Saturday, October 29, 2011

Higher Education Bubble Update: Colleges and Universities Charging $50k+ Increases 25X in 3 Yrs.

2012 Mercedes E550 Coupe ($56,590) = 1 Year of College
Top 25 Colleges for Tuition and Room & Board, 2011-2012
RankCollege2011-2012 Tuition,
Room and Board
1Sarah Lawrence College $59,170
2Landmark College $57,330
3New York U. $56,787
4Columbia University $56,310
5Harvey Mudd College $56,268
6Wesleyan U. $56,006
7Claremont McKenna College $55,865
8Johns Hopkins U. $55,742
9Berklee College of Music $55,615
10Bard College $55,592
11Barnard College $55,566
12Vanderbilt U. $55,556
13Trinity College $55,450
14U. of Chicago $55,416
15Dartmouth College $55,365
16Bates College $55,300
17Stevens Institute of Technology $55,276
18Vassar College $55,135
19Washington U. in St. Louis $55,111
20Boston College $55,079
21Haverford College $55,050
22Pitzer College $54,988
23Connecticut College $54,970
24Bard College at Simon's Rock $54,960
25Bennington College $54,960

From the Chronicle of Higher Education (subscription required):

"The 50K club is getting crowded: 123 institutions now charge $50,000 or more for tuition, fees, room, and board, according to data released by the College Board. That's up from last year, when 100 colleges and universities charged that much."

MP: The table above shows the top 25 colleges for tuition, and room and board, for the current 2011-2012 academic year.   

In this related Chicago Tribune article, they point out that: a) only 58 schools charged more than $50,000 for tuition and room and board in 2009-2010 and the year before it was only five colleges, and b) an increasing number of colleges are now charging more for tuition than the average American earns per year ($42,000 according to the Social Security Administration).

Amazing NASA Video of a Decade of Earth's Fires

"NASA has released a series of new satellite data visualizations that show tens of millions of fires detected worldwide from space since 2002. The visualizations show fire observations made by the MODerate Resolution Imaging Spectroradiometer, or MODIS, instruments onboard NASA's Terra and Aqua satellites.

NASA maintains a comprehensive research program using satellites, aircraft and ground resources to observe and analyze fires around the world. The research helps scientists understand how fire affects our environment on local, regional and global scales."

Friday, October 28, 2011

Richard Epstein on Income Inequality in America

HT: Don Boudreaux and Pete Friedlander

Oil Boomtowns of ND: 2k Job Openings Every Day

Income Mobility is Much More Important Than Rising Income Inequality or Stagnating Household Income, and We Have a Lot of It (Mobility)

We hear a lot these days about "increasing income inequality" and "stagnating household income," but those discussions rarely include what is probably the most important factor when it comes to income over time: income mobility.  In fact, even if: a) income inequality was increasing over time, and b) median household income was stagnant over time, those outcomes wouldn't necessarily be a problem if there was significant income mobility.  Reason? If there is substantial movement of households over time from lower-income to higher-income quintiles, households may only be earning the median household income for a short period of time on their way up to a higher quintile.  

In other words, it's more likely that most households are "typical" or at the "median" level" only temporarily on their way to a higher income group.  The fact that median household income might be stagnant over time seems far less important than what happens as households exceed median income and move up to a higher-income category.  In the case of significant income mobility over time, wouldn't households actually benefit from increasing income inequality over time if that allowed them to earn higher incomes relative to the median or low-income quintiles once they arrived at one of the top two quintiles?  

Most of those complaining about income inequality and stagnating income seem to statically assume that households or individuals stay in the same income group (by quintile, or the "top 1%," "top 10%," bottom 50%, median income, etc.) forever, with no movement over time.  If we assume that you're stuck in the bottom income quintile for life, or even earn the median household income for life (both highly unrealistic), then the concerns about rising income inequality or stagnating median household income have greater strength.  But with dynamic movement over time in the income of households and individuals, the "problems" of income inequality and stagnating income seem much less important, and might even be "non-problems."

Thomas Sowell offers this key insight (emphasis added):

“Only by focusing on the income brackets, instead of the actual people moving between those brackets, have the intelligentsia been able to verbally create a "problem" for which a "solution" is necessary. They have created a powerful vision of "classes" with "disparities" and "inequities" in income, caused by "barriers" created by "society." But the routine rise of millions of people out of the lowest quintile over time makes a mockery of the "barriers" assumed by many, if not most, of the intelligentsia.”
Contrary to prevailing public opinion that households get stuck at a given income level for decades or generations, there is strong empirical evidence that households actually move up and down the economic ladder over even very short periods of time.

