Tuesday, July 31, 2012

Quotation of the Day: Sports Socialism

"The Olympics are a giant exercise in sports socialism—or crony capitalism, if you prefer—where the profits are privatized and the costs socialized. The games never pay for themselves because they are designed not to. That’s because the International Olympic Committee (an opaque “nongovernmental” bureaucracy made up of fat cats from various countries) pockets most of the revenue from sponsorships and media rights (allegedly to promote global sports), requiring the host country to pay the bulk of the costs. Among the very few times the games haven’t left a city swimming in red ink was after the 1984 Los Angeles Olympics, when voters, having learned from Montreal’s experience, barred the use of public funds, forcing the IOC to use existing facilities and pick up most of the tab for new ones.

Even that’s far from fair. If anything, the Olympics should be compensating the host city for the hassle and inconvenience, not the other way around. The only reason they don’t is because the Cold War once stirred retrograde nationalistic passions, blinding the world to the ass-backwardness of the existing arrangement. Londoners are signaling that this can’t go on.

~Shikha Dalmia writing in Reason, "Why London Is Yawning Over the Olympics"

America's Energy Jackpot: Industrial Natural Gas Prices Fall to the Lowest Level in Recent History

The Department of Energy released its monthly update today on natural gas production and prices through May, and the chart above displays inflation-adjusted natural gas prices for commercial and industrial users.  By end user in May, industrial customers represented about 32% of natural gas consumption and electric power companies used almost half (49%) of the total natural gas consumed. Together, industrial and electric power customers consumed more than 81% of the total natural gas supplied in May.  The rest of the natural gas market is split between residential customers (10%) and commercial users (9%), with a small fraction (1/6 of 1%) going for vehicle fuel.  

On an inflation-adjusted basis, the prices paid by industrial users for natural gas in May were the lowest since at least January 2001, when the Department of Energy's monthly data series starts (see red line in chart).  The prices paid by electric power companies are almost identical to the prices for industrial users, so we can conclude that the users of more than 81% of the natural gas supplied in May (industrial customers and electric utilities) were paying the lowest, inflation-adjusted gas prices in at least a decade, and possibly longer. Prices paid in May ($2.94 per 1,000 cubic feet) were less than half the natural gas prices of two years ago in March 2010 ($6.31), and about one-quarter of the $13.62 price four years ago in July 2008.

Likewise, commercial customers are paying inflation-adjusted natural gas prices that are close to the lowest in recent history, and about half the 2008 price (see blue line in chart).    

These significant price declines for industrial, commercial and energy power users provide additional support for the claim that America really "hit the energy jackpot" with the "natural gas windfall," making it "one of the most important developments for the U.S. economy in the last 60 years," according to Martin Neil Baily and Philip Verleger in a recent CNN editorial, here's an excerpt:

"Cheap gas may not be enough to offset the drag of a slowing global economy this year, but it will boost long-term investment, help the beleaguered manufacturing sector and increase exports.

Building petrochemical plants could suddenly become attractive in the United States. Manufacturers will "reshore" production to take advantage of low natural gas and electricity prices. Energy costs will be lower for a long time, giving a competitive advantage to companies that invest in America, and also helping American consumers who get hit hard when energy prices spike.

After years of bad economic news, the natural gas windfall is very good news. Let's make the most of it." 

The falling natural gas prices also make the predictions in this December 2011 study by PriceWaterhouseCoopers, "Shale gas: A renaissance in US manufacturing?"all the more likely:
  • U.S. manufacturing companies (chemicals, metals and industrial) could employ approximately one million more workers by 2025 because of abundant, low-priced natural gas.
  • Lower feedstock and energy cost could help U.S. manufacturers reduce natural gas expenses by as much as $11.6 billion annually through 2025.
MP: As I have emphasized lately, America's ongoing shale-based energy revolution is one of the real bright spots in an otherwise somewhat gloomy economy, and provides one of the best reasons to be bullish about America's future.  The shale revolution is creating thousands of well-paying, shovel-ready jobs in Texas, North Dakota and Ohio, and thousands of indirect jobs in industries that support the shale boom (sand, drilling equipment, transportation, infrastructure, steel pipe, restaurants, etc.).  In addition, the abundant shale gas is driving down energy prices for industrial, commercial, residential and electricity-generating users, which frees up billions of dollars that can be spent on other goods and services throughout the economy, providing an energy-based stimulus to the economy.

Cheap natural gas is also translating into cheaper electricity rates, as low-cost natural gas displaces coal.  Further, cheap and abundant natural gas is sparking a manufacturing renaissance in energy-intensive industries like chemicals, fertilizers, and steel.  And unlike renewable energies like solar and wind, the natural gas boom is happening without any taxpayer-funded grants, subsidies, credits and loans.   Finally, we get an environmental bonus of lower CO2 emissions as natural gas replaces coal for electricity generation.  Sure seems like a win, win, win, win situation to me. 

Happy100th Birthday Milton Friedman!

Milton Friedman was born on this day, July 31, in 1912 and he would have been 100 years old today.  Unfortunately, Milton died on November 16, 2006 when he was 94 years old.  Coincidentally, that was just several months after the Carpe Diem blog started in September 2006.  A custom Google search of Carpe Diem reveals that "Milton Friedman" has "appeared" on this blog more than 1,200 times in the last six years, and his ideas, quotes and videos should be familiar to all regular CD visitors.  In contrast, I found 694 results for "Milton Friedman" on Marginal Revolution, 651 on Cafe Hayek and 258 on Greg Mankiw's blog

Since he's made such regular appearances here, I didn't feel that it was necessary to provide a special tribute for Milton Friedman's 100th birthday, except to provide some links below to others who have written today about Milton Friedman (here's his Wikipedia page):

1. Thomas Sowell writing in Investor's Business Daily, "On Milton Friedman's 100th Birthday, He's Needed More Than Ever."

