Saturday, July 14, 2012

Poster of the Day: Socialism

HT: Warren Smith

Friday, July 13, 2012

Lessons from the U.S. Shale Revolution: It Wasn't from Gov't Planners, but Private Entrepreneurs

From today's WSJ editorial "The Shale Gas Secret":

"One of the few bright patches in the Obama economy is the booming production of shale gas and, increasingly, oil. The U.S. ranked 159th in GDP growth last year. But in natural gas production, it's now No. 1. 
How did that happen? Partly it's the luck of geology, though plenty of other countries have abundant shale resources. Partly, too, it's American technological leadership in developing hydraulic fracturing (fracking) and horizontal drilling. But those techniques are now widely understood the world over.

What gave the U.S. its edge is that the early development risks were largely borne by small-time entrepreneurs, drilling a lot of dry holes on private land. These "wildcat" developers were gradually able to buy up oil, gas and mineral leases from private owners while gathering enough geological data to bring in commercial producers. 

Now compare this to Europe, which sits on an estimated 639 trillion cubic feet of shale gas yet remains heavily dependent on Russian imports. The governments of France and Bulgaria have banned fracking on dubious safety grounds, with nary any pushback from their publics. That might not be the case if French farmers, for example, were able to profit from the riches underneath their terroir.

Countries such as Poland and Great Britain are willing to develop their shale potential. Yet in both places the absence of private mineral rights has delayed exploration and production.

In time, perhaps even the French will recognize their lost opportunity and lift their ban on fracking. But the deeper lesson is that this is a revolution that came about not through government planning or foresight, but through a combination of individual risk-taking and private property. Europeans could benefit by doing more to broaden the latitude for both."

The Law of Unintended Consequences Confirmed

After reformulation in 2010, OxyContin use dropped from 47.4% to 30%, but heroin use nearly doubled.
From the article "Effect of Abuse-Deterrent Formulation of OxyContin," published in the current issue of the New England Journal of Medicine:  

"In August 2010, an abuse-deterrent formulation of the widely abused prescription opioid OxyContin was introduced. The intent was to make OxyContin more difficult to solubilize or crush, thus discouraging abuse through injection and inhalation. We examined the effect of the abuse-deterrent formulation on the abuse of OxyContin and other opioids.
Data were collected quarterly from July 1, 2009, through March 31, 2012, with the use of self-administered surveys that were completed anonymously by independent cohorts of 2,566 patients with opioid dependence. 

The selection of OxyContin as a primary drug of abuse decreased from 35.6% of respondents before the release of the abuse-deterrent formulation to just 12.8% 21 months later.  

Of all opioids used to “get high in the past 30 days at least once," OxyContin fell from 47.4% of respondents to 30.0%, whereas heroin use nearly doubled (see chart above, click to enlarge).

Our data show that an abuse-deterrent formulation successfully reduced abuse of a specific drug but also generated an unanticipated outcome: replacement of the abuse-deterrent formulation with alternative opioid medications and heroin, a drug that may pose a much greater overall risk to public health than OxyContin. Thus, abuse-deterrent formulations may not be the “magic bullets” that many hoped they would be in solving the growing problem of opioid abuse.

MP: That's why the law of unintended consequences is called a "law."  It also confirms the reality that the "stronger the drug laws, the stronger and more dangerous the drugs."

HT: Morgan Frank

Markets in Everything: London Taxi Hotel

In preparation for the summer Olympics, London is getting creative.

David Weekes, a full-time cab driver has transformed his cab into a hotel for one, available to rent for £50 (US$78.50) per night. The taxi comes with a "memory foam" mattress, pillow, duvet, a bedside lamp and a teddy bear.  It also offers a solar-powered refrigerator, a radio, an iPad, and camping chairs and a portable table on request.  But Weekes does have two rules: no smoking and no pets.

HT: Jon Murphy

Exposing the Food Stamp Stimulus Fallacy

Here's some Keynesian-style, voodoo economics from the U.S. Department of Agriculture claiming that every additional $1 of food stamp spending magically creates almost $2 in new economic activity:
Why does increasing participation in SNAP (the federal food stamp program, now known at the Supplemental Nutritional Assistance Program) make sense for your community?

SNAP Generates Economic Activity SNAP brings Federal dollars into communities in the form of benefits which are redeemed by SNAP participants at local stores. These benefits ripple throughout the economies of the community, State, and Nation. For example: Every $5 in new SNAP benefits generates a total of $9.20 in community spending Every additional dollar's worth of SNAP benefits generates 17 to 47 cents of new spending on food.

