Saturday, August 02, 2008

Exxon's Record Capital and Exploration Spending


With all of the media and Congressional focus on Exxon's record profits in the second quarter, what gets neglected (along with Exxon's record income tax payments) is the record amount of spending by Exxon on "capital and exploration," coming in at $7 billion in the second quarter 2008 (data here), the highest amount ever spent by Exxon in a single quarter.

"ExxonMobil increased investments across all business lines to help meet global demand for crude oil, natural gas and finished products. Capital and exploration project spending increased to $7.0 billion in the second quarter, up 38% from last year. For the first half of 2008, spending on capital and exploration projects was $12.5 billion."

If the trend continues, Exxon will spend about $25 billion this year on capital and exploration, the highest amount in history (see top chart above). Where are the media reports on Exxon's "record capital and exploration spending?"

The bottom chart above shows some of Exxon's financial results for the first half of 2008, comparing profits, income taxes paid, and capital and exploration expenditures. Note that Exxon has spent more so far this year on income taxes ($20b) and capital expenditures ($12.5b) combined ($32.50) than it made in profits ($22.5b) this year.

Further, note that Exxon's tax rate so far this year is 47%, based on earnings before tax (EBT) of $42.4b and income tax payments of $19.8b, up from last year's rate through the first half of 42.5%. Why doesn't that significant tax hike for Exxon get reported?

If You're Not Grateful, You're Not Paying Attention

Most Americans recognize that while gas is expensive and our grocery money doesn't go as far as it did last year, we are still an enormously prosperous and fortunate nation.

In some countries, a depressed economic climate means mass unemployment, political instability and large-scale deprivation. In America this decade, we have reached the point at which even in a down economy, our unemployment rate does not reach 6% (lower than the rates in Canada and the European Union, let alone those in the developing world). Any unwanted unemployment is terrible; but it is worth remembering that this stability especially benefits the economically vulnerable.

Furthermore, no matter what the state of our economy, we can realistically count on uninterrupted provision of critical public services, high business start-up rates, the world's highest levels of charitable giving and volunteering, and countless other benefits that come from living in a successful nation.

We may well be unsatisfied with the current state of affairs. Some Americans are suffering, and cannot be faulted for seeking substantial political change in the coming election. But most of us are reasonable people, and can see the difference between correctable problems within a strong system of democratic capitalism and the kind of catastrophic failure that justifies real outrage.

For the nonoutraged majority, here's what the bumper sticker ought perhaps to say: "If you're not grateful to live in America, you're not paying attention."

~Arthur Brooks in the WSJ


Friday, August 01, 2008

Congress Insists On Outsourcing Oil Jobs Overseas

In a comment, Bob Wright asks "Why does the Democratic Party insist on OUTSOURCING oil industry jobs to Saudi Arabia, Venezuela, Iran, Iraq, Russia, and Nigeria?" - see chart above showing rising imports and declining domestic production since 1985, EIA data here.

Bob links to today's WSJ editorial "Pelosi's Energy Stonewall," here is a quote:

The Democratic leadership is stonewalling any measure that might possibly relax the Congressional ban on offshore drilling. Nancy Pelosi and Harry Reid know that they would lose if a vote ever came to the floor, and they're desperate to suppress an insurrection among those Democrats who are pragmatic about one of the top economic issues. Behind this whatever-it-takes obstructionism is an ideological commitment to high energy prices. The rulers of the Democratic Party want prices to keep rising.

MP: Good point, Bob. One of the benefits of more domestic oil production is MORE DOMESTIC  OIL JOBS.

Putting Exxon's Income Taxes in Perspective: It Will Pay More This Year Than Bottom 50% of Taxpayers

Exxon has already paid $19.828 billion in income taxes for 2008 (data here), and will probably pay almost $40 billion in income taxes this year (see graph above, income tax data for 1999-2007 taken from Exxon's annual reports).

To put $40 billion of income taxes in perspective, it can be reasonably estimated that Exxon will pay more in income taxes this year (both here and outside the U.S.) than the entire bottom 50% of American individual taxpayers (about 67 million) will pay in income taxes this year.

Using IRS tax data through 2005 (in Table 6, data here), and making reasonable projections for tax payments in 2006, 2007 and 2008, the bottom 50% of taxpayers will pay an estimated $34 billion in income taxes this year, and it will probably be the first time in U.S. history that a single corporation paid more in income taxes than the entire bottom 50% of U.S. taxpayers.

