Carpe Diem, Economics, Energy and the Environment

Another energy milestone: ‘Saudi America’ was the world’s largest petroleum producer in June for the 20th straight month

saudiThe Energy Information Administration (EIA) released new data this week on international energy production for the month of June, and here are some highlights of that update:

1. For the 20th month in a row starting in November 2012, “Saudi America” took the top spot again in June as the No. 1 petroleum producer in the world. Also, for the 20th straight month, total petroleum production (crude oil and other petroleum products like natural gas plant liquids, leased condensate, and refined petroleum products) in the US during the month of June at 14.03 million barrels per day (bpd) exceeded petroleum production in No. 2 Saudi Arabia (11.61 million bpd), see chart above.

2. During the 2004-2008 period before America’s shale oil and gas boom started, Saudi Arabia routinely produced 2–3 million more barrels of petroleum products per day than the US (see blue arrow in chart). But since America’s shale revolution started around 2009 when America’s “petropreneurs” starting accessing oceans of shale oil and gas with revolutionary drilling and extraction technologies, there has been a surge of nearly 63% in the supply of petroleum produced in the US, and America surpassed Saudi Arabia at the end of 2012 to become the world’s No. 1 petroleum producer. In June, production of US petroleum products (14.03 million bpd) exceeded Saudi Arabia’s output (11.61 million bpd) by more than 2.4 million bpd (see red arrow in chart), which is the biggest difference in favor of the US during the 20 year history of international production data from the EIA (see chart).

Bottom Line: The EIA data on international petroleum production through June provides more evidence that America’s shale energy revolution is taking the US from “resource scarcity” to a new era of “resource abundance.” The US now consistently produces more “total oil supply” than Saudi Arabia (by more than 2.4M bpd in June) and has led the world in petroleum production for 20 straight months. This energy bonanza in the US — described as the “energy equivalent of the Berlin Wall coming down” — would have been largely unthinkable even six years ago. But then thanks to revolutionary drilling techniques developed by American “petropreneurs,” vast oceans of shale oil and gas have been accessed across the country, making the US the world’s No. 1 petroleum producer for 20 months running.

Carpe Diem

When we consider all US CEOs and all US workers, the ‘CEO-to-worker pay ratio’ falls from 331:1 to below 4:1


minwageHere are some questionable statistics about CEO pay that we learn about from the AFL-CIO’s Executive Paywatch webpage:

1. In 2013 the CEO-to-worker pay ratio was 331:1 and the CEO-to-minimum-wage-worker pay ratio was 774:1. America is supposed to be the land of opportunity, a country where hard work and playing by the rules would provide working families a middle-class standard of living. But in recent decades, corporate CEOs have been taking a greater share of the economic pie while wages have stagnated and unemployment remains high.

2. Highly paid CEOs of low-wage employers are fueling this growing economic inequality. In 2013, CEOs of the S&P 500 Index companies received, on average, $11.7 million in total compensation, according to the AFL-CIO’s analysis of available data from 350 companies.

3. It doesn’t have to be this way. Politicians should raise the minimum wage. Corporations should pay their employees a living wage. And workers should have a collective voice on the job to demand their fair share.

MP: As I pointed out in a post earlier today on CD, this frequently cited AFL-CIO analysis of CEO pay is an example of “statistical bait-and-switch.” Or call it a “statistical canard” or a “statistical fallacy.” Here’s why:

The AFL-CIO is comparing: a) the average salary of a small sample (350) of the highest paid US CEOs, out of a total CEO population in 2013 of 248,760 CEOs, according to BLS data here, and b) the average worker pay for production and nonsupervisory workers, which represents only 8.5 million factory workers out of a total of 136.3 million payroll employees nationwide. In other words, the AFL-CIO’s reported “CEO-to-worker pay ratio” of 331:1 is calculated by ignoring 99.9% of all US CEOs and 93.8% of all US workers. A more accurate description would be to call it a ratio of the pay for 350 of the highest-paid US CEOs to the pay of only 6.2% of the American labor force, or a ratio of an unrepresentative, infinitesimally small, and statistically insignificant group of CEOs to a small minority and unrepresentative group of US factory workers. It’s a completely bogus and meaningless comparison.

