Carpe Diem

Evidence shows significant mobility in income and affluence – 73% of Americans will be in ‘top 20%’ for at least a year

nytimesIn a Sunday’s NY Times article “From Rags to Riches to Rags,” Professor Mark Rank of Washington University highlights a number of studies finding a significant amount of income mobility in the US. The empirical evidence showing that Americans move up and down the income distribution during their lifetimes “casts serious doubt on the notion of a rigid class structure in the United States based upon income.”

For example, Rank and his co-author Thomas Hirschl of Cornell followed a cohort of American adults ages 25 to 60 over a 44-year period to see what percentage of them reached various levels of the income distribution during their lives. Their “striking” results are summarized in the chart above. According to Rank:

It turns out that 12% of the population will find themselves in the top 1% of the income distribution for at least one year. What’s more, 39% of Americans will spend a year in the top 5% of the income distribution, 56% will find themselves in the top 10%, and a whopping 73% will spend a year in the top 20% of the income distribution.

Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12% of the population will experience a year in which they find themselves in the top 1% of the income distribution, a mere 0.6% will do so in 10 consecutive years.

One of the reasons for such fluidity at the top is that, over sufficiently long periods of time, most American households go through a wide range of economic experiences, both positive and negative. Individuals we interviewed spoke about hitting a particularly prosperous period where they received a bonus, or a spouse entered the labor market, or there was a change of jobs. These are the types of events that can throw households above particular income thresholds.

It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54% of Americans will experience poverty or near poverty at least once between the ages of 25 and 60).

Ultimately, this information suggests that the United States is indeed a land of opportunity, that the American dream is still possible — but that it is also a land of widespread poverty. And rather than being a place of static, income-based social tiers, America is a place where a large majority of people will experience either wealth or poverty — or both — during their lifetimes.

Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.

Thanks to Mark Rank for bringing some much-needed attention to the fact that there is dynamic movement up and down the income quintiles throughout most Americans’ lifetimes, and contrary to public opinion, the top 1/5/10 percent income categories are not fixed, static closed groups, but fluid, abstract categories with ever-changing composition of different Americans. It’s an important point that Thomas Sowell has been making for years, here’s an example of his from back in 2000, a column of his titled “Perennial Economic Fallacies“:

Alarmists are not talking about real flesh and blood people. They are talking about abstract categories like the top or bottom 10 percent or 20 percent of families or households. So long as all incomes are not identical, there will always be top and bottom 10 percents or 20 percents or any other percents. But these abstract categories do not contain the same people over time. Behind both the statistics on inequality that are spotlighted and the statistics on ever-changing personal incomes that are ignored is the simple fact that people just starting out in their careers usually do not make as much money as they will later, after they have had years of experience.

Who should be surprised that 60-year-olds have higher incomes and more wealth than 30-year-olds? Moreover, that was also true 30 years ago, when today’s 60-year-olds were just 30. But these are not different classes of people. They are the same people at different stages of their lives. At some times and places, there have been whole classes of people who lived permanently in poverty or in luxury. But, in the United States today, the percentage of Americans who fit either description does not reach beyond single digits.

It is one thing to be concerned about the fate of flesh and blood human beings. It is something very different to create alarms about statistical relationships between abstract categories.

Carpe Diem

Some inconvenient weather facts

greatlakes1. The ice coverage of the Great Lakes this week is 32.8%, which is 39X the 0.84% median ice coverage at this time of year, based on updated data from the Canadian Ice Service (who knew there was such a “service”?).

2. From USAToday “Safest Start to Tornado Season in Almost a Century” (h/t Hitssquad):

As of Tuesday (Earth Day), no Americans have been killed by a tornado so far this year. The USA hasn’t seen such a safe start to a tornado season since World War I. The last time the nation made it to this point in the year without a tornado death was 1915, reports meteorologist Harold Brooks of the National Severe Storms Laboratory in Norman, Okla. That year, the first tornado death occurred on May 6.

Carpe Diem

Supreme Court upholds Michigan decision to end ‘racial profiling,’ ‘affirmative discrimination’ in college admissions

In a landmark decision yesterday in favor of advancing equal treatment for all and moving towards a colorblind society, the Supreme Court voted 6-2 to support Michigan voters’ decision in 2006 to end the discriminatory practices of affirmative action discrimination and racial preferences profiling for admissions to the state’s public universities.  Here’s from today’s front page WSJ article “Court Backs Affirmative Action Discrimination Ban“:

The Supreme Court on Tuesday upheld Michigan’s decision to end affirmative action discrimination at its public universities in a 6-2 ruling, but the justices were divided in their reasoning, suggesting continued uncertainty over the broader issue of racial preferences profiling.