2. Don Boudreaux in today's StarTribune "Milton Friedman -- a man of intellectual stature."

3. Chicago Tribune staff editorial, "Milton Friedman's Century," which concludes, "The world has changed immensely in the past 100 years. Thanks in part to Milton Friedman, many of the changes have been for the better."

4. Steve Moore in today's WSJ, "The Man Who Saved Capitalism," with a great quote from Harvard's Andrei Shleifer who describes 1980-2005 as "The Age of Milton Friedman," an era that "witnessed remarkable progress of mankind. As the world embraced free-market policies, living standards rose sharply while life expectancy, educational attainment, and democracy improved and absolute poverty declined."

5. Steve Hayward at Powerline, "Milton Friedman at 100."

6. My favorite Milton Friedman quotes.

7. And finally, an excellent summary of Milton Friedman's impact from a WSJ editorial after Friedman's death in 2006:  "Few people in human history have contributed more to the achievement of human freedom than Milton Friedman."

U.S. Restaurants Show Expansion Again in June

“Bolstered by stronger same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) stood above 100 for the eighth consecutive month in June. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.4 in June, unchanged from May’s level (red line in chart). June represented the eighth consecutive month that the RPI remained above 100, which signifies expansion in the index of key industry indicators. 

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 101.3 in June – down 0.7 percent from May and the third consecutive monthly decline (blue line in chart). Although June marked the tenth consecutive month that the Expectations Index stood above 100, it also represented the weakest level in seven months.”

MP: Both the RPI and the Expectations Index have remained above 101 for the last seven months, which is consistent with the levels for those two indexes back in the pre-recession time frame in late 2006 and early 2007.  This is one indication that the U.S. restaurant industry is operating at pre-recessionary levels.  

More evidence of an improving market for U.S. restaurants is provided by Census data showing that sales for "Food Services and Drinking Places" increased 6.3% in June from a year ago, following a 7.4% increase in May.  After being flat for most of 2008 and 2009, "Food Services and Drinking Places" sales activity in June of this year is 16.5% above the June level three years ago when the recession officially ended. Further, sales at "Full Service Restaurants" were up by 8.2% year-over-year in May (data not yet available for June) following a gain of 8.7% in April. 

Many of the key indicators suggest that the restaurant industry has gradually recovered from the effects of the 2008-2009 recession, and inflation-adjusted restaurant sales are now almost back to their pre-recession levels.  Regardless of how consumers answer confidence survey questions, the ongoing improvements in restaurant sales and the RPI so far this year would indicate that based on actual consumer spending at restaurants, consumer confidence is fairly high.

Monday, July 30, 2012

America's Energy Revolution Has Brought Lower Real Prices for Both Natural Gas and Electricity

One of the economic benefits of the shale gas revolution is the moderating effect that abundant, cheap shale gas has had on the price of electricity in the U.S. for all end-users: residential, commercial and industrial customers.  The indirect cost savings for electricity customers from cheap shale gas are in addition to the significant and direct cost savings from inflation-adjusted gas prices for residential, commercial, industrial customers and electric utilities that are the lowest in a decade, and have saved natural gas users $250 billion over just the last three years.   

The chart above shows average, annual, inflation-adjusted retail prices of electricity from 2001-2012 based on EIA data with the following results:

1. Residential consumers are paying an average price in 2012 (11.73 cents per kilowatt-hour) that is the lowest since 2007 (see blue line in chart). 

2. Commercial customers are paying an average price of 9.93 cents per kilowatt-hour of electricity this year, which is the lowest commercial price since 2004, and a price that is slightly lower than in 2001, 2002, and 2003 (see red line in chart).  

3. Industrial users are paying the lowest inflation-adjusted price for electricity this year (6.50 cents) than in any year since 2004, and the same real price as in 2001 (6.50 cents), 12 years ago.   

MP: The shale revolution gets at least part of the credit for bringing inflation-adjusted electricity prices down over the last several years, which have likely generated millions, if not billions, of dollars of savings for households, businesses and industry.  The American energy sector continues to be one of the brightest spots in the U.S. economy, and the shale revolution is at the forefront of that energy-driven stimulus to the economy.  America's energy revolution has brought thousands of new high-paying jobs in the oil and gas industry, stimulated thousands of indirect jobs in energy support industries like fracking sand, and generated billions of dollars of savings for customers from lowering prices of natural gas and electricity.    

Creative Destruction: Acoustic Pianos, R.I.P.

From yesterday's NY Times, comes an excellent illustration of the economic concept of "creative destruction," which has been described as the "accumulation and annihilation of wealth under capitalism."  In this example, it's the acoustic piano that is literally being annihilated in many cases, as older used pianos are increasingly being discarded in dumps around the country, or even burned for firewood.  As a pianist, piano technician, and owner of a 1918 Steinway Model O grand piano, it's kind of a sad, but inevitable ending for many magnificent instruments that were produced in large numbers by a  once-thriving American industry that supported hundreds of American piano manufacturers and more than a thousand piano brands, including many "stencil pianos" (different makes of pianos produced by the same factory).

Here's an excerpt of the article:

"In the late 19th and early 20th centuries, before radio and recordings, pianos were the main source of music, even entertainment, in the home. They were a middle-class must-have.
So from 1900 to 1930, the golden age of piano making, American factories churned out millions of them. Nearly 365,000 were sold at the peak, in 1910, according to the National Piano Manufacturers Association. (In 2011, 41,000 were sold, along with 120,000 digital pianos and 1.1 million keyboards, according to Music Trades magazine.) 

The average life span rarely exceeds 80 years, piano technicians say. That’s a lot of pianos now reaching the end of the line. 

The value of used pianos, especially uprights, has plummeted in recent years. So instead of selling them to a neighbor, donating them to a church or just passing them along to a relative, owners are far more likely to discard them, technicians, movers and dealers say. Piano movers are making regular runs to the dump, becoming adept at dismantling instruments, selling parts to artists, even burning them for firewood."

