Saturday, July 21, 2012

Amazing Illusion of the Day

This is crazy.  Stare at this picture for awhile and you will see the man turn his face.  Amazing.

HT: Heidi Stinson  

David Letterman's Deranged Rant on Fracking


Watch David Letterman's two-minute rant above on the "greedy oil and gas companies of this country" who are trying "to squeeze every little last ounce of oil and gas out of previously pumped wells by injecting the substrata of our planet with highly toxic, carcinogenic chemicals which seep into the aquifer and hence into the drinking water of Americans. The Delaware Water Gap has been ruined, the Hudson Valley has been ruined, most of Pennsylvania has been ruined; Virginia, West Virginia has been ruined; Colorado has been ruined; New Mexico has been ruined. They're poisoning our drinking water. Ladies and gentlemen, we're screwed."

Letterman starts by saying "I'm not smart enough to understand fracking."  He should have stopped there, it was the only intelligent and truthful part of his deranged diatribe.

No Wage-Price Inflation Spiral with Stagnant Wages

The graph above shows two monthly series back to 1965 (data here): a) annual wage increases in the BLS series "Average Hourly Earnings of Production and Nonsupervisory Employees: Total Private" (blue line), and b) annual inflation calculated from the Consumer Price Index (red line).  Here are some observations:

1. There has been a downward trend in annual wage increases since 2007, and wage increases have been below 2% for the last nine months starting in October 2011. There has never been any other nine month period in the history of that wages series going back to 1964 of nine back-to-back months of wage increases below 2%.   

2. These are actual market-based hourly wages, and therefore not subject to the measurement issues that are frequently cited by those who think the CPI significantly overstates or understates actual inflation.

3. The chart also shows that the inflationary episode of the 1970s and early 1980s in the U.S. was accompanied by both rising wages and rising consumers prices, which both peaked in 1980-1981; CPI inflation peaked at 14.6% in 1980 and wages in 1981 at 9.4%.  Since wages are simply the price of labor, and because inflation is a general overall increase in most prices, it would follow that rising inflationary pressures would generally have to also include rising inflationary wage increases, which we obviously haven't seen yet.  In fact, wage increases have been falling since 2007 as the graph and data indicate. 

Bottom Line: As I concluded in several other related posts on this topic, it would be historically unprecedented to experience rising inflation with stagnant wages, and therefore we can assume that unless and until we start seeing rising wages on the order of 5%, we won't see higher inflation this year.  That is, we can't possibly have a 1970s-style inflationary "wage-price spiral" if wages are stagnant.  

Friday, July 20, 2012

President Obama: Think of All the Businesses That Don’t Happen, Thanks to Government Regulations,


“There are a lot of wealthy, successful Americans who agree with me — because they want to give something back. They know they didn’t — look, if you’ve been successful, you didn’t get there on your own. I’m always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something — there are a whole bunch of hardworking people out there.” 

“If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business — you didn’t build that. Somebody else made that happen.” 

Or in the case of Gibson Guitar, somebody else (overzealous government bureaucrats) tried to make that business not happen. 

Gibson Guitar CEO Henry Juszkiewicz’s explains in the WSJ article “Gibson’s Fight Against Criminalizing Capitalism“: 

“Making its way through the House of Representatives is a bill that could help prevent companies from experiencing what happened to mine last Aug. 24. Without warning, 30 federal agents with guns and bulletproof vests stormed our guitar factories in Tennessee. They shut down production, sent workers home, seized boxes of raw materials and nearly 100 guitars, and ultimately cost our company $2 million to $3 million worth of products and lost productivity. Why? We imported wood from India to make guitars in America. 

Growing businesses face a number of hurdles in today’s economy. For Gibson Guitar—a company that has created more than 580 American jobs in the last two years—the largest hurdle is the federal government. 

Policy makers must stop criminalizing capitalism. This begins by stopping the practice of creating new criminal offenses, or wielding obscure foreign laws, as a method of regulating businesses. 

Especially in a bearish economy, entrepreneurs need to be able to operate without the fear that inadvertently breaking an obscure regulation or unknowingly violating a foreign statute could shut down their company and land them or their employees in jail.”

Quotation of the Day: Let's End Discrimination

"It's wrong to discriminate on the basis of race, color, ethnicity, or religion, and it's just as wrong to discriminate on the basis of one's income or capital gains. It's wrong to discriminate on the basis of whether a couple is married or not, or whether they have children or not, or whether they rent or own their home, or whether they make more than $250,000 or not. We need to greatly simplify our tax code by not discriminating on the basis of anything. We need to make sure that everyone has an equal opportunity to succeed, but we need to stop punishing those that do and stop rewarding those who don't.

If the tax code distributes favors to every favored interest group, at the expense of any minority group, we only end up being a nation of special interests pitted against each other.

The more we discriminate on the basis of anything, the more incentive our politicians have to pander to special interest groups, and the more divided we become. This will be the death of us if we don't stop it." 

~Scott Grannis

No Inflationary Pressures Based on the BPP@MIT Index and Two Measures of Expected Inflation


The Billion Prices Project @ MIT just released daily online price index data through June 30, and the annual inflation rates from that price index are displayed in the chart above going back to late 2009 (red line in chart). According to this real-time measure of major inflation trends in the U.S., inflationary pressures have been subsiding for the last year, and annual inflation has fallen from almost 4% last July to the current level of about 1.25%, the lowest rate since late 2009.  In contrast to the MIT-BPP inflation, annual inflation based on the CPI is running higher, at about 1.75% through June (blue line in chart).

In one of several other related releases this week, the Federal Reserve Bank of Cleveland reported that its latest estimate of expected inflation over the next ten years was 1.26% in June, the lowest level in the 30-year history of the Cleveland Fed's series going back to 1982, except for a slightly lower estimate in May.

