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Here’s Part II of the “Top 10 things I learned on my summer trip to the Bakken oil fields,” see Part I here. I concluded the first post by saying that one of the things that impressed me the most about visiting the Bakken oil fields is the amazing technical sophistication involved in drilling for shale resources in reservoirs miles below the Earth’s surface, and then drilling out laterally (horizontally) for several more miles to extract oil from saturated shale rock formations that have been there for millions of years but were previously inaccessible using traditional drilling and extraction technologies. So let me continue that topic in this post with further discussion of the “marvels of engineering” that have revolutionized America’s energy production.
6. Advanced Technologies. The combination of hydraulic fracturing and horizontal drilling are truly revolutionary drilling and extraction technologies, and when you visit a drilling site you start to realize how advanced those technologies really are and you develop an appreciation for the high-tech nature of drilling for shale oil and gas. Perhaps this is a little bit of an exaggeration, but imagine the computer technology involved in a NASA space mission (see photo above, or imagine that “Silicon Valley Meets the Bakken“) and that gives you an idea of the drilling and extraction technologies used in the Bakken oil fields.
Remember the mission of drilling for shale oil: You’re going to drill down vertically for about two miles below the earth’s surface in the shale resources of the Bakken or Three Fork formations, and then you’re going to start drilling laterally for up to three miles in a roughly horizontal direction, guided by sophisticated computer equipment that “geo-steers” the direction of the lateral drilling to stay in the optimal areas of the shale reservoir! Each drilling site has one or more professional, certified geologists, along with petroleum engineers, who help supervise the directional drilling, based on 3-D seismic imaging of the subterranean structure that helps identify and target the fluids-rich shale reservoirs.
In the same way that computer technologies have revolutionized industries like ride-sharing transportation, special effects in movies, surgery and medical procedures, motor vehicles, architecture and engineering, medical and diagnostic procedures, smartphones, computers and devices, advanced manufacturing, 3-D printing, etc., advanced computer technologies have revolutionized oil and gas extraction, which is one of 50 industries identified by the Brookings Institution that constitute America’s Advanced Industries Sector. As I mentioned in Part I of this series, the general public is probably unaware of the fact that the oil and gas business is a very, very high-tech industry that uses cutting-edge, advanced engineering, geological and drilling technologies that continually advance and improve. The technological innovation that unlocked the nation’s oceans of shale resources hasn’t stopped but instead has actually intensified in the Bakken, Permian Basin, Eagle Ford and Marcellus regions. New ideas, technologies and ways of cracking the shale code emerge daily, and the oil and gas industry is now entering a new wave of innovation and advances that is being called Shale 2.0.
In contrast to the advanced technologies involved in hydraulic fracturing and horizontal drilling, the technologies involved to produce renewable energies like wind and solar power are relatively low-tech and primitive – centuries-old technology in the case of windmills. For those of us who appreciate the advanced high-tech, cutting edge technologies of our smartphones, GPS systems, laptop computers and other devices, and understand how those technologies improve our lives, we should also appreciate the advanced technologies that extract oil and gas from shale rock formations miles underground, with an appreciation of how those “marvels of petroleum engineering” also improve our lives significantly.
7. One Example of Advanced Drilling Technologies – the New “Walkable Drilling Rigs.” One of the most impressive “marvels of engineering” that you’ll ever see are the 150 foot (about as high as a 15-story building), 500 ton (1 million pounds) “walkable” drilling rigs that are becoming a common sight throughout the Bakken (and other oil fields in Texas, Oklahoma, and Colorado). The photo above shows two drilling platforms at a Continental Resources drilling pad in the Bakken near Williston called the “Burr Pad.” The one in the foreground is a newer “walkable” rig (discussed below) and the one in the background is a traditional rig platform. Drilling technologies have advanced so significantly that the time to drill and frack a well has come down from an average of 32 days in 2008 to now only about half that time: 14-16 days from start to finish and in some cases even less, resulting in significant cost savings. These drilling platforms now cost as much as $20 million each, especially for the advanced rigs that can “walk” to a new drilling location on the same drilling pad, or even “walk” to another pad a mile away, which is one of the huge, recent breakthroughs in drilling technology. Here’s a description of that amazing “marvel of engineering” from the Energy Information Administration:
Moving a drilling rig between two well sites previously involved disassembling the rig and reassembling it at the new location (“rigging down” and “rigging up”) even if the new drilling location was only a few yards away. Today, a drilling pad may have five to ten wells, which are horizontally drilled in different directions, spaced fairly close together at the surface. Once one well is drilled, the fully constructed rig can be lifted and moved a few yards over to the next well location using hydraulic walking or skidding systems, as demonstrated in the time-lapse video below.
One of the industry’s more recent innovations, pad-to-pad moves, underscores the efficiency gains from rig mobility and pad drilling. During the drilling operation in the photo above, rig operator Nabors Industries transported a fully-assembled drilling rig about one mile between drill sites. The cost of rigging down and rigging back up can be high enough that producers may find it more efficient to build a road between two pads, transport the rig intact, and have it arrive ready to drill the next well.
The new walkable drilling rigs are really an amazing technology and you can see in the video below that the drilling platform has hydraulic equipment built into the rig that allows the entire 1 million pound, 150 foot high platform to be lifted up off the ground about 12 inches and it then moves itself three feet at a time to the new location. Walkable drilling rigs not only increase operational drilling efficiency and save money for oil and gas companies, they also significantly improve oil worker safety because the rig moving process is largely automated with fewer steps and less human interaction than the traditional process of “rigging down” and “rigging up” the older model rigs.
