Tuesday, January 24, 2012

More Gains for U.S. Manufacturing

From this morning's report on manufacturing activity in the Richmond Fed district (Virginia, most of W. Virginia, North and South Carolina and Maryland):

"In January, the seasonally adjusted composite index of manufacturing activity—our broadest measure of manufacturing—increased nine points to 12 from December’s reading of 3. Among the index’s components, shipments gained fourteen points to 17 and new orders doubled, picking up seven points to finish at 14. The jobs index picked up eight points to 4.

In our January survey, our contacts were more bullish about their business prospects for the next six months. The index of expected shipments increased nine points to 36, expected orders gained eleven points to finish at 32, and backlogs added eight points to 14. The capacity utilization and vendor delivery times indexes each rose nine points to finish at 11 and 20, respectively. Moreover, readings for planned capital expenditures moved up eight points to finish at 15. District manufacturers’ hiring plans in January were somewhat more optimistic as well. The expected manufacturing employment index edged up three points to 20, while the average workweek indicator held steady at 7. The index of expected wages was virtually unchanged at 19."

This follows a strong report last week from the Fed on both current and future manufacturing activity in New York state, and is consistent with today's ATA Truck Tonnage Index for December, which registered the largest annual gain in 13 years, largely due to solid manufacturing output.

Amazing YouTube Stats

Uploads to YouTube:

One hour of video every second.

9 months every two hours.

A decade every day.

A century every 10 days.

YouTube Views per day:

4 billion.

BPP@MIT Data Show Inflation Slowing at Year-End

The charts above shows monthly and annual inflation rates from the Billion Prices Project @ MIT over the 12-month period ending at the end of December.  According to the BPP website, the index is "designed to provide real-time information on major inflation trends, not to forecast official inflation announcements. We are constantly adding new categories of goods, but we do not cover 100% of CPI goods and services. The price of services, in particular, are not easy to find online and therefore are not included in our statistics."

Bottom Line: Monthly inflation, measured by the BPP @ MIT, has been trending downward since February, and was showing slight deflationary pressures in November and December.  Similarly, BBP annual inflation has been trending downward since July and reached an eight-month low on December 21.  According to this real-time measure of inflationary trends in the U.S. economy, inflationary pressures are gradually moderating, and there is even evidence now of short-term deflation for the months of November and December.    

Bakken Shale Oil Continues to Fuel a Shovel-Ready Successful Job Stimulus Program in North Dakota

The state of North Dakota continued to lead the country in December with: a) the lowest state jobless rate at 3.3%, and b) the highest annual rate of employment growth in December at 5.7% (BLS data here), which also set a new all-time North Dakota record for the largest 12-month percentage employment increase since monthly records started back in 1990.  The 5.7% over-the-year percentage job gain for North Dakota in December was almost twice the 3% pace of job growth in Utah, the state with the second highest job growth in 2011.

Job growth in the state's booming oil industry was spectacular, with almost a 40% increase in mining jobs in 2011.   Further, North Dakota has nine counties with jobless rates at 2% or less for November, and one county - Williams County, at the epicenter of the Bakken oil region - with a jobless rate less than 1%.    

The chart above shows the phenomenal employment growth in North Dakota since 2000, especially during the last three years.  Over the 12-year period since 2000, U.S. payroll employment has been almost flat, with only a slight 0.86% increase between January 2000 and December 2011.  During that same period, North Dakota employment grew by 24% overall and by 448% for the state's mining sector.

In a related story, Investor's Business Daily (IBD) reported this yesterday:

"High oil prices hurt at the gas pump. But they help at the wellhead pump. That has boosted profit margins at Continental Resources (CLR) the largest landholder in the Bakken Shale oil and gas play in parts of North Dakota, Montana and Canada. Continental generated almost 63 cents of profit for every dollar of sales last year, topping IBD's Screen of the Day for Monday, which ranks firms by that key metric.  Northern Oil & Gas (NOG), another Bakken Shale play, also ranked high, with a 58.1% profit margin." 

In a separate news item, IBD reported that Continental share prices hit a three-and-a-half year high Jan. 10 because of the recent strength in the oil market.

Bottom Line: Drill, drill, drill = jobs, jobs, jobs and also = profits, profits, profits. But don't tell Rep. Dennis Kucinich, he'll want to establish the first "Reasonable Profits Board" in the state of North Dakota. 

ATR Presents Obama/State of the Union Bingo

Americans for Tax Reform (ATR) once again presents these handy Bingo cards (see sample above, there are four other versions available) which you may use to check off terms and phrases likely to be used during President Obama's State of the Union address tonight.
ATR also provides a handy key for what the terms and phrases really mean, here's a sample:

Investment – Spending taxpayer money on Obama re-election constituencies such as government employee unions, teachers' guilds, and big-city political machines.

Energy – Something that flows from good intentions, government programs, "stimulus" spending but not pipelines.

Exports – That trade – and only that trade – acceptable to union bosses.

Compromise – Tax hikes.

Sacrifice – Tax hikes.

Bipartisan – Tax hikes.

Fair or Fair Share – Tax hikes.

Balanced – Tax hikes.

Obstructionists – House Republican lawmakers who have actually passed a budget – NOT the Senate Democrats who have refused to pass a budget for 1,000 days.

Wall Street – 1. Where your IRA and 401(k) live. 2. A bauble to distract you from noticing my bailout of Fannie and Freddie.

Jobs – "You want to find work on the Keystone XL pipeline? Tough luck – I've got a campaign to run."

Tuesday Links

1. Some Chevrolet dealers are turning down Volts that General Motors wants to ship to them, a potential stumbling block as GM looks to accelerate sales of the plug-in hybrid.
2. GALLUP: U.S. economic confidence is rising and was at -25 for the week ending Jan. 22, improved from -29 the prior week and the highest level since the week ending May 22, 2011.
3. An international study of postal services in 30 high-income countries finds that most are profitable, and the ongoing losses in U.S. are an exception (losses in all five years from 2007-2011).

5. U.S. $2 bills are a hot item in Vietnam for the Lunar New Year, and are selling above face value, some for $125, Isn't that "bill scalping?"