Further, Bloomberg is reporting that the breakeven rate on regular 10-year Treasury notes versus 10-year indexed-Treasuries, a market-based measure of expected future inflation, has been trending downward for the last three months.   The current breakeven rate is about 2.1%, indicating that the bond market expects future inflation to continue to remain low.

Taken together, these three measures above of actual and expected inflation suggest that there's very little empirical evidence of any inflationary pressures in the U.S. economy, and there's probably more evidence now of deflationary pressures.  

Milton Friedman Responds to Obama’s Claim That There's No Such Thing as Individual Achievement

President Obama: “Look, if you’ve been successful, you didn’t get there on your own. You didn’t get there on your own. I’m always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something — there are a whole bunch of hardworking people out there.

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business — you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.” 

Milton Friedman responds in this 1979 video starting about 1:30:



“The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade.

If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system.”

Monthly Grammar Post/Rant

1. The graphic above is titled "The Best Way to Prank a Grammar Nazi When They Leave their Phone Unattended."

2. A CD reader recently sent an email to correct my recent post titled "Quote of the Day," which should be "Quotation of the Day."  According to traditional grammar style guidelines, "quote" is a verb and "quotation" is a noun, so it should be "Quotation of the Day," although there does seem to be some flexibility on this rule.  But I'll go with the traditional rule from now on, I notice that's the grammar rule Don Boudreaux follows on Cafe Hayek for his frequent daily quotations.

3. And here's a brand new collection from the CD comments section of the most common grammar/spelling/punctuation mistake in the English language:

a. That was a far steeper loss than the rest of the U.S. population, which saw it’s income drop by less than half that.

b. .....pay full rate at a top firm or takes it's chances with.....

c. I wonder if WalMart offers health insurance to it's employees in Canada or not.

d. I noticed you recently blogged about alcohol and it's negative effects and I thought you might be interested in this book.

e. A recent article shows how hard it can be to unwind so-called “green” programs, even when it’s failings are manifest.

f. Somewhere along the line government became it's own self serving entity.

g. People who read this blog would have taken the time to see the original speech in it's entirety.

h. My issue here is a term used to define a corporate strategy is being stretched to it's breaking point.

N. Dakota Leads U.S. with 2.9% June Jobless Rate

While the overall U.S. labor market struggles through another jobless recovery with 41 straight months of unemployment above 8% starting in February 2009 (see chart), the state of North Dakota provides a remarkable contrast.  The BLS released data today on regional and state employment, and reported that the jobless rate in the Peace Garden State fell again to a four-year low of 2.9% in June, the lowest rate there in more than four years (see chart).  Once again, the June jobless rate in North Dakota was the lowest in the country, and almost a full percent below second-place Nebraska's 3.8% rate, more than five percentage points below the national average of 8.2%, and almost nine percentage points below Nevada's 11.6% (highest in the country). 

Here's a related Fox News report and video titled "Boom in oil industry creates wealth of jobs in North Dakota." Maren Daley, executive director of Job Service North Dakota almost sounds like he's paraphrasing Obama when he remarked that:

"I think what's good for us is good for the country and, we have employees from all over. We have investors from all over the country, so we're part of the big symbiotic relationship across the country and we couldn't do it alone without the rest of our country working with us."

15-Year-Old Improves Pancreatic Cancer Test

 
Make: -- "Maryland teenager Jack Andraka (featured in the video above) isn’t old enough to drive yet, but he’s just pioneered a new, improved test for diagnosing pancreatic cancer that is 90% more accurate, 400 times more sensitive, and 26,000 times less expensive than existing methods. 

When Andraka had solidified ideas for his novel paper sensor, he wrote out his procedure, timeline, and budget, and emailed 200 professors at research institutes. He got 199 rejections and one acceptance from Johns Hopkins: “If you send out enough emails, someone’s going to say yes.” Andraka was recently awarded the grand prize at the Intel International Science and Engineering Fair for his groundbreaking discoveries."

HT: Gale Pooley

Energy Fact of the Day

INFORUM -- "At the end of May, North Dakota had 336 idle wells that had been drilled but were waiting for fracking crews."

MP: Employment in North Dakota's oil industry has more than quadrupled since 2008 (see chart above), but it looks like the increases in employment haven't been keeping up with the increased demand for fracking workers, resulting in hundreds of idle wells.  Given enough time for the supply of workers to catch up to the rising demand, we can look for continued increases in North Dakota's phenomenal oil output as those idle wells become active.

Thursday, July 19, 2012

Poster of the Day


Counteracting Outsourcing Hysteria; Households "Outsource" Every Time They Eat at a Restaurant

Another round of outsourcing hysteria is flaring up again, fueled by the China-made Olympic uniform controversy, claims by Obama and Democrats that Mitt Romney outsourced American jobs overseas during his days at Bain Capital, claims by Romney that some Obama stimulus money went to foreign firms and workers, and a recent bill introduced in the Senate that would ban American companies from deducting expenses of moving production overseas from the U.S.  

Back in 2004, another presidential election year, the first large wave of U.S. companies outsourcing operations overseas was underway (e.g. call centers in India), and the outsourcing hysteria was exploding, and it became a huge political issue. In the midst of that hysteria 8 years ago, I tried to bring some sanity to the discussion and I provide a few excerpts of that effort here:

Outsourcing is nothing more than acquiring goods or services from a foreign source. For example, we could grow bananas under glass in artificial environments in North Dakota but we choose instead to outsource them to places like Honduras.

To better understand the controversy, consider how much you benefit directly from “household outsourcing” and the jobs created both directly and indirectly when you engage in it.

Every time you buy groceries or clothes, use the services of a dry cleaner or a car wash, or eat in a restaurant, you are outsourcing. Just like a business, you compare the cost of producing those items or performing those services yourself, to the cost of acquiring them from others.