Update 1: Of course, corporations don't actually pay taxes, they collect them, in the form of higher prices for consumers, lower wages for employees and/or lower dividends for shareholders. In other words, people pay all taxes in their roles as consumers, workers and shareholders.

Update 2: Exxon is a global company and operates in the United States, Canada, Europe, Africa, Asia-Pacific, the Middle East, Russia/Caspian region, and South America. In 2005, Exxon earned about 70% of its profit outside the U.S. and paid 70% of its income taxes outside the U.S., and in 2006 Exxon earned 71.4% of its profits outside the U.S. and paid 81% of its taxes outside the U.S. Source: Exxon's annual reports.

Update 3: What gets reported by the media is Exxon's second-quarter record profits of $11.68 billion for a U.S.-based company, without distinction between profits earned in the U.S. and profits earned outside the U.S. Likewise, Congress reacts to the total amount of Exxon's record profits with proposals of "windfall profits taxes," without a distinction between profits earned in the U.S. and profits earned outside the U.S.

Therefore, when it comes to a discussion of Exxon's income taxes, it also makes sense to look at Exxon's total income tax payments of $10.5 billion in the second quarter, or $40 billion for the entire year. Although not all of Exxon's income taxes are paid to the U.S. Treasury and not all of Exxon's profits are earned in the U.S., I think it is still useful to put $40 billion of taxes into perspective by comparing that amount paid by a single corporation to the amount of income taxes paid by the bottom 50% of U.S. taxpayers. In other words, record profits for Exxon = record taxes for Exxon.

Drill-There-Not-Here Exports Environment Damage

Does Nancy Pelosi imagine that with so much of America declared off-limits, the planet is less injured as drilling shifts to Kazakhstan and Venezuela and Equatorial Guinea? That Russia will be more environmentally scrupulous than we in drilling in its Arctic?

The net environmental effect of Pelosi's no-drilling willfulness is negative. Outsourcing U.S. oil production does nothing to lessen worldwide environmental despoliation. It simply exports it to more corrupt, less efficient, more unstable parts of the world -- thereby increasing net planetary damage.

Here in the U.S., one out of every three ears of corn is stuffed into a gas tank (by way of ethanol), causing not just food shortages abroad and high prices at home, but intensive increases in farming with all of the attendant environmental problems (soil erosion, insecticide pollution, water consumption, etc.).

This to prevent drilling on an area in the Arctic one-sixth the size of Dulles Airport that leaves untouched a refuge one-third the size of Britain.

~Charles Krauthammer

Exxon's Record Profits vs. Exxon's Record Taxes

Google news search, "Exxon" and "record profits": 511 hits

Google news search of
"Exxon" and "record taxes": 0 hits


Google search of "
Exxon" and "record profits": 127,000 hits

Google search of "
Exxon" and "record taxes": 1,210 hits

Ratio for the last two: 105 to 1

On Drug Policy, Friedman Was Probably MORE Liberal Than Any UC Faculty Who Signed The Letter

A long list (about 100) of University of Chicago faculty members (mostly from liberal arts fields like political science, gender studies, sociology, history, philosophy, English, etc., and not a single economics professor) signed this letter to the UC President and Provost, objecting to the establishment of the Milton Friedman Institute on their campus. One objection in the letter is:

"When the University of Chicago invests so heavily in culturally and politically conservative thought we wonder about its commitment to strong intellectual diversity."

In this two-part interview (Part 1 and Part 2), Milton Friedman outlines his objections to drug prohibition and his strong support of drug legalization. On drug prohibition, Friedman says "The state has no right to tell me what to put IN my mouth, and more than it has a right to tell me what can come OUT OF my mouth," and "Drug prohibition has absolutely no positive effects whatsoever. Every effect I can see is a harmful effect."

Here is a copy of Milton Friedman's 1972 Newsweek column where he advocates drug legalization, at the height of President Nixon's "War or Drugs."

Bottom Line: When it comes to drug policy, Milton Friedman certainly did not demonstrate politically conservative thought, but liberal or libertarian thought. In fact, Friedman was so liberal and anti-conservative on drug legalization, he probably makes many of the signees of the letter look like CONSERVATIVES - how many of them publicly support drug legalization like Friedman did?

Thanks to Don Boudreaux for the link to the videos.

Salary Database By College Major

The Wall Street Journal has an interactive, sortable salary database for 50 college majors, with columns for median starting salary, mid-career median salary, percent change from starting to mid-career salary, etc.