For example, recent research from the Federal Reserve Bank of Minneapolis is summarized in the table above, based on income data from the Panel Study of Income Dynamics that followed the same households from 2001 to 2007.  The empirical results answer the question: For households that started in a given earnings quintile (20 percent group) in 2001, what percentage of those households moved to a different income quintile over the next six years? Short answer: a lot. 

Read more here at The Enterprise Blog.

Rising Income Inequality for the Texas Rangers. So?

The chart above is based on data from the USA Today Salaries Databases and reveals significant and increasing income inequality over time for the Texas Rangers, measured both by the payroll share of the top 20% and the Gini coefficient of statistical dispersion.  Over that time period, the average inflation-adjusted Texas Ranger salary has gone up almost 8 times, from $412,350 in 1988 (measured in 2011 dollars) to $3.18 million in 2011. 

So what's the problem?  We hear all the time that rising income inequality is harmful and damaging, so why isn't that the case for professional sports? 

Also, the minimum salary for the Texas Rangers is $414,000, which is the MLB salary minimum, putting every MLB player in the top 1% (based on $344,000 minimum to be in the top 1% for 2009, the most recent year available).  Where's the outrage? What about Occupy MLB Stadiums?

Thursday, October 27, 2011

Public Worker Overtime Binge in California Contributes to the State's $19 Billion Deficit

BLOOMBERG -- "Jean Keller earned $269,810 last year working as a nurse at a men’s prison on California’s central coast by tripling her regular pay with overtime hours. Keller got more overtime in 2010 than any other state employee. In all, California’s public workers collected $1.7 billion of extra pay last year, more than half of it in overtime, state payroll data show. The rest was for unused vacation and union-negotiated benefits such as uniform allowances, physical-fitness incentives and special compensation in recognition of a “complex work load.”

“It’s outrageous,” said 29-year-old Gilbert Ramirez, one of about 30,000 teachers fired in California since 2007 because of budget cuts. “It boils my blood that I’m out of work and they claim they don’t have enough money to pay me.”

California paid the additional wages -- enough to fund the average salaries of about 25,000 teachers -- as it faced a $19 billion deficit and cut school spending and services for poor children and the elderly. The state may have to trim the academic year by seven days and eliminate some student busing if revenue shortfalls persist.

The extra compensation underscores a broader trend in California, where government workers are paid more than in other states for similar duties. Among them: city managers whose pay is higher than the governor’s, prison doctors who make more than counterparts in other states and Los Angeles firefighters who collect twice the national mean."

MP:  Nurse Keller wouldn't quite qualify for the "top 1%" based on her income of $269,810, but would certainly easily qualify for the "top 5%," which required an income of "only" $154,643 in 2009 (data here). No wonder California has a $19,000,000,000 deficit.  

HT: Matt Bixler

S&P 500 Posts Highest Monthly Gain Since 1974

The S&P500 Index has gained 13.5% in October (with two trading days to go), the largest monthly gain since a 16.3% increase in October 1974, exactly 37 years ago (see chart above).  

See Bloomberg story here.         

Real GDP Recovers to Above Its Pre-Recession Level

The BEA reported today on third quarter GDP, here are some hightlights:

1. Nominal GDP was $15,159 billion in the third quarter and real GDP (in 2005 dollars) reached a new all-time high of $13,353 billion, putting real output above the early-recession peak (and previous record high) of $13,310 billion in the second quarter of 2008.  

2. Real GDP grew at 2.5% in the third quarter and this marks the ninth consecutive quarter of real output growth starting in the third quarter of 2009.  The 2.5% growth in third quarter 2011 GDP matches the 2.5% average growth rate over the current nine-quarter economic expansion that started in third quarter 2009.   

3. Led by a 17.4% increase in business equipment and software, overall business investment grew at 16.3% in the third quarter, which was only the third time in the last decade that business investment increased more than 16% in a single quarter.  

4. Real consumption expenditures showed a 2.4% gain from Q2, which brought consumption spending to a record-setting $9,500 billion in Q3, and 1.5% above the pre-recession level of $9,313 billion in Q4 2007.  

