Carpe Diem

The WSJ on the protectionist racket known as ‘antidumping enforcement’ – raising prices on the many to benefit the few

New from the WSJ, an excellent editorial titled “Protectionists Steel Washington“:

Washington is slapping new tariffs on [US buyers of] steel imports. This election-year gift to U.S. steel giants and their unions will raise prices for other U.S. firms, handicap domestic energy production and alienate trading partners world-wide.

Low-priced steel from South Korea is good for American buyers but annoying for American producers like Nucor and U.S. Steel that would rather have the market to themselves and charge higher prices. By filing antidumping complaints, these firms lobby Washington to punish foreign businesses for the crime of charging low prices to American consumers. So it goes in the protectionist racket known as antidumping enforcement.

When Washington imposes tariffs, it raises prices on the many to benefit the protected few. The injured in this case will include untold workers, shareholders and customers of U.S. companies that use steel—especially the domestic manufacturers that everyone professes to love. U.S. firms will have greater incentive to expand overseas, where the tariffs don’t apply, and household energy costs will be higher because of the added expense to drillers. This is another decision to keep in mind the next time President Obama takes credit for the domestic energy revival.

Related: See my CD post from last Saturday “An alternative view of U.S. tariffs on Korean steel, from the most important viewpoint of all – the U.S. consumers of steel.” Thanks to the WSJ for correctly pointing out that antidumping enforcement is a “protectionist racket” that allows politically-favored and politically-connected companies and industries like Big Steel to raise prices, gain market share legally “pick the pockets” of millions of Americans.

Carpe Diem

North Dakota’s booming job market — where you can make 24% more delivering pizzas than the average college graduate

The average starting salary this year for college graduates is $45,473. But in the booming oil patch of North Dakota, you can get a job in Stanley (population 1,800; unemployment rate of 1.3%) making and delivering pizzas, and start at $56,400 per year (plus benefits) without any educational requirements! That’s what Jimmy’s Pizza is offering on this Craigslist post (via a post by Kathy Hoekstra at the Job Creators Network website titled “North Dakota: What Happens when a Market is Free to Run Wild”).

Pizza Delivery Driver (Make $56,400 per year + benefits)

Jimmy’s Pizza of Stanley is building a staff and needs delivery drivers. Looking for self motivated, hardworking individuals who love being part of a strong team moving toward its goals. Must have a clean driving record and no criminal history as well as a reliable vehicle.

Drivers Compensation:
Salary: $36,000 per year
Tips & Delivery Charges: $20,400 per year
Total Yearly Income: $56,400

Benefits Include:
- One week paid vacation every 6 months after your first six months.
- During your week of paid vacation you also receive a $1,000 bonus.
- We will match up to $100/month in an employee savings account.
- If you like, we also offer a Personal Financial Assistant to pay bills, do taxes and help manage your money.

Responsibilities include:
-Making pizzas, taking orders and delivering pizzas
-Work 6 days per week (about 49 hours per week)

We will be opening more locations soon, so there is huge potential for advancement. If you are interested please send your resume. Must be available to start immediately.

That works out to about $23 per hour as a starting wage to make and deliver pizzas in Stanley, ND, or more than three times the federal minimum wage of $7.25 per hour. But what about housing in the oil patch, which we always hear is so expensive? According to the Craigslist posting,

We do have rooms available to rent for $900/month if you are in need of housing.

And about 70 miles away from Stanley in Williston (where the jobless rate is 0.80%), the nation’s busiest Walmart is offering starting wages of $17 per hour for full-time and part-time workers, see photo below of the sign in the Williston Walmart parking lot:

wmartCheck out some of the hundreds of other job openings near Williston, ND listed on Craigslist here, (there are currently 647 current job openings with the word “Williston” in the listing), many offering signing bonuses of $500, $1,500, $3,000, $5,000 (here and here) and $6,000. That’s what happens when there’s a booming economy and a high demand for labor – starting wages get bid up many multiples of the federal minimum wage for entry-level positions, and firms actually start engaging in bidding wars to get the best workers by offering signing bonuses of thousands of dollars. The hottest job market in the country is now in western North Dakota, thanks to the oceans of shale oil that are now being accessed with advanced drilling technologies. And thanks to the “miracle and magic of the marketplace” of course.

Here’s Kathy Hoekstra’s conclusion, an excellent and well-taken point:

As the minimum wage battles spread from Seattle to other parts of the country, our policymakers need to heed the lessons of North Dakota, that is, a market allowed to operate freely does a much better job at determining our paychecks than government.

