Saturday, June 04, 2011

We're in Era of "Peak Renewables," To Be Followed By An Age of Fossil Fuels That Has Just Begun

Scott Grannis points to this excellent Salon article "Everything You've Heard About Fossil Fuels May Be Wrong" about natural gas and fracking, here are some excerpts:

"According to the conventional wisdom, the U.S. and other industrial nations must undertake a rapid and expensive transition from fossil fuels to renewable energy for three reasons: The imminent depletion of fossil fuels, national security and the danger of global warming. What if the conventional wisdom about the energy future of America and the world has been completely wrong?

The U.S., Canada and Mexico, it turns out, are sitting on oceans of recoverable natural gas. Shale gas is combined with recoverable oil in the Bakken "play" along the U.S.-Canadian border and the Eagle Ford play in Texas. The shale gas reserves of China turn out to be enormous, too. Other countries with now-accessible natural gas reserves, according to the U.S. government, include Australia, South Africa, Argentina, Chile, France, Poland and India.

Because shale gas reserves are so widespread, the potential for blackmail by Middle Eastern producers and Russia will diminish over time. Unless opponents of fracking shut down gas production in Europe, a European Union with its own natural gas reserves will be far less subject to blackmail by Russia. The U.S. may become a major exporter of natural gas to China -- at least until China borrows the technology to extract its own vast gas reserves. 

Two arguments for switching to renewable energy -- the depletion of fossil fuels and national security -- are no longer plausible.

The arguments for converting the U.S. economy to wind, solar and biomass energy have collapsed. The date of depletion of fossil fuels has been pushed back into the future by centuries -- or millennia. The abundance and geographic diversity of fossil fuels made possible by technology in time will reduce the dependence of the U.S. on particular foreign energy exporters, eliminating the national security argument for renewable energy.

Conclusion: Eventually civilization may well run out of natural gas and other fossil fuels that are recoverable at a reasonable cost, and may be forced to switch permanently to other sources of energy. These are more likely to be nuclear fission or nuclear fusion than solar or wind power, which will be as weak, diffuse and intermittent a thousand years from now as they are today. But that is a problem for the inhabitants of the world of 2500 or 3000 A.D.

In the meantime, it appears that the prophets of an age of renewable energy following Peak Oil got things backwards. We may be living in the era of Peak Renewables, which will be followed by a very long Age of Fossil Fuels that has only just begun."

MP: The chart above shows that natural gas has become so abundant in the U.S. because of technological advances in drilling that prices for commercial users today (adjusted for inflation) are lower than at any time since November of 2002. 

To understand how horizontal drilling and hydraulic fracturing work and have revolutionized natural gas production, check out this video (thanks to Pete Friedlander). 

Milton Friedman: Why Drugs Should Be Legalized

In the video above, economist Milton Friedman explains why the government's "War on Drugs" is immoral and costly, and how it contributes to 10,000 unnecessary homicides per year, helped create the market for "crack cocaine," protects the "Drug Cartel" and will destroy our free society.

Minneapolis Licensing Gestapo Fines a Local Tree Trimmer $275 for Volunteering After a Tornado

A tornado with 100 mile winds tore through one of the poorest neighborhoods in Minneapolis on May 22, and many large trees were down on houses, cars, streets and yards (see photo above from this video).  The damage was so serious that Sen. Al Franken toured the devastated area with Minneapolis Mayor R.T. Rybak. 

A licensed tree trimmer about 20 miles away in Hastings, MN saw the devastation on the news, had a day off, and so he headed to the affected area in North Minneapolis with his chain saws, wood chipper and bucket truck to help out.  With some other volunteers, The Good Samaritan went to work removing trees without pay for poor residents of North Minneapolis who didn't have insurance.  

So far, so good.  Seems like the kind of "feel good" story that would have a very happy ending and make the local news.  Well that's unless Gestapo-like city inspectors and Minneapolis police officers get involved, and it becomes a nightmare with a very unpleasant ending.  The story did make the news, but it was because the Good Samaritan was not only shut down and prevented from helping out, but he (and at least 17 others) got a $275 fine from the city for cutting down trees without a Minneapolis license, read about it here and here.

