Carpe Diem

Thursday afternoon links

cars1. Chart. Summer car sales caught fire, as more vehicles were sold in August — 17.53 million units on a seasonally adjusted annual rate — than in any month since January 2006; and it was the best sales for the month of August since 2003. Wow!

2. 3D Printing: a) This Technology (3D Printing) Could Have The Biggest Impact On American Jobs Since Offshoring and b) The Space Station Is Getting Its First 3D Printer.

3. Beer Smackdown. The Battle Between Craft Beers and Mass-Market Swill/Slop in Florida over the 64-Ounce Growler.

garchnewgarch4. Another Chart. Consumers love to complain about high prices at the pump, and they whine a lot about gas prices not being lower as a result of the US shale oil boom. But the chart above shows one possible positive result of America’s oil bonanza – retail gasoline prices have become more stable in recent years, and have been less volatile this year than in any year since 1998. (Note: Bottom chart is log scale.)

5. Who-d a-Thunk It? Despite federal income tax credits of up to $7,500, electric vehicle sales are stagnant and running out of gas? And here’s one reason from the LA Times article, “Stable gas prices (see Item #4 above) may have contributed to a slackening in interest in non-gasoline electric hybrid and plug-in vehicles. So have the increasingly good fuel-efficiency levels of gas cars in general.”

5. A Good List and So True. The Ten Things Every College Professor Hates.

trade6. Another Chart. Total US trade activity with the rest of the world (Exports + Imports) reached a new monthly record high in July of $437 billion.

7. Good Quote about the World’s Largest Jailer: “We (the US) have too many laws and too many prisoners. Never in the civilized world have so many been locked up for so little.”

8. Photo below from 1957, when it took about 12 men to deliver an Elliot Brothers business computer.

computer

Carpe Diem

In 2010, Obama promised to double exports in 5 years. A completely unrealistic goal — except for petroleum products

oilexport

Remember back in January of 2010 when President Obama set an ambitious goal to double US exports within five years? Well, there are now only 4 months left to go until 2015, and that lofty goal now seems to be unachievable and has vanished from White House talking points.

In the four-and-a-half years since Obama made his promise to double US exports and create two million new jobs, US exports have only increased by a little more than one-third (38%) in nominal terms and by only 26% in inflation-adjusted dollars based on international trade data released today by the BEA for the month of July. At the current annual average growth in exports of about 3.3%, US exports in early 2015 will likely be about $200 billion per month, and only about 40% above the $143.6 billion worth of exports in January 2010 when President Obama announced his lofty goal. No wonder the goal of doubling exports in five years has completely vanished from Team Obama’s talking points.

Although this might not have been what Obama had in mind when he promised to double US exports in five years, he might want to brag about a rather remarkable US export success story — the phenomenal increase in American-made petroleum products. Thanks to America’s amazing shale revolution that dramatically boosted domestic oil output starting in about 2007, US exports of refined petroleum products like gasoline, diesel, jet fuels, and heating oil have more than tripled in constant 2009 dollars (see chart above, data here) to a new monthly record high in July of $8.4 billion.

So here’s a talking point for Obama to consider: “When I made my promise in January 2010 to double US exports, we were selling only $3.5 billion of refined petroleum products to the rest of the world (in 2009 dollars). In July of this year, American-based refineries sold $8.4 billion worth of petroleum products that were “Made in the USA.” I’m proud of the fact that American oil producers and refiners have helped me meet my goal of doubling US exports, and they did it in record time — there are still six months left to go before my 2015 deadline and petroleum exports have already doubled. Further, shovel-ready jobs in the oil and gas industry have expanded by a whopping 36% since January 2010, compared to an increase of only 7% in US payrolls during that time.”

MP: Realistically, we won’t hear any bragging from Obama about the boom in US hydrocarbon-based exports because it’s not part of the “green energy” future that Obama envisions, and probably wasn’t at all what he had in mind when he promised to double US exports. Nonetheless, the tripling of US petroleum exports since 2007, and the more than doubling of those exports since January 2010, is another part of America’s amazing shale revolution — which continues to provide one of the strongest reasons to be optimistic about the US economy and America’s future.