The top chart above shows a more statistically valid comparison of CEO pay to average worker in the US pay by considering: a) the average annual pay of all US CEOs in every year from 2002 to 2013 (data here) and b) the average annual pay of all US workers in a comprehensive, national BLS dataset that includes workers in 22 major occupational groups, 94 minor occupational groups, 458 broad occupations, and 821 detailed occupations (132.6 million workers for 2013). Based on those data, the average CEO earned $178,400 last year, the average worker earned $46,440, and the “CEO-to-worker pay ratio” was 3.84:1, and that’s a LOT different from the AFL-CIO’s ratio of 331:1 by a factor of more than 86 times! Call it a “statistical falsehood-to-truth ratio” of 86:1 for the AFL-CIO’s exaggerated, bogus ratio. The chart also shows that the real CEO-to-worker pay ratio has not been increasing as is frequently reported, but instead has been remarkably constant over the last 12 years, averaging 3.8:1 in a tight range between a maximum of 3.89:1 in 2004 and a minimum of 3.69:1 in both 2005 and 2006. The ratio of 3.84:1 in the most recent year (2013) was actually slightly lower than the ratios in 2004 (3.89:1) and in all years between 2009 and 2012.

Likewise, the bottom chart displays a more statistically valid comparison of average CEO pay to the annual pay of a full-time minimum wage worker. In 2013, a full-time minimum wage worker earned $14,500, and therefore the CEO-to-minimum-wage-worker pay ratio was only 12.3:1 compared to the grossly inflated 774:1 ratio reported by the AFL-CIO. That’s a “statistical falsehood-to-truth ratio” of 63:1 for the AFL-CIO’s exaggerated ratio. Because of the recent increases in the minimum wage between 2007-2009, the CEO-to-minimum-wage-worker pay ratio in recent years has been lower than the most recent 12-year average of 12.76:1.

Bottom Line: Do a Google search of the phrase “CEO to worker pay” and you’ll find 150,000 links to reports and articles that almost exclusively compare the salaries of a very small, statistically insignificant group of S&P500 or Fortune 500 CEOs to average worker pay. I’m suggesting that those comparisons are statistically invalid and meaningless. A comprehensive and statistically valid comparison of the average pay of all US CEOs to the average pay of all US workers reveals a much different story than the frequently reported narrative of a 300:1 (or higher) and rising CEO-to-worker pay ratio in the US. The reality is that the annual salary of the average US CEO pay is less than four times the annual pay of the average worker, and that ratio has been remarkably stable for more than a decade. 

Carpe Diem

What do Uber and school choice have in common?

Quite a lot, as James Courtovich explains in today’s Wall Street Journal – they are both examples of pro-consumer, innovative, disruptive, superior and cheaper alternatives to entrenched, bureaucratic, unionized, and anti-consumer/student, status quo monopoly providers. In words, both Uber and school choice provide better, low-cost alternatives to transportation and education monopolies that “produce bad products at high prices.”  Here’s a slice:

When President Lyndon Johnson announced the creation of the Transportation Department 48 years ago this month, he said that one of the agency’s goals would be to “bring new technology to every mode of transportation.” Nearly half a century later, Uber is doing just that, allowing customers to order and pay for trips on their smartphone. Satisfied passengers, drivers and investors are singing Uber’s tagline: Choice is a Beautiful Thing.

But choice threatens entrenched interests like cabdrivers, who are deploying intimidation tactics and red tape to protect their turf. An Uber driver I rode with recently in Miami told me that he’d received two $1,000 tickets in as many days for picking up passengers at the airport.

“You’re changing the way cities work,” Uber CEO and founder Travis Kalanick explained at a tech conference in May, “and that’s fundamentally a third rail.” Uber announced in June that it had raised an additional $1.2 billion in financing, bringing the company’s valuation to an astounding $17 billion. Mr. Kalanick’s deft maneuvering around political and bureaucratic roadblocks reflects the confidence of a man who knows where he’s going and knows he has the right of way.

He reminds me of legendary financier Ted Forstmann, with whom I worked, along with Wal-Mart‘s John Walton, to provide $200 million in private scholarships to inner-city children. When we began the project in 1998, teachers, union leaders and their political benefactors said choice was a threat, much as cabdrivers say now. The 1.3 million parents who applied for the scholarships illustrated the tremendous demand for alternatives.

