Tuesday, April 12, 2011

11 Comeback Cities for 2011

Downtown Flint, Michigan.
Kiplinger -- "Hundreds of cities across the country were hammered by the recession, many experiencing double-digit declines in employment, throwing thousands of their residents out of work.

For some particularly hard-hit metro areas, 2011 will bring a dramatic turnaround -- new investment by businesses, growth in the number of jobs and a reblooming of hope.

Recovering all the ground they lost will take years and many of the cities are still suffering with unemployment that exceeds the national average. But these cities are enjoying a surprising and welcome upward bounce."

MP: The list includes Flint, Michigan, which is experiencing an impressive revitalization of the downtown area (see photo above), and is in the process of re-inventing itself with the slogan "From a Factory Town to a College Town" (Flint has about 30,000 college students at four different schools: University of Michigan-Flint, Kettering University, Baker College and Mott Community College). 

Sowell: End Transfer Payments to Billionaires

"My plan would start by cutting off all government transfer payments to billionaires. Many, if not most, people are probably unaware that the government is handing out the taxpayers' money to billionaires. But agricultural subsidies go to a number of billionaires. Very little goes to the ordinary farmer.

Big corporations also get big bucks from the government, not only in agricultural subsidies but also in the name of "green" policies, in the name of "alternative energy" policies, and in the name of whatever else will rationalize shoveling the taxpayers' money out the door to whomever the administration designates, for its own political reasons."

~Thomas Sowell's column today

Next Equal Occupational Fatality Day in 2022

Today (April 12, 2011) is Equal Pay Day.  According to the National Committee on Pay Equity:

"This date symbolizes how far into 2011 women must work to earn what men earned in 2010. Because women earn less, on average, than men, they must work longer for the same amount of pay. Equal Pay Day was originated by the National Committee on Pay Equity (NCPE) in 1996 as a public awareness event to illustrate the gap between men's and women's wages." 

MP: Last year, around the time of "Equal Pay Day," I created "Equal Occupational Fatality Day" to bring public awareness to the huge gender gap that exists in occupational deaths in the United States.  The next "Equal Occupational Fatality Day" will occur on Thursday August 15, 2022. This date symbolizes how far into the future women are expected to work to experience the same loss of life from work-related deaths that men experienced in just the single year 2009 (4,021 deaths for men compared to only 319 for women), according to the most recent data available from the BLS (see chart above). Because women work in much safer occupations and work environments than men, they must work decades longer than men to experience the same number of occupational fatalities.

A disproportionate number of men work in higher-risk occupations that are typically compensated with higher pay like coal mining (almost 100% male), fire fighters (96.4% male)
, police officers (87% male), correctional officers (74% male), farming, fishing and forestry (76.5% male) and construction (95.4% male), BLS data here. A disproportionate number of women work in lower-risk, more comfortable and safer industries, often with lower pay to compensate for the more worker-friendly, indoor, comfortable, air-conditioned office environments, like Office and Administrative Support Occupations (79% female), Education, Training and Library Occupations (73.8%), and Healthcare (74.3%). These differences in work environments could likely reflect differences in "revealed preference" by gender - men prefer higher-paid, higher risk occupations, and women prefer lower-paid, lower risk occupations, in general and on average. It might not have anything to do with discrimination, and everything to do with differences in risk tolerances and risk-reward preferences.

To achieve perfect gender pay equity, there will have to be an increase in the number of women in higher-paying, but higher-risk occupations like fire-fighting and coal mining. That outcome will certainly reduce the gender pay gap, but it will come at a huge cost: sentencing thousands of women per year to certain fatal occupational deaths. Would closing the pay gap, if it also means closing the gender occupational death gap and exposing thousands of women to work-related deaths each year, really be worth it?

Monday, April 11, 2011

"Super-Rich" Aren't the Same from Year to Year

For the 2011 season in Major League Baseball, the average salary for the top 25 highest-paid baseball players is $19,751,000, with Alex Rodriguez of the New York Yankees leading MLB at a salary of $32 million, according to the USA Today Salaries Database.  In comparison, during the 1988 season the average salary for the top 25 highest-paid players was $1.955 million, or $3.657 million in today's dollars.  The highest paid player that year was New York Mets catcher Gary Carter, who made $2.36 million that year, or $4.41 million in 2011 dollars.  

With those data in mind, consider this commentary from Kevin Williamson at NRO:

"Are the rich really getting richer? That’s a pretty standard line from the Left, a lament usually cited in the course of calling for higher tax rates. Robert Reich is particularly fond of this mode of attack: A recent post of his was headlined, “For 70 years, the wealthy have grown wealthier.” Professor Reich probably doesn’t write his own headlines, but it’s a common enough sentiment for him, and his prose is rich with phrases such as “the super-rich got even wealthier this year.”

MP: The flaw in Robert Reich's analysis is that he is assuming that "the wealthy" in one year are the same exact group as "the wealthy" in a subsequent year.  In the baseball example above, it would be like assuming the same 25 highest-paid players in 1988 were the same 25 highest-paid players in 2011, with an income five times greater and a greater concentration of income among the "super-rich."  But we know that's not true, the highest-paid players in 2011 are a completely different group than the top-25 in 1988, just like the top 1% of Americans by income or wealth in one year are a completely different group than the 1% in a different year.  

Here's more from Kevin:

"When somebody says that the top 1 percent saw its income go up by X in the last decade, they are not really talking about what happened to actual households in the top 1 percent. Rather, they are talking about how much money one has to make to qualify for the top 1 percent. All that really means is that the 3 million highest-paid Americans in 2010 made more money than did the 3 million highest-paid Americans in 2000, the 100,000 highest-paid Americans this year made more money than did the 100,000 highest-paid Americans made in 2000, that the 50,000 highest-paid Americans made more money this year than did the 50,000 highest-paid Americans made in 2000, that the 1,000 highest-paid Americans this year made more money than did the 1,000 highest-paid Americans made in 2000, etc., which is not shocking. But, as the Treasury data show: They are not the same people.