Outsourcing greatly lowers our cost of consumption, raises our standard of living tremendously and directly supports many jobs. Those are just some of the visible benefits. There are also secondary and indirect benefits. Jobs are created in many industries throughout the economy by the spending made possible because of our initial cost savings from outsourcing. Getting bananas from Honduras for 30 cents a pound instead of “North Dakota-grown” bananas for three dollars a pound frees up $2.70 for you to buy other things, to extend our hypothetical example.

At the state level, we outsource production for most of our food to workers in other states. Farmers elsewhere produce oranges, avocados, and sweet potatoes at lower cost than could Michigan farmers, and we benefit as a state from their greater efficiency. Fortunately for Michigan, consumers around the country in turn outsource the production of motor vehicles to Michigan workers, helping support 700,000 manufacturing jobs here. The outsourcing of some jobs outside of Michigan is fortunately accompanied by the insourcing of just as many, if not more, jobs into Michigan.

As a country, we globally source the production of roses, emeralds, coffee, and hundreds of other goods to workers in South America. Lumber production is outsourced to workers in Canada, tomato production to Mexico farmers, and clothing production to workers in India and Mexico.

To survive, firms have to operate as efficiently as possible, and this requires them to consider all possible locations for producing goods or providing services at the lowest cost. The result is lower prices for consumers and greater overall output. The process indeed displaces some workers (almost always temporarily) but that should not blind us to the overwhelming benefits everyone derives from encouraging trade and the economic prosperity it yields.

Thomas Sowell on the Pious Talk about Giving Back

"All the high-flown talk about how people who are successful in business should "give back" to the community that created the things that facilitated their success is, again, something that sounds plausible to people who do not stop and think through what is being said. After years of dumbed-down education, that apparently includes a lot of people.

Take Obama's example of the business that benefits from being able to ship their products on roads that the government built. How does that create a need to "give back"? Did the taxpayers, including business taxpayers, not pay for that road when it was built? Why should they have to pay for it twice?

What about the workers that businesses hire, whose education is usually created in government-financed schools? The government doesn't have any wealth of its own, except what it takes from taxpayers, whether individuals or businesses. They have already paid for that education. It is not a gift that they have to "give back" by letting politicians take more of their money and freedom.

When businesses hire highly educated people, such as chemists or engineers, competition in the labor market forces them to pay higher salaries for people with longer years of valuable education. That education is not a government gift to the employers. It is paid for while it is being created in schools and universities, and it is paid for in higher salaries when highly educated people are hired.

One of the tricks of professional magicians is to distract the audience's attention from what they are doing while they are creating an illusion of magic. Pious talk about "giving back" distracts our attention from the cold fact that politicians are taking away more and more of our money and our freedom."


More Failed Renewable Energy Companies

Two more renewable energy companies have failed (or are about to fail), despite hundreds of millions of dollars of government taxpayer-financed loan guarantees, tax credits, and grants.  Both failures are taking place in the state of Nevada, and both companies were strongly supported by Nevada Sen. Harry Reid as major job creators.  Reid promoted renewable energy in his state by comparing Nevada's sunshine and geothermal resources to the value of Saudi Arabian oil.  Minor editing below in bold is mine.   

1. Washington Times -- "A geothermal energy company with a $98.5 million loan guarantee from the Obama administration U.S. taxpayers for an alternative energy project in Nevada — which received hearty endorsements from Energy Secretary Steven Chu and Senate Majority Leader Harry Reid — faces financial problems, and the company’s auditors have questioned whether it can stay in business.

Much like Solyndra LLC, a California solar-panel manufacturer with a $535 million federal loan guarantee that went bankrupt, Nevada Geothermal Power (NGP) has incurred $98 million in net losses over the past several years, has substantial debts and does not generate enough cash from its current operations after debt-service costs, an internal audit said."

2. Las Vegas Review-Journal -- "The Amonix solar manufacturing plant in North Las Vegas, subsidized by U.S. taxpayers with more than $20 million in federal tax credits and grants, has closed its 214,000-square-foot facility about a year after it opened.

A designer and manufacturer of concentrated photovoltaic solar power systems, Amonix received $6 million in taxpayer-funded federal tax credits for the North Las Vegas plant and a $15.6 million grant from U.S. taxpayers via the U.S. Department of Energy in 2007 for research and development."

Energy Fact of the Day: No Dry Holes in the Bakken

Associated Press -- "Despite widespread hope that North Dakota's oil rush will spread across the border, some say it's doubtful South Dakota will experience much of it. South Dakota state geologist Derric Iles says drillers are virtually assured of a profitable well in North Dakota. He says they have little time to bother with unknown prospects across the border.

Iles believes South Dakota is underexplored and may hold untapped reserves that could be exploited using know-how gained from North Dakota's Bakken formation. The formation is not present in South Dakota.

State and industry officials say dry holes are a rarity for drillers in the Bakken. Ninety-nine percent of the rigs hit oil, and nine out of 10 wells make money."

Portugal's Successful Drug Decriminalization

Business Insider -- "On July 1st, 2001, Portugal decriminalized every imaginable drug, from marijuana, to cocaine, to heroin. Some thought Lisbon would become a drug tourist haven, others predicted usage rates among youths to surge. Eleven years later, it turns out they were both wrong.

Over a decade has passed since Portugal changed its philosophy from labeling drug users as criminals to labeling them as people affected by a disease. This time lapse has allowed statistics to develop and in time, has made Portugal an example to follow. 

The resulting effect: a drastic reduction in addicts, with Portuguese officials and reports highlighting that this number, at 100,000 before the new policy was enacted, has been halved in the following ten years. Portugal's drug usage rates are now among the lowest of EU member states.

For policymakers or people simply interested in this topic, cases like Portugal are a great place to start."

HT: Kevin DeNardo

Median Home Price in June Highest Since 2008, Annual Gain of 7.9% Largest Since February 2006


The National Association of Realtors released its report today on June home sales, and most of the media focus seems to be on the disappointing 4.5% drop in existing-home sales from 4.62 million units in May (revised upward from 4.55 previously reported) to 4.37 million homes in June.  For example, the WSJ reports that:

"Sales of previously occupied homes in the U.S. took an unexpected dip last month to the lowest level in eight months, a sign of weakness for a part of the economy that has been showing life."