8. Economic Impact of a Shale Oil Well. Despite all of the news about a slowdown in drilling activity in the Bakken, the number of active producing oil wells in North Dakota increased to a record high of 12,124 in the month of April (most recent month) and more than 9,500 of those active wells are in the Bakken. What are the production statistics and what is the economic impact of a typical individual oil well in the Bakken? Here are some details via the North Dakota Department of Mineral Resources:
Average cost to drill, frack and complete a Bakken oil well: $9 million
Expected production life of a Bakken oil well: 45 years
Lifetime oil production per well: 615,000 barrels
Expected lifetime revenue generated per well: $46.125 million at $75 per barrel
Total operating expenses per well: $2.3 million
Royalty payments to mineral owners per well over 45 years: $7.3 million
Taxes Paid per well: $4.325 million total ($2.1 million gross production taxes, $1.8 million extraction tax and $425,000 in sales taxes)
Total employee salaries and wages per well: $2.125 million
Average Profits Generated per Bakken well: $20 million net of costs and taxes
Current average daily production per Bakken well: 130 barrels ($7,800 per day at $60 per barrel)
Cumulative Oil Production in the Bakken Since 1954: 1.365 billion barrels through April 2015
Time to Produce the First Half of That Production (682 million barrels): Almost 60 years
Time to Produce the Second Half of that Production (682 million barrels): Less than 2 Years
The overall positive economic effects of fracking Bakken shale oil on the Peace Garden State are truly remarkable. In a recent post on CD, I documented how North Dakota has gone from one of America’s poorest states a decade ago to the country’s second-most prosperous state last year, measured by per-capita GDP (see chart below).
9. Flights to the Bakken. There are so many people travelling to and from the Bakken oil fields that Delta Airlines now offers four daily nonstop flights between Minneapolis-St. Paul and Williston, ND in each direction. Likewise, United Airlines offers four daily nonstop flights between Williston and Denver in each direction, and one daily nonstop flight between Williston and Houston in each direction! It’s pretty amazing that a major carrier like Delta offers four nonstop flights to and from Williston, a small town in western North Dakota with a population of only about 21,000, when Delta only offers three daily nonstop flights each way from Minneapolis-St. Paul to a major metro area like Washington, DC (population of 6 million) and four nonstop flights from Minneapolis-St. Paul to Boston (population of 4.5 million)!
10. Bakken Mancamps. There’s somewhat of a misconception that the oil field workers in the Bakken “work hard during the day” and then “play hard on their time off,” with a lot of evening and weekend boozing, partying and general debauchery. That’s pretty far from the reality for most oil field workers and truck drivers in the Bakken, who are often working 12 hour days, 7 days a week, and who live in one of the area’s mancamps and who have very little time for partying, and hijinks. And contrary to the general perception some might have, the mancamps in the Williston are very clean, offer high-quality housing for oil workers, and have very strict rules – there are generally zero-tolerance policies for drugs, alcohol, firearms, pets, guests and cohabitation.
One of the biggest mancamp operators in the Bakken is Target Logistics, which has ten facilities in the Bakken area of North Dakota, as well as facilities in Texas in the Permian Basin and Eagle Ford oil fields, and some international locations in Canada and Mexico, with more than 4,000 total beds in those locations. According to the Target Logistics website, here are some of the features they offer at the Bakken-area mancamps:
Four-star food providing high nutrition and 4,000 calories per day, available 24/7.
Comfortable private rooms with individual temperature controls, flat-screen TV/DVD players, oversized towels and The Hibernator Sleep System with a pillow-top mattress, high thread count sheets and overstuffed pillows.
State-of-the-art recreation and fitness centers and visiting personal trainers.
An Internet café.
Convenience store with free DVD rentals for use in the rooms.
Conference rooms for group safety and organizational meetings.
Lodges are located close to worksites, helping to reduce drive time.
Optional bus transportation to the well site.
A positive all-inclusive environment designed to prepare workforces for peak performance the next day.
The all-inclusive room rate (including unlimited food) is listed at about $110 per night, although in many cases, the companies operating in the Bakken make arrangements directly with Target Logistics on behalf of their workforce, negotiate discounts, and provide housing as part of a worker’s total compensation package. And as I documented in Part I of this series, rents and home prices have come down significantly over the last year in the Bakken giving oil field workers a lot more choices these days at much more affordable prices.
For example, here’s a listing on Craigslist for 3 bedroom, 2 bath modular-type homes in Williston that rent for $2,300 per month (furnished for an additional $195 per month) and sell for only $59,900 – that seems pretty affordable for a Bakken oil worker or truck driver who is making $100,000 per year or more. The frequently reported narrative of high wages in the Bakken being more than offset by high, rising and unaffordable housing costs seems to be changing rapidly in the favor of workers and renters in the Bakken. The spike in Bakken housing costs several years ago was understandable given the huge increase in housing demand interacting with a limited supply of houses, apartments and mancamps in the short-run. But now that the construction and supply of new housing and apartment units have skyrocketed in recent years, the affordability of housing in Williston has improved dramatically.
Watch the video above to get an idea of the quality of life in a Bakken-area mancamp, and you might be surprised. From various media reports, most people have probably developed lots of inaccurate and distorted stereotypes about life in a Bakken mancamp, and think it’s a sub-standard housing option with a low quality of life, punctuated by a lack of rules that lead to wild parties and weekend debauchery. The reality of life in a Bakken mancamp is much different, with a very regimented, rules-based environment, but with lots of amenities and unlimited access to high-quality food 24 hours a day, and generally a very high quality of life for the oil field workers in the Bakken.
Conclusion: To end this two-part series of my trip to the Bakken oil fields in May to experience America’s shale revolution firsthand, let me end with a couple of related quotes. The first one is from Gregory Zuckerman’s book The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters:
A group of frackers, relying on markets cures rather than government direction, achieved dramatic advances by focusing on fossil fuels of all things. It’s a stark reminder that breakthroughs in the business world usually are achieved through incremental advances, often in the face of deep skepticism, rather than government-inspired eureka moments.
George Mitchell’s team spent 17 frustrating years trying to get meaningful amounts of gas from shale and Harold Hamm’s men failed to pump much oil out of the Bakken until 20007. Their achievements are a reminder of the role of perseverance and obstinance in history’s advances.
Foreign nations lack perhaps the key element behind the US energy revolution: an entrepreneurial culture and ample incentives for the years of trial and error necessary for shale breakthroughs. George Mitchell, Harold Hamm and other headstrong wildcatters persevered because they knew they could gain both fame and remarkable fortune finding economic ways to tap shale. Comparable prizes don’t always exist in other countries, where governments play a larger role in society.