The ruling leaves in place a 2006 Michigan ballot initiative where voters ended race-based admissions at state schools, and means racial preferences profiling won’t soon return to the University of Michigan—or any other public university in states that have chosen to end the practice.

The court’s ruling didn’t alter the ability of universities in states without bans to consider race as one factor among others in admissions. Instead, the court chipped away at affirmative action discrimination by giving its blessing to one path for foes to challenge admissions policies: ballot initiatives. Opponents have also gone to courts and state legislatures to end affirmative action discrimination practices in a decades-long battle over university policies.

I’ve made this argument before, and will make it again today following the Supreme Court decision, that to understand why it’s time to end racial preferences profiling in higher education, we should consider the following hypothetical scenario of race-based grading.

A university professor walks into class at the beginning of the semester. After a review of required texts, assignments and examinations, the professor discusses the grading policy. The professor explains that there is a new university policy that applies a double standard for grading and is an extension of the university’s race-based admissions policies.

The professor explains that a standard grading scale will apply to all white, Asian and Arab students. African-American and Hispanic students will automatically receive extra points for all assignments and will receive a final letter grade based on a preferential grading scale. Most people would find this blatant form of discrimination objectionable for many reasons.

1. The students receiving academic favoritism might justifiably complain that they are being stereotyped as a homogeneous group. It would be offensive to many of those students to assume automatically that they all need preferential academic treatment.

2. This form of academic profiling creates a disincentive for preferred minorities (black and Hispanic students) to study as hard as they would otherwise.

3. The racially advantaged students could face a special-preference stigma when they enter the job market or apply to graduate school. If a student graduates from college with a 3.5 grade point average, a prospective employer or graduate program would justifiably question the academic credentials and potential abilities of those students who received race-based adjustments in all of their undergraduate course work.

4. Finally, most everyone would object to the fundamental unfairness of giving preferential treatment to certain groups of students. The students who didn’t receive special grading preferences would rightfully feel they were being treated unfairly and being discriminated against. Why should an Asian student with an 85% score in an accounting class get a letter grade of B if a black or Hispanic student with the same percentage score gets an A?

These and many other reasons explain why the only acceptable practice in the classroom is the equal treatment of all students as individuals, without regard to race, sex, ethnicity or religion. And yet the hypothetical classroom-based discrimination is exactly the type of admission-based discrimination that prevails today at many American universities. And it is the obvious objections to academic favoritism in the classroom that explain why racial favoritism profiling in college admissions has been legally challenged.

Students are treated as individuals without regard to race by university professors once they enter college. Treating all students as individuals when they first apply to college will ultimately move us further along toward the ideal of a colorblind society than maintaining the current admissions practices of double standards, special preferences and racial profiling.

President John F. Kennedy said: “Simple justice requires that public funds, to which all taxpayers of all races and national origins contribute, not be spent in any fashion which encourages, entrenches, subsidizes or results in racial discrimination.” Fortunately, President Kennedy’s vision prevails in Michigan, now that the Supreme Court has voted to support the state ban on state-sponsored racial discrimination in admissions to public universities in the state.

Bottom Line: How can it be logically and legally consistent for somebody to support affirmative action discrimination when practiced by a staff member in the admissions or financial aid office of a university in one building on a college campus, but object to “affirmative action grading” when practiced by a college professor on that same college campus in another building? If race-neutral grading is the accepted standard for the treatment of college students IN the classroom, then race-based preferences cannot be justified when selecting students for admission to the university in the first place.

Note: I think that substituting the term “racial profiling” for “racial preferences” and the term “affirmative discrimination” for “affirmative action” also help to understand why those practices are objectionable. Words and terminology matter. As George Carlin said, “Words are all we have, really. We have thoughts but thoughts are fluid. Then we assign a word to a thought and we’re stuck with that word for that thought, so be careful with words.”

