U.S. fossil fuel production will reach all-time high this year; America’s energy self-sufficiency will be highest since 1990

AEI Ideas.

The chart above shows annual fossil fuel production in the U.S. from 1975 to 2012 based on data from the Department of Energy (here and here).  Fossil fuel production for 2012 is estimated using actual production from January-June.  Following last year’s record setting level of 60.66 quadrillion BTUs of domestically-produced fossil fuels, the U.S. is on pace this year to produce more than 61 quardrillion BTUs of coal, natural gas and crude oil, which will set a new all-time record for fossil fuels produced in the U.S.

America’s record high production of fossil fuels this year is a direct result of the advanced technologies (hydraulic fracturing and horizontal drilling) that have revolutionized drilling for oil and natural gas, and have allowed us to tap into previously inaccessible underground oceans of domestic oil and gas trapped inside shale rock far below the earth’s surface.  Since 2008 when hydraulic fracturing started unlocking shale resources on a large scale in places like North Dakota and Pennsylvania, domestic oil production has increased by 24% and domestic natural gas production by 20.5%.

What are some of the implications of America’s record-high fossil fuel production this year?  One major consequence of the U.S. shale bonanza is that the U.S. will generate a greater share of its own energy this year than in any year since 1991 (see chart below).

Based on data from the Department of Energy currently available through June, it’s estimated that the U.S. will produce 83.3% of the total energy consumed this year.  In contrast, before the shale revolution started to significantly boost domestic production of crude oil and natural gas, America produced only 70.45% of the total energy consumed in 2007.  In 2012, the U.S. will be more energy self-sufficient than in any year since 1990, when 83.7% of energy consumed in the U.S. was produced domestically.

Bottom Line: It’s hard to overestimate the significant beneficial effects of the shale revolution on the U.S. economy over the last five years.  And the timing of the shale gale couldn’t have been better. Just as the financial crisis, housing bust, and mortgage meltdown were starting to cripple the U.S. economy in 2008 during the onset of the Great Recession, the shale revolution and domestic production of oil gas were just taking off in places like North Dakota, Texas and Pennsylvania.  Along with the rush of new shale oil and gas came a rush of shovel-ready jobs, both direct jobs for drilling, and also thousands of indirect jobs to support the shale revolution in industries throughout the supply chain for oil and gas including drilling equipment, fracking sand, steel tubing, transportation, housing, and retail.

The shale revolution has also brought America’s energy self-sufficiency to a 22-year high, and is saving U.S. consumers more than $100 billion per year from lower natural gas costs.  Additionally, carbon-dioxide emissions in the U.S. this year will fall to the lowest level since 1991 as shale gas has increasingly been replacing coal for electricity generation (see relatedCD post).

Robin West, chairman and CEO of PFC Energy, commented earlier this year that “This shale gale is the energy equivalent of the Berlin Wall coming down. This is a big deal.”  The ongoing energy revolution in American that will bring domestic fossil fuel production to a record high this year is perhaps the brightest spot in an otherwise sluggish economy, and gives us one of the best reasons to be bullish about the American economy.  In addition to the huge energy-driven economic stimulus and thousands of new shovel-ready jobs and energy cost savings for consumers, the shale revolution is also contributing to greater energy self-sufficiency and a sharp reduction in CO2 emissions.  That is a big deal.

It's the 41st Anniversary of Our Shameful, Deadly and Costly War on Drugs. Can We Call a Cease-Fire?

by Mark Perry.
Almost half of all U.S. inmates in federal prisons are serving time in cages for drug offenses.

 

This Sunday will mark the 41st anniversary of President Richard Nixon's declaration of America's War on Drugs Peaceful Americans Who Voluntarily Choose To Use Intoxicants Not Approved of by the Government, Who Will Put Users in Cages if Caught. On June 17, 1971 Richard Nixon delivered a"Special Message to the Congress on Drug Abuse Prevention and Control," where he appealed to Congress to give the highest priority to provide funding and authority to the federal government to "destroy the market for drugs," with "increased enforcement and vigorous application of the fullest penalties provided by law" and to "render the narcotics trade unprofitable."