Carpe Diem

Natural gas production in the Utica Shale has increased almost 7X in 2 years and its potential just got even bigger

uticaThe chart above shows natural gas production in the Utica Shale area of Ohio and Pennsylvania (see map below), based on EIA data. In only two years, the production of natural gas in the Utica Shale region has increased from about 200,000,000 cubic feet per day in September 2012 to 1.34 billion cubic feet per day this month based on the EIA’s most recent estimate (see chart). And we can expect the eye-popping increase in shale gas in the Utica to continue, according to a news report today from Bloomberg about Shell’s recent discovery of two new very promising natural gas fields in the Utica:

Royal Dutch Shell’s natural gas discoveries near the Pennsylvania-New York border indicate that the Utica shale formation extends hundreds of miles farther east than originally thought.

Two gas finds in Tioga County, Pennsylvania, announced today by Europe’s largest oil company are more than 300 miles away from the epicenter of Utica shale drilling in Monroe County, Ohio. Shell, which has been selling gas assets in other parts of the U.S. to focus on its highest-profit prospects, said it owns drilling rights across about 430,000 acres in the discovery zone, an area five times the size of Philadelphia.

Since the discovery of Utica four years ago, exploration has been dominated by a handful of domestic wildcatters such as Chesapeake Energy Corp. and Gulfport Energy Corp. Oil majors including Exxon Mobil were late to the race after initially assuming the formations wouldn’t yield hefty returns.

The Utica “could be much bigger” than previously mapped, said Kayla Macke, a Shell spokeswoman.

Shell’s discoveries, known as Gee and Neal, were found about two miles underground. The Gee well was producing 11.2 million cubic feet of gas a day when output began a year ago. The Neal well saw a peak in daily production of 26.5 million cubic feet after drilling ended in February.

Shell, based in The Hague, held off on publicizing the well results for months to avoid alerting competitors to the potential bonanza in that part of Pennsylvania.

utica

HT: Robert Kuehl

Carpe Diem

Q&A with Jason Riley about his book “Please Stop Helping Us: How Liberals Make it Harder for Blacks to Succeed”

In the Reason TV interview above, Jason Riley, WSJ editorial board member and author of the book “Please Stop Helping Us: How Liberals Make it Harder for Blacks to Succeed” says, “My beef with the black left is that they want to keep the focus on what government or Washington or politicians or whites in general can do for blacks, instead of what blacks can do for themselves.” Further, in Jason’s new book he writes, “The sober truth is that the most important civil rights battles were fought and won four decades before the Obama presidency. The black underclass continues to face many challenges, but they have to do with values and habits, not oppression from a manifestly unjust society. Blacks have become their own worst enemy.”

In a wide-ranging 20-minute conversation with Reason’s Nick Gillespie, Jason Riley discusses topics in his book including the Civil Rights acts of the 1960s, affirmative action racial profiling in higher education, black-on-black violence, the Drug War, the case against the minimum wage because of its negative effects on blacks, and how the best anti-poverty program available for blacks is an intact family. You can find the transcript and more information here.

Carpe Diem

Taxes are usually distortionary because they can be avoided, e.g. the $10,000 mansion tax in New York and New Jersey

housesEconomic theory and empirical evidence suggests that most taxes (and regulations) are distortionary in the sense that buyers, sellers, producers, taxpayers, etc. can change their behavior to avoid (or minimize) the tax (or regulation). For example, if a state (or a country) imposes a “millionaire tax,” the millionaires move to another state (country). If the US government imposes a “luxury tax” on purchases of expensive new yachts and airplanes, the wealthy postpone purchases of those luxury items, or they buy expensive used yachts and airplanes. If one state raises its cigarette taxes, smokers living near the border purchase cigarettes in a nearby state with lower taxes per package of cigarettes, etc.