Markets in Everything: Weed Whacking Golf Driver

"This is the golf driver with a built-in grass trimmer, ideal for surreptitiously improving one's lie. Destined for use by friendly foursomes that often find themselves in the rough, the club looks like an oversized driver that fits into any golf bag, yet a simple flick of a button on its plastic bottom flips open the club's bottom to reveal a single-string trimmer."

Available from Hammacher Schlemmer for $24.95, watch video demonstration here.

HT: W.E. Heasley

Rejecting the Keystone Pipeline: An Act of Insanity

From Robert Samuelson in the Washington Post:

"President Obama’s rejection of the Keystone XL pipeline from Canada to the Gulf of Mexico is an act of national insanity. It isn’t often that a president makes a decision that has no redeeming virtues and — beyond the symbolism — won’t even advance the goals of the groups that demanded it. All it tells us is that Obama is so obsessed with his reelection that, through some sort of political calculus, he believes that placating his environmental supporters will improve his chances.

Aside from the political and public relations victory, environmentalists won’t get much. Stopping the pipeline won’t halt the development of tar sands, to which the Canadian government is committed; therefore, there will be little effect on global-warming emissions. Indeed, Obama’s decision might add to them. If Canada builds a pipeline from Alberta to the Pacific for export to Asia, moving all that oil across the ocean by tanker will create extra emissions. There will also be the risk of added spills."

HT: Warren Smith

Monday, January 23, 2012

Bakken Oil is Having Major Impact on Western ND

A meeting was held of the North Dakota Sheriffs & Deputies Association in Bismarck, and as part of this meeting we had an opportunity to sit down with law enforcement officials from western ND to discuss what they are going through with the oil impact.  Here are some oil issues from western North Dakota.  

MP: There are 35 in total, these are my "Top 12" issues facing a community where the economy is booming, the jobless rate is less than 1%, and there are bound to be some "growing pains."

1. Traffic accidents, especially fatal traffic accidents are of very high concern. At one location on Highway 85 south of Williston, a traffic count was conducted in October of 2011. In one 24-hour period there where 29,000 vehicles through the intersection, with 60% of the traffic being semi trailer trucks.

2. Traffic is typically backed up for ½ to ¾ of a mile. One person stated that he recently sat at an intersection on Highway 85 for 30 minutes waiting for an opening in the traffic to cross over.

3. Rents in Williston currently range from $2,000 for a one-bedroom apartment to $3,400 for a three-bedroom apartment.

4. Williams County allows three campers per farmstead, the farmers almost all have three campers on their property and are charging $800 per camper per month for rent.

5. The Walmart in Williston no longer stocks shelves, they bring out pallets of merchandise at night, and set them in the aisles, and customer shops from the pallets.

6. On January 1, the Williston Walmart had 148 campers overnight in their parking lot.

7. The Williston McDonalds just announced that they will pay new workers $15 an hour, a $500 immediate signing bonus and full medical benefits. 

8. The local restaurants are full and with limited staffing, they usually just have the drive through open. The restaurants that have inside seating are now experiencing an hour wait at all times.

9. The local Motel 6 in Williston now rents rooms for $130 per night.

10.  Trinity Hospital in Minot has just hired 115 nurses from the Philippines, because they cannot get enough local nurses to apply.

11. The Williston General Motors dealership has now become the No. 1 seller of Corvettes in the upper Midwest.

12.  The Williams County jail has increased bookings by 150%, with a 100% increase in the inmate population. Bonds of $5,000 to $10,000 are typically paid with cash out of pocket. The Williams County Sheriff stated that a couple of weeks ago he received a $63,000 bond in cash carried into the jail in a plastic Walmart bag.

Thanks to Steve Gorkis and Bob Anderson for sending this.  

Monday Links

1. Want the Lowest Possible Airfare? Buy your ticket six weeks before your flight according to a recent study.

2. In one of the starkest signs yet that chain stores fear a new twist in shopping, Target is asking suppliers for help in thwarting "showrooming"—that is, when shoppers come into a store to see a product in person, only to buy it from a rival online, frequently at a lower price.

3. Aspen judge sentences 76-year old man to jail for 15 days for operating an unlicensed taxi service.  The senior citizen said he does not operate a taxi for profit but merely enjoys giving friends and service-industry workers a ride home late at night. The money he collects pays for gas and upkeep on his vehicle. (HT: Armin Ghazi)

4. Here's a link to Alltop, a pretty cool aggregating website for economics blogs (including CD).  You can register and customize your selections for only the economic blogs (or general news websites) that you want to read on a regular basis.

5. Chart below is from the WSJ showing how crude oil and natural gas prices have been diverging since the last week of 2008.

6. North Dakota's oil boom is fueling an energy-related education boom in the state.  The North Dakota State Board of Higher Education just approved the creation of a new department of petroleum engineering at the University of North Dakota in response to the needs of the petroleum industry, especially in western North Dakota.

Online Poll Shows Strong Approval for Gov. Walker

Wisconsin Governor Scott Walker faces a possible recall election sometime between April and June. The chart above shows the current results of an online poll being conducted by the liberal-leaning Racine Journal Times for the question "Do You Approve of the Job Gov. Walker is Doing?" Based on almost 900,000 votes so far, there is more than a two-to-one margin in favor of the response "strongly approve" over "strongly disapprove."  The issue is pretty polarizing, since almost nobody voted for either "approve" or "disapprove."

If these national results accurately reflect Wisconsin voters (which might not be the case), the recall election could be in trouble.  Governor Walker doesn't seem too concerned, his comment to Greta Van Susteren is to "bring it on."

You can vote here, and then you'll see the most recent results. If you try to vote twice, your second vote won't count but you can still see the results.

HT: Phillip Beaver

Chart of the Day: The Bright Future of Shale Gas

According to data in the EIA's Annual Energy Outlook 2012, domestic shale gas production will increase from its current 23% share of total natural gas production to 49% by 2035 (see chart above, click to enlarge).