Specifically, Nixon asked Congress to "authorize and fund 325 additional positions within the Bureau of Narcotics and Dangerous Drugs to increase their capacity for apprehending those engaged in narcotics trafficking here and abroad and to investigate domestic industrial producers of drugs." 

In addition, Nixon asked Congress to provide $45 million in funding for America's new war ($255 million in today's dollars) "to enable the Bureau of Customs to develop the technical capacity to deal with smuggling by air and sea, to increase the investigative staff charged with pursuit and apprehension of smugglers, and to increase inspection personnel who search persons, baggage, and cargo entering the country. Funding of $7.5 million would permit the IRS to intensify investigation of persons involved in large-scale narcotics trafficking."

"These steps would strengthen our efforts to root out the cancerous growth of narcotics addiction in America. It is impossible to say that the enforcement legislation I have asked for here will be conclusive--that we will not need further legislation. We cannot fully know at this time what further steps will be necessary. As those steps define themselves, we will be prepared to seek further legislation to take any action and every action necessary to wipe out the menace of drug addiction in America. But domestic enforcement alone cannot do the job. If we are to stop the flow of narcotics into the lifeblood of this country, I believe we must stop it at the source."

Nixon concluded his special message with this prediction: "The final issue is not whether we will conquer drug abuse, but how soon. Part of this answer lies with the Congress now and the speed with which it moves to support the struggle against drug abuse."

MP: It's been 41 years since Nixon declared a "War on Drugs," and we know now that it has been a failed mission.  We haven't conquered drug abuse with an expensive, 41-year "War on Drugs," just like Prohibition didn't conquer alcohol abuse.  What the War has done is dramatically increase the number of Americans jailed for drug offenses, as the chart above shows.  As of the end of May, almost half (48.2%) of all inmates in federal prisons are serving time for drug offenses.   We've also exported our "War on Drugs" to other countries like Mexico, which has resulted in 55,000 drug-related murders there, almost as many war casualties as the U.S. experienced during the Vietnam War.  

And even though we Americans take great pride in our +200-year history of "economic and political freedom," we should be ashamed of our War on Drugs, and our status as the "World's Number One Jailer," part of which is the result of our drug war.  According to the International Center for Prison Studies, the United States leads the world with an incarceration rate of 730 prisoners per 100,000 population, see table below and full list here. By comparison, Canada's incarceration rate is 117 per 100,000 population,  Germany's rate is 83, and Japan's rate is 53.

Here's one comparison: How does the U.S., which ranks No. 10 in the world for economic freedom, compare to the ten least economically free countries in the world (according to the Heritage Foundation's 2012 Index of Economic Freedom), for incarceration rates?  The table below shows that comparison.  It should be embarrassing that none of the ten most economically repressed countries in the world have incarceration rates anywhere close to the United States, except maybe Cuba with 510 prisoners per 100,000 population.  So as much as we think of America as the "land of the free and the home of the brave," and despite our high ranking for economic freedom, our record of putting people in cages for using intoxicants not approved of by the government tarnishes America's great legacy of freedom.     

Isn't it time to call a truce or cease-fire on our shameful, deadly, expensive and failed War on Drugs?   

Country	Economic Freedom Rank	Prison Population Rank	Prison Population per 100,000
United States	10	1	730
Turkmenistan	168	59	224
Timor Leste	169	219	20
Equatorial Guinea	170	206	39
Iran	171	29	333
Congo	172	213	33
Burma	173	124	120
Venezuela	174	149	149
Libya	175	198	45
Cuba	176	7	510
Zimbabwe	177	124	121

Julian Simon, Power of Market Prices, Why We'll Never Run Out of Oil, Why Peak Oil is Peak Idiocy

Mark Perry.