HT: Coyote Blog

The Bullish Case for the U.S. Economy: Our Ability to Be Productive and Innovative in a Tough World

From today's WSJ interview with Robert Doll, Wall Street's perma-optimist and chief equity strategist for BlackRock, "The Bullish Case for the U.S. Economy":

"As intriguing in this moment of U.S. pessimism is the 56-year-old uber-investor's long-term bullishness on American companies and U.S. competitiveness. "You could say we're the best house in a bad neighborhood," says the man who has spent 28 years managing money. "We have fewer problems and more solutions than Europe or Japan." 

"Over the next 20 years, the U.S. work force is going to grow by 11%, Europe's going to fall by five, and Japan's going to fall by 17. This alone tells me the U.S. has a huge advantage over Europe and a bigger one over Japan for growth," he says. "And the reason for this is pretty simple. We have higher immigration than both of these, and we make more babies. We have a higher fertility rate. And they are the long-term determinants of population growth and therefore work force growth." 

But can we really win merely by staying ahead of Europe and Japan? So far the answer seems to be yes. People are invariably shocked when Mr. Doll tells them that in 1995 the U.S. produced roughly 25% of the world's goods and services and in 2010, after 15 years that included a tech bust, a terrorist attack and a housing bust that triggered a financial crisis, the U.S. was still producing that same 25% of global GDP (see chart above).

How is this possible given the rapid rise of China and India? Mr. Doll says the increase in emerging markets' share of the world economy has come "at the expense of mostly Japan and a bit Europe. The U.S. has held its own, which I think is a statement of our ability to be productive in a tough world."

But even with all our problems, he says, "I think the entrepreneurial spirit is alive and well in the U.S." He argues that we are still the source of technological innovation and home to the greatest universities and the most creative businesses. He sees promising advances in health care and alternative energy technologies. By alternative he doesn't necessarily mean "green" energy, but simply new power sources given that he expects oil prices to keep rising."

MP: The chart above of world GDP shares (data here) from 1969 to 2010 confirms Mr. Doll's claim about America's amazingly stable share of world output, which has remained at about 26% for more than forty years.  As I've indicated on the chart, the U.S. share of world GDP in 2010 (26.3%) was exactly the same as in 1975 (26.3%). It's also interesting to note that: a) the shares of world GDP in 2010 were almost exactly the same for the U.S. (26.3%), the EU-15 (26.4%) and Asia/Oceania (26.6%) and b) the shares of world GDP for Latin America and the Middle East + Africa have remained relatively stable since 1969.  

The biggest change over time has been the gradual decline in the EU-15's share of world GDP from almost 36% in 1969 to less than 27% by 2010, while Asia/Oceania's share has increased from less than 15% in 1969 to almost 27% in 2010. The fact that America's share of world GDP has remained constant over time is a testament to how America's dynamism, resiliency, and culture of innovation and entrepreneurship have enabled us to be "productive in a tough world."  In contrast, the EU-15's declining share of the world economy demonstrates the failure of anti-growth, European-style socialism with high taxes and excessive regulations that creates a culture of dependency and entitlement.        

Friday, June 03, 2011

Test Your Economic Literacy

Take the 13-question Minneapolis Federal Reserve economic literacy test here.  The national results from 1998 show that for 9 of the 13 questions, fewer than half of respondents selected the correct answer.

Private Sector Jobs Have Increased by 2 Million Since 2010, and Are Growing at 132,000 per Month

The chart above shows monthly private-sector jobs since January 2005 calculated by the BLS from two different methods: a) the household survey, which is larger and includes self-employed workers, and b) the establishment survey, based on company payroll records.  Over time they move very closely, although monthly variations are common - for May the household survey showed a gain of 373,000 private-sector jobs, compared to a gain of only 83,000 private payroll jobs.  But since the cyclical bottom in December 2009, both surveys are showing gains of more than 2.1 million private-sector jobs, which is a healthy increase of 132,000 private-sector jobs per month on average.  In the first five months of 2011 through May, private sector job growth has accelerated to an average of 200,000 new jobs per month, according to the household survey.  

