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.

Carpe Diem

An alternative view of U.S. tariffs on Korean steel, from the most important viewpoint of all – the U.S. consumers of steel

As public choice theory predicts, U.S. trade policy is dominated and controlled by well-organized, special-interest groups of domestic producers, who are able to take advantage of less-organized, dispersed groups of domestic buyers of imported goods that include millions of individual consumers and hundreds of industrial consumers. As a result of that domination of the political and legislative process by domestic producers, U.S. manufacturers are often successful at achieving favorable protectionist legislation for their industries.

One might ask: Protectionism against what and whom? The answer is always: Protection for domestic producers against more efficient, lower-cost foreign rivals. One might also ask: How is that protection achieved for high-cost, inefficient domestic producers? The answer is usually: Get government enablers to impose a “tariff” (i.e., a tax) on imported goods produced by your foreign competitors to artificially achieve what you have failed to do on your own: operate more efficiently and offer lower (or the same) prices than your foreign rivals.

Economic trade theory and mountains of empirical evidence on protectionist trade policy confirm conclusively that there is almost always a net loss of economic efficiency from protectionist trade policies. Reason? Protectionist trade policies generate costs to domestic consumers in the form of higher prices and reduced trading activity that outweigh the benefits to protected domestic industries, often by a factor of 2-to-1. In other words, protectionist trade policies always makes the country imposing them worse off on net, not better off, when considering all of the costs and benefits.

The latest example of successful trade protectionism? The U.S. steel industry successfully engaged in enough (wasteful) rent-seeking that it persuaded the U.S. Department of Commerce this week to impose punitive tariffs/taxes of 10-16% on its foreign, steel-producing rivals in South Korea. Below is how the WSJ reported it today, with the usual media bias of presenting protectionist trade policy completely from the viewpoint of the protected domestic industry. With some editing, the corrected text below reflects the alternative viewpoint of the U.S. consumer and U.S. businesses who buy foreign steel and who are now disadvantaged and burdened with higher prices for steel and all steel-containing products.

“U.S. Slaps Tariffs on U.S. Buyers of Korean Steel Pipe Because of Alleged  Unfair Pricing Economically Inefficient, but Politically Powerful and Well-Organized Domestic Steel Producers Have Successfully Been Granted Government Protection from More Efficient, Lower-Cost Foreign Rivals“:

The U.S. on Friday moved to impose punitive tariffs on American buyers of steel from South Korean steelmakers, saying they sold pipe used in the oil and gas industry at extremely competitive artificially low prices that were below higher-priced domestic steel pipe. The Commerce Department’s final decision on Friday is a win for the U.S. steel industry, especially U.S. Steel Corp., after one of the most politically charged trade battles successful examples of rent-seeking protectionism and crony capitalism in years. It’s also a major loss for the hundreds of U.S. companies that purchase foreign steel pipe, their employees, shareholders and customers. It’s also a major loss for the U.S. economy, which will suffer from a net loss of economic efficiency, a net loss of jobs, and a loss of economic growth from the protectionist trade policy that will artificially raise prices for hundreds of products that contain steel and use steel pipe.

If a special U.S. trade commission finds the alleged dumping hurt American steelmakers, even if those low steel prices helped American steel-using industries significantly more, then the tariffs punitive taxes on American steel buyers will become permanent and likely buoy steelmaker profit margins in the U.S., while increasing the cost energy companies pay to drill today’s complicated wells. On the other hand, those increased costs of steel pipe will erode profit margins of energy companies, and hurt their shareholders, customers and employees. In other words, it’s another case of crony capitalism, where the government is deciding winners (U.S. steel producers) and losers (U.S. companies who use steel and steel pipe as an input). 

Steel executives and a union leader have said unfairly more efficiently produced and lower priced imported steel could cost U.S. jobs, and numerous U.S. lawmakers have called or written the Commerce Department out of concern about the case. Speaking for the other side, energy company executives and a union leader said that low-cost foreign steel from Korea has enhanced their competitiveness and greatly helped their industry expand and grow as the U.S. shale boom has boosted their sales, business opportunities and jobs.  

To protect the U.S. steel industry from more efficient foreign competition, the Commerce Department assigned tariffs taxes of an extra 15.75% on the tubular steel products from Hyundai Hysco Co. and 9.89% for Nexteel Co.; Other Korean suppliers were subjected to punitive tariffs of 12.82%. As a result of the taxes on foreign steel, U.S. energy companies using steel pipe will face higher input costs and will therefore be less competitive and less profitable, which might likely result in fewer energy jobs for Americans. 