Both Mr. Kalanick and Forstmann were demonized by defenders of the status quo. But when entrenched interests win, everyone loses.

Innovation unlocks the value in idle cars, rooms, tools and hands—and opens a channel for billions of dollars of capital to spur economic growth and create new jobs. “Money is like blood; it must flow,” said Deepak Chopra, doctor and two-time Barack Obama backer. What’s true for blood and capital is true for transportation. Washington is always focused merely on passing bills for more government spending on infrastructure. But this Beltway bickering takes place far away from where the rubber really hits the road, on the highways and back streets.

What is needed are not simply new legislation and regulation; what is needed is new thinking, new leadership and a new collaborative relationship among union representatives, policy makers and business. At stake is not just our failing infrastructure, and failing schools, it’s the country’s ability to compete successfully on a global scale. We should all hope Mr. Kalanick and others like him succeed.

Carpe Diem

Krugman and the frequent statistical fallacy of comparing the salaries of several hundred CEOs to pay of all 132M workers

krugmanPaul Krugman recently accepted a position at an income inequality institute at the City University of New York (CUNY). According to a public records request (first reported by Gawker), Krugman will be paid $25,000 per month ($225,000 for a nine-month appointment) and will not have to teach any classes during his first year as a “Distinguished Scholar in the Graduate Center’s Luxembourg Income Study Center.” Starting in his second year, Professor Krugman will teach one graduate seminar per year. Krugman will be paid about twice the annual salary of the average full professor at CUNY of $116,364 (most recent contract data here, see chart above). Krugman will also earn in 9 months about 26% more than the average annual US CEO salary of $178,400.

I make these comparisons because of Krugman’s comments in his most recent NY Times op-ed “Our Invisible Rich“:

In fact, most Americans have no idea just how unequal our society has become. The latest piece of evidence to that effect is a survey asking people in various countries how much they thought top executives of major companies make relative to unskilled workers. In the United States the median respondent believed that chief executives make about 30 times as much as their employees, which was roughly true in the 1960s — but since then the gap has soared, so that today chief executives earn something like 300 times as much as ordinary workers.

So Americans have no idea how much the Masters of the Universe are paid, a finding very much in line with evidence that Americans vastly underestimate the concentration of wealth at the top.

MP: As I have pointed out before on CD, the average CEO in America made only $178,400 in 2013, which is less than four times the annual salary of $46,440 earned by the “ordinary worker” last year. The CEO-to-ordinary worker pay ratio of 300 times that is so frequently cited by the media, AFL-CIO, progressives and even economists like Krugman is a statistical fallacy. The comparison is between all 132 million US workers to a very small handful of the several hundred highest paid CEOs in the S&P500 or the Fortune 500, out of almost a quarter-million CEOs nationwide. As I’ve explained before:

We can get a more accurate and complete picture of CEO compensation in the US by looking at wage data released recently by the Bureau of Labor Statistics in its annual report on Occupational Employment and Wages for 2013. In 2013, the BLS reports that the average pay for America’s 248,760 chief executives was only $178,400. The multi-million dollar salaries of the CEOs of a sample of only several hundred S&P500 firms that are so frequently reported as reflecting “CEO pay” in the US represent only one out of about every 1,000 firms in the country (or 1/10 of 1%) that have a CEO at the head. The larger sample of almost a quarter-million CEOs reported by the BLS gives us a much better understanding of “average CEO compensation” compared to the pay of the average US worker.

For the larger sample of CEOs reported by the BLS, their average pay last year was $178,400 compared to the average pay of all workers of $46,440, reflecting a “CEO-to-worker pay ratio” of less than 4-to-1. That’s nowhere close to the pay ratio of 331-to-1 ratio reported recently by the AFL-CIO using the 350 highest-paid CEOs in the country, which is similar to the 300-to-1 ratio that Paul Krugman claims.

Isn’t it a little hypocritical and statistically misleading for a professor who makes 26% more than the average CEO and twice as much as the average professor at CUNY to be constantly lecturing us about income inequality and complaining about excessive CEO pay by comparing the highest paid 1/10 of 1% of US CEOs to the average of pay of all 132 million American workers?