When Robert Reich writes that “super-rich got even wealthier this year,” he is making a statement that is not true in most cases — 75 percent of the Clinton-era super rich were not members of the Obama-era super rich. In fact, Treasury found:
  • Income mobility of individuals was considerable in the U.S. economy during the 1996 through 2005 period with roughly half of taxpayers who began in the bottom quintile moving up to a higher income group within ten years.
  • About 55 percent of taxpayers moved to a different income quintile within ten years.
  • Among those with the very highest incomes in 1996 — the top 1/100 of one percent — only 25 percent remained in the group in 2005. Moreover, the median real income of these taxpayers declined over the study period.
  • The degree of mobility among income groups is unchanged from the prior decade (1987 through 1996).
  • Economic growth resulted in rising incomes for most taxpayers over the study period: Median real incomes of all taxpayers increased by 24 percent after adjusting for inflation; real incomes of two-thirds of all taxpayers increased over this period; and median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the high income groups.  
Or, as the authors of the study put it: “While the share of income of the top 1 percent is higher than in prior years, it is not a fixed group of households receiving this larger share of income.” 

Bottom Line: For Robert Reich to say that "the super-rich got even wealthier this year" implies that the "super-rich" this year is the same fixed group of "super-rich" as last year that are now even wealthier, when that is not an accurate description of reality.  It would be like saying "the super-rich baseball players in 2011 got even wealthier than in 1988," without acknowledging that the "super-rich" in 2011 are a completely different group of players than in 1988. 

HT: Pete Friedlander

The Megabus Effect: A Great Success Story of Low-Cost, Convenient, Market-Based Bus Travel Without Government Subsidies or Tax Breaks

From Bloomberg/BusinessWeek, a great story about the success of a new industry that has brought low-cost, dependable, convenient, market-based, Wi-Fi-enabled bus service to millions of Americans, despite rising gas and oil prices, and without any government subsidies, tax breaks or taxpayer funding:

"After decades of decline, the bus is the U.S.'s fastest-growing way to travel, led by curbside service from Megabus, BoltBus, and others.

For bus travel as a whole, the number of daily departures increased by 6 percent in 2010, twice the growth experienced by air travel and 12 times that of Amtrak. The number of curbside passengers rose by at least 33 percent, with Megabus ridership expanding 48 percent. (Amtrak ridership grew by just 6 percent, and the airlines by 5 percent.) The company says growth, including the 20 routes it added last year, is an astounding 65 percent. Curbside buses now account for more than a fifth of all daily bus departures in the country. The American Bus Assn. maintains that traditional intercity bus service on Greyhound, Trailways, and others has even experienced a positive spillover—the group calls it "the Megabus effect."

Much of the recent success of the curbside business derives from its nimbleness. In February the Obama Administration unveiled some specifics of its long-term plan for high-speed rail, requesting $53 billion over the next six years to build and upgrade intercity service—a proposal that has already met opposition. By contrast, the bus simply uses existing roads, requiring no policy debates, government funding, or land management studies. It needs only a curb and a sign.

Bus companies are also able to gauge demand quickly, gather rider input online, then alter pickup locations or routes just by posting changes to their websites. While we're having coffee, Megabus CEO Dale Moser explains that since he's seen numerous requests on transit blogs for new service from Chicago to Memphis, he figures he might as well give the route a try. A couple of weeks later he has the buses up and running.

The curbside bus can also easily add and subtract departures. During Thanksgiving and Christmas in 2010, Megabus continued to sell as many tickets as were requested on its website, adding buses as needed. In Chicago, the buses were lined up all the way around the corner at the pickup location. "It's astounding how few constraints there are to its development and expansion," says Joseph Schwieterman, the director of DePaul's Chaddick Institute. "That's why it's an exciting product to watch. Adding two big hubs in six months—we just don't see that anymore in transportation."

The comparison with rail is revealing. Consider that even after the Obama Administration budgeted $10.4 billion in federal stimulus money to jump-start high-speed rail projects around the country, the states had to submit proposals, federal transportation officials had to select the most viable ones, and state and federal governments had to negotiate these plans with the freight companies that own most of the nation's track. After all that, politicians, citing budget shortfalls, ended up scuttling many of the plans."

MP: Perhaps this is another deflationary factor that is helping to offset rising oil and gas prices, and serves to moderate inflationary pressures. And it's a great example of a competitive, flexible, low-cost, consumer-driven, market-based solution to transportation, in contrast to government transportation options like Amtrak that are the opposite: non-competitive, inflexible, high-cost, politician-driven, and not market-based.  

HT: Paul Cerni

Rising Commodity Prices Do Not Necessarily Lead to Higher Core CPI Consumer Inflation

We hear a lot of talk about how rising prices for copper, cotton, oil, and other commodities are signaling that inflationary pressures are building up in the general U.S. economy, implying a direct and tight connection between commodity prices and consumer prices.  For example, Atlanta Fed President Dennis Lockhart said recently that rising commodity prices are creating “inflation anxiety." But what exactly are the implications of rising commodity prices for core inflation, and how closely are those two variables related?  

That's the question posed in a new Chicago Federal Reserve Bank research paper by Charles Evans and Jonas Fisher. As the chart above of annual PPI inflation rates for industrial commodities and the annual core CPI inflation rates shows, the answer to the question is "not very much."  From the introduction of the paper:

"The recent run-ups in oil and other commodity prices and their implications for inflation and monetary policy have grabbed the attention of many commentators in the media. Clearly, higher prices of food and energy end up in the broadest measures of consumer price inflation, such as the Consumer Price Index. Since the mid-1980s, however, sharp increases and decreases in commodity prices have had little, if any, impact on core inflation, the measure that excludes food and energy prices.

Some economists argue that rising commodity prices are inflationary and, therefore, require a tightening of monetary policy.  Others say rising commodity prices have sometimes led to inflation and sometimes not. Therefore, a monetary policy response may not be required. In this Chicago Fed Letter, we empirically assess these views by conducting a statistical analysis of quarterly data on commodity prices, inflation, and monetary policy since 1959. We find that since the mid-1980s, after the big oil shocks and the tenure of Paul Volcker as chairman of the Federal Open Market Committee (FOMC), the reactions of both core inflation and the federal funds rate (the monetary policy instrument) to shocks in oil and other commodity prices have been extremely modest."

