Bottom-Fishing among States for Real Estate

The state unemployment numbers for December, released today, show some numbers significantly lower than one year ago. Six states that have unemployment rates above the national average showed changes in their unemployment rates of 1.2 percentage points or higher. See Table C at www.bls.gov, today's (January 24) press release.

These six states are shown in the table below, which is abbreviated from Table C of the BLS release and has the states sorted by percentage-point change.

States with statistically significant unemployment rate changes from December 2010 to December 2011, seasonally adjusted, and with unemployment rates above the national average; sorted by change in unemployment.

-----------------------------------------------------------

                                |    Rate   | Over-the-year 

             State              |  December |   change(p)

                                |  2011(p)  |               

-----------------------------------------------------------

Nevada .........................|    12.6   |      -2.3     

Florida ........................|     9.9   |      -2.1     

Michigan .......................|     9.3   |      -1.8     

South Carolina .................|     9.5   |      -1.4     

California .....................|    11.1   |      -1.4     

Kentucky .......................|     9.1   |      -1.2     

-----------------------------------------------------------

   p = preliminary.

If one were bottom-fishing for real estate bargains based on state averages, these states would be worth investigating because without looking at any other information, a substantial drop in unemployment is a highly favorable economic indicator.

However, where unemployment rates are still in double digits, as in Nevada and California, recovery is further away. 

California, Florida and Nevada were (along with Arizona) hit especially hard by a decline is housing prices. Michigan was affected more by the downturn in the auto industry.

Naturally, state averages are just a first step in an analysis. Within a large state, indicators can vary widely. County data, for example, show that California's Silicon Valley (Santa Clara County) is recovering faster than the state as a whole.

Economic Indicator for the One Percent - Key West's 25th Annual Race Week

Putting up the divisional bulletin boards.

Here is an indicator of the prosperity of the One Percent - the density of yacht racers. The first big yacht regatta of 2012 is the Key West Race Week. According to the race staff I spoke with in Key West, recent attendance has been declining:
Peak year - 320 boats
2011 - 135 boats
2012 (expected) - 125 boats
2012 actual number of boats - 112.

I took some photos of the Key West headquarters, where the three divisional bulletin boards were being nailed up (see photo). They close off an entire street during Race Week. 

Interviews with Premiere Racing, the Key West race manager, explicitly mention the poor economy as the reason for the decline in boat entrants. For example, last May there was a question to the organizer, Peter Craig, about Race Week cutting back from five to four days after the 2011 dropoff, or even continuing at all. The question continues to be asked and a four-day race may emerge for some boats. The key to the event is in the sponsorships and Craig was confident in mid-2011 that he would assemble a good sponsor list for the 25th annual Race Week, his 19th. He has done this! Nautica was the title sponsor in 2010. Quantum Sail Design Group is in 2012. Kelly's Bar and Brewery (the "southernmost" brewery not counting Hawaii) is the headquarters venue.

The headquarters venue, Kelly's

The number of boat entrants depends on many factors, such as the number of new boat designs, the number of designs not competing any longer, and the number of boats entering in each of the main boat classes. But overall the number of boats is related to the economy and the willingness of boat owners to spend the money and time to get down to Key West for a week. An economic recovery in 2012 can’t come too soon for event organizers anywhere. I don't know Premiere Racing's burn rate, and he may be able to carry on indefinitely, but Craig told an interviewer that he has to recreate his sponsorship and financing every year. To paraphrase a comment attributed to the great economist Lord Keynes:

An event organizer can go broke while the One Percent are postponing a traditional activity for just a few years.

If you want to follow this colorful event, go to Quantum's blogspot page and sign on for one of the various real time reports of the race.

What OWS Has Done for NYC and Vice Versa

Occupy Wall Street from the start showed a genius for branding worthy of the best of Madison Avenue. The original call by Adbusters to bring people to Wall Street on September 17, 2011 combined the language of collective decision-making with a forceful image of an assembly target.