As resource economist Julian Simon taught us years ago, we never have, and never will, run out of scarce resources like oil because as a resource becomes more scarce, its price will rise, which will set in motion a series of actions that will counteract the scarcity.  For example, higher prices for oil will increase the incentives to: a) find more oil, b) conserve on the use of oil, and c) find more substitutes.  And that's exactly what's happened recently in response to higher oil prices - domestic crude oil production reached a 14-year high in March, and the share of rigs drilling for oil (vs. natural gas) set a new record high of 70% last week.  

And now an LA Times article today highlights how companies are making efforts to find substitutes for high-priced oil, here are some examples from the article:

1. Ford has eliminated 5 million pounds of petroleum annually by using soybean-based cushions in all of its North American vehicles. The company also got rid of an additional 300,000 pounds of oil-based resins a year by making door bolsters out of kenaf, a tropical plant in the cotton family.

2. BioSolar of Santa Clarita, Calif., dealt every day with the fact that solar modules are typically made with a glass front, an aluminum frame and a back sheet made out of a petroleum-based plastic or polymer.

"We saw where the price of petroleum was going," BioSolar CEO David Lee said. "We're not economists, but we knew that the price of oil was going to keep going up. The cost of photovoltaic cell manufacturing was going to skyrocket." BioSolar has changed its process to instead use castor beans.

3. Los Angeles businessman Neal Harris once relied on beads made from a petroleum-based polymer to hold fragrances for his company's products. Harris' company, Scent-Events, sells fragrances as a marketing tool to enhance movie premieres, concerts, parties and products. This year, he'll use ceramic beads 95 percent of the time. "It's saving us money, and we no longer have to keep track of oil prices," Harris said.

4. In March, McDonald's began a trial of double-walled paper hot-drink cups in 2,000 restaurants, in place of polystyrene containers, which start out as petroleum. 

5. Coca-Cola and PepsiCo are becoming bioplastics bottlers.

As Daniel Yergin, energy consultant and Pulitzer Prize author of a book on the history of the oil industry, told the LA Times, "Now there are accelerating efforts to squeeze oil out and find ways to substitute for it. That is the power of price."

Related: Duke economist and blogger Mike Munger explains here why "peak oil" is "peak idiocy" and why "Of all the idiotic things that people believe, the whole "peak oil" thing has to be right up there."

Smart Phones and Tablets Might Be Spreading Faster Than Any Technologies in Human History

Mark Perry.

From an article in MIT's Technology Review "Are Smart Phones Spreading Faster than Any Technology in Human History?":

"Presented in the top graphic above is the U.S. market penetration achieved by nine technologies since 1876, the year Alexander Graham Bell patented the telephone. Penetration rates have been organized to show three phases of a technology's spread: traction, maturity, and saturation. 

Those technologies with "last mile" problems—bringing electricity cables or telephone wire to individual homes—appear to spread more slowly. It took almost a century for landline phones to reach saturation, or the point at which new demand falls off. Mobile phones, by contrast, achieved saturation in just 20 years. Smart phones are on track to halve that rate yet again, and tablets could move still faster, setting consecutive records for speed to market saturation in the United States.

It is difficult to conclude categorically from the available data that smart phones are spreading faster than any previous technology. Statistics are not always available globally, and not every technology is easily tracked. Also, because smart phones have not yet reached market saturation, as electricity and television have, the results are still coming in.

Smart phones, after a relatively fast start, have also outpaced nearly any comparable technology in the leap to mainstream use. It took landline telephones about 45 years to get from 5 percent to 50 percent penetration among U.S. households, and mobile phones took around seven years to reach a similar proportion of consumers. Smart phones have gone from 5 percent to 40 percent in about four years, despite a recession. In the comparison shown, the only technology that moved as quickly to the U.S. mainstream was television between 1950 and 1953."

MP: How does this fit in with "The Great Stagnation" hypothesis?  