Accompanying the article are the video above and this slideshow see first slide below).

Obama Opposes Min. Wage Increase in Samoa Due to Harmful Effects, Will He Do the Same for U.S.?

Both of these events took place last Thursday:

1.  PAGO PAGO, American Samoa — "President Obama has signed into law legislation to freeze American Samoa's minimum wage until 2015. The president signed the bill Thursday, which delays a 50-cent increase that would have gone into effect in September.

Minimum wage in American Samoa varies from $4.18 to $5.59 per hour, depending on the industry. The Fair Minimum Wage Act of 2007 provided for annual 50-cents per hour increases until the rate matched the rest of the U.S., where the minimum pay is $7.25 per hour.

Employers and a government financial report have suggested automatic increases were harming the U.S. territory's economy."

2. The Hill -- "Rep. George Miller (D-Calif.) and more than 100 of his House Democratic colleagues proposed legislation last Thursday that would boost the minimum wage over three years from $7.25 to just under $10 an hour.

Miller's Fair Minimum Wage Act, H.R. 6211, would increase the minimum wage by 85 cents a year for the next three years, then allow the final $9.80 an hour wage to rise with inflation."

MP: Just wondering, wouldn't the same economic reasoning, evidence, and analysis that motivated President Obama to sign legislation freezing the minimum wage because of its harmful effects on Samoa's economy also apply to the U.S.?  Can we count on President Obama to veto the "Minimum Wage Act" for the harmful effects it would have on the American economy?

Update:  From an AP report, "Congress is to be thanked for preventing further economic calamity in American Samoa and preventing continual increases to the minimum wage which would have led to additional layoffs in our fragile economy," said local Chamber of Commerce Chairman David Robinson."

Let me revise that just slightly:

 "Congress is to be thanked for preventing further economic calamity in American Samoa and preventing continual increases to the minimum wage which would have led to additional layoffs in our fragile economy," said local national Chamber of Commerce Chairman David Robinson Tom Donohue.

Chicago Fed: Midwest Manufacturing Grew 11% Over Last Year, vs. 5.6% for U.S., and 2.2% for GDP

The Chicago Federal Reserve reported today that its Midwest Manufacturing Index increased 1.1% in June compared to May, reversing most of the revised 1.4% monthly decline in May.  On an annual basis, regional manufacturing activity in the 7th Federal Reserve district improved by 11% in June from a year ago, about twice the annual 5.6% increase in the national manufacturing component of industrial production through June (see chart above).  In comparison, the overall U.S. economy (real GDP) grew by only 2.2% over the same period from Q2 2011 to Q2 2012. 
Here are some other highlights of manufacturing activity in the 7th Federal Reserve district that covers Illinois, Indiana, Iowa, Michigan, and Wisconsin:

1. Regional machinery output in April gained 12.2% from its year-earlier level, compared to a 7.3% increase in machinery output at the national level. 

2. Regional steel output improved 11.0% from its June 2011 level, compared to a 6.4% increase in national steel output over that period.

3. The Midwest’s automotive output increased by 21.9% in June from its year-ago level, compared to a 15.2% gain in national automotive output.  The index level of 95.8 for Midwest auto sector production in June marked the third straight month that auto manufacturing was above a reading of 95.  That was the first time since December 2007 to February 2008 that Midwest auto production was above an index level of 95 for three straight months, indicating that the auto industry in the Midwest is returning to its pre-recession level of production. 

MP: Midwest manufacturing output growth over the last year (11%) continues to lead national manufacturing output growth (5.6%), which continues to lead overall economic growth measured by real GDP (2.2%).  Today's Chicago Fed report suggests that U.S. manufacturing, especially in the Midwest, remains at the forefront of the economic recovery measured by growth rates in real output.  

Sunday, July 29, 2012

Oilman Harold Hamm on America's Premier State - North Dakota - And Its Very Bright Shale Future

America's premier state leads the country in "shovel-ready" jobs without any stimulus taxpayer money:

Oklahoma oilman Harold Hamm and his company Continental Resources have been an industry leader in: a) developing the energy-rich Bakken oil field, and b) introducing the advanced drilling technologies including hydraulic fracturing and horizontal drilling that have created an energy revolution here that is making the U.S. "the Saudi Arabia of oil and gas in the 21st century."

Here's an excerpt from Mr. Hamm's latest assessment of the "Bakken boom":

"A lot of good news has been coming out of North Dakota recently. Most notably, the Bakken oil field has helped North Dakota buck the national economic slump by creating new jobs and tax revenues. Thanks to the Bakken, North Dakota has the lowest unemployment rate and fastest-growing economy in the nation (see chart above comparing job growth in North Dakota to the job shrinkage nationally since December 2007). 

As the oil industry completes its infrastructure design phase and enters its full development phase in 2012 and 2013, there’s good news for residents, officials and community leaders in the oil communities experiencing this remarkable growth. Soon, nearly all of the infrastructure needed to develop the Bakken will be in place, and western North Dakota is settling into a period of steady growth.

We appreciate North Dakotans’ cooperation and patience in tackling the challenge of infrastructure in the Bakken. Now that the area of the oil field is defined, the objective going forward is to optimize production and improve efficiency over the lifespan of the field, which is projected to be longer than 30 years.

One of the great blessings of the Bakken is that it is being developed with modern technology. Horizontal drilling and Continental Resources’ EcoPad technology enable us to drill several wells from just one drilling pad, significantly reducing our footprint in the field. Yes, there will be thousands of new wells drilled in the Bakken, but that drilling activity will be spread out over the next 30 years using the most efficient and ecologically sound technology available.

In addition to using advanced technologies, the oil and gas industry is building permanent employee housing and installing new oil, gas and water lines this summer and beyond to reduce truck traffic on the roads. Through oil and gas taxes, the industry is also responsible for $1 out of every $4 of state revenue. Due to the dramatic increase in tax revenues, North Dakota is making unprecedented investments in infrastructure in this region. Last year, the Legislature approved $1 billion in improvements, including the expansion of highways, water treatment plants and sewer lines in oil and gas producing counties.

