Saturday, November 05, 2011

1-In-20 Chance for Cain: Intrade Odds Fall To 5%

Intrade odds for Cain to be Republican nominee (see chart, click to enlarge).

Friday, November 04, 2011

Markets In Everything: Home Sales in Cuba

JURIST -- "The Cuban government on Thursday announced the passage of a bill that will modify its housing law to allow permanent residents of the country to buy and sell their homes at will. The new law, which will take effect on November 10, will still limit home ownership to one house in the city and one seasonal house in the country, but will allow Cubans the freedom to buy, sell and trade these homes at their discretion. All transactions will take place through Cuban bank accounts so they can be regulated, and parties will be required to obtain a seal of notary for every transaction. There will also be bank commission collected for each sale and a tax of 8 percent of the value of the property. Cubans have not had the right to buy and sell houses since 1959 when former president Fidel Castro took over."

Rewarding Proven Success with Competitive Prizes vs. Subsidizing Failure with Government Subsidies

From Julian Morris and Adam Peshek at the Reason Foundation (emphasis mine):

"The Obama administration should be examining a recent example that shows how to spur environmental innovation and progress – without putting any taxpayer money at risk. Last year, the X Prize Foundation and Wendy Schmidt partnered to create the Oil Cleanup X Challenge to “develop innovative, rapidly deployable, and highly efficient methods of capturing crude oil from the ocean surface.”

The Deep Water Horizon explosion and oil spill off the coast of Louisiana in 2010 demonstrated how little improvement in oil cleanup technology had been made since the Exxon Valdez spill in 1989. So the Oil Cleanup X Challenge’s goal was straightforward:  whoever could create the most efficient method of removing oil from the surface of sea water, meeting a minimum oil recovery rate of 2,500 gallons per minute, would receive $1 million.  
Second- and third-place would get $300,000 and $100,000 respectively. 

This $1.4 million call to action prompted over 350 teams to pre-register and the results, announced October 11, were impressive. Seven of the final 10 teams doubled the standard oil recovery rate of 1,100 gallons per minute.  The winner, privately-held Elastec/American Marine of Illinois produced an oil recovery rate of nearly 4,700 gallons a minute. In a single year, without any federal funding, the X Prize had identified a problem, incentivized a solution, and produced a more efficient and cheaper technology that more than quadrupled the industry standard for cleaning oil spills.

The primary difference between the Oil Cleanup X Challenge and the disastrous federal loan program that gave Solyndra over half a billion dollars is clear:  The government program wasn’t based on results. It loaned money to the companies, like Solyndra, that had the most lobbying influence and best political connections. The oil cleanup contest awarded money for outcomes.  It was an even playing field open to all comers. Companies didn’t compete through grant applications or lobbying. The best products won."

MP: Rather than promoting crony capitalism and subsidizing Solyndra's failure with $500 million of taxpayer money, maybe the federal government should have instead created a $500 million "Solar Challenge" that would have provided financial incentives for private companies and researchers to develop cost-effective, market-based solar solutions?

Thursday, November 03, 2011

Chart of the Day: Record GDP with -6.6m Workers

The chart above shows that while real GDP has made a complete recovery and was above its pre-recession level for the first time in Q3 2011 (see blue line), employment is still 6.6 million jobs below the pre-recession peak (see red line).  In other words, we're producing more output now than ever before in U.S. history, but we're doing it with 6.6 million fewer workers than it took to produce roughly that same output in Q4 2007. 

"Time-Lapse Analysis" Instead of Snapshot Shows That 57% of Top 1% in 1996 Weren't There in 2005

From the 2007 study "Income Mobility in the U.S. from 1996 to 2005" from the Department of the Treasury (emphasis mine):

"The mobility of the top 1 percent of the income distribution is also important. More than half (57.4 percent) of the top 1 percent of households in 1996 had dropped to a lower income group by 2005 [MP: dropped into the bottom 99%]. This statistic illustrates that the top income groups as measured by a single year of income (i.e., cross-sectional analysis) often include a large share of individuals or households whose income is only temporarily high. Put differently, more than half of the households in the top 1 percent in 2005 were not there nine years earlier. Thus, while the share of income of the top 1 percent is higher than in prior years, it is not a fixed group of households receiving this larger share of income."