Carpe Diem

Quotation of the day on why sexual assault should be adjudicated in courts, not in campus tribunals ….

…. is from an article by Robert D. Carle (professor of theology at The King’s College in Manhattan), “The Trouble with Campus Rape Tribunals“:

The scourge of sexual assaults on college campuses rightly fills us with rage and indignation. But crimes that produce such visceral emotions need to be adjudicated in an impartial and dispassionate manner. A student found responsible for sexual assault is almost always expelled from school and barred from campus. His permanent record will often note that he was found guilty of sexual assault, thereby limiting his educational, employment, and housing opportunities. Such a life-shattering event warrants high standards of due process protections for the accused. Our courts provide such protections. Campus tribunals, which are conducted by amateurs in emotionally charged atmospheres, do not. Unfortunately, President Obama is using his authority under Title IX to vastly expand the role of campus tribunals in adjudicating cases of sexual assault.

College rape tribunals not only run the risk of wrongly stigmatizing innocent students as sex offenders, but they also betray victims of sexual assault by not locking up dangerous predators. When a college correctly identifies a violent offender, the maximum sentence it can deliver is expulsion, leaving the predator free to strike again in a different venue. College disciplinary boards have an abysmal record of handling sexual assault cases because they do not have the expertise to investigate and adjudicate violent felonies. The Obama administration should abandon its plans to construct a shadow justice system on college campuses. Instead, the administration should insist that victims seek justice through courts and law enforcement agencies. These institutions have the skills to make determinations of guilt and innocence in a way that respects the civil liberties of both the accused and the accuser, and they alone have the power to incarcerate dangerous criminals.

Related: The Foundation for Individual Rights in Education (FIRE) announced yesterday the launch of a new organization Families Advocating for Campus Equality (FACE), dedicated to defending due process on campus (see press release here). FACE president and co-founder Sherry Warner Seefeld is the mother of Caleb Warner, who was falsely found responsible for sexual assault by the University of North Dakota in one of FIRE’s best-known due process cases. Co-founders Judith Grossman and Allison Strange are mothers with similar experiences.

Carpe Diem

A letter to President Obama on behalf of the citizens of North Dakota, please visit America’s ‘economic miracle state’

Dear President Obama:

Thank you for the email that I received today from your White House with the subject “Let the President Know How You’re Doing,” and the text below:

Across the country, Americans are writing the President and telling him about their experiences — how their families are doing, what’s working, and what’s not. The President wants to know what’s on your mind, too. Tell him how you’re doing.

This summer, he’s traveling around the country to spend time with folks like you who are writing him. He’s sitting down to eat meals with them, walking through their neighborhoods — seeing what their day looks like. Every story he hears or reads sticks with him. It’s a constant reminder of who he’s fighting for. And those stories turn into real action.

And while President Obama can’t visit every front porch in America in person, there are other ways to get him there: Share the view from your own front porch. Let the President know how your family is doing, what your community looks like, what’s working for you, and what isn’t.

On behalf of the citizens of North Dakota, I would like to submit to you the video above (“Bakken Perspectives” from the North Dakota Petroleum Council) that showcases a few of the thousands of economic success stories happening right now in America’s “Economic Miracle State.” In the video above, you’ll meet the following Americans, who have been able to discover the American Dream in the country’s new land of opportunity — North Dakota.

1. Architect Lonnie Laffen will proudly tell you how he never imagined that his home state could blossom like it has in recent years with jobs and unbelievable opportunities, thanks to the booming energy production that is elevating the state to levels of prosperity it has never seen before.

2. Tim Adair, environmental engineer, will tell you how he left his home state of North Dakota in the 1990s when the state was among America’s poorest, and job opportunities were scarce. When he recently returned home, he easily found a job in a state that has risen in recent years to the No. 2 spot in the country for per-capita income, as a result of the shale oil boom in the western part of North Dakota.

3. Aaron and Angie Pelton, owners of Outlaws Bar and Grill in Watford City, ND will tell you how they are living out their entrepreneurial dream of starting and running a restaurant. That dream was made possible by the Bakken oil boom and the jobs and prosperity it brought to Western North Dakota.