Carpe Diem

Another US energy milestone: US was the world’s largest petroleum producer in December for the 14th straight month

oilsausThe Energy Information Administration (EIA) released new data yesterday on international energy production for the months of November and December 2013. For the 14th straight month starting in November 2012, total petroleum production (including crude oil and other petroleum products like natural gas plant liquids, lease condensate, and refined petroleum products) in “Saudi America” during the month of December at 13 million barrels per day (bpd) exceeded Saudi Arabia’s output at 11.65 million bpd (see chart above). Also for the 14th month in a row starting November 2013, “Saudi America” took the top spot as the No. 1 petroleum producer in the world in December. As another way to put America’s rising petroleum production into perspective, the US produced more total petroleum products in December (13 million bpd) than the combined petroleum output of all of the countries in Europe, Central America, and South America (11.85 million bpd).

Bottom Line: This is more evidence that America’s shale energy revolution is taking us from “resource scarcity” to a new era of “resource abundance” as the US now consistently produces more petroleum products than Saudi Arabia, and for 14 straight months has led the world in petroleum production. 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 thanks to the revolutionary drilling and extraction techniques (hydraulic fracking and horizontal drilling) developed by a dedicated group of American “petropreneurs,” they were finally able to “crack the shale code” and unlock and access vast oceans of shale oil and gas across the country.

The fact that America has risen to become the world’s largest petroleum producer for more than a year is another important milestone in the Great American Energy Boom – and it’s just getting started.  The US economy is much stronger today, and our economic future looks a lot brighter, because of America’s Shale Revolution. As author Gregory Zuckerman noted, the “surging American energy production is a reminder of the deep pools of ingenuity, risk taking, and entrepreneurship” that are alive and well in “Saudi America.” Carpe oleum!

Carpe Diem

Energy fact of the day: As a separate nation, Texas moved up two spots and is now No. 8 in the world for oil production

Rank Country Daily CRUDE OIL Production  (1,000 barrels), DEC 2013
1 Russia 10,118
2 Saudi Arabia 9,740
3 United States 7,864
4 China 4,215
5 Canada 3,822
6 Iran 3,200
7 Iraq 2,925
8 Texas 2,826
9 UAE 2,820
10 Kuwait 2,650

Thanks to the ongoing boom in Texas shale oil production, primarily in the Permian Basin and Eagle Ford Shale oil fields (both now producing more than one million barrels of oil per day), the state’s crude oil output doubled over the last 30 months to 2.874 million barrels per day (bpd) in January (most recent month available). The Lone Star State is pumping so much crude oil, that as a separate oil-producing county, Texas would now be the 8th largest oil-producing nation in the world based on monthly international oil production statistics released today by the Energy Information Administration for December 2013 (see chart above). In December, crude oil production in Texas of 2.826 million bpd moved the state up two places in the international rankings for oil output compared to the last time international oil production data were available.

Since all indications point to the continued expansion of the state’s oil output, we can expect the Texas oil story to get even bigger and better in the future. At the current pace of annual increases of 25% or more in recent months, Texas crude oil production has probably already surpassed 3 million bpd, and could easily surpass the 4 million milestone by the middle of next year. In that case, Texas may already be out-producing Iraq and will pass Iran sometime later this year to take the No. 6 spot behind Canada. What an amazing story that a single US state could soon be the sixth-largest oil producer in the world, as a separate country!

To help understand how fast oil output has increased in Texas, consider that just four years ago in May of 2010, the state as a separate country would have been the 20th largest oil producing nation in the world. In May 2011, Texas moved to the No. 18 spot, then moved to No. 14 in May 2012, then to No. 10 in May last year, and to No. 6 by December 2013. It’s remarkable that it took only about three and-a-half years for Texas to move up 12 places in the world oil production rankings, from the No. 20 spot to No. 8, and “Saudi Texas” will likely move to the No. 6 position later this year.

Bottom Line: The recent, spectacular increase in Texas oil production is the main driver of America’s amazing shale revolution, which is helping to provide much-needed support and jobs to an otherwise sub-par economic recovery. And the rise of Texas from the No. 20 spot in world oil production rankings in 2010 to become the eighth-largest oil producer in December was only made possible because America’s “petropreneurs” finally “cracked the shale code” with revolutionary drilling and extraction technologies that were able to access the oceans of oil trapped in shale oil formations in Texas and North Dakota. The rise of Texas to the No. 6 ranking for oil production is another milestone in the Great American Energy Boom, and a great reason to “cheer for fossil fuels this Earth Day” along with John Stossel.    

