Carpe Diem

Professor Mark J. Perry’s blog for economics and finance

Carpe Diem

America’s energy revolution is taking us from ‘resource scarcity’ to a new era of ‘resource abundance’

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From today’s op-ed in the New York Times titled “When America Stops Importing Energy” by Ian Bremmer and Kenneth Hersh:

You’ve probably heard by now about the American energy revolution. Breakthroughs in drilling technology have opened access to enough new oil and gas reserves in the United States to dramatically reduce U.S. dependence on foreign oil.

The numbers tell the story: U.S. oil production has reversed its 30-plus year decline; U.S. imports from OPEC producers have fallen more than 20 percent in the past three years; U.S. natural gas reserves and production are up significantly and prices have dropped 75 percent in the past five years. The International Energy Agency forecasts that the United States could become the world’s largest oil producer by 2020 and may be energy self-sufficient by 2035. That’s a game changer.

While this is not a free lunch, it should not be feared… the potential is staggering. Significant domestic job growth and economic expansion has begun.

The axiom of “resource scarcity” has been one of the dominant forces shaping global geopolitics and economics since the end of World War II. Now, thanks to the U.S. oil and gas industry’s technological and entrepreneurial savvy, we have ushered in an era in which “resource abundance” will be the norm. The technology will be used to turn the U.S. into an energy exporter and also unlock hidden reserves in other countries. The resulting surge in supply means that the global energy sector will begin to behave like a more “normal” market, one in which demand and supply are in better balance and less power is concentrated in the hands of select producers.

HT: Robert Kuehl

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Carpe Diem

Senator Rand Paul: Congress should be on trial for chasing profits overseas and should apologize to Apple

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Rand Paul at the Homeland Security and Government Affairs Subcommittee hearing yesterday:

I’m offended by a government that convenes a hearing to bully one of America’s greatest success stories. I’m offended by the spectacle of dragging in executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress.

I frankly think the committee should apologize to Apple. I think that the Congress should be on trial here for creating a bizarre and Byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn’t compete with the rest of the world. This committee will admit that Apple has broken no laws, yet we are forced to sit, and Apple is forced to sit through a show trial, at the whims of politicians when in fact Congress should be on trial for chasing the profits of great American companies overseas.

HT: Don Boudreaux

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Carpe Diem

April home sales highest for the month in six years, median sales price highest in nearly five years

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Some highlights of today’s report on April existing-home sales from the National Association of Realtors (NAR):

1. For the month of April, existing-home sales (at 4.97 million on a seasonally adjusted annual rate) were at the highest level for any month since November 2009, three and-a-half years ago, and were the highest for the month of April in six years – since 2007.

2. Compared to a year ago, home sales increased in April by 9.7%, which was the 22nd consecutive month of a year-over-year increase in home sales.

3. The median sales price for homes sold in April was $192,800, which was 11% above a year ago, and the highest median price since August 2008, nearly five years ago.  It was also the 14th consecutive month of a year-over-year increase in the median home price, which hasn’t happened since the period from April 2005 to May 2006.

4. Distressed sales accounted for 18% of April sales, down from 21% in March and 28% in April 2012.

5. Close to half (44%) of homes sold in April were on the market fewer than 30 days, while only 8% were on the market for a year or longer.

Lawrence Yun, NAR’s chief economist, said the housing market is recovery and summed it up this way:  “The robust housing market recovery is occurring in spite of tight access to credit and limited inventory.  Without these frictions, existing-home sales easily would be well above the 5-million unit pace. Buyer traffic is 31% stronger than a year ago, but sales are running only about 10% higher.  It’s become quite clear that the only way to tame price growth to a manageable, healthy pace is higher levels of new home construction.”

MP: Overall, a pretty positive report today on existing-home sales, and more evidence that “more homes are selling faster at higher prices” – which are the characteristics of a housing market recovery.

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Carpe Diem

Wednesday morning links

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Economy

1. US auto factories are cutting back on summer downtime this year to meet growing buyer demand for new cars and trucks.

2. Home sales are booming in Houston (highest monthly sales in 6 years, prices are at a new record high) and Austin (highest April sales in 9 years).