Carpe Diem, Economics, Energy and the Environment

Why ‘peak oil’ predictions haven’t come true — its adherents underestimate innovation, technology and ‘petropreneurship’

usoilpeakoilHere’s an excerpt from Russell Gold’s article in today’s WSJ about “peak oil” titled, “Why Peak-Oil Predictions Haven’t Come True: More Experts Now Believe Technology Will Continue to Unlock New Sources“:

For decades, “peak oil” has been a doomsday scenario looming large in the popular imagination: The world’s oil production tops out and then starts an inexorable decline—sending costs soaring and forcing nations to lay down strict rationing programs and battle for shrinking reserves. U.S. oil production did peak in the 1970s and sank for decades after, exactly as the theory predicted. But then it did something the theory didn’t predict: It started rising again in 2009, and hasn’t stopped, thanks to a leap forward in oil-field technology (see top chart above).

To the peak-oil adherents, this is just a respite, and decline is inevitable. But a growing tide of oil-industry experts argue that peak oil looks at the situation in the wrong way. The real constraints we face are technological and economic, they say. We’re limited not by the amount of oil in the ground, but by how inventive we are about reaching new sources of fuel and how much we’re willing to pay to get at it.

Some History of “Peak Oil”

Peak oil gained enormous popularity when U.S. oil output did in fact peak in the early 1970s. It took hold at a time when the nation was prepared to believe the worst: Drivers were waiting in long gas lines, and the nation felt it was groaning under the yoke of OPEC. Forecasters like Paul Ehrlich became celebrities with dire warnings of overpopulation and exhaustion of natural resources.

As the theory took hold, it helped justify increased investments in alternative energy, and informed some expert thinking about the future of energy. More recently, the theory saw a surge of interest a few years ago when oil prices were high and seemed stuck there. “Welcome to the world beyond Hubbert’s peak,” wrote Kenneth Deffeyes, one of the adherents of peak oil, in 2008.

Then the data took a detour from the bell curve. In 2008, the U.S. produced five million barrels a day. In 2009, U.S. oil production began to rise—at first slowly, then quickly. It is still rising today. Through the first half of 2014, it averaged 8.3 million barrels a day (see top chart).

What changed? An innovation in oil-field technology, which peak-oil theory didn’t anticipate. Energy companies combined hydraulic fracturing and horizontal drilling to wring oil out of super-tight rock formations in North America. The industry figured out that pumping chemically slickened water and sand into shales could create thousands of fractures, each one a tiny path for energy molecules to travel into a well.

At first, drillers targeted natural gas because they thought oil molecules were too big to be extracted. But fracking worked to make oil wells, also. Innovations allowed the industry to locate its frack jobs better and increase density. Now other countries are starting to apply the same techniques and may see the same kinds of gains.

MP: The bottom chart above of world oil output from 1950 to 2014 accompanied today’s WSJ article but without any specific  comment or reference — it shows that world oil production did reach a peak around 1978, followed by a temporary four-year decline, before recovering and reaching new all-time highs again by the early 1990s and in almost every since then. From the trough in the early 1980s, world oil production has increased by 50%.

For a quick Econ 101-level review of why “peak oil” is “peak idiocy” see Mike Munger’s excellent 2009 explanation here, an explanation so basic and obvious that “even Paul (‘I sold my soul to become a wanker’) Krugman” would have to agree with.

Carpe Diem

Sunday night links

world1. Chart of the Day. The CPB Netherlands Bureau for Economic Policy Analysis reported this week on world trade and world industrial production through July. Over the most recent 12-month period, world trade increased by 2.8% and world industrial output increased by 3.4%. Compared to their 2008 peaks, world trade is up by 11.3% and world industry output is up by 11.4%.

2. Who-d a-Thunk It — Government-run pension funds are insolvent? The U.S. public pension gap has tripled to at least $2 trillion in less than a decade, and Michigan has only about one active public employee for every retired public worker receiving a pension.

3. Markets in Everything: a) Underground beer pipelines in Belgium, b) the cash-strapped US Postal Service wants to deliver your groceries, c) E la Carte raised $35 million to bring its tablet technology to more restaurant tables around the country and around the world and d) New iPhone app “KNFB Reader” for blind people is able to read any text out loud.

4. Who’d a-Thunk It II — Socialism doesn’t work? Steel production in Venezuela has dropped 50% since the socialist government took over production in 2008.