But compared to June of last year, existing-home sales were up by 4.5%, which is the 12th consecutive month of an annual increase in units sold, following 11 months out of the previous 12 months of annual decreases in home sales.  And here's some other positive news from the report about median-home prices:

The median-price for homes sold in June was $184,000, which is the highest level since September of 2008, almost four years ago (see chart above).  Year-over-year, the median home price in June was almost 8% above last year, which was the largest annual increase since a 8.7% gain in February 2006.  The June year-to-year  increase in median price was the fourth consecutive increase, following 15 straight months of decreases.  The last time there were four back-to-back months of annual increases in median home prices was in the spring of 2006, more than six years ago.

Note that when the Case-Shiller report on home prices comes out showing negative or weak annual increases in home prices, that's reported as a sign of housing market weakness.  So now that median-home prices are close to a 4-year high, and showing the largest annual increase in more than six years, shouldn't that be reported as a sign of housing market strength and recovery?

Update: Mortgage rates fell again this week to new all-time record lows of 3.53% for the 30-year and 2.83% for the 15-year.  

Cartoon of the Day


Quotation of the Day: Rearden Steel

“He didn’t invent iron ore and blast furnaces, did he?” 

“Who?” 

“Rearden. He didn’t invent smelting and chemistry and air compression. He couldn’t have invented his Metal but for thousands and thousands of other people. His Metal! Why does he think it’s his? Why does he think it’s his invention? Everybody uses the work of everybody else. Nobody ever invents anything.” 

She said, puzzled, “But the iron ore and all those other things were there all the time. Why didn’t anybody else make that Metal, but Mr. Rearden did?” 

~Atlas Shrugged, Chapter 9, page 1


Wednesday, July 18, 2012

Schumer Calls for U.S.-Made Olympic Athletes

To expose the current political asininity and nitwitery swirling around Washington these days about where our Olympic uniforms are stitched together, here's a re-write of this article from The Hill re-titled "Schumer joins calls for US-made/born Olympic uniforms athletes":

"Sen. Charles Schumer (D-N.Y.) became one of the latest legislators to call on the U.S. Olympic Committee to replace uniforms made U.S. Olympic athletes born in China and other foreign countries with ones made (born) in the United States.
Schumer sent a letter to Olympic Committee Chairman Lawrence Probst last Friday in response to an ABC News report that the uniforms for some American athletes at the opening ceremonies of the upcoming Olympics were actually made(born) in China and other foreign countries.

Examples of the multiple dozens of foreign-made/born Olympic athletes representing the USA in London include table tennis world champion Jun Gao (made/born in China), world class soccer player Freddy Adu (made/born in Ghana), middle-distance runner Said Ahmed (made/born in Somalia), world champion badminton player Howard Bach (made/born in Vietnam) and swimmer Mike Alexandrov (made/born in Bulgaria).

Since the report, Schumer said he was able to iron out an agreement for Rochester-based uniform maker, Hickey Freeman, to make the American uniforms for American-made (born) athletes that who would replace the Chinese-made (and other foreign-born) ones athletes

"I was disappointed to learn that despite being sent to London by fellow Americas, their uniforms will be manufactured by Chinese citizens instead  many U.S. Olympic athletes were made/born in China and other foreign countries" Schumer writes in the letter. "This is particularly disappointing because there are many American-born manufactures athletes capable of providing uniforms to our athletes competing in London."

Schumer added it was "particularly disappointing" that the manufacturer was some members of the Olympic team were born/made in China.

"I urge you to reconsider your decision to use a Chinese-born athletes like Jun Gao manufacturer for our London Olympians’ uniforms and instead give your Olympic spots business to companies such as Hickey Freeman and their to American-made/born workers athletes who have offered to serve their nation in this capacity — both for this year’s games and all the upcoming 2014 Olympic Games in Sochi, Russia."

On Thursday, Senate Majority Leader Harry Reid (D-Nev.) said the Chinese-made/born and other foreign-made/born Olympic athletes uniforms should be burned and replaced with American-made/born ones.

"I am so upset that I think the [U.S.] Olympic Committee should be ashamed of themselves, I think they should be embarrassed, I think they should take all the uniforms, foreign-made/born Olympic athletes and put them in a big pile and burn them and start all over again with athletes 'Made/Born in the USA'," Reid told reporters."

The Top 20% Paid 94.1% of Income Taxes in 2009

The chart above is based on data in the recently-released CBO report "Distribution of Household Income and Federal Taxes, 2008 and 2009," showing the share of federal income taxes paid by income group in 2009.  In 2009, almost all (94.1%) federal income taxes collected were paid by just one-fifth of Americans (top quintile) and the top 1% paid almost 39% of all taxes collected.  In contrast, the lowest and second quintiles were net "tax collectors" because that 40% of Americans received more in refundable tax credits than they paid in income taxes.

But all we hear about is how the rich don't pay their fair share of taxes, and proposals for increasing taxes on "the rich," like the one from Warren Buffett discussed here. 

Coursera Expands to 16 Universities, 3 Int'l.

From the Coursera Blog:

"We are THRILLED to announce that 12 universities—including three international institutions—will be joining Princeton University, Stanford University, University of Michigan, and University of Pennsylvania in offering classes on Coursera.

On Coursera, you will now be able to access world-class courses from:

· California Institute of Technology
· Duke University
· École Polytechnique Federale de Lausanne
· Georgia Institute of Technology
· Johns Hopkins University
· Princeton University
· Rice University
· Stanford University
· University of California, San Francisco
· University of Edinburgh
· University of Illinois at Urbana-Champaign
· University of Michigan
· University of Pennsylvania
· University of Toronto
· University of Virginia
· University of Washington

You’ll be able to choose from more than 100 courses, from Professor Dan Ariely’s course on irrational behavior, to learning how to program in Scala (taught from the creator of Scala, Professor Martin Odersky from EPFL), to the legendary UVA course “How Things Work” with Professor Louis Bloomfield. You can check out the most current course list here — keep in mind you can enroll in a class even if the start date is TBA.