Chart of the Day: Peak What?

Mark Perry.

World oil production surpassed 75 million barrels per day for the first time ever in December 2011, at 75.45 million barrels, and went even higher in January of this year at 75.58 million barrels, setting a new monthly production record, according to data recently released by the EIA.  The red line in the graph shows the upward linear trend in world oil production from 1973 onward, with daily production increasing by almost 600,000 barrels per day on average every year since 1973.

Thanks to Walter Olson for the inspiration for the post title. 

Chances of Getting a Kidney Are Now Less Than 20%, It's Time to Legalize Donor Compensation

Mark Perry.

National organ transplant data through the end of 2011 are now available from the U.S. Department of Health and Human Services, and the situation for those unfortunate patients on the waiting list for a kidney transplant has never been more grim.  Here are the depressing facts:

1. There were only 16,812 kidney transplant operations performed in 2011, which was fewer than the 16,899 transplants in 2010 and the 16,829 in 2009, and was even below the 17,094 operations performed in 2006.

2. While the number of kidney transplant operations has remained relatively flat since 2005, the number of registered patients on the waiting list continues to increase.  From about 65,000 registered patients in 2005, the waiting list for a kidney transplant has increased by 42% and by more than 27,000 patients to the current level of more than 92,000.

3. In 1988, there were fewer than two patients on the waiting list for a kidney for every transplant operation, and there are now 5.5 patients per operation.  In other words, patients on the waiting list in the late 1980s had more than a 50% chance of receiving a kidney, compared to patients today who have less than a one-in-five chance of receiving a kidney, and those chances keep diminishing every year.  

4. Based on data from the last few years, there will be about 5,000 registered candidates on the list who will die this year while waiting for a kidney, and another 2,000 who will be removed from the list because they are considered to be too sick to survive a kidney transplant operation.  

Bottom Line: The situation for those with renal failure waiting desperately to receive a kidney continues to worsen every year under the current policy that prohibits donor compensation.  The only realistic, long-term and truly compassionate solution to address America's worsening kidney shortage is to legalize some form of donor compensation.  

Gas prices are complex, but not mysterious

Mark Perry.

As gasoline prices edge upward, consumers and politicians are looking for someone to blame. Some say it's Iran's fault, while others are blaming the Obama administration. The president, who has a habit of demonizing the oil companies, says there's no silver bullet to solve the problem.

But higher gasoline prices take a bite out of the household budgets of families nationwide. Every 1-cent increase in the retail price of gasoline translates into about $1 billion annually in higher costs for American consumers.

If the nation truly wants to address the wild roller coaster of price swings, it's important to understand the factors that affect prices. First, gasoline is refined from crude oil, whose price is determined by buyers and sellers globally. They negotiate oil contracts based on their perceptions of oil's economic value in the marketplace. Political instability, oil supply disruptions, foul weather and many other factors affect global oil prices. Also, oil is priced in U.S. dollars. As the value of the dollar changes, oil prices fluctuate.

The price of gasoline historically has closely tracked the price of crude oil. The Department of Energy, or DOE, says 76 percent of gasoline prices are attributed to the price of oil, while the rest is taxes, the cost of refining, marketing and transporting the gasoline to service stations and profits. During the past five years, oil companies earned 7 cents in profits per dollar of sales, which is in line with other industries' profit margins.

Gas prices vary from state to state due to a variety of factors including taxes. The federal tax on gasoline is 18.4 cents per gallon, and state taxes vary widely. Motorists in New York pay a total of 67.4 cents in taxes per gallon, for example, whereas Alaska motorists pay 26.4 cents per gallon.

Every spring, gasoline refiners must comply with federal and state regulations that require them to produce seasonal blends that evaporate less during the warm weather months. Summer-grade gas costs more to produce than winter-grade fuel, and that puts upward pressure on prices. Federal law also requires ethanol to be blended with gasoline. Since most ethanol in the United States is made from corn, corn prices also have an impact on pump prices.