North Dakota has been blessed with an abundance of natural resources, including some of the richest agricultural land in the world and now the nation’s largest oil field discovery in more than 40 years. Adding the development of the Bakken to the arsenal of North Dakota’s resources has made North Dakota the premier state in America, lessening our dependence on foreign oil and, in fact, leading the way to achieving North American Energy Independence in the next decade.

I believe the best of the Bakken for North Dakota is yet to come – it’s going to be a bright future in the Peace Garden State."

Update: It's not just shale oil that is making North Dakota's energy future look brighter and brighter, but the state's shale gas production is expected to increase nearly sixfold by 2025, making North Dakota a major player in the U.S. market, according to a report released Wednesday.

Current Intrade Odds for Republican VP

Click to enlarge.

More Ticket Scalping = Fewer Empty Seats?

From a recent news report

"London's Metropolitan police said they had arrested 16 people since Friday for illegal reselling of Olympics tickets, as Games organizers said they were investigating why scores of seats were empty at some events yesterday."

MP: Well maybe if the London police weren't arresting people and restricting ticket sales in the secondary market, perhaps there wouldn't be so many empty seats? 

Big Screen Energy: Fracking Film Festival in D.C.

A few weeks ago, I attended the "Big Screen Energy: Fracking Film Festival" in Washington, D.C., where trailers for three energy documentary films were featured.  Those trailers appear below, and here's a fact-filled energy brochure that was available at the event.  Get some popcorn and enjoy the shows!

1. Truthland.  What are the facts behind oil and natural gas development in America today? One woman from rural Pennsylvania decided to find out — for her family, for her community, for herself. Hear what some of the experts she interviewed along her journey had to say.

2. Frack Nation is a feature documentary that will tell the truth about fracking for natural gas.

Part I:

Part II:

Part III:

Wisconsin's Sand Boom Brings Jobs, Prosperity

Leader-Telegram -- "A new industry continues to rise — quite literally — from the ground in west-central Wisconsin. Officials from 12 regional counties reported the area now has a total of 52 silica sand mines that are either operating or approved (see map above).

That's up 136 percent from 22 just a year ago and shows just how fast the sand storm is sweeping across west-central Wisconsin, which is home to plentiful deposits of a variety of sand prized in the rapidly growing energy extraction practice known as hydraulic fracturing, or "fracking." While some experts have been predicting a slowdown in the industry's dramatic rise from virtually nonexistent four years ago, county planners who deal with permits for the mines haven't noticed such a change.

"It's still a boom," said Kevin Lien, director of the Land Management Department in Trempealeau County, which leads the region with six operating mines, 10 more on the way and another five applications being considered next month.  Right behind are Barron and Chippewa counties, which both have eight operating or approved mines and two more that have been proposed.

"I don't know if it's peaking yet. We just received two more applications," said David Gifford, zoning administrator in Barron County, which had only one approved silica, or "frac," sand mine a year ago."

HT: Million Dollar Way

Saturday, July 28, 2012

"I, Pencil" Updated to 2012 Version "I, Smartphone"

The "I, Smartphone" video above is a modernized 21st century version of the classic essay "I, Pencil," written in 1958 by Leonard Reed, founder of  the Foundation for Economic Education, and explained below by Milton Friedman in about 1980. 

Maybe Private Sector is Doing Fine? Growth in Post Recession "Private GDP" (3%) is Above Average

 The chart above shows annualized growth rates for: a) the quarterly, non-government, private-sector components of real GDP (personal consumption expenditures, gross private domestic investment, and net exports), see blue bars in chart, and b) the quarterly component of real GDP for "government consumption expenditures and gross investment" (brown bars).

First Trust Portfolios (Brian Wesbury et al.) is the only organization I know that calculates and reports "private real GDP" on a regular basis, here's their most recent commentary: "We’ve been tracking real “private” GDP (real GDP excluding government purchases), which grew at a 2.2% annual rate in Q2 and is up 3.3% in the past year."

For Q2, "public sector GDP" decreased -1.44%, and it was the eighth straight quarter of negative growth for total government spending, averaging -2.88% per quarter over the last two years. In contrast, there have been 12 consecutive quarters of positive growth for private sector GDP averaging 3.07% per quarter in the three years since the recession ended, which is slightly higher than the 2.8% average growth rate in private real GDP over the last 25 years.  Most of the decline in government spending over the last few years has come from cuts in defense spending at the federal level, and ongoing cuts in government spending by local and state governments.     

So maybe it's true that the "private sector is doing fine" and most of the sub-par economic growth measured by real GDP is simply reflecting the decreases in government spending, and not weakness in the private sector?  In that case, maybe the sub-par recovery has some positive effects of shrinking government?  And why don't more economists, analysts, and reporters calculate and report private- and public-sector economic growth separately?

Comments welcome.

Update: See related post by Catherine Rampell at Economix Blog, "‘Big Government’ Isn’t So Big by Historical Standards. It’s Also Shrinking."

Libertarian Candidate Will End War on Drugs

In his new advertisement above, Libertarian presidential candidate Gary Johnson promises to end the "War on Drugs Peaceful Americans Who Choose to Voluntarily Use Intoxicants Not Currently Approved of By the Government," and says "The fact is, marijuana users are no more criminal than our commander-in-chief. So what's up Mr. President, it's OK for you to do it, but everybody else should be arrested and go to jail?"

Johnson's ad features the photo below from the Prohibition-era, back when beer was one of the intoxicants not approved of by the government:

Friday, July 27, 2012

Great Interactive Chart of the Summer Olympics

From The Economist, a really interesting interactive map/chart of the Summer Olympics back to 1896, here are some factoids:

1. The first Summer Olympics was held in Athens, Greece in 1896, with 14 participating countries (see graphic above).

2. By 1900, the number of participating countries increased to 28 for Olympiad II, hosted by Paris, France. 

3. The U.S. hosted the Summer Olympics for the first time in 1904, and it was held in St. Louis. 

4. London hosted the Summer Olympics for the first time in 1908. 

5. The 1916 Summer Olympics in Berlin was cancelled due to World War I, and the Summer Olympics in 1940 (scheduled in Tokyo) and 1944 (scheduled for London, re-scheduled for 1948) were cancelled due to WW II.