For all of the criticism this country has fielded for supposedly losing its edge in innovation, surging American energy production is a reminder of the deep pools of ingenuity, risk taking, and entrepreneurship that remain in the country. While some argue that Western civilization has entered a period of decline [and stagnation], many smaller American towns [like Williston] are experiencing a rebirth, with some young people in the energy business enjoying six-figure salaries, suggesting an underlying resilience in a country still recovering from the deep economic downturn.
The successes of the architects of the shale era are attributable to creativity, bravado, and a strong desire to get really wealthy. It doesn’t get more American than that. The huge rewards promised in the market-driven American economy…. provide incentive for remarkable achievement.
And here’s Bret Stephens writing in the WSJ in January “The Marvel of American Resilience,” and quoting Gregory Zuckerman:
Imagine an economic historian in the year 2050 talking to her students about the most consequential innovations of the early 21st century—the Model Ts and Wright flyers and Penicillins of our time. What would make her list? Why, she also might ask her students, did the U.S. dominate its peers when it came to all the really big innovations?
Surely fracking—shorthand for the combination of horizontal drilling and hydraulic fracturing that is making the U.S. the world’s leading oil and gas producer—would be noted and would make a good case study. The revolution happened in the U.S. not because of any great advantage in geology—China, Argentina and Algeria each has larger recoverable shale gas reserves. It didn’t happen because America’s big energy companies are uniquely skilled or smart or deep-pocketed: Take a look at ExxonMobil ’s 2004 Annual Report and you’ll barely find a mention of “fracturing” or “horizontal” drilling.
Nor, finally, did it happen because enlightened mandarins in the federal bureaucracy and national labs were peering around the corners of the future. For the most part, they were obsessing about the possibilities of cellulosic ethanol and other technological nonstarters.
Instead, fracking happened in the U.S. because Americans, almost uniquely in the world, have property rights to the minerals under their yards. And because the federal government wasn’t really paying attention. And because federalism allows states to do their own thing. And because against-the-grain entrepreneurs like George Mitchell and Harold Hamm couldn’t be made to bow to the consensus of experts. And because our deep capital markets were willing to bet against those experts.
“When I talk to foreigners, they’re even more impressed than many Americans by this renaissance,” says my Journal colleague Gregory Zuckerman, author of “The Frackers.” “They understand that it only could have happened in America.”
MP: My trip to the Bakken confirmed Zuckerman’s and Stephens’s comments about the fracking revolution, and I was left with the impression that there’s probably no place in America right now that better represents the “deep pools of ingenuity, risk taking and ‘petropreneurship’” that Zuckerman describes and “the marvel of American resilience” that Stephens mentions, than Williston, ND in the heart of the Williston Basin. If you’re looking for a place in America where the American dream is alive and well, where you’ll find evidence of the marvels of “Made in the USA” technologies, and where the spirit of American “petropreneurship” has transformed an industry and turned the USA into an energy superpower, you’ll find all of that in Williston, North Dakota – ground zero for the US energy revolution and for the American spirit.
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At the end of May, I visited Williston, North Dakota for several days to see and experience the prolific Bakken oil fields firsthand. As a guest of Continental Resources (“America’s Oil Champion”), I was able to visit a drilling pad and see two amazing, modern drilling rigs in operation on the first day, and then visit a drilling pad the next day right outside Williston where 12 shale oil wells had previously been drilled and fracked, and will now be pumping shale oil almost 24 hours per day possibly for the next 40 years. I’d like to thank Continental Vice-President of Investor Relations and Research Warren Henry for arranging my rig tour, and Continental’s field superintendent in the Bakken, Kevin Mishke, for being my “rig tour guide” for two days!
In a series of two blog posts, I’ll present my Top 10 list for the most interesting things I learned on my summer trip to the Bakken, here are the first five items in Part I, with the next five to follow later in Part II.
1. The Geology of the Bakken Formation. What is called the Bakken Formation (or the Bakken oil fields) actually contains three different layers of shale formations (or “members”) at different depths: the Upper Bakken, the Middle Bakken and the Lower Bakken (see top graphic above and the right side of the bottom graphic). Most of the shale oil and gas to date have been recovered from the Middle Bakken (at depths of between 4,500 feet below the surface on the eastern edge of the basin to 11,000 feet in the southwest corner of North Dakota), although the Upper Bakken and Lower Bakken are now being successfully targeted for shale oil resources.
Below the Bakken formation lies an entirely separate shale formation: the Three Forks Formation, which has four different layers at increasing depths (see upper graphic above and right side of bottom graphic). Shale resources (oil and gas) are being recovered from the Three Forks 1 layer, while the Three Forks 2/3/4 zones are largely exploratory at this point. Together, the Bakken and Three Forks formations are part of the greater Williston Basin area that covers western North Dakota and parts of Montana, South Dakota and Canada.
The bottom graphic above (left side) shows the geographical areas of the Williston Basin (orange dashed line), the slightly smaller Three Forks Formation (blue dashed line), and then the slightly smaller Bakken Formation (green dashed line). The right side of the graphic shows a geographical cutaway of the three Bakken layers and the four Three Forks layers. Notice that none of those layers of shale assets are parallel to the Earth’s surface, and I’ll discuss that in the next section.
The graphic above shows the cumulative shale oil production (through Q1 of 2015) from wells in the Bakken area of North Dakota and Montana. The larger the green circle the greater the cumulative oil production from a given Bakken shale oil well, from new wells that have produced fewer than 250,000 barrels (small green circles) to larger and older wells that have produced 1 million barrels (large green circle — not a lot of those yet, but a lot that have produced at the next level down – 500,000 to 1 million barrels). As you can see on the map, the “sweet spot” of the Bakken with the largest concentration of wells is in the south central portion of Mountrail County, about 40 miles east of Williston; although McKenzie county to the south is now the “sweet spot” of the Bakken and has been out-producing Mountrail County by more than 50% for the last six months.