How Shale Gas Snuck Up on the Beltway Elites and How Politics Could Disrupt the Success Story

AEI's Steve Hayward has an excellent article on "The Gas Revolution" in the Weekly Standard, here are some key paragraphs:

"One remarkable aspect of the shale gas revolution is that it was not the product of an energy policy edict from Washington, or the result of a bruising political battle to open up public lands and offshore waters for new exploration. Although the Halliburtons of the world are now big in the field, its pioneers were mostly smaller risk-taking entrepreneurs and technological innovators. George P. Mitchell, an independent producer based in Houston, is widely credited as being the prime mover in shale gas, pushing the idea against skeptics. The technology was mainly deployed on existing oil and gas leaseholds or on private land beyond the reach of bureaucrats (for the time being, anyway). That is why shale gas seemed to sneak up unannounced to the media and Beltway elites, even though people inside the gas industry realized several years ago what was rapidly taking place. Mitchell worked the Barnett shale formation near Dallas, but the biggest shale gas “play” is the Marcellus​—​a massive deep shale formation stretching from West Virginia through upstate New York.

Now that shale gas is front-page news, everyone wants a piece of the action. Environmentalists, who have supported natural gas as a “bridge fuel” to kill coal, are starting to turn against gas now that it looks more abundant. Regulators want to regulate it; state legislators want to tax it more. And politicians are eager to “help” the market decide how best to use this newfound bounty, which is music to the gas industry’s ears, as they fear a glut might collapse prices and do to their industry what the collapse in oil prices in 1986 did to the small producers in the oil patch. In other words, the one thing that might disrupt this amazing success story has arrived on the scene: politics."

Steve ends his article with this last sentence: "It would be best if politicians left well enough alone and allowed the marketplace to compete over the uses of natural gas, but politics and energy have always mixed like gin-ethanol and tonic, so don’t count on it."

MP: The chart above displays annual natural gas production in the U.S. back to 1936, and shows that domestic production has set new annual records in each year since 2007.  For the last several years the U.S. has been the world's largest gas producer starting when it surpassed Russia in 2009. 

Tax Deadline Approaches: Bring Us Back to 1913

This post has become an annual tradition at CD as the tax deadline approaches.  

Page 1 of the original IRS 1040 income tax form from 1913 appears above. There were only four pages in the original 1040 form, including two pages of worksheets, the actual 1040 form above, and only one page of instructions, view all four pages here. In contrast, just the current 1040 instructions, without any forms, runs 179 pages.

Individual income tax rates started at 1% in 1913, and the maximum marginal income tax rate was only 7% on incomes above $500,000 ($11.2 million in today's dollars). The personal exemption was $3,000 for individuals ($67,000 in today's dollars) and $4,000 for married couples ($89,400 in today's dollars), meaning that very few Americans had to pay federal income tax since the average income in 1913 was only about $750. The Tax Foundation has historical federal income tax rates for every year between 1913 and 21011 here.

Huge Gender Gaps in Educational Attainment

From a BLS report released in February on "America's Young Adults at Age 23":

"At age 23, there is a clear gender gap in educational attainment. While nearly 1 in 4 women had earned a bachelor’s degree by the October when they were age 23, only 1 in 7 men had done so (see chart above). Additionally, the same percentage of men and women, 16 percent, were enrolled in college at age 23, so it is unlikely the gap in educational attainment will close in the next few years."

In other words, at age 23 there are 164 women earning a college degree for every 100 men.  At age 22, there is an even greater gender college degree gap: 12.7% of women earn a bachelor's degree compared to only 6.7% of men at age 22, which is a ratio of 187 women earning a college degree by age 22 for every 100 men. 

Interestingly, there is now a proposal for President Obama to create a White House Council on Boys and Men, to address the "nationwide crisis of boys and men that already exists" including the huge gender gaps in educational attainment illustrated above. 

In March of 2009 President Obama signed an executive order to create the White House Council on Women and Girls "to ensure that each of the agencies in which they're charged takes into account the needs of women and girls in the policies they draft, the programs they create, the legislation they support" and that the true purpose of our government is "to ensure that in America, all things are still possible for all people."

Wouldn't the principles of fairness and gender equity suggest equal treatment and the creation of Councils for both genders?

Sunday, April 10, 2011

Can We Have Inflationary Pressures Building in U.S. With Falling Home Prices and 2% Wage Increases?

The chart above shows the annual growth rates in: a) consumer prices (CPI), b) average hourly earnings, and c) the FHFA home price index from 1976 to 2010.  The double-digit CPI inflation of the late 1970s (see brown line in chart) was accompanied by: a) double-digit increases in home prices for 11 straight quarters from 1977 to 1979 (red line), and b) 69 consecutive months with year-over-year wage increases of 7% or higher (blue line).  

Currently, we've had 22 consecutive months of year-over-year wage increases below 3%, and b) 13 consecutive quarters of negative year-over-year home price increases starting in late 2007.  Given the past historical patterns of inflation being accompanied by rising wages and home prices, it seems like the proponents of pending inflation have to explain how inflationary pressures can be building in the economy with: a) falling home prices and b) wage increases of 2% that are less than half the 4.5% average since 1965?  It would be historically unprecedented to start experiencing rising inflation in 2011 with falling home prices and stagnant wages, and unless and until we start seeing rising home prices and wages we might not see higher inflation this year.

Update/Main Point: In the 1970s, when we experienced high and rising inflation, there were widespread inflationary pressures throughout the economy: prices for housing, food, energy, etc. and wages were all rising.   Today, we have a mix of: a) inflationary pressures (most food items, oil/gas), b) deflationary pressures (natural gas (-6% over the last year), housing, electronics, some food products like eggs (-9% over the last year), boneless chicken breast (-4%), clothing, etc.), and c) no inflationary wage pressures.  We'll know that we're entering a new period of high inflation when we start to see widespread inflationary pressures throughout the economy.  People talk about food inflation, and yet McDonald's still has the same Dollar Menu prices today as three years ago, so even food inflation can't really be that bad yet, can it? 

Chart of the Day: Federal Spending, Share of GDP

The chart above shows quarterly federal government spending (current expenditures) as a share of GDP (data here), with actual data from 1976 to 2010 and projected estimates from 2011 to 2021 according to the Ryan Plan.  