MITx Could Revolutionize Higher Education

"MIT has invented or improved many world-changing things—radar, information theory, and synthetic self-replicating molecules, to name a few. Last month the university announced, to mild fanfare, an invention that could be similarly transformative, this time for higher education itself. It's called MITx. In that small lowercase letter, a great deal is contained.

MITx is the next big step in the open-educational-resources movement that MIT helped start in 2001, when it began putting its course lecture notes, videos, and exams online, where anyone in the world could use them at no cost. The project exceeded all expectations—more than 100 million unique visitors have accessed the courses so far.

Meanwhile, the university experimented with using online tools to help improve the learning experience for its own students in Cambridge, Mass. Now MIT has decided to put the two together—free content and sophisticated online pedagogy­—and add a third, crucial ingredient: credentials. Beginning this spring, students will be able to take free, online courses offered through the MITx initiative. If they prove they've learned the materi­al, MITx will, for a small fee, give them a credential certifying as much.

In doing this, MIT has cracked one of the fundamental problems retarding the growth of free online higher education as a force for human progress. The Internet is a very different environment than the traditional on-campus classroom. Students and employers are rightly wary of the quality of online courses. And even if the courses are great, they have limited value without some kind of credential to back them up. It's not enough to learn something—you have to be able to prove to other people that you've learned it. The best way to solve that problem is for a world-famous university with an unimpeachable reputation to put its brand and credibility behind open-education resources and credentials to match." 

MP: This development has the potential to be big, very, very big.  

Update: Here's a news release from MIT, with a list of FAQs.

Minnesota's Anti-Consumer Embalming Laws

From an editorial in the StarTribune about the Institute for Justice's latest case in Minnesota (featured on CD last week):

"Should the government require cabbies to drive six-wheeled taxis or make art galleries buy a Picasso just to prove how serious they are about serving the public? No, because it is silly to force entrepreneurs to waste money on things they don't want, don't need, won't use and can't afford. But the state of Minnesota thinks otherwise.

Verlin Stoll is a 27-year-old entrepreneurial dynamo who owns Crescent Tide funeral home in St. Paul. He wants to expand his business, hire new employees and offer the very lowest prices in the Twin Cities to even more people, particularly disadvantaged communities. But Minnesota refuses to let Stoll build a second funeral home unless he builds a $30,000 embalming room there that he will never use.  Minnesota's law is irrational.

The only reason this law is still on the books is so that the big, full-amenity funeral-home businesses can benefit by a law that drives up prices for consumers and drives up operating expenses for competitors such as Stoll. Stoll's basic services fee is only $250, which is about 90 percent lower than the $2,500 that the average Twin Cities' funeral home charges. Stoll's business model is built on minimizing fixed costs, which is why he does not have a hearse or chapel.

This law -- to the advantage of his competitors -- stands in the way of his expanding his low-cost, high-quality approach. The government shouldn't force Minnesotans to do useless things. That's why Stoll and the Institute for Justice are challenging the law in a lawsuit filed last week."

MP: If we applied the Bastiat principle to "Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race" to this issue, Verlin Stoll and the Institute for Justice would easily prevail over the state of Minnesota and its anti-consumer, anti-competitive embalming laws.   

Abundance: The Future Is Better Than You Think

In the upcoming book "Abundance: The Future is Better Than You Think" (to be released February 21) space entrepreneur turned innovation pioneer Peter H. Diamandis (featured in the video above) and award-winning science writer Steven Kotler document how progress in artificial intelligence, robotics, infinite computing, ubiquitous broadband networks, digital manufacturing, nanomaterials, synthetic biology, and many other exponentially growing technologies will enable us to make greater gains in the next two decades than we have in the previous two hundred years.

Some factoids from the book's website:

1. A Masai warrior in Africa with a smartphone on Google has access to more information than the President of the United States did just 15 years ago.

2. The number of people living in absolute poverty has fallen since the 1950s has dropped by more than half. At the current rate of decline, it would hit zero around 2035.

3. From the very beginning of time until 2003, humankind created five billion gigabytes of digital information. In 2010, the same amount of information is created every two days; by 2013, every 10 minutes.

4. In 15 years, the average $1000 laptop should be computing at the rate of the human brain.

HT: Michael Breazeale

Sunday, January 22, 2012

Government Fights to Perpetuate Artificial Bone Marrow Shortage By Banning Donor Compensation

Here are some facts about bone marrow donation:

1. Thousands of Americans die of various blood diseases each year because they cannot find matching bone marrow donors. 

2. Donor compensation could substantially increase the number of people who sign up to be a potential bone marrow match. 

3. Advances in medical technology have made the extraction of the hematopoietic stem cells found in bone marrow essentially as easy as blood donation.

4. Last month a unanimous three-judge panel ruled in favor of a nonprofit group, MoreMarrowDonors.org, that wants to encourage bone marrow donations by offering $3,000 scholarships, housing allowances, or charitable donations to those who are matched with blood disease patients. The donor group said the application of the National Organ Transplant Act, which includes bone marrow among the "organs" that cannot be sold, violated the equal-protection clause, because there is no rational basis for government to treat donors undergoing apheresis differently from blood or sperm donors.

5. The Justice Department and the National Marrow Donor Program have moved quickly to try to overturn the decision that would allow compensation for bone marrow donors. Reasons? The Justice Department claims that that donor compensation undermines Congress’s clear policy of allowing only voluntary bone marrow donations. The National Marrow Donor Program claims that "a donor system that relies on the human desire to help others is far superior to one that focuses on self-gain."  

MP: So the government and the National Marrow Donor Program want to perpetuate a needless bone marrow shortage and thereby sentence thousands of Americans to a guaranteed death sentence as a direct consequence of the artificial bone marrow shortage.  Just wondering - would the National Marrow Donor Program likewise suggest that donor systems for food, clothing, cars, and shelter, which rely on the human desire to help others, are far superior systems to ones that focus on self-interest and self-gain?    How would your current diet compare, in terms of quantity and quality, to the food available to you if you had to rely on the human desire of wheat farmers in Kansas, cattle ranchers in Texas, and dairy farmers in Wisconsin to help others and supply you with your food?