6. London is first city to host the Summer Olympic games three times (1908, 1948, 2012).

Lots of other Olympic trivia appears on the individual screens for each Summer Olympic event (you can stop the graph by clicking on the arrow on the right).  

Expect Significant "Medal Inequality" at the 2012 London Olympics. Should There be a "Medal Tax"?

Share of Adjusted Gross Income, 2008      Share of Olympic Medals, 2008
Top 5%34.73%36.22%
Top 10%45.77%53.11%
Top 25%67.38%71.47%
Top 50%87.25%91.03%

The table above shows a comparison of: a) the shares of Adjusted Gross Income for the top 5%, 10%, 25% and 50% of U.S. taxpayers in 2008 (IRS data here), and the shares of the Summer Olympic Medals for the top 5%, 10%, 25% and 50% of countries that earned at least one medal in 2008 (data here).   

Notice the amazing similarity between the shares of adjusted gross income earned in the U.S. in 2008 and the shares of the 1,918 Olympic medals awarded in 2008, in both cases by the top 5, 10, 25 and 50% of "participants" or "earners."
The "income inequality" that seems to disturb so many people in the U.S. is very closely matched with an even slightly higher degree of "Olympic medal inequality," and we'll likely get the same unequal distribution of Olympic medals this summer in London.  It's almost certain that we'll hear no objections or concerns over the next few weeks about the inevitable and significant "medal inequality," and that inequality will generate no calls for "medal taxes" on the top 5% of medal winners (e.g. U.S., China, Russia or the U.K. in 2008) or "medal redistribution" from the U.S. and China to the dozens of countries that will win no medals. 

Just imagine for a moment how "Olympic medal taxes," and especially a "progressive Olympic medal tax," with subsequent "medal redistribution" at the Final Ceremony to achieve a more "equal distribution of medals" would quickly destroy the competitive spirit of the Olympics and reduce the overall level of athletic performance, especially for the "extreme," world-class athletes at the top like Michael Phelps. If the final ceremony at the Olympics included imposing a medal tax on an "extreme athlete" like Michael Phelps, and redistributing some of his gold medals to countries that earned "too few" medals by some consensus (or no medals like Bolivia, Pakistan, Uganda and dozens of other countries in 2008), you can imagine what might happen - he might not show up at the next Olympics, or certainly wouldn't have the same incentive to train as hard.

We might get the same outcome when we attempt to tax the top, or "extreme income earners" - at some point they'll stop working or won't have the same incentive to work as hard and earn as much taxable income.

Bottom Line: The Olympic medal winners are respected and admired, despite the significant amount of "medal inequality" that results from that intense world-class competition. Instead of always vilifying them, perhaps we should pay the same respect to the world-class winners of the American free enterprise system - the successful "extreme" entrepreneurs at the top of our economic ladder who are represented in the top 1, 5 and 10% by income.

Energy Fact of the Day: U.S. Crude Oil Production (ex-Alaska) Reaches a 23-Year High in June

One of the more interesting items buried in today's 213-page Monthly Energy Review from the EIA (full report here) is the fact that U.S. crude oil production for the lower 48 states is estimated to have reached a 23-year high in June of 5.74 million barrels per day (see chart above, data here).  That would be the highest monthly crude oil production in the lower 48 states since 5.76 million daily barrels of oil were produced in June of 1989.  During the first half of 2012, the EIA estimates that oil production in the non-Alaska states increased almost 13% compared to the same period last year, boosted by the strong, ongoing gains in North Dakota shale oil (+67% year-to-date through May) and Texas shale oil (+17% year-to-date through May).

Thanks to advances in technology (fracking and horizontal drilling), domestic oil production has been increasing since 2010, reversing a quarter-century downward trend in U.S. oil production that started in the mid-1980s (see chart above).  Over the last year, we've seen one of the largest annual increases in domestic oil production (in the 48 states) in the history of monthly EIA data on U.S. oil production going back to 1973.

America's booming energy sector, especially the increased production related to shale oil and gas, is America's "economic bright spot" right now, and continues to get better and brighter all the time.  As weak as economic growth is right now, imagine what the state of the current U.S. economy would be like if we didn't have the booming oil and gas industry that is bringing energy prosperity and shovel-ready jobs to states like North Dakota, Texas and Pennsylvania.  Without the game-changing, $1 billion per day energy stimulus to America, it's possible that the U.S. economy would have entered another recession by now.   

Weekly Update on the Bakken Boom, It Just Keeps Getting Better and Better All the Time

Bruce Oskol of the Million Dollar Way blog sends along these recent updates on the impressive Bakken boom: 

1. Diversified energy company ONEOK (NYSE: OKE, currently trading at an all-time high of $45.21 per share, and 26% above a year ago) announced $1 billion of new investments in energy projects, including a fourth (and unplanned) 100 million cubic feet natural gas processing facility in the Bakken. This is huge. 

2. Bentek Energy predicts a natural gas boom for the Bakken. Remember, the Bakken field is an oil field; the natural gas is a by-product in the Bakken. 

3. Natural gas was estimated to add 3 - 5 percent of economic value to the Bakken; original estimates were that $3 to $4 billion will be required to develop the natural gas in Bakken; that estimate has now been moved up to $15 billion based on the Bentek Energy study suggesting a natural gas boom is pending in the Bakken. 

4. There are now reports that North Dakota is producing up to 800,000 bbls. of oil per day. I think that's a stretch; most recent official figures are 639,000 bbls., but huge increases are projected for this summer due to additional well completion crews being sent to Williams County, where activity has shifted. (McKenzie County activity also growing.) 