Looking at federal spending as a share of GDP during the terms of U.S. presidents, federal spending increased under Carter and both Bushes, remained about the same under Reagan, decreased under Clinton to the lowest level since 1970 and skyrocketed under Obama to the highest level since WWII. If the Ryan Plan is successful at getting federal spending below 20% of GDP by 2018, it would the first time since 2002 that the size of the federal government is below one-fifth of the U.S. economy.

When Will We See the "First Bank of Walmart"?

Federal regulators and the U.S. banking industry have blocked several attempts by Walmart to offer banking services at its 8,500 retail stores nationwide.  But Walmart hasn't given up yet:

"Wal-Mart hopes to ultimately create a branded bank, much to the vehement opposition of the U.S. banking industry. The company has been twice denied takeovers of banks, but it has expanded its financial services drastically and silently through partnerships with Discover, GE Consumer Finance, MoneyGram International and SunTrust Banks, which entitles its customers to discounted money transfers and check cashing services. If the company ever becomes a bank, its footprint would be massive, with an instant 8,500 stores becoming bank branches worldwide. The prospect of Wal-Mart becoming a bank that utilizes the same low margin but high volume approach to financial services horrifies many national banks, which would suffer the same fate as the small general stores Wal-Mart put out of business years ago when they cropped up all over the interstate highways."

In contrast to its experience in the U.S., Walmart entered the retail banking industry in Mexico in 2007, and here's an update of what has happened there:

"After four years of operations, Banco Walmart opened its 1 millionth account on March 15, in one of its Mexico City branches. The account holder was rewarded with a $10,000 pesos deposit in their Banco Walmart savings account.

“Banco Walmart contributes towards improving the quality of life for families in Mexico, providing them with basic banking services at a low cost. In less than one year, we have given back more than $14.8 million pesos, in cash, to our customers using Banco Walmart cards in Walmart stores. We plan to open 62 new branches in 2011 (an increase of 24% over 2010) in order to bring this kind of service to more Mexicans nationwide. It is estimated that 70% of the population does not have access to bank services,” said Raúl Argüelles, senior vice president corporate affairs Walmart de México y Centroamérica.

“Since opening in 2007, Banco Walmart has generated more than 1,800 jobs throughout the country; it has received $1.34 billion pesos in deposits; it has granted $965 million pesos in credit through its Super Crédito credit card; and has supported $710 million in supplier development with more than 150 credit lines through the Credimpulsa program,” added Argúelles."

MP: Maybe that's just the type of reform that could help the U.S. banking system become safer, sounder and more efficient: some good ole competition from retail giant Walmart. 

Saturday, April 09, 2011

Chart of the Day: Record Productivity Growth

The chart above shows the "Productivity change in the nonfarm business sector, 1947-2010" (Source: BLS), which supports the post below.  Instead of the "Great Stagnation," maybe we're in the "Great Accelerating Productivity Surge"?

HT: PeakTrader

The Good News: Worker Productivity and Profits Per Workers Are At Record Highs. The Bad News: That Probably Means A Record Jobless Recovery

The top chart above shows that real GDP in the fourth quarter of 2010 was slightly higher (by 0.14%) than real output in the fourth quarter of 2007 when the recession started.  But even though the economy has made a complete recovery from the Great Recession in terms of real economic output, the U.S. economy is producing more real GDP today than in 2007 with 7.3 million fewer private sector jobs.  This current economic recovery is an amazing story of huge increases in worker productivity (producing more output today with 6.3% fewer private sector workers than in 2007) that might be unprecedented in U.S. history over any three year period of time, or in any post-recession period.

What does that surge in worker productivity mean for the bottom lines of American companies?  The bottom chart above shows that real corporate profits per private sector job reached an all-time record historical high of $11,552 in the fourth quarter of 2010 (measured in 2010 dollars).  That's 65% higher than the recession-low of about $7,000 per worker in fourth quarter of 2008 and 7.5% above the pre-recession high of $10,740 in 2006.   

That's the good news about record-high worker productivity and the resulting record-high real corporate profits per private sector worker.  The bad news is that these trends might translate into a record-length "jobless recovery," as U.S. companies have been able to expand output and profits to record levels, but with millions and millions of fewer workers.  Taken together, these two trends might explain why many companies have been reluctant to hire back more workers - why increase the labor force when output and profits are at record-levels?

A recent AP news report discusses these trends:

"U.S. workers have become so productive that it's harder for anyone without a job to get one. Companies are producing and profiting more than when the recession began, despite fewer workers. They're hiring again, but not fast enough to replace most of the 7.5 million jobs lost since the recession began. 

Measured in growth, the American economy has outperformed those of Britain, France, Germany, Italy and Japan — every Group of 7 developed nation except Canada, according to The Associated Press' new Global Economy Tracker, a quarterly analysis of 22 countries representing more than 80 percent of global output.

Yet the U.S. job market remains the group's weakest. U.S. employment bottomed and started growing again a year ago, but there are still 5.4 percent fewer American jobs than in December 2007. That's a much sharper drop than in any other G-7 country. The U.S. had the G-7's highest unemployment rate as of December. Canada and Germany have actually added jobs since the recession ended in June 2009. 

Panicked by the 2008 financial crisis and deepening recession, U.S. employers cut jobs pitilessly. They slashed an average of 780,000 jobs a month in the January-March quarter of 2009. "My sense is there was much more weeding out of the weakest workers — the ones they didn't want," says Harvard economist Kenneth Rogoff.

Yet after shrinking payrolls, many companies found they could produce just as much with fewer workers. And with that higher productivity came higher profits. By July-September quarter of 2010, U.S. corporate earnings were 12 percent more than when the recession began. By contrast, corporate profits fell 6 percent in Japan and 16 percent in Canada from the October-December quarter of 2007."