Finally, the laws of supply and demand play an important role in gasoline prices. Simply put, oil supplies matter. Larger supplies of secure oil -- oil that won't be withheld from the market for political reasons -- can result in lower retail gas prices at the pump.

The importance of secure oil cannot be overstated. It's quite likely that oil and gasoline prices would decline over the long term if more oil were produced domestically and Canadian oil were allowed to flow freely through the rejected Keystone XL pipeline. In fact, just imagine how different the U.S. economy and the energy situation would be today if, 30 years ago, our elected officials had allowed drilling in the oil-rich areas of Alaska, along the West Coast, the East Coast and in the eastern Gulf of Mexico. Instead, they chose to block access to those supplies, keeping us dependent on foreign oil from politically unstable countries.

The Obama administration is clinging to the outdated view that the United States should move away from oil to other forms of energy, and Obama has even dismissed oil as the "fuel of the past." But that approach ignores the technological advancements making it possible to produce oil more efficiently than ever. Hydraulic fracturing is producing oil cost-effectively from shale formations that once were impossible to tap.

Rather than accept this new oil reality, the administration has launched 10 different initiatives to study or establish new regulations on hydraulic fracturing. Furthermore, oil production on federal lands -- the areas controlled by the administration -- fell by 14 percent in 2011, the largest annual decrease in a decade. At the same time, the administration is throwing away money on failed alternative energy companies under the misguided notion that it can somehow produce energy competitively eventually if it receives billions of taxpayer dollars today.

Our economy runs on oil, and DOE forecasts suggest that oil will be the "fuel of the future" and continue to play an important role in our energy mix for decades to come. It's time to embrace the facts about oil and discard the "fuel of the past" mentality. There is nothing that provides as much energy bang for the buck as oil. Basic economics tell us that if we had more of it, our bucks would go a lot further.

Mark J. Perry is a professor of economics at the University of Michigan-Flint and a scholar at The American Enterprise Institute.

In Celebration of the Speculators, Who Bless Society With Significant Benefits

Mark Perry.

1. "Nothing sparks spasms of poor economic commentary like rising oil prices. From left to right, pundits and politicians outdo each other at accusing evildoers of hurting good people. This week, a Democratic congressional committee held a hearing on the issue of high gas prices and excessive oil speculation.

Speculators are easy targets. They seem to produce nothing. They merely buy and sell and hope for prices to move in directions that will bless them with big profits. In fact, though, speculators also bless the rest of us with significant benefits -- although too few Americans understand this truth.

Speculators should be celebrated -- not so much for their motives (which are no better or worse than normal) but for the socially beneficial, if largely invisible, consequences of their activities. Speculation makes resources more abundant when there is great scarcity by encouraging people to use those resources more sparingly when there is relative abundance."

~Don Boudreaux in Newsday

2.  "Speculators anticipate shortages and buy up commodities early, thereby removing them from the market. This alerts consumers to the oncoming shortage, fulfilling the important financial market role of providing information and allowing them to reduce consumption as prices rise. Later, the speculator sells, ameliorating the shortage while making a profit.

Speculators anticipate and warn others about shortages—they do not cause shortages. As a result of their trades, price swings are less severe than they otherwise would have been. We do not blame doctors, police, or firemen for profiting from the misfortune of others because it is understood that they help a bad situation. Speculators deserve the same consideration."

Joetta Forsyth, Learning to Love Financial Market Barbarians

3. "People who argue that speculation is destabilizing seldom realize that this is largely equivalent to saying that speculators lose money, since speculation can be destabilizing in general only if speculators on the average sell when the currency (commodity) is low in price and buy when it is high."

~Milton Friedman, Essays in Positive Economics (p. 175)

MP: In other words, speculators who continually lose money by buying high and selling low (which would increase volatility and be destabilizing) will be forced to leave the market eventually, and only rational speculators – those who will actually help to stabilize prices – will survive.