Question: Are there any material differences between the provision of life-sustaining food products and the provision of life-sustaining bone marrow that would justify allowing market transactions for food but not bone marrow?  If so, what are those differences?

Quote of the Day from Frederic Bastiat

Four days before his death in 1850, Frederic Bastiat sent this message to a friend:

"Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race."

MP: How simple and yet deeply profound at the same time, with major implications for public policy and policymakers, who routinely ignore the interests of the unorganized consumers and thereby the human race, but place close attention to the well-organized, well-funded, concentrated interests of producers when they enact legislation like farm subsidies, protectionist tariffs, anti-dumping laws, occupational licensing, forced unionism, restrictions limiting the number of taxicabs, etc.

Obama's Disgraceful Choice of Carbon-Intense Conflict Oil from Our Greatest Enemy in the Western Hemisphere Over Ethical Oil from Canada

Here's how one Canadian, Toronto Sun columnist Ezra Lavant, views Obama's "Keystone Cop-out":

"U.S. President Barack Obama made a choice last week: He chose Venezuela over Canada.

That’s what he did when he rejected the proposed Keystone XL pipeline that would have taken oilsands oil from Alberta to the Gulf Coast of Texas.

That pipeline would have delivered 700,000 barrels of oil every day from Canada (and from a new oilfield called Bakken that straddles the North Dakota-Saskatchewan border). Which is almost precisely the amount of oil Venezuela now ships to the United States, to those same refineries in Texas.

With one fell swoop, Obama could have replaced conflict oil, from a belligerent, authoritarian OPEC regime, with ethical oil from Canada.  But he didn’t.

Venezuela sells an enormous amount of oil to the U.S. About 800,000 barrels a day. At a hundred bucks a barrel, that’s $80 million a day. That’s about $30 billion a year America pays to its greatest enemy in the western hemisphere.

It’s not just conflict oil, though. Venezuelan oil is some of the most carbon-intense oil in the world — even more so than Canada’s oilsands. So by replacing Venezuelan imports with Keystone XL oilsands oil, not only would Obama have been doing the right thing geopolitically, it would have reduced America’s carbon footprint — which Obama claims to care about

Obama’s decision is a disgrace, but it’s America’s business. So now our business is to sell our oil to Asia. Not just for our economic success, but to prove we are an independent country.

If Obama doesn’t want our oil, well, the rest of the world does."

Twitter Reminder and A Blog Content Bleg

1. Reminder that you can follow me on Twitter for daily updates, news, blog posts, links, economic reports, headlines, re-tweets, data, charts, etc. 

2. The "hat tips" that you see at the bottom of many CD posts reveal the fact that about one-third of the posts (or more) originate with an email "tip" from a regular (or occasional) CD reader.  Publishing CD as a "one-man operation" makes it  impossible to be aware of even a fraction of all the interesting content, news, blog posts on the Internet every, so I'm forever grateful for the "research support" that I get on a regular basis from dozens of contributors.  In the never-ending search for new blog content, I would gladly accept suggestions, links and recommendations by email (mjperry at umich.edu) from anybody who has the time and inclination to send me your ideas, links, articles, etc.  I'm always happy to give the public "hat tip" to acknowledge my "sources," but can also keep you anonymous if you prefer it that way.      

With New Super-Fracking Advances, the Shale Revolution Might Be Just Getting Started

Last Wednesday, I posted a link to a Bloomberg article about "super-fracking" and commented that the ongoing advances in fracking technology might mean that the "shale revolution" is just beginning.  Here are some excerpts from a longer and more detailed Bloomberg article about how "super-fracking" could continue to revolutionize domestic energy development by significantly lowering the costs of unlocking even  more and deeper reserves of shale gas and tight oil than were accessible by traditional fracking:

Bloomberg -- "Oil services companies including Baker Hughes, Schlumberger and Haliburton are continuing their quest to devise ways to create longer, deeper cracks in the earth to release more oil and gas. These companies are no longer content to frack—they want to super frack.

High crude prices and newly accessible oil and gas embedded in shale rock in North America are driving the wave of innovation. The more thoroughly that petroleum-saturated rock is cracked, the more oil and gas is freed to flow from each well, raising the efficiency—and profit—of the expensive process.

1. Baker Hughes has set its sights on creating “super cracks,” a method of blasting deeper into dense rock to create wider channels. The aim of the technology, branded as DirectConnect, is to better concentrate the pressure of fracking fluids to reach oil or gas farther from the well bore, which existing methods fail to do as effectively. The company also is trying to speed up the fracking process. Wells usually are fracked in steps, as plastic balls are dropped down to plug the well at various stages and isolate different zones for fracking. It can take days to get a drilling rig to the site and fish out conventional frack balls, which can get stuck over the course of 20 or 30 preparation phases in a typical well before production can begin. With land-based rigs renting for up to $30,000 a day, reducing such delays is critical. So Baker Hughes has developed disintegrating balls, which turn into powder “like an Alka-Seltzer” after a couple of days.

2. Schlumberger has developed a technique called HiWAY. The technology can generate bigger cracks in surrounding rock formations than current methods by combining fiber with typical fracking materials such as sand so the stuff clumps as it’s being pumped in repeated pulses and at high pressure into the side of a well. The number of customers using HiWAY in North America has grown from two a year ago to more than 20. Chief Executive Officer Paal Kibsgaard told investors in October that the HiWAY technology is yielding larger oil and gas production while using less water and sand than conventional fracking.

3. Halliburton, the No. 1 provider of fracking services, is trying to reduce the amount of materials and labor used on each well. It’s rolled out RapidFrac, a series of sliding sleeves that open throughout the horizontal well bore to isolate zones for fracking. Fracking fluid is then injected at high pressure through multiple holes exposed by the sliding sleeve, cracking the surrounding rock. The process can be faster and cheaper than the most popular fracking method, which involves sending an explosive charge down the well to blast one hole at a time."

