The new BMW 6 Series Convertible

The new BMW 6 Series Convertible will be arriving in the UK on 26 March 2011.

BMW apparently considers the Mercedes SL350 as the competitor for the 640i SE and has put up a side-by-side comparison of the two cars. While the 650i is compared with the Jaguar XK
Convertible and the Mercedes SL500.

The 640i SE has a power output of 320hp and goes from 0-62mph in 5.7 secs while the 650i SE has a power output of 407 hp and goes from 0 to 62mph in just 5 seconds.

Prices (on the road) for the 640i SE is £65,680 while for the 650i SE is £73,430.

Old Spice cars

Noticed these cars at the 10K Mo run at Greenwich, London last weekend.

Can you identify them?

The Crisis Yet to Come

The Atlanta Fed's blog from October 27, 2010 has a chilling piece on the source of the downturn in revenue at the state level (and by implication the local level, too). Quite simply, they note and then back with data that (duh! - with hindsight) real estate assessments lag the market. Hence the downturn has to have other sources, specifically declines in individual income tax receipts and sales tax receipts. Real estate tax receipts have actually continued to rise, as higher assessments from the era of peak prices continue to track up.

That's chilling, because it implies that state and local governments will continue to see revenues fall as assessments are updated to track the market down. Now the level of dependence on real estate related revenue varies widely. But on average it suggests that even if incomes begin to recover, government revenues will continue to fall.

Indeed, a recent paper by Cogan and Taylor quantifies the magnitude of the downturn: budget cuts by state and local governments fully offset the much-maligned Obama stimulus package. They had earlier taken a stand on the "multiplier" (the extent to which an expenditure increase or tax cut would stimulate activity). [Look for a discussion of multiplier estimates by Brad de Long.] But when they went to check what ex post performance might show, they found a problem that rendered that discussion moot: ex post, there was no multiplicand to be multiplied. Of course that's not reassuring going forward, because in 2011 there won't be a stimulus package to offset what state and local government are doing. When teachers are fired next summer, and as road maintenance crews are axed and parks closed, there won't be anyone stepping in to hire them or pay for them to be rehired. Now Cogan and Taylor think the multiplier is small; I'm not convinced by their arguments. But small multiplier or large, the job losses will be real.

John F. Cogan and John B. Taylor, "What the Government Purchases Multiplier Actually Multiplied in the 2009 Stimulus Package." National Bureau of Economic Research Working Paper No. 16505, October 2010. http://www.nber.org/papers/w16505

If we thought banks were too big to fail, what of the government of the 10th largest economy in the world, California? They are starting their 2011 budget cycle with a $25 billion deficit and a long period of underfunding state and local pension funds. I doubt there's enough available for cutting on the expenditure side, and while I've never lived there, my sense is that there is no ability to enhance revenue, given the demonstrated ability of vocal citizens' movements to impede government via referenda. Pundits may be comparing us to Greece to argue that we need to cut the Federal deficit, but they really don't understand the dynamics of bond markets. But they can and should look at California, and ask whether we will feel compelled to bail them out as the EU did with Greece.

Mike Smitka

Addenda

Readers might see a contrarian position at Slate Moneybox, Default Position: Why we needn't worry too much about municipal bankruptcy by Annie Lowry. She argues first that the incentives are strong to avoid bankruptcy, while a crisis increases policy options. Second, though only implicit in her argument, bond holders can be forced to renogotiate without bankruptcy. While she does not mention it, many bonds are very close to private placements, and that facilitates renegotiating debt. (I handled sovereign debt renegotiations during a banking career decades back.) Third, and again less explicit, the biggest obligations are not formal bonds but retirement systems. It may be possible to renege on those -- tell retirees "no more pension." That may not need Chapter 9. In sum, all of those lessen the role of formal bankruptcy.

Elsewhere I calculated the numbers for California. Their accounting is arcane, but at the state level the budget is around $100 billion with a projected $25 billion deficit. That means tax receipts of $75 billion, so that closing the gap via revenue enhancement would in the extreme require a 33% increase in taxes (and more in tax rates, given exemptions). But in the background California's GDP is approximately $1 trillion, so the gap is on the order of 2.5% of personal and corporate incomes. Of course the state has perhaps $500 billion in unfunded pension obligations. Now in most places where I've lived government salaries are below market so these pensions are in effect part of the total package. I don't believe it ethical to adjust those retroactively. But in any case the magnitude of the problem is well within the taxing ability of the state, without leading to exorbitant rates. The problem is one of politics, not economics.

