Saturday, October 15, 2011

N. Dakota Oil Production to Pass CA and AK in 2012

N. Dakota will become No. 2 oil producing state next year
BISMARCK (AP) - "North Dakota will likely leapfrog California and may even overtake Alaska in the next year - far outpacing earlier industry predictions - to become one of the nation's three biggest oil-producing states, a government regulator said. Government and industry officials had predicted that North Dakota likely would hit the No. 2 spot within the decade but the explosion of drilling activity has accelerated the timeline.

Not considered a big oil state until recently, North Dakota went from the ninth-biggest producer in 2006 to fourth in 2009, where it currently stands. This boom is thanks to advances in drilling and hydraulic fracturing techniques and a rise in oil prices that made it more profitable for companies to tap into the vast reserves trapped in the Bakken and Three Forks shale formations.

North Dakota's 5,951 wells produced about 444,000 barrels per day in August, compared to about 350,000 last August. With nearly 200 wells being drilled and plans for 1,500 to 2,000 new wells over the next year, North Dakota should overtake California as the nation's third-largest producer sometime in the next 12 months, said Lynn Helms, the director of North Dakota's Department of Mineral Resources. 

"We should pass California by the third quarter of next year," he said. The rise in state's oil production, which forecasters predict could reach up to 700,000 barrels daily by 2015, comes as oil production is slowing in California and Alaska.

Steve Grape, the domestic reserves project manager for the U.S. Department of Energy's information administration, said California produces about 539,000 barrels of oil daily, compared with about 550,000 barrels in Alaska and about 1.2 million barrels daily in Texas.

"No data I've seen shows California's production increasing, so they do have a target on their neck," Grape said. "And Alaska's production is declining faster than California's.

Oil companies have said that drilling in North Dakota is profitable if oil prices are more than $50 a barrel."

MP: The chart above shows projected daily oil production in North Dakota through December 2013, assuming that the recent production increases continue for the next several years.  In that case, North Dakota will surpass oil production in California by June of next year, and then Alaska by next August.    

Nat Gas: World's Dominant Fuel for Next Century

We're in a new era of cheap, plentiful shale gas

From Matt Ridley's article "Say No to Wind Farms: Shale of the Century" in The Spectator:

"A chap called George Mitchell turned the natural gas industry on its head. Using just the right combination of horizontal drilling and hydraulic fracturing – both well-established technologies — he worked out how to get gas out of shale, where most of it is, rather than just out of (conventional) porous rocks, where it sometimes pools. The Barnett shale in Texas, where Mitchell worked, turned into one of the biggest gas reserves in America. Then the Haynesville shale in Louisiana dwarfed it. The Marcellus shale mainly in Pennsylvania then trumped that with a barely believable 500 trillion cubic feet of gas, as big as any oil field ever found, on the doorstep of the biggest market in the world.

The impact of shale gas in America is already huge. Gas prices have decoupled from oil prices and are half what they are in Europe. Chemical companies, which use gas as a feedstock, are rushing back from the Persian Gulf to the Gulf of Mexico. Cities are converting their bus fleets to gas. Coal projects are being shelved; nuclear ones abandoned.

Rural Pennsylvania is being transformed by the royalties that shale gas pays . Drive around the hills near Pittsburgh and you see new fences, repainted barns and — in the local towns — thriving car dealerships and upmarket shops. The one thing you barely see is gas rigs. The one I visited was hidden in a hollow in the woods, invisible till I came round the last corner, where a flock of wild turkeys was crossing the road. Drilling rigs are on site for about five weeks, fracking trucks a few weeks after that, and when they are gone all that is left is a ‘Christmas tree’ wellhead and a few small storage tanks.

Jesse Ausubel is a soft-spoken academic ecologist at Rockefeller University in New York, not given to hyperbole. So when I asked him about the future of gas, I was surprised by the strength of his reply. ‘It’s unstoppable,’ he says simply. Gas, he says, will be the world’s dominant fuel for most of the next century. Coal and renewables will have to give way, while oil is used mainly for transport. Even nuclear may have to wait in the wings.

The best thing about cheap gas is who it annoys. The Russians and the Iranians hate it because they thought they were going to corner the gas market in the coming decades. The greens hate it because it destroys their argument that fossil fuels are going to get more and more costly until even wind and solar power are competitive. The nuclear industry ditto. The coal industry will be a big loser (incidentally, as somebody who gets some income from coal, I declare that writing this article is against my vested ¬interest).

Little wonder a furious attempt to blacken shale gas’s reputation is under way, driven by an unlikely alliance of big green, big coal, big nuclear and big gas providers. The environmental objections to shale gas are almost comically fabricated or exaggerated. Hydraulic fracturing, or fracking, uses 99.86% water and sand, the rest being a dilute solution of a few chemicals of the kind you find beneath your kitchen sink.

To persist with a policy of pursuing subsidised renewable energy in the midst of a terrible recession, at a time when vast reserves of cheap low-carbon gas have suddenly become available, is so perverse it borders on the insane. Nothing but bureaucratic inertia and vested interest can explain it."