To date, 700,000 students from 190 countries have participated in classes on Coursera, with more than 1.55 million course enrollments total!"

Empowering Technology: Mobile Phone Access Reaches Three Quarters of Planet's Population

The World Bank and infoDev released a study yesterday titled "Information and Communications for Development 2012: Maximizing Mobile," here's an excerpt from the press release:

"Around three-quarters of the world’s inhabitants now have access to a mobile phone and the mobile communications story is moving to a new level, which is not so much about the phone but how it is used.  The number of mobile subscriptions in use worldwide, both pre-paid and post-paid, has grown from fewer than 1 billion in 2000 to over 6 billion now, of which nearly 5 billion in developing countries. Ownership of multiple subscriptions is becoming increasingly common, suggesting that their number will soon exceed that of the human population."

Here's an excerpt from the Executive Summary:

"With some 6 billion mobile subscriptions in use worldwide, around three-quarters of the world’s inhabitants now have access to a mobile phone. Mobiles are arguably the most ubiquitous modern technology: in some developing countries, more people have access to a mobile phone than to a bank account, electricity, or even clean water. Mobile communications now offer major opportunities to advance human development—from providing basic access to education or health information to making cash payments to stimulating citizen involvement in democratic processes. 

The developing world is “more mobile” than the developed world. In the developed world, mobile communications have added value to legacy communication systems and have supplemented and expanded existing information flows. However, the developing world is following a different, “mobile first” development trajectory. Many mobile innovations—such as multi-SIM card phones, low-value recharges, and mobile payments—have originated in poorer countries and are spreading from there. New mobile applications that are designed locally and rooted in the realities of the developing world will be much better suited to addressing development challenges than applications transplanted from elsewhere. In particular, locally developed applications can address developing-country concerns such as digital literacy and affordability. 

Mobile applications not only empower individual users, they enrich their lifestyles and livelihoods, and boost the economy as a whole. Indeed, mobile applications now make phones immensely powerful as portals to the online world. A new wave of “apps,” or smartphone applications, and “mashups” of services, driven by high-speed networks, social networking, online crowdsourcing, and innovation, is helping mobile phones transform the lives of people in developed and developing countries alike. The report finds that mobile applications not only empower individuals but have important cascade effects stimulating growth, entrepreneurship, and productivity throughout the economy as a whole. Mobile communications promise to do more than just give the developing world a voice. By unlocking the genie in the phone, they empower people to make their own choices and decisions." 

Here's a website with links to the full study.

MP: An amazing story of how a new technology has revolutionized the world and empowered individuals and transformed lives, especially in the developing countries.  The simple cell phone has probably done more to reduce poverty globally and promote economic growth around the planet than all of the efforts of the World Bank.  

Looking Forward to Sen. Reid's Bonfire

Senator Harry Reid:

“I am so upset that I think the Olympic Committee should be ashamed of themselves, I think they should be embarrassed,” Reid said in response to a question at a press conference. “I think they should take all of the uniforms put them in a big pile and burn them and start all over again; even if they have to just wear nothing but a singlet that says USA on it.”

Greg Mankiw:

"Will some enterprising reporter please ask Senator Reid for the opportunity to inspect the senator's closet and check the labels of his clothing to make sure they are all American-made?   I look forward to seeing Mr. Reid's bonfire."

Real Estate News

1. Home sales in Southern California increased in June by 7.5% compared to last year, according to DQNews.  The median home price in June increased by 5.3% on an annual basis, to $300,000, the highest since June 2010 when the "market got a final big boost from expiring homebuyer tax credits."  

2. The Commerce Department reported today that housing starts increased in June to 760,000 units on an annualized basis, which is the highest monthly count since October 2008.  June housing starts were 7% higher than the May level  of 711,000 units, and 23.6% above the 615,000 starts in June of 2011. 

Tuesday, July 17, 2012

Think of All the Businesses That Did NOT Happen, Thanks to Government Bureaucrats and Regulations


President Obama:

"There are a lot of wealthy, successful Americans who agree with me -- because they want to give something back.  They know they didn’t -- look, if you’ve been successful, you didn’t get there on your own.  I’m always struck by people who think, well, it must be because I was just so smart.  There are a lot of smart people out there.  It must be because I worked harder than everybody else.  Let me tell you something -- there are a whole bunch of hardworking people out there.  (Applause.)

If you were successful, somebody along the line gave you some help.  There was a great teacher somewhere in your life.  Somebody helped to create this unbelievable American system that we have that allowed you to thrive.  Somebody invested in roads and bridges.  If you’ve got a business -- you didn’t build that.  Somebody else made that happen."

Or in the case of 13-year old entrepreneur Nathan Duszynski in Holland, Michigan, who tried to start a business, and somebody else (government bureaucrats) made that not happen.  Here's what happened, or more accurately, what didn't happen, according to the Holland Sentinel:

"Nathan Duszynski (pictured above), 13, decided he wanted a hot dog cart, so he could earn some money. But as he was setting up shop Tuesday in the parking lot of Reliable Sports at River Avenue and 11th Street — across the street from Holland City Hall — a city of Holland zoning official shut him down. Now, after spending more than $2,500 to start up his business, Duszynski is throwing in the towel, his mom said."

America's Revolutionary Energy Bonanza

Walter Russell Mead weighs in with some profound insights on America's huge, game-changing, job-creating, energy bonanza:

"Forget peak oil; forget the Middle East. The energy revolution of the 21st century isn’t about solar energy or wind power and the “scramble for oil” isn’t going to drive global politics. The energy abundance that helped propel the United States to global leadership in the 19th and 2oth centuries is back; if the energy revolution now taking shape lives up to its full potential, we are headed into a new century in which the location of the world’s energy resources and the structure of the world’s energy trade support American affluence at home and power abroad.