“We are deeply disappointed by the determination, which disrupts the current level playing field” with unfair high tariffs that will ultimately be paid for by American buyers of steel, said an official at the Korean embassy in Washington. “We had expected the U.S. government to lead by example and resist protectionist pressure from well-organized and politically connected U.S. steel producers. This provides one of the best recent examples of exactly the type of distortionary crony capitalism that makes the U.S. less economically efficient and worse off, not better off. We will consider every possible option to challenge this unfair protectionist decision favoring U.S. steel producers over U.S. steel buyers, including at the World Trade Organization.”

After news of the decision, U.S. Steel shares climbed 3.2% in price on Friday to $27.64 by the close, providing empirical evidence that successful rent-seeking, protectionist trade policies, and crony capitalism generate significant financial benefits for the shareholders of domestic industries who use the political process to artificially distort markets in their favor.  Offsetting the gains in the stock prices of American steel producing companies like U.S. Steel were losses on Friday for the stock prices of U.S. energy companies that rely on low-cost steel pipe from Korea as one of their main inputs.  

“We applaud their decision to prevent further gamesmanship of our laws hobble our more efficient rivals in Korea with artificially higher prices that will allow us to gain market share, and to secure our nation’s economy artificially higher, government-enhanced profits for our shareholders,” U.S. Steel Chief Executive Mario Longhi said. “As a result of rising imports of more efficiently produced, lower cost steel, United States Steel has suffered mightily: orders have been reduced, mills have been idled and jobs have been lost. We’re obviously not efficient enough to compete on our own merits, and we need the heavy hand of U.S. government intervention to survive. Our rent-seeking efforts are a great example of how crony capitalism works in America today to protect well-organized special interest groups of domestic producers against more efficient foreign competition.

The U.S. International Trade Commission will next decide whether the alleged dumping low-cost steel imports harmed the U.S. steel industry more than it helped U.S. steel-using industries and, if so, make the tariffs taxes on foreign steel permanent. Economic theory and overwhelming empirical case study evidence suggest that the economic benefits to the U.S. economy from cheap, foreign steel significantly outweigh the costs to the U.S. steel industry. Therefore, a protectionist outcome of permanent steel tariffs would result in a “dead weight loss” to the U.S. economy, and an overall net loss of jobs, profits, and economic benefits. 

It wasn’t immediately clear whether the tariffs would stop Korean firms from selling the product, known as oil-country tubular goods, or OCTG, to willing, loyal buyers in the U.S. market.

A complete shift from low-cost, more efficiently produced Korean steel to higher-priced U.S.-produced steel would raise the cost of developing a new oil well by between 1% and 4%, depending on the quantity and quality of steel tubes needed for it. Those higher production costs could results in higher energy costs for millions of American consumers and businesses, and a significant net loss of economic benefits.  

MP: This would be a good time to invoke the wisdom of French economist Frederic Bastiat:

Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.

If the viewpoint of the consumer, i.e. mankind, were seriously considered in the case of imported steel from Korea, there would be no question about the outcome – no government protection for the U.S. steel industry. And to get the lowest possible steel price for American consumers, we should welcome the Koreans to engage in as much “dumping” as they are willing to…. the lower the price they offer us, the better…. even if it’s below their cost of production… And if that’s really the case and they’re selling steel and steel pipe at a loss, we should gladly accept their generous gift of foreign aid to America, and stop complaining….

Update: Don Boudreaux sent a letter to the WSJ about the steel tariffs, here’s an excerpt:

The ostensible principle behind Uncle Sam’s action is that we Americans are made poorer when non-Americans act especially vigorously to increase our access to foreign-made products.  But this principle is economically insane.  People grow prosperous, not by rejecting, but by embracing enhanced access to goods and services, regardless of the sources of this enhanced access.

If the principle that motivates Uncle Sam to tax Americans who buy inexpensive imports were valid, then, for example, my household would be made poorer whenever I buy - rather than make myself - my own furniture and clothing.  After all, Ethan Allen and Nordstrom charge prices so low that they not only “hurt,” they destroy, my capacity to make for myself the goods that they offer for sale.  Should I perhaps, in my quest to grow more prosperous, hire my neighbor to threaten to shoot me whenever I seek out merchants willing to sell to me especially low-priced sofas and shirts?


Carpe Diem

Saturday afternoon linkage

1. Forbes’ Rich Karlgaard Says: Paul Krugman Is Dumber Than We Thought, and He Just Makes Stuff Up…..

2. Great Moments in Government Overreach: Aren’t You Glad That the USDA’s “Cherry Industry Administrative Board” Has a Stranglehold on the US Cherry Industry Such That Growers Need a Permission Slip from the Government to Sell Cherries?  Yeah, I Thought So…..