2. Horizontal Drilling. What is called “horizontal drilling” is actually somewhat of a misnomer, since the lateral, or horizontal section of the targeted shale assets are never actually parallel to the earth’s surface (see graphic above and the second graphic from the top in Item #1 above). “Directional drilling” is probably a more accurate term for what actually happens – the horizontal drilling is guided through the shale formations by a geologist in real time with advanced computer techniques to stay in the optimal part of the shale reservoir, a technique called “geo-steering.” In some cases, the well is being drilled at 90.5 degrees (or more) and other times at 89.5 degrees (or less). It’s really a marvel of petroleum engineering that the drilling process can be guided by a geologist sitting in a trailer on the drilling pad using sophisticated computer equipment to guide the drill path to maximize the shale resources that will be extracted over the 45-year average period that the wells are producing shale oil.
3. Frac Sand. Sand is a very important part of the hydraulic fracturing process and there’s lots of frac sand all over the Bakken oil fields. The frac sand gets transported to Williston by rail from sand-rich areas of Wisconsin and Minnesota and then gets delivered to the drilling locations by truck. The sand used for fracking is different from traditional industrial sand that is used for cement and other applications, you can see the difference in the photo above. Frac sand has certain desirable characteristics that make it ideal for fracturing open pores in oil-saturated shale rock formations, and then keeping those pores open for 40 years or more: it has a very uniform grain size, nicely rounded grain shapes, a uniform composition, and is usually mined from high purity sandstone that is extremely tough, and allows it to resist compressive forces in the shale formations of up to several tons per square inch.
Here’s how frac sand is used as a “proppant,” meaning that it is used to “prop open” the fractures (pores) in shale oil and gas reservoirs.
Subsurface rock units such as organic shale formations are saturated with large amounts of oil and natural gas that will not flow freely to a well because the rock formation either lacks permeability (interconnected pore spaces) or the pore spaces in the rock are so small that these fluids cannot flow through them to a well. The hydraulic fracturing process solves this problem by generating fractures (or “pores”) in the rock by drilling a well into the rock, sealing the portion of the well in the petroleum-bearing zone, and pumping water under high pressure into that portion of the well. This water is treated with chemicals and thickeners such as guar gum to create a viscous gel that facilitates the water’s ability to carry grains of frac sand in suspension.
Large pumps at Earth’s surface increase the water pressure in the sealed portion of the well until it is high enough to exceed the breaking point of the surrounding shale rock formations. When their breaking point is reached they fracture suddenly and water rushes rapidly into the fractured pores, inflating them and extending them deeper into the rock. Billions of sand grains (a few thousand tons) are carried deep into the fractures by this sudden rush of water. When the pumps are turned off, the fractures (pores) deflate but do not close completely – because they are propped open by billions of grains of frac sand. This only occurs if enough sand grains to resist the force of the closing fractures have been delivered into the rock. The new fractures in the shale rock, propped open by the durable sand grains, form a network of pore spaces that allows petroleum fluids to flow out of the shale rock and into the well, and then up to the surface.
There are actually at least 8 different sizes and gradations of frac sand according to the American Petroleum Institute, although two of them are the most popular and used most frequently. However, depending on the specific characteristics of an individual shale formation, and even in different parts of the same shale formation, the size of the frac sand used will be varied to maximize the flow of petroleum fluids out of the shale rock. If the frac sand grains are too large, they might hold the fractured pores open but block the petroleum fluids from flowing out, in which case, they have to switch to a smaller size sand. It’s another example of the amazingly complex and advanced engineering that is at the core of today’s shale oil and gas industry.
4. Housing Costs. Market fundamentals for housing are coming back into balance in the Bakken area, as the growing supply of housing options seems to have finally caught up with the demand for housing, which has fallen recently as a result of the temporary slowdown in the oil business in response to falling oil prices. As the chart above shows, housing construction has exploded in the Williston area in recent years, measured by the number of building permits issued. In 1999, when Williston was just a sleepy town in western North Dakota, there were only two building permits issued during the entire year, both for single-family homes. Until 2007, there hadn’t been a building permit issued for an apartment building in Williston for decades. Once the Bakken oil boom took off about 7 years ago, demand for housing started to skyrocket and that sparked a construction boom that continues to today. Over the last four years (2011-2014), permits have been issued for a total of nearly 6,300 new housing units, 5,145 for new apartment units and 1,127 for new single-family homes. The building boom and significant increase in housing units has now started to moderate home prices and apartment rents in the Williston area.
For example, a recent headline in the Williston Herald announced that “Rents are beginning to plummet in Watford City,” which is 45 miles from Williston. The article says that “In Watford City and Williston, rents tumbled 20 percent since the beginning of the year,” and that supports something I heard from a frac sand truck driver I met in Williston. The Tennessee native told me that he shares a 3-bedroom apartment with two other oil field workers, and when their rental contract came up for a one-year renewal recently, the monthly rent dropped by one-third, from $2,700 to $1,800!
As further evidence of falling rents in the Bakken, here’s an example of a brand new, 931 square foot, 2 bedroom, 2 bathroom apartment home in Williston that is listed on Craigslist for a rent of $1,800 per month. Here’s a listing for 3 bedroom apartment in Williston for $1,550 per month. As recently as early 2014, some luxury two-bedroom apartments in Williston were renting for $3,200, but are now going for $2,600 per month.
Exactly as economic theory would predict, the supply of housing in Williston has increased significantly (see chart), the demand has stabilized and has been falling in recent months, and therefore lower rents and home prices are the inevitable result. Pretty much exactly like the market fundamentals that have resulted in falling oil prices!
5. International Jobs Mecca. The gold-rush-like energy boom in North Dakota’s oil patch has attracted workers from all over the world, and it’s now increasingly common to see workers in Williston from African countries like Sierra Leone, Liberia, Angola, Senegal, Tanzania, Guinea and Kenya who have jobs at McDonald’s, Fuddruckers, KFC, Walmart and the city’s convenience stores, hotels, and gas stations. According to this Aljazeera news report, “Before the boom, Williston was in no way diverse, but there are now native Spanish speakers and a Turkish community as well as immigrants from numerous African countries.” CNN reports that it’s not only Africans who have moved to Williston looking for jobs, there are now workers from Brazil, Peru, Australia and Germany. “You want to meet people from all over the world, this is the place to do it,” a local resident told CNN.