China: America's Third Largest and Fastest Growing (By Far) Export Market, 2000-2011

Mark Perry.

Some highlights from the U.S.-China Business Council's recently released report "U.S. Exports to China: 2000-2011":

1. China is now the third-largest U.S. export market, and U.S. exports to China continue to expand rapidly. As a buyer of U.S. goods, China ranks behind only Canada and Mexico—two immediate neighbors with whom the United States has a regional free-trade agreement (see top chart above).

2. Between 2000 and 2011, total U.S. exports to China rose 542 percent, from $16.2 billion to $103.9 billion. Total U.S. exports to the rest of the world increased only 80 percent during this period (see bottom chart above).

3. Top exports to China in 2011 included agricultural products ($14.7 billion), computers and electronics ($13.7 billion), chemicals ($13.6 billion), and transportation equipment, primarily aerospace and autos ($13.2 billion).

4. The nearly $88 billion increase in exports to China during 2000–11 exceeded the increase to every other market for U.S. goods and farm products, with the exception of Canada. U.S. exports to Canada rose $102 billion over the same period, while U.S. exports to Mexico rose $86 billion. Brazil was a distant fourth with just a $28 billion increase in purchases of US products.

5. Thirty states now count China as one of their top three export markets and 25 states exported more than $1 billion to China in 2010, with export categories reflecting a broad range of products. The list of top 15 state exporters to China in 2011 includes states not usually thought of as benefiting from trade with China: Michigan, New York, North Carolina, Ohio, Pennsylvania, and South Carolina.

Related: Bloomberg Businessweek article "China's Surprising U.S. Buying Spree"

Despite Food, Fuel and Financial Crises, World Bank Reports that Poverty Fell From 2005-2010

Mark Perry.

The Economist -- "The past four years have seen an economic crisis coincide with a food-price spike. That must surely have boosted the number of the world’s poor (especially since food inflation hits the poor hardest)—right? Wrong. New estimates of the numbers of the world’s poor by the World Bank’s Development Research Group show that for the first time ever, poverty—defined as the number and share of people living below $1.25 a day (at 2005 prices)—fell in every region of the world in 2005-08."  See below.

World Bank -- "The number of people in extreme poverty and the poverty rate declined in every region of the developing world during 2005-2008, the first time it ever happened over a three-year monitoring cycle since the World Bank started tracking extreme poverty.

The data released by the World Bank’s Development Research Group show that 22% of the developing world’s population – or 1.29 billion people – lived on $1.25 or less a day in 2008, down from 43% in 1990 and 52% in 1981 (see top chart above). The update draws on 850 household surveys conducted by nearly 130 countries, representing 90% of the developing world’s population. It covers 1981 to 2008, mainly because newer data from low-income countries are either scarce or not comparable with previous estimates, though more recent statistics are available for middle-income countries and a handful of poorer countries to allow preliminary estimates for 2010.

Those preliminary estimates indicate that by 2010 the $1.25-a-day poverty rate fell to less than half of the 1990 rate. That means the developing world has achieved, ahead of time, the United Nation’s first Millennium Development Goal of cutting the 1990 extreme-poverty rate in half by 2015. It also means most countries recovered quickly from the recent food, fuel and financial crises."

December Natural Gas Production Sets New Record

Mark Perry.

Last year ended with another record-setting month for the world's largest natural gas producer, as the U.S. produced all-time record amounts of both gross withdrawals and dry production (consumer-grade gas) in the month of December, according to new data released this week by the Energy Information Administration (see chart above).  The record-setting gross volume in December (2.56 trillion cubic feet) was above its year-earlier level by 7.1%; and the all-time high for monthly dry gas production was 8.2% above last December, and surpassed two trillion cubic feet for only the second month ever.

Over the last five years as unconventional shale gas has become increasingly more available due to advanced extraction techniques (fracking and horizontal drilling), domestic production of natural gas has increased by more than 30%.  Welcome to America's new age of energy abundance with enough natural gas to last well into the 22nd century.  