In a new NBER working paper “Mansion Tax: The Effect of Transfer Taxes on the Residential Real Estate Market,” Columbia University economists Wojciech Kopczuk and David Munroe analyze the distortionary effects of the $10,000 “mansion tax” in New York and New Jersey that only applies to real estate transactions that exceed $1 million in value. The authors analyzed housing market data from both states and find evidence that the “mansion tax” disrupts sales of houses and condos at the $1 million threshold price level. As would be expected, many sellers will reduce their asking prices so that they fall below the $1 million threshold, and others choose not to sell at all. Here are more details about the paper from the NBER Digest:

In New York City, if a property sells for $999,999, no mansion tax is due, but if it sells for $1 million, the tax due is $10,000. This represents a “notch” in the tax schedule: a small change in the value of the transaction can trigger a discrete increase in tax liability. Not surprisingly, sales data show a substantial bunching of transactions right below the $1 million level (see chart above). They also show “missing sales” just above the $1 million level (see chart). Relative to the number of transactions one would predict just above this threshold based on the number of sales in other price ranges, there are too few sales. The authors estimate that there were 2,800 such missing transactions in New York between 2003 and 2011, equivalent to the number of transactions that would have occurred otherwise in the price range of $1 million to $1.04 million. They conjecture that in some cases, if a property would sell for just over $1 million, the sellers may take it off the market or delay the sale, perhaps by renting. The authors conclude that “this one percent tax, applying at a relatively large threshold, managed to eliminate 0.7% of transactions.”

The results suggest that the tax may distort market prices by more than the tax due. For example, it appears that even though the tax on a $1 million property is $10,000, some sellers may offer up to $20,000 in discounts to avoid the tax. The authors also emphasize that the tax has an “unraveling effect.” They write that “the notched design of the tax can destroy a market for housing with values close to the notch.” When potential taxpayers have the option of not participating in a market, as they can in the real estate market by not offering their property for sale, a notched transaction tax can destroy productive matches between potential buyers and potential sellers.

 

Carpe Diem

Texas oil tops 3M barrels per day milestone again in June; as separate nation it would be world’s 8th largest oil producer

Texasoil

The Energy Information Administration (EIA) released new state crude oil production data yesterday for the month of June, and one of the highlights of that monthly report is that oil output in America’s No. 1 oil-producing state – Texas – continues its phenomenal, eye-popping rise. Here are some details of oil output in “Saudi Texas” for the month of June:

1. For the second straight month, oil drillers in Texas pumped out more than 3 million barrels of crude oil every day (bpd) during the month of June. The 3.074 million bpd in June was the highest daily oil output in the Lone Star State in any single month since at least January 1981, when the EIA started reporting each state’s monthly oil production (see chart above). Texas reached the two million barrel per day oil production milestone in August 2012, and has since added a million more barrels of daily oil production in less than two years to reach the three million barrel milestone in May of this year. Compared to a year ago, oil output in Texas increased by 21.4% in June marking the 38th straight month starting in May 2011 that the state’s oil output has increased by more than 20% on a year-over-year basis.

2. Remarkably, oil production in the Lone Star State has more than doubled in less than three years, from 1.496 million bpd in August 2011 to 3.074 million bpd in June of this year (see chart above), and that production surge has to be one of the most significant increases in oil output ever recorded in the US over such a short period of time. A 1.58 million bpd increase in oil output in only 34 months in one US state is remarkable, and would have never been possible without the revolutionary drilling techniques that just recently started accessing vast oceans of Texas shale oil in the Eagle Ford Shale and Permian Basin oil fields. As I reported recently, both the Eagle Ford and Permian Basin oil fields in Texas are now producing crude oil at a rate of more than 1 million bpd, joining an elite international group of only ten super-giant oil fields that have ever produced that much oil at their peak.

3. The exponential increase in Texas oil output over roughly the last three years has completely reversed the previous, gradual 28-year decline in the state’s conventional oil production that took place from 1981 to 2009 (see arrows in chart) – thanks almost exclusively to the dramatic increases in the state’s output of newly accessible, unconventional shale oil.

4. As recently as mid-2009, Texas was producing less than 20% of America’s domestic crude oil. The recent gusher of unconventional oil being produced in the Eagle Ford Shale and Permian Basin oil fields of Texas, thanks to breakthrough drilling and extraction technologies, has recently pushed the Lone Star State’s share of domestic crude oil above 30% in each of the last 21 months, and all the way up to more than 36% of America’s crude output in both May and June.

5. Oil output has increased so significantly in Texas in recent years that if the state was were considered as a separate oil-producing country, Texas would have been the 8th largest oil-producing nation in the world for crude oil output in April (most recent month available for international oil production data) at 2.97 million bpd – behind No. 7 Iran at 3.23 million bpd.