For some related commentary, see Scott Grannis' post today "The Employment Situation Continues to Improve," with this conclusion: "The economy may have hit a mild soft patch, but it is not sinking and is likely to continue to grow. Optimists will once again be rewarded for their patience."  Scott also comments on the positive effects of the decline in public sector jobs:

"We are now seeing evidence that a significant shrinkage in the bloated public sector workforce doesn't necessarily lead to a painful result for the economy as a whole. In fact, cutting back government spending can free up resources that can be put to better use by the private sector, making the economy stronger over time. This is a trend that is now firmly in place, and that's very good news."

Additionally, Brian Wesbury comments today that: "Yes, May data shows a “soft patch,” but the economy is still expanding and should accelerate in the months ahead."

Household Survey: Private Sector Gains 373,000 Jobs in May, Public Sector Loses 417,000 Jobs

The chart above shows monthly employment levels for private-sector workers vs. full-time government workers, based on data from the BLS household survey (private sector employment is calculated by subtracting government employment from total nonagricultural employment). From the peak in late 2008, government payrolls have decreased by more than 1.2 million through May, while the number of private sector workers has increased by more than 2.5 million since the low in late 2009.  

The fact that private sector jobs are continuing to increase while public sector jobs are declining could be considered a positive side-effect of the 2007-2009 recession, i.e. the recession-related 5.6% contraction of the public sector employment.  In May alone, there was a decrease of 417,000 government jobs, following losses of 132,000 in April and 75,000 in March, totaling 549,000 for the last three months, and that's really the main source of labor market weakness - it's mostly in the public sector, not the private sector. 

Based on the household measure of private sector employment, there was a 373,000 job increase in May, following a 11,000 decrease in April and 370,000 increase in March.  In comparison, private payroll jobs increased by only 83,000 in May, following increases of 251,000 in April and 219,000 in March.   

Year-to-date, one million jobs have added in the private industries according to the household survey, slightly higher than the 908,000 jobs added according to private payroll data.  Either way, the household survey and payroll data are showing monthly private job gains of around 200,000 so far this year, suggesting that the labor market, especially for private sector employment, might have some underlying strength that is not showing up in today's Employment Situation report.

Thursday, June 02, 2011

Drill, Drill, Drill = Jobs, Jobs, Jobs in North Dakota; Both Oil Production and Jobs Reach Record Highs

More than 11 million barrels of oil were produced in North Dakota during the month of March, setting a new monthly production record, and topping the previous monthly record high from last November by almost half-a-million barrels.  Oil production in North Dakota has doubled in just the last two years, and tripled since 2007 (see chart above, data here).  

A recent computer model using geological data from the state of North Dakota estimates that there is 200-300 billion barrels of oil in North Dakota's Bakken Formation, which is equivalent to the oil reserves of Saudi Arabia.  Not all of the Bakken oil is recoverable, and estimates of recovery range from 3-50%.  

According to the state of North Dakota

"The Bakken play on the North Dakota side of the basin is still early in the learning curve. Technology and the price of oil will dictate what is potentially recoverable from this formation."

Along with the record production of oil in March, employment for natural resources and mining jobs in North Dakota reached a new record high in March of more than 14,000 jobs.  That's a doubling of the number of oil jobs in just 16 months since December 2009, at a rate of more than 20 new oil jobs being added every business day of the week for the last two years.  For the month of April, the jobless rate in North Dakota was only 3.3%, almost a full percent below the second lowest rate of 4.2% in Nebraska, and far below the national average of 9%.

With Substitutes, Monopoly Power Is Temporary

From The Economist comes this story illustrating how the market power of a monopolist (or dominant firm) is often temporary and frequently diminishes over time due to the availability and development of substitutes. In this case, a 19th century technology for electric motors is being revived by Toyota as one alternative to modern motors made with neodymium, a rare earth element controlled by China. 

"Today, China produces 95% of the world’s supply of rare-earth metals, and has started limiting exports to keep the country’s own high-tech industries supplied.

