Texas vs. California II

Texas is ranked best for business by "Chef Executive" magazine. More to the point, California is dead last.

In Chief Executive magazine's annual survey of CEOs for their opinions of the best and worst states for business for 2010, Texas reigned supreme for the fifth consecutive year. California continued its own ignominious streak as the state CEOs deem worst for business.

Luke's Tennessee fairs pretty well too. (Note that Luke and I both grew up in California).

What to expect as countries try to get out of debt

Niall Ferguson, Historian of the Apocalypse, is worried about public debt levels in the Japan, the US and Europe. He tells us what usually happens as governments try to dig out from under World War size debt burdens.

Here is what usually does NOT happen:

• Slash expenditure on entitlements
• Reduce marginal tax rates to stimulate growth
• Raise taxes on consumption to reduce deficit
• Grow way out without defaulting or depreciating the currency

and what usually DOES happen:

• Oblige central bank and commercial banks to hold govt. debt
• Restrict overseas investmnet by firms and citizens
• Defaul on commitments to politically weak groups and foreign creditors
• Condemn bond investors to negative real interest rates

Why is everyone Bearish right now?

Let me count the reasons:

1. The Euro Zone crisis
2. The possibility of a China collapse.
3. Tax hikes and regulatory headwinds
4. We've transferred corporate risks onto government balance sheets with bailouts...

At this point it might be worth noting Bill Spitz's sage advice:

Fools and fanatics are certain of themselves; wiser people are full of doubts.

When the tax credit expired,...

Monthly demand for mortgages first increased, then dropped.  From calculated risk:

There was a spike in purchase applications in April, followed by a decline to a 13 year low last week. As Fratantoni noted: "The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season."

Was Uncle Milton right about the EU? (II)

His famous prediction that the Euro would not survive its first recession is looking pretty good:

In a worst-case scenario, the ECB will exhaust its cash, credit and credibility trying to save Greece…and will destroy the euro in the process. Best case, the “fix” will persuade a few Wall Street strategists that the “worst of the euro crisis is over” and will suck a few more suckers into the European sovereign debt markets before the situation gets REALLY ugly.

And it will get ugly…one way or another.

Prediction: this won't end well

Product Market Size and the Returns to Innovative Effort

Last Summer, I reported on a newly released FTC report on authorized generics strategy. The report found evidence of potentially anti-competitive effects from deals cut between branded firms and generic firms that could delay the onset of generic competition. In that post, I concluded with musings over the longer term effects that the size of the potential profits would have on branded firms' innovative effort. While the theory is relatively straight forward, linking these two empirically is a hard problem and one I feared would was insuperable.

I attended the IIOC this last weekend and had the pleasure of finding out that I was wrong. Darren Filson, of Claremont McKenna College, presented "The Impacts of the Rise of Paragraph IV Challenges on Startup Alliance Formation and Firm Value in the Pharmaceutical Industry" where he and coauthor Ahmed Oweis come close. They find that recent judicial decisions that eased a major hurdle that generic firms face to enter into blockbuster drug markets tended to reduce some measures associated with drug R&D inputs. This does not directly answer the authorized generic question but is the first effort I have seen than successfully links eventual drug product market size to drug R&D. Darren tells me that this paper has been accepted for publication at the Journal of Health Economics (kudos) where I suspect it will become an oft cited piece.

Financial Reform Bill Threatens Small Business Finance

Part of the proposed financial reform bill contains provisions that may have a dramatic effect on the ability of entrepreneurial companies to raise money. Among the proposals:

• "Accredited investors" — Require investors to have a minimum net worth of $2.3 million or annual income of $450,000 — up from $1 million or $250,000.

• SEC registration — Require start-ups to register with the Securities and Exchange Commission and be reviewed for 120 days before raising any money.

• State control — Eliminate the federal waiver and allow states to regulate these private offerings.

Bob Litan and Scott Shane express concerns.

This year, will at least one EU country will stop using the Euro?

Intrade puts the probability at 19%.

Revealed preference

To an economist, talk is cheap and actions tell you what people really think.  For example, why would Vice President Al Gore buy a coastal mansion in California, less than 50' above sea level if, as his award-winning movie warns, he expects rising sea levels to flood coastal areas?

.. the only explanation I can think of is that Mr. Gore ... does not actually believe his predictions of doom...