6. The dramatic increase in Texas’s oil production is bringing jobs and economic prosperity to the state. For example, over the last 12 months through July, payrolls in the state of Texas increased by 396,200 jobs, which was a 3.53% annual increase in the state’s employment level, almost double the 1.88% increase in total US payrolls over that period. Every business day over the last year, more than 1,500 new jobs were created in the Lone Star State, and many of those jobs were directly or indirectly related to the state’s booming energy sector, which experienced a 9.1% increase in payrolls for oil and gas extraction jobs (9.500 new jobs) over the most recent 12-month period through July. Oil and gas companies in Texas hired more than 36 new employees every business day over the last year just for extraction activities, or almost 5 new hires every hour!

MP: The significant increase in Texas’s oil production over the last several years is nothing short of phenomenal, and is a direct result of America’s “petropreneurs” who developed game-changing drilling technologies that have now revolutionized the nation’s production of shale oil. Thanks to those revolutionary technologies, Texas is now home to two of only ten super-giant oil fields to ever produce more than 1 million barrels of oil per day – the Eagle Ford and Permian Basin.

For oil output in Texas to increase from 2 million to 3 million bpd in less than two years, and increase so dramatically that the state produced more than one-third of all US crude oil in each of the last 15 months (and more than 36% of US oil in May and June), is undoubtedly one of the most remarkable energy success stories in US history – and it’s just getting started. At the current pace of annual increases of about 25%, Texas oil production will likely surpass 4 million bpd by late summer of next year. With those projected increases in Texas oil output, the state could soon surpass Iraq, Iran and even Canada to move up in the international oil production rankings to become the world’s No. 5 oil producer in 2015.

“Saudi Texas” continues to be the shining star of The Great American Energy Boom.

Related: You can thank the US oil bonanza in Texas and North Dakota for “cushioning the impact of all the instability surrounding traditional global oil fields,” and in the process easing both oil prices and gas prices at the pump according to this NY Times article “A New American Oil Bonanza.”

Carpe Diem

Tuesday afternoon linkage

1. Mark Mills: “The Data Are Clear: Robots Do Not Create Unemployment.”

2. Richard Rahn: “Hong Kong’s miraculous progress: Economic freedom has made a tiny seaport into an economic and financial giant.

3. Christina Sommers in TIME: “Five Feminist Myths that Will Not Die” — Women’s advocates need to take back the truth.

4. California’s Consensual Sex Contract/Checklist. “Per California Senate Bill 967, all sexual encounters on college campuses must be regulated and approved by college administration and/or State regulatory agencies.” /satire

5. Expect More Reshoring as American companies are falling out of love with China.

6. From today’s August 2014 Manufacturing ISM Report On Business — “The average PMI for January through August (55%) corresponds to a 3.9% increase in real GDP on an annualized basis. In addition, if the PMI for August (59%) is annualized, it corresponds to a 5.2% increase in real GDP annually.”

7. Creative Destruction. North American film industry had worst summer since at least 1997, after adjusting for inflation.

8. America, Here’s Your Senseless, Cruel and Expensive Drug War: a) Missouri inmate Jeff Mizanskey will likely die in maximum security prison for weed-only offenses, while rapists and murderers come and go and b) in 2008 a 9-Member SWAT team in CT broke down the door and shot and killed a man as he watched TV with his friend – no drugs were found and no arrests were made. The police shooter was named “Officer of the Year.”

9. Immunity. Cop Won’t Be Charged For Killing Napster Exec While Texting & Driving, Because It’s Apparently OK For Cops To Do That.

10. Markets in Everything: Southern New Hampshire University introduces a $10,000 Bachelor of Arts degree.

11. Rampant Grade Inflation on College Campuses. In the 1960s, only 15% of college grades were As; today, 43% of all college grades are As. 