5. Occidental (a $72 billion market cap company) reported that it increased worldwide oil production in Q2 of 2012, and much of the increase was due to the Bakken. 

6. Whiting, a Bakken-centric oil company, had a stellar second quarter, especially in light of how the majors (XOM, CVX, and COP) did. 

7. The Bentek Energy study suggests oil production in the Bakken could go from current 639,000 bopd, to a peak of 2 million bopd by 2025, the highest estimate yet. 

8. The Bakken has moved from exploratory to development stage. More and more leases are held by production and urgency to drill will lessen. 

9. There is a flurry of activity at state level to issue permits for the Fort Berthold Indian Reservation, in the Heart Butte oil field. Native Americans are becoming huge beneficiaries of the Bakken boom.

Here's a Michigan Business That Did NOT Happen

President Obama: "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, as I reported on CD last week.  Here's a video update from Michigan's Mackinac Center for Public Policy:

From the Mackinac Center: "In Holland, Mich., a 13-year-old entrepreneur thought he would be able to sell hot dogs and financially help his disabled parents with the purchase of a food cart. Unfortunately, city zoning officials have shut down his business, based on an ordinance that prohibits competition to brick-and-mortar restaurants from mobile food vendors. The Mackinac Center's own Anne Schieber investigates."

Thursday, July 26, 2012

North Dakota: Where the Jobs and Opportunity Are

From the Twin Cities Star Tribune:

"Right now you are probably asking yourself: "What would it be like to live in a place with an unemployment rate of 1 percent?" Me, too! So I went to Williston, N.D., to find out.

There are certain things that journalists do as a public service because you, the noble reader, are probably not going to do them for yourself -- like attending charter revision meetings or reading the autobiography of Tim Pawlenty. Going to Williston is sort of in this category. The people are lovely, but you're talking about a two-hour drive from Minot.

If you did come, however, you would feel really, really wanted. Radio ads urged me to embark on a new career as a bank teller, laborer, railroad conductor or cake decorator. The local Wal-Mart has a big sign up, begging passersby to consider starting their lives anew in retail sales.

The Bakken Region Recruiter lists openings in truck driving, winch operating and canal maintenance work, along with ads for a floral designer, bartender, public defender, loan officer, addiction counselor and sports reporter. All in an area where the big city has a population of around 16,000."

Move Over Bakken, Here Comes Eagle Ford Shale

The world's largest economics organization IHS Global Insight is reporting today that the Eagle Ford Shale area in South Texas will likely be an even more prolific oil-producing area than the booming oil-rich Bakken region of North Dakota:

"Strong drilling results, coupled with the large prospective area, and magnitude of the resource potential, combine to make the Eagle Ford Shale play in South Texas a contender for the best tight oil play in the U.S., according to a new report from IHS, the leading global source of information and analytics.

According to the IHS Herold Eagle Ford Regional Play Assessment, typical well performance as well as peak-month production of the Eagle Ford’s best wells exceeds wells drilled in the Bakken Shale, often considered the tight oil standard. The favorable outlook for the Eagle Ford is reflected in a highly competitive merger and acquisition (M&A) environment, with implied deal values averaging $14,000 per acre for Eagle Ford acreage in 2011 and top prices approaching $25,000 per acre.

“Our analysis at IHS indicates that Eagle Ford drilling results to date appear to be superior to those of the Bakken,” said Andrew Byrne, director of equity research at IHS and author of the study. “Although the well counts aren’t nearly as high at this point in development of the Eagle Ford, the peak of the well-distribution curve compares favorably with the Bakken.”

The most frequent well result of the Eagle Ford is around 300 barrels per day to 600 barrels-per-day for a peak month production average, compared with 150 barrels-per-day to 300 barrels-per-day for the Bakken, Byrne said. The best wells in the Bakken have an average peak-month production rate of 1,000 barrels-per-day or more, while the Eagle Ford central area’s top wells are even better on a barrels-of-oil-equivalent (BOE) -per-day basis."

MP: Peak what? 

May Travel Volume +2.3%, Largest Gain Since 2009

The Federal Highway Administration (FHA) reported recently that "travel on all roads and streets" in the U.S. increased by 2.3% in May compared to May 2011.  That was the largest monthly gain in motor vehicle travel since a 2.8% increase in November 2009, two and-a-half years ago (see chart above). On a year-to-date basis, traffic volume through May this year is 1.2% higher than the same period last year.

The May gain in monthly traffic volume was widespread geographically across all five regions of the country, with especially strong increases of 3% in the "North Central" and "South Gulf" regions. Additionally, the FHA reported that its "moving 12-month total of vehicle miles traveled" increased by 5 billion miles in May, which was the largest monthly improvement in that measure of traffic volume since August 2007. 

MP: The strong increase in May traffic volume over last year, along with the year-to-date improvement over last year and the strong gain in the 12-month total of miles traveled,  provide some additional evidence of a economy growing moderately, with no danger yet of being on the front edge of another recession.   

Wednesday, July 25, 2012

CPI for Natual Gas Falls to Nine-Year Low This Year

The chart above displays the monthly CPI series for "Utility (piped) gas service" back to 2000 (the series equals 100 in 1983), and shows the significant benefits of the shale gas revolution for American consumers. Despite a slight uptick in June, the CPI measure of the price consumers pay for natural gas last month was the lowest since February 2003, more than nine years ago.  And compared to the peak index level four years ago in the summer of 2008 of almost 300, the price index for natural gas today is almost 50% lower at 161 in June.  

Consumers might be paying higher prices this year for some food items, medical services, college tuition and textbooks, clothing and other goods and services, but one of the consumers' best friends is natural gas, thanks to the abundance of shale gas and the resulting falling prices.  Just like advances in technology have dramatically lowered the price of electronic goods, computers and software, and cell phone services, so has technology (fracking and horizontal drilling) lowered the price of natural gas for American consumers and businesses.  Result? Those technology-driven falling prices have significantly raised our standard of living.  