According to a study by PricewaterhouseCoopers, "Shale Gas: A Renaissance in U.S. Manufacturing?" the global consulting firm predicts that abundant, cheap shale gas will spark a U.S. manufacturing renaissance over the next several years, with the potential to create a million new jobs by 2025 and reduce annual energy costs for American manufacturers by almost $12 billion over the next decade.   

Update: Here's another benefit from the shale revolution: In the last two years, 106 coal plants (319 units) in the U.S. have either closed or are scheduled for pending closing, partly due to abundant shale gas and low natural gas prices.   

Excessive Bureaucracy: Choking Greece's Economy

Mark Perry.

Greece has more economic problems than just excessive government debt and a 21% unemployment rate, it's got an excessive government bureaucracy that is choking off private enterprise and small businesses.  Or maybe it's more accurate to say that it's because of the excessive government bureaucracy that Greece has excessive debt and 21% unemployment.

Here are two anecdotes of excessive bureaucracy in Greece that "get at the very heart of how Greece landed up in its current condition and why rapid change is unlikely":

Anecdote 1: "It took 10 months, a fat bundle of paperwork, countless certificates, long hours of haggling with bureaucrats and overcoming myriad other inconceivable obstacles for one group of young entrepreneurs to open an online store.

Fotis Antonopoulos, one of the co-founders of Oliveshop.com, and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.

Once they climbed the crazy mountain of Greek bureaucracy and reached the summit, they faced the quagmire of the bank, where the issue of how to confirm the credit card details of customers ended in the bank demanding that the entire website be in Greek only, including the names of the products.

“They completely ignored us, however much we explained that our products are aimed at foreign markets and everything has to be written in English as well,” said Antonopoulos.

Eventually, Antonopoulos and his associates decided to use foreign banking systems like PayPal, and cut the Greek bank, with which they had been negotiating for three months, from the middle. “It’s their loss, not ours. We eventually solved the problem in just one day,” explained Antonopoulos."


Anecdote 2 (via Tyler Cowen): "A number of contacts in Greece described their experiences trying to open a business or buy property, which involved high fees, several trips to different tax offices and months of navigating bureaucracy. This gets at the very heart of how Greece landed up in its current condition and why rapid change is unlikely.

This is best encapsulated in an anecdote from my visit to Athens. A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales.

However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 6 p.m. and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee."

"Decline of Manufacturing" is Global Phenomenon: And Yet the World Is Much Better Off Because of It

By Mark Perry.

The chart above shows manufacturing output as a share of GDP, for both the "world less the U.S." and the U.S. alone, using United Nations data for GDP and its components at current prices in U.S. dollars from 1970 to 2010. We hear all the time from Donald Trump and others about the "decline of U.S. manufacturing," about how nothing is made here any more, and how everything that used to be made here is now made in China and other low wage countries.  An underlying assumption of most of those claims is that if the manufacturing base is shrinking in the U.S. (the "hollowing out of U.S. manufacturing"), that there is an offsetting manufacturing gain that is captured elsewhere in the world, as manufacturing output supposedly shifts from the U.S. to other countries, with world manufacturing remaining constant. 

In reality, the chart above shows that the decline in U.S. manufacturing as share of GDP between 1970 and 2010 is really a global phenomenon as the entire world becomes increasingly a service-based economy.  The manufacturing/GDP ratio in the U.S. fell from 24% to 13% between 1970 and 2010, while the world ratio fell at almost the same rate, from 27% to 16%.   

As a share of GDP, manufacturing has declined in most countries since the 1970s. A few examples: Australia's manufacturing/GDP ratio went from 22% in 1970 to 9.3% in 2010, Brazil's ratio went from 24.5% to 13.5%, Canada's from 19% to 10.5%, Germany's from 31.5% to 18.7%, and Japan's from 35% to 20%.