12. Why Uber Must Be Stopped. “Because it’s the acme of ruthless and amoral profit-seeking.” (ht/Jon Murphy)

Cartoon of the Day

floppy

Carpe Diem

Dallas Morning News editorial writer William Ruggles coined the term “right to work” on Labor Day in 1941

Dallas Morning News editorial writer William Ruggles (pictured above) “thought every American had a right to work. He used those words in an editorial on September 1, 1941 (Labor Day) asking for a 22nd amendment to the U.S. Constitutional guaranteeing the right to work with or without union membership. In so doing, he coined a phrase and sparked a movement that would change the labor landscape in America,” according to a story in the Dallas Morning News in 2010 as part of its 125th anniversary celebration. Here are some excerpts from that article:

“The answer seemed to me to be an amendment to the federal Constitution that would be so clear and unequivocal that no jurist could argue against its meaning,” Ruggles said later. Texas passed its right-to-work law in 1947.

Although that constitutional guarantee never materialized, 22 states [now 24] enacted legislation patterned after the editorial. These laws prohibit agreements between trade unions and employers that make membership and payment of union dues or fees a requirement of employment even if the company is operating under union-negotiated bargaining agreements.

Love them or hate them, economists, historians and lawyers agree that right-to-work laws were the leading factor in the Sun Belt’s success. “Economic growth in places like Georgia and Texas was driven by the combination of the right to work and the cost of labor,” says Al Niemi, dean of the Cox School of Business at Southern Methodist University. “Since the right to work dictated the cost of labor, right to work was the single most important driver.”

 

Exhibit A: Since 2007, employment in the state of Texas has increased by more than 1.3 million jobs (and by 12%), compared to a net deficit of more than 1.2 million jobs over that same period in the rest of the country, see chart below.

texasus

Carpe Diem

Past 6 years have been a laboratory experiment in Keynesian economic theory. Result? It failed and is now officially dead

At his Calafia Beach Pundit blog, Scott Grannis recently posted a pretty devastating critique of Keynesian economic theory and the abject failure of Keynesian fiscal stimulus in the period following the Great Recession (“the most expensive such failure in the history of the world”), here’s an excerpt below and I encourage you to read the entire post (with charts) here – “What Happened to the Profits?“:

Despite assurances from politicians and most economists of Keynesian persuasion, not only did the biggest and most rapid increase in our federal debt burden [in the six years ending June 2014] since WW II fail to boost the economy, it coincided with the weakest recovery in history—growth of only 2.2% per year on average. This is not a problem of not spending enough, it is a failure of ideology, and arguably the most expensive such failure in the history of the world.

Here’s the failure in a nutshell: The government can’t stimulate the economy by borrowing from Peter and sending a check to Paul, because that doesn’t create any new demand—it’s like taking a bucket of water from one end of the pool and pouring it into the other end; the level of the water doesn’t change. And the government can’t stimulate the economy by spending more, because the government is notoriously inefficient (not to mention the fraud, waste, and incompetence that surround most major public initiatives); the private sector is far more likely to spend its money wisely and productively than the government is. Growth only happens when an economy produces more from a given amount of resources—when productivity rises. And productivity only rises when people work more, smarter, and more efficiently, and that takes hard work and risk. You can’t just dial up productivity, you have to work for it. We can’t “spend our way to prosperity,” as the late and great Jude Wanniski told us.

Here’s my interpretation of what really happened in a nutshell: the private sector generated $8.9 trillion of profits in the past six years, and the federal government borrowed 83% of those profits to fund a massive increase in transfer payments, income redistribution, bailouts, subsidies, and a modest increase in infrastructure spending (only 8% of the 2009 American Recovery and Reinvestment Act went to transportation and infrastructure).

What happened to all the profits? Almost all of the most incredible surge in profits in modern times was squandered by our government, flushed down the Keynesian drain.

The past six years in effect have been a laboratory experiment to determine whether Keynesian economic theory is valid. The result? Keynesian economic theory is (or should be) officially dead. It doesn’t work. Government can’t boost the economy by borrowing or spending more money. Politicians will be unhappy to hear this, of course, since they would prefer that we think they can dispense growth and prosperity on demand. Those who insist in perpetrating this myth should be voted out of office.

HT: Dwight Oglesby

Carpe Diem

Restaurant economics – why don’t popular ones raise prices?