MP: The chart above also shows that almost half (45.6%) of the top 5% in 1996 had moved to a lower income group nine years later in 2005, and roughly 39% of the top 10% in 1996 dropped into a lower income group by 2005.  Whether it's the top 1%, top 5% or top 10%, those income groups are not static, closed groups, but snapshots in just one year of the national income distribution, which is constantly changing over time.  A large majority of today's 1% won't be there in the future, and weren't there in the past, they are just making a temporary stop in that group.  

As mentioned before, income mobility is far more important than income inequality.  Empirical evidence provided in this Treasury Department report and supported by other studies shows that there is significant income mobility in the U.S. for all income groups.  And yet all we hear about are the snapshot comparisons of income differentials for income groups in different years, which contain completely different people and households from snapshot to snapshot.  When you do a "time-lapse" analysis of the same people or households over time, what you find is significant income mobility and that finding deserves more attention.         

North Dakota Oil Boom Sparks a Huge Rail Boom



Video above is from the Wall Street Journal.  

Related: Today the Association of American Railroads reported a 20.5% increase in shipments of petroleum products by rail for the week ending October 29 compared to the same week last year.  More evidence that drill, drill, drill = jobs, jobs, jobs. 

Rail Traffic in October Continues to Improve

 
"The Association of American Railroads (AAR) today reported gains in October 2011 rail traffic compared with the same month last year, with U.S. railroads originating 1,215,627 carloads, up 1.7 percent, and 975,566 trailers and containers, up 3.6 percent. October 2011 saw the highest weekly carload average of any month since October 2008, as well as the highest weekly intermodal average since October 2006. Detailed monthly data charts and tables will be made available in the AAR’s Rail Time Indicators report to be released tomorrow.

Today, AAR also reported gains in traffic for the week ending Oct. 29, 2011, with U.S. railroads originating 307,900 carloads, up 5.2 percent compared with the same week last year. Intermodal volume for the week totaled 243,774 trailers and containers, up 4.6 percent compared with the same week last year."

MP: The chart above shows weekly rail traffic for carloads and containers back to 2009.  Except for a slightly higher volume in the first week of October, the 307,900 carloads shipped by rail last week was the highest weekly volume since 2008.  Intermodal shipments remained above 240,000 for the seventh straight week for the first time since 2008. As an indicator of current and future economic activity, especially for the U.S. manufacturing sector, the steady gains in weekly and monthly rail traffic indicate gradual, but ongoing improvements in the U.S. economy.

Wednesday, November 02, 2011

Everyday Currency Manipulation in the U.S.?

This sounds a lot like currency manipulation, i.e. actively pursuing a manipulative strategy to keep the U.S. dollar overvalued for American consumers, by deliberately keeping goods sold in America undervalued, under-priced, discounted and on sale.  

Ridley: "I Can't Find One Piece of Data That Shows Unprecedented Change, or Harmful Change."

From Matt Ridley's "Angus Millar Lecture of the Royal Society of the Arts" in Edinburgh, titled "Scientific Heresy":

"Stalagmites, tree lines and ice cores all confirm that it was significantly warmer 7000 years ago. Evidence from Greenland suggests that the Arctic ocean was probably ice free for part of the late summer at that time. Sea level is rising at the unthreatening rate about a foot per century and decelerating.

Greenland is losing ice at the rate of about 150 gigatonnes a year, which is 0.6% per century. There has been no significant warming in Antarctica, with the exception of the peninsula. Methane has largely stopped increasing. Tropical storm intensity and frequency have gone down, not up, in the last 20 years. Your probability of dying as a result of a drought, a flood or a storm is 98% lower globally than it was in the 1920s. Malaria has retreated not expanded as the world has warmed.

And so on. I’ve looked and looked but I cannot find one piece of data – as opposed to a model – that shows either unprecedented change or change is that is anywhere close to causing real harm."

Q3 Has Largest Gain in Homeownership Since 2004

The Census Bureau reported today that the U.S. homeownership rate increased to 66.3% in the third quarter from 65.9% in the second quarter (see chart above, data are not seasonally adjusted).  The 0.40% increase in the July-September period was the first gain in two years for the nation's homeownership rate, and the largest quarterly increase in homeownership since the second quarter of 2004, more than seven years ago.  

Does that mean the seven-year decline in homeownership that started in the fourth quarter of 2004 when the rate peaked at 69.2% has finally bottomed out?  It's just a one-quarter increase, and could be a blip.  But especially because it's the largest quarterly gain since 2004, could this be a signal of some increased stability in the real estate market?  Or not?

Comments welcome. 