Bottom Line: When we hear claims that "nothing is made here anymore," it's not really the case that somebody else is making the stuff Americans used to make as it is the case that we (and others around the world) just don't manufacture as much "stuff" any more in relation to the growing levels of national income, which the graph above clearly shows. 

The main reason that the manufacturing/GDP ratio has declined in the U.S. and around the world is that productivity gains for durable goods have significantly lowered the price of those goods relative to: a) the prices of services, and b) household incomes, as I pointed out in this CD post on the "miracle of manufacturing." In other words, the declining manufacturing/GDP ratio reflects declining prices for manufacturing goods, which is a sign of economic progress, not regress.  The standard of living around the world today, along with global wealth and prosperity, are all much, much higher today with manufacturing representing 16% of total world output (including the U.S.) compared to 1970, when it was almost twice as high at almost 27%. And for that progress, we should celebrate, not complain about the "decline of manufacturing."  

From Rags to Riches: Fighting India's Caste System with Capitalism: From the "Village to the Palace"

By Mark Perry.

NEW YORK TIMES -- "As the founder of a successful offshore oil-rig engineering company, Mr. Ashok Khade is part of a tiny but growing class of millionaires from the Dalit population, the 200 million so-called untouchables who occupy the very lowest rung in Hinduism’s social hierarchy.

“I’ve gone from village to palace,” Mr. Khade exclaimed, using his favorite phrase to describe his remarkable journey from the son of an illiterate cobbler in the 1960s to a wealthy business partner of Arab sheiks.

The rapid growth that followed the opening of India’s economy in 1991 has widened the gulf between rich and poor, and some here have begun to blame liberalization for the rising tide of corruption. But the era of growth has also created something unthinkable a generation ago: a tiny but growing group of wealthy Dalit business people.

Some measure their fortunes in hundreds of thousands of dollars, and a handful, like Mr. Khade, have started companies worth tens of millions. With their new wealth they have also won a measure of social acceptance.

“This is a golden period for Dalits,” said Chandra Bhan Prasad, a Dalit activist and researcher who has championed capitalism among the untouchables. “Because of the new market economy, material markers are replacing social markers. Dalits can buy rank in the market economy. India is moving from a caste-based to a class-based society, where if you have all the goodies in life and your bank account is booming, you are acceptable.”

Milind Kamble, a Dalit contractor based in the city of Pune in Maharashtra State, said that out of the 100 or so members of the Dalit Indian Chamber of Commerce and Industry in his city, only one was in business before 1991.

“We are fighting the caste system with capitalism,” he said.

Watch a four-minute video here profiling Mr. Khade.   


HT: Colin Grabow

The Miracle of the U.S. Manufacturing Sector

By Mark Perry.

Following up on the "Magic and Miracle of the Marketplace" post below, the chart above shows that the decline in prices over time has taken place for almost all manufactured goods, not just for electronics.  As a percent of consumer expenditures, the combined share of spending on food, cars, clothing and household furnishings (furniture, appliances, etc.) has fallen over time from close to 50% in the late 1940s to close to 16% in 2010.  This decline in spending over time on manufactured goods, measured as a share of all consumer spending, is really a testament to the remarkable productivity of the manufacturing sector, which leads to declining prices relative to income and services, and increases our standard of living dramatically over time. 

The Dreadful Legacy of North Korean Dictator Kim Jong Il in One Satellite Picture and One Chart

By Mark Perry.

This one picture above of the Korean peninsula does a pretty good job of capturing the legacy of Kim Jong Il by comparing electricity usage at night between North and South Korea. 

Here's another comparison: The CIA estimates that North Korea's GDP per capita in 2009 was $1,800.  That's equivalent to the inflation-adjusted U.S. per capita GDP back in the year 1847, more than 150 years ago (see chart below).  And South Korea's per capita GDP of $30,000 is about 17 times higher than its neighbor to the north.