Picasso, Acrobat on a Ball

OWS, Ballerina on a Bull

The photo collage of a "Ballerina on a Bull" (at left; my title) echoes Pablo Picasso's 1905 "Acrobat on a Ball" (at right), with its juxtaposition of slender flexibility and awesome strength.The Picasso painting has been on display at the Prado in Madrid all of 2011, on loan from the Moscow State Pushkin Museum of Fine Arts.

My wife Alice and I were in Spain, celebrating our 40th wedding anniversary, on the day OWS came to NYC. The  Picasso was heavily advertised and it was a magnet that attracted us to the Prado. In early October I posted a comment on the painting's power. As we left the Prado we were engulfed in a crowd of protesting teachers, angry about the layoffs imposed on Spain by EU deficit-cutting strictures. One banner said (in English): “If you don’t like the cost of education, wait till you discover the cost of ignorance."

When we returned to NYC, we found Mayor Bloomberg expressing concern that the OWS encampment would cost the City economic growth because tourists would stop coming to New York. This would indeed be a valid fear if the OWS protest was violent or out of control, as in London. But the OWS occupation has been a peaceful protest in the spirit of Martin Luther King.

I wondered whether the OWS presence might actually be a little gift, a magnet, attracting tourists to visit rather than repelling them. In fact, tourists have been asking NYC tour buses to be sure to go by the location of the OWS camp. When the camp was there, tourists were getting out of the buses to walk around and take pictures. They often outnumbered visible protesters. Columbia Journalism student Judy Le's short documentary shows this, and includes the Mayor's statement of concern about the impact of OWS on tourism.  Take three minutes to watch this well-constructed and engaging "Occupy Tourism" video.

The photo below shows the OWS kitchen plan for three meals a day through November 13. Two days later, the NYPD cleared the area and the NY State judiciary ruled OWS was not to be allowed back. At midnight on December 31, about 500 protesters tried to re-occupy the park, and failed.

OWS kitchen schedule for November 7-13. (Photo by JTM)

The OWS story is not over. It continues to annoy the Mayor and NYPD Commissioner Kelly. Keeping track of protesters in the cell-phone and Twitter era must be a challenge. But the NYPD's capabilities in this area are second to none.

So far, I argue that OWS has had some value for NYC. The fact that an anti-Wall Street group was allowed to protest peacefully for many weeks is evidence that Wall Street coexists here with people of conscience.

The OWS has benefited as well. It was given a few weeks to remind people of the systemic risk-taking that brought down the world financial system. They came here because many of the riskiest (reckless) bets were placed  downtown. AIG has since sold its biggest buildings at 70 Pine and 72 Wall, but the credit default swaps were engineered in lower Manhattan.

The nation has benefited as the OWS impact has rippled outward, and its message echoed. It has helped turn around the public debate. The full-throated call for immediate deficit-cutting has abated, as it should, since it is counterproductive in the context of continuing high unemployment rates. Issues about American inequality of opportunity and lack of mobility for the  "99%" (another brilliant bit of branding) are being brought before the public more widely and aggressively than I can remember in my lifetime.  President Obama has been emboldened to make an overdue recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau.

Meanwhile, on the specific concern about about the impact of OWS on tourism, the numbers coming in indicate that fear of tourist cancellations is unfounded. The Mayor has announced that his goal of exceeding 50 million tourists for the first time in 2011 will be easily surpassed and New York City for the third successive year is the Number 1 tourism destination in the United States. Jobs associated with tourism - the "leisure and hospitality" industry - have continued to rise rapidly in NYC through the final month of the OWS camp. In the table below, note how much faster these jobs have grown in NYC compared with the nation, the state, and other parts of the NYC metro area.

Tourism-Related Jobs (Leisure and Hospitality)
November 2011 over November 2010

Not Seasonally Adjusted	Change  %
United States	1.9%
NY State	3.0%
NYC Metro Area-North NJ-Long Island	1.9%
Nassau-Suffolk (Long Island)	-4.2%
NYC Division-White Plains-Wayne NJ	3.2%
Newark-Union NJ	2.9%
New York City	3.7%

Sources: BLS, Press Release, Dec. 15, 2011. NY Area Employment, Nov. 2011, Jan. 4, 2012. 