MP: The chart above shows the significant increase in America's natural gas production, thanks to the shale gas revolution (data here) which has contributed to a 20% increase in domestic gas production in the last five years.  

HT: Warren Smith

Friday, October 14, 2011

Chart of the Day: The Shale Gas Revolution in PA Has Helped the U.S. Become No. 1 in the World

The Pennsylvania Shale Gas Revolution
The chart above is from the Energy Information Administration and illustrates graphically the significant increases in natural gas production in recent years from increased drilling activity in the Marcellus Shale region of Pennsylvania.  In only about a three-year period, natural gas production in the northeast United States has tripled from 1.5 billion cubic feet per day in July 2008 to more than 4.5 billion cubic feet per day by July 2011, with almost all of the increase coming from new drilling in Pennsylvania.  The shale gas revolution in Pennsylvania has been responsible for America going from the ninth largest producer in the world ten year ago to the No. 1 producer in the world starting last year.    

Friday Data Points: Nothing to Suggest Double-Dip

1. Mortgage rates rose back above 4% this week to 4.12% for the 30-year fixed rate, up from last week's historic low of 3.94% and reaching the highest rate in five weeks.  

2. Loaded export containers leaving the L.A. Port in September increased by 26.6% compared to a year earlier, which was the largest annual gain for any month since early 2010.  On a year-to-date basis, export volume in 2011 is 13.6% ahead of last year, and at the highest-ever level for January-September exports in L.A. Port history.  Loaded inbound containers (imports) in September were essentially unchanged compared to last year.

3. Weekly rail traffic continued showing gains, with carload rail traffic for the week ending October up by 2.1% compared to the same week last year, and intermodal rail volume up by 2.4%. This was the third straight week of increases for both carload and intermodal shipments over the comparable weeks in 2010. As a leading indicator of future economic activity, the ongoing gains in weekly rail shipments will translate into higher output and production in the coming months. 

4. Retail sales in September increased 7.9% above the same month last year, and by almost 4% after adjusting for inflation.  Motor vehicle sales were especially strong in September, with gains of 3.6% versus August, and 8.5% versus September 2010.  September sales in 15 out of 16 individual categories were above their year-ago levels, and only the category "electronic and appliance stores" had flat September sales with no gain from last year.   

Commentary from Scott Grannis: "Today's retail sales number is one more in a growing list of statistics that have thrown buckets of cold water on the notion that the U.S. economy is sick and about to slip into another recession."

And from Brian Wesbury and Bob Stein: "Today’s report on retail sales killed any remaining chance that the U.S. is in recession. The data speak for themselves."

Reverse Brain Drain: U.S. Workers Head to Canada


GLOBE AND MAIL -- "Canada’s stronger economy is becoming a magnet for Americans hunting for work. In a reversal of historical flows, immigration lawyers report a surge of calls from Americans who want to move north. Statistics bear out their observations: A record number of Americans applied for temporary work visas last year, Immigration Canada statistics show, spurred largely by the contrasting health of the two countries’ labor markets.

The U.S. jobless rate is 9.1 per cent while Canada’s comparable rate – adjusted to U.S. concepts – is just 6.3 per cent (see chart above).

“It’s reverse brain drain,” says Toronto-based immigration lawyer Sergio Karas. “There are a lot of disgruntled people who say ‘America is letting me down.’”

MP: And Canada is not just attracting out-of-work Americans, it's also attracting wealthy Americans concerned about high and rising taxes in the U.S.: 

"Windsor, Ont.-based immigration lawyer Drew Porter is also seeing history reverse itself. He is fielding more calls from high-net-worth Americans who are worried their taxes are set to rise. “I’ve been doing this for 20 years now, and always the calls were from people that did well in Canada and wanted to move to the U.S. to increase their standard of living and minimize their income taxes,” he says. “It’s quite noteworthy to me that now I’m getting calls from the U.S. interested in Canada for the same reasons.”"

The Buffett Rule Act for The Undertaxed Among Us

ROLL CALL -- "Congressional Republicans are countering President Barack Obama's attempt to raise taxes on millionaires, and they are appropriating his proposal's name to do it.

Rep. Steve Scalise (R-La.) and Sen. John Thune (R-S.D.), backed by anti-tax advocate Grover Norquist, introduced the Buffett Rule Act last week. The bill would instruct the IRS to add a check box on 1040 forms for taxpayers to indicate that they want to voluntarily pay extra. In a statement, Thune said the bill would make it easy for people to pay more to the Treasury if they believe they are undertaxed.

"If individuals like Warren Buffett or President Obama are inclined to donate their own personal money toward paying down the federal government's debt, they ought to have that right to do so voluntarily," he said."

MP:  As I pointed out before, the statutory IRS federal income tax rates are not fixed, binding, or maximum tax rates, they are merely minimum tax rates.  Advocates of higher taxes like Buffett seem to imply that they are somehow helpless or constrained by the current tax code, when they can easily resolve their apparent frustration of being "undertaxed" by paying higher taxes voluntarily.  

