An entertaining parody of the mindset of many of today’s economists. Also a great illustration of network externalities.
$5 Gas Not Likely, Says Texas A&M Expert
Having to dig deeper to fill up the gas tank? You are not alone as gas prices have steadily risen in the past few weeks, but the possibility of gas hitting $5 a gallon by summer as many analysts are predicting is very unlikely, says a Texas A&M University economist who has studied oil prices for decades.
John Moroney, professor of economics and an oil analyst for more than 30 years, says the possibility of gas reaching $4 a gallon from its current national average of around $3.45 is possible in the next few months, but not all that likely. As for gas hitting five bucks a gallon, don’t lose sleep about it, he advises.
Oil prices may rise, but a Texas A&M economist says $5 gas is not likely.
“It is true prices have gone up in the last month or so,” he explains.
“Oil prices are now about $100 or so a barrel. For gas to cost $5 a gallon, prices would have to be in the $140-150 a barrel range, and I just don’t see it happening. A series of things would have to happen for that to occur, and I just don’t think it is very likely.”
Moroney has spent much of his career charting oil ups and downs. He authored Power Struggle: World Energy in the 21st Century, a book about energy demands and production several years ago.
One big reason he thinks oil prices will not rise too much over the next few months: oil production is on the rise.
New discoveries of huge oil reserves have been made in the last few years, and production of oil from shale has risen dramatically all over the U.S. and other countries. Gas prices hit a record of $4.11 a gallon in July 2008, and Moroney says he remembers “that time well because West Texas intermediate crude hit $147 a barrel.”
As for now, Moroney notes, “Shale production has been going extremely well and it is leading to more oil in the marketplace,” he says.
“For that reason alone, I don’t think you will see any dramatic shortages happen any time soon.
“The price increases over the past few weeks are fairly normal price fluctuations of oil. Could gas go to $4? It is possible, but not a certainty. Could it go to $5? I just don’t see it happening.
“You have to remember that for the oil producers in the Middle East, their very lives and economies depend on oil. They need the markets to be fairly stable. It is true demand is increasing, but then so is production of oil.
“One thing I have learned over the past 30 years is that predicting oil prices is very, very difficult to do because oil is so sensitive to world events,” he notes. “It is one of the most unpredictable commodities in the world. But I don’t see any huge gas price increases in the near future.”
A response to the Yahoo study claiming agriculture & horticulture degrees are considered useless
Here is an open letter circulated by the Dean at Chico State in spouse to the misinformed Yahoo-referenced study:
“Useless” or Essential? Why Our Agriculture Majors Are Growing
By Jennifer Ryder Fox
After reading the January 19, 2012 Yahoo Education article “College Majors That Are Useless,” one might be led to believe that the author, Terence Loose, has something against eating, wearing clothes, enjoying a natural landscape, or smelling a bouquet of roses. What other reason could he have for singling out Agriculture, Animal Science, and Horticulture as three of the five most useless degrees? Mr. Loose’s rationale and indeed the original ranking mentioned in the article are certainly not based on fact.
In contrast to the Yahoo article, a Purdue University study funded by the USDA projected an estimated 54,400 annual openings for college graduates in food, renewable energy, and the environment between 2010 and 2015. The study projected only 53,500 qualified graduates will be available each year and stated that employers have expressed a preference for graduates from colleges of agriculture and life sciences that tend to have more relevant work experience and greater affinity for those careers.
Further demonstrating the need for educated agriculturalists, the November 2009 Monthly Labor Review projected particularly strong (double-digit) growth in certain agricultural careers such as agricultural inspectors, animal scientists, food scientists and technologists, natural sciences managers, pest control workers, soil and plant scientists, and veterinarians. A mere two weeks ago, the Washington Post printed the results of a Georgetown University study showing that recent college graduates with degrees in agriculture and natural resources were among those with the lowest unemployment rates in the nation at 7 percent, surpassed only by graduates with degrees in health (5.4 percent) and education (5.4 percent).
Across the country state support of public universities is dwindling, and the consequence of budgetary decreases is seen with some universities making choices about programs to reduce or eliminate. In a few states, agricultural programs have been targeted for reduction or even elimination. State supported universities in California have also been affected by reduced state budgets, but there’s no talk of eliminating any of the universities’ agricultural programs, as agriculture is the top economic driver in California and generates over $33 billion in revenue for the state while producing over 350 products. Rather, the effect of reduced state support has been to tighten our belts and look to external grants and contracts and other funding sources so that we can serve our increasing number of students.