These numbers (and many others) are not consistent with a narrative of widespread cancellation of conventions or trips. Tourists do not seem to have been scared away by the OWS presence in September-November 2011. Rather, they have asked the tour operators to please bring them by so they can see for themselves and (in the words of a tourist in the Judy Le video) "be part of history in the making". In November the number of new tourism-related jobs in NYC compared with the same month a year earlier was close to 13,000, nearly twice as many as the equivalent increase one year ago.

So thank you, OWS and Mayor Bloomberg and Commissioner Kelly, for keeping the protest basically  within nonviolent boundaries. The British (and Canadians and Australians) are still coming! To broaden the base of foreign tourists coming here - they are the biggest spenders and many are facing economic issues back home - we must focus on making it easier for more of them to get visas to make the trip.

How Candy Cigarettes Contribute to the U.S. Budget Deficit

Exhibit A. Candy Cigarettes for Sale

Gawker in 2010 said farewell to candy cigarettes. But the death of these products was exaggerated. They are still for sale. I would argue they have a high social cost and contribute to the  U.S. budget deficit.  Bear with me. Follow the dots from 1 to 4...

1. Candy Cigarettes for Sale Today to Children

Exhibit A at left is a product clearly marketed to children on several sites via Amazon, accessed in December 2011. Pre-pubescent children are pictured smiling at "World's King Size Candy". The candy cigarettes are wrapped in packs that look just like packs of cigarettes and have markings that imitate those of regular cigarettes. The candy does not have the red tip you may remember from your childhood, because, says a major candy-cigarette manufacturer (Blair), of a "Gov[ernment] ruling". The product, 24 packs of candy cigarettes in three rows of eight, weighs two pounds and costs about $5, sometimes more.

2. U.S. Budget Deficits Attributed to Rising Health Care Costs

Now let us turn to the budget deficit. Exhibit B was shown by an undoubted expert on U.S. deficits, Dr. Peter R. Orszag. He headed up the Congressional Budget Office from 2007 to 2009. Then he was appointed by President Obama as Director of the Office of Management and Budget.

Exhibit B. Health Care Costs Key to Budget Deficits

On November 15, Dr. Orszag explained to the New York Association for Business Economics (he is now Vice Chairman of Global Banking for Citigroup in New York) how medical care costs are almost entirely responsible for the worrisome federal budget deficit projections. The chart above, based on data from the Congressional Budget Office, makes clear that as a share of GDP, projected Federal spending on activities other than health care is not showing much of an increase. 


No, the scary projections of growing spending (and therefore growing deficits) come from one major spending sector, health care costs. Spending is shown in the chart as growing from 20 percent of GDP in 2007 to to one-third of GDP in 2082. But the growth is all in the top layer of spending, i.e., Medicare and Medicaid.


NYU Professor William Baumol warned 20 years ago that the cost of education and health care have been growing unsustainably because of the "cost disease" of high-labor-input activities such as teaching and medical care. The technological innovation and cost savings from international trade have made many items cheaper over time. But the labor inputs in health care have been much harder to reduce through technology or innovation. To bring health care costs under control will be a huge challenge for the U.S. government and medical-care providers. The options are limited. They include reducing the cost of health care procedures or rationing them. The other range of options is to limit demand for health-care services by providing more education to the public and doctors about the potential for making healthy life-style choices. Or the government could develop incentives for the public (consumers of health care services) to make better lifestyle or health-care choices.


3. Cigarette Smoking and Calorie-Heavy Eating Learned in Childhood

Two of the big drivers of higher health-care costs are cigarette smoking, which is usually begun during teen years, and obesity, especially an epidemic of childhood obesity. Private health and life insurers recognize the need to rein in these costs, and many give discounts to nonsmokers. The State of Arizona is probably the first state government to propose charging childless adults on Medicaid who smoke a $50 fee as partial compensation for the extra burden they impose on the state's health system. Here is Arizona's rationale, which includes a reference to medical problems caused by obesity.