3. GALLUP: Americans’ Economic Confidence Reaches a Five-Year Weekly High.

4. Americans are fed up with frugality: Restaurant sales reached an all-time high in April.

Taxes and Regulation

5. US corporations paid more than $100 billion – at an average effective rate of 25% – in foreign income taxes in 2009.

6. Q: Who will pay higher premiums under Obamacare? A: Men ages 21-29 could pay 56% more, and men ages 30-39 almost 50% more.

7. Taxpayers paid  more than $1.2 million in labor costs over the last 5 years for the Capitol’s fully automated Senators-only elevators.

8. License Creep: Since 2005, 25 states have ordered teeth-whitening businesses to close to protect the Dental Cartel.

Markets in Everything:

9. 78-square-foot Manhattan mini-apartments.

10. Washington state butcher spikes pig feed with weed – “Potbelly Pigs.”

Uplifting News: 

11. Oklahoma tornado survivor finds dog buried alive under rubble during live TV interview and

12. A stranger leaves a $1,000 tip to help a waitress take her dream trip to Italy.

Miscellaneous

13. Why are French kids so much better-behaved than American kids, and why do so few French kids (<5%) have ADHD v. US kids (9%)?

14. Jason Richwine: “There’s no racial or ethnic agenda in my dissertation. There’s nothing to suggest that any groups are “inferior” to others.”

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Carpe Diem

Inconvenient weather fact: Frequency of violent tornadoes like the one in Oklahoma has been declining, not increasing

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tornado

1. From a Huffington Post article yesterday:

Climate change chatter ran rampant after an unusually violent string of twisters in 2011 (see chart above), including a Joplin, Mo., storm that killed 158 people. After tornadoes took at least 24 lives in Moore, Okla., on Monday, headlines are once again raising the question: Will a warming world fuel more tornado strikes?

Michael Mann, a climatologist who directs the Earth System Science Center at Pennsylvania State University said “If you’re a betting person — or the insurance or reinsurance industry, for that matter — you’d probably go with a prediction of greater frequency and intensity of tornadoes as a result of human-caused climate change.”

Gwen Ingram, an artist and yoga instructor, is one of many Oklahomans who have protested Keystone XL in recent weeks. The proposed project has become a poster child in the climate change debate, and Ingram said she does see a potential connection between climate change and the latest string of tornadoes to rip through her state, which boasts a long history of fossil fuel production and transport.

“They seem to be bigger and more intense,” said Ingram of the local tornadoes.”

2. From a Fox News story yesterday:

California Democratic Sen. Barbara Boxer used part of her Monday floor speech to connect the Oklahoma tornadoes to climate change.

“This is climate change,” she said. “We were warned about extreme weather, not just hot weather but extreme weather. … When I had my hearings … scientists all agreed that what we’d start to see was extreme weather. … It’s going to get hot. But you’re also going to see snow in the summer in some places. You’re going have terrible storms. You’re going to have tornadoes.”

MP: There’s just one small, inconvenient problem with making a connection between climate change and an increasing frequency of violent tornadoes – the link doesn’t actually exist. The chart above displays the annual number of “strong to violent tornadoes” (F3 to F5 on the Fujita Scale) in the US from 1954 to 2012 based on data from the National Oceanic and Atmospheric Administration’s National Climatic Data Center. Here are some weather-related facts:

1. Between 1954 and 2012, there has been a downward trend in the frequency of strong to violent tornadoes in the US, and that decline is statistically significant at the 1% level (see red line in chart). On average, there has been a decline of almost 0.40 violent tornadoes every year since 1954, or a decline of almost 4 violent tornadoes every decade.

2. Although there was a significant number (84) of violent tornadoes in 2011 (which generated responses like this in the Washington Post that claimed a link to climate change), there were actually more violent tornadoes in both 1957 (99) and 1965 (98).

3. In the first half of the sample period from 1954 to 1983, there were nine years when there were more than 60 violent tornadoes, and the annual average was 52 during that period. In contrast, in the second half of the sample from 1984 to 2012 there were only two years when there were more than 60 violent tornadoes, and the annual average was only 37.6.