One interesting finding is that Economics graduates ($50,100) start out lower than any of the engineering grads ($58,000 to $63,000), but have greater long-run salary potential. Reason: Economics has one of the highest percentage increases from starting salary to mid-career salary, ranking #4 out of 50, with 96.8%, compared to engineering (60-75%).

Further, if you click and sort the last column "Mid-career 90th Percentile Salary," you'll see Economics at the top of the list with $210,000, followed by Finance ($195,000) and Chemicial Engineering ($194,000).

HT: Newmark's Door

Markets In Everything

Chicago cafe serves up coffee with conservative flavor.

HT: Sanil Kori

Thursday, July 31, 2008

Blue Cross Waives Copays for Retail Health Clinics

EAGAN, MN -- Blue Cross & Blue Shield of Minnesota is waiving copayments for health plan members who use retail health clinics.

The objective is to encourage plan members to use the retail clinics—which cost less than physician’s office visits, hospital emergency room or urgent care centers—for treatment of simple medical conditions, such as sore throats, ear infections and seasonal allergies, or to obtain routine vaccinations.

Retail clinics are typically staffed by physician’s assistants or nurse practitioners and are located in grocery stores, pharmacies or discount stores.

MP: Another example of market-based, market-driven health care reform that didn't require a government takeover of health care.

Exxon Posts Record $32.36 Billion Tax Payment

CNN's headline: "Exxon posts record $11.68 billion profit."
According to CNN, Exxon Mobil once again reported the largest quarterly profit in U.S. history Thursday, posting net income of $11.68 billion on revenue of $138 billion in the second quarter.
That profit works out to $1,485.55 a second.

Buried in the story we also find that "In addition to making hefty profits, Exxon also had a hefty tax bill. Worldwide, the company paid $10.5 billion in income taxes in the second quarter, $9.5 billion in sales taxes, and over $12 billion in what it called 'other taxes.'"

MP: In other words, Exxon Mobil paid (or at least collected) $32.361 billion in taxes in the second quarter, which works out to $4,114 in taxes per second. Another way to look at it - Exxon paid (or collected) almost $3 in taxes ($32.361 billion) for every $1 in profits ($11.68 billion), see chart above.

The Blogger As D.J.

Think of a blog as competing with both Google and Wikipedia, among other aggregators. But with Google and Wikipedia you must choose the topic. A good blog writer can randomize the topic for you, much like a good DJ controls the sequence of the music.

~Tyler Cowen on Marginal Revolution

Company Docs, Company Medical Clinics Are Back

The company doctor is back.

In a climate of deepening health-care woes, company-based medical centers are winning dozens of fresh converts. These include the North American units of Toyota and Nissan, Harrah's Entertainment, and Walt Disney Parks & Resorts. Pharmacy chain Walgreen, which also operates nearly 200 small clinics for customers at its retail stores, sees so much growth in on-site medical centers that in May it snapped up Take Care Health.

A recent study by benefits-consulting firm Watson Wyatt Worldwide found that 32% of all employers with more than 1,000 workers either have an on-site medical center or plan to build one by 2009. "We're talking about a microcosm of health-care reform," says Hal Rosenbluth, president of Walgreen's health and wellness division. "Companies can take control and understand their health-care costs."

Full BusinessWeek article here.

NCPA summary here.

Comment: While politicians in Washington and the two presidential candidates dream up the next grandiose government healthcare reform to address rising healthcare costs, the most effective, affordable and convenient market-based healthcare solutions might be right around the corner at your employer's on-site medical center, or right around the corner at your local Kroger, Walgreens, Meijers, CVS, Target or Wal-Mart.

NO RECESSION

WASHINGTON -- The U.S. economy doubled its speed in the spring, driven by higher exports, falling imports, and rising spending by consumers given tax rebates meant to neutralize the housing slump. Gross domestic product rose at a seasonally adjusted 1.9% annual rate April through June, the Commerce Department said Thursday in the first estimate of second-quarter GDP (see chart above, recessions shaded).

H.S. Graduation Rate in Detroit Only 20% for Black Males, And It's Even Worse for White Males: 17%

The chart above is from the recently released study "Given Half a Chance: The Schott 50 State Report on Public Education and Black Males.'' From the report:

1. The "good news" is that Detroit is one of the most successful school districts in the country at successfully getting black males to stay in school and graduate from high school at a higher rate than white males (see chart above). The bad news is that the high school graduation rate for black males in Detroit is only 20% (1 out of 5), and for white males only 17% (about 1 out of 6).