Markets in Everything: Saddam's Bronze Buttocks

Al Arabyia News -- "A bronze buttock from the statue of late Iraqi dictator Saddam Hussein toppled in Baghdad after the U.S.-led invasion in 2003 is to be auctioned in Britain, an auction house said Tuesday.

A former soldier from Britain’s elite SAS regiment retrieved the two-foot (0.6-meter) wide piece of history and took it back to Britain shortly after U.S. marines dragged the statue down on live television. Nigel “Spud” Ely, now 52, was working with media covering the fall of Baghdad at the time. He said the marines gave him permission to remove the buttock using a hammer and a crowbar.

Auctioneer Charles Hanson called the bronze body part a “piece of modern history” and said he expects it to be sold for at least £10,000 (about $16,000) when it goes under the hammer on October 27."

Huge Gender Differences Persist on SAT Math Test

Math SAT Percentile Ranks: Males and Females, 2011
 Score   Percentile    Males Females   M-F Ratio  
800999,1204,6831.95
790997714791.61
780993,1141,4722.12
770986,8244,0631.68
760985,6483,2631.73
750974,5762,4401.88
740967,0114,7141.49
730965,1713,2371.60
720956,1344,0341.52
7109410,0376,8331.47
7009310,8097,4601.45
6909212,5288,7231.44
6809013,88610,0671.38
6708914,65710,6201.38
6608714,55411,4701.27
6508615,03111,9601.26
6408416,87813,8051.22
6308216,39614,0331.17
6208017,22314,7281.17
6107727,25124,8571.10
6007518,34217,0281.08
5907317,59117,1721.02
5807021,62221,0381.03


The College Board recently released detailed data on percentile ranks by gender for the 2011 SAT tests, and data for the 2011 SAT math test are presented in the table and chart above.

1. For all math SAT scores of 580 and above (70th percentile), male students outnumbered female students (see table above).

2. As the scores increased by 10-point intervals from 580 to 800, the male-female ratio increased in almost all cases, reaching a peak of 2.12-t0-1 for scores of 780.  For perfect scores of 800, the male-female ratio was 1.95-t0-1. 

3. More women (873,896) than men (768,554) took the SAT test in 2010, and to adjust for those differences in sample sizes, we can calculate that 1.19% of males had perfect 800 scores compared to 0.54% of females, for an adjusted male-female ratio of 2.21-to-1 (vs. the 1.95 unadjusted ratio).

4. For top math scores between 750 and 800, there were 183.25 males earning those high test scores for every 100 females (see chart above). 

These results are especially significant because female high school students are generally better students overall than males, and equally or better prepared for the SAT Math test than male students:

a. Females outnumbered males in the top 10% of their 2011 graduating classes - there were 127 female students in the top 10% of high school classes for every 100 male students (56% female to 44% male).

b. Nationwide, there were 144 female high school students with GPAs of A+ for every 100 males (59% female vs. 41% male). 

c. Females had a higher average GPA of 3.40 compared to 3.27 on average for male students in 2011. 

 d. More high school girls than boys took advanced AP/honors math classes in high school (117 females per 100 males) and science classes (122 females per 100 males).

e. More high school girls (54%) than boys (46%) studied mathematics for four years in high school, and those percentages were the same for students studying four years of high school science.

Bottom Line: Despite being better prepared academically by many different measures, both overall and for mathematics specifically, female high school students score significantly lower on the SAT math test, and the 30-point differences in test scores favoring males has persisted since Richard Nixon was president.  At the high end of math performance, high school males significantly outperformed their female counterparts on the 2011 SAT math test - for test scores of 750-800 there were more than 183 males for every 100 females achieving at that level. 

Despite the huge differences in math performance by gender (both on average and at the high end of performance), we frequently hear statements like this: "There just aren't gender differences anymore in math performance," says Universityof Wisconsin-Madison psychology professor Janet Hyde, "So parents and teachers need to revise their thoughts about this.  Stereotypes are very, very resistant to change, but as a scientist I have to challenge them with data."

Given the significant and persistent gender differences in SAT math test scores that have persisted over many generations, the scientific data about gender differences in math performance would seem to present a serious challenge to Professor Hyde's claims of no gender differences in math performance.  

Thursday, October 13, 2011

More on Warren Buffett's Questionable Tax Analysis

In response to claims by David Clayton on the Vox Rationalis blog that I'm "thoughtless, dishonest and/or lazy" in my analysis of Warren Buffett's tax claims, I provide the chart above displaying the average federal tax rates that various income groups paid for: a) individual federal income taxes and b) payroll taxes in 2007 (most recent year available from the Congressional Budget Office, retrieved from the Tax Policy Center). These data allow for the most accurate "apples-to-apples" analysis of Buffett's claim that his federal tax rate was 17.4% for income taxes and payroll taxes (see today's WSJ and Buffett's letter to Rep. Huelskamp), compared to the average federal tax rate of 36% for his employees.  

It should also be noted that Buffett's original claims in the NY Times were as follows:

"Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent."