The rare-earth element that other industrial countries worry about most is neodymium. It is the key ingredient of super-strong permanent magnets. Over the past year the price of neodymium has quadrupled as electric motors that use permanent magnets instead of electromagnetic windings have gained even wider acceptance. Cheaper, smaller and more powerful, permanent-magnet motors and generators have made modern wind turbines and electric vehicles viable.  

That said, not all makers of electric cars have rushed to embrace permanent-magnet motors. The Tesla Roadster, an electric sports car based on a Lotus Elise, uses no rare-earth metals whatsoever. Nor does the Mini-E, an electric version of BMW’s reinvention of the iconic 1960s car. Meanwhile, the company that pioneered much of today’s electric-vehicle technology, AC Propulsion of San Dimas, California, has steered clear of permanent-magnet motors. Clearly, a number of manufacturers think the risk of relying on a single source of rare-earth metals is too high.

The latest carmaker to seek a rare-earth alternative is Toyota. The world’s largest carmaker is reported to be developing a neodymium-free electric motor for its expanding range of hybrid cars. Following in AC Propulsion’s tyre tracks, Toyota is believed to have based its new design on that electromotive industrial mainstay, the cheap and rugged alternating-current (AC) induction motor patented by Nikola Tesla, a Serbian-American inventor, back in 1888."

Miami Condo Sales Highest for April Since 2005

And total Miami-area home sales in April were the highest for that month since 2006, according to DQ News.  "The overall median sale price rose slightly from March but fell short of a year ago for the 43rd consecutive month amid near-record-high levels of investor and cash buying." In other words, markets are working - falling prices stimulated April sales to a five-year high (six-year high for condos).  If we measured home sales like we car sales - in terms of unit sales - the real estate market would look a lot better. 

Markets in Everything: Building in a Bag

HT: W. Heasley

TIPS Breakeven Rate Falls to Five-Month Low

The "breakeven rate" - the difference between 10-year nominal Treasury yields and 10-year Treasury Inflation Protected Securities (TIPS) yields - is one market-based measure of expected future inflation.  As of yesterday the breakeven rate was 2.20%, down 45 basis points from the recent peak of 2.65% on April 11, and the lowest level since mid-December last year (see chart above).  This downward trend in the breakeven rate suggests that inflationary expectations in the bond market have been moderating in recent months.

Wednesday, June 01, 2011

Don Boudreaux Channels Julian Simon in the Wall Street Journal With a New Bet for the Doomsayers

Don Boudreaux's masterfully continues the Julian Simon tradition in this WSJ article "More Weather Deaths? Wanna Bet?":

"Writing recently in the Washington Post, environmental guru Bill McKibben asserted that the number and severity of recent weather events, such as the tornado in Joplin, Mo., are too great not to be the result of fossil-fuel induced climate change. He suggested that government's failure to reduce emissions of greenhouse gases will result in more violent weather and weather-related deaths in the future. And pointing to the tragedy in Joplin, Mr. McKibben summarily dismissed the idea that, if climate change really is occurring, human beings can successfully adapt to it.

There's one problem with this global-warming chicken little-ism. It has little to do with reality. National Weather Service data on weather-related fatalities since 1940 show that the risks of Americans being killed by violent weather have fallen significantly over the past 70 years.

The annual number of deaths caused by tornadoes, floods and hurricanes, of course, varies. For example, the number of persons killed by these weather events in 1972 was 703 while the number killed in 1988 was 72. But amid this variance is a clear trend: The number of weather-related fatalities, especially since 1980, has dropped dramatically (see chart above, data here).

For the 30-year span of 1980-2009, the average annual number of Americans killed by tornadoes, floods and hurricanes was 194—fully one-third fewer deaths each year than during the 1940-1979 period. The average annual number of deaths for the years 1980-2009 falls even further, to 160 from 194, if we exclude the deaths attributed to Hurricane Katrina, most of which were caused by a levee that breached on the day after the storm struck land.

This decline in the absolute number of deaths caused by tornadoes, floods and hurricanes is even more impressive considering that the population of the United States more than doubled over these years—to 308 million in 2010 from 132 million in 1940 (see bottom chart above).