2. Michigan (33%) is the worst state in the nation when it comes to graduating black male students from high school (national average is 47%), and Detroit Public Schools (20%) has the second-lowest rate for big-city school districts (Indianapolis is lowest at 19%).

3. North Dakota has the highest graduation rate for black males at 89% (versus 84% for white males), followed by Vermont at 88% (versus 75% for white males), and Maine at 85% (versus 75% for whites).

Drill, Drill, Drill: U.S. Production Today Same as '48

According to data from the Energy Information Adminstration for crude oil field production in the U.S., our current annual domestic production of about 1.873 billion barrels of crude oil (5.132 million barrels per day) is about exactly the same as oil production 60 years ago, back in the 1947-1949 period (see graph above). Real GDP today is about 7.2x higher than it was in 1948, and yet we're producing the same amount of domestic oil.

Bottom Line: Don't blame the speculators for high oil prices, blame restrictions on domestic oil production. Let's drill, drill, drill.

HT: Thanks to Michael A. Higley

Overexpansion: New Starbucks Opens Newest Location In Rest Room Of Existing Starbucks

Starbucks, the nation's largest coffee-shop chain, continued its rapid expansion, opening its newest location in the men's room of an existing Starbucks.

"Coffee lovers just can't stand being far from their favorite Starbucks gourmet blends," said Chris Tuttle, Starbucks vice-president of franchising.

"Eventually, Starbucks rest rooms everywhere will sell coffee," CEO Howard Schultz said. "But that ambitious scheme is at least five years down the road. In the meantime, we plan to open an additional location in this Starbucks' ladies' room within months, and are already drafting plans for a fourth restaurant along the corridor leading from the main seating area to the rest rooms. At some point a 'Star-bucks Express' window will eventually open in the walk-in closet of the men's room Starbucks."

From The Onion, written back in 1998, foretelling some of Starbucks future problems with overexpansion.

Wednesday, July 30, 2008

Incentives Matter

From Steven Levitt at Freakonomics:

Why do mortgage brokers get paid everything up front when they originate a deal?

This sort of contract gives brokers terrible incentives. They just want to get a deal done. It matters very little to them whether the borrower eventually defaults or not.

Chris Harris offers a simple solution to the problem: instead of paying mortgage brokers a lump sum when the deal closes, have them pay a small amount out of every mortgage payment. That way, the mortgage brokers will have a disincentive to initiate high-risk mortgages that are likely to default.

MP: This example of incentives reminds me of a story about the transportation of convicts from the U.K. to Australia during the late 1700s and the early 1800s. Private companies were paid to transport the convicts/prisoners, and the first payment schedule was based on the number of prisoners who boarded ships in the U.K. As you might imagine, there was no direct incentive to deliver living prisoners to Australia, and many of them died during the trip, due to overcrowding, lack of food and water, unsanitary and unsafe conditions, untreated diseases, etc.

The payment schedule later changed, and was subsequently based on the number of living prisoners delivered to Australia. The incentives changed, and the outcome improved: fewer prisoners died during transport.

Greenpeace Founder Comes Full Circle on Nuclear

BETHESDA, MD -- Dr. Patrick Moore, a founding member of Greenpeace, reconsiders the global benefits of nuclear energy in the latest edition of ElectricTV.net. Says Dr. Moore, now chairman and chief scientist of the Vancouver-based consultancy Green Spirit Strategies, the protest against nuclear energy that began in the 1970s was "so focused on nuclear weapons and nuclear war that we lumped all things nuclear in the same category as being evil. We made the mistake of not recognizing that nuclear energy was a beneficial use, that it was a clean energy source that does not produce greenhouse gas and air pollution like the fossil fuels do."

Watch video here of interview with Moore.

HT: Clover Aguayo

World Internet Usage Stats

The chart above (click to enlarge) is from Internet World Stats, showing the latest Internet usage data. Some interesting, though maybe not surprising, findings:

1. North America has the highest Internet penetration rate in the world of 73.6%, 1.5x the 48.1%penetration rate of Europe.

2. Africa has the lowest Internet penetration rate in the world: 5.3%.

3. The Middle East has the highest percentage growth in Internet usage from 2000 to 2008: 1,177%.

4. Asia has the highest number of Internet users.

5. There are now almost 1.5 billion Internet users worldwide.

Bring Nuclear Back Home

If ever there was a question about the need for nuclear power, it has certainly been dispelled now with the rising cost of fossil fuels.