By some estimates, the United States has more oil than Saudi Arabia, Iraq and Iran combined, and Canada may have even more than the United States. A GAO report released last May (pdf link can be found here) estimates that up to the equivalent of 3 trillion barrels of shale oil may lie in just one of the major potential US energy production sites. If half of this oil is recoverable, US reserves in this one deposit are roughly equal to the known reserves of the rest of the world combined.

Domestically, the energy bonanza changes the American outlook far more dramatically than most people yet realize. This is a Big One, a game changer, and it will likely be a major factor in propelling the United States to the next (and still unknown) stage of development — towards the next incarnation of the American Dream.

The energy revolution is first and foremost a revolution that affects jobs. We are in the very early stages, but since the financial crisis of 2008, fracking alone has created something like 600,000 new jobs in the United States, says the FT. Throw in more jobs in both extracting and refining the new energy wealth, and add the manufacturing and processing industries that will return to US shores to benefit from cheap, secure and abundant energy and feedstock, and it is clear that the energy revolution will be a jobs revolution.

These jobs pay well; for the first time in a generation we are looking at substantial growth of high-income jobs for skilled blue collar workers. Some of these jobs, especially with overtime, will pay in the six figures; most offer wages well above the national blue collar average.

Nature — or perhaps Nature’s God — seems to love mocking pundits. Just when the entire punditocracy, it sometimes seemed, had bought into the “American decline” meme, Europe collapsed and huge energy reserves were discovered underneath the United States. The “special providence” that observers have from time to time discerned in America’s progress through history doesn’t seem to be quite finished with us yet.

Getting the new oil and gas raises complicated technical and environmental issues, and it may take some time before the dust settles and we understand exactly what we are looking at here. And drilling is a notoriously uncertain business. The energy revolution may fall short of the full hopes it stirs up. Yet the rapid progress of extraction technology is making these unconventional reserves look more real and more ‘gettable’ all the time. Rather than coping gracefully with the consequences of inevitable decline, America’s job in the 21st century looks like handling its new set of opportunities wisely and well."

HT: Matt B.

Sen. Schumer Wants to Ban Foreign-Produced Olympic Gear; Will That Include U.S. Production?

From yesterday’s Wall Street Journal:

"The horror, the horror. No, we aren’t referring to those blue berets that U.S. athletes will wear at the opening Olympic ceremonies in London this month. We mean the horrified reaction from American politicians that those uniforms are made in China. Someone should tell these folks that if you want to have exports, you also need imports.

A half dozen Democratic Senators—led by Chuck Schumer, who else?—have introduced a bill to require that future uniforms be made in America. These are the same geniuses whose tax-and-spend policies make the U.S. economy less competitive. A country that worries about where its Olympic clothes are made has bigger competitive problems than those berets."


"The U.S. Olympic team may not be wearing American made uniforms during the opening ceremony in London, but another Olympic team will be sporting products made in Middle Tennessee during the games.

The Brazilian Olympic equestrian team is using saddle pads produced by Wilker’s Custom Horse Products in Cool Springs, Tennessee.  The business made a dozen white custom saddle pads with kelly green and yellow trim and piping for the team."

MP: Just wondering if Sen. Schumer’s anti-trade bill will be consistent and include a ban on any foreign Olympic uniforms being made in America like the saddle pads from Tennessee?  After all, if a voluntary, international transaction between Olympic uniform buyers in America and uniform producers in China is undesirable, then shouldn't an international transaction between uniform (or saddle pad) producers in America and uniform (saddle pad) buyers in Brazil be equally undesirable?  How can we justify banning international uniform buying without also banning international uniform selling?  

Twitter and the New AEIdeas Blog

Follow me on Twitter for daily updates, news, blog posts, links, economic reports, headlines, re-tweets, data, charts, etc. 

Follow me also on the new AEIdeas Blog of the The American Enterprise Institute, where Carpe Diem content is now cross-posted, along with daily commentary from Jimmy Pethokoukis, and four other blog "channels" by topic for: a) Economics, b) Foreign and Defense Policy, c) Politics and Public Opinion and d) Society and Culture

Shale Wealth Spreads Halfway Around the World to Poor Indian Farmers Growing Beans for Fracking

Yesterday, I wrote a post about the new "sand millionaires" and "sand prosperity" in Wisconsin and Minnesota because of the "frac sand boom" going on there.   

In June, I featured a WSJ article about how the U.S. shale revolution is spreading prosperity to poor farmers on the other side of the planet in India who are growing guar beans (pictured above), which are now used extensively to extract shale oil and gas in the U.S. using advanced hydraulic fracturing technology.

The New York Times has a related front page article today about how "India's dirt-poor farmers are striking gas-drilling gold" with the guar bean, here's an excerpt:

"Guar, a modest bean so hard that it can crack teeth, has become an unlikely global player, and dirt-poor farmers in India have suddenly become a crucial link in the energy production of the United States. 

For centuries, farmers here used guar to feed their families and their cattle. There are better sources of nutrition, but few that grow in the Rajasthani desert, a land rich in culture but poor in rain. Broader commercial interest in guar first developed when food companies found that it absorbs water like a souped-up cornstarch, and a powdered form of the bean is now widely used to thicken ice cream and keep pastries crisp.

But much more important to farmers here was the recent discovery that guar could stiffen water so much that a mixture is able to carry sand sideways into wells drilled by horizontal fracturing, also known as fracking.

Guar farmers, traders and processors admitted fulfilling some long-held dreams with the profits they made last year. Some took trips to Europe; some bought gold; others got married (see related NY Times story "My Big Fat Guar Wedding")." 