Here's the Boudreaux Bet: So confident am I that the number of deaths from violent storms will continue to decline that I challenge Mr. McKibben—or Al Gore, Paul Krugman, or any other climate-change doomsayer—to put his wealth where his words are. I'll bet $10,000 that the average annual number of Americans killed by tornadoes, floods and hurricanes will fall over the next 20 years. Specifically, I'll bet that the average annual number of Americans killed by these violent weather events from 2011 through 2030 will be lower than it was from 1991 through 2010.

If environmentalists really are convinced that climate change inevitably makes life on Earth more lethal, this bet for them is a no-brainer. They can position themselves to earn a cool 10 grand while demonstrating to a still-skeptical American public the seriousness of their convictions. But if no one accepts my bet, what would that fact say about how seriously Americans should treat climate-change doomsaying? Do I have any takers?"

MP: Excluding the year 2005 for Katrina, the trend lines in the two graphs above are statistically significant at the 1% level. Adjusted for the U.S. population, the average American was more than 2.5 times more likely to get killed in a flood, hurricane or tornado between 1940 and 1979 than in the period between 1980-2009. The bottom chart shows that 2009 was the safest year ever since 1940, with fewer than 0.25 deaths per 1 million population.

Labor Demand Rises to Pre-Recession Monthly High in May of 4.5 Million Advertised Vacancies

"Online advertised vacancies were up 148,800 in May to 4,471,200 according to The Conference Board Help Wanted OnLine Data Series released today. The May increase follows a decline of 124,000 in April and a gain of 198,000 in March (see chart above).

In April 2011 (the latest unemployment data), there were just over 3 (3.18) unemployed for every advertised vacancy, in contrast to the 1.5 unemployed for every vacancy in April 2007. Labor demand is still uneven across occupations. Although demand in most occupations has picked up, with 6 of the 22 major occupation groups reaching all-time highs this month (computer science, art/design/entertainment/sports/media, building and grounds maintenance, personal care, sales and transportation), others are slower to rise and the demand for workers in legal occupations has stalled."

“Overall, the trend in online advertised vacancies has been positive this year,” said June Shelp, Vice President at The Conference Board. “Following the large increase of 526,000 in January, over the next four months the increase in advertised vacancies has averaged 66,000 per month. While we have now returned to the pre-recession levels of labor demand, the big difference today is the larger number of unemployed workers that are seeking jobs compared to four years ago.” 

Two More Questions About The Minimum Wage

Saw Bowman at the Adam Smith Institute blog asks two more questions about the minimum wage:

1. An excess of supply in labour is usually called unemployment; minimum wage supporters deny that minimum wage laws create unemployment. What other goods can have a price floor set above the market price without creating an excess of supply?

2. Why don't you want minimum wage to be £20/hr. ($33/hr.), or £100/hr. ($164.25), or £1,000/hr. ($1,642.50)? If wages can be set by government without any ill effects, why not solve poverty simply by raising the minimum wage?

Tuesday, May 31, 2011

Restaurant Current Situation Index Reaches 100.3 in April, The Highest Level in April Since July 2007

National.Restaurant Association -- "Buoyed by positive same-store sales and solid optimism among restaurant operators for continued growth, the outlook for the restaurant industry remained positive in April. The National Restaurant Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.9 in April, essentially unchanged from a level of 101.0 in March. In addition, April represented the 5th consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 100.3 in April – up slightly from a March level of 100.2. In addition, the Current Situation Index stood above 100 for the 2nd consecutive month, which signifies expansion in the current situation indicators (see chart above).

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 101.5 in April – down from a level of 101.7 in March. The Expectations Index stood above the 100 level for the 9th consecutive month, which signifies expansion in the forward-looking indicators (see chart above)."

MP: At 100.3, the Current Situation Index in April was at the highest level since July 2007, almost four years ago.  It's also the first time since the summer of 2007 that the Current Situation Index has remained above the benchmark 100 level, which signals expansion of restaurant activity. 

Drill, Drill, Drill = Jobs, Jobs, Jobs in Pennsylvania

Marcellus Shale Coalition – "The Pennsylvania Department of Labor & Industry – like a host of news outlets across the region and the nation – continues to keep a watchful eye on the powerful job creation engine called the Marcellus Shale, the world’s second largest natural gas field behind one in Iran.