3. Good News: The DEA May Be Losing Political Support for Its Long, Cruel, Expensive, Immoral, and Senseless War or Weeds.

4. Charts and Graphs: a) Political Affiliation by Age in the US and b) Average Song Length, 1944 to 2010.

5. Musical Disintermediation: Country Superstar Garth Brooks Releases His First Album in 13 Years, and Will Skip iTunes and Release Digital Music Himself on His Website. Q: Why don’t more artists do this?  (HT: Morgan Frank)

6. Diminishing Returns to Fuel Economy: The EIA reports that switching from a 10-mpg vehicle to a 15-mpg vehicle saves more fuel than switching from a 25-mpg vehicle to a 75-mpg vehicle. Similarly, the cost savings of improving fuel economy from 12 mpg to 15 mpg are the same as increasing from 30 mpg to 60 mpg.

Carpe Diem

Uber/Lyft vs. taxis: Let the market decide, not taxi cartels and their government enablers — bureaucrats and legislators

taxiHoward Baetjer writes about Uber vs. taxis in his Freeman article “Value Creation vs. Regulation,” here’s an excerpt:

The benefits of free markets and the problems with government intervention are well illustrated by the unfolding story of smart phone-based car services such as Uber and Lyft. If we had free markets for city ride services….the preferred ride services—Uber and imitators—would thrive, and older, clumsier ways of connecting riders with cars would gradually disappear.

But we don’t have free markets for city ride services. Legislators and government bureaucrats have political authority to intervene in these markets. And the taxicab companies, whose profits—and even existence—are being threatened, are trying to use this authority to block or impede the creative destruction that is doing so much to improve the lives of city dwellers.

Note this well: The government’s authority to interfere in the business of city ride services, an authority ostensibly and officially meant to protect the public from inferior ride services, is being used in practice to impede public access to superior ride services. It illustrates the way government intervention is generally used: to benefit some special interest group—in this case the taxicab companies —at the expense of its customers and competitors.

What should be done? The markets for city rides should be set free. It is unfair to taxicab companies for Uber to charge market prices while taxis must charge what regulators decree. But the sensible response to this unfairness is not to burden Uber the way taxis are burdened, but to unburden the taxis and leave all ride services free to compete.

MP: As I’ve noted before, it’s important to remember that Uber and Lyft are already very heavily regulated ride-sharing services, and in some ways they are regulated even more intensely than traditional taxis  by a very ruthless group of regulators – the consumers who use their services. The issue really isn’t regulated versus unregulated ride services; the issue really is who is the primary regulator: a) government bureaucrats and legislators who are often captured by the regulated taxi cartels or b) consumers. And there’s no question that captured regulators almost always put the special interests of the well-organized, concentrated groups of regulated producers like the taxi cartel over the public interest of the dis-organized, dispersed thousands/millions of consumers.

Related: I’ve written before about how it appears that Uber’s presence in New York City is challenging the power of the city’s taxi cartel, and that challenge is being reflected in the fee to join the NYC taxi cartel – the market prices of NYC taxi medallions. The chart above shows the percentage increase since January 2004 in the auction-based value of the taxi medallion that allows an individual to operate a single taxi in the city’s heavily regulated protected market. A NYC taxi medallion that cost $241,000 in January 2004 is now worth more than $1 million ($1,045,000 in June 2014), reflecting a whopping 336% increase and an annual return on investment of almost 15%. In contrast, the S&P 500 increased by only 76% over that period, and has increased annually at a rate of only 5.4%. A $241,000 investment in the S&P 500 in January 2004 would only be worth about $424,000 today, less than half of today’s price for a NYC taxi medallion. As a recent Washington Post article pointed out, “Taxi medallions have been the best investment in America for years.”

But things have changed recently, since Uber and Lyft have started successfully challenging the NYC taxi cartel with price-cutting and intense “cut-throat” consumer-centered competition. As this Bloomberg article describes it, there’s been “an end to the dizzying rise” in the value of NYC taxi medallions, and you can see that in the graph above. In an unprecedented reversal of higher-than-stock market increases in medallion prices, individual NYC taxi medallion prices have been flat at about $1.05 million for the last 13 months starting in June 2013. Over the most recent 12-month period through June, the value of NYC taxi medallions have actually fallen by 0.56% from $1,051,000 to $1,045,000. At the same time, the S&P increased by 16.7%, and out-performed NYC taxi medallions as an investment over any 12-month period for the first time since at least 2004, and maybe for the first time ever?