According to a 2012 WSJ article (“North Dakota City Draws Foreign Workers”), “With the nearby oil boom draining Williston of many of its service workers, businesses here are relying on a cultural-exchange program for foreign college students to keep the local economy humming. More than 500 foreign students—from Thailand, Jamaica and about a dozen other countries—are staffing nearly every hotel, car wash and fast-food place in town, tending to the troops of roughnecks from the oilfields.”
I noticed it more on my trip to Williston this year than my visit there in 2014 that the small city in western North Dakota has become as internationally diverse as many large metropolitan cities like Minneapolis-St. Paul. It’s a fascinating development that the recent boom in the Bakken oil fields producing an internationally-traded, global commodity – crude oil – has transformed a small, remote town on the North Dakota prairie into an internationally diverse community with a new global character. Exhibit A: There’s now an Asian fusion restaurant and sushi bar – Basil – in downtown Williston as just one example of the increasingly internationalization of the city.
Bottom Line: Overall, I think what impressed me the most about visiting the Bakken oil fields is the amazing technical sophistication involved in drilling for shale resources in reservoirs miles below the Earth’s surface, and then drilling out laterally (horizontally) for several more miles to extract oil from saturated shale rock formations that were previously inaccessible with the traditional drilling and extraction technologies. We can thank American petropreneurs like Continental’s Harold Hamm who persevered for decades until they finally “cracked the shale code” with revolutionary, breakthrough drilling and extraction technologies that have transformed America in an energy superpower. More than most people think, the oil and gas business is a very, very high-tech industry that uses cutting-edge, advanced engineering, geological and drilling technologies that continually advance and improve. The technological innovation that unlocked the nation’s oceans of shale resources hasn’t stopped but instead has actually intensified. New ideas, technologies and ways of cracking the shale code emerge daily, as America’s “petropreneurs” get better and better at what they do all the time.
I’ll write more about the technological sophistication of shale oil drilling and extraction in my next post, but will conclude for now by saying that the advanced drilling and extraction techniques used in the Bakken oil fields (and elsewhere) are truly marvels of modern engineering and the shale revolution is truly a “free market triumph” (to quote Harold Hamm).
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Below is an excerpt from the “Iowa Car Crop” chapter in Steven E. Landsburg’s book The Armchair Economist – it’s based on a story Professor Landsburg learned from David Friedman. The story of the “Iowa car crop” manages to explain everything we need to know about international trade theory based on the insight that we can actually “grow cars in Iowa.” It’s an amazingly simple story and yet brilliant at the same time – “economics at its best” as Professor Landsburg reminds us.
There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few
months, the ships reappear with Toyotas on them.
International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans’ well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars. Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.
The task of producing a given fleet of cars can be allocated between Detroit and Iowa in a variety of ways. A competitive price system selects that allocation that minimizes the total production cost. It would be unnecessarily expensive to manufacture all cars in Detroit, unnecessarily expensive to grow all cars in Iowa, and unnecessarily expensive to use the two production processes in anything other than the natural ratio that emerges as a result of competition.
That means that protection for Detroit does more than just transfer income from farmers to autoworkers. It also raises the total cost of providing Americans with a given number of automobiles. The efficiency loss comes with no offsetting gain; it impoverishes the nation as a whole.
There is much talk about improving the efficiency of American car manufacturing. When you have two ways to make a car, the road to efficiency is to use both in optimal proportions. The last thing you should want to do is to artificially hobble one of your production technologies. It is sheer superstition to think that an Iowa-grown Camry is any less “American” than a Detroit-built Taurus. Policies rooted in superstition do not frequently bear efficient fruit.
In 1817, David Ricardo—the first economist to think with the precision, though not the language, of pure mathematics—laid the foundation for all future thought about international trade. In the intervening 150 years his theory has been much elaborated but its foundations remain as firmly established as anything in economics.
Trade theory predicts first that if you protect American producers in one industry from foreign competition, then you must damage American producers in other industries. It predicts second that if you protect American producers in one industry from foreign competition, there must be a net loss in economic efficiency. Ordinarily, textbooks establish these propositions through graphs, equations, and intricate reasoning. The little story above that I learned from David Friedman makes the same propositions blindingly obvious with a single compelling metaphor. That is economics at its best.
MP: In a footnote to the “Iowa Car Crop” chapter is one of my all-time favorite economic quotes,”It is something of a miracle that individual selfish decisions must lead to a collectively efficient outcome.” Also simple and brilliant at the same time!
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Q1. How long does it take to register a complaint against an Uber driver and how long does it take for the Uber driver to be aware of the complaint? That time period would generally be measured in seconds or minutes from when the ride ends – as soon as they leave an Uber car, riders can instantly and effortlessly rate the driver using their smartphone on a scale from 1 to 5 stars and the driver sees that rating immediately.
And how long does it take before an Uber driver with bad ratings is warned, disciplined or fired? That time period is probably measured in weeks or maybe months. Business Insider recently provided some details about how the Uber driving rating system works, and internal documents from Uber indicate that “4.6 is the important number when it comes to driver ratings. If a driver’s rating is 4.6 or lower then Uber is going to start considering kicking that driver off the system.”
Q2. How long does it take to register a complaint against a DC taxi driver and how long does it take for the driver to be aware of the complaint? Recently, that time period would generally be measured in years, and in some cases it could be as long as three years!
First, to file a complaint against a DC taxi driver, you start by filling out this complaint form with the District of Columbia. You are supposed to know the taxi company name, the taxi license plate, the taxi number, and the taxi driver’s “Face ID Number.” Then you need to provide the origin address, the destination address, the trip date, departure time, whether the taxi was hailed or dispatched, the number of passengers, the number of child passengers and their ages, the taxicab type (car or van), the number of pieces of luggage and whether the driver or passenger put the luggage in the trunk, the fare paid, and a copy of the fare receipt. Then you are asked to fill out an area where you provide “Additional information, comments, concerns or complaints.” You can fill this form out online, send it by fax or email to the DC Taxicab Commission.