Here are my thoughts:

1. Warren Buffett's tax situation is not typical for "wealthy" taxpayers, because the average tax rate for those in the top quintile is more than 20% compared to Buffett's 17.4% rate.  As discussed previously, Buffett's lower-than-average tax rate is because he receives most of his taxable income as dividends (which have been taxed previously at the corporate level) and capital gains - taxed at only 15% - and not as ordinary income, which would be taxed as high as 35%.  He also may receive income from tax-exempt municipal bonds.    

2. More importantly, it seems highly unlikely that Buffett's secretary and other co-workers are paying effective federal tax rates of 33-41%.  It's important to note that Buffett has only mentioned federal income taxes and payroll taxes, and not state income taxes, and has specifically reported his 17.4% rate on only federal taxes.  Given the tax data in the chart above, it's either the case that: a) Buffett's assessment of his co-workers' tax data is inaccurate, or b) all of his office workers faced extremely unusual tax situations last year, which are not at all representative of the taxes paid by typical Americans.  

3. Our federal tax system is highly progressive on average - higher income groups pay higher rates of federal taxes even when including payroll taxes - in general and on average.  Buffett's suggestion and anecdotal "evidence" that the federal tax system is regressive in at least some cases (his secretary and lower-paid employees pay a higher federal tax rate than he does) is not typical, but can only be considered as special cases of extreme outliers, both for him and his employees.  

Now that Buffett has released some of his tax information, perhaps he should have his employees release their tax information, so that we could see how it's possible that they are paying an average rate of 36%.  If he claims that he's adding state taxes to his "analysis" for his employees, then that should be clarified, and he should explain why he didn't include state taxes in the tax information he released. 

Comments welcome.  

Natural Gas Drilling Boom in Pennsylvania Brings the Rust Belt Back to Life With Investment, Jobs

The "renaissance of American manufacturing" comes to America's "Rust Belt."

National Public Radio -- "A natural gas drilling boom in Pennsylvania is helping the economies of Rust Belt cities long accustomed to bad news. Drilling requires steel — lots of it — and that has manufacturers expanding and hiring new workers.

While much attention has been paid to the environmental risks of drilling into the Marcellus Shale, the economic benefits have been less prominent in the national discussion. But in Youngstown, Ohio, locals have been watching an old industry come back to life.

The Brier Hill neighborhood, northwest of downtown Youngstown, has been relatively quiet for the past few decades since the huge steel mills there shut down. But today it's noisy again, with trains passing each other on the tracks and heavy construction under way.

"What's really exciting to me is that for many, many years this area was the poster child for the Rust Belt economy," says Walter Good, vice president of economic development for the Youngstown/Warren Regional Chamber. It's his job to attract new companies, and the natural gas drilling boom in nearby Pennsylvania is making that a lot easier. "The phone is definitely ringing more," Good says.

In January through August of this year, 1,242 wells were drilled into the Marcellus Shale in Pennsylvania alone. Each one needs thousands of feet of steel pipe. That's why the French company Vallourec is building a new $650 million mill in Youngstown. The green-roofed facility is huge — about 1 million square feet.

Joel Mastervich, the president and COO of Vallourec's U.S. company, V&M Star, says Youngstown was an attractive place to build the new seamless pipe mill because the infrastructure and experienced workforce are already in place. Plus, it's close to the Marcellus Shale.

"We'll be able to produce the pipe, finish it here and send it to a customer that's, maybe, 100 miles away," says Mastervich.

Production is expected to begin in a few months, but already the Brier Hill neighborhood is perking back up. Stacey Seidita recently opened a sandwich shop in a brick building that had been empty for years. With about 1,000 construction workers building the mill and the promise of 350 permanent workers down the road, launching her business now made sense."

MP: The chart above shows the huge surge in Pennsylvania for jobs related directly to the natural gas drilling boom (employment has almost doubled since 2003), which has also created indirect jobs throughout the Marcellus region.  The story above highlights the increased employment and investment in Ohio's steel industry due to the gas revolution in neighboring Pennsylvania, which is also helping bring opportunities in supporting industries like restaurants and sandwich shops in both states.  

Markets in Everything: Bidding for MBA Classes

The Chicago Tribune reports that MBA students at Kellogg (Northwestern), Booth (Chicago) and Wharton (Pennsylvania) now all use bidding systems for graduate business classes as a way to allocate scarce resources and even provide a lesson in economics for course registration:

"Armed with an identical number of points at the outset, students spend them bidding against each other for spots in classes. Popular professors and classes cost more — in some cases, we're talking Rolls-Royce prices. For instance, to get into Victoria Medvec's winter 2010 negotiations course at Northwestern University's Kellogg School of Management, students had to bid a minimum of 1,452 points, or nearly half of the 3,000 points they're allotted for the entire year. It was Kellogg's most expensive course in the last four quarters during Round One of bidding, at least.

At Booth, students get 8,000 points to start and 2,000 more for every course they complete. Multiple factors — class size, length, time, day of the week, topic and how many times a year it's offered — can buoy a price. Students at both schools also can log in to websites and see the historical prices for courses. 