Bottom Line: Expect more of this “creative destruction” in the ride service industry, and expect further declines in the value of NYC taxi medallions (and Chicago, Philadelphia and elsewhere) as Uber and Lyft challenge the taxi cartels.

HT: Warren Smith


Carpe Diem

Friday afternoon linkage

usoil1. Chart of the Day: The shale oil boom helped push US oil output in June to 8.456 million barrels per day, the highest level of domestic crude oil production in more than 27 years, going back to April 1987 during the Regan administration.

2. GDP forecasting (nowcasting): The Atlanta Fed now has a forecasting model – “GDPNow” – that provides updated, estimates of GDP growth ahead of the three official quarterly GDP releases from the BEA starting a month after the quarter ends. The current “nowcast” of real GDP in Q2 is 2.6%, after being updated yesterday with new wholesale trade data. (HT: Morgan Frank and see Jimmy P’s related post here.)

3. Take a Guess: Who Was Obama’s Biggest Campaign Contributor By Far in 2012 – Almost 50% Ahead of the No. 2 Contributor? You Might Be Very Surprised. Or Maybe Not.

4. Racial Disparity Weed Map: In six states and DC, blacks are more than five times more likely to be arrested for possessing weeds compared to whites, even though weed usage doesn’t vary by race. On average across all states, blacks are 3.7 times more likely than whites to be arrested for weed possession.

5. From Vanguard: Debunking five myths and misconceptions about index investing.

6. America, Here’s Your Drug War: DEA handcuffed a drug suspect and locked him in a cell for 5 days without food or water. Luckily, the guy got a $4.1 million settlement for his “near death” experience.

7. Milton Friedman (featured previously on CD): “The minimum wage law is most properly described as a law saying that employers must discriminate against people who have low skills. The consequences of minimum wage laws have been almost wholly bad. We have increased unemployment and increased poverty.”

8. Not All Police Are Warrior Cops Like in the US: According to Germany’s Der Spiegel, German police shot only 85 bullets in all of 2011 — 49 warning shots and 36 shots on suspects; 15 persons were injured, and 6 were killed. In contrast, US warrior cops have shot and killed more than 20 Americans so far this year, just as part of their drug enforcement operations, and they recently fired 84 shots at just one murder suspect in Harlem and another 90 shots at one fleeing unarmed man in Los Angeles.

9. Mixed-Raced Student Sues University of Connecticut. She Says They Lied to Her About Her “Merit” Scholarship to Secretly Promote Racial Diversity.

10. Inconvenient Chart: Global temperatures have been flat for more than 17 years (see smaller chart at the bottom right) while global CO2 levels have been increasing. Wasn’t there supposed to be a relationship?  co2

Carpe Diem

America, here’s your War on Drugs – St. Paul SWAT team kills two family dogs, finds no drugs, makes no arrests

Militarized police forces around the country now routinely conduct as many as 80,000 no-knock SWAT raids on the homes of Americans (that’s about 150-200 every day), mostly as part of our cruel, expensive, senseless and immoral War on Drugs Otherwise Peaceful Americans Voluntarily Using Plants, Weeds and Intoxicants Arbitrarily Proscribed by the Government. The news report above from KMSP-TV in Minneapolis-St. Paul provides details on one of the latest SWAT raids on the home of Larry Lee Arnman, owner of a St. Paul towing business and a self-admitted, occasional recreational user of weeds. Mr. Arnman, his two children, his 8-months pregnant girlfriend and their two family dogs were all at their home Wednesday morning when St. Paul SWAT team executed a no-knock, early morning raid on the family’s home, searching for drugs. Upon entering, the first thing the SWAT did was unleash a hail of bullets and execute the two family dogs, Mellow and Laylo (pictured below) in front of the family, who were understandably nervous and barking as the SWAT team broke down the door with a battering ram.

dogs2According to this report:

Officers proceeded to tear the house apart for hours. Besides the two dead dogs, the extensive damages included multiple broken doors, broken door frames, and walls with the insulation and vents ripped out.  All damages were left to the homeowner to cover.

And what did the SWAT team find after ripping the house apart? A huge drug stash, weapons, cash? Nope, they were only able to find a glass bong and some suspected marijuana remnants in a metal grinder. Were there any arrests on drug charges? Nope, in the wake of the SWAT team’s devastation and murder of the two family dogs, police could only come up with enough evidence to issue a $200 ticket.

Read other news reports about this Drug War tragedy here and here.