The high price of oil, natural gas and coal should be a wake-up call to all regions of the country that the era of boundless use of cheap fossil fuels is over — and that nuclear power will need to play a larger role in supplying electricity to homes, business and industry.

The U.S. pioneered the development of nuclear energy, and had the first major nuclear program. Most other leading industrial countries have continued developing their nuclear programs since the last nuclear plant order in the U.S. — primarily using U.S. technology.

Today we have the means — and more important, an urgent need — to bring that technology back home.

Read full article here in IBD.

Gas Falls Below $3.40 in Oklahoma

Link.

Statistical Tests Shows Greater Male Variance

The table above is from the new study in Science Magazine "Gender Similarities Characterize Math Performance" (abstract free, $10 for full study) recently discussed here on CD, in the WSJ, and on Marginal Revolution.

From p. 494-495 of the study: "The hypothesis that the variability of intellectual abilities is greater among males than among females and produces a preponderance of males at the highest levels of performance was originally proposed over 100 years ago. The variance ratio (VR), the ratio of the male variance to the female variance, assesses these differences. Greater male variance is indicated by VR > 1.0. All VRs, by state and grade, are >1.0 (see table above). Thus, our analyses show greater male variability, although the discrepancy in variances is not large (bold italics added)."

Actually, I don't think
that is true, I think the difference in male-female variances IS very large, and is stastistically significant at the highest possible level of significance (.001 level). Here's why:

The statistical test for differences in variance is conducted by comparing the variance ratio to the critical values in an F-test table (test explained here and here), adjusted for sample sizes. Comparing the Variance Ratios in the table above (from 1.11 to 1.21) to the critical F-value of 1.06 for the .001 level of significance with large sample sizes > 1000 (F-table here), suggests that ALL of the variance ratios in the table above are statistically significant at the .001 level of significance.

In other words, the variance of male intelligence (based on standardized math tests) is significantly greater than the variance of female intelligence at even an early age (second grade), at the highest possible level of statistical significance (.001), and the statistically significant difference in male-female variance actually gets greater over time.

Bottom Line: The authors of the study apparently made a conclusion based on "eyeballing the data" ("the discrepancy of variance is not large"), when a statistical F-test of differences in variance shows that the discrepancy of variance is actually VERY LARGE, and is statistically significant at the .001 level (meaning that there is only a 1-in-a-1000 chance that we would find these results purely by chance, and a 99.9% chance that we have established a statistical difference in variances).

Tuesday, July 29, 2008

Most Favorable, Least Favorable Business Climates

"A View from Corporate America: Winning Strategies in Economic Development Marketing" is the fifth installment in a series of surveys of senior U.S. executives and their advisors. Similar surveys were conducted by DCI in 1996, 1999, 2002 and 2005.

From the 2008 report, the six states with the most favorable business climates are Texas (highest ranking), North Carolina, Geogia, Florida/Tennessee (tie) and Nevada.

Among executives who named Texas as having a favorable business climate, the factors mentioned most frequently are: Tax climate (31%); Labor/Workforce (Cost and availability) (29%) and Pro-business climate (26%). Among those who named North Carolina as having a favorable business climate, the factors mentioned most frequently are: Labor (Education levels, cost) (30%); Pro-business climate (22%); and Low costs (19%), mirroring the reasons provided by those who named Georgia: Labor (Low cost, good quality) (32%); Pro-business climate (29%) and Low costs (29%).

The five states with least favorable business climates are Califorinia (lowest ranking), New York, Michigan, New Jersey and Massachusetts.

California was cited for having “too much regulation and an anti-business climate” by 58% of respondents, while 37% mention “high costs” and 28% said “taxes.” Among those who named New York as having a “least favorable” business climate, the factors mentioned most frequently are taxes (65%), costs (32%) and anti-business regulation/climate (23%). Michigan’s poor economy (34%), high taxes (31%), and unions (17%) earned it a position in this list.

Train Travel Makes a Comeback: Sold Out Trains

Amtrak has reported that nationwide ridership was up 12% annually in June, when 2.5 million passengers rode.