Friday, April 08, 2011

Rising Supply, Advances in Drilling Technology and Conservation Will Counteract Rising Oil Prices

1. Basic economic theory tells us that one of the predictable consequences of resources becoming more expensive is that higher prices will stimulate discovery, exploration and greater production on the supply side. (Update: See "Peak Idiocy" here for a review of ECN 101 regarding energy prices.) And that's exactly what we're seeing now in Texas for oil and gas, according to today's WSJ article "Chevron Rekindles Old Texas Flame: High Oil Prices, New Technologies Once Again Make the Permian Basin a Popular Spot for Drilling," here's an excerpt:

"Climbing oil prices are making the aging oil fields of Texas's Permian Basin look attractive again to some big petroleum companies. Chevron Corp. has pumped oil from this well-plowed area of west Texas and New Mexico since 1925. But in recent decades, as production in the area declined, Chevron and other companies used it primarily as a lab for oil-extraction techniques that could be employed in larger projects elsewhere.

This year, Chevron, the second-largest U.S. oil company by market value after Exxon Mobil Corp., plans to boost investment to $600 million in the Permian Basin, 32% more than a year earlier, and drill twice as many wells as it did in 2010 in the area. Its goal is to squeeze more oil out of these aging fields at a time when commodity-oil prices have risen to over $100 a barrel—levels not seen since summer of 2008—and access to oil in the Gulf of Mexico and lucrative foreign fields has become more of a challenge. The company is also seeking to employ new technologies only recently available to unlock significant amounts of Permian crude that were hard to reach before.

The revival of the Permian Basin is also driven by the widespread use of relatively new technologies such as hydraulic fracturing (see diagram above), which involves injecting a mixture of water, sand and chemicals underground at high pressures to release oil from hydrocarbon deposits. In recent years, this and other technologies have unlocked shale oil and gas that wasn't previously accessible, leading to a boom of new wells across the country. Now they are being adapted and used to boost production from mature oil fields like the ones in the Permian Basin. Chevron and others are also planning to apply the techniques in previously unexplored shale areas of the basin."

2. And as the new hydraulic fracturing and horizontal drilling revolutionize the oil and gas industries, that new technology keeps getting better and better.  One example is the new QuikFRAC system, which is a "set of tools capable of simultaneously stimulating multiple stages with a single fracture treatment (batch fracturing)."  If you watch this video, you'll see that the main implication of this new QuickFRAC technology is that it can pump three times as much oil in a given time period compared to conventional fracking methods, and therefore reduces the time spent drilling by two-thirds. 

Bottom Line: Due to: a) increased oil production in the U.S. and around the world and b) advanced drilling technologies on the supply side, along with c) increased conservation on the demand side, will all counteract and put some limits to how high oil and gas prices will rise.

Update: Another factor that will moderate rising oil/gas prices is the substitution effect of switching to other currently available alternative energy sources like natural gas, along with the increased incentive to develop new, alternative energy sources.     

WSJ Interactive Map/Graphic of Global Int. Rates

Here's a really interesting interactive WSJ map/graphic of global central bank interest rates, on a monthly basis  back to May 2004.  If you watch the monthly time series, you'll see that the U.S. Fed started lowering interest rates in September 2007, about a year ahead of the interest rate cuts in Europe that started in October 2008.  Now the ECB has moved ahead of the Fed by raising rates this month by a quarter point to 1.25%, thus the title of the front page story that the graphic accompanies: "Europe's Rate Rise Signals End of Cheap-Money Era." 

Leading Economic Indexes Increase in Feb.

Leading economic indexes from the Conference Board for February: Japan (pre-earthquake) up by 1%, Korea up by 0.1% in February, and the U.K. up by 0.6% in February (following increases of 0.4% and 0.6% in January and December).  

What's Your News IQ? Take the Test and Find Out

Take the new Pew Research Center News IQ test here.  

Thursday, April 07, 2011

The Pandas Are "Made in China." So What Are They Doing at the Smithsonian's NATIONAL Zoo in DC?

Is there really any difference between imported Chinese pandas in a Smithsonian museum and imported Chinese souvenirs in a museum gift shop?
Last month Senator Bernie Sanders (I-Vt.) summoned the Smithsonian Museum's top officials into his office and demanded they start selling more "Made in the USA" products in Smithsonian museum gift shops.  According to ABC News:

"After the meeting with Sanders, Smithsonian officials said they would sell more American-made souvenirs and promised to devote one gift shop to American-made products. Sanders said, "It's a start." 

However, for some in Congress, it's not good enough.  Nick Rahall, D-W.Va., the top Democrat on the committee that oversees the Smithsonian, said he plans to introduce a bill that would require the Smithsonian to sell only American-made goods."

In February, ABC News featured another news story titled "At Smithsonian, Americana 'Made in China'", and reported that museums and monuments all over the nation's capital are selling gift and souvenirs, including statues of U.S. Presidents, magnets of the Washington Monument, plates, and even a Barack Obama coffee mug, that are made in China.

Don Boudreaux featured this Reason.tv video today about "Bernie Sanders' War on Chinese Bobbleheads." 

MP: Suppose in a momentary lapse into protectionist nitwitery we were to take Rep. Rahall's American-made only legislation for the Smithsonian gift shops seriously. If so, why stop there?  Why not then legislate that all of the displays, contents, artwork, artifacts, and animals at every of the 20 Smithsonian properties be "made in the USA" as well.  And require that all food served at Smithsonian Museum restaurants and cafeterias be "American made" only. In other words, why restrict the "made in the USA" policy to just the gift shop and not the entire museum?

For example, the Smithsonian's African Art Museum features only "traditional and contemporary art from the entire continent of Africa" and would have to be closed for being un-American.  It violates the "made in the USA" policy.  Likewise for the Freer Gallery of Art, which houses one of the "premier collections of Asian art."  Un-American.  The contents of the National Museum of Natural History would have to go through some serious culling of un-American exhibits that include a stuffed African elephant and exhibits of other African wildlife, exhibits on Egypt, an exhibit on Chinese orchids, etc.  Serious violations of the "made in the USA" policy.

And the Smithsonian's National Zoo probably has a higher concentration of foreign animals than any of the Smithsonian museum gift shops have foreign-made Americana.  So we'd have to start by getting rid of the Chinese pandas (pictured above), which should be considered as great a threat to Americans as Chinese-made snow domes, baseball caps and statues of Obama in the Zoo gift shop.  After all, we have brown bears and black bears that are real "American" bears and why shouldn't those be displayed instead of the Chinese pandas?  And then we would replace all of the other foreign animals with patriotic American animals and make it a real NATIONAL Zoo. Right now it's not a "national" zoo at all, it would be more accurate to call it the Smithsonian INTERNATIONAL Zoo, and that's un-American.  