MP: While we still have a sub-par and jobless recovery, the 2.5% real output growth for both Q3 and the average over the last nine quarters, and  the recovery of real GDP to above its pre-recession level would at least suggest that a pending double-dip recession is now pretty much out of the question.

Markets in Everything: Aerosol e-Book Enhancer

"Does your Kindle leave you feeling like there’s something missing from your reading experience? Have you been avoiding e-books because they just don’t smell right? If you’ve been hesitant to jump on the e-book bandwagon, you’re not alone. Book lovers everywhere have resisted digital books because they still don’t compare to the experience of reading a good old fashioned paper book.

But all of that is changing thanks to Smell of Books, a revolutionary new aerosol e-book enhancer."

(Warning: This might be a spoof, but is still entertaining.)

OWS Kitchen Staff Protests "Freeloader Greed"

NEW YORK POST --  "The Occupy Wall Street volunteer kitchen staff launched a “counter” revolution yesterday -- because they’re angry about working 18-hour days to provide food for “professional homeless” people and ex-cons masquerading as protesters.

For three days beginning tomorrow, the cooks will serve only brown rice and other spartan grub instead of the usual menu of organic chicken and vegetables, spaghetti bolognese, and roasted beet and sheep’s-milk-cheese salad. They will also provide directions to local soup kitchens for the vagrants, criminals and other freeloaders who have been descending on Zuccotti Park in increasing numbers every day."

HT: Morganovich

The Top Ten Richest Celebrities Supporting OWS Have A Combined Net Worth of $1.255 Billion

Here's the breakdown, starting with Yoko Ono, who is worth $500 million.

Multimillionaire Moore Denies He's in the Top 1%

Documentary filmmaker and multimillionaire Michael Moore squirms in the interview above as he refuses to admit he's in the top 1% (transcript available here), which seems highly unlikely because it would only take $344,000 of income in 2009 to be in the top 1%, and Moore's net worth is estimated be $50 million.  

Total box office revenues from Moore's movies come to about 1/3 of a billion dollars ($342 million), and "Fahrenheit 911" by itself grossed $222 million on a production budget of only $6 million.  He also repeatedly claims that "capitalism did nothing for me."

Markets in Everything: Urban Farm Pods

Is this the produce farm of the future?

ATLANTA -- "It's easy to miss the Podponics headquarters on Ponce de Leon Avenue. We breezed right by before company co-founder Dan Backhaus came out to the curb to wave us in. To look at their setup--six rust-colored, graffitied shipping containers tucked between a Cactus Car Wash franchise and a halfway house--you'd never suspect this was one of Atlanta's flourishing young startups. But behind the padlocked doors, an urban farming operation is in full swing.

"Our ultimate vision is to get 80-100 pods next to the Publix distribution center in Florida or the Walmart distribution center," says Backhaus, "so that we can harvest right there in the morning and plug it directly into their supply chain. We're mainlining fresh produce into the regional distribution network."

Watch video below:

HT: Warren Smith

Wednesday, October 26, 2011

Marcellus Shale Gas Has Been Very Good for Pennsylvania's Labor Market and Overall Economy

The Pennsylvania Department of Labor and Industry recently issued a labor market report for the state's Marcellus Shale-producing region (which covers about 2/3 of the state, see map above), here are some highlights:

1. Employment in Pennsylvania's core shale-related industries increased by 114% between 2008 Q1 and 2011 Q1. 

2.  There were 214,000 employees working in Marcellus Shale related industries during the first quarter of 2011.

3. Marcellus Shale related industries had a total of 13,504 Pennsylvania establishments in 2011, which was a 63% increase, and a gain of more than 650 establishments, from 2008. 

4. The average wage in the core Marcellus industries was $76,036, compared to the average wage of $46,222 for all industries in Pennsylvania. The average wage in the ancillary shale gas industries was $62,581.

5. Total job postings for Marcellus Shale related industries were 62.3% higher in August 2011 than August 2010, compared to a 21.3% gain for all industries in Pennsylvania.

6. In 2011 Q2 there were 2,129 new hires in the Marcellus Shale related core industries, which was 138.1% higher than 2008 Q2. In 2011 Q2 there were 16,342 new hires in the Marcellus Shale related ancillary industries, which was 8.6% higher than 2008 Q2. Across all industries in Pennsylvania, total new hires in 2011Q2 were 8.3% lower than in
2008 Q2.