In its recent “Marcellus Shale: Fast Facts” employment overview, the Center for Workforce Information & Analysis – a research arm of the Dept. of Labor & Industry – demonstrates clearly, with new data, the Marcellus Shale’s sustained, growing and unmatched economic strength. In fact, according to this independent, government data, “The number of new hires across the Marcellus producing regions is nearly double in 2011Q1 than what it was in 2010Q1; indicating that while new employees continue to be hired, the rate is accelerating.”

Under the headline “Marcellus Shale drilling creates 48000 jobs, report says,” the Patriot-News reports this:

"Nearly 48,000 people have been hired in the last year by industries related to drilling in the Marcellus Shale, and 71 percent of those people were Pennsylvania residents. Nine thousand of them were hired in the first three months of 2011. The average salary was higher than the statewide average. And the rate of hiring is accelerating." 

MP:  The chart above shows that while the overall employment level in the state is still more than 100,000 jobs below the pre-recession level, mining employment barely slowed at all during the recession. In the last eight years, mining jobs in Pennsylvania have almost doubled, and have increased by more than 36% in just the last two years.

If You Tax Large Firms You Get Fewer of Them, If You Subsidize Small Firms, You Get More of Them

FINANCIAL POST --"Small business tax incentives are keeping businesses in Canada small, hindering business efficiency and disproportionately benefiting the wealthy, according to a new study from the University of Calgary. The study, authored by Jack Mintz and Duanjie Chen of The School of Public Policy, said that Canada’s small business tax rate creates a “wall of taxation” in the country that keeps businesses small so they can remain in favorable tax brackets.

Instead of job growth, the authors said that the small business tax rate has led to an abundance of small businesses in Canada that have no intention to grow. Furthermore, the authors said that wealthy Canadians have used the favorable tax rate as a tax shelter, incorporating small businesses to avoid high personal income taxes."

From the paper's summary:

"We show that small business growth is hampered by the existing tax system. As a business grows, effective tax rates on capital investments made by entrepreneurs virtually double when the business grows from as a little as $1 million to over $30 million in asset size (see chart above)."

Monday, May 30, 2011

Oil Updates: Cuba Discovery and Tax Cuts in Alaska

1. Could the 50-year United States embargo against Cuba finally be lifted after the discovery of an enormous oilfield in Cuban waters (20 billion barrels, with drilling to start within the next few months)? 

2. Alaska Governor Sean Parnell said he plans to continue to "vigorously pursue" tax-cuts for oil companies as a way to boost production in the state.  Hope Sen. Max Baucus is paying attention. 

Two More Questions

1. If ticket scalping laws that make it illegal to sell a ticket to a concert or sporting event above face value are a good idea, shouldn't selling a coin, bond, car, or house above face value, sticker price or list price also be illegal as well?  If not, why not? 

2. Name the main arguments in favor of selling a coin, bond, car or house above face value/list price.  Aren't all of them equally good arguments for allowing people to sell tickets above face value?

Sunday, May 29, 2011

Two Great Questions from Bryan Caplan

Bryan Caplan asks:

1. If the minimum wage is a good idea, shouldn't unpaid internships be illegal as well?  If not, why not? 

2. Name the main arguments in favor of the legality of unpaid internships.  Aren't all of them equally good arguments for allowing people to work for wages greater than zero and less than the minimum wage?

Leading Economic Indexes

The Conference Board reported increases this week for the Leading Economic Index in the Euro Area (0.4% in April), Mexico (0.8% in March) and Australia (0.4% in March).   

IJ Wins A Victory for Food Trucks in El Paso

The video above documents how the Institute for Justice filed a federal lawsuit and successfully overturned an El Paso, Texas city ordinance that prevented food trucks from operating within 1,000 feet of an established restaurant or convenience store, which effectively turned the entire city of El Paso into a "No Vending Zone."  It's another IJ victory for economic liberty and the right to earn an honest living, and a defeat for economic protectionism.