Finally, the restaurants at Smithsonian museums should be forced to serve only food "made in America" - none of that un-American coffee grown in Colombia or foreign bananas from Costa Rica.

Obviously, if that all seems like nonsensical nitwitery, it is. But then so is Bernie Sanders' "War on Chinese Bobbleheads."

Recovery Watch: Rail,Temp Help, Air Traffic All Up

1. The American Association of Railroads reported today that U.S. railroads originated 305,905 carloads for the week ending April 2, which was an increase of 5.7% from the comparable week last year, and is the highest level for carload rail traffic since late 2008 (see chart above).  Intermodal rail containers increased to 234,208 trailers and containers last week, which was 19.4% above the same week last year.   

2. The American Staffing Association Staffing Index reached the highest level so far this year of 92 for the week ending March 27, which is a 9.5% annual gain vs. the same week in 2010, and a 26.4% gain compared to 2009. 

3. The International Air Transport Association reported annual increases for international traffic during the month of February: 6.0% for passenger traffic compared to last year, and 2.3% for cargo volume.

4. Traffic at Dulles Airport increased in February for both passenger traffic (+13.6%) and freight traffic (+4.4%), and traffic at Reagan Airport increased by 22.2% for passengers and 11.1% for cargo. 

The Wholesale Liquor Cartel Harms Consumers

NY Times -- "Imagine if Texas lawmakers, in a bid to protect mom-and-pop bookstores, barred Amazon.com from shipping into the state. Or if Massachusetts legislators, worried about Boston’s shoe boutiques, prohibited residents from ordering from Zappos.com. Such moves would infuriate consumers. They might also breach the Constitution’s commerce clause, which limits states from erecting trade barriers against one another. But wine consumers, producers and retailers face such restrictions daily. 

The wholesaling industry’s survival depends on maintaining today’s highly regulated system. It is estimated that because of wholesalers, consumers pay 18 percent to 25 percent more at retail than they otherwise would. 

Last month,  Representative Jason Chaffetz, Republican of Utah, introduced a bill in the House that would allow states to cement such protectionist laws. It should appall wine snobs, beer swillers and even teetotalers. In this case, the law would protect not small stores and liquor producers, but the wholesale liquor lobby."

MP: Congress should just say "No" to the Wholesale Liquor Cartel. 

Jobless Claims Remain Below 400,000 for 6th Week

The Department of Labor reported today that initial jobless claims fell by 10,000 for the week ending April 2, bringing the four-week moving average down by 5,750 to 389,500 (see chart).  For the first time since July 2008, the four-week average for jobless claims has remained below the benchmark 400,000 level for six consecutive weeks, and provides additional evidence that conditions in the labor market are gradually improving. 

According to Reuters:

"New U.S. claims for unemployment benefits fell slightly more than expected last week, according to a government report on Thursday that pointed to firming labor market conditions. Initial claims for state unemployment benefits slipped 10,000 to a seasonally adjusted 382,000, the Labor Department said. Economists polled by Reuters had forecast claims falling to 385,000. The four-week moving average of unemployment claims -- a better measure of underlying trends - fell 5,750 to 389,500."

Wednesday, April 06, 2011

CHART: International Public Opinion on Capitalism

The chart above is from today's online version of The Economist, showing an international comparison of public opinion on the free market, with some interesting results:

1. Brazil ranks #1 for responding "strongly agree" that the free-market system is the best, and Germany ranks #1 for "strongly or somewhat agree."

2. Germany, Brazil, China and Italy are rank higher than the U.S. for the top two most favorable responses.  

3. Citizens of Germany and Italy view free-markets more favorably than the Brits, and a lot more favorably than the French.  

4. Japan ranks lowest for the most favorable response (strongly agree).

Chart of the the Day: Real Gold Prices, 1970-2011

Record-high gold prices have been in the news lately, here's an example of a new story today from Bloomberg titled "Gold Advances to Record for Second Day":

"Gold for immediate delivery in London rose to an all-time high of $1,462.30."

The chart above (click to enlarge) displays real, inflation-adjusted gold prices back to 1970 (data are from Global Financial Data, paid subscription required), and shows that the real price of gold peaked on January 21, 1980 at a closing price of $892.10 per ounce in current dollars, but that's more than $2,500 per ounce in today's dollars. Compared to that peak real price, the price of gold today at $1,462.30 per ounce is 42.5% below the 1980 peak.

If You Subsidize Something, You Get More of It

SAN FRANCISCO  — "The San Francisco Board of Supervisors approved a tax break to keep Twitter from fleeing the city. The measure passed 8-3 and exempts the micro-blogging service from paying payroll tax on new hires if it moves to the city’s neglected Mid-Market area.

Twitter is already outgrowing its current San Francisco headquarters in the city’s South of Market neighborhood, and the company is poised to expand from a few hundred to a few-thousand workers. While seeking a building with more office space, the company had said it had considered moving down the Peninsula to a city that has no payroll tax.

San Francisco is the only city in the state that charges companies a payroll tax; 1.5 percent of total employee compensation each year if the firm has more than $250,000 in payroll. The tax also applies to money made on stock options, a prime consideration for Twitter which is rumored to be exploring an initial public offering."

HT: Kyle Stingily

P.J. O’Rourke: "Atlas Shrugged. And So Did I"

P.J. O'Rourke reviews the movie "Atlas Shrugged" in today's WSJ blog, here's an excerpt:

"But I will not pan “Atlas Shrugged.” I don’t have the guts.  If you associate with Randians—and I do—saying anything critical about Ayn Rand is almost as scary as saying anything critical to Ayn Rand.  What’s more, given how protective Randians are of Rand, I’m not sure she’s dead.

The woman is a force.  But, let us not forget, she’s a force for good.  Millions of people have read “Atlas Shruggged” and been brought around to common sense, never mind that the author and her characters don’t exhibit much of it. Ayn Rand, perhaps better than anyone in the 20th century, understood that the individual self-seeking we call an evil actually stands in noble contrast to the real evil of self-seeking collectives.  (A rather Randian sentence.)

