Read this proposal.

US senators’ personal stock portfolios outperformed the market by an average of 12 per cent a year in the five years to 1998, according to a new study.

“The results clearly support the notion that members of the Senate trade with a substantial informational advantage over ordinary investors,” says the author of the report, Professor Alan Ziobrowski of the Robinson College of Business at Georgia State University.

He admits to being “very surprised” by his findings, which were based on 6,000 financial disclosure filings and are due to be published in the Journal of Financial and Quantitative Analysis.

“The results suggest that senators knew when to buy their common stocks and when to sell.”

First-time Senators did especially well, with their stocks outperforming by 20 per cent a year on average – a result that very few professional fund managers would be able to achieve.

“It could be argued that the junior senators most recently came out of private industry, so may have better connections. Seniority was definitely a factor in returns,” says Prof Ziobrowski.

There was no difference in performance between Democrats and Republicans.

A separate study in 2000, covering 66,465 US households from 1991 to 1996 showed that the average household’s portfolio underperformed the market by 1.44 per cent a year, on average. Corporate insiders (defined as senior executives) usually outperform by about 5 per cent.

The Ziobrowski study notes that the politicians’ timing of transactions is uncanny. Most stocks bought by senators had shown little movement before the purchase. But after the stock was bought, it outperformed the market by 28.6 per cent on average in the following calender year.

Returns on sell transactions are equally intriguing. Stocks sold by senators performed in line with the market the year following the sale.

When adjusted by the size of stocks, the total portfolio returns outperformed by 12 per cent a year on average. The study used a total market index as the benchmark for comparison.

Here is the full story. Here is the home page of the researcher, Alan Ziobrowski. I haven’t scrutinized or even read the original study, but right now I will bet this is true.

Thanks to Jane Galt, who is just back from Mexico, for the pointer.

Downsizing occurs when a firm lays off workers to economize on costs. So what do economists know about this phenomenon?

1. About half of all downsizing firms end up with at least as many laborers within a few years’ time. Downsizing is often a matter of restructuring a labor force, not just getting rid of dead wood. In other cases downsizing may be purely temporary, and is reversed once the firm has some extra cash.

2. Downsizing in manufacturing is nothing new and has been going on since 1967. That being said, the smaller manufacturing firms generally have been increasing employment. The notion of “regression toward a mean” describes the manufacturing sector better than the universal downsizing hypothesis.

3. Downsizing is positively correlated with the degree of foreign competition in a sector. So trade does encourage firms to cut their costs.

4. Manufacturing is fifteen percent of the U.S. labor force and thus only a small part of the downsizing story. Retailing and services have been upsizing considerably for many years.

5. Downsizing firms tend to increase their profits but not their productivity. Downsizing commonly leads to lower wages within the downsizing firm. There is evidence for the “wage squeeze” story.

From the recent Downsizing in America: Reality, Causes and Consequences, by William J. Baumol, Alan S. Blinder, and Edward N. Wolff.

The authors conclude the following:

…no special programs appear to be called for, aside from measures to ease the transition of downsized workers to other jobs…the evidence provides no support for the conjecture that the economy is undergoing widespread and protracted reductions in the size of the typical firm’s labor force.

…when I came to the 24/7 Customer call center in Bangalore to observe hundreds of Indian young people doing service jobs via long distance – answering the phones for U.S. firms, providing technical support for U.S. computer giants or selling credit cards for global banks – I was prepared to denounce the whole thing. “How can it be good for America to have all these Indians doing our white-collar jobs?” I asked 24/7’s founder, S. Nagarajan.

Well, he answered patiently, “look around this office.” All the computers are from Compaq. The basic software is from Microsoft. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke, because when it comes to drinking water in India, people want a trusted brand. On top of all this, says Mr. Nagarajan, 90 percent of the shares in 24/7 are owned by U.S. investors. This explains why, although the U.S. has lost some service jobs to India, total exports from U.S. companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. What goes around comes around, and also benefits Americans.

Read the whole column.

Addendum: Here is Virginia Postrel’s latest piece on trade.

Second addendum: How about this press release, India awarding a big contract to Hewlett-Packard, thanks to Kevin Bone for the pointer.

Since last spring, the company has been selling fine art, including limited-edition lithographs by Pablo Picasso, Marc Chagall and Joan Miró.

Greg Moors, an art dealer in San Francisco, began selling art at some of the company’s stores in brief experiments last spring, and for the last two months has been selling on the company’s Web site, Costco.com. The artwork is museum quality, matted and framed.

“There were so many double takes at the stores,” Mr. Moors said. “People stopped in front of these lithographs and said: ‘Wow! What is this?’ “

Mr. Moors sold 43 pieces of art during appearances at Costco stores – in the La Jolla area of San Diego, as well as Concord and Mountain View, Calif., and Issaquah, Wash. “I consistently did fairly well,” he said, “considering that people are coming in to buy hamburger and walking out with a $1,200 work of art.”

Get this:

Ms. Elsner said Costco applied the same pricing system to the art that it did to other goods, marking them up no more than 14 percent above what it pays Mr. Moors. He said his markup was “way below what retail galleries charge” but declined to be specific.

Tony Pernicone, an art appraiser who owns Avanti Fine Arts, a gallery in Larkspur, Calif., north of San Francisco, and previously directed the San Francisco Art Exchange and other art galleries, said: “At a legitimate gallery, generally the markup is 100 to 150 percent, depending on their overhead and the cost of the art. Obviously, you get galleries that try to go higher.” Costco’s price of $1,550 for a Chagall Bible Series lithograph was $500 to $1,000 less than a gallery would have charged, Mr. Pernicone said.

In other words, “non-dignified” intermediaries are entering the market and offering the goods at cheaper prices, thereby separating the artwork from the attached aura of the sale. Let’s root for the artwork, not the aura. Here is the story. Here is the web site, note they are temporarily out of stock. Here is the sort of work you can buy, albeit from another seller.

Lynne Kiesling says it all, with some side comments on outsourcing.