Markets in Everything: $40 Foot-Powered Washing Machine That Could Change Millions Of Lives

From Fast Company -- "About a year ago, two students from the Art Center College of Design named Alex Cabunoc and Ji A You traveled from Los Angeles to Cerro Verde, a 30,000 person slum outside of Lima, Peru. Their goal? Develop a commercial product that alleviates issues related to water poverty, targeted at people who earn between $4 and $10 a day." 

Here's what they came up with:  

"The GiraDora (see picture above and video demonstration below) is a blue bucket that conceals a spinning mechanism that washes clothes and then partially dries them. It’s operated by a foot pedal, while the user sits on the lid to stabilize the rapidly churning contents. Sitting alleviates lower-back pain associated with hand-washing clothes, and frees up the washer to pursue other tasks. It’s portable, so it can be placed nearby a water source, or even inside on a rainy day. It reduces health risks like joint problems, skin irritation, and mold inhalation. Most importantly, it uses far less water and cleans clothes faster than conventional hand-washing. This equates to more free time, explains Cabunoc, and the opportunity to 'break the cycle of poverty.'"

Energy Fact of the Day: North Dakota Oil Could Offset All Persian Gulf Imports by 2025

BISMARCK, N.D. (AP) — "A new study says North Dakota's oil production could jump more than threefold by 2025 to more than 2 million barrels a day. 

The study released Wednesday by Bentek Energy LLC of Colorado also says natural gas production could more than quintuple by 2025 in the Williston Basin. The basin includes the Dakotas and Montana."

MP: If oil production in North Dakota increases to 2 million barrels per day from current daily production of 639,000 barrels, that would be more than enough domestic oil to completely offset current daily U.S. imports of 1.86 million barrels from all of the Persian Gulf countries combined (for 2011, EIA data here)!

Peak what?

In a Letter to Congress, Some Economists Refute the Law of Demand and Propose a 35% Increase in the Minimum Wage to Stimulate the Economy

A group of prominent economist including Robert Reich, Jeffrey Sachs, Joseph Stiglitz and Laura Tyson have sent a letter to Congressional leaders recommending a 35% increase in the minimum wage from $7.25 per hour to $9.80 per hour by 2014. 

The group identifies the following benefits from a 35% increase in the minimum wage:

1. "This policy would directly provide higher wages for close to 20 million workers by 2014. Furthermore, another nearly 9 million workers whose wages are just above the new minimum would likely see a wage increase through “spillover” effects, as employers adjust their internal wage ladders."

2. "A minimum wage increase can also serve to stimulate the economy as low-wage workers spend their additional earnings potentially raising demand and job growth. Therefore, pursuing a higher minimum wage at this juncture will not only provide raises for low-wage workers but would provide some help on the jobs front as well."

And what about the costs of artificially raising the minimum wage for unskilled workers? Well, there apparently are none!  Here's the only thing the letter says about costs:

"In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market."

MP: Here are some important questions for the group of economists who apparently believe in a perfectly (or nearly) vertical demand curve for unskilled labor:

If a 35% increase in the government-mandated wage for unskilled workers can deliver such a huge stimulus to the economy by directly raising earnings for 29 million workers (almost 22% of payroll employment),  and then creating a secondary stimulus through increases in both spending and jobs throughout the economy, why are you being so stingy? Why not advocate an even larger increase in the government-mandated minimum wage by 50 or 75% to create an even larger economic stimulus?

With U.S. GDP of $15T, Many Large Metro Areas Have Larger Economies Than Entire Countries

From the WSJ:

Inside the $15 trillion machine that is U.S. economy are dozens of metropolitan economies, from New York to Honolulu, that are the real pistons and gears of U.S. growth and prosperity. So how do those individual economies stack up against the world?

Take the quiz below, and for answers see this chart.

1. New York has the highest Gross Metropolitan Product (GMP) of any U.S. metropolitan area — $1.287 trillion. That is bigger than the GDP of all but how many countries (not including the U.S.)?
a) 5
b) 8
c) 10
d) 12 

2. Houston’s GMP is larger than which of the following nations’ GDP?
a) South Africa
b) Venezuela
c) Finland
d) All of the above

3. The implications of Greece’s financial troubles appear woefully larger than its tiny economy. With a $300 billion GDP, what U.S. metro economy is that closest to?
a) Chicago
b) Philadelphia
c) Atlanta
d) Miami

4. Ireland’s GDP is smaller than which of the following U.S. cities’ GMPs?
a) Seattle
b) Minneapolis
c) Detroit
d) None of the above

Tuesday, July 24, 2012

CEO Won't Hire People Who Use Poor Grammar

Kyle Wiens, CEO of iFixit, the largest online repair community, and founder of Dozuki, a software company dedicated to helping manufacturers publish amazing documentation, explains on the Harvard Business Review blog why "I Wont' Hire People Who Use Poor Grammar. Here's Why":

"I am a grammar "stickler." I have a "zero tolerance approach" to grammar mistakes that make people look stupid.

Everyone who applies for a position at either of my companies, iFixit or Dozuki, takes a mandatory grammar test. If job hopefuls can't distinguish between "to" and "too," their applications go into the bin.

Yes, language is constantly changing, but that doesn't make grammar unimportant. Good grammar is credibility, especially on the internet. In blog posts, on Facebook statuses, in e-mails, and on company websites, your words are all you have. They are a projection of you in your physical absence. And, for better or worse, people judge you if you can't tell the difference between their, there, and they're.

Good grammar makes good business sense — and not just when it comes to hiring writers. Writing isn't in the official job description of most people in our office. Still, we give our grammar test to everybody, including our salespeople, our operations staff, and our programmers.

On the face of it, my zero tolerance approach to grammar errors might seem a little unfair. After all, grammar has nothing to do with job performance, or creativity, or intelligence, right?