(Note that almost all of that information gets automatically and permanently recorded by the Uber ride-sharing app, including a detailed map of the exact route taken.)
After filing a complaint with the DC Taxicab Commission, how long does it take before the driver is notified? Up to three years, according to this news report today from WAMU 88.5 (American University Radio), here’s an excerpt:
Hundreds — possibly more than 1,000 — of Washington taxi drivers are facing large fines as the D.C. Taxicab Commission (DCTC) works to clear a backlog of nearly 1,600 passenger complaints dating to 2012, raising questions about due process and excessive penalties at a time when many cabbies are struggling to survive as Uber and other ride-hailing apps drain their customer base.
In January, the commission faced a backlog of nearly 1,100 passenger complaints. Although the agency had resolved more than 1,800 complaints over the previous three years — with 910 resulting in a fine, suspension, or revocation of driving privileges — a shortage of staffing had left the new interim taxicab commission chairman, Eric Rogers, with a mountain of old complaints against cabbies to resolve.
The number of complaints now scheduled for mediation is 1,598, commission spokesman Neville Waters said in emailed responses to questions from WAMU 88.5. Over the past five months, DCTC has collected $52,410 in fines from drivers for the D.C. Treasury. Drivers have paid $2,320 to refund customers.
The backlog was the result of a lack of staffing, administrative inefficiencies “due to a paper-heavy process,” and a spike of complaints from passengers who claimed drivers resisted or refused to accept credit card payments. The DCTC’s troubled rollout of universal credit card acceptance took place two years ago.
MP: The number of complaints against DC taxi drivers is astounding — the backlog alone is nearly 1,600 going back three years – and that doesn’t count what might be many thousands more that have likely been resolved. And the complaints filed with the DCTC only represent the likely small minority of dissatisfied customers who actually have all of the information required and have taken the time to file a complaint. The glacial speed of the DCTC’s response to customer complaints that sometimes takes three years is also astounding, although not completely unexpected for a government agency.
In contrast, ride-sharing services like Uber operate at lightning speed when it comes to recording any customer complaints (instant feedback), sharing customer complaints with drivers (instant feedback), and dealing with drivers who get low ratings from passengers. What takes years to happen in the Big Taxi, Big Government world happens almost instantly in the ride-sharing world. And that’s just one more reason why the loathed Big Taxi is doomed, and why ride-sharing services like Uber represent the future of transportation for millions of enthusiastic “ride-sharing evangelists.”
As I wrote last fall on CD:
Loathed Big Taxi is loathed for a very good reason – it has government protection against competition through taxi medallion systems and other forms of restricting and limiting competition – something that Uber, Lyft, Sidecar, Gett, Getaround, Zip Car and Car2Go don’t have. And that’s why millions of “ride-sharing evangelists” (Washington Post columnist and “Big Taxi evangelist” Catherine Rampell’s term) are so enthusiastic about the transportation market today – they are no longer at the mercy of Big Taxi’s high prices, poor and limited service, and extreme inefficiency dealing with customer complaints (see above) and they now have a historically unprecedented number of transportation options including the services of the seven companies listed above. Consumers have clearly and overwhelmingly expressed their preferences – they are “evangelical” about ride-sharing for a very good reason – it’s a much better, cheaper, and faster option than Big Taxi. And their complaints about drivers are recorded and dealt with almost immediately, not years in the future. We ride-sharing evangelists have seen the transportation future, and it sure ain’t Big Taxi.
View related content: Carpe Diem
…. is from Cathy Young’s excellent article in The Observer “The Pecking Disorder: Social Justice Warriors Gone Wild“:
The ordeal of Northwestern University film professor Laura Kipnis, hauled before a campus gender equity tribunal for publishing a critique of academia’s current obsession with sexual misconduct, has brought the backlash against “political correctness” to reliably left-of-center venues such as Vox. But this is only the latest incident in the culture wars over “social justice” that have been wreaking havoc in a wide range of communities—including, but not limited to, universities, the literary world, science fiction fandom and the atheist/skeptic movement.
The progressive crusaders driving these wars have been dubbed “social justice warriors,” or “SJWs,” by their Internet foes. Some activists on the left proudly embrace the label, crowing that it says a lot about the other side that it uses “social justice” as a derisive epithet. But in fact, this version of “social justice” is not about social justice at all. It is a cultish, essentially totalitarian ideology deeply inimical to the traditional values of the liberal left, and not just because of the movement’s hostility to freedom of “harmful” speech.
At the core of social justice dogma is fixation on identity and “privilege.” Some of this discourse touches on real and clear inequities: for instance, the widespread tendency of police and others to treat African-Americans, especially young and male, as potential lawbreakers. Yet even here, the rhetoric of privilege generates far more heat than light. University of California-Merced sociologist Tanya Bolash-Goza, who accepts the social justice left’s view of pervasive structural racism in America, points out that the term “white privilege” turns what should be the norm for all—not being harassed by cops or eyed suspiciously by shop owners—into a special advantage unfairly enjoyed by whites. (Indeed, in its dictionary meaning, “privilege” refers to rights or benefits possessed by the select, not by the majority.) This language speaks not to black betterment but to white guilt. It also erases the fact that the “privilege” extends to many non-white groups, such as Asians.
This hierarchy of identity politics can lead to some bizarre inversions of progressive values. Thus, because Muslims are classified as “marginalized” and “non-privileged” in the West’s power structures, critics of misogyny and homophobia in fundamentalist Islam risk being chastised for “Islamophobic” prejudice. Charlie Hebdo, the staunchly left-wing French magazine murderously attacked in January in retaliation for its Mohammed cartoons, was denounced by a number of leftist critics who felt that the magazine’s satirical barbs at Islam (along with other organized religions) amounted to “punching down” at the powerless. The men with guns who shot twelve Charlie staffers were presumably punching up.