Carpe Diem

Chart of the day: In 2013, America was more than twice as energy efficient compared to 1970 when Earth Day started

gdpThe EIA released new energy data recently (see Table 7) showing that the US had the second most energy-efficient economy in history last year, based on the amount of energy consumed to produce each real dollar of Gross Domestic Product (GDP). In 2013, it required only 6,180 BTUs of energy (petroleum, natural gas, coal, nuclear and renewables) to produce each real dollar of GDP, just slightly higher than the 6,140 BTUs required in 2012. The US produced a new record $15.759 trillion of real GDP last year (in 2009 dollars), which was a 1.9% increase over 2012.

Looking over longer time periods (see chart above), the increases in energy efficiency of the US economy have been consistent and impressive. For example, since 1949 the size of the US economy has grown by a factor of almost 8 times, from $2.0 trillion in real GDP to $15.75 trillion in 2013. But over that time period, the annual amount of energy consumed in the US has increased by a factor of only 3 times, from 31.98 quadrillion to 97.33 quadrillion BTUs, and that’s led to a 61% decline in the amount of energy required to produce a dollar of output from 15,930 BTUs in 1949 to 6,180 BTUs last year.

Compared to 1970 when the first Earth Day was celebrated and 14,400 BTUs of energy were required for every dollar of output, the energy efficiency of the US economy has more than doubled – we use less than half that amount of energy today for every dollar of output. Thanks to innovation and advances in technology, the US is able to produce ever-increasing amounts of real output with continually decreasing amounts of energy per dollar of GDP.

The new EIA data showing the ongoing improvements in the energy efficiency of the US economy rarely gets much media attention (especially compared to an event like Earth Day), even though it’s a remarkable story of environmentally-friendly, green achievement. As Steven F. Hayward commented in 2008, “The consistent improvement in America’s energy efficiency is an untold and under-appreciated long-term story.”

Carpe Diem

How about ‘Capitalism Day’ to balance ‘Earth Day’ and remind us of what’s behind environmental improvements

In a great editorial in 2009 (excerpts appear below), Investor’s Business Daily reminded us of the main, but unrecognized force that has driven the environmental improvements that have taken place since the first Earth Day in 1970 – capitalism, and the wealth generated by the free market. Schools all over America today will celebrate Earth Day, and students nationwide will get a heavy dose of the anti-market, pro-government message that motivates Earth Day. They’ll probably hear all about the evils of free market capitalism and its role in harming the environment, and learn that the only solutions to environmental issues are market-suppressing, heavy-handed government regulations. As Steven Landsburg reminds us, the messages about the environment delivered in most schools today inculcate the very dangerous substitution of biases for analysis. To complement and offset the environmental hysteria promoted by Earth Day, IBD suggested an annual event called “Capitalism Day.” What a great idea, especially if it was given “equal time” in our schools to provide some academic balance for Earth Day, but whose time unfortunately will probably never come…….

Today’s airwaves, print media, cable news shows and Webosphere will be filled with nonsense about the scourge of capitalism, corporations and humanity. All of it will ignore the real truth. Buried beneath all the badgering and fear-mongering about lavish Western lifestyles is a reality that the stuck-on-green left won’t talk about and the average American isn’t aware of: The world, especially in developed nations, is a cleaner — and greener — place than it was when the environmental movement began.

We’re not saying the Earth, or even any part of it, is environmentally pristine. It’s not, it never has been and never will be. Yet there’s actually more positive news to celebrate than there are problems. Of the estimated 1 billion people who will observe Earth Day worldwide this year, few will know about the progress that has been made. Fewer still will know how it was made. The media, uninterested in looking at the real story, will simply credit the environmental movement for the improvements.

We won’t discount the movement’s contribution. Four decades ago, it helped show the world the value of global stewardship. But that movement is no longer interested in a cleaner world. Filled with extremists and anti-capitalist crusaders, its primary goals have changed. Topping the agenda of today’s environmentalist groups is the pulling down of market economies, the raising up of central planning for egalitarian goals, forced lifestyle changes and the vilification — in hopes of the elimination — of signs of wealth.

None of these advance the planet’s environmental health. But capitalism has. Through wealth generated by the free market, we have enough resources to move beyond the subsistence economies that damage the environment, enough disposable income to fund clean-up programs, enough wealth to scrub and polish industry. Only in advanced economies can the technology needed to recycle hazardous waste or to replace dirty coal-fired power plants with cleaner gas or nuclear plants be developed. That technology cannot be produced in centrally planned economies where the profit motive is squelched and lives are marshalled by the state.

There’s nothing wrong with setting aside a day to honor the Earth. In fairness, though, it should be complemented by Capitalism Day. It’s important that the world be reminded of what has driven the environmental improvements since Earth Day began in 1970.