On average, $1 billion of retail food demand by SNAP recipients generates 3,300 farm jobs. In fiscal year 2009, the average monthly SNAP benefit per household was approximately $272. These benefits, funded by Federal dollars, create business when they are redeemed at your local food retailers. Eighty-six percent of benefits, totaling $25 billion, were redeemed at the nation's 35,000 supermarkets. The remaining benefits, totaling $3.6 billion, contribute to the viability of 121,000 other firms which include grocery stores, convenience stores, combination stores, farmer's markets, and other retail food stores; plus wholesalers and meal services.

Outreach and education are powerful tools in overcoming barriers to SNAP participation. Even a small increase in SNAP participation can have a substantial impact. If the national participation rate rose 5 percentage points, 1.9 million more low-income people would have an additional $1.3 billion in benefits per year to use to purchase healthy food and $2.5 billion total in new economic activity would be generated nationwide
MP: Wow, it seems like all we have to do to create a huge economic stimulus is to get more Americans using food stamps.  If raising the national food stamp participation rate by 5 percentage points generates $2.5 billion in new economic activity, imagine the economic stimulus that could be created if the food stamp participation rate increased to 100 percent!

To understand the economic fallacy of the "food stamps creates economic prosperity" myth, let me paraphrase Art Laffer, who exposed a similar fallacy a few years ago relating to the claim that unemployment benefits increase demand and stimulate the economy:

In an economy, the economic effects from a transfer program always sum to zero. Simply put, there can be no economic stimulus from increased food stamp usage. To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to people with food stamps, then people who otherwise would have had those 10 apples are now worse off.  The stimulus of 10 apples through food stamps is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken. More realistically, we could say that to provide food stamps that will allow some Americans to purchase more apples, taxes have to be raised on other Americans to finance the food stamps to pay for the apples.  In that case, raising food stamp participation increases the tax burden on other Americans.

Those Americans forced to pay higher taxes to finance increased food stamp usage have less income to spend on goods and services, which depresses economic activity. In the end, there is simply a coerced transfer of resources from food stamp-providing taxpayers to food stamp users, with a net effect of zero on economic activity and national wealth. Given the massive inefficiencies the government creates in transferring resources from one group to another, along with the disincentive effects for those Americans who are de-stimulated through higher taxes, there might actually be an overall negative net effect on economic activity.

Bottom Line: Raising food stamp usage certainly won't generate positive net benefits; it's more likely that the net economic effect will be negative.

HT: Daniel Halper via Morgan Frank

Thursday, July 12, 2012

Thursday Energy Links

1. Pennsylvania's electric generation rates are back to 1996 levels, thanks to competition and shale gas, according to John Hanger

2. According to this IEA report on North American Tight Oil Breakeven prices, oil would have to fall below $44 per barrel before Bakken shale oil would become unprofitable, and below $50 per barrel before Eagle Ford shale oil would be unprofitable (see chart above).

3.  From Investor's Business Daily: "After decades of rising prices, hostile foreign suppliers and warnings that Americans will have to bicycle to work, the world faces the possibility of vast amounts of cheap, plentiful fuel. And the source for much of this new supply? The U.S.

"If this is true, this could be another dominant American century," said Brian Wesbury, chief economist at First Trust Advisors, money managers in Wheaton, Ill.

U.S. natural-gas production is growing 4% to 5% a year, driven by sharply higher shale gas output. Shale gas production is forecast at 7.609 trillion cubic feet this year, up 11.6% from 2011 and 12 times the 2004 level (see chart above for the shale gas production forecast to 2035).

Citigroup predicts the U.S. will be not just self-sufficient but also a huge exporter of oil and gas by 2020. The bank projects that the surge in domestic oil and gas supply will add 2% to 3% in real GDP, create 2.7 million to 3.6 million new jobs and cut the current account deficit by 2.4% of GDP.

High on the winner list would be energy-intensive manufacturing, which has taken a thrashing the past few decades. "It could open the floodgates of investment in the U.S.," Wesbury said."

Wednesday, July 11, 2012

America's New No. 2 Oil State - North Dakota - Sets More Eye-Popping Oil Production Records in May

The “Economic Miracle State” of North Dakota pumped another record amount of oil during the month of May at a rate of almost 640,000 barrels per day, which was an increase of 4.9% compared to oil production in April (see chart above).  North Dakota’s record-setting oil output in May was noteworthy for several reasons:

1) The year-over-year increase in oil production of 75.5% in May was the largest annual gain in state history.

2) North Dakota produced 17% more oil than Alaska in May, marking the third consecutive month that North Dakota out-produced Alaska. The Peace Garden State surpassed Alaska’s oil production for the first time in March to become the country’s new No. 2 oil state, behind only Texas.