7. The number of Marcellus Shale wells drilled from January to August 2011 was 37.4% higher than over the same eight month period in 2010.

8. Five of the six state workforce areas with substantial Marcellus Shale drilling have experienced unemployment rate decreases from August 2009 to August 2011 greater than the average decrease for the whole state. 

Oil Quiz

1. ExxonMobil produces 2 million barrels of oil per day of worldwide.  In addition to its own production, Exxon also purchases crude oil at the market rate for its global refining network.  How much oil does Exxon buy every day at the prevailing market rate?
a. 500,000 barrels
b. 1 million barrels
c. 3 million barrels
d. 5 million barrels

2. Local, state and federal gasoline taxes average roughly 49 cents per gallon nationally, and are as high as 67 cents per gallon in California and New York.  What amount of profit does ExxonMobil earn per gallon of gasoline sold? 
a. 65 cents per gallon
b. 45 cents per gallon
c. 25 cents per gallon
d. 8 cents per gallon 

3. More than 75% of ExxonMobil’s operating earnings come from outside the United States. What percent of ExxonMobil's workforce is based in the United States?
a.  20%
b. 40%
c. 60%
d. 80% 

4. ExxonMobil is the world’s largest publicly traded oil company. What percent of the world’s oil reserves does it actually control?
a. Less than 1 percent
b. 2 percent
c. 5 percent
d. 10 percent 

5. What percent of the world's oil reserves does America's "Big Oil" companies control?
a. 3 percent
b. 6 percent
c. 12 percent
d. 18 percent 

6. In the first half of 2011, ExxonMobil paid $6.7 billion in tax expenses in the U.S. What were ExxonMobil's operating earnings for that period? 
a. $20 billion
b. $7 billion
c. $5.5 billion
d. $3.5 billion

Find the answers here.

Reshoring: Outsourcing to China Goes Into Reverse

HAYWARD, CALIF. -- "Housewares company Simple Wave LLC is moving production of its CaliBowls (pictured above) to the U.S. after two years of manufacturing in China. 

The move from a contract manufacturer in China to injection molder Jatco Inc. in Union City, Calif., fits with Simple Wave’s desire to have its bowl made in the U.S., and allows it more control over quality and delivery, said Meaghan Mott, vice president of sales."

HT: Scott Bury

Natural Gas Brings A Renaissance in Chemical Manufacturing and Maybe 35,000 Jobs to LA

WWL.COM -- "Louisiana could see an influx of more than 35,000 jobs due to new access to vast, new supplies of natural gas from shale deposits, which could be one of the most dramatic domestic energy developments in the last 50 years, according to American Chemistry Council.   Louisiana has the second largest chemical industry in the nation, and shale gas is a critical component.

"That really provides the opportunity for what will be a renaissance in chemical manufacturing in the United States and Louisiana is uniquely positioned to capitalize on that." Cal Dooley, president and CEO of the American Chemistry Council says their economic analysis projects that in the next 5 years there will be an additional $5.4 billion in capital investments in chemical manufacturing and related services in Louisiana."

More Research Showing Nat Gas Cleaner Than Coal

Following up on this recent CD post about how the media has been giving much greater coverage to a Cornell University research report that found the environmental impact of natural gas to be more harmful than coal, and much less coverage to a report from Carnegie-Mellon University that came to the opposite conclusion:

WASHINGTON – "Six months removed from the release of the paper from researcher-activists at Cornell attempting to argue that the production and consumption of coal was better for the environment than natural gas from shale, new data and research rebutting and correcting those unsubstantiated claims continues to roll in. The latest shoe to drop? A detailed analysis from researchers at the University of Maryland that takes a closer look at the GHG profile of natural gas derived from shale when used in the electricity sector."

From the abstract of the University of Maryland paper

"We show that for electricity generation the greenhouse gas impacts of shale gas are 11% higher than those of conventional gas, and only 56% that of coal for standard assumptions."

MP: In other words, the researchers at Maryland found that the greenhouse gas impacts of coal are almost twice the impacts of natural gas for electricity generation.

Cartoon of the Day: Where To Find The Real 1%

Cartoon by Bob Gorrell.

Tuesday, October 25, 2011

Happy 10th Birthday iPod!