Medical professionals are the most accident prone in the UK

A recent press release by the online price comparison site, Confused.com, totally changed my perception of the motorist profiles I have had all my life. Apparently those in the medical profession appeared most frequently in the top ten (50%) car insurance claims in the past 12 months (18th October 2009 and 18th October 2010).

This is surprising because they are supposed to be most aware of all professions when it comes to accidents and injuries.

The results of the research showed that GPs are the most hazardous drivers in the UK with 33% of claims made by them. They were followed by psychologists (30%), district nurses (30%), hospital doctors (29%) and dentists (27%)making a claim.

In what seems to be bizarre findings, 20-20 vision doesn't help as well with opticians making up 27% of those claiming for an incident in the last 12 months. They were closely followed by law abiding policeman who made up 26% of the claimants.

It was not surprising that high earners such as solicitors and accountants are also the most likely to make a claim, contributing to 65% of the top 20.

The safest drivers were actually the low income earners with car valeters being the least likely to make a claim with only 8% putting in the paperwork in the last 12 months.

Here is the full list of the Top 20 occupations that have claimed in an accident:

1. Doctor GP
2. Psychologist
3. District Nurse
4. Hospital Doctor
5. Solicitor
6. Chartered Accountant
7. Head Teacher
8. Dentist
9. Personnel Officer
10. Chartered Surveyor
11. Quantity Surveyor
12. Optician
13. Systems Manager
14. Police Officer
15. Financial Advisor
16. Computer Services Manager
17. Accountant Chartered
18. Pharmacist
19. Probation Officer
20. Local Government Officer

Top 20 occupations least likely to be involved in an accident

1. Car Valeter
2. Labourer
3. Van / Lorry / Fork Lift Truck Driver
4. Farm Worker
5. Scaffolder / Roofer
6. Construction Worker
7. Decorator / Painter / Plasterer
8. Road Worker
9. Coach Driver
10. Security Guard
11. Builder
12. Groundsmen
13. Mechanic
14. Carpet Fitter
15. Warehouse Employee
16. Bar Staff
17. Cleaner
18. Bakery Worker
19. Double Glazing Fitter
20. Factory Worker

Malaysia to become regional hub for Peugeot

French carmaker Peugeot has chosen the Malaysian Naza group to spearhead its expansion in the region following the success of the marque in the country. The Naza Group was appointed official distributor for the Peugeot brand in January 2008. 3,766 units of Peugeot vehicles were sold in 2009 which accounted for 86% of Peugeot sales in the Asean region.

Former Malaysian PM Tun Dr Mahathir launched the Peugeot 207 yesterday. Codenamed as the T33 Project, the car is different from the 207 sold here in the UK and is actually a modified version of the 206. The only difference from the 206 is that it has a slightly elongated boot at the back making it a sedan. The car will be assembled at the Naza plant in Gurun, Kedah.

The car is powered by a 1.6L engine and price on the road with insurance starts from RM72,888 (approx. £14647).

Click link for information on Car rental France.

The Election and the Stock Market

It is hard to understand why Republican gains in Congress are leading to a jump on Wall Street: if we listen to their rhetoric, they are promising us fiscal stringency, hard-nosed policies towards those indebted and thereby not recovery (given the role both play in our economy) but further economic pain.

But maybe I listen (well, read) too much. Ronald Reagan ran as a fiscal conservative, deriding the deficits of Jimmy Carter; Bush II couldn’t complain about deficits because he inherited a surplus, but nevertheless paraded as a conservative. Those running for Congress did the same. Yet at least in terms of economic policy they were radical Keynesians, increasing the size of government. To take the more recent case, under Bush II every single department of the Federal government expanded, while he expanded welfare via the huge prescription drug supplement to Medicare). Yet both cut taxes rather than finding a means to pay for their profligacy.

Will things be better this time around? Or will we have a stalemate in Washington? – for better or (right now) for worse, Obama seems to be a real fiscal conservative (woe is us). So the impetus of Congress (or at least Republican congresses) to spend and spend [and not offset that with taxes] may go nowhere.

Of course we know that financial markets are efficient and thus incorporate knowledge of the future: about half the time when markets go up the performance of the economy proves better than the average forecast....now for you students in intro statistics, why is that somehow less than reassuring?

Mike Smitka

A little green van called ELVIN

Electric cars do not have an internal combustion engine - which is great for the environment. However, this means that they are amazingly silent. This brings up some unique safety issues. People can't hear the cars coming up behind them.

To find a solution to this problem, a research project in the University of Warwick is using a green van called ELVIN (Electric Vehicle with Interactive Noise) which emits different sounds to see how people perceive the sounds.