3) The number of producing oil wells in the state increased to a new record high of nearly 7,000, and more than 216 new wells were added in just the last month, which is the second highest monthly increase on record.  As I reported earlier this week, each new oil well is the equivalent of adding a new $8-10 million business to the state economy, see recent CD post for more details.

4) The amount of oil produced per oil well in the state increased to a new record high of 92 barrels per day, an increase of 35% compared to a year ago, and a sign that the efficiency of shale oil production is increasing significantly. Both the increasing number of wells and the increasing output per well is contributing to record high production levels.

As a result of the ongoing oil boom in the Bakken area, North Dakota continues to lead the nation with the lowest state unemployment rate at a four-year low of 3.0% in May, and more than five percentage points below the national average of 8.2%. There were ten North Dakota counties with jobless rates below 2.0% in May, and Williams County, which is at the center of the Bakken oil boom, boasts the lowest county jobless rate in the country at just 0.7%.  The exponential growth in North Dakota oil production has fueled exponential growth in the state’s “Natural Resources and Mining” employment, which has tripled in less than three years, and reached more than 22,000 in May.

Bottom Line: The ongoing record-setting oil production in North Dakota continues to make it the most economically successful state in the country, with record levels of employment and income growth, a labor shortage, increasing tax revenues, the lowest foreclosure rate in the country, a strong real estate market, and jobless rates in ten counties of the Bakken region below 2.0%.  Call it the “Dakota Model” of job creation and economic prosperity that is based on developing America’s vast energy resources, which is an economic model that could easily be replicated elsewhere if more domestic energy resources were opened up to exploration and drilling.

Markets in Everything: Talking Gloves -- "More than 275 million hearing-impaired people are unable to use speech to communicate. Sign language is one solution, but it's only as helpful as the number of people who know the language. That problem is what drove three Ukrainian students to develop EnableTalk, a pair of sensory gloves that help bridge that communication gap by turning sign language into speech (featured in the video above).

EnableTalk consists of two parts: The first is a pair of gloves fitted with 15 sensors that determine what gestures are being signed. The second is Windows software for smartphones that converts those gestures, transmitted via Bluetooth, into sound waves. Those sound waves are finally translated into recognizable speech using Microsoft's Speech and Bing APIs."

2012 Top 100 U.S. Retailers

Here's an interactive sortable table of the top 100 U.S. retailers, based on 2011 data.  Some of the results include:

1. As expected, Walmart was the No. 1 U.S. retailer for both U.S. and worldwide sales.  Based on its worldwide sales in 2011 of $454 billion, Walmart would rank as the 27th largest economy in the world, behind No. 26 Taiwan's GDP of $467 billion and ahead of No. 28 Argentina's GDP of $448 billion.  Somewhat less expected are the No. 2 retailers for U.S. sales (Kroger) and worldwide sales (Costco).

2. Based on the number of retail stores, Walmart barely makes it into the top 20, coming in at No. 18 with 4,423 stores.  It's no surprise that McDonald's is No. 3 with 14,087 stores and Starbucks is No. 4 with almost 11,000 outlets.  But you might be surprised by the U.S. retailer with the most stores (more than 25,000) and by the second-place retailer with more than 18,000 stores.  

3. Of the top 100 U.S. retailers, more than half (53) have 100% of their stores and sales in the U.S. and no foreign presence at all (e.g. Target, Kroger and most of the grocery chains, Kohls, RiteAid, most of the dollar stores, etc. ).   The retailers with the greatest percentage of foreign sales were IKEA (90.2%), 7-Eleven (80.9%) and Aldi (78.5%). 

4. For sales growth in 2011, Amazon was No. 1 at 42.5%, followed by Verizon Wireless at 37.1% and Apple at 36.9%. 

5. The retailer with the largest growth in the number of stores added in 2011 was 7-Eleven with a 16.3% increase, followed by Nordstrom at 10.3% growth and Best Buy with a 10% increase.

Here's a link to the article that accompanies the chart

Economic Mobility is Alive and Well in America

Video is from, which accompanies this article "84 Percent of Americans Are Richer than Their Parents Were at the Same Age."

Tuesday, July 10, 2012

Markets in Everything: Concierge Medicine

Watch the PBS News Hour segment above on "concierge medicine," featuring Texas doctor Raymond Solis who recently converted his 21-year-old traditional medical practice of 3,000 patients to a concierge-based practice serving just 400 patients.  Dr. Solis changed his business model with the assistance of national medical consulting firm MDVIP, which helps doctors switch from traditional, "conveyor belt" medicine to concierge practices, and go from patient loads of 2,500 to 3,000 down to 400 to 600.  