The Big Three's Dramatic U-Turn

The chart above shows annual market shares for the U.S. vehicle market (Ward's Auto data here).  From a peak of 90.6% in 1965, the market share of the Big Three (GM, Ford and Chrysler) fell in almost every following year, including a 16-year streak of annual declines in every year from 1994 to 2009.  At the end of that 16-year period, the market share of the Big Three went below 50% for the first time in 2008 at 46.9%, before falling in the next year to an all-time low of 43.7% in 2009.

But the Big Three are making a comeback.  The group gained market share in both 2010 and 2011, marking the first time since 1992-1993 of two consecutive annual gains for the Big Three. The 1.71% increase in 2011 to a 46.2% market share from 44.5% in 2010 was the largest single year gain since a 3.2% gain in 1988.  All three companies posted solid sales gains in 2011, led by Chrysler at 26.1% and followed by GM at 13.2% and Ford at 10.8%.

Production, sales, profits and hiring are now improving significantly for the Big Three and the American automakers are back in the fast lane again, as CBS Sunday Morning reported today on a feature titled "The Big Three's Dramatic U-Turn."  

Related: The Detroit Free Press reported this week that Michigan's unemployment fell to 9.3% in December, the lowest state jobless rate since September 2008, and there was positive net job growth in Michigan last year for the first time since 2000.  

Saturday, January 21, 2012

The Secret Document That Transformed China's Economy With Private Property and Competition

For this great NPR story I thank John Chilton, who writes by email that it's "Just like the story of the Pilgrims whose economy was transformed when they gave up collectivism and the communal approach to farming."  It's a great story with economic lessons in private property rights, competition, entrepreneurship, and the triumph of the individual over the state, here are some excerpts:

"In 1978, the farmers in a small Chinese village called Xiaogang gathered in a mud hut to sign a secret contract. They thought it might get them executed. Instead, it wound up transforming China's economy in ways that are still reverberating today.

The contract was so risky — and such a big deal — because it was created at the height of communism in China. Everyone worked on the village's collective farm; there was no personal property. "Back then, even one straw belonged to the group," says Yen Jingchang (pictured above), who was a farmer in Xiaogang in 1978. "No one owned anything."

In theory, the government would take what the collective grew, and would also distribute food to each family. There was no incentive to work hard — to go out to the fields early, to put in extra effort, Yen Jingchang says. "Work hard, don't work hard — everyone gets the same," he says. "So people don't want to work."

In Xiaogang there was never enough food, and the farmers often had to go to other villages to beg. Their children were going hungry. They were desperate. So, in the winter of 1978, after another terrible harvest, they came up with an idea: Rather than farm as a collective, each family would get to farm its own plot of land. If a family grew a lot of food, that family could keep some of the harvest.

This is an old idea, of course. But in communist China of 1978, it was so dangerous that the farmers had to gather in secret to discuss it. Despite the risks, they decided they had to try this experiment — and to write it down as a formal contract, so everyone would be bound to it. By the light of an oil lamp, Yen Hongchang wrote out the contract.

The farmers agreed to divide up the land among the families. Each family agreed to turn over some of what they grew to the government, and to the collective. And, crucially, the farmers agreed that families that grew enough food would get to keep some for themselves. The contract also recognized the risks the farmers were taking. If any of the farmers were sent to prison or executed, it said, the others in the group would care for their children until age 18.

The farmers tried to keep the contract secret — Yen Hongchang hid it inside a piece of bamboo in the roof of his house — but when they returned to the fields, everything was different.  Before the contract, the farmers would drag themselves out into the field only when the village whistle blew, marking the start of the work day. After the contract, the families went out before dawn. "We all secretly competed," says Yen Jingchang. "Everyone wanted to produce more than the next person."

It was the same land, the same tools and the same people. Yet just by changing the economic rules — by saying, you get to keep some of what you grow — everything changed. At the end of the season, they had an enormous harvest: more, Yen Hongchang says, than in the previous five years combined."

MP: Sounds like this would be the perfect inspiration for a Chinese version of our "Thanksgiving" holiday.  

Why Does Obama Want the U.S. To Be Energy Poor?

From Thomas J. Pyle, President and CEO of the American Energy Alliance:

"One of the reasons the unemployment rate has been stuck above 8 percent for years is because the Obama administration is actively blocking the private sector from creating jobs. Approving the Keystone XL pipeline, now in its third year of review, would have gone a long way toward boosting American job creation and strengthening our energy security. But the President prefers the politics of energy poverty and has sided with environmentalist radicals over hardworking Americans and their families.

The reality at the White House has nothing to do with protecting the environment -- it’s about reinforcing a myth of energy scarcity on the United States and driving up the price of energy.   

For decades, one of the key tenets of environmental doctrine has been that the United States, and North America as a whole, is running out of affordable energy sources like oil, natural gas, and coal. For this reason, they argue, our economy must switch to renewables like wind farms and solar panels that produce electricity at intermittent rates. Through mandates, government has forced consumers to buy these sources, and the Obama administration has propped up Big Green Energy through taxpayer-funded loans to companies like Solyndra. 

 Yet the discovery of cost-effective oil production from Canadian oil reserves—as well as the large-scale deployment of shale technologies here in the U.S.—turns the environmentalists’ politics of energy scarcity on its head, and that is at the heart of the administration’s opposition to Keystone XL. The president wants the United States to be energy poor."

Read more here.

Nat Gas: A Foundational Fuel for the Economy With A Surplus That Will Keep Prices Low for Years

Charlotte Observer -- "Craig Schwartz's heating bill tells the story of a natural gas industry upheaval that's rippling through North Carolina.  First, take a look at Schwartz's natural gas bill for December: $73.69. Then look at December 2010, just a year before. The Raleigh computer scientist paid nearly twice as much: $134.14. Now spread those numbers out over several months, and quite likely years. 

"That's huge," Schwartz said. "I'll take $200 to $300 bucks a year in natural gas savings, no problem."

It's a familiar scenario for the 35 percent of state households that heat and cook with natural gas. Natural gas prices have been in a freefall as electricity prices are pushing upward, prompting some residents to make retrofits so they can switch to natural gas to heat their homes this winter. The state's two biggest natural gas utilities - Piedmont Natural Gas and PSNC Energy - are both planning rate cuts next month in response to the falling global price of natural gas.