It’s easy to make fun of Rand for being a simplistic philosopher, bombastic writer and—I’m just saying—crazy old bat.  But the 20th century was no joke. A hundred years, from Bolsheviks to Al Qaeda, were spent proving Ayn Rand right."

Blog Stats: 159 Million

According to BlogPulse, there are more than 159 million blogs, and 68,825 new blogs have been created in just the last 24 hours. 

Natural Gas Prices Fall to Lowest Levels Since 2002

While rising oil and gas prices have captured all of the media attention lately, there’s another energy story about falling prices that has gone largely unreported. According to data released last week by the Department of Energy, natural gas prices for residential consumers fell to a seven-year low in January of $9.80 per 1,000 cubic feet. When adjusted for inflation, American consumers haven’t had cheaper natural gas since December 2002, more than nine years ago (see top chart above, data here). The bottom chart above shows a similar price decline for commercial customers, who paid less for natural gas in January this year (adjusted for inflation) than in any month since November 2002 (data here).

About 25% of energy in the U.S. comes from natural gas, so the falling prices for this energy source should offset some of the rising costs of oil and gas, and also act to offset some of the overall inflationary pressures.  Read more here at The Enterprise Blog.   

If You Tax Something, You Get Less of It

From the Boston Globe:

"Fidelity Investments will shutter its offices in Marlborough, Massachusetts by the end of next year and move almost all of the 1,100 jobs there out of state, a spokeswoman said yesterday. The financial services giant, based in Boston since it was founded in 1946, has steadily slashed its Massachusetts workforce in the past five years. Fidelity will probably have about 7,300 workers left in Massachusetts, just over half of the 13,000 it had in 2006. Most of the jobs will be relocated to other states, with the lion’s share going to existing offices in Merrimack, N.H., and Smithfield, R.I.

Several observers said it appears Fidelity is relocating to states that will offer more tax breaks, or where it believes it can cut operational costs, especially since many of the jobs are moving only across the Massachusetts border."

From the Boston Herald (thanks to Steve Bartin):

"A clandestine company that manages billions for Fidelity Investments has quietly pulled up stakes from Boston’s Financial District, leaving the Bay State behind for New Hampshire and its beneficial trust and tax laws. Crosby Advisors’ relocation of more than 100 workers to new offices in Salem, N.H., last fall — marking a major migration of Boston wealth over the border — went virtually unnoticed except among informed company insiders.

The move also went completely unmentioned amid all the hand-wringing after Fidelity announced last month that it would close its Marlboro campus and send most of those 1,100 jobs to its offices in Merrimack, N.H., and Smithfield, R.I."

5 Reasons to Be Bullish About America in Long Run

1) The United States is the home of the entrepreneur.

2) The United States is the most open/flexible society the world has ever seen.

3) The brightest minds from around the world dream of coming to the United States.

4) English is the universal language.

5) Americanization remains a powerful and growing – though resented – economic and social trend throughout the world. (To quote the advertising/marketing giant WPP Group’s CEO, Sir Martin Sorrell, “Globalization is a misnomer. The better word is Americanization.”)

~Jeffrey Saut via Real Clear Markets

Tuesday, April 05, 2011

NY Fed Model: 1-in-232 Chance of 2012 Double-Dip

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" yesterday with treasury yield data through March 2011, and the Fed's recession probability forecast through March 2012. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (3.41% in March) and 3-month Treasury bills (0.10%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here).

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 37-42% (see chart above), and has been declining since then in almost every month.  For March 2011, the recession probability is only 0.26% and for March of next year the recession probability is slightly higher at 0.43%. According to the NY Fed Treasury Spread model, the chances of a double-dip recession through March of next year is less than one-in-200.

Paul Ryan's Plan for a Debt-Free Nation

Paul Ryan (R-Wisconsin) presented his "Path to Prosperity" budget plan today at AEI, here's the full text of his talk, here's his WSJ editorial today, here's the link to the video, and here's the full 73-page plan

Americans for Tax Reform prepared the chart above to compare Ryan's budget to the Simpson-Bowles (Obama) commission (and the Coburn-Chambliss “Gang of Six” which is introducing legislation modeled after Simpson-Bowles).

In his talk today, Paul Ryan quoted a famous American president:

"The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of sound policy. It is in violation of the traditions of America."

And Rep. Ryan concluded his talk by saying:

"This budget offers America a model of government that is guided by the timeless principles of the American Idea. This budget provides policymakers with a blueprint to put our budget on the path to balance and our economy on the path to prosperity. This budget assures America's seniors-those who are currently retired and future retirees-that their health and retirement security will be preserved and strengthened.

This budget provides parents with hope that their children can inherit a strong, free and prosperous America. It is a plan to give our children a debt-free nation so they too can realize the American Dream."

Two Americas: Public vs. Private Employees

1. "If you want to understand better why so many states—from New York to Wisconsin to California—are teetering on the brink of bankruptcy, consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government (see chart above).

2. NY Times -- "Carlos Bejarano, a Phoenix school superintendent with more than 30 years in education is one of an increasing number of public employees here who are retiring one day and going right back to the same jobs the next, enabling them to supplement their income with retirement benefits without really retiring at all."

It's called public sector "double dipping," "faux retirement" or "non-retirement retirement." 

3. Boston Globe -- "Health insurance plans to cover city and town employees in Massachusetts cost 37 percent more than similar plans for workers at private companies, mostly because municipal employees pay minimal copayments or deductibles when they get care, according to a new statewide survey.

The report, which focused on 14 municipalities, found that city and town workers typically pay only $11 to see their primary care physician, half the amount typically paid by workers in the state, federal, and private sectors."  (HT: Steve Bartin)

$11 for an office visits, that's "almost free," so it's no wonder medical costs are so high for city workers, they probably go to the doctor every time they have a mild cold. 

Monday, April 04, 2011

Employment Trends Index Increases for 6th Month

The Conference Board Employment Trends Index (ETI) increased in March for the sixth month in a row. The March index rose to 100.9, up from 100.3 in February.  Compared to March last year, the ETI has increased by 8%.