For about $1,500 a year, patients can join a MDVIP concierge practice and be assured of personal attention and more face time with the  doctor.  Monthly fees run about $150 per month, which allows most patients to get same-day appointments that last 30 minutes or longer. Most MDVIP doctors accept insurance.

HT: Paul Cerni

Markets In Everything; Sports Vacation Rentals

"GamedayHousing is the easiest and safest way for groups of sports fanatics to find a place to stay when they're in town for the big game. Most [college football] sports towns can't possibly accommodate the hundreds of thousands of fans who flood local hotels that are often outdated and few in number.  Gameday Housing solves this problem by bringing local property owners together with the sports traveler in a marketplace that is safe, secure, and easy to navigate."

Here are some homes available in Ann Arbor, Michigan for the Michigan-Michigan State game this year,  including this 3,000 square foot, bedroom, 3 bath home that sleeps 12
and is available for $3,500 for Friday and Saturday night.  

MP: Note that this housing service is mostly for college football games in markets like Ann Arbor, Michigan and South Bend, Indiana, where there is a shortage of housing on weekends of major football games.  

Gov. Chris Christie: War on Drugs Is a Failure

New Jersey Gov. Chris Christie called the war on drugs a “failure” during a speech at the Washington, D.C.-based Brookings Institution on Monday.

The North American Energy Colossus Will Fuel Our Hydrocarbon Future and Create Prosperity, Jobs

The Manhattan Institute released a study today by Mark P. Mills, titled "Unleashing the North American Energy Colossus: Hydrocarbons Can Fuel Growth and Prosperity," here are a few excerpts:

Executive Summary: "The United States, Canada, and Mexico are awash in hydrocarbon resources: oil, natural gas, and coal. The total North American hydrocarbon resource base is more than four times greater than all the resources extant in the Middle East. And the United States alone is now the fastest-growing producer of oil and natural gas in the world.

The recent growth in hydrocarbons production has already generated hundreds of thousands of jobs and billions in local tax receipts by unlocking billions of barrels of oil and natural gas in the hydrocarbon-dense shales of North Dakota, Ohio, Pennsylvania, Texas, and several other states, as well as the vast resources of Canada’s oil sands. 

It is time to appreciate the staggering potential economic and geopolitical benefits that facilitating the development of these resources can bring to the United States. It is no overstatement to say that jobs related to extraction, transport, and trade of hydrocarbons can awaken the United States from its economic doldrums and produce revenue such that key national needs can be met—including renewal of infrastructure and investment in scientific research.

Conclusion: The U.S. has yet to adopt a coherent policy in response to the deep changes in energy demand and supply. The world will need enormous quantities of hydrocarbons in the future, regardless of and despite substantial gains in energy efficiency and alternative energy deployment. No single region of the world could make as significant a difference to the supply dynamic as could North America. In the energy arena, North America, to paraphrase, is punching below its weight class.

And, in these trying economic times, expanding hydrocarbon production may be the single most important opportunity for economic growth for the U.S. and North America."

Here's the press release and here's the full study.

Great Moments in Government Bureaucracy

Did the FDA's former ban on home testing kits result in thousands of avoidable infections? 

CNN Money -- "A 24-year scandal was quietly acknowledged last week. On July 3 the U.S. Food and Drug Administration approved the first "rapid home" test for HIV—a test that people can take in the privacy of their own homes to determine whether they have the virus that causes AIDS.

The approval is an unambiguously good thing—or so you would think. The saliva test in question, made by OraSure Technologies and known as OraQuick, costs less than $60 and takes just 20 minutes to self-administer. According to statistics an FDA advisory committee presented at a hearing in May, it holds the potential to prevent the transmission of more than 4,000 new HIV infections in its first year of use alone. That would be about 8 percent of the roughly 50,000 new infections we currently see annually in the United States.

The scandal is that the approval of a rapid home test for HIV did not occur until last week—about 24 years after the FDA received its first application seeking permission to market one."

Read more here

HT: Mike McKay

Each New ND Oil Well = A New $8-10M Business

The chart above shows the number of producing oil wells in North Dakota, which have more than doubled in the last six years, from 3,345 in April of 2006 to 6,734 in April of this year.  Over just the last year, 1,425 new wells have been added from April 2011 to April 2012, at a rate of six new wells every business day.