At both schools, courses "sell" for the price of the lowest successful bid. Many classes — say, ones held at 8:30 a.m. Fridays — do not fill up during the first round of bidding, which means they sell for zero. Classes that do not sell out go up for auction in subsequent rounds. The students bidding in those rounds are the ones who didn't bid high enough the first time to get into every course they wanted.

After winning a spot in a class at Wharton, MBA students can sell their spots to other students online; the seller is anonymous to help prevent collusion. So geniuses could routinely buy classes they have no intention of taking and then sell them on the secondary market for a profit. The additional points build them a war chest large enough to guarantee spots in all of the classes they really want. It's terribly complicated. Some students spend hours plotting strategy. But it's also very fair."

HT: Peter Parlapiano

Wednesday, October 12, 2011

"Insane" Even by Chicago and Illinois Standards: Pension Triple Dipping on Steroids at $500k/Year

Here's the first part of this amazing story from  MSNBC.com:

"A labor leader in Chicago is expected to receive pension payments of nearly $500,000 a year, while another could get about $438,000 a year. The Chicago Tribune and WGN-TV, which obtained information about union pension benefits during a joint investigation, said at least eight union officials in Chicago were eligible for what were described as inflated city pensions on top of union pensions for the same period of employment.

The Tribune said the official who was expected to get about $438,000 a year would do so from three pensions covering the same work period: a city laborers fund, a union district council fund and a national union fund.  It said an analysis showed that this 59-year-old union official, Liberato "Al" Naimoli, would get a total of about $9 million if he lived to his expected lifespan.  The Tribune said the joint investigation with WGN-TV found that Naimoli, president of Cement Workers Local 76, was receiving a city pension of about $158,000 a year. It said his city pension was based on his union salary.

Naimoli, who retired in 2010 from the $15,000-a-year city job, is also now eligible to receive a pension of about $60,000 a year, the paper said, from the Laborers' Pension Fund for Chicago and Vicinity. He also will become eligible for payments of about $220,000 a year from a third pension, provided by the national union, LIUNA, on his 60th birthday next year. The Tribune said he had not worked his $15,000-a-year job with the city for a quarter of a century.

Another official, Charles LoVerde III, a former trustee of the city laborers' pension fund, stood to receive three pensions for the same time period totaling nearly $500,000 a year, the investigation found. The Tribune said he took leave of absence in 1998 from a job with the city's water management department, which paid $44,000 a year, to work full time for the local."

Here's the second part, which is not surprising given the first part:

"Chicago and Illinois are facing financial trouble, in part due to pension shortfalls. On Tuesday, state Sen. Mark Kirk released a report on Illinois' debt that said it had the worst credit rating of any state and that its debt was rising. Kirk said the state was nearly insolvent and said he doubted there would be any help from Washington." 

MP: Where are the protestors, shouldn't they be out rallying against "excessive union pensions," "triple-dipping in the public sector," "labor leader greed," "union greed", etc.?   Thanks to Aorod in the comments for suggesting this.

HT: Bob Wright

Intrade Odds: Perry vs. Cain

Intrade odds for Perry to be Republican Presidential Nominee: 10.1% and falling; vs. odds for Herman Cain: 10.0% and rising, see chart above. 

How Walmart and the Retail Lobby Used Regulatory Robbery to Squeeze Banks, Consumers

Here's some more public choice economics to follow the post below about Google's Chairman - this public choice analysis comes from Washington Examiner's Tim Carney about the recent announcement that Bank of America will begin charging a $5 monthly fee to debit card customers: 

"The real culprit is Walmart and the retail lobby, which used government to squeeze banks and fatten their own bottom line. Walmart won, banks lost, and now customers are stuck with a new monthly fee.    

Here's the background: Whenever you use a credit card or debit card to buy something at a store, the credit card processor (like Visa or Mastercard) and the issuing bank (like Bank of America or Chevy Chase Bank) both take a cut. The store may only get $9.70 on a $10 purchase.

How is that rate -- the "interchange fee" -- set? Until this year, it was set by market forces. Visa and Mastercard offer stores a service that facilitates sales and brings in more business. In return, they demand a cut of the sale. Walmart and Joe's Corner Store aren't required to accept debit cards or credit cards, but they do, which means that they decided the price was worth it.

Retailers, of course, wish the card issuers and processors would provide this service for free. Businessmen are always looking for a better deal. The businessmen in this case decided to employ regulatory robbery to get their way. Led by Walmart and the Retail Industry Leaders Association, retailers pushed for a federal cap on interchange fees.

Debit-card users don't have the lobbying clout of Walmart and the retail industry. It's the standard tale of government intervention in the economy: The guy with the best lobbyists wins, and the little guy -- this time, the consumer -- loses."

Google's Eric Schmidt: "Public Choice Scholar"

Mercatus Center senior fellow Jerry Brito provides some highlights of the recent Washington Post interview with Google Chairman Eric Schmidt, as he reflected on his first time testifying before Congress in an antitrust hearing about Google.  Here are some excerpts:

"So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people. Okay? I mean, I don’t know how to say it any clearer. I mean, it’s fine. It’s their job. But it’s not like we raised prices. We could lower prices from free to…lower than free? You see what I’m saying?"