On the other hand, since Jews in Western society today are seen as more privileged than not, social justice discourse sheepishly sidesteps anti-Semitism—surely one of the most pernicious forms of bigotry in Western history. Salon, more or less the Pravda of today’s social justice left, recently ran a piece arguing that the coming reboot of the X-Men franchise should reinvent its character Magneto, a Jewish Auschwitz survivor, as black in order to “get real about race.”
Working to correct inequities is a noble goal—which explains the appeal of the “social justice” movement to many fair-minded people. But the movement in its current form is not about that. It elevates an extreme and polarizing version of identity politics in which individuals are little more than the sum of their labels. It encourages wallowing in anger and guilt. It promotes intolerance and the politicization of everything. It must be stopped—not only for the sake of freedom, but for the sake of a kinder, fairer society.
HT: Don Boudreaux, who features this excellent quote from Deirdre McCloskey in a letter to The Observer: “American Babbitts save for their children’s college educations on an impressive scale, educations in which the children are taught to despise the values of their parents.”
Nobel laureate economist Friedrich Hayek (1899 – 1992) is one of the most influential thinkers of the 20th century and his work still resonates with economists and scholars around the world today. Two decades after Hayek’s death, his ideas are increasingly relevant in an era where governments grow ever larger and more interventionist. Essential Hayek is a project of the Fraser Institute (Canada’s leading public policy think tank) and includes a new book by George Mason Professor Don Boudreaux (The Essential Hayek, with a forward by Vaclav Klaus, available here), an Essential Hayek website including a great collection of Hayek resources and a series of videos (watch two below and there are more here), that aim to explain Hayek’s ageless economic ideas in common, every-day language. It is a great resource for all who value economic liberty and want a greater understanding of economics and markets.
1. Essential Hayek: Knowledge and Prices
2. Essential Hayek: Economic Booms and Busts
View related content: Carpe Diem
Business Insider had a post yesterday titled “This epic chart shows the average wage for almost every job in America,” based on Reddit user Dan Lin’s chart showing the average annual wages in 2013 for more than 800 US occupations tracked by the Bureau of Labor Statistics. The chart featured by BI has actually been circulating on various blogs and websites for the last year (see examples here, here, and here), and new BLS wage data are now available for 2014.
Regardless, the top 20 highest-paid occupations for 2013 are displayed above and help illustrate a few important points about chief executive (CEO) pay:
1. CEOs in the US earned an average annual wage in 2013 of $178,400 and ranked No. 10 by occupation for the highest average annual wages in that year, behind nine medical occupations including psychiatrists ($182,700), family practice MDs ($183,900), internists ($188,400), orthodontists ($196,300), and anesthesiologists ($235,100).
2. CEOs earned only about $13,800 (and 8%) more than the average dentist ($164,600) in 2013, which works out to an hourly difference of $6.63 ($85.77 per hour for CEOs vs. $79.13 for dentists), assuming a 40-hour workweek. No offense to dentists, but if we realistically assume that the average CEO might have a longer workweek than the average dentist, the average CEO earns less per hour than the average dentist: e.g. $76.24 for an average 45-hour CEO workweek and $68.62 for a 50-hour CEO workweek.
3. Based on 2014 wage data, the CEO-Dentist wage difference shrunk because the annual wages of the average dentist increased by almost 4% last year to $170,940, while the wages of the average CEO increased by only 1.29% to $180,700, which was actually below the 1.6% annual rate of inflation from 2013 to 2014. In 2014, the average CEO earned less than 6% more than the average dentist, a difference of less than $5 on an hourly basis. If we assume an average CEO workweek of 42.5 hours vs. 40 hours for a dentist, the average CEO made less per hour last year than the average dentist.
Bottom Line: These are pretty easy questions to answer, but let me pose them anyway: Why don’t we ever hear about “excessive” or “obscene” dentist/family practice MD/internist/psychiatrist wages? Or about objectionable “Dentist-to-Average Worker Pay” ratios?
Of course, there are some CEOs who earn multimillion dollar pay packages, while there are probably no dentists making millions of dollars per year, so it’s the “excessive” pay of a few hundred outlier CEOs that gets all of the media and union attention. But it’s an important point that gets completely lost in the discussion of “obscene” CEO pay – the average CEO earns just slightly more than the average dentist and less on average than nine medical occupations that are listed above.
HT: Steve Bartin
Related Bonus Quotation of the Day:
From Ayn Rand, writing in her 1966 book Capitalism: The Unknown Ideal, p. 60-61 of the chapter “America’s Persecuted Minority: Big Business” (emphasis original):
Businessmen are the one group that distinguishes capitalism and the American way of life from the totalitarian statism that is swallowing the rest of the world. All the other social groups – workers, farmers, professionals, scientists, soldiers – exist under dictatorships, even though they exist in chains, in terror, in misery, and in progressive self-destruction. But there is no such group as businessmen under a dictatorship. Their place is taken by armed thugs: bureaucrats and commissars. Businessmen are the symbol of a free society – the symbol of America. If and when they perish, civilization will perish. But if you wish to fight for freedom, you must begin by fighting for its unrewarded, unrecognized, unacknowledged, yet best representatives – the American businessmen.
Shale oil turned North Dakota from one of the poorest US states into the second most prosperous state in a decade
View related content: Carpe Diem
The chart above shows North Dakota’s annual oil production in millions of barrels vs. its annual ranking for per-capita real GDP among US states from 1997 to 2014 and helps capture graphically the importance of shale oil to the Peace Garden State’s amazing economic turnaround over the last decade. Consider the following:
- In 2000, North Dakota was the 8th least economically prosperous US state, ranking No. 43 in the country for per-capita real GDP that year (see red line in chart above, BEA data here), with GDP per person ($35,203 in 2009 dollars) that was more than 21% below the national average ($44,745). In that year, North Dakota was a relatively minor oil-producing state, ranking ninth among the US states for oil production with fewer than 33 million barrels of annual production (see blue bars in chart, data here) and output that represented only 1.5% of total US oil output.