N. Dakota, Michigan? 2 Fastest-Recovering States

Nov. 2 (Bloomberg) -- "Michigan’s economy is recovering from the recession at the second-fastest pace in the U.S., lifted by reviving carmakers and local manufacturers, according to a new Bloomberg index that tracks the pace of state growth.

The home to the U.S. automobile industry was topped only by North Dakota, where an oil boom is raising incomes and boosting government coffers at the nation’s quickest rate. California, Massachusetts and Illinois round out the top five in the Bloomberg Economic Evaluation of States Index (BEES), which uses data on real estate, jobs, taxes and stock prices to gauge the growth rate in 50 states and the District of Columbia.

BEES tracks growth by compiling data on six components that are given equal weight: job creation, personal income, tax revenue, housing prices, mortgage delinquencies and the performance of Bloomberg stock indexes that track the share prices of locally based companies.  The BEES index, updated quarterly, is a measurement of growth, not absolute performance, so a slowing economy with low unemployment may rank below a battered state on the mend.

Some of Michigan’s improvement reflects the severity of its decline. It ranked last in the BEES index in the decade through 2010, a period when it was the only state to lose population. In September, it still had unemployment of 11.1 percent, two percentage points above the U.S. average.

Seventy percent of Michigan employers said they expected the state’s economic outlook to improve over the next 18 months, while only 46 percent expected such gains for the national economy, according to a survey released last month by Business Leaders for Michigan. Mortgage delinquencies dropped at the fourth-fastest pace in the U.S., and personal income and employment growth ranked in the top third, according to data compiled by Bloomberg."

In a separate news story, Michigan Gov. Rick Snyder was quick to point out that Michigan's ranking as second-fastest improving state in the country could “serve as a catalyst" for further business expansion and attract new investment.

HT: Mike W.

Outsourcing Goes Into Reverse: More Reshoring

DETROIT NEWS -- "A Royal Oak bead company expects to double its sales and bring jewelry manufacturing business back to America through a partnership with a design and manufacturing firm in Grand Rapids. Collegiate Bead Co., a 2-year-old manufacturer of licensed college and sorority beads and other collegiate jewelry, has joined with Terryberry LLC to bring the jewelry to market and expand its product line.

After manufacturing in China for a year, Collegiate Bead founder Dave Schowalter decided to bring the manufacturing back to Michigan.

The move goes against the outsourcing trend — something Burroughs Payment Systems Inc. in Plymouth also bucked a year ago, when it decided to locate six customer service representatives in Michigan after initially moving the work to India."

HT: Mike W.

CNBC Segment on Energy Economics



Facts on the cost of generating electricity (per kilowatt hour):

Natural gas: 3.5-4.5 cents
Coal: 4-5 cents
Hydro: 4 cents
Nuclear: 8 cents
Wind: 7-9 cents
Solar: 15-50 cents

Question: Why as a country are we investing billions of dollars in the most expensive option (solar) and ignoring the cheapest (natural gas), especially when the U.S. is the "Saudi Arabia of natural gas"? 

HT: Warren Smith

"Markets" in Everything: Free Clothes Online


Tuesday, November 01, 2011

China Manipulates Its Currency To the Advantage of U.S. Consumers and Businesses Buying Its Products

At an event hosted last week by The Aspen Institute "Is U.S. Trade Policy Helping or Hurting Manufacturing?" featuring former U.S. Trade Representative Susan Schwab and Jared Bernstein, there was a lively debate on a number of issues relating to trade and manufacturing. While there were differences of opinions on most topics, there was a strong consensus (including among the attendees) on one topic: China is a currency manipulator. Here are the details of that consensus, as I understand it:

1. China manipulates its currency by keeping the dollar overvalued and the yuan undervalued.
2. That currency manipulation gives China an economic advantage that harms the U.S.
3. The U.S. and other countries should individually or collectively take steps to persuade or force China to stop its manipulation.
4. Solutions to China’s currency manipulation range from direct legislation like the bill passed in the Senate that will impose stiff tariffs on Chinese goods if the Treasury finds evidence of currency manipulation, to other forms of indirect pressure on China to persuade it to stop manipulating its currency.

Let me break from that consensus and present an alternative position:

In the best of all possible worlds for the U.S., China would use its labor and capital to manufacture consumer products like clothing, footwear, furniture, electronics and appliances and send $300 billion worth of these products to U.S. consumers for free every year, as a gift, or a form of foreign aid to the American people. In addition, the Chinese would produce and send to America another $100 billion worth of raw materials, parts, industrial supplies, inputs and natural resources at no charge, as a gift to American manufacturers every year.