Bottom Line: The statistical evidence on violent tornadoes, although frequently ignored by the media, politicians, and others claiming a link between violent weather and climate change, suggests that the frequency of violent tornadoes like the recent one in Moore, Oklahoma, has been declining over time, not increasing.

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Carpe Diem

Markets in everything: 3-D printed food — could it give us 3-D printed pizza… oh, and end world hunger?

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1. “NASA bets 3D-printed food can make you eat bugs“…  and 3-D printed pizza?

2. The audacious plan to end hunger with 3-D printed food. “Anjun Contractor, a mechanical engineer with a background in 3D printing, envisions a day when every kitchen has a 3D printer, and the earth’s 12 billion people feed themselves customized, nutritionally-appropriate meals synthesized one layer at a time, from cartridges of powder and oils they buy at the corner grocery store.”

HT: Bill Greenway

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Carpe Diem

Let the market, not government central planning and special interest groups, drive US exports

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Rank Top 10 US Exports, 2012 Millions
1 Automotive vehicles, parts, and engines $145,992
2 Fuel oil and Petroleum Products $117,134
3 Chemicals $83,528
4 Pharmaceutical preparations $47,913
5 Industrial machines, other $46,128
6 Civilian aircraft $45,267
7 Semiconductors $42,087
8 Telecommunications equipment $38,282
9 Electric apparatus $38,171
10 Nonmonetary gold $36,308

From Marlo Lewis, Senior Fellow at the Competitive Enterprise Institute, in a post titled “Central Planning: Bad Export Policy”

Dow argues that Congress should limit gas exports to keep domestic supplies high and prices low, because that will make U.S. chemical manufacturers more competitive, and gas turned into chemical products adds more value to the economy than gas exported overseas. Logically, though, this rationale equally justifies curbing Dow’s exports of chemicals, plastics, and electronic components (see chart above showing that chemicals were America’s third largest export category in 2012). Curbing Dow’s exports would lower input costs for domestic value-adding manufacturers of paints, cosmetics, pharmaceuticals, cell phones, laptops, and other finished goods, helping them compete for global customers.

Dow CEO Liveris would likely scream bloody murder if Congress decided to give Dow a dose of its own medicine and restrict its exports in the “public interest.”

In protest, he might argue — correctly — that the proposal is short-sighted and self-defeating. Restricting U.S. chemical industry exports might create a temporary glut and lower prices, but the policy would boomerang. As Dow, Celanese, Eastman, and Huntsman lost sales, profits, and market share, they would also lose asset value and investment, and production would decline. U.S. paint, cosmetic, pharmaceutical, and fertilizer companies would find themselves more dependent on imported chemicals. The imports would be pricier not only because of transport costs but also because foreign suppliers would face less competition from Dow and other U.S. chemical manufacturers.

The same logic, of course, applies to coercive restraints on exports of U.S. natural gas. If increased gas production benefits chemical companies, then they should be the first to oppose policies that reduce gas companies’ incentive to produce. Limiting the oil & gas industry’s ability to compete in the global marketplace would do exactly that.

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Carpe Diem

Delinquency rate for business loans falls to lowest level ever in Q1, while charge-off rate falls to 6-year low

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banks

In a positive sign of improvement in credit conditions for America’s small and medium-sized companies, the chart above displays the significant decreases over the last three years in the delinquency rates and charge-off rates for business loans at all U.S. commercial banks, according to data released today by the Federal Reserve, updated for the first quarter of this year.

The delinquency rate for business loans fell during the January-March period of this year for the 14th straight quarter to 1.07%, the lowest quarterly rate since the Fed started tracking these data back in 1987, and the charge-off rate fell to 0.32%, the lowest rate since the first quarter of 2007 – almost a year before the recession started in December 2007.

With the charge-off rate for commercial lending at a six-year low and the delinquency rate at an all-time low, I think we can conclude that the credit market for bank lending to America’s small and medium-sized businesses had gradually recovered and has now returned to the pre-recession conditions that prevailed in early 2007.

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