The California Community College Centers for Excellence recently completed an environmental scan of the agriculture value chain in California and found that there are currently 2.5 million individuals employed in more than 800 job titles within the agriculture value chain in the state. The average annual salary for agricultural value chain workers is $50,000. While the number of production jobs is expected to decrease in the next five years, a net increase of 181,000 jobs is expected throughout the entire agricultural value chain, which includes support, research, technology, production, processing/packaging, marketing, and sales and distribution. No one disputes that with advanced technology and mechanization, skilled production jobs in agriculture (or any field for that matter) have decreased and will most likely continue to give way to mechanization.
Here at CSU, Chico, the optimism for agricultural careers can be seen in the 50 percent enrollment growth in programs offered through the College of Agriculture during the past five years. And across the country, agriculture programs are seeing a surge in student interest. Clearly, our students and those in other ag programs are seeing the tremendous career opportunities available in agriculture and are jumping at the opportunity to pursue them, Mr. Loose’s puzzling attack on their choice of major notwithstanding.
Jennifer Ryder Fox is the dean of the College of Agriculture at California State University, Chico.
Econ factoid of the day
According to the Census Bureau’s 2010 American Community Survey, the college majors that give you the best chance of reaching the “1 percent” are pre-med, economics, biochemistry, zoology and biology, in that order. Just sayin’…
via economix.blogs.nytimes.com
3 misconceptions that need to die
HT to Sid Raisch for this link — http://www.fool.com/investing/general/2011/10/25/3-misconceptions-that-need-to-die.aspx, Morgan Housel, October 25, 2011
At a conference in Philadelphia earlier this month, a Wharton professor noted that one of the country’s biggest economic problems is a tsunami of misinformation. You can’t have a rational debate when facts are so easily supplanted by overreaching statements, broad generalizations, and misconceptions. And if you can’t have a rational debate, how does anything important get done? As author William Feather once advised, “Beware of the person who can’t be bothered by details.” There seems to be no shortage of those people lately.
Here are three misconceptions that need to be put to rest.
Misconception: Most of what Americans spend their money on is made in China.
Fact: Just 2.7% of personal consumption expenditures go to Chinese-made goods and services. 88.5% of U.S. consumer spending is on American-made goods and services.
I used that statistic in an article last week, and the response from readers was overwhelming:Hogwash. People just didn’t believe it.
The figure comes from a Federal Reserve report. You can read it here.
A common rebuttal I got was, “How can it only be 2.7% when almost everything in Wal-Mart(NYSE: WMT ) is made in China?” Because Wal-Mart’s $260 billion in U.S. revenue isn’t exactly reflective of America’s $14.5 trillion economy. Wal-Mart might sell a broad range of knickknacks, many of which are made in China, but the vast majority of what Americans spend their money on is not knickknacks.
The Bureau of Labor Statistics closely tracks how an average American spends their money in an annual report called the Consumer Expenditure Survey. In 2010, the average American spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories alone make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services (only 7% of food is imported, according to the USDA).
Even when looking at physical goods alone, Chinese imports still account for just a small fraction of U.S. spending. Just 6.4% of nondurable goods — things like food, clothing and toys — purchased in the U.S. are made in China; 76.2% are made in America. For durable goods — things like cars and furniture — 12% are made in China; 66.6% are made in America.
Another way to grasp the value of Chinese-made goods is to look at imports. The U.S. is on track toimport $340 billion worth of goods from China this year, which is 2.3% of our $14.5 trillion economy. Is that a lot? Yes. Is it most of what we spend our money on? Not by a long shot.
Part of the misconception is likely driven by the notion that America’s manufacturing base has been in steep decline. The truth, surprising to many, is that real manufacturing output today is near an all-time high. What’s dropped precipitously in recent decades is manufacturing employment. Technology and automation has allowed American manufacturers to build more stuff with far fewer workers than in the past. One good example: In 1950, a U.S. Steel (NYSE: X ) plant in Gary, Ind., produced 6 million tons of steel with 30,000 workers. Today, it produces 7.5 million tons with 5,000 workers. Output has gone up; employment has dropped like a rock.
Misconception: We owe most of our debt to China.
Fact: China owns 7.8% of U.S. government debt outstanding.
As of August, China owned $1.14 trillion of Treasuries. Government debt stood at $14.6 trillion that month. That’s 7.8%.
Who owns the rest? The largest holder of U.S. debt is the federal government itself. Various government trust funds like the Social Security trust fund own about $4.4 trillion worth of Treasury securities. The Federal Reserve owns another $1.6 trillion. Both are unique owners: Interest paid on debt held by federal trust funds is used to cover a portion of federal spending, and the vast majority of interest earned by the Federal Reserve is remitted back to the U.S. Treasury.