4. Ward Koeser, mayor of Williston, will tell you how the shale oil boom has transformed his formerly isolated part of North Dakota into a real “land of opportunity.”  The Bakken oil fields, now producing more than a million barrels of oil every day, have been a real economic “gamechanger” for Williston and western North Dakota. People from all over America are coming to the Williston mayor’s town for the job opportunities and high quality of life, and he’d love to share his city’s economic success with you. There’s probably nobody in the country who knows more about creating “shovel ready jobs” than the mayor of Williston, ND, where the jobless rate is less than 1%. Maybe you could learn something from Mayor Koeser about how to spread Williston-style economic success to other parts of the US.

Mr. President, I know that the Bakken area of North Dakota is one of the few parts of the country that you haven’t yet visited during your presidency, which is very disappointing, since it is the one of the most vibrant, dynamic and economically successful parts of the country. Mr. President, I think you could learn a lot about economic success, entrepreneurship and “shovel ready jobs” if you go there. Should you decide to visit an area you’ve neglected so far, you might consider meeting some of the Americans in the video above and talk to them on their front porches, where they can share with you their experiences of economic success in North Dakota.

Mr. President, North Dakota is a real showcase state for America, and perfectly symbolizes the concept of “American exceptionalism.” North Dakota and its people also illustrate what Bono meant when he said at Georgetown University in 2012 that America is the only country in the world that is “an idea” — “That’s how we see you around the world, as one of the greatest ideas in human history.” Before your presidency ends, if you really want to experience first-hand the “heart and soul” of America as an “idea,” I recommend that you stop neglecting North Dakota and visit the people in the Bakken oil fields as part of your “My Front Porch” initiative.

Carpe Diem,

Mark Perry

P.S. If you do visit the Bakken area of North Dakota, I highly recommend Smokin’ O’s Roadside BBQ on Highway 2 near Ray, North Dakota, here are some photos below. I can guarantee that it will be the best BBQ (pulled pork, beef brisket and spare ribs) that you’ll ever find anywhere, here’s the menu. Oscar’s BBQ is another great Bakken success story of a entrepreneur from Arkansas who moved to the “land of opportunity” in North Dakota, and is living the American dream in Ray, ND. While some people sit around and talk about a lack of job opportunities in America, Oscar moved from Arkansas to Ray, ND to discover his food fortune.

oscar oscar1P.P.S. If you have time Mr. President, please visit America’s busiest Walmart — it’s in Williston, ND — where you’ll be greeted by this sign of economic opportunity below in the parking lot. For those Americans who complain about a lack of good-paying jobs and/or low-paying jobs at Walmart, they maybe haven’t heard about starting wages of $17 per hour at the Williston Walmart. If you visit, you can tell Americans yourself first-hand about the opportunities in Williston.


Carpe Diem

Charts and maps of America’s Amazing Shale Oil Revolution; and the new ‘Big Three’: Bakken, Eagle Ford and Permian

Below are four charts and two maps that help tell the story of America’s Amazing Shale Oil Revolution:

bigthree11. The Big Three. Yesterday, the Department of Energy’s Energy Information Administration (EIA) updated its monthly “Drilling Productivity Report” with new estimates of oil production through August in America’s three, super-giant oil fields, the “Big Three”: the Bakken in North Dakota and Eagle Ford Shale and Permian Basin in Texas. As the chart above shows, each of those three elite oil fields has been producing more than one million barrels of oil per day – Permian Basin since the summer of 2011, the Eagle Ford Shale since the summer of 2013, and the Bakken since the spring of this year. In all of human history, there have only been ten oil fields in the world that have ever reached the one million barrel per day milestone, and three of those ten are now active in the US – thanks to the advanced drilling techniques (fracking and horizontal drilling) that started accessing oceans of shale oil in Texas and North Dakota about five years ago.

bigthree2. The Big Three: More Than 4 Million Barrels Every Day. EIA estimates suggest that the combined crude oil output in those three elite US oil fields (Bakken, Eagle Ford, Permian) has exceeded 4 million barrels per day (bpd) in each of the last three months (June, July and August). Further, the combined oil production (Bakken, Eagle Ford, Permian) has increased four-fold in the last six years, from 1 million bpd in 2007 to more than 4 million bpd this year. At the current pace of production increases, the combined oil output could reach 5 million bpd by the summer of next year.

canada3. The Big Three – World’s No. 5 Oil Producer. The combined oil output from America’s “Big Three” super-giant shale oil fields (Bakken, Eagle Ford, Permian) surpassed Canada’s crude oil production last September for the first time ever, and has exceeded Canada’s output in each of the last seven months through March of 2014 (most recent month for international oil production statistics from the EIA). As a separate oil-producing nation, those three oil fields in March, with a combined production 3.83 million bpd, would have been the fifth largest crude oil producer in the world, behind only Russia (10M bpd), Saudi Arabia (9.7M bpd), US (8M bpd) and China (4.1M bpd).