"One of the consequences of regulation is regulation prohibits real innovation, because the regulation essentially defines a path to follow—which by definition has a bias to the current outcome, because it’s a path for the current outcome."

"We want the government to understand if you want to manage something, manage the outcome you want. Don’t specify the technology. Right? In other words, regulate this thing but don’t tell us how to make it technologically. Because if you do, you’ve locked in an incumbent, a specific technological view, et cetera."

"I’m sitting at this dinner in 1995—Andy Grove was the CEO of Intel—and he gives this speech, and he says, “This is easy to understand. High tech runs three-times faster than normal businesses. And the government runs three-times slower than normal businesses. So we have a nine-times gap.”  All of my experiences are consistent with Andy Grove’s observation."

ND Oil Boom = Housing Boom = Rent Control?

The oil boom in North Dakota is fueling a housing boom, which is putting upward pressure on rents in the oil-rich Western parts of the state.  The Minot Daily News is reporting that monthly rents on the apartments at one local complex recently more than doubled from $422 to $900 for a 1-bedroom unit, from $485 to $1,100 for a 2-bedroom unit and from $541 to $1,300 for a 3-bedroom unit.

The steep rental increases are causing some Minot residents and local politicians to voice claims of "criminal" price gouging, with some even advocating rent control laws to prevent or limit rent increases.  Based on 200 years of economic theory and empirical evidence from around the world over the last several hundred years, rent control laws in the Bakken area of North Dakota would worsen the housing problems there, lead to chronic housing shortages and a deterioration in the quality of housing, and would create huge disincentives to build the new apartments that are so desperately needed. Not a good idea.  

The only choices for North Dakota rental units are: a) market prices that accurately reflect the underlying market forces of supply, and transmit accurate and truthful information about the relative scarcity of rental housing, or b) artificially low rental prices enforced by government edict that do not reflect real market conditions and transmit inaccurate and untruthful information about the relative scarcity of rental housing.  

With truthful but high market prices for rental housing, all of the appropriate and desirable behaviors are encouraged, e.g. a) reduced demand and conservation of rental housing space by tenants, and b) increased supply of rental housing by developers and builders, and a market-clearing equilibrium outcome where demand and supply for rental housing are balanced.  With low, but untruthful and artificial rent-controlled prices, we would expect exactly the opposite - inappropriate and undesirable behaviors in the form of: a) increased demand and little conservation of rental housing space by renters, and b) decreased supply of future rental housing by producers, and a resulting guaranteed housing shortage characterized by excess demand.  

Warren Buffett Updates: He Sheltered Millions Through Giving to Charity, Must Not Trust Gov't.?

Based on early release tax data from the IRS for 2009, the chart above displays new average tax rates for various income groups and shows that federal income taxes are highly progressive as intended - the higher the taxable income the higher the tax rate, on average.  Americans in the bottom 50% with incomes below $32,400 paid only 1.85% of their income in federal income taxes in 2009, while those in the top 1% with incomes above $344,000 paid an average of 24% of their income in federal taxes.   Also in 2009, the IRS reports that the top 1% made less than 17% of gross income but paid almost 37% of all federal income taxes collected, and some of the members of this group are the ones who Warren Buffett claims are "undertaxed" relative to those in lower income groups like his secretary.  (Note: Buffett is also considering payroll taxes which are not included in the chart above.)

Another update, via CNN: Last week Rep. Tim Huelskamp (R-Kan.) sent a letter to Warren Buffett asking him to release his tax returns so that the American people could verify his low 17.4% tax rate now being used to justify the "Buffett Rule" that could be part of a major tax overhaul.  In Buffett's response, he said he wouldn't release his tax returns unless other "ultra-rich" colleagues like Rupert Murdoch also agreed to release their personal tax information, which is consistent with Buffett's refusal to pay higher taxes voluntarily unless others do the same. 

Buffett did reveal in his letter that he paid almost $7 million in federal taxes last year (including $15,300 in payroll taxes) on taxable income of $39,814,784 for a tax rate of 17.4%, as he reported in the New York Times.  Buffett's adjusted gross income in 2010 was almost $63 million before taking more than $23 million in deductions for charitable contributions. 

Huelskamp was quick to point out to CNN that "By sheltering millions of dollars of income from taxation through charitable giving, Mr. Buffett demonstrates that he doesn't trust Washington with his own money either."  

Bottom Line: If Buffett and others in the "super-rich" category are paying 17.4% or less in taxes instead of something closer to the 24% average tax rate for the top 1%, those cases are clearly exceptions usually involving receiving low amounts of wages or ordinary income (like Buffett's salary of only $100,000) and high amounts of tax preferred income (dividends and capital gains taxed at 15% like Warren Buffet) or tax-free income from investments like municipal bonds.  Other "super-rich" like Buffett may be taking large deductions for charitable giving that run into the tens of millions.  Therefore, rather than taxing the ordinary income of millionaires at higher rates, Buffett might really be making alternative cases for a:) taxing dividends and capital gains as ordinary income, b) ending or limiting the deductions to charity, and c) ending the tax-free status of municipal bonds?  

