700 new payroll jobs, which was more than 2,000 jobs every business day, almost 260 jobs every hour, and more than 4 new jobs every minute! The strong job growth in December brought the state’s jobless rate down to 4.6%, the lowest Texas unemployment rate since May 2008.
3. Total December employment in the Lone Star State reached a new record high of 12.45 million workers (11.783 million nonfarm payroll jobs and another 667,000 self-employed and farm workers), which was above the December 2007 level by 1,444,290 jobs (and by 13.1%), see chart above. In contrast, total employment at the end of the year in the rest of the country (US minus Texas) still remained 275,290 jobs below the pre-recession, December 2007 level (see chart above).
It’s a pretty impressive story of how job creation in just one state – Texas – has made such a significant contribution to the 1.169 million net increase in total US employment (+1,444,290 Texas jobs minus the 275,290 non-Texas job loss) in the seven year period between the start of the Great Recession in December 2007 and December 2014. The other 49 states and the District of Columbia together employ about 275,000 fewer Americans than at the start of the recession seven years ago, while the Lone Star State has added more than 1.25 million payroll jobs and more than 190,000 non-payroll jobs (primarily self-employed and farm workers).
And while the oil and gas boom has certainly contributed to making Texas the nation’s No. 1 job creating state by far, the job gains in the Lone Star State have been pretty broadly based across many different sectors and industries. In percentage terms, the 11.5% payroll job gain in the “mining and logging” sector led the state’s 11 industries for job growth last year as that sector added 4,900 new jobs in 2014. An even greater absolute number of new jobs – 47,500 – were added in the state’s booming construction industry, which grew by 7.7% last year. As one example that highlights the construction boom in Texas, there were more permits for single-family homes issued last year through November in just one Texas city – Houston (34,566) – than in the entire state of California (34,035) over the same period. Other sectors with job growth last year above the state’s average payroll increase of 4% include financial activities (+5.1% and +34,800 new jobs) and professional and business services (+5.8% and +85,800 new jobs).
Bottom Line: Texas clearly deserves the title of America’s “economic miracle state.” It’s the most important energy-producing state in the US, and now produces so much crude oil that the state’s daily production of more than 3 million barrels represents more than 37% of the nation’s crude oil and would rank the Lone Star State as the world’s sixth largest oil producer as a separate country. Along with the gusher of shale oil and gas in Texas has come a gusher of more than 1.44 million new jobs since the start of the Great Recession, while the rest of the US hasn’t even yet recovered all of the non-Texas jobs lost during the recession, and employs 275,000 fewer people than in December 2007. Without the strong support of the Texas job machine and without the economic stimulus of the perfectly-timed shale revolution, the Great Recession would have been much longer and more severe, and the current US economic recovery and job market would be much weaker than it is today. Simply put, “Saudi Texas” is the shining star of The Great American Shale Boom, and the American state at the forefront of the US economic recovery.