rigshares4. Horizontal Drilling: “A Real Marvel of Engineering.” The process of hydraulic fracturing has a long history dating back to the 1940s, and by itself wasn’t revolutionary or responsible for the shale oil boom. The truly revolutionary oil extraction technology that led to America’s shale revolution was horizontal drilling in combination with hydraulic fracturing. David Blackmon explains here in one of his excellent Forbes articles — “Horizontal Drilling: A Technological Marvel Ignored“:

The truth is that, of the two technologies, horizontal drilling is the real marvel of engineering and scientific innovation. While impressive in its own right, the main innovations in “fracking” in recent years have been beefing up the generating horsepower to accommodate horizontal wells rather than vertical ones.

Think about what this advancement has meant just in terms of access to the resources:  When drilling into a hydrocarbon bearing formation 100 feet thick, vertical drilling would allow an operator to contact 100 feet of rock, which would limit your potential recovery to whatever oil or gas would flow into that length of pipe.

Horizontal drilling now allows these same operators to drill and set pipe for a mile or more horizontally through this same rock formation.  You are now contacting and “fracking” 5,200 feet of rock rather than 100 feet, which multiplies expected well recovery rates many times over.

The chart above displays rig count data from Baker-Hughes and shows the increased share of horizontal drilling that was largely responsible for the dramatic increases in US shale oil production that started around 2008. From less than a 10% share a decade ago, horizontal drilling now accounts for more than two-thirds of US oil rigs today.  Without the “technological marvel” of horizontal drilling, we would have never seen the dramatic increases in US oil production over the last six years, and the chart above helps to explain why the shale oil boom started in about 2008 – that’s when horizontal drilling started revolutionizing US oil production.

Texas5. Active Drilling Rigs in Texas. Via oilfield services company Baker Hughes, the map above shows all of the current 898 “active drilling rigs” in Texas (blue triangles are oil rigs and red circles are gas drilling rigs), and helps to graphically highlight the shale oil booms in the Permian Basin area of West Texas, and the Eagle Ford Shale boom in the South-Central area of Texas. According to Baker Hughes, “active rigs” are those on location and drilling or ‘turning to the right’. A rig is active from the moment the well is initially “spudded” (when a oil drilling bit penetrates the surface) until it reaches its final “target depth.”
NorthDakota6. Active Drilling Rigs in North Dakota. Here’s another Baker Hughes drilling rig count map,showing the current drilling activity in the Bakken area of western North Dakota (172 active rigs), which is responsible for pushing the state’s oil production above one million barrels per day in recent months.

Carpe Diem

Who-d a-thunk it? UK study finds that people who claim to worry about climate change use more, not less electricity?

algoreThe UK Telegraph is reporting today that:

People who claim to worry about climate change use more electricity than those who do not, a Government study has found. Those who say they are concerned about the prospect of climate change consume more energy than those who say it is “too far into the future to worry about,” the study commissioned by the Department for Energy and Climate Change found.

Peter Lilley, a Conservative member of the Commons Energy and Climate Change committee, said: “The survey exposes the hypocrisy of many who claim to be ‘green’: the greater the concern people express about global warming the less they do to reduce their energy usage.”

That story reminded me of a 2010 CD post titled “When It Comes to His Own Energy Usage/Carbon Footprint, Al ‘Bigfoot’ Gore Uses 19x U.S. Average,” here’s the full text of that post:

From Al Gore’s article “We Can’t Wish Away Climate Change” in the NY Times (February 27, 2010):

It would be an enormous relief if the recent attacks on the science of global warming actually indicated that we do not face an unimaginable calamity requiring large-scale, preventive measures to protect human civilization as we know it.

Of course, we would still need to deal with the national security risks of our growing dependence on a global oil market dominated by dwindling reserves in the most unstable region of the world, and the economic risks of sending hundreds of billions of dollars a year overseas in return for that oil. And we would still trail China in the race to develop smart grids, fast trains, solar power, wind, geothermal and other renewable sources of energy — the most important sources of new jobs in the 21st century.

But what a burden would be lifted! We would no longer have to worry that our grandchildren would one day look back on us as a criminal generation that had selfishly and blithely ignored clear warnings that their fate was in our hands. We could instead celebrate the naysayers who had doggedly persisted in proving that every major National Academy of Sciences report on climate change had simply made a huge mistake.