Can there really be any argument that such an arrangement, where America would receive $400 billion worth of free goods every year from China, would be to the unquestionable economic advantage of the U.S.? (Note: That’s roughly the amount of goods we will purchase from China this year.)

However, that extreme Chinese generosity is probably not realistic. Here's a second best outcome:

Instead of sending $400 billion of goods annually for free, China offers an attractive alternative. It will send us $500 billion of goods every year, both consumer goods and industrial goods, but will sell us those manufactured goods at a substantial 20% discount, for only $400 billion. In that case, the amount of foreign aid will be less than the $400 billion in the first case, but will still be significant - a $100 billion gift every year from the Chinese people to the American people.

How will China generate the $100 billion in foreign aid to the U.S.? One way is to keep its currency undervalued to bring about the 20% discount on its products.

Which then raises the question: If China is willing to undervalue its currency and in the process provide $100 billion of foreign aid annually to the American consumers and businesses buying Chinese products, what’s the problem? Why should we complain?

And that is my main point: the "manipulation" of China's currency is actually to the distinct advantage of American consumers (especially low-income Americans) and American businesses buying products "made in China." They certainly aren't complaining about low-priced Chinese products, and in fact would be made worse off if China was forced to revalue its currency and in the process make its products more expensive to Americans.

So if neither American consumers nor U.S. import-buying businesses would benefit from a stronger yuan and a reduction in China's "foreign aid," who would really benefit? The same groups that always benefit from protectionist, mercantilist trade policies: domestic producers who compete against foreign rivals. 

We know from economic theory that protectionist tariffs produce benefits for domestic producers, but also higher costs for domestic consumers. Further, the costs to consumers from protectionism are greater than the benefits to producers, resulting in a net loss for the country and a reduction in its standard of living.

Likewise, I would argue that forcing China to appreciate its currency would be equivalent to a protectionist tariff on Chinese goods, and would make American consumers and import-buying companies, and the country as a whole, worse off.

Summary of my position on currency manipulation:

1. China's currency manipulation is a form of foreign aid, and to the direct advantage of millions of U.S. consumers, especially the poor and low-income groups, and to the direct advantage of thousands of American companies buying inputs from China. 

2. Forcing China to revalue its currency would benefit some American manufacturers competing with China, but would significantly harm those American consumers and businesses currently buying undervalued imports. On net, there would be more harm to American consumers than benefits to American manufacturers, making the country worse off.

3. Like other forms of mercantilism and protectionism, revaluing China’s currency would favor certain domestic producers over millions of consumers, but would make the U.S. worse off, not better off, on net.

4. Finally, instead of complaining, we should be thankful for China's foreign aid to Americans through an undervalued currency, overvalued dollar, and undervalued goods that save Americans billions of dollars every year.

Update: If you wouldn't object to China sending products to the U.S. for free, then on what basis would you object to currency manipulation that allows you to purchase undervalued Chinese imports at a huge discount and great bargain?  

Quote of the Day on Payday Loan Propaganda

"The mindset of the left was recently displayed in a big, front-page story in the October 30th issue of the San Mateo County Times. It was an investigative reporter's expose of the "payday loan" business and its lobbyists. According to the reporter: "In California lenders charge up to $45 in fees on a maximum $300 loan. This amounts to an interest rate of 460 percent, trapping some borrowers into a never-ending cycle of debt."

The 460 percent figure comes from imagining that the borrower is not just going to borrow the money for a couple of weeks, but is going to keep on borrowing every couple of weeks all year long. Using this kind of reasoning -- or lack of reasoning -- you could quote the price of salmon as $15,000 a ton or say a hotel room rents for $36,000 a year, when no consumer buys a ton of salmon and few people stay in a hotel room all year. It is clever propaganda, but do people buy newspapers to be propagandized?"

~Thomas Sowell

Monday, October 31, 2011

Ending the Postal Monopoly: Lessons from Europe; Germany Has Sold 99.9% of Its Post Office Buildings

New York Times  -- "With the United States Postal Service facing insolvency, and one of the postal workers’ unions hiring consultants on business restructuring, it is looking toward Europe for new operating models, even though American legislation currently precludes adapting some of those innovations.

After selling off all but 24 of 29,000 post office buildings in the past 15 years, the German postal service is now housed mostly within other business “partners,” including banks, convenience stores and even private homes. In rural areas, a shopkeeper or even a centrally located homeowner is given a sign and deputized as a part-time postmaster.