INTRADE ODDS: Romney Surges, Perry Tanks

Current Intrade Odds: 69.7% for Romney and 10.1% for Perry (corrected).

Reckless Government Policies, Not Private Greed Caused the Housing Bubble and Financial Crisis

Peter Wallison of the American Enterprise Institute writing in today's WSJ, explains that the Wall Street protesters have been grossly misled because it was "Reckless government policies, and not private greed, that brought about the housing bubble and resulting financial crisis." Here's an excerpt:

"Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007. 

It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.

Research by Edward Pinto, a former chief credit officer of Fannie Mae (now at the American Enterprise Institute) has shown that 27 million loans—half of all mortgages in the U.S.—were subprime or otherwise weak by 2008. That is, the loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments.

Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from.

The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history (see chart above). This bubble, which lasted from 1997 to 2007, also created a huge private market for mortgage-backed securities (MBS) based on pools of subprime loans.

As housing bubbles grow, rising prices suppress delinquencies and defaults. People who could not meet their mortgage obligations could refinance or sell, because their houses were now worth more.

When the bubble deflated in 2007, an unprecedented number of weak mortgages went into default, driving down housing prices throughout the U.S. and throwing Fannie and Freddie into insolvency. Seeing these sudden losses, investors fled from the market for privately issued MBS, and mark-to-market accounting required banks and others to write down the value of their mortgage-backed assets to the distress levels in a market that now had few buyers. This raised questions about the solvency and liquidity of the largest financial institutions and began a period of great investor anxiety.

The narrative that came out of these events—largely propagated by government officials and accepted by a credulous media—was that the private sector's greed and risk-taking caused the financial crisis and the government's policies were not responsible. This narrative stimulated the punitive Dodd-Frank Act—fittingly named after Congress's two key supporters of the government's destructive housing policies. It also gave us the occupiers of Wall Street."

MP: The chart above shows how the weakening of underwriting standards did boost the homeownership to rate to an historically unprecedented level above 69% by the end of 2004, but in the process created an unsustainable housing bubble that started unraveling in early 2007.  Now real home prices (measured by the FHFA index) are back to 2001 levels and homeownership rates are back to the levels of the late 1990s.  

Tuesday, October 11, 2011

Amazing North Dakota Sets More New Oil Records in August as Production Doubles in Only 26 Months

Oil production in N. Dakota set more monthly records in August:

1. A new record for monthly production: 13,768,395 barrels, a 34.6% increase from last August.  In just a little more than two years (since June 2009), oil production has doubled in North Dakota (see chart above).

2. A new record for average daily production: 444,142 barrels. 

3. A new record number of wells producing: 5,702.

4. New records for barrels per well (per month): 2,415; and per day: 78.

5. A new record for oil-related jobs: 16,200 (see chart), which is more than double the number of North Dakota oil jobs at the beginning of last year. 

At North Dakota's blazing current pace of monthly increases in oil production, the state will be producing more than 560,000 barrels of oil per day by January 2012 and will then pass #3 California (540,000 barrels per day) and #2 Alaska (550,000 barrels per day) to become America's second-largest oil producer.  North Dakota Department of Mineral Resources Director Lynn Helms is even more optimistic and predicts that the Peace Garden State could actually be producing as much as 800,000 barrels per day by the end of this year!

North Dakota's impressive economic success clearly illustrates the huge benefits of domestic energy production: more jobs and the lowest jobless rate in the country, record economic growth, huge gains in personal income, and even more tax revenues.  There's no reason that the economic success and ongoing job creation in North Dakota can't be duplicated elsewhere, if more U.S. land and off-shore areas were opened up to domestic energy exploration and drilling.  Drill, drill, drill = jobs, jobs, jobs.

Chart of the Day: Yuan Rises, Deficit Widens

The chart above is from The Economist, with the following commentary:

"As the chart above suggests, the recent relationship between China's currency and America's trade deficit with China is not what China hawks in the Senate think it is. Rather than a cheap yuan leading to a flood of Chinese imports, the yuan has actually strengthened as the deficit has widened. 

There are many things American companies dislike about the way business is done in China: intellectual-property theft, the impossibility of winning government contracts, baffling rules on corporate ownership and so on. However the place for fixing these things is the World Trade Organisation, not Congress. President Obama's administration has already passed on two opportunities to label China a currency manipulator, out of a well-founded fear of sparking a trade war. Senators should do the same (while hoping that China responds to their sabre-rattling by letting the yuan rise a little more, as happened the last time the Senate came close to passing a similar measure, in 2005)."

Related: Don Boudreaux responds to the "Everest of errors that is Peter Morici’s argument that the U.S. trade deficit plays a large role in keeping the U.S. unemployment rate high."

Private Health Insurance Increases 400% in Sweden To Avoid Long Waiting Lines and Inconsistent Care

From The Local: Sweden's News in English:

"While Sweden has long taken pride in its public healthcare system, lengthening queues and at times inconsistent care have prompted many Swedes to opt for private healthcare with many gaining the benefit through insurance policies offered by employers, currently responsible for 80% of healthcare insurance market.