I, for one, genuinely wish that the climate crisis were an illusion. But unfortunately, the reality of the danger we are courting has not been changed by the discovery of at least two mistakes in the thousands of pages of careful scientific work over the last 22 years by the Intergovernmental Panel on Climate Change. In fact, the crisis is still growing because we are continuing to dump 90 million tons of global-warming pollution every 24 hours into the atmosphere — as if it were an open sewer.

MP: In 2007, Al Gore’s mansion in Nashville burned through an average of 17,720 kWh of electricity every month (calculated for the year 2007 from Al Gore’s energy bills from 2005 to mid-2008 here, via the Beacon Center of Tennessee, which first reported on Al Gore’s energy usage in 2007). That amount of electricity was almost 19 times more than the monthly electricity consumed by the average U.S. household (936 kWh), and almost 3 times as much electricity as the average U.S. commercial customer (6,408 kWh), see chart above (Department of Energy data here). So it’s just a little hard to take Al Gore’s preaching about climate change too seriously when his own household’s contribution to the “climate crisis” is 19 times greater than the average American household, and almost three times greater than even the average commercial user of electricity.

So it’s classic Al Gore. He talks about a “criminal generation that selfishly and blithely” dumps “global-warming pollution into the atmosphere as if it were an open sewer.” However, if personal energy usage was “criminal,” Al Gore might be at the top of “America’s Most Wanted List,” see chart above. Terms that come to mind to describe Al Gore’s carbon footprint include “Bigfoot,” “Paul Bunyan,” “Brobdingnagian,” “Sasquatch,” or “the elephant in the room.” To paraphrase blues pianist Mose Allison, “If polluting was criminal, he’d live a life of crime.”

Maybe “Bigfoot’s” NY Times op-ed should have been titled, “We Can’t Wish Away Climate Change, But We Can Reduce Our Personal Carbon Footprint, But Only If We Really Want To: I’m Not Willing to Change My Lifestyle, But the Rest of You Should.”

Carpe Diem

Monday afternoon links

banks1. Map of the Day: Biggest bank in each US state (based on the location of its headquarters), here’s the original study.

2. Map of the Day, II: Stunning time-lapse map shows 14 years of fracking in the U.S. also available with additional details here.

3. Rare Victory for Common Sense. 9-Year Old Boy in Kansas with Free Library in His Front Yard Takes On the City Council…and Wins.

4. Why Didn’t Somebody Think of This Before? Cannabis weeds spring up all over German town after campaigners plant 1000s of seeds to protest weed ‘demonization’ and restrictive weed laws.

5. United States of SWAT/America’s Here’s Your Drug War: A dad’s visit to a hydroponic store with his son for a school science project, along with some discarded loose tea leaves in the family’s trash, prompt a futile two-hour SWAT raid on the family’s home. No weed, no arrests. Hasn’t this gone a little too far?

6. Trading Pimps for Web Pages. Moving online has helped the escort industry go mainstream.

7. Regarding Today’s Battle Between Uber/Lyft vs. Taxi Cartels and Their Government Enforcers. Matthew Mitchell and Michael Farren offer some interesting historical insights from the jitney car services 100 years ago and their battles with the streetcars and city regulators.

8. An Explosion of Wealth, Jobs, People and Oil in Three Rivers, Texas from the Eagle Ford Shale.

video platformvideo managementvideo solutionsvideo player

Carpe Diem

May was another record-setting month for North Dakota oil as the state’s daily output topped 1M bbls. for second month

ndoilOil drillers in North Dakota pumped out an average of over one million barrels of oil per day (bpd) in May for the second month in a row, and set another new monthly all-time record high for the state’s crude oil production, according to oil production data released today by North Dakota’s Department of Mineral Resources (see blue line in chart above). Producing more than one million barrels of oil per day in April and May is another important energy milestone for North Dakota, which has seen its oil production increase ten-fold over the last 8 years, from only 103,409 bpd in April 2006 to 1,039,635 bpd in May of this year.

Here are some other highlights of North Dakota’s record-setting oil and gas output in May:

1) The state’s average daily oil production increased by 28% compared to a year earlier, which was the largest year-over-year gain in six months. Remarkably, in only the last two and-a-half years since November 2011, oil production in North Dakota has more than doubled from 510,534 bpd to almost 1.04 million bpd in May.