Ridership on Amtrak's Northeast corridor increased over 3.2% annually in June. A look at the most recent numbers for fiscal year 2008, which covers October through June, reveals an even sharper increase in ridership compared to the same nine months in 2007. From October through June, over 5.6 million passengers traveled the Northeast corridor, from Washington to Boston, versus 5 million during the same period last year, representing an 11% increase (and coming
despite increased fares). Travel on Acela (pictured above), the Northeast-only express service, increased by 8%, from 2.4 million to 2.6 million riders.

On the Northeast corridor it is not unusual to find a large number of trains to be sold out each day.

Link.

See Greg Mankiw's related Cross-Price Elasticity of Demand X
here.

"Civil" "Servants"

PARIS -- French face prosecution for "insulting" civil servants.

Isn't the problem that "civil servants" usually aren't very "civil," and they're not very "servile?"

Emotionally Powerful, But Undefined Terms

Some of the most emotionally powerful words are undefined, such as "social justice," "a living wage," "price gouging" or a "fragile" environment, for example. Such terms are especially valuable to politicians during an election year, for these terms can attract the votes of people who mean very different-- and even mutually contradictory-- things when they use these words.

~Thomas Sowell

I'd add a few more terms like anything with the word "fair" in it, e.g. "fair trade," "fairly traded," "fair wage," "fair trade coffee," etc.

Update: In the comments, Fred adds "Level playing field," another good one.

Monday, July 28, 2008

Through $4 Gas, Consumers Find Religion: Record Decline in Driving, Record Level of Conservation

The Federal Highway Administration reported that travel during May 2008 on all roads and streets in the nation fell by -3.7% compared to the same month last year. May marks the seventh consectutive month of traffic volume decline compared to the same month in the previous year. Travel YTD through May in 2008 fell by -2.4% compared to 2007.

There was never more than a single monthly decline in traffic volume until 2006, a few examples of two consectutive monthly declines 2006 and early 2007, but never in the history of these data was there ever a period of more than a 2-month consecutive decline until now, and therefore the 7 consecutive monthly decline in miles driven is a record, and represents the most significant adjustment to driving behavior in recent history.

On a moving 12-month total basis, traffic volume in May fell to a three-and-half year low of 2.966 trillion miles, the lowest level since January of 2005 (see chart above), and this measure has fallen in each of the last seven months. Further, the 16 billion mile decrease in May's moving 12-month total was the largest monthly decrease on record, going back to 1983, and marks
the most significant moving 12-month decrease in miles driven in at least the last 25 years.

High gas prices are working - consumers are changing their behavior by driving less and conserving gasoline. In fact, high gas prices have probably done more to change behavior and inspire conservation of fossil fuels than all of the Earth Days, and all of the efforts of groups like the Sierra Club, combined? Consumers have "found the religion of environmentalism and conservation" through high gas prices.


Amen, brothers and sisters.

100 Billion Dollar Zimbabwe Notes Selling on Ebay

In Zimbabwe, a 100 billion dollar Zimbabwe note isn't even enough to buy a loaf of bread, and is equal to only about $1USD (see related CD post here). But on Ebay, the 100 billion Zimbabwe notes (pictured above) are selling for as much as $71, see completed Ebay auctions below:



From The Economist, a chart of the highest-denomination banknotes in history - the 100 billion Zimbabwe dollars ranks #4:


Thank God We Haven't Considered Price Controls

You get long lines at the pump, like the one above in Washington, D.C. in 1973, with more than 30 cars waiting to buy gas. See more photos from the Washington Post here, taken during the oil crisis in 1973 when OPEC imposed an oil embargo against the U.S. and other nations, and the U.S. imposed price controls as a "solution."

We might complain about paying the market price of $4 per gallon, but at least gas is always available with no waiting. Market prices have significant advantages over artificial government prices. Sure gas remained cheap in 1973 in money terms because of price controls, but think of all the time wasted waiting in line! After accounting for the cost of time and aggravation, gas was surely no bargain in 1973.

Lawrence Summers Vindicated By New Study: Male Test Scores ARE More Variable Than Female Scores

Wall Street Journal -- Girls and boys have roughly the same average scores on state math tests, but boys more often excelled or failed, researchers reported. The fresh research adds to the debate about gender difference in aptitude for mathematics, including efforts to explain the relative scarcity of women among professors of science, math and engineering.

The latest study, in this week's journal Science, examined scores from seven million students who took statewide mathematics tests from grades two through 11 in 10 states between 2005 and 2007.