The idea behind private health insurance is simple enough: those put off by the idea of heading to publicly funded clinics and hospitals can purchase a policy through an insurance company and instead enjoy speedy medical attention with private doctors.

As many as 500,000 Swedes are now estimated to be using private healthcare insurance, up from 100,000 only ten years ago.  And a flawed public system is often cited as the cause of the rapid expansion.

Long queues are one of the main complaints for consumers of Sweden's public healthcare services, with patients sometimes forced to wait as much as fifteen times longer for treatment compared to private options."

MP: Government-run health care always sounds so good in theory, but often fails to deliver in reality.  


Monday, October 10, 2011

September Tax Revenues in Oklahoma Jump 14.5% From Increased Hiring and Strong Oil Production

"Tax collections in Oklahoma grew at a double-digit rate in September for the second straight month compared with receipts for the same period a year ago. Total collections for the state's general revenue fund, the principal funding source for state government, were $526.2 million in September, which was $66.5 million, or 14.5 percent, above collections for the same month in 2010. 

For the first quarter of this fiscal year, tax collections registered a 12.1 percent growth. Total collections, led by growth in income tax receipts, exceeded $1.3 billion for the three-month period. That is $143.1 million more than for the first three months of the 2011 fiscal year and 7 percent more than expected.

Finance Director Preston Doerflinger said the state's revenue growth has been propelled by particularly strong income tax collections, reflecting hiring across many sectors, continued activity in the oil patch and an uptick in manufacturing jobs. “We also have seen steady growth in sales taxes,” he said.

TN Sales Taxes Post Largest Gain Since Jan. 2006

NASHVILLE – "Economic recovery continues a slow pattern upward in Tennessee. Finance and Administration Commissioner Mark Emkes reported today that overall September revenues were $1.013 billion, which is 3.66% above September 2010 collections. It’s the fourteenth consecutive month in which total collections exceeded the budgeted estimates.

Sales tax collections were $12.8 million more than the estimate for September. The September monthly growth rate was 8.33%.

“We are very pleased with the positive growth rates in September tax collections, particularly in the sales tax category, where we see the best indication of renewed consumer optimism in Tennessee,” Emkes said. “That’s the largest monthly growth we’ve seen in the last 69 months, dating back to January 2006."

Cass Freight Index Highest Since November 2007

I've only reported a few times before on the Cass Freight Index, so here's some background:

Starting in 1990, Cass Information Systems has calculated a monthly broad-based freight index for North America shipping activity based on the freight transactions it processes for 350 large shippers in a wide variety of industries, and the index is widely used by industry analysts and economists as an accurate barometer of North American shipping and economic trends. The diversity of shippers and aggregate volume provide a statistically valid representation of North American shipping activity.

The index was recently updated for September, and the Cass Freight Index was close to a four-year high, with more  shipments in September than in any single month since November 2007, the month before the recession started and right before the freight index plunged to the lowest level in its 20-year history (see chart above).  Compared to last year, shipping volume improved in September of this year by 7.5%, and also showed a strong 5% gain compared to the previous month of August.   

Now that U.S. intermodal rail shipments through September are back to pre-recession levels, and the Cass Freight Index in September is also back to pre-recession levels for broader-based shipping activity, these strong and ongoing shipping improvements would seem to defy the case for an economic downturn or double-dip recession.

Thomas Sargent and Christopher Sims Win Nobel

Here's the press release from the official Nobel Prize website.  

Here's commentary from Alex Tabarrok and Tyler Cowen

Sunday, October 09, 2011

Steve Jobs, World's Greatest Philanthropist

From Dan Pollatta writing in Harvard Business Review blog:

"What a loss to humanity it would have been if Jobs had dedicated the last 25 years of his life to figuring out how to give his billions away, instead of doing what he does best.

We'd still be waiting for a cell phone on which we could actually read e-mail and surf the web. "We" includes students, doctors, nurses, aid workers, charity leaders, social workers, and so on. It helps the blind read text and identify currency. It helps physicians improve their performance and surgeons improve their practice. It even helps charities raise money.

We'd be a decade or more away from the iPad, which has ushered in an era of reading electronically that promises to save a Sherwood Forest worth of trees and all of the energy associated with trucking them around. That's just the beginning. Doctors are using the iPad to improve healthcare. It's being used to lessen the symptoms of autism, to improve kids' creativity, and to revolutionize medical training.

And you can't say someone else would have developed these things. No one until Jobs did, and the competitive devices that have come since have taken the entirety of their inspiration from his creation.

We would be without the 34,000 full-time jobs Apple has created, just within Apple, not to mention all of the manufacturing jobs it has created for those who would otherwise live in poverty.

We would be without the wealth it has created for millions of Americans who have invested in the company.

We would be without video conferencing for the masses that actually works. Computers that don't keep crashing. Who can estimate the value of the wasted time that didn't get wasted?

We would be without a whole new way of thinking. About computers. Leadership. Business. Our very potential."

HT: David Boaz via Don Boudreaux