Says Gad Levanon, Associate Director, Macroeconomic Research at The Conference Board: “The Employment Trends Index started signaling acceleration in employment growth late last year, which we are now experiencing. In the last six months, employment excluding construction and state and local government has been growing faster than almost any other 6-month period in the past decade. We do not expect a turnaround in those sectors, which are still lagging, nor do we forecast acceleration in overall economic growth in the next several quarters. As a result, employment growth is likely to continue growing at its current rate and not improve further for the rest of 2011.”

Cartel Nation: Barriers to Entry Stunt Job Growth

"Consider this fact: In the 1950s, only 1 in 20 American workers needed the government's permission to work; today, that figure is nearly 1 in 3. So much for the Land of Opportunity."

MIT's BPP Monthly Inflation Rate Has Been Falling

I'm not sure what's going on here, or if this means anything, but the monthly inflation measure from the MIT Billion Prices Project has been falling steadily since mid-February, see chart above.  From the recent peak of 0.82% on February 18, the monthly BPP inflation rate has fallen almost in half, to 0.48% as of April 3, 2011. 

Jobs, Jobs, Jobs, Jobs

1. Walmart plans to create 10,000 jobs in Chicago by 2015.

2. McDonald's plans to hire 50,000 people this year (thanks to Steve Bartin).

Random Monday Links

1. Gloom and doom from Robert Reich: "The Truth About the Economy that Nobody In Washington Or On Wall Street Will Admit: We’re Heading Back Toward a Double Dip."

2. Senators Bacus and Kerry argue in the WSJ that Congress should pass the U.S.-Colombia Free Trade Agreement (FTA). Colombian products have nearly complete access to U.S. markets, while U.S. farmers face an average tariff of 30% in Colombia, and manufacturers face a 14% rate. The Colombia FTA will eliminate tariffs for U.S. exports.  Seems like a no-brainer.

3. The Mackinac Center reports that Michigan’s recent economic revival of late can be traced in part to two little-known sources – China and Saudi Arabia. Michigan’s international exports increased 36.3% from 2009 to 2010, the third-largest increase in the nation. 

4. Daniel Yergen writes in the WSJ on the promise of shale gas: "Estimates of the entire natural-gas resource base, taking shale gas into account, are now as high as 2,500 trillion cubic feet, with a further 500 trillion cubic feet in Canada. That amounts to a more than 100-year supply of natural gas."  

5. Oregon cops hope classical music deters loiterers, vagrants, vandals and ne'er-do-wells who loiter near a busy transit stop.

6. Cuban blogger Yoani Sanchez meets Jimmy Carter in Havana. 

7. Market-driven concierge medicine is expanding significantly, but its spread could worsen the shortage of primary care doctors when Obamacare brings in more than 30 million newly insured patients.  (Thanks to Steve Bartin.)

Sunday, April 03, 2011

Another Name for "Trade Deficit" is "Capital Account Surplus," Balance of Payments Always = 0

Here's another look at the balance of payments data back to 1980 (BEA data here), demonstrating graphically Don Boudreaux's statement that "another name for “U.S. trade deficit” is the “U.S. capital-account surplus” – that is, inflows of investment funds into America that supply (directly or indirectly) financing for more capital creation in America."

As a direct consequence of our current account deficits, the U.S. economy has been the beneficiary of more than $8 trillion worth of capital inflows from foreigners since 1980.  Because the Balance of Payment accounts are based on double-entry bookkeeping, the annual current account and capital account have to net to zero, so that any current account (trade) deficit (surplus) is offset one-to-one by a capital account surplus (deficit) and the balance of payments therefore always nets out to (equals) zero. And that's why it's called the "balance" of payments, because once we account for trade flows and capital flows, everything balances, and there are no deficits or surpluses on a net basis.  

For more details see this CD post from last October.     

A Fraudulent "Ph.D" in California With Politically Correct Results Keeps His Job, While A Real UCLA Ph.D. Scientist Gets Fired For Dissenting

UCLA Professor Enstrom goes up against California's "environmental regulation machine" and gets fired. 

The California Air Resources Board (CARB) claims that diesel particulates, a type of pollution emitted from buses and trucks, contributes to 2,000 premature deaths in California each year.

Hien T. Tran was the lead scientist who wrote the report upon which the heavy duty truck and bus regulations are based. He bought a $1,000 mail order Ph.D. from Thornhill "University" located at 255 Madison, New York.  Using his fake Ph.D., the unqualified liar applied for and got the position as Manager of the Health and Ecosystem Assessment Section claiming he has a Ph.D. in statistics from UC-Davis.  Some of the board members, the chair of the California Air Resources Board, Mary Nichols knew of the fraud before voting on the controversial regulation. The board members who knew, kept the information from other board members for nearly a year after the vote.  The Governor also had the information and failed to take action.

Reason.tv -- UCLA epidemiologist Dr. James Enstrom says the number of premature deaths should be closer to zero. In 2005 Enstrom authored an extensive study that found no relationship between diesel particulates and premature deaths. He says his study, as well as other evidence that agrees with it, have been ignored by an agency bent on passing ever more stringent regulations regardless of their effect on California's economy.

Enstrom blew the whistle on CARB for, among other things, failing to publicize that the lead author of the study that was used to justify the new regulations falsified his education history (he purchased his PhD from an online diploma mill). But UCLA didn't come to Enstrom's defense. In fact, officials informed him that, after 34 years at the university, he was out of a job.

"The environmental regulation machine in California is powerful," says Adam Kissel of the Foundation for Individual Rights in Education, which is defending Enstrom in the fight to keep his job. "When Dr. Enstrom went up against that machine he was retaliated against." A hearing that begins on April 4 will determine whether Dr. Enstrom keeps his job, and the final decision rests with UCLA Chancellor Gene Block.

Says Kissel, "If Dr. Enstrom loses his job because he exercised his academic freedom, then it's a message to other researchers that you'd better not rock the boat because you might be next."

And what happened to the fraudulent "Doctor" Tran? He got a 60-day suspension and a demotion, but still works as an air pollution specialist for the state of California despite his record of fraudulent misrepresentation of his academic credentials.

Bottom Line: In California, it's more important that your scientific results are politically correct than scientifically accurate, and as long as your results are politically correct, it doesn't matter if you've fraudulently misrepresented your credentials.