The researchers, from the University of Wisconsin and the University of California, Berkeley, didn't find a significant overall difference between girls' and boys' scores. But the study also found that boys' scores were more variable than those of girls. More boys scored extremely well -- or extremely poorly -- than girls, who were more likely to earn scores closer to the average for all students. The study found that boys are consistently more variable than girls, in every grade and in every state studied (see crude diagram above - showing distributions where mean intelligence is the same, but the standard deviation of male intelligence is greater than female intelligence).

In Minnesota, for example, 1.85% of white boys in the 11th grade hit the 99th percentile, compared with 0.9% of girls -- meaning there were more than twice as many boys among the top scorers than girls.

MP: And it might just be the case that those students who score in the 99th percentile on standardized tests are the future genius-level scholars in math, science, physics and engineering who are able to succeed and get tenure as professors at extremely competitive universities like Harvard, Yale, MIT, etc. In that case, we would expect an over-representation (under-representation) of men (women) in those positions for reasons that have NOTHING to do with discrimination, and everything to do with genetics and the variability of intelligence.

Q: Does this means that Larry Summers gets his job back at Harvard, since he was simply disccussing scientific research like the study above? Or doesn't he at least deserve some apologies?

HT: Clover Aguayo

Political Correctness on Campus

A new study "Ascriptive Justice: The Prevalence, Distribution, and Consequences of Political Correctness in the Academy," by Professor Solon Simmons at George Mason University, is reviewed in Inside Higher Ed (link).

The Inside Higher Ed article includes an interesting chart of "Political Correctness by Discipline," based on faculty interviews, showing these results:

4 Most Politically Correct academic disciplines: Psychology (59%), Sociology (45%), English (42%), History (31%).

4 Least Politically Correct disciplines: Finance, MIS, electrical engineering and mechanical engineering, all 0%.

Discipline with the Lowest Percent of Politically Incorrect Faculty: Sociology (1.8%)

2 Disciplines with the Highest Percent of Politicially Incorrect Faculty: MIS (72%) and Economics (51%)

HT: Ben Cunningham

Venezuela: One of The America's Deadliest Hoods


THE ECONOMIST -- One of Hugo Chávez’s lesser-known feats since taking over as Venezuela’s leader in 1999 is to have presided over a tripling of the annual homicide rate—and that’s according to the official statistics. Last year more than 13,000 people were killed in a country of 27m, producing a murder rate of 48 per 100,000, the second highest in the world (after El Salvador, and almost 8x the rate in the U.S., see chart above). In neighbouring Colombia, a country plagued by guerrilla war and drug violence, the rate was 40 per 100,000.

Only 1 Economic System Exists: Market Captialism; For Mass of Mankind It's A Source of Hope

The 20th century witnessed a war between two economic systems: state socialism and market capitalism. In the socialist system, property was public, competition forbidden, and production planned. In the market system, property was private, competition encouraged, and production determined by entrepreneurs. Faced with the choice of which system was superior, nations hesitated and economists remained divided.

The state of affairs today is entirely different. When the Soviet Union crumbled, the socialist model that it embodied imploded, too—or, more precisely, the Soviet Union fell because the socialist economic system proved unworkable. Now only one economic system exists: market capitalism.

Virtually everywhere, the public sector has given ground to privatization; currency has escaped state control, to be governed by independent central banks; competition has taken wing, thanks to the deregulation of markets and the opening of borders; taxation has become less progressive, so as to encourage entrepreneurs and create jobs.

The results have been breathtaking. Opening economies and promoting trade have helped reconstruct Eastern Europe after 1990 and lifted 800 million people, many of them in China, Brazil, and a now-license-free India, out of poverty. Even in Africa and the Arab Middle East, nations that have embraced capitalism have begun to escape from the terrible underdevelopment that has long plagued them.

Behind all this unprecedented growth is not only the collapse of state socialism but also a scientific revolution in economics, as yet dimly understood by the public but increasingly embraced by policymakers around the globe. The revolution began during the 1960s and has finally brought economists to a broad, well-founded consensus about what constitutes good policy. For the mass of mankind economics has become a source of hope.

From the City Journal article "Economics Does Not Lie: The Dismal Science is at Last a Science—and the World is the Beneficiary."

HT: Thanks to Wright Truesdell for the pointer.

Sunday, July 27, 2008

From 25% to 93% in 110 Days: Odds QII GDP Pos.

Current Intrade.com odds that second quarter real GDP will be positive: 93.5%, up from 25% in mid-April (see chart above, click to enlarge).