Historically low natural gas prices, resulting from a glut in global reserves, have caused home heating bills to plummet to levels not seen in a decade. Experts anticipate the prices dropping further before they self-correct, with expectations that a long-term surplus could keep prices cheap for years.

"Natural gas is a foundational fuel for the economy. It's plentiful. It's here. And it's cheap," said Thomas Skains, CEO of Charlotte-based Piedmont Natural Gas."

Read more here: http://www.charlotteobserver.com/2012/01/21/2944639/falling-prices-fuel-natural-gas.html#storylink=cpy

Read more here: http://www.charlotteobserver.com/2012/01/21/2944639/falling-prices-fuel-natural-gas.html#storylink=cpy

Frack Away, There's No Reason Not To, Even Though It's Not the "Government's Energy"

New Scientist -- "Frack away, there's no reason not to. Two of the main objections to "fracking" for shale gas have been blown out of proportion, according to British geologists. 

"We think the risk is pretty low," said Mike Stephenson, head of energy science at the British Geological Survey at a press briefing in London on Tuesday of this week."

See other reports here from BBC News, Wired UK and the Free Republic, where John Ranson writes:

"As George Will noted at the beginning of the year:

Because progressivism exists to justify a few people bossing around most people and because progressives believe that only government’s energy should flow unimpeded, they crave energy scarcities as an excuse for rationing — by them — that produces ever-more-minute government supervision of Americans’ behavior.

Accordingly, liberals have been pushing for a ban on fracking, also called hydraulic fracturing, because of supposed health and environmental risks the method poses."  

HT: Warren Smith

Cleveland Federal Reserve: Ten-Year Expected Inflation is Only 1.39%, the Lowest in 30 Years

"The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.39 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade (see chart above).

The Cleveland Fed’s estimate of inflation expectations is based on a model that combines information from a number of sources to address the shortcomings of other, commonly used measures, such as the "break-even" rate derived from Treasury inflation protected securities (TIPS) or survey-based estimates. The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium."

MP: Inflation expectations are currently close to the lowest level in at least 30 years (see chart above).

HT: Benjamin Cole 

Friday, January 20, 2012

Etta James, R.I.P.

A classic 1987 performance above by the legendary Bluesy Diva Miss Etta James, accompanied by another legendary vocalist, Dr. John.  Etta James died today, just five days shy of her 74th birthday.  And of course, there's the song that will always be the one most closely associated with Ms. James, "At Last," which she performs here:

I highly recommend my top two favorite Etta James's CDs during her jazzier period in the mid-1990s: Mystery Lady and Time After Time.

Update: New York Times article.

Nitwitery Alert: House Democrats Are Proposing The Gas Spike Act and a "Reasonable Profits Board"

How about Congress establishes the"Reasonable Deficits Board" and gets that to work first?
 THE HILL -- "Six House Democrats, led by Rep. Dennis Kucinich (D-Ohio), want to set up a "Reasonable Profits Board" to control gas profits. The Democrats, worried about higher gas prices, want to set up a board that would apply a "windfall profit tax" as high as 100 percent on the sale of oil and gas, according to their legislation. The bill provides no specific guidance for how the board would determine what constitutes a reasonable profit. 

The Gas Price Spike Act, H.R. 3784, would apply a windfall tax on the sale of oil and gas that ranges from 50 percent to 100 percent on all surplus earnings exceeding "a reasonable profit." It would set up a Reasonable Profits Board made up of three presidential nominees that will serve three-year terms. Unlike other bills setting up advisory boards, the Reasonable Profits Board would not be made up of any nominees from Congress."

Here's how the bill starts:  "To amend the Internal Revenue Code of 1986 to impose a windfall profit tax on oil and natural gas (and products thereof) and to allow an income tax credit for purchases of fuel-efficient passenger vehicles, and to allow grants for mass transit." 

MP: Just wondering, now that natural gas prices have spiked so low (see chart above) that some producers aren't even covering their costs of production, shouldn't there be a "windfall losses subsidy" for the natural gas producers that are losing money as part of the "Gas Spike Act."  That is, market prices "spike" in both directions, up and down, so shouldn't there be some provision for downward spikes?

HT: Bob Wright

Update: According to the most recent rankings from YahooFinance!, the average profit margin for the 215 different American industries is 7.8% for the most recent quarter, and the profit margin for the "Major Integrated Oil and Gas industry" (includes ExxonMobil, Shell, BP, etc.) is right about average at 7.9%, and it ranks #90 out of 215 industries.  So if the profits of the major oil companies are "unreasonable," what about the other 89 industries that are even more profitable, like publishing (53% profit margin), silver (41%), gold (25%), cigarettes (22.5%), etc.?

HT: Morganovich (see comments)

Update from some responses to me on Twitter:

"How about they get the "Reasonable Deficits Board" to work first?"  

"I'll accept a "Reasonable Profits Board" when they accept a "Reasonable Income Board" for all public employees."

Thursday, January 19, 2012

Cartoon of the Day

Majors of the Top 1%? Economics is No. 2

NY Times Economix -- "According to the Census Bureau’s 2010 American Community Survey, the majors that give you the best chance of reaching the 1 percent are pre-med, economics, biochemistry, zoology and, yes, biology, in that order (see chart above)."

IJ Wages New Fight for Economic Justice in MN

Institute for Justice -- "The video above features the story of Verlin Stoll, a 27-year-old entrepreneurial dynamo who owns Crescent Tide Funeral and Cremation in Saint Paul, Minnesota. Verlin has built a successful business because he offers low-cost funerals (cremations from $750 and funerals with burials from $1,650) while providing high-quality service. His business is also one of the only funeral homes that benefits low-income families who cannot afford the high prices of the big funeral-home companies.

Verlin wants to expand his business, hire new employees and continue to offer the lowest prices in the Twin Cities, but Minnesota refuses to let Verlin build a second funeral home unless he builds a $30,000 embalming room that he will never use. 