Related: In a recent SWAT raid in Tampa Bay over some small-time sales of weeds, Jason Wescott’s experience was much worse than Larry Lee Arman’s loss of his two family dogs, a damaged home and terrorized children and pregnant girlfriend. Mr. Wescott was shot and killed by the Tampa Bay SWAT team that executed a no-knock search warrant on the 29-year old’s home. Despite police assertions that Westcott was a weed dealer, the SWAT team found only 0.2 grams — approximately $2 worth — of weeds in the house. Further, the weed purchases that preceded the raid were made by an informant (not undercover police), who had purchased less than $200 of weeds during previous visits to Westcott’s house over four months. Unfortunately, Jason Wescott has the distinction of becoming the 25th American to die in US domestic drug law enforcement operations so far this year.

MP: In a supposedly free, civilized society can we really justify 80,000 SWAT raids every year, often resulting in Americans and their dogs getting gunned down in their homes, so frequently in the futile search for small amounts of weeds? As I’ve said before, I’m confident that in a future, more enlightened, advanced, open-minded and tolerant America, we’ll look back on America’s Drug War and deadly SWAT raids like the two featured above that often result in death for Americans and their family pets, with shame, contempt and embarrassment for such cruel, intolerant and inhumane treatment of our fellow-man.

Related: Here’s a report with a great question: “Why are police shooting so many family dogs?” For example, a Salt Lake City police officer recently entered a man’s fenced backyard looking for a neighborhood boy who they mistakenly thought was missing (he was actually asleep in his own home).  shot and killed Geist — the man’s 110-pound Weimaraner dog — on his private property! Hundreds of pet owners and animal lovers in Salt Lake City have been protesting this cruel shooting of a family pet in his own backyard!

Carpe Diem

Beer milestone: US now has more than 3,000 breweries; welcome to the ‘Golden Age of Beer’

breweries The Brewers Association reported yesterday that:

The American brewing industry reached another milestone at the end of June, with more than 3,000 breweries operating for all or part of the month (3,040 to be precise). Although precise numbers from the 19th century are difficult to confirm, this is likely the first time the United States has crossed the 3,000 brewery barrier since the 1870s. The Internal Revenue Department counted 2,830 “ale and lager breweries in operation” in 1880, down from a high point of 4,131 in 1873.

What does 3,000 breweries mean? For one, it represents a return to the localization of beer production, with almost 99% of the 3,040 breweries being small and independent. The majority of Americans live within 10 miles of a local brewery, and with almost 2,000 planning breweries in the BA database, that percentage is only going to climb in the coming years.

Secondly, it means that competition continues to increase, and that brewers will need to further differentiate and focus on quality if they are going to succeed in a crowded marketplace. While a national brewery number is fairly irrelevant without understanding local marketplaces, 3,040 breweries could not happen without increased competition in many localities.

MP: In addition to the animated graphic above, there’s an interactive chart of the annual brewery count from 1873 to 2014 here. Note that in every year from 1977 to 1984 there were fewer than 100 breweries in the US, and the low point was 1978, when there were only 89 breweries. By 2007, there were about 1,500 breweries, and that number had doubled to more than 3,000 in less than 7 years! There’s never been a better time to be a serious beer drinker than today, given the awesome selection of craft beers from every part of the country. Welcome to the Golden Age of Beer - there’s no stagnation for this part of the economy!

Carpe Diem

Who’d a-thunk it? Universities support leftist campus groups while denying funds to conservative and libertarian clubs?

From the Ann Arbor Journal:

The University of Michigan has settled a lawsuit brought by a student libertarian club after the university spent thousands supporting leftist campus groups while denying funding to campus conservative and libertarian clubs.

The university agreed to pay the U-M Young Americans for Liberty (YAL) a sum of $5,000 plus attorney fees for denying the student group funding toward an event hosted by anti-affirmative action activist Jennifer Gratz. Gratz spoke about the importance of intellectual diversity at the University last October. The student government denied YAL’s request for financial support of Gratz’s visit, citing a policy of not funding “political” events.

YAL filed suit when they discovered the student government had approved funding for a radical pro-affirmative action group’s bus trip to Washington D.C. to protest at the U.S. Supreme Court in favor of affirmative action. The university funded multiple other “political” events in support of immigrant rights, Islamic groups, etc.

“Too few students have the courage to stand up for diversity of opinion and thought when bullied, intimidated and silenced by zealous university officials intent on imposing their views,” Gratz stated in reaction to the settlement. “The YAL students at the University of Michigan refused to accept discrimination and stood up for their right to equal treatment. The university recognized they would lose in court and quietly settled the matter. The U-M YAL students truly are the ‘victors valiant’ for standing up for the rights of all students.”

Here’s a copy of the settlement.