At the same time, many European postal services, including the one here, have developed a host of electronic services that are increasingly making traditional post offices and mailboxes obsolete. Bills and catalogs can go first to digital mailboxes run by the post office on customers’ computers, and the customers can tell the post office what they want it to print and deliver. And while Americans are asked to send in suggestions for what celebrity should grace the next stamp, Germans can buy virtual postage from their cellphones. 

European postal services vary widely in their degree of adaptation to the digital age. “But the U.S.P.S. is probably the best example of a pure monopoly that has seen the least change,” said John Payne, the chief executive of Zumbox, a Los Angeles-based start-up that offers virtual mailboxes for personal computers in the United States on a private basis and that has sold the program to foreign postal services."

Price-Gouging Vendors of Prescription Drugs vs. Unionized Taxpayer-Gouging of Public Education

The graphic above is from the White House blog showing that 650% is the "average markup by price-gouging vendors when the drug is in short supply."  In response, "President Obama signed an Executive Order to prevent and reduce prescription drug shortages that lead to price gouging." 

The graphic below is from Investor's Business Daily showing a 375% increase in public school spending over four decades, with no change in reading, math and science test scores.  Reason? A bloated, bureaucratic, unionized public school monopoly that is sheltered from competition.  

Question: If President Obama is concerned about "price gouging" for prescription drugs, will he sign an Executive Order that will expose the public school monopoly to greater competition, and end the "taxpayer-gouging" that has increased the cost of public education by 375% with no change in educational outcomes?

Pendulum Swings on American Oil Independence

From Ed Crooks, writing in the Financial Times:

"Along with oil booms that are under way or expected across North America, from Alberta to Texas, is a development that holds profound implications for the economy of the US and its status as superpower. In prospect is energy independence – a decades-old dream of American politicians of all stripes. 

“Over the past couple of years, there has been a great U-turn in US oil supply,” says Daniel Yergin of IHS Cera, the research group. “Until recently, the question was whether oil imports would flatten out. Now we are seeing a major rebalancing of supplies.”

Many analysts expect that in the coming decade the US will leapfrog Saudi Arabia and Russia to become the world’s largest producer of liquid hydrocarbons, counting both crude oil and lighter natural gas liquids such as propane and ethane. That optimism reflects the increasing flow of “tight oil” as well as gas from shale – rock formations holding reserves unlocked through new extraction technologies.

Hydraulic fracturing (pumping a mix of water, sand and chemicals underground at high pressure to crack the rock) and long-reach horizontal drilling (sending wells up to a mile sideways and more than a mile below the surface) have transformed US gas production, opening up reserves some estimate will last 100 years. Now these techniques, used in places such as North Dakota, are having a similar impact on oil output. Already, America has cut the share of its oil consumption met by imports from more than 60 per cent in 2005 to 47 per cent last year (see chart above)."


Brazil to Surpass U.K. in 2011 to Be No. 6 Economy

Brazil's amazing economic rise: It will surpass the U.K. this year to become the world's sixth largest economy.
As recently as seven years ago in 2004, the U.K. economy ($2.2 trillion in GDP) was more than three times larger than Brazil's economy ($665 billion, see chart).  And even as recently as four years ago in 2007, the U.K. as the world's sixth largest economy, produced more than twice as much economic output as Brazil: $2.8 trillion of GDP for the U.K. vs. less than $1.4 trillion for Brazil, based on IMF data available here (see chart above).   

But then the global economic slowdown took a huge toll on the U.K.'s economy and its GDP fell 20% between 2007 and 2010, while Brazil's GDP soared by 52% during that period.  

Now the IMF is forecasting that Brazil's economy will surpass the size of the U.K. economy this year for the first time ever, and will overtake the U.K. to become the sixth largest economy in the world, behind the U.S., China, Japan, Germany and France.  And based on IMF projections, Brazil will surpass France in 2015 to become the world's fifth largest economy.     

Related: Here's a news report

U.S. Faces Severe Shortages of Farm Workers

1. NPR -- "Alabama farmers are facing a labor crisis because of the state's new immigration law as both legal and undocumented migrant workers have fled the state since the strict new rules went into effect last month.

In Baldwin County on the Gulf Coast, strawberry planting season is just a few weeks away. Farmers are wondering if they'll have the crews to get the plants in the ground.