It’s often a puzzle to economists why the most popular restaurants – the ones with long lines and long waits to get a table or a reservation – don’t raise their prices or charge for reservations? The Priceonomics blog addresses this apparent “economic mystery” in an article titled “Why Don’t Restaurants Charge for Reservations” by looking at the super-popular “State Bird Provisions” restaurant in San Francisco, here’s an excerpt:

If you want to dine at State Bird Provisions, you’ll have to get in line. The small restaurant, winner of the James Beard Award for Best New Restaurant (2013) and a Michelin Star, only accepts a few reservations that are snapped up as soon as they are released — at midnight, sixty days in advance. So nearly every day, people line up on Fillmore Street in San Francisco an hour or more before State Bird’s 5:30pm opening time to score a table.

It may seem silly to line up for State Bird Provisions in a city full of renowned restaurants and good food. But as anyone who has eaten brunch in the city knows, San Franciscans view long restaurant lines as social proof more than as a deterrent. Besides, State Bird offers determined diners a relative bargain. While its offerings are not cheap — even without indulging on wine, bills can reach $50 per person — State Bird’s prices are more modest than almost any other local Michelin Star restaurant.

This makes State Bird something of an economic mystery. If economists owned popular restaurants like State Bird, they would take one look at the long lines and raise prices. After all, the overwhelming demand is pretty clear. Or at the very least, given how reservations disappear like Coachella tickets, they would start charging for them. In fact, since restaurants do not do this, a number of startups in San Francisco and New York City have started to sell reservations to users, often by reserving tables and scalping them.

In contrast to the executives who run large restaurant chains, the restaurateurs behind celebrated restaurants and local favorites are often chefs first rather than professional managers. This raises the question: Are restaurants like State Bird Provisions, which seems to resist simple economic analysis, the exception or the norm? And if they are the norm, is that because it is somehow self-defeating to raise prices even at booming restaurants? Or are chef proprietors a unique breed in the business world, immune to supply and demand and content to leave money on the table?

Read more here and find some answers to those provocative questions.

Update: In response to the post, Robyn makes the following comment that warrants this update to the post:

“If economists owned popular restaurants like State Bird, they would take one look at the long lines and raise prices. ”

That’s because most economists are number crunchers, and don’t have a clue as to the customer psychology of a service oriented business, where yes, reputation and the cachet associated with being a customer is extremely important, but you don’t want to limit your customer base with unnecessarily high prices. That amounts to “negative advertising”. Suddenly raising prices just because you can is one of the fastest ways there is to trash your reputation.

Here’s an alternative, edited version of Robyn’s comment:

That’s because most economists are number crunchers, and don’t have a clue as to the customer psychology of a service oriented business, where yes, reputation and the cachet associated with being a customer is extremely important, but you don’t want to limit your customer base with unnecessarily high prices long, excessive waiting times of several hours. That time wasted waiting in line amounts to “negative advertising”. Suddenly raising prices waiting times with below-market prices just because you can is one of the fastest ways there is to trash your reputation.

In other words, there is an opportunity cost to waiting in line for an hour, and that cost should be considered in the full cost of the meal at popular restaurants: Time Cost + Money Cost = Full Cost. By keeping the money cost low, restaurants like State Bird Provisions are raising the time cost of eating there, and thus raising the full cost of the dining experience – why shouldn’t that be a form of “negative advertising”? Perhaps those restaurants are appealing to those consumers who place a low value on their time and are more cost conscious, and are losing business from those diners who have a higher time cost and are less price sensitive. By raising monetary prices, wouldn’t at least some popular restaurants be better off by appealing to a different group of consumers with more inelastic demand curves and with a higher opportunity cost? With higher menu costs and shorter wait times, wouldn’t some restaurants generate higher overall sales revenues, along with higher tips for the wait staff from higher menus prices?

Economists might not “have a clue as to the customer psychology of service oriented business,” but we understand “opportunity cost” pretty well, and it is only by ignoring the fact that time is a precious, non-renewable resource that we could make the statement that high monetary prices might limit your customer base while ignoring the equally plausible assumption that high wait times would also limit your customer base. After all, “time is money,” and excessively high wait times for a table at a popular restaurant unnecessarily raises the full cost of the dining experience.

Here’s my solution so that restaurants can appeal to both groups of customers (elastic demand and low opportunity cost, and inelastic demand and high opportunity cost): Allocate half of the tables in the restaurant on a first-come, first-served basis that might require waiting for one or two hours, and allocate the other half of the tables by reservations in advance, with a premium reservation charge of $10-$20-$30-$40 per table?