 Why is Minnesota forcing Verlin to waste $30,000 on a useless embalming room as a condition of expanding his thriving business?

So that the big, full-amenity funeral-home businesses can benefit from a law that drives up prices for consumers and operating expenses for competitors such as Verlin.  Verlin’s basic services fee is only $250, which is about 90 percent lower than the $2,500 that the average Twin Cities’ funeral home charges.  Verlin’s business model is built on minimizing fixed costs, which is why he does not have a hearse or chapel, and this law—to the advantage of his competitors—stands in the way of him expanding his low-cost, high-quality approach.

The government should not force Minnesotans to do useless things.  That is why on January 19, 2012, Verlin and the Institute for Justice challenged the law in state court." 

Thursday Morning Links

1. A free market for wheat comes to Canada for the first time since 1943 as the Canadian Wheat Board ends its 69-year grain monopoly.  

2. TurboTax Goes Mobile: you can now prepare and file your income taxes with a mobile device.

3. Auto industry goes on a U.S. hiring binge.

4. Manufacturing employment has grown faster in the U.S. than in any other leading developed economy since the start of the recovery, as productivity gains and subdued pay rises raise hopes for an American industrial renaissance.

5. Reshoring: Business returns to U.S. as Asia loses edge.

6. North America will become almost totally self-sufficient in energy in two decades, thanks to a big growth in the production of biofuels, shale gas and unconventional oil. 

It's Time to Pull the Taxpayer Plug for Electric Cars

From my editorial in today's Detroit News:

The case for subsidizing electric cars was questionable from the start and is now a boondoggle.

Like many green initiatives promoted by the government and paid for by the American taxpayers, the electric car is more politically than performance or economically driven. Its subsidies and the government-imposed green energy mandates are contrary to the free market principles that undergird our economy.

What emerges most forcefully from experience with the electric car is that subsidies are a waste of taxpayer money. Although the government has provided plenty of help for electric vehicles, there remain major barriers in technology, cost and performance.

As battery technology improves and charging stations proliferate, we will eventually move to an electric-car future.

But the outcome of EV development needs to be like that of the internal combustion engines: the government doesn't have to subsidize regular cars because long ago, it became worthwhile for companies to do it themselves with rebates, discount pricing, and other promotions.

Private businesses will fund new technologies when there is a reasonable chance of commercial success. The private sector is entirely capable of developing EVs and other new automotive technologies without the need for subsidies.

When a new technology is economically viable, then government support is not needed. But if a technology isn't capable of surviving on its own, there's no amount of taxpayer support that will make it so.

It's time to pull the plug on politically motivated taxpayer subsidies for electric cars and see if they can survive on their own in the marketplace.

Wednesday, January 18, 2012

Auto Plants Are At Capacity and Adding Third Shifts Around the Country, Boosting Local Economies

Bloomberg -- "Bobbi Marsh puts her 11-year-old son to bed each night and then heads to her job at General Motors Co. (GM)’s metal-stamping plant in Lordstown, Ohio. She gets home in time to make him breakfast.  Marsh, 34, is one of thousands of auto workers in the U.S. benefiting from the return of a third shift at factories -- often from 11 p.m. to 7 a.m. -- translating to 24-hour-a-day production at many plants for the first time since the industry collapse in 2009. At the nadir, some plants ran only one eight- hour shift. 

The new third shifts, adding more than 4,300 jobs in four states at GM alone, bring jobs to the economy and revenue to governments as well as demand at odd hours for everything from daycare and dentistry to financial services and food. U.S. auto plants this year may operate at about 81 percent of capacity after falling as low as 49 percent in 2009, according to estimates from IHS Automotive in Northville, Michigan. 

U.S. Automakers are increasing production at the car plants after the U.S. light-vehicle sales rose by at least 10 percent for two straight years for the first time since 1984 and grew at a faster rate than China, the world’s biggest auto market, for the first time in at least 13 years. States that were hard-hit by the downturn, such as Michigan and Ohio, are among the biggest beneficiaries, adding jobs at places like Ross’ Eatery & Pub and Tony M’s Restaurant that operate near GM auto factories."

Natural Gas Updates; Here Comes Super-Fracking

1. Domestic production of natural gas set another new all-time record high during the month of October at 2.48 trillion cubic feet of gross withdrawals (see chart below, data here).

2. Due to the record levels of natural gas production and the unseasonably warm weather this winter, prices keep falling.  The price for U.S. natural gas futures contracts dropped to a ten-year low of $2.47 per million BTUs in trading on the NYMEX yesterday, see chart below.

3. The shale gas revolution that has produced record-setting levels of domestic production has been made possible by advanced drilling technology known as "fracking," which has unlocked vast supplies of gas from deep shale formations around the country.  As effective and successful as fracking has been for unlocking deep shale gas and tight oil, it might soon get even better with new technologies that are under development and being called "super-fracking." According to a Bloomberg article, "Industry scientists are studying ways to create longer, deeper cracks in the earth to release more oil and natural gas." If "super-fracking" becomes a reality, it might be the case that the "shale revolution" is just getting started. 

Thanks to Benjamin Cole for the Bloomberg article.

Obama Rejects 20k Jobs, aka Keystone Pipeline

From an updated version of my recent McClatchy-Tribune editorial, to reflect the Obama administration's pending rejection of 20,000 new jobs for Americans, aka as the Keystone XL pipeline:

Kicking the can down the road 20,000 Americans while they're down and unemployed, as President Barack Obama did in delaying a decision on rejecting the construction of the Keystone XL oil pipeline from Canada to Texas, certainly pleased the green lobby. But it did absolutely nothing for jobs creation. Nor did blocking access to new federal offshore areas for oil and natural gas drilling produce any jobs.

At a time when more than 13 million Americans are unemployed, you'd think that the president would be doing everything possible to stimulate employment. But his jobs-creation policy lacks direction and focus.

Putting off a decision on Rejecting the Keystone pipeline and stalling offshore drilling was grossly counterproductive, compromising our commitment to North American oil production and potentially threatening our energy security. These and other regressive actions don't augur well for domestic energy development or job creation.