Ten years ago, Apple introduced the iPod, here's a link to the 10/24/2001 New York Times story titled "Apple Introduces What It Calls an Easier to Use Portable Music Player," with the following quote:  

"But while industry analysts said the device appeared to be as consumer friendly as the company said it was, they also pointed to its relatively limited potential audience, around seven million owners of the latest Macintosh computers."

Actual number of iPods sold as of January 2011: More than 300 million

Natural Gas Can Put Americans Back to Work

ConocoPhillips CEO James Mulva in the WSJ

"Even after 103,000 jobs were added during September, unemployment remains at 9.1%. Counting those who have given up the job search or accepted a part-time job, economists calculate actual unemployment at a staggering 16.5%. Where will the growth come from that can help get people back to work?

One source is the natural gas industry, which is already generating jobs by the thousands, all without government subsidy. And it can generate even more, if we unleash this resource's full potential.

More than 600,000 Americans already explore, produce, store and transport natural gas, according to consultancy IHS Global Insight. For example, in Texas the Barnett shale gas field has created 100,000 jobs since the mid-1990s, and the Eagle Ford field is expected to create 68,000 jobs by 2020. In addition, IHS Global Insight estimates another 2.2 million jobs nationwide are sustained indirectly by the incomes of natural gas workers, or in companies that service the industry.

At least 15 states now produce shale gas and others may join them. The largest shale area, the still-emerging Marcellus, covers much of the Northeast and already supports 140,000 jobs in Pennsylvania alone.

Natural gas and shale gas heat homes, schools and factories, generate electricity and serve as feedstock in plastics, chemicals and fertilizer. They are familiar, safe and affordable. Abundant reserves—North America has an estimated 100-plus year supply, according to the Department of Energy—mean natural gas prices will remain reasonable, giving energy-dependent American manufacturers an edge in competing for global business. 

The natural gas industry is growing, and its growth can help put the country back to work." 

MP:  The chart above shows the significant growth over the last five years in natural gas production in the U.S., which recently surpassed Russia to become the No. 1 producer of gas in the world.  

MN Has A Shortage of Skilled Manufacturing Workers. Maybe That's a Good Problem To Have

ST. PAUL, MN - "Nearly half of Minnesota manufacturers responding to a survey say they haven't filled positions because they lack qualified job candidates, according to a new study by the Minnesota Department of Employment and Economic Development (DEED).

"State manufacturers have openings, but Minnesotans who are looking for work often don't have the right skills to fill them," said DEED Commissioner Mark Phillips. "As we observe Minnesota Manufacturers Week, it's a good time to stress the importance of aligning manufacturers' needs with workforce training."

The biggest shortages were found in skilled production (58 percent of those responding), followed by jobs for scientists and engineers (40 percent of respondents). Shortages were not as severe for jobs in low-skilled production, management and administration, and customer service."

MP: With more and more manufacturing production returning to the U.S. through "reshoring," it's possible we'll see more of these shortages of skilled manufacturing workers, and maybe that's a good problem to have.  It will certainly create lots of opportunities for community colleges and other programs to provide the necessary worker training, and lots of opportunities for Americans to pursue careers in manufacturing during the pending "renaissance of U.S. manufacturing." 

Markets in Everything: Boomtown Strippers Make $2k/Night in ND, "We Make More Than Doctors"

WILLISTON, N.D. (CNNMoney) -- "Forget Vegas. Strippers are discovering they can make ten times as much dancing in the oil boomtown of Williston, N.D.

Kit, a 36-year old stripper who has been dancing for 10 years in places like Las Vegas, Texas and California, first started coming to Williston a few years ago in between higher-paying jobs, because she had friends who danced in the town who were able to hook her up with gigs.

At first, the nightly tips were nothing special, but over the past year -- thanks to the thousands of men who have flocked here and landed high-paying jobs -- she has been making $2,000 to $3,000 a night, about the same amount she would have earned in an entire week in Vegas."We make more than doctors," she said. "Back in the day, it was hard to make $200 a night. It was like pulling teeth. Now you can pull in $2,000 a night."

Even when it's slow, they still take home about $1,500."

Really Scary Facts of the Day

1. "The GSEs (Fannie Mae and Freddie Mac) and FHA bought or guaranteed 95% of all new mortgages in fiscal year 2011! Mind blowing numbers compared to when 40% market share was seen as high in the early 2000s." 