Wrong. If it takes someone more than 20 years to notice how to properly use "it's," then that's not a learning curve I'm comfortable with. So, even in this hyper-competitive market, I will pass on a great programmer who cannot write.

Grammar signifies more than just a person's ability to remember high school English. I've found that people who make fewer mistakes on a grammar test also make fewer mistakes when they are doing something completely unrelated to writing — like stocking shelves or labeling parts.

I hire people who care about those details. Applicants who don't think writing is important are likely to think lots of other (important) things also aren't important. And I guarantee that even if other companies aren't issuing grammar tests, they pay attention to sloppy mistakes on résumés. After all, sloppy is as sloppy does.

That's why I grammar test people who walk in the door looking for a job. Grammar is my litmus test. All applicants say they're detail-oriented; I just make my employees prove it."

HT: Chris Matheson

Raising the Minimum Wage by 38% to $10 per Hour Would Be “Economic Malpractice”

In a recent column about the minimum wage titled “Raising the Minimum Wage is Cheap and Easy,” economist Dean Baker writes:  “There are some policies that are pretty much no-brainers.  Most recent research finds that [the minimum wage] has no impact on employment. Even the research that finds job loss shows that the effect is small, suggesting that a 20 percent increase in the minimum wage may reduce employment of young people by around 2 to 3 percent.”

Unlike Baker, and contrary to his assertion that the “minimum wage is non-controversial,” most economists believe in the Law of Demand, which means that there is a non-controversial inverse relationship between wages and the number of workers hired.   
 Artificially raise the required minimum wage for unskilled workers and the employment of unskilled workers will fall according to the non-controversial laws of economics, just as surely as water will run downhill according to the non-controversial laws of physics. 

Baker claims that the “only real issue regarding the minimum wage is how high it should be,” and he then goes on to propose a 38 percent increase in the minimum wage from $7.25 to $10 an hour.  One might wonder why Baker is being so stingy, and ask if it wouldn’t be better to artificially mandate a minimum wage of $20 or $30 per hour, but let’s put that issue aside and consider only the most important issue: how much of an adverse effect on employment and unemployment will result from a 38 percent increase in the minimum wage for young Americans aged 16-19 years old (the group most affected by the minimum wage)?

Let’s use the research cited by Baker that finds only “small” effects of a 2-3 percent reduction in employment from a 20 percent increase in the minimum wage.  Accordingly, a 38 percent increase in the minimum wage to $10 per hour would reduce teenage employment by between 3.8 and 5.7 percent.  And what would that mean for the number of jobs eliminated and the increase in the jobless rate?   

The Department of Labor estimates that there are currently just under six million teenagers currently in the labor market.  About 4.5 million of them are employed, and 1.4 million are unemployed, resulting in a 23.7 percent June jobless rate for that group.   

If the 38 percent increase in the minimum wage to $10 per hour had the minimum effect of reducing teenage employment by “only” 3.8 percent, that would put 171,000 currently-employed teenagers out of work and increase the teen jobless rate almost three full percentage points to 26.6 percent.  At the high end, a 5.7 percent reduction in teen employment would put almost one-quarter million teenagers out of work and drive the teenage jobless rate up to 28.1 percent, the highest rate in history. 

Actually those estimates of the new, higher unemployment rates are conservative because raising the minimum wage by almost $3 per hour would certainly attract new unskilled workers into the labor market.  With thousands of additional job seekers, the jobless rates would be even higher than the static estimates above.

Bottom Line: Raising the minimum wage is always a bad idea, because it harms the very workers whom we want to help -- unskilled, inexperienced teenage workers who desperately need jobs to get the experience, training and work habits that will eventually make their market value much higher than the minimum wage.  But to raise the minimum wage by 38 percent as Baker proposes, during the worst jobless recovery in modern history when the unemployment rate for 16-19 year olds is already 23.7 percent, would be a serious case of  “economic malpractice.”  For the hundreds of thousands of teenagers who would lose their jobs, or not find them in the first place, a 38 percent increase in the minimum wage at this time wouldn’t be “cheap and easy,” but would be more accurately described as “expensive and devastating" for America's unskilled workers.

Evidence Mounts: U.S. Real Estate Market Has Passed Bottom and Entered a Period of Recovery

The Federal Housing Finance Agency (FHFA) released its monthly report today on U.S. home prices in May, based on its House Price Index (HPI) for houses financed or guaranteed by Fannie Mae or Freddie Mac. According to the FHFA, home prices increased in May by 0.8% from April to an index level of 188.06, which was the highest level for home prices since August 2010 (see top chart above).  The April-May increase in the HPI was the fourth back-to-back monthly price increase starting in February, and was the largest four-month increase in home prices (3.47%) since the fall of 2005.

Over the last year, home prices have increased by 3.7% since May 2011, and that annual gain was the largest yearly increase in home prices since September 2006, almost six years ago (see bottom chart).  It was also the first time of four consecutive annual increases since the summer of 2007. 

In related housing news today, leading real-estate information provider Zillow reported that its Home Value Index increased in the second quarter by 0.2% from last year, marking the first annual gain in its measure of home prices since 2007.  Zilllow's chief economist Stan Humphries declared that the increase in home prices for the first time in almost five years means that the U.S. real estate market has finally reached a bottom and has now entered a new period of gradually increasing home values.

Bottom Line: The evidence continues to mount that we've passed the bottom of the U.S. housing market, as we continue to see sales gains for both new and existing homes, and gradual but ongoing increases in home prices according to various sources like the FHFA, Zillow, CoreLogic and the National Association of Realtors (median existing-home price in June was the highest since 2008).  Moreover, home builder confidence reached a five-year high this month, and the S&P Homebuilders Index has gained 20% over the last year (compared to an overall flat stock market), which provides additional evidence of a real estate recovery.  With record-low mortgage rates and pending sales at the highest level in two years, we can look for more improvements in the real estate market going forward through the rest of the year.