Despite great handwringing over America's anemic job creation, the president demonstrates little understanding of the damage his policies are doing to millions of unemployed Americans desperate to find work. Unfortunately, pleasing the environmental lobby seems much more important to him now than jobs.

Markets in Everything: Boyfriend Rental in China

FT.COM -- "This is a tough time of year for Chinese spinsters. Chinese New Year is just around the corner and every single girl knows what her parents want most for the holidays: a betrothal. Girls of a certain age (say, 30) do not dare go home at all without one; and even women in their 20s feel serious pressure not to turn up for this Sunday’s traditional new year’s eve dinner without a marriage prospect in tow.

Now, thanks to Taobao (the Chinese version of Ebay) and the inventiveness of the Chinese entrepreneur, they do not need to: for as little as Rmb100 per day (about $16), Chinese singles can rent a boyfriend to take home for lunar new year.

Chatting up the parents is included in the price, while hand-holding and hugging sometimes cost extra. The boyfriend-substitute will even share a bedchamber with the customer, if that helps persuade the doubting parents. There seems little limit to the a la carte ingenuity of the companies that provide this service: some even offer to waive the fee if the girl and guy share the same bed."

HT: Andrew Biggs

L.A. Port Sets Record in 2011 for Export Containers

LA Times -- "The Port of Los Angeles set a new standard for exports in 2011, becoming the first harbor in the nation to ship more than 2 million containers carrying U.S. goods to customers overseas, according to year-end statistics released by port officials.
The nation's busiest seaport moved 176,531 export containers in December, enough to kick up its 2011 total to 2.11 million containers. That broke the port's former record of 1.84 million export containers set in 2010.

No other U.S. harbor has moved more export containers in one year. The closest competitors are second-ranked Long Beach, which moved 1.69 million export containers in 2008 and third-ranked New York-New Jersey, which moved 1.62 million export containers that same year."

MP: The 2.11 million loaded outbound export containers leaving the L.A. port last year (data here) was a 14.5% increase over 2010, and follows a 10.3% increase in 2010.  The record number of loaded outbound export containers shipped overseas from the L.A. Port in 2011 were filled with manufactured goods from America's factories, which is further evidence of the ongoing expansion and growth of U.S. manufacturing.  

Markets in Everything: Wedding Proposal Planners

Daily Mail UK -- "We're all familiar with how wedding planners can navigate us around the tricky maze of getting married. But now a new industry has emerged, for helping men pop the question in the first place. Proposal planners have discovered a demand for lavish scenarios, be it white doves, helicopter rides, a favorite musician - all with a photographer on hand to record the magic moment.

Sarah Pease of New York-based Brilliant Event Planning says she only focused on weddings until she heard how one friend's proposal involved an engagement ring at the bottom of a bucket of Kentucky Fried Chicken.

'I figured there must be a better way,' she told the New York Times."

HT: Matt Bixler

Tuesday, January 17, 2012

Top 500 U.S. Manufacturing Firms Had 2011 Sales of $5 Trillion, Almost As Much as Japan's GDP

The 500 largest U.S. manufacturing firms operate in 28 different industries. Here are the 10 largest manufacturing industries, based on those firms:

Rank10 Largest U.S. Manufacturing Industries, 2011 Revenue (Millions)  Examples
1Petroleum & Coal Products$1,274,150Exxon, Chrevron, Conoco
2Computers & Other Electronic Products$709,613HP, IBM, Apple, Dell
3Chemicals$406,445P&G, Dow, DuPont
4Pharmaceuticals$306,076J&J, Pfizer, Merck and Co.
5Motor Vehicles$303,540Ford, GM, Harley-Davidson
6Food$284,469General Mills, Kellogg, Campbell
7Aerospace & Defense$254,126Boeing, Lockheed Martin
8Electrical Equipment &  Appliances$244,738GE, Emerson, Whirlpool
9Machinery$227,481Caterpillar, Deere, Xerox
10Beverages$120,356Pepsi, Coke, Snapple

IndustryWeek recently released its annual ranking of the 500 largest publicly held U.S. manufacturing companies in 2011 based on sales revenue, and the top ten U.S. manufacturing industries (of 28 total industries for the Top 500 companies) are displayed above. Here are some factoids:

1. The combined sales revenue (including global sales) of the top 500 U.S.-based manufacturing firms for 2011 was $5.13 trillion, which was a 12.75% increase over 2010 sales of $4.55 trillion. To put it in perspective, that amount of annual revenue ($5.13 trillion) of the 500 largest U.S.-based manufacturing companies was almost as much as the $5.8 trillion of GDP for the entire economy of Japan in 2011 (world's third largest economy).  

2. The sales revenue from the top ten manufacturing industries totaled $4.13 trillion in 2011 (see chart above), which was more than Germany's entire GDP of $3.6 trillion last year.

3. Annual sales of $1.27 billion in 2011 for America's single largest manufacturing industry - petroleum and coal products - was larger than the GDP of both Mexico and South Korea, and larger than the Gross State Product of both Texas and New York.  

4. Annual sales of $709 billion for America's second largest manufacturing industry - computers and other electronic products was more than the entire GDP last year of Switzerland ($594 billion) and almost as much as the GDP of Turkey ($797 billion) and the GSP of Florida ($754 billion).  

5. The top ten largest U.S. manufacturing companies (Exxon, Chevron, Conoco, GE, GM, Ford, H-P, IBM, Valero, and Proctor and Gamble) had combined revenues of $1.57 trillion, almost as much as Canada's GDP in 2011 of $1.75 trillion.

MP: The comparisons above help put the enormous size of the U.S. manufacturing sector into perspective and demonstrate that American manufacturing is not withering and disappearing, but  thriving, expanding and prospering.  In terms of profits, the American manufacturing sector will have its best year ever in 2011.  Based on data currently available through the third quarter, the U.S. manufacturing corporations are on track to earn more than $600 billion in profits for 2011, which will be a new record high, and double the profits in both 2008 ($266 billion) and 2009 ($286 billion), and 36% above the pre-recession level of $442 billion in 2007.  American manufacturing is alive and well.