5. Pricing Question. Why do jewelry stores hide the price tags?

6. Peak What? Russia, with the help of Exxon, has discovered what may prove to be a vast pool of oil in one of the world’s most remote places.

7. Think You Drink a Lot? This chart will tell you.

8. America, Here’s Your Drug War: Baby taken from parents after father admitted to “using weed” is murdered in state-approved foster care. Q: How many more innocent lives must be ruined before society comes to its senses and ends the War on Plants?

9. The Media’s Role in the War on Drugs. It would have been impossible for the government to wage the horrific, deadly, shameful, expensive and immoral War on Drugs for the last forty years without support from the media, says Reason’s Ed Krayewski. For example, why does the child of an NFL player getting switched get so much more media coverage than a baby blown up by a SWAT team’s stun grenade?

10. United States of SWAT. Why is the Department of Agriculture asking for submachine guns?

Carpe Diem

Prices at the pump headed below $3 per gallon in much of the US, thanks to America’s new era of energy abundance

oilpriceFrom the Associated Press:

The price of a gallon of gasoline may soon start with a ‘‘2′’ across much the country. Gasoline prices typically decline in autumn, and this year they are being pulled even lower by falling global oil prices. By the end of the year, up to 30 states could have an average gasoline price of less than $3 a gallon.

The drop in global crude oil prices is a surprise. Despite increasing violence and turmoil in the Middle East, the world’s most important oil-producing region, the global price of oil has fallen to $97 a barrel, close to its lowest level in more than two years (see chart above).

That’s partly because new technology has allowed U.S. drillers to consistently increase production from fields in North Dakota and Texas, adding to global supplies. At the same time, world demand is not growing as much as anticipated because of slower economic growth in China and Europe.

The increase in domestic supplies is also helping avoid dramatic spikes in gasoline prices, which economists say is more damaging to consumer confidence than prices that rise gradually. This year, the national average peaked in April at $3.70 per gallon. Last year, the peak was $3.79, and the year before it was $3.94.

The Energy Department estimates the national average gasoline price for all of 2014 will be $3.46 a gallon, its lowest annual average since 2010. The government predicts the average will fall again, to $3.41, in 2015.

Phil Flynn, an oil analyst at Price Futures Group, expects an even bigger decline as U.S. oil companies produce more oil, refiners make more gasoline and demand for gasoline stays relatively low because of more fuel-efficient vehicles. ‘‘For the regular driver, it’s the best of times,’’ he said. ‘‘Many are going to be shocked at how low prices go, but I’m saying ‘get used to it.’’’

MP: And here’s another example below of how innovation and advances in energy technology will continue bringing increases in the supplies of hydrocarbon sources of fuel, along with lower prices – “petropreneurs” at Shell have figured out how to make motor oil from natural gas, see video below for more details.

HT: Hitssquad

Carpe Diem

Q: What do America’s diversity worshippers propose be done about overrepresentation?

From Walter E. Williams’s syndicated column this week “Do Statistical Disparities Mean Injustice?”:

Blacks are 13 percent of our population but 80 percent of professional basketball players and 65 percent of professional football players and among the highest-paid players in both sports. By stark contrast, blacks are only 2 percent of the NHL’s professional ice hockey players. Basketball, football and ice hockey represent gross racial disparities and come nowhere close to “looking like America.”

Even in terms of sports achievement, racial diversity is absent. In Major League Baseball, three out of the four hitters with the most career home runs are black. Since blacks entered the major leagues, of the eight times more than 100 bases have been stolen in a season, all were by blacks. In basketball, 50 of the 59 MVP awards have been won by black players.

If America’s diversity worshippers see underrepresentation as “probative” of racial discrimination, what do they propose be done about overrepresentation? After all, overrepresentation and underrepresentation are simply different sides of injustice. If those in one race are overrepresented, it might mean they’re taking away what rightfully belongs to another race. For example, is it possible that Jews are doing things that sabotage the chances of a potential Indian, Alaska Native or Mexican Nobel Prize winner? What about the disgraceful lack of diversity in professional basketball and ice hockey? There’s not even geographical diversity in professional ice hockey; not a single player can boast of having been born and raised in Hawaii, Louisiana or Mississippi.

Courts, bureaucrats and the intellectual elite have consistently concluded that “gross” disparities are probative of a pattern and practice of discrimination. Given all of the differences among people, such a position is pure nonsense.