Cartoon of the Day: Keynesian Economics


June Industrial Production Highlights



The Federal Reserve released its report today on Industrial Production in June, here are some highlights

1. Overall industrial output increased by 0.4%% in June on a monthly basis, and by 4.7% on an annual basis, marking the 29th consecutive month of annual growth.

2. Annual increases were especially strong in June for business equipment (12.8%), motor vehicles and parts (26.3%), oil and gas well drilling (8.7%), and overall manufacturing (5.6%), especially for durable manufactured goods (9.7%). 

3. The Federal Reserve reported motor vehicle assemblies of 10.55 million units in June (seasonally adjusted, annual rate), which was an increase of 31% over last year (see top chart above).  Coming in at just slightly below April's assemblies of 10.67 million units, it was the second highest monthly number of vehicles assembled since the pre-recession summer of 2007, almost five years ago.  Look for strong gains in vehicle sales to continue through the summer, and an ongoing rebound in Midwest manufacturing.  

4.  The 12.8% increase in June business equipment output brought production of that market group to an index level of 104.4, matching its previous pre-recession peak in February 2008 (see bottom chart above).  The transit component of the business equipment group registered the strongest annual gain at 23%.

MP: Overall, today's report suggests that America's industrial sector continues to grow, even though the pace of growth is slowing somewhat.  But nothing in today's report on industrial output would suggest that the U.S. economy has entered a new recession, especially when you consider the recovery and ongoing increases in auto assemblies and business equipment since 2009.  

Builder Confidence Rises to a 5-Year High in July, with the Largest Monthly Increase Since 2002


The National Association of Home Builders reports today that:

"Builder confidence in the market for newly built, single-family homes rose six points to 35 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July, released today (see chart above). This is the largest one-month gain recorded by the index in nearly a decade (since September 2002), and brings the HMI to its highest point since March of 2007.

“Builder confidence increased by solid margins in every region of the country in July as views of current sales conditions, prospects for future sales and traffic of prospective buyers all improved,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “This is greater evidence that the housing market has turned the corner as more buyers perceive the benefits of purchasing a newly built home while interest rates and prices are so favorable.”

“Combined with the upward movement we’ve seen in other key housing indicators over the past six months, this report adds to the growing acknowledgement that housing – though still in a fragile stage of recovery – is returning to its more traditional role of leading the economy out of recession,” noted NAHB Chief Economist David Crowe. “This is particularly encouraging at a time when other parts of the economy have begun to show softness, and is all the more reason that the challenges constraining housing’s recovery – namely overly tight lending conditions, poor appraisals and the flow of distressed properties onto the market – need to be resolved.”

Every HMI component recorded gains in July. The components gauging current sales conditions and traffic of prospective buyers each rose six points, to 37 and 29, respectively, while the component gauging sales expectations for the next six months rose 11 points to 44. Likewise, every region posted HMI gains in July. The Northeast registered an eight-point gain to 36, while the Midwest gained three points to 34, the South gained five points to 32 and the West gained 12 points to 44."

Monday, July 16, 2012

Fracking the U.S.-Mexico Border

The Houston Chronicle reports that "Gas drilling is a boom for drug traffickers, too":

"Energy companies boring into the depths of South Texas in the multibillion-dollar hunt for natural gas and oil are opening a growing fissure in U.S.-Mexico border security as they build hundreds of miles of private back roads and an uncharted pipeline to America for drug traffickers.

Hefty roads running through once-remote ranchlands now enable loaded-down tractor-trailers and pickups to avoid Border Patrol highway checkpoints that have long been the last line of defense for stopping all traffic headed farther into the United States.

Traffickers are seeking to use the southwest-most stretches of the massive Eagle Ford shale formation, which stretches from Mexico all the way to East Texas, to their advantage by trying to corrupt truck drivers, contractors and gate personnel. Authorities also speculate that they are trying to make "cloned" copies of legitimate trucks and use contractor-like vehicles to avoid standing out among fleets of oil-field service vehicles working for energy companies. In some cases, vehicles have been stolen and believed to have been used by smugglers.

"They are using those roads to transport drugs, guns, ammo, you name it," said Albert DeLeon, chief deputy of the Dimmit County sheriff's office."

Chart of the Day: How True....

HT: Joe Lais

Markets in Everything: Pedaling Prisoners

Brazil Uses Pedaling Prison Inmates To Generate Electricity and Power Street Lamps

HT: Strider Elass

Midwest Sand Rush Creates Jobs, Prosperity, and "Sand Millionaires," But Comes with Controversy

I spent the weekend along the Mississippi River in Buffalo City, Wisconsin, about 120 miles south of Minneapolis-St. Paul (across the river from Winona, Minnesota), where there is a growing controversy in sand-rich southeastern Minnesota and west-central Wisconsin ("America's Sandbox") about mining for frac sand (the silica sand used for hydraulic fracturing).  While starting my drive this morning to the Minneapolis airport, I took pictures of the two signs above that help tell the story of the controversy.

On one side are the frac sand supporters ("dig, baby, dig"), which include dozens of new "sand millionaires" who have reaped huge financial windfalls by selling or leasing their land for sand mining, or by selling their mineral rights for amounts typically exceeding $100,000 (in addition to royalties for each ton of frac sand mined). Frac sand mining has further stimulated local economies in Minnesota and Wisconsin by bringing many high-paying jobs (each frac sand mine employs between 10 and 20 people, while 40 to 50 people work at a typical sand processing plant, and dozens of truck drivers are hired to haul frac sand to processing plants and rail terminals), raising household incomes, bringing millions of dollars of new capital investments, and pumping revenue into area businesses and local governments.

One the other side are sand opponents, including those trying to stop a frac sand plant near the Cochrane-Fountain City (CFC) High School in Wisconsin (see photo above) because of the increased noise and congestion from constant truck traffic, health concerns about the airborne silica dust from sand mining, and environmental concerns about sand mining's effects on the local land, wetlands, and streams.