Carpe Diem, Economics, Energy and the Environment

On Earth Day, let’s appreciate our fossil fuel energy treasures and the human ingenuity that transforms our natural resources


From my op-ed in today’s Investor’s Business Daily (which started in April 1984 and is now celebrating “30 years of innovation and growth”) titled “Earth Day: Hail Fossil Fuels, Energy of the Future“:

On Earth Day, according to various advocates, “events are held worldwide to increase awareness and appreciation of the Earth’s natural environment.” As we observe the event today, it might be a good time to appreciate the fact that Americans get most of their plentiful, affordable energy directly from the Earth’s “natural environment” in the form of fossil fuels (coal, natural gas, and petroleum). It’s largely those energy sources that fuel our vehicles and airplanes; heat, cool and light our homes and businesses; power our nation’s factories; and in the process significantly raise our standard of living. Shouldn’t that be part of “increasing our awareness and appreciation of Earth’s natural environment” — to celebrate Mother Earth’s bountiful natural resources in the form of abundant, low-cost fossil fuels?

From 1949 to 2040, fossil fuels have provided, and will continue to provide, the vast majority of our energy by far, according to President Obama’s Department of Energy. Last year, fossil fuels provided almost 84% of America’s energy consumption, nearly unchanged from the 85% fossil-fuel share in the early 1990s. Despite Obama’s dismissal of oil and other fossil fuels as “energy sources of the past,” his own DOE forecasts that they will still be the dominant energy source in 2040, providing more than 80% of our needs (see chart). They will continue to serve as the dominant energy source to power our vehicles, heat and light our homes, and fuel the U.S. economy.

Further, Obama’s energy policy has been primarily to force taxpayers to “invest” in “energy sources of the future” — renewables like solar and wind — instead of expanding production of oil, natural gas and coal. But again, DOE data tell a much different story. Even after billions of dollars in taxpayer subsidies for renewable energy, renewables last year provided only 7.8% of America’s energy, which was actually less than the 9.3% share that renewables provided in 1949 (see chart). That’s not a lot of progress for the politically popular, and very expensive, renewables. When it comes to solar and wind, those two energy sources provided less than 2.3% of America’s energy in 2013. Even in 2040, more than a quarter century from now, solar and wind together will account for only 3.9% of America’s energy, according to government forecasts, and all renewables together (including hydropower) will provide only 10.4% of our nation’s energy.

To further appreciate the Earth’s natural environment on Earth Day, we should celebrate the revolutionary technologies of hydraulic fracturing and horizontal drilling that have allowed us to access previously inaccessible, natural energy treasures trapped in tight shale rock miles below the Earth’s surface.

It’s an important point that those shale resources have been part of the Earth’s “natural environment” for many thousands of years but have become usable natural resources only in the last six years, because of the human resourcefulness that led to breakthroughs in drilling and extraction technologies.

As Thomas Sowell pointed out in his book, “Knowledge and Decisions”:

The cavemen had the same natural resources at their disposal as we have today, and the difference between their standard of living and ours is a difference between the knowledge they could bring to bear on those resources and the knowledge used today. Although we speak loosely of ‘production,’ man neither creates nor destroys matter, but only transforms it — and the knowledge of how to make these transformations is a key economic factor.

The full awareness and appreciation of Earth’s natural environment really makes sense only as a greater appreciation of the human resourcefulness and human ingenuity that have transformed natural resources like sand into computer chips, and oil and gas trapped in shale formations miles below the ground into usable energy. Mother Nature provides us with an almost infinite abundance of natural resources but without any “instruction manuals” that tell us how to process them into useable products that improve our lives and raise our standard of living.

On Earth Day, let’s not forget to celebrate and appreciate the human resources — knowledge, ingenuity, know-how, creativity, entrepreneurship, and imagination, i.e. the “instruction manuals” — that transform otherwise unusable resources like shale hydrocarbons into energy treasures that will power our economy for generations to come.

Carpe Diem

Markets in everything: A 3D printed hand for less than $50

From Gigaom:

Since 2012, people have been 3D printing robotic hands with a design made open source through the Robohand project. Fifty-three-year-old Jose Delgado, Jr. recently swapped out his $42,000 prosthetic arm for a 3D printed one derived from Robohand and found it actually helped him accomplish more. 3D Universe has posted an interview with Delgado, along with the video above of his thoughts.