As Bruce Oskol pointed out on his Million Dollar Way blog:

"Each of those North Dakota oil wells can be thought of as equivalent to a new $8-10 million business sprouting up in your neighborhood, and all with private money on private land, with no federal money or taxpayer subsidies.  Hundreds of new $8-10 million businesses sprouting up each month.  I read somewhere that it takes about 75 other oil service companies to keep an oil well running, including the tax accountants, the landmen, and, of course, it provides a lot of work for federal and state regulators and bureaucrats.  And the initial cost of each well should be paid back with five or six years of production, and unless the world quits using oil, the wells will keep pumping oil for 30 years."

MP: The economic impact of the increased oil production in North Dakota over the last year is the equivalent to more than 1,000 new $8-10 million small businesses being created in the state, which have created 7,000 new direct jobs in the oil business over the last year, and more than 26,000 new jobs in total throughout the state.  

Monday, July 09, 2012

Same Federal Government That Bans Compensation for Organs, Shuts Down Man Donating Free Sperm

The federal government outlawed the sale of human organs in 1984, and until a recent legal challenge that even included a ban against receiving compensation for bone marrow.  For organs like kidneys, an altruistic donation, sometimes from a complete stranger, is the only legal method of kidney exchange, and any form of compensation is illegal.

Given the federal ban on compensation for human organs, you would think the federal government would have no problem with Trent Arsenault, who donates sperm for free.  But you would be very, very wrong, see this New York Daily News article:  

"The Food and Drug Administration wants to shut down a do-it-yourself sperm bank of one. Trent Arsenault, 36, says he donates semen to low-income and same-sex couples who face hurdles acquiring it at licensed sperm banks.

"It is helping people in need," the Fremont, California, resident told CBS San Francisco. "I don't make any money, I don't charge people anything. And it's just helping childless couples have children."

The FDA disagrees. In a Cease Manufacturing letter delivered on Nov. 1 of last year, the FDA classified Arsenault's setup as a "firm" that "recovers and distributes semen and therefore is a manufacturer of human cells, tissues and cellular and tissue-based products.

Arsenault certainly seems to be meeting a demand. He told CBS he has received some 20,000 email inquiries and he has fathered 14 children since his first sperm donation to a teacher in 2004. The FDA estimated that Arsenault dealt out 328 semen donations to 46 recipients between 2006 and 2010.

To market the free sperm donations, Arsenault started the Web site, where he displays a wealth of personal information ranging from his ethnic background and personal identification documents to medical reports displaying his sperm count and test results for sexually transmitted diseases. On a page titled "Hospital photos sent by recipients," Arsenault displays 15 images of babies presumably fathered with his assistance."

MP: As far as I can tell, the FDA's case against Trent Arsenault is still pending.

HT: Morgan Frank

North Dakota Bakken Oil Facts

What Does Every New Bakken Oil Well Mean to North Dakota? 

A typical 2011 Bakken well will cost $7,925,000 to drill and complete, and will produce oil for 29 years (27 years longer than the average stimulus-funded "green" company, as Che comments).  

In those 29 years the average 2011 Bakken well will: 
1. Produce approximately 540,000 barrels of oil 

2. Pay approximately $4,585,000 in taxes 
a) $2,200,000 gross production taxes at 5%
b) $2,000,000 extraction tax at 6.5%
c) $385,000 sales tax 

3. Pay royalties of $7,500,000 to mineral owners 

4. Pay salaries and wages of $2,100,000 

5. Pay operating expenses of $2,300,000 

6. Generate over $20 million in net profit

Source: North Dakota Department of Mineral Resources 

MP: There are currently almost 7,000 wells producing oil in North Dakota.  

Sunday, July 08, 2012

ND Economy So Good, It's Like Another Country

MANDAN, N.D. — "The economy is so good in North Dakota, it’s almost like being in another country. 

Although Friday’s lackluster national jobs report may have intensified the already deep anxiety among voters about the sluggish state of the economy, here in the nation’s northern reaches, the concerns are exactly the opposite: how to build roads and schools and houses fast enough to keep up with an astounding population boom that has sprung up alongside the country’s most roaring state-level economy. Good years for North Dakota farming, a new technology sector and — most significant — a dramatic oil rush in the state’s west and north have combined to produce an economic explosion that is the envy of the rest of the country — a 3 percent unemployment rate and rising household incomes and state revenue."

Alcohol Facts of the Day

1. There are approximately 79,000 deaths attributable to excessive alcohol use each year in the United States.

2. Excessive alcohol use is responsible for 2.3 million years of potential life lost annually, or an average of about 30 years of potential life lost for each death.

3. In 2005, there were more than 1.6 million hospitalizations and more than 4 million emergency room visits for alcohol-related conditions. 

Source: CDC 

And we are waging a War on Drugs and putting people in jail for smoking weed?

Healthcare and Obamacare Explained

HT: Morgan Frank