Since the beginning of the recession, unemployment increased, State revenues decreased and enrollment in Arizona’s Medicaid program increased by more than 30%. The Medicaid program now makes up nearly a third of the State’s budget – second only to K-12 education. According to the Centers for Disease Control (CDC), 49% of Medicaid recipients smoke, in sharp contrast to the approximately 16% of Arizonans overall who are smokers; 25% of all Arizonans are obese. But what do those figures mean in terms of the cost of our health care? In 2004, taxpayers spent $377 million on smoking-attributable expenditures for the Medicaid population. Meanwhile, annual per capita medical spending for an individual who is considered obese is 42% higher than for someone who is of normal weight. That percentage translated to roughly $148 billion nationally in obesity-attributable medical spending in 2008.

The huge problem with smoking and obesity is that they are easy to start and hard to stop. Smoking cigarettes is addictive. Obesity, it turns out, is hard to reverse. A child that is obese is almost certainly going to be an adult that is obese. Pounds are easy to add and hard to shed.

A child that is eats poorly and does not exercise and becomes obese may as a teenager take to cigarettes because they don't add calories. The United States has a national challenge to tackle both teenage obesity and teenage smoking.  

4. The Social Costs of Candy Cigarettes Far Exceed Their Price

Given the role of health care costs in the economy, and the role of smoking and obesity in Federal, state and local government health care budgets, the true cost of candy cigarettes exceeds the price that consumers pay of $5 per carton or 20 cents per pack. The additional social cost is called a "detrimental externality" or a "negative externality" to the product. It is the cost of attaching glamor to cigarettes, of getting children used to something pleasurable continually in the mouth.


The connection created between cigarettes and candy goes both ways:
- It gets children used to taking long thin sticks out of convenient branded packs and putting them in their mouth for pleasure. This creates a predisposition for cigarette smoking among teenagers.
- It lends the stimulus of widespread advertising of cigarettes to candy. This encourages consumption of candy.


Remedies


If you are with me so far, the three approaches to changing public behavior are (1) a ban on candy cigarettes, (2) a tax, (3) exhortation to parents not to buy this product.
 
I thought maybe exhortation might work. So I put my head into the lion's den and posted some negative comments about candy cigarettes on the review page of a candy-cigarette product offered on Amazon. I asked: "What is the point of the candy cigarettes?" and I answered: "The point seems to be to get kids used to having a cigarette in their mouths..."


Here is a summary of the response I got:

- Of the 56 people who had commented on my review when I last looked, all of whom were presumably looking to buy candy cigarettes, none of them found my review helpful. That probably should not be a surprise, since some of the commenters may have an interest in sales of the candy cigarettes and the rest are at the site because they want to buy the product. 


- Some of the commentators took the trouble to think up names to call me, such as "candy cig police", someone "looking for something to blame". Most broadly I was tarred and feathered for hijacking a quality-assessment site to attack the product itself.


- But here's an interesting report - one person said that candy cigarettes are good for people who are trying to stop smoking because they need something to put in their hands while they go through nicotine withdrawal symptoms. But this user can't be the target market, given that packaging is designed as a counter-top appeal to children.

- A person who identifies herself as the mother of two young children says she had no intention of buying the product for her children - it is for adults ("I'll eat my candy smokes and love it. Get over it. I ain't shoving them down your kid's throats."). 


- A late post asks plaintively: "Do we really need to ban everything?"


In sum, exhortation didn't work. Let's look at the other two options:


- A ban on candy cigarettes. This  may be too harsh. Maybe some grown people do need something to hold in their hand while they are trying to quit. The United States tried Prohibition and the experiment was not a big success. Some countries (Finland, Norway, the Republic of Ireland, Saudi Arabia and Turkey) have reportedly banned candy cigarettes, but a ban is the equivalent of an infinite tax. 

- A special surtax on candy cigarettes. This is preferable because it uses the marketplace to make the price of candy cigarettes reflect its social costs. Tax them the same as cigarettes. Teenage smoking has fallen because cigarettes are so expensive, so why not try the same approach to candy cigarettes?


What do you think?