2. "Here are the current GSE bailout numbers
  • Fannie Mae: $103.8 billion received from the Treasury
  • Freddie Mac: $65.2 billion received from the Treasury
  • Total: $169 billion in taxpayer money to bailout mortgage investors via the GSEs
And those numbers should be going up again next month. The Congressional Budget Office recently estimated that we are likely to see $51 billion more losses for the GSEs over the next 10 years."

~Reason Foundation

Beware of Media Selection Bias, Sensationalism

From an article by the Statistical Assessment Service (STATS) at George Mason University titled "The Media's Gas Problem":

"What people often don’t realize is that the media framing of scientific studies incorporates the journalist’s own perspective, whether the journalist realizes it or not. A dramatic example is the recent appearance of two scientific studies on fracking that provide a natural experiment on media sensationalism. 

Study One was critical of natural gas development; Study Two was supportive. How much coverage did each get in the mainstream media? The score: 

Study One by Cornell University researchers: 24 big-city newspaper articles and an NPR appearance.

Study Two by Carnegie-Mellon researchers: Two newspaper articles, one of them in a story primarily about Study One. 

The immediate takeaway from this story of dueling studies is that readers should be alert to the possibility that the media is emitting its own gas into this debate. The broader point is that the media’s treatment of scientific studies should be treated as a kind of rolling health scare, a structural imbalance based on a selection bias that is unlikely to change anytime soon."

Monday, October 24, 2011

Reshoring: Manufacturing is Coming Back to U.S.

Three examples:

1. "Globalization has come full circle at Otis Elevator. The U.S. manufacturer, whose elevators zip up and down structures as diverse as the Empire State Building and the Eiffel Tower, is moving production from Nogales, Mexico, to a new plant in South Carolina. More startling: Otis says the move will save it money."

2. "After having their products manufactured in China the past seven years, The Outdoor GreatRoom Company is bringing production back home to Minnesota."

3. "Not long ago, overseas plants produced half of Idaho-based Buck Knives’ output. Today they produce 25 percent. Buck Knives wants to keep moving production from China to Post Falls, Idaho over the next few years, company chairman Chuck Buck said. “I want to get out of China as quickly as I can,” he said.

Buck Knives is not the only Idaho company “reshoring” — the opposite of offshoring, and the buzz term for bringing jobs from abroad back to America. Ende Machinery and Foundry, owned by Ed Endebrock and his daughter Sue Edwards,has just started to make castings for a plant Endebrock owns in Lewiston that makes hydraulic pumps for trucks and other uses. He had been outsourcing that work to China."

Bakken Boom Spreads to Montana, South Dakota

1. "The North Dakota oil boom is spreading into Montana, bringing development opportunities for businesses stretching across both states, said Tom Rolfstad, executive director of economic development in Williston, N.D."

2.  "South Dakota auctioned off some 67,000 acresof public land in Harding and Butte counties earlier this month — one of the largest oil based public land sales in the state's recent history. One hundred and eighty six of the 189 lots were scooped up by Bedrock Oil and Gas of Boerne, Texas. Could this mean the state is on the edge of a North Dakota-like oil boom?

At this point the most responsible answer is “maybe.”  Bedrock Oil and Gas have chosen to keep their intentions to themselves at this point. But they certainly didn't buy all that land for a hunting ranch."

Reshoring Example: Houston-Based Farouk Systems

"Farouk Shami, chairman and main owner of Houston-based Farouk Systems, made an unorthodox choice when he decided where to expand production of his professional hairdressing equipment. Rather than adding to his existing workforce in Asia, Mr. Shami expanded in Texas.

More of his products now carry the “made in America” label after the decision four years ago to cut back on the work he was giving to subcontractors, based mainly in China and South Korea, in favor of expanding local production.

As a result his company – which supplies professional hairdressers with high-tech dryers, hair curlers and other specialized equipment – has added 400 jobs to its Texas-based workforce, which now totals 2,000.

Production costs are only slightly higher in the U.S. than in China, he says, because the workers are more efficient. “I may need to employ only 15 people to do a job that would require 70 in a Chinese factory,” said Mr. Shami.

This year 80% of his company’s production is being done in the U.S., compared with 40 per cent in 2007. His sales have risen by about 20% since the decision to expand the domestic operation."