The rest of our debt is owned by state and local governments ($700 billion), private domestic investors ($3.1 trillion), and other non-Chinese foreign investors ($3.5 trillion).
Does China own a lot of our debt? Yes, but it’s a qualified yes. Of all Treasury debt held by foreigners, China is indeed the largest owner ($1.14 trillion), followed by Japan ($937 billion) and the U.K. ($397 billion).
Right there, you can see that Japan and the U.K. combined own more U.S. debt than China. Now, how many times have you heard someone say that we borrow an inordinate amount of money from Japan and the U.K.? I never have. But how often do you hear some version of the “China is our banker” line? Too often, I’d say.
Misconception: We get most of our oil from the Middle East.
Fact: Just 9.2% of oil consumed in the U.S. comes from the Middle East.
According the U.S. Energy Information Administration, the U.S. consumes 19.2 million barrels of petroleum products per day. Of that amount, a net 49% is produced domestically. The rest is imported.
Where is it imported from? Only a small fraction comes from the Middle East, and that fraction has been declining in recent years. So far this year, imports from the Persian Gulf region — which includes Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates — have made up 9.2% of total petroleum supplied to the U.S. In 2001, that number was 14.1%.
The U.S. imports more than twice as much petroleum from Canada and Mexico than it does from the Middle East. Add in the share produced domestically, and the majority of petroleum consumed in the U.S. comes from North America.
This isn’t to belittle our energy situation. The nation still relies on imports for about half of its oil. That’s bad. But should the Middle East get the attention it does when we talk about oil reliance? In terms of security and geopolitical stability, perhaps. In terms of volume, probably not.
A roomful of skeptics
“People will generally accept facts as truth only if the facts agree with what they already believe,” said Andy Rooney. Do these numbers fit with what you already believed? No hard feelings if they don’t. Just let me know why in the comment section below.
Fool contributor Morgan Housel owns shares of Wal-Mart. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Number of the week
450,000: The likely threshold of new claims for unemployment benefits, above which the economy is likely losing jobs and below which it is adding jobs.
The unemployed are more likely to apply for government benefits than they used to be, and it’s changing how economists use reports of new jobless claims as a gauge of labor-market health.
An economic rule of thumb that generally held through the recessions of the1970s, 80s and 90s was that when new weekly claims for unemployment benefits rose above 400,000, the economy was cutting jobs and when claims were below that level, jobs were being added. Indeed, in the latest survey of economists by the Wall Street Journal, most respondents still put the threshold at the 400,000 level. But new claims spent much of 2010 and 2011 above 400,000 even as the economy steadily added jobs.
Recent research by the St. Louis Fed put the threshold since 2008 at 450,000, and noted that the level actually moves around over time. An analysis by Zach Pandlof Goldman Sachs noted similar results. Pandl showed that the relationship of claims to the change in employment fluctuates during the course of the business cycle. The threshold falls when more people are quitting and it rises when a greater share of the unemployed are applying for benefits. Pandl’s analysis of October data put the threshold at about 435,000 for that month.
That the threshold is rising isn’t necessarily as surprising as the fact that it held up for so long. After all, the population was a lot smaller in the late 1970s than it is today. In 1976, 400,000 people represented 0.42% of the labor force compared to 0.26% today. The reason the level held up even amid a rising population has to do with the take-up rate, which measures how many of the unemployed actually apply for benefits.
The take-up rate declined through much of the late 1970s and 80s, according to research from the San Francisco Fed. The authors of the Fed paper, Aisling Cleary, Joyce Kwok and Rob Valletta, cite research showing the decline was the result of falling unionization and unemployment shifts toward states with lower benefit take-up rates. “Lower rates of unionization affect UI take-up because unions provide resources that ease filing procedures for members,” they write. “The variation in take-up rates across states is less easily explained, but probably reflects cross-state differences in cultural norms regarding participation in public programs.” Since fewer of the unemployed applied for benefits, it allowed the population to rise while the threshold stayed relatively steady.
But that trend is changing. This recession has seen the take-up rate move higher than it has in recent years. In his analysis, Pandl of Goldman cites potential reasons: “(1) a more generous unemployment insurance program, (2) greater financial distress among households, and therefore more need for benefits, or (3) greater pessimism about the ability to find new work.” Though the trend has been exacerbated by the recession and slow jobs recovery, it actually began in the 1990s.