2) For the tenth consecutive month starting last summer, North Dakota’s oil production in May represented more than 12% of all US oil. Five years ago in May of 2009, North Dakota produced less than 4% of total US crude output. Due to the phenomenal growth of oil output in the shale-rich Bakken fields, North Dakota’s share of US crude production has gradually increased, and exceeded 12.3% in May.

3) In dollar terms, the oil produced in North Dakota in May had a daily market value of more than $106 million at the average oil price of $102.18 per barrel for West Texas Intermediate (WTI) oil during the month. For the entire month of May, that would put the market value of North Dakota oil at almost $3.3 billion, setting a new all-time record for the dollar value of the state’s monthly oil output.

4) The Bakken oil fields in western North Dakota produced more than 975,000 bpd in May (see brown line in chart), and set a new all-time monthly output record, which also represented a new record-high 93.8% of the state’s monthly oil production. In contrast, the Bakken region produced less than 9% of the state’s oil output at the beginning of 2007, before breakthrough drilling techniques (hydraulic fracturing and horizontal drilling) were able to tap into a bonanza of unconventional oil in the shale-rich areas of western North Dakota. At the current pace of increases, production in the Bakken oil field is on track to surpass the million bpd milestone this month (July) and join an elite group of only ten super-giant oil fields worldwide to ever produce at the million barrel per day level at their peak daily production.

Bottom Line: May was another stellar month in “Saudi Dakota,” with average daily oil production surpassing one million bpd for the second straight month, and establishing yet another new record high for the state’s oil output at almost 1.04 million bpd. Sometime this month, the Bakken oil fields in the western part of the state will join an elite group of only ten oil fields in the world to ever surpass the million-barrel milestone for peak daily crude oil production.

The shale boom continues to make the Peace Garden State America’s most economically successful state – with growth in employment and personal income that lead the nation, the lowest state jobless rate in the country at 2.6% in May (and the lowest monthly jobless rate in North Dakota history), an enviable and whopping state budget surplus approaching $2 billion, the highest state GDP growth in 2013 of 9.7%, strong housing and construction markets (more than 800 permits for single-family homes were issued in just the month of May, setting a new all-time monthly record that was 57% above the previous record of 519 last August), thousands of landowners who have become millionaires from oil and gas royalties (estimated oil royalty payments of more than $21 million every day in May, at 20% of the approximately $106 million in market value calculated above; and an estimated additional $700,000 in payments every day for natural gas royalties), and jobless rates in 11 of the state’s 53 counties at 2.0% or lower in May (with Williams County at only 0.80%, the lowest county jobless rate in America).

North Dakota’s economic success, job creation, and energy-based prosperity is being driven by the development of the state’s vast energy resources, especially the vast oceans of shale oil and shale gas in the state’s Bakken region. The Peace Garden State, along with Texas, are the shining stars of The Great American Energy Boom, which continues to be the strongest reason to be optimistic about the US economy.

Carpe oleum.

Carpe Diem

Letters to the WSJ about the minimum wage

Writing in the WSJ last week (“Who Really Gets the Minimum Wage“) and featured here on CD, UC-Irvine economist David Neumark made an important, but often overlooked point about one of the unintended effects of raising the minimum wage – it benefits low-wage workers in high-income families disproportionately more than it benefits low-wage, low-income workers, by a factor of two.

Five letters to the WSJ about Prof. Neumark’s op-ed appear in today’s print edition, and these three I thought were especially good (my titles appear below):

1. Minorities Suffer the Most from the Minimum Wage.

In his previous research, Mr. Neumark highlighted the disemployment effect increasing the minimum wage has on teenagers and minorities — for every 10% increase in the minimum wage, African-American or Hispanic males ages 16-24 experienced decreased employment of 6.3% and 5.5% respectively. The impact for African-American teenagers alone is a decrease in their employment of 8.4%. Thus it is even more surreal that President Obama would be pushing for a minimum-wage increase which would hurt most the segment of our population that he claims to champion with his “My Brother’s Keeper” program. One can only conclude that a minimum-wage increase sound bite played better in the polls irrespective of the reality of its negative consequences.

~Ron Dudley, Sanibel, Florida

2. Minimum Wage Jobs Are Not Always ‘Dead-End’, but Offer Significant Opportunities for Advancement and Upward Mobility.

Mr. Neumark address upward mobility and advancement in relation to minimum wage; few writers and opinion makers do. My company operates over 85 Burger King and Peter Piper Pizza franchised restaurants in Texas and New Mexico, and we have dozens of employees who started working with us as part-time or hourly or minimum-wage employees, or all three. About half of our general managers in the pizza brand were in this wage group at one time. Through diligence, hard work and learned skills they earned promotions to manager and above. This group now enjoys average annual salaries of over $53,000, plus a wide range of benefits including paid vacations, health insurance (with most of the premium cost paid by the employer), a best-in-class 401(k) program, a cash bonus program, and all of this with a five-day workweek.