My timing was excellent, because after I arrived at the Minneapolis airport a few hours after taking the photos, I found an excellent, related article published today by the Minneapolis Federal Reserve titled "Sand SurgeIn Minnesota and Wisconsin, frac sand mining has lifted local economies--and stirred opposition," here are a few excerpts:

"High-grade frac sand commands a premium in the marketplace: $60 to $80 per ton, over five times the price of construction sand and gravel. Oil companies and oilfield service firms can pay over $300 per ton for processed sand delivered to the wellhead. No wonder that large mining firms, many of them based outside the region, have invested hundreds of millions of dollars in mines and processing facilities.

Unemployment in Barron County, Wis., topped 11 percent at one point during the recession. But since 2010, sand mining companies have invested hundreds of millions of dollars in the predominantly rural county—making its economic development director bullish on the future. “Frac sand is the biggest and best thing that’s happened in our lifetime in Barron County,” Bob Missling said. “I see frac sand becoming one of the county’s biggest sources of business revenue, moving forward.”

For rural communities struggling to recover from the recession, new and expanded sand mines are a boon; they bring relatively well-paying jobs, increased spending at local businesses and a stronger tax base. But not everything about frac sand is golden. Mining development also can impose costs, such as lost revenues in other industries, environmental harm and diminished public health and safety.

In many communities, new or proposed sand mines have provoked public outcry, leading counties and townships to pass moratoriums on new frac sand operations. As of June, moratoriums were in force in seven counties and several townships in Minnesota and Wisconsin.

The scale and pace of sand mining development in the region over the next few years depend partly on how communities adapt to mining activity, balancing the resource demands of mines against the impact of those demands on competing land uses, the environment and public welfare.  Logistics also has a bearing on where sand mining is likely to prosper and grow. In Minnesota, transportation bottlenecks, in particular a lack of rail capacity, may prove as big a barrier to mine development as pushback from mining opponents."

MP: Like all new technologies, energy sources, and emerging industries, there are costs, disruptions, negative externalities, and risks involved (just like the historical impacts of Midwest farming and logging, and the subsequent commercial barge traffic on the Mississippi River), and frac sand is no different.  As Thomas Sowell reminds us, "There are no solutions, only tradeoffs." 

Hopefully, the significant benefits of frac sand mining will outweigh the costs, and will continue to bring sand prosperity and shovel-ready jobs to "America's Sandbox."  It should also be pointed out that this emerging energy-related industry with all of its new shovel-ready jobs is taking place on private lands with private investment, and requires no government taxpayer funding or subsidies, and no government taxpayer loan guarantees.    

Markets in Everything: Blood for Profit

FORBES -- "The supply chain for blood hasn't changed in seven decades—a system that Minneapolis-based General Blood is trying mightily to disrupt. Instead of relying on collection from local donors, then selling to hospitals within driving distance, why not buy cheaply from centers in ­America’s vast midsection and distribute overnight to hospitals on either coast, underpricing rivals like the Red Cross?
 
But it’s not so easy to disrupt a $4.5-billion-a-year business, even a sclerotic one. For one thing, the tide of supply and demand changes as dramatically as Old Muddy. For another, it’s tough to dislodge old ways of doing things—especially in a market where the biggest player, the American Red Cross, controls 44% of the blood supply and has the ability to distribute nationally, depending on the needs of particular areas."

Updated with link to article and correction in first sentence. 

Markets in Everything: Yell at a Bum


Cartoon of the Day: We Just Don't Make Things

HT: Jeff Jacoby

Sunday, July 15, 2012

Shale Gas Gives Big Boost to America’s Economy

Here's where America's 100-year supply of natural gas will come from: 
From The Economist:

"Natural gas has wrought some remarkable changes. Over the past five years America has recorded a decline in greenhouse-gas emissions of 450m tonnes, the biggest anywhere in the world. Ironically, given its far greater effort to tackle climate change, the European Union has seen its emissions rise, partly because its higher gas prices (linked to oil) have led to an increase in coal-fired power generation.

Cheap gas is also helping other parts of America’s economy. The country’s industry uses around a third of its gas output. The biggest winner might be the petrochemicals industry. It gobbles up gas as feedstock to make chemicals such as methanol and ammonia, a vital ingredient of fertilizer. Switching feedstock from naphtha, derived from oil, to ethane, derived from gas, has kept petrochemicals cheap even as oil prices have peaked. These chemicals in turn provide cheaper raw materials for carmakers, agriculture, household goods and builders, or go for export at prices to compete with the world’s lowest-cost producers, the state-owned petrochemicals firms in the Middle East.

Dow Chemical and others have announced a raft of new investments in America to take advantage of low gas prices. Methanex, the world’s biggest methanol producer, is considering dismantling a huge ethylene cracker in Chile and rebuilding it on America’s Gulf coast. The United States might export fewer cheap raw materials to countries with low labour costs to be made into goods to export back to America. The country could do the job itself, shortening the supply chain and returning manufacturing jobs to America in industries where petrochemicals are a large part of the cost base. PricewaterhouseCoopers, a large accountancy firm, reckons that lower feedstock and energy costs could result in 1m more American factory jobs by 2025.

There are non-industrial benefits too. According to MIT, residential and commercial buildings account for over 40% of America’s total energy consumption, in the form of electricity or gas, making up over half the country’s demand for gas. Low gas prices have meant that the cost of heating schools and other government buildings, often itemised on local tax bills, is falling.

The fossil-fuel industry is only a small slice of America’s economy, but the relative drop in gas prices is so dramatic that it could boost a manufacturing renaissance. That might add 0.5% a year to GDP over the next five years, says UBS, a Swiss bank. Meanwhile low gas prices are already fattening American wallets. According to IHS Global Insight, a research outfit, they are saving the average American household $926 a year.

Not everyone will win. Some coalminers, for instance, will have to find new work. But Mr Obama says that fracking might support 600,000 jobs by the end of this decade. Not bad for a business that barely existed ten years ago."