Alabama Agriculture Commissioner John McMillan says there's no doubt the immigration law has left farmers in a lurch. He says they're concerned about where the labor is going to come from since legal immigrants are leaving along with the illegal ones."

2. SEATTLE TIMES - "One after another, at a recent emergency meeting called by the Governor's Office, Washington fruit growers talked about how hard it's been to find workers as the harvest hits its sweet spot. Apples alone are a $1.5 billion-a-year business in the state.

And two weeks ago Gov. Chris Gregoire amped up what now has become an almost annual harvest-time refrain by growers when she declared the state's farm-labor shortage a crisis.

Growers mostly blame rising tensions around illegal immigration that have spooked migrant farmworkers, the majority of whom are here illegally, while worker advocates say there'd be no shortage if growers were willing to pay workers more."

3. ATLANTA JOURNAL CONSTITUTION -- "State officials have set their sights on another potential pool of workers to help bridge Georgia’s severe farm labor gap: prisoners."

LSU-Alabama Tickets on Stubhub for $10,000


TUSCALOOSA, Alabama - "Simple question: Would you pay $10,423.14 to watch No. 1 LSU at No. 2 Alabama? That is the listed price per ticket on Stubhub.com for a seat in the lower level north end zone in row 25. You can pick seat 17 or 18, or buy both for a total of $20,486.28. Tack on an additional $16.49 for overnight delivery of the ticket(s). There are dozens of tickets being sold for more than $1,000 per ticket (see sample ticket prices above)."

September Restaurant Performance Index Improves

"Buoyed by stronger same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) topped the 100 mark in September for the first time in three months. 

The Restaurant Performance Index consists of two components - the Current Situation Index (measuring current trends) and the Expectations Index (measuring restaurant operators’ six-month outlook) - and tracks the health of and outlook for the U.S. restaurant industry.

The Current Situation Index stood at 100.1 in September – up 0.8 percent from August and the first gain in three months (see chart above).  In addition, the Current Situation Index rose above 100 for the first time since June.

Restaurant operators reported stronger same-store sales and customer traffic in September.  Fifty percent of restaurant operators reported a same-store sales gain between September 2010 and September 2011, up from 45 percent who reported a sales gain in August. In addition, 43 percent of restaurant operators reported higher customer traffic levels between September 2010 and September 2011, while 33 percent of operators reported a traffic decline.

The Expectations Index stood at 100.2 in September – up 0.7 percent from August and the strongest gain in nine months (see chart).  In addition, September represented the first time in three months that the Expectations Index stood above 100."

The "Imaginary Hobgoblin" of Income Inequality


The charts above were prepared using Census Bureau data (Table E-2) on the Gini coefficients (a statistical measure of dispersion that quantifies income inequality on a range from 0% for complete equality to 100% for complete inequality where one person receives all of the income) for full-time, year-round workers.  Like other measures of income inequality for families and households over time presented recently here, income inequality for full-time , year-round workers follows the same pattern: 

The Gini coefficient for full-time workers increased gradually through the 1960s, 1970, 1980s, and then stabilized in the mid-1990s (after rising from 34% in 1967 to 39.5% in 1994, see top chart) and hasn't changed at all in the sixteen-year period from 1994 (39.5%) to 2010 (39.7%).  

Bottom Line: Whether we look at Census Bureau data on Gini coefficients for U.S. households, families, or year-round workers, or look at the share of income going to the top fifth of Americans, there is absolutely no statistical support for the commonly held view that income inequality has been rising recently.  So why are we even having this national debate about solutions to the "non-problem" of rising income inequality.  Is this another "imaginary hobgoblin" (see below)?

H.L. Mencken: "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."    

Sunday, October 30, 2011

Intrade Update: Cain Drops From 8% to 3.4%

Most recent odds from Intrade.com.  Note: Cain contracts are experiencing high volume trading and high volatility, probably because of this recent news report.

U.S. Income Inequality Has Been Flat Since 1994

We keep hearing from the media and OWS protestors that rising income inequality (or exploding income inequality according to Jonathan Chait) and stagnating household incomes have gotten worse in recent years, caused allegedly by the "rich getting richer at the expense of the poor and lower-income income groups" because disproportionate and rising shares of national income have been going to the top 1% or top 20%, etc.  In other words, we're hearing the standard, typical "class warfare" narratives. 