In our experience, those employees who are deserving of higher pay receive regular raises that make a minimum-wage hike unnecessary at the state or federal level. The free market is best at determining appropriate wages. Our industry is frequently derided as providing “dead end” jobs to its entry level workers, but we are proud of the environment and culture we have created to provide real opportunity for young people looking to get ahead.

J. Kirk Robison, El Paso, Texas

3. Minimum Wage is All About Good Politics, and Nothing About Good Economics

If we consider minimum wage as political policy, it is a winner. Instead of fighting the Democrats on this issue, Republicans should embrace it. Indeed, why not up the ante? The president has declared support for a $10.10 minimum. So Republicans should pitch for $11 or $12. Sure it’s bad economics, but the whole concept is bad economics and we’ve survived it for decades. Short of catastrophic error, economies adjust. Might as well join the party and collect the votes.

Robin Carpenter, Hanover, N.H.

MP: Three great points about the minimum wage: 1) its unintended effects are racist, b) minimum wage jobs are often the first step to higher-paying jobs, including management positions, and c) it’s not really about sound economics, so let’s stop pretending and admit that it’s all about politics and votes.

Carpe Diem

Financial advisers, show us your numbers!

In yesterday’s WSJ, the “Intelligent Investor” Jason Zweig has a good article (with the title above) about the general unwillingness and/or inability of the large majority of financial advisers to provide their investment performance record to existing or potential clients. Here’s an excerpt:

If you want to know the track record of a mutual fund or exchange-traded fund, you can easily look it up in a matter of seconds online. But what about the track record of a financial adviser who is offering to pick investments for you?

While some financial advisers who cater to individual investors are willing to calculate and report their own average historical returns, the vast majority still don’t—and probably won’t until investors smarten up and start demanding it.

“It’s baffling to me,” says Tim Medley, president of Medley & Brown, a financial adviser in Jackson, Miss., who manages $575 million and publicly updates its performance monthly online. “The advisory business has grown dramatically, and I would have guessed that by now a lot more advisers would be posting their rates of return on their websites.”

Mind you, every client opens and closes accounts at different times, in a variety of investments, with various levels of risk. But that doesn’t mean an advisory firm can’t calculate the average return it earns for its clients. Every investor in a given mutual fund also is unique, but all mutual funds report their past returns in the same standardized format.

Of course, much of the value of a financial adviser can’t be captured by measuring the track record of his investment picks alone. By reducing your taxes, planning your estate and retirement, cutting your debt and adjusting your insurance coverage, an adviser can make you much richer and more secure.

Those benefits often can’t be quantified. But that still shouldn’t exempt advisers from reporting results that can be quantified, like investment returns.

A reason advisers don’t make these disclosures may be that they don’t know—or even want to know—their returns. “Advisers want to have confidence in themselves,” says Joachim Klement, chief investment officer at Wellershoff & Partners. “Knowing their own performance numbers might give them a sense of insecurity instead.”
Before you hire a financial adviser, ask to see his track record in writing. That shouldn’t be just the results of a single client, a cherry-picked handful of lucky stock picks or market calls, or a short-term snapshot that starts in early 2009 at the beginning of an epic bull market.

It should instead present a composite of how large numbers of clients’ portfolios fared over multiple time periods—say, the past one, three, five and 10 years, after all fees. If enough clients start asking, advisers will have to apply the same scrutiny to their own performance that they claim to apply to funds and other investments.

MP: Interestingly, the Mississippi-based, fee-only investment firm mentioned above – Medley and Brown – that publishes its performance results here, has under-performed its benchmark growth index YTD, and over the last 1-year, 3-year, 5-year and 10-year periods (see table below). Over a longer period of almost 25 years going back to the end of 1989, the firm has outperformed its benchmark index by about 1/3 of 1% per year.