World Economic Power is Shifting Back to the U.S.A.: The 21st Century May Be American After All

Ambrose Evans-Pritchard writing in the U.K. Telegraph:

"The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labor gap with China in a clutch of key industries. The current account might even be in surplus.

"The U.S. was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day," said Francisco Blanch from Bank of America, comparing the North Dakota fields to a new North Sea.

Total U.S. shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m barrels per day by mid-decade. This is a tenfold rise since 2009. The US already meets 72% of its own oil needs, up from around 50% a decade ago.

"The implications of this shift are very large for geopolitics, energy security, historical military alliances and economic activity. As US reliance on the Middle East continues to drop, Europe is turning more dependent and will likely become more exposed to rent-seeking behaviour from oligopolistic players," said Mr. Blanch.

Meanwhile, the China-US seesaw is about to swing the other way. Offshoring is out, 're-inshoring' is the new fashion. "Made in America, Again" - a report this month by Boston Consulting Group - said Chinese wage inflation running at 16% a year for a decade has closed much of the cost gap. China is no longer the "default location" for cheap plants supplying the US.

A "tipping point" is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture. "A surprising amount of work that rushed to China over the past decade could soon start to come back," said BCG's Harold Sirkin.

The gap in "productivity-adjusted wages" will narrow from 22% of US levels in 2005 to 43% (61% for the US South) by 2015. Add in shipping costs, reliability woes, technology piracy, and the advantage shifts back to the US.

The 21st Century may be American after all, just like the last." 

HT: Lyle Meier

Sunday, October 23, 2011

Can Aging Population Explain Income Stagnation?

Since 1970, the number of retired workers receiving Social Security has increased by 159% from 13.35 million to 34.59 million.  During the same period, the number of active employed workers increased by less than half that amount, by 77% from 78.7 million to 139 million.  The fact that retired workers have increased so significantly relative to active workers since 1970 can be explained by advances in medical care that have increased life expectancy by 20 years since 1930.  

The top chart shows that the ratio of active workers to retired workers decreased by almost 32% since 1970, from 5.90-to-1 in 1970 to 4.02-to-1 by 2010.  The bottom chart shows the inverse - retired workers as a percent of active workers - which has increased from 17% in 1980 to 24.8% in 2010.    

So what? Well, perhaps this demographic trend of an aging U.S. population explains why real median household income has stagnated in recent decades, according to Census Bureau data. Relative to active workers, we now have significantly more retirees, many of whom might have significant assets (a house with no mortgage, stocks and bonds, mutual funds, etc.) that make them very wealthy, but in retirement would be receiving relatively low annual incomes compared to when they were working full-time.

With an increase in retirees, we have thousands or millions more Americans over time moving from top household income quintiles while working, into lower income quintiles when in retirement,  bringing down average or median household income as measured by the Census Bureau.

Therefore, the growing ratio of retirees to active workers makes it appear that household income is stagnating, when in fact the median household income of active workers (or real compensation per hour, see chart below) could be increasing, and the average wealth per household could also be increasing.  

Q: Could the aging of the U.S. population make it appear that we're in a period of "Great Stagnation" based on stagnating household income, when in reality the finding of stagnation is only a "statistical artifact" or "spurious finding" due to a significant demographic shift over time?

Comments welcome.  

Update: The chart below shows no stagnation over time in "Real Compensation per Hour," which has increased by almost 30% since 1990 and almost 14% since 2000 (thanks to Peak Trader).  Perhaps another factor in the "non-stagnation story" is that fringe benefits have increased over time relative to money income, and that increase in compensation is not captured by the Census Bureau when it calculates household income. In that case, household money income could be stagnating at the same time that total household compensation is increasing.    

The non-stagnation of real compensation per hour.

MLB Facts

MLB players make 1,000 times more than the workers in Costa Rica who make their baseballs.
1. Average 2011 salary for the St. Louis Cardinals: $3.9 million

2. Highest 2011 salary for the St. Louis Cardinals: $16.3 million (Matt Holliday, started at $366,000 in 2005) )

3. Average 2011 salary for the Texas Rangers: $3.2 million   

4. Highest 2011 salary for the Texas Rangers: $16.2 million (Michael Young, started at $250,000 in 2002)

5. Average salary for the workers in Costa Rica who make the official MLB Rawlings baseballs: $3,200