Exhibit A: Oil Prices, Global GDP, Net Oil Exports

The chart above shows oil prices, net oil exports (data here) and world GDP, quarterly from 2002:Q1 to 2008:QII. The data for OECD world GDP and oil prices are from Global Financial Data (subscription required). Oil prices are on the right scale in $/bbl., and world GDP and net oil exports are on the left scale, both expressed as an index equal to 100 in 2002:QI.

The graph above was inspired by the CFTC report and graph of world GDP and oil production, featured on this CD post. I added oil prices and used net oil exports (from Net Oil Exports) instead of oil production.

Bottom Line: The graph shows that world GDP, net oil exports and oil prices were all increasing at about the same rate from 2002 to early 2006. Starting in about mid-2006, the three series started to diverge as world GDP continued to increase, but net oil exports started to decline. It was at that point of departure in 2006 between global output (GDP) and the global supply of oil that oil prices started to rise significantly (see shaded area).

Although the decline of the dollar and the increase in speculative activity might have played relatively minor roles in the run-up of oil prices, the main contributing factor to high oil prices over the last two years appears to be the supply-demand imbalance that started in mid-2006. With the significant increase in world output and the accompanying increase world demand for oil and energy interacting with a flat and/or falling world supply of oil, there was only one direction for oil prices to go. Up. Nothing mysterious, nothing nefarious, and nothing to do with speculators. Simple supply and demand. Period. In other words, Occam's razor.

Cartoon of the Day


Angry College Students Fight Back

All forms of print publishing must contend with the digital transition, but college textbook publishing has a particularly nasty problem on its hands. College students may be the angriest group of captive customers to be found anywhere.

NYT: First It Was Song Downloads. Now It’s Organic Chemistry.

Ben Stein: Over All, It's Not All That Bad

But how bad is it, really? The economy isn’t at its best. Oil prices are painfully high, foreclosures are really hurtfully high, job growth in many areas is sluggish or worse, and a sector of the credit markets is extremely weak. But over all, it’s not all that bad.

There has not been one down year for the G.D.P. in this decade. There has not been one down quarter, in inflation-adjusted terms, since 2001. Of course, there are truly hard-hit areas around the country. But there are also areas that are booming, in the farming and minerals states and in any area near energy.

What is the future? We will get through all of it. “This great nation will endure as it has endured,” to quote F.D.R. We will then go on to whatever the new problems will be (probably the same as the old problems) and the media will have to find something new to complain about. This is called life.

Today's NY Times

CFTC: Oil Prices Rose Due to Supply and Demand



Charts above are from the July 2008 Interim Report on Crude Oil, from the Interagency Task Force on Commodity Markets. From the Executive Summary:

The Task Force’s preliminary assessment is that current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors. During this same period, activity on the crude oil futures market – as measured by the number of contracts outstanding, trading activity, and the number of traders – has increased significantly. While these increases broadly coincided with the run-up in crude oil prices, the Task Force’s preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices.

The world economy has expanded at its fastest pace in decades, and that strong growth has translated into substantial increases in the demand for oil, particularly from emerging market countries. On the supply side, the production of oil has responded sluggishly, compounded by production shortfalls associated with geopolitical unrest in countries with large oil reserves. As it is very difficult to rely on substitutes for oil in the short term, very large price increases have occurred as the market balances supply and demand (see top two charts above).

If a group of market participants has systematically driven prices, detailed daily position data should show that that group’s position changes preceded price changes. The Task Force’s preliminary analysis, based on the evidence available to date, suggests that changes in futures market participation by speculators have not systematically preceded price changes. On the contrary, most speculative traders typically alter their positions following price changes, suggesting that they are responding to new information – just as one would expect in an efficiently operating market.

From p. 14 of the report: The depreciation of the dollar since 2002 has contributed to the rise of the dollar price of oil, but can explain only a portion of the overall run-up. This point is also evident in the bottom chart above, which graphs the spot price of West Texas Intermediate crude oil in several currencies. Clearly, oil prices have risen sharply regardless of the currency of denomination. Moreover, from mid-March through June 2008, the dollar was stable, whereas oil prices increased appreciably.


MP: I think the top chart above says it all. Since 2002, world GDP increased by about 30% and world oil production increased by about 12%. Demand for oil increased significantly, oil supplies were tight, and oil prices rose significantly.

Q.E.D.

Chart of the Day II: It Could Be Worse

Source: OECD

Chart of the Day: It Could Be Worse

Source: Energy Information Administration