The San Francisco Fed research notes that take-up rates have been steadily increasing for some time. Part of the reason could be a shift in the pool of the unemployed. Through the 1970s and 80s when the labor force increased, a large share came from younger workers and women working for the first time. These groups were counted as unemployed when they started looking for work but weren’t eligible for unemployment benefits. Now a larger share of the newly unemployed are job losers, not people entering the work force. That means more people eligible for benefits.
If the increases in the take-up rate are here to stay, it could mean so is the higher threshold for jobless claims.
Consumer Spending: Lesson from the Telecom Industry – Forbes
Consumer Spending: Lesson from the Telecom Industry – Forbes. Good article from Bill Conerly about the composition of consumer spending. Take-home point: Know thy value proposition! (Reading time – 68 seconds)
NASS to Reinstate Several Agricultural Estimates Programs
Issued December 9, 2011 by the Agricultural Statistics Board of the U.S. Department of Agriculture, National Agricultural Statistics Service (NASS).
NASS leadership recently concluded a deliberate review of all programs against mission- and user-based criteria, aimed at finding cost savings and forward-thinking business efficiencies so that timely, accurate and useful data remains available in service to agriculture. In 2011, NASS made several enhancements within its programs and operations to deliver improved results for the American people, including opening a new national operations center in St. Louis that will centralize data collection and service to people who provide and use NASS products and services. These efforts and more over the last year have allowed NASS leadership the flexibility within its budget to retain and reinstate several key reports.
The reinstated programs are:
- Annual Reports on Farm Numbers, Land in Farms Reports and Farm Income
- Catfish and Trout Reports (data collection begins Dec. 9; report released Dec. 20)
- Annual Floriculture Report
- January Sheep and Goat Report (data collection begins Dec. 23; report date is Jan. 27)
- July Cattle Report
- Annual Bee and Honey Report (data collection begins Jan. 23; report date is March 30)
- Annual Hops Production Report (data collection begins Dec. 9; report date is Dec. 21)
- Annual Mink Report
- Fruit and Vegetable in season forecast and estimates
- Rice Stocks June Report
Recognizing the importance of NASS’s data products and services to U.S. agriculture, NASS will make available any data that falls outside of the scope of the agricultural estimates programs in the 5-year Census of Agriculture. The next census will be conducted beginning January 2013 to reflect activities in the 2012 calendar year. NASS will publish Federal Register notices reflecting these program changes in the near future.
Study Finds Flower Longevity Guarantee Plays Role in Purchasing Decisions
The American Floral Endowment (AFE) just released a comprehensive Public Benefits study on Longevity Guarantees for Flowers. This multi-part study examines several aspects of consumer preferences for longevity guarantees on flowers including: consumer willingness to pay for longevity guarantees, consumer preferences for longevity labels on cut flowers and consumer preferences for redeeming longevity guarantees. The study was conducted by Chengyan Yue, Ph.D., at the University of Minnesota, with support from Alicia Rihn, University of Minnesota, Bridget Behe, Ph.D., Michigan State University, and Charles Hall, Ph.D., Texas A&M University.Guarantees are used in many different industries to entice consumers to purchase products, but they are rarely used in the floriculture industry. This study seeks to examine the consumer impact of longevity guarantees on flowers.
One of the key findings in the study was that 76% of participants indicated that a longevity guarantee on flowers would impact their purchasing decisions. Specifically, participants were willing to pay 3% more for a guaranteed flower arrangement than a flower arrangement with equal longevity but no guarantee.
The study findings can serve as important marketing lessons for floriculture industry stakeholders. “People are very positive about longevity guarantees,” says Dr. Yue, “I think we can develop a longevity guarantee labeling system so that people would be reassured of their purchases and go outside of their typical safety zones. Longevity guarantees are especially important for gifts, expensive flowers, and flowers they are not familiar with.”
Former AFE Chairman Harrison, “Red” Kennicott, CEO of Kennicott Brothers Co., Inc., adds, “In addition to the useful information in these reports, industry members should always share with consumers how simple care and handling actions such as the use of preservatives, adding and changing water, and keeping flowers away from heat and drafts can prolong the life of flowers.”
Full reports from this study can be downloaded from the Public Benefits Reports section of the AFE website, www.endowment.org AFE seeks to make public benefits research such as this study, widely available in order to benefit the entire floriculture industry.
For more information go to http://www.endowment.org/research-reports/public-benefit-research.html
Century Oak Given “Famous Tree of Texas” Designation
Century Oak Given “Famous Tree of Texas” Designation By Texas Forest Service | TAMUtimes.
We Texans like our trees. Perhaps of their scarcity in some regions of the state. Perhaps of the deep history they represent. Of course, some trees are ultra-special. Enjoy this story of a simple, but grand tree that has had a lasting impact of countless lives.