Another part of that narrative is that income inequality wasn't nearly as much of a problem in the decades of the 1950s, 1960s, and 1970s when there was an upwardly mobile middle-class, when real median household income was rising year after year, and when income was more equitably and fairly distributed among income groups, i.e. during the "Golden Age" of the middle class.  But once we experienced the Reagan tax cuts of the 1980s and the first "decade of greed," the American Dream of middle class equality started to fade.  Once the Bush tax cuts of 2001 and 2003 took effect, the middle class was doomed, and "the rich" dominated the economy, upward mobility was over, the share of income going to the rich skyrocketed and income inequality "exploded." 

But there's a problem, because three different measures of income dispersion (the share of total U.S. income going to the top 20% of American households, and Gini coefficients for both U.S. households and families) from the Census Bureau (Tables E-1 and F-4) displayed in the two charts above show trends that are completely contrary to the common narrative. 

As can be seen in the top chart, all three measures of income dispersion have gradually increased over time, but most of the increases occurred in the earlier period between 1967 and 1994.  Starting in the mid-1990s, the three measures of income inequality stalled out and barely changed in the sixteen years from 1994 to 2010 (see bottom chart of just the 1994-2010 period).

Read more at The Enterprise Blog.  

Thanks to the Political Calculation blog posts here and here for the inspiration. 

The Next Big Thing: It's Not Alternative Energy, It's Traditional Energy Through the Miracle of Fracking

From the Bloomberg editorial "Energy Revolution Keeps Carbon on Top," by Nathan Myhrvold, former chief strategist and technology officer at Microsoft and the founder/CEO of Intellectual Ventures:

"A remarkable thing happened in Silicon Valley during the past decade. Venture capitalists and entrepreneurs set their sights on clean energy as the Next Big Thing. They audaciously hoped to reinvent energy by harnessing the incredible innovation that had transformed information technology and biotechnology. 

Some of the best venture capitalists in the business detached from their computing roots and focused on energy startups. The result was a staggering surge of capital into clean-energy technologies. Worldwide, from 2006 to 2010, about $535 billion in venture capital, private equity and initial public offerings as well as mergers and acquisitions flowed into 4,236 clean-tech businesses, according to a recent analysis by GlobalData.

Venture-capital investing is inherently high-risk, so it shouldn’t surprise or bother anyone that many of these startups failed -- some rather spectacularly. Solyndra, the solar-cell company, for example, went bankrupt even after receiving a $535 million in loan guarantees from the U.S. Energy Department. But similar failures happened during the dot-com bubble. Remember pets.com and its infamous sock-puppet TV ads?

What is worrying is that almost a decade of energy investing hasn’t produced any home runs -- no green-energy equivalents of eBay, Amazon, Google or Facebook. The modest, incremental advances we have seen don’t perceptibly move the needle on the energy problem.

In the meantime, however, a real revolution has happened in traditional energy -- one that poses a serious challenge to companies and investors betting on alternative energy. This breakthrough is arguably one of the greatest advances in energy production since the 1960s. And it came not from a Silicon Valley company, or from MIT or Stanford, but from George Mitchell, the son of a Greek goatherd who immigrated to the U.S.

After graduating from Texas A&M, Mitchell tinkered with a variety of long-known techniques that had never been used in combination. One of these was horizontal drilling, which originated in the 19th century, was adapted for oil production by the Soviets in the 1930s and was perfected by oil drillers in the 1980s. A second idea was to inject fluid into the rock to fracture it into lots of pieces, thus allowing the gas and oil inside to flow more easily. 

A third technique that Mitchell tried was adding sand to the water to help prop open the cracks that formed in the rock. Together these approaches, collectively called hydraulic fracturing, or “fracking,” allowed drillers to inexpensively recover gas from tight shale rock.

Not so long ago, many people believed that the cost of oil and gas would rise indefinitely, thus supporting the market for alternatives. Mitchell’s miracle has changed that calculus, much to the chagrin of the Silicon Valley venture capitalists who caught the green-energy bug."

Romney: "Pretzel Candidate," But Still Frontrunner

From George Will's Washington Post column today (Mitt Romney, The Pretzel Candidate"):

"Romney cannot enunciate a defensible, or even decipherable, ethanol policy.  Life poses difficult choices, but not about ethanol. Government subsidizes ethanol production, imposes tariffs to protect manufacturers of it and mandates the use of it — and it injures the nation’s and the world’s economic, environmental, and social (it raises food prices) well-being.