Update 1: Note that the Vanguard Growth Index over the last ten years has generated an average annual return of 8.43%, more than 1% per year higher than the Medley and Brown Growth Composite return of 7.25%.

resultsUpdate 2: Here’s another difference between active management of your investment/retirement funds through a full-service investment advisory firm like Medley and Brown vs. a more passive approach using index funds like the Vanguard S&P500 Index fund or the Vanguard Total Stock Market fund — the full-service investment firms charge pretty hefty advisory fees, payable upfront, compared to low-cost Vanguard index funds, which charge no upfront fees. For example, according to Medley and Brown’s “Advisory Fee Schedule” (which I assume is pretty standard for the industry), here are the annual fees that you’ll be billed for displayed in the table below, payable in advance on a quarterly basis, for various initial investment amounts, compared to the total annual expenses for the Vanguard Total Stock Market Index Fund (based on a total expense ratio of 0.05%, which isn’t billed to the investor directly, but is reflected in a slightly lower return on investment of 5 basis points).

Investment Annual Fees, Payable Upfront, Full Service Annual Expenses (Hidden), Vanguard Total Stock Market
$1,000,000 $10,000 $500
$2,000,000 $17,500 $1,000
$3,000,000 $25,000 $1,500
$4,000,000 $32,500 $2,000
$5,000,000 $40,000 $2,500
$6,000,000 $47,500 $3,000
$7,000,000 $55,000 $3,500
$8,000,000 $57,500 $4,000
$9,000,000 $62,500 $4,500
$10,000,000 $67,500 $5,000

Bottom Line 1: When comparing investing your funds using a full-service brokerage firm to investing in low-cost index funds at a firm like Vanguard, it would seem to be a very important consideration that full service advisers like Medley and Brown (and other full service firms) charge their management fees upfront, on a quarterly basis; and the typical management fees for Vanguard funds of only 0.05% are reflected in a slightly lower return, e.g. 10.00% instead of 10.05%. Over a ten-year period, an investor with $1 million in assets (often the minimum for some full-service advisers) would have paid $100,000 in fees, out-of-pocket and upfront; and an investor with $10 million in assets would have paid $675,000 in fees, out-of-pocket and upfront. (Actually most full-service brokers require investors to hold some of their assets in a cash/money market account, and the fees are taken directly from the investor’s cash account at the beginning of each quarter.) In comparison, those same investments in Vanguard would not have required any out-of-pocket, upfront fees! And since Vanguard doesn’t require direct payments of fees, investors are required to hold a portion of their assets in money market accounts, they can remain 100% invested in stock mutual funds.

Some investors might be concerned that the incredibly low-cost Vanguard funds (almost free at 0.05%, and not payable in advance or out-of-pocket) can only achieve those incredibly low fees with incredibly low or poor service. That’s not true. Investing in low-cost Vanguard index funds gives you the same access as full-service investment firms to a team of highly-qualified financial professionals. For example, an initial investment of only $50,000 qualifies investors for the Vanguard Voyager Services, $500,000 in Vanguard assets qualifies you for a higher level of Voyager Select Services, investors with $1 million get access to the Flagship Services and investors with $10 million in Vanguard assets qualify for the Flagship Select Services. See the full range of Vanguard (almost all free) services here. Note that for any level of investment there are no account service fees, and you get access to personal assistance from a financial Vanguard representative for free. For investments of $500,000 and higher you get free financial planning services and free access to a Certified Financial Planner (CFP) at any time. At investments of $10 million and higher, you qualify for a dedicated Vanguard relationship manager and administrator. All of these services are included in the 5 basis point fee ($5 per $10,000 invested) that is not paid directly, out-of-pocket, or upfront.

Bottom Line 2: At the risk of offending all of my friends and CD regulars who are full-service, wealth management, investment professionals, I’m starting to think that the full-service, active management investment industry is possibly doing a great disservice to many American investors, for the incredibly high fees they are charging, so often for returns below index funds? Maybe that’s too strong of a case — and uninformed investors certainly deserve some of the blame — but I would at least encourage every investor who has funds invested in a full-service broker to seriously consider the significant benefits of switching to a low-cost index mutual fund specialist like Vanguard. Or at least investors (and their advisers and brokers) should read the book that radically shaped my thinking about this issue – “Random Walk Down Wall Street The Time-Tested Strategy for Successful Investing.” As the review says, “It’s unlikely that you’ll spot many dog-eared copies of ‘A Random Walk’ floating amongst the Wall Street set.” So it’s probably the one book that active money managers and full-service brokers don’t want you to read – which means it’s the single most important investment book that you should read!

Hey, maybe I’m wrong, and I’d love to hear from any full-service brokers/advisers who will go on record in the comments section (and not by private email) and explain why their fees, services, and returns are equal to, or superior to the fees, services and returns that Vanguard and its index funds can offer to most investors.