In May, in corn-growing Iowa, Romney said, “I support the subsidy of ethanol.” And: “I believe ethanol is an important part of our energy solution for this country.” But in October he told Iowans he is “a business guy,” so as president he would review this bipartisan — the last Republican president was an ethanol enthusiast — folly.

Romney said that he once favored subsidies to get the ethanol industry “on its feet.”  But Romney added, “I’ve indicated I didn’t think the subsidy had to go on forever.” Ethanol subsidies expire in December, but “I might have looked at more of a decline over time” because of “the importance of ethanol as a domestic fuel.” Besides, “ethanol is part of national security.” However, “I don’t want to say” I will propose new subsidies. Still, ethanol has “become an important source of amplifying our energy capacity.” Anyway, ethanol should “continue to have prospects of growing its share of” transportation fuels.

Got it?

What would President Romney competently do when not pondering ethanol subsidies that he forthrightly says should stop sometime before “forever”? Has conservatism come so far, surmounting so many obstacles, to settle, at a moment of economic crisis, for this?" 
 

MP: The chart above shows the current Intrade odds for the Republican nominee, with Romney (68%) still far ahead of both Perry (11%) and Cain (8%).

Markets in Everything: In-N-Out Burgers Delivered

EATER.COM -- "Hello, In-N-Out (pictured above) fanatics who do not live in California, Utah, Nevada or the Dallas-Fort Worth metro area. Today is your lucky day: website Midtown Row (online speciality food retailer) is offering to overnight two frozen double-doubles — classic OR animal style — to your pathetic, non-In-N-Out-having location for the low (high?) price of $50 plus $6 shipping. Burgers will be shipped from California November 1."

One transplanted California fanatic feels so strongly about "In-N-Out" burgers that she was brought to tears when the chain recently opened a new  restaurant in Dallas.

How Technological Breakthroughs and Not Energy Policy Have Created A New World Order of Oil

From Daniel Yergin's editorial in today's Washington Post (emphasis added):

"For more than five decades, the world’s oil map has centered on the Middle East. No matter what new energy resources were discovered and developed elsewhere, virtually all forecasts indicated that U.S. reliance on Mideast oil supplies was destined to grow. This seemingly irreversible reality has shaped not only U.S. energy policy and economic policy, but also geopolitics and the entire global economy.

But today, what appeared irreversible is being reversed. The outline of a new world oil map is emerging, and it is centered not on the Middle East but on the Western Hemisphere. The new energy axis runs from Alberta, Canada, down through North Dakota and South Texas, past a major new discovery off the coast of French Guyana to huge offshore oil deposits found near Brazil.

This shift carries great significance for the supply and the politics of world oil. And, for all the debates and speeches about energy independence throughout the years, the transformation is happening not as part of some grand design or major policy effort, but almost accidentally. This shift was not planned — it is a product of a series of unrelated initiatives and technological breakthroughs that, together, are taking on a decidedly hemispheric cast.

The new hemispheric outlook is based on resources that were not seriously in play until recent years — all of them made possible by technological breakthroughs and advances. They are “oil sands” in Canada, “pre-salt” deposits in Brazil and “tight oil” in the United States.

One major supply development has emerged right here in the United States: the application of shale-gas technology — horizontal drilling and hydraulic fracturing, a process popularly known as “fracking” — to the extraction of oil from dense rock. The rock is so hard that, without those technologies, the oil would not flow. That is why it is called “tight oil.”

Case study No. 1 is in North Dakota, where, just eight years ago, a rock formation known as the Bakken, a couple of miles underground, was producing a measly 10,000 barrels of oil per day. Today, it yields almost half a million barrels per day, turning North Dakota into the fourth-largest oil-producing state in the country, as well as the state with the lowest unemployment rate.

Similar development is taking place in other parts of the country, including South Texas and West Texas. Altogether, tight oil production is growing very fast. The total output in the United States was just 200,000 barrels per day in 2000. Around 2020, it could reach 3 million barrels per day — a third of the total U.S. oil production. (And that is a conservative estimate; others are much higher.)

For the United States, these new sources of supply add to energy security in ways that were not anticipated. There is only one world oil market, so the United States — like other countries — will still be vulnerable to disruptions, and the sheer size of the oil resources in the Persian Gulf will continue to make the region strategically important for the world economy. But the new sources closer to home will make our supply system more resilient. For the Western Hemisphere, the shift means that more oil will flow north to south and south to north, rather than east to west. All this demonstrates how innovation is redrawing the map of world oil — and remaking our energy future."

HT: Bill Miller