- Even as recently as 2007, North Dakota was still close to being among the poorest one-third of US states, ranking No. 32 for per capita real GDP, with economic output per resident ($44,212 in 2009 dollars) that was more than 10% below the national average that year of $49,155. The Peace Garden State was still a relatively minor oil-producing state in 2007, ranking No. 8 among the states in oil output and producing a little more than 2.4% of the US total that year.
- Starting around 2007, private oil drillers started successfully drilling for shale oil in North Dakota, thanks to advances in drilling and extraction technologies that allowed “petropreneurs” to finally tap into oceans of previously inaccessible unconventional oil in the Bakken oil fields in the western part of the state. Between 2007 and 2010, oil production in North Dakota more than doubled, and the state surpassed Wyoming, New Mexico, Oklahoma and Louisiana during that period to become America’s fourth largest oil-producing state by 2010. The state’s shale oil boom boosted the state’s per-capita real GDP above the national average in 2009 for the first time since the 1970s. In just the three years between 2007 and 2010, North Dakota moved up 20 places in state rankings for per-capita real GDP, from No. 32 in 2007 to No. 12 in 2010.
- After more than doubling from 2007 to 2010, annual oil production in the Peace Garden State more than doubled again in the two-year period from 2010 to 2012 (from 113 million to 243 million barrels), and the state was producing more than 10% of all US crude oil by 2012. North Dakota was producing so much shale oil in the Bakken, that it surpassed both Alaska and California to become the nation’s second-largest oil-producing state in 2012, behind only Texas. Also by 2012, the energy-driven stimulus to the state’s economy moved North Dakota to the No. 2 spot in the country for per-capita real GDP at $64,150 behind only Alaska at $70,437, and 33% above the national average of $48,264.
- In 2013, North Dakota’s real GDP per capita fell by 2%, and its ranking fell to No. 4 among US states for real GDP per capita at $62,750. But last year, North Dakota led the country with the largest increase in real state GDP (6.3%), and the state’s real GDP per capita rebounded to $65,225 setting a new state record, and moved the Peace Garden State back up to the No. 2 ranking among the country’s states for per-capita output, just behind No.1 Alaska at $66,160.
MP: For North Dakota to rise from being America’s 8th least economically prosperous state in 2000 by per capita GDP to become the nation’s 2nd most economically prosperous state in a little more than a decade (in 2012 and again in 2014), has to be one of the most impressive economic success stories in recent US history, and maybe in a generation or more.
And the main ingredient in North Dakota’s amazing economic success story? Shale oil, which set off an energy boom in the US that was unimaginable just a decade ago. Well, at least it was “unimaginable” by politicians and bureaucrats in the nation’s capital who set energy policy and try to pick winners and losers, and use taxpayer money to subsidize politically favored energy sources. And it was also “unimaginable” to many of the big oil companies who had given up on finding new gas and oil sources in America, especially in shale rock formations. But thankfully, the shale boom was very imaginable a decade ago to a small fringe group of “industry outsiders” and “petropreneurs” like Harold Hamm, whose grit and determination set off an energy revolution that helped turn one of America’s poorest states into an “economic miracle state.” North Dakota’s status as the US state with the second highest level of economic output per person for two of the last three years is just one more of many important energy-based milestones for the Peace Garden State. Carpe oleum.
Bonus: The map below was prepared and graciously provided to me by Becky Adams, a geological specialist at Denver-based Lario Oil & Gas Company, and shows the cumulative shale oil production (through Q1 of 2015) from wells in the Bakken area of North Dakota and Montana. Note that based on the data in chart above, there have been more than 1.5 billion barrels of oil produced in North Dakota in approximately the last decade between 2004 and 2014 and about 1.2 billion barrels of that total was produced in the Bakken area of the state featured below. The larger the green circle the greater the cumulative oil production from a given Bakken shale oil well, from new wells that have produced fewer than 250,000 barrels (small green circles) to larger and older wells that have produced 1 million barrels (large green circle — not a lot of those yet, but a lot that have produced at the next level down – 500,000 to 1 million barrels).
Here’s a story about government abuse of power that’s so incredible and scary, you almost can’t believe it
View related content: Carpe Diem
There’s a very disturbing two-part series by Lenore Skenazy on Reason’s “Hit and Run Blog,” here are links to those articles and some excerpts:
One afternoon this past April, a Florida mom and dad I’ll call Cindy and Fred could not get home in time to let their 11-year-old son into the house. The boy didn’t have a key, so he played basketball in the yard. He was alone for 90 minutes. A neighbor called the cops, and when the parents arrived—having been delayed by traffic and rain—they were arrested for negligence.
They were put in handcuffs, strip searched, fingerprinted, and held overnight in jail.
It would be a month before their sons—the 11-year-old and his 4-year-old brother—were allowed home again. Only after the eldest spoke up and begged a judge to give him back to his parents did the situation improve.
Cindy and Fred cannot be sure who called the cops and turned their lives upside down. (They have their suspicions.) But they do know who told them they needed to take parenting classes, get therapy, and promise never to let their kids play in their own backyard without a watchman again. They know who took their children away. And you know, too.
Yesterday I ran an interview with the Florida mom whose children were removed from their home for a month after a neighbor reported the family to Child Protective Services because their 11-year-old son was left outside by himself for 90 minutes.
This story is so incredible, some people almost can’t believe it—and I can see why. It is as crazy as Maryland’s Child Protective Services accusing Danielle and Alexander Meitiv of negligence for letting their kids walk home from the park in Silver Spring. Unfortunately, sometimes this kind of thing happens. But when it is sufficiently publicized, change can happen—which is why publicizing these cases is important. And in fact, as Donna St. George reported in yesterday’s Washington Post, Maryland’s CPS has just issued new guidelines, saying, “Children playing outside or walking unsupervised does not meet the criteria for a CPS response absent specific information supporting the conclusion that the child has been harmed or is at substantial risk of harm if they continue to be unsupervised.”
I hope this starts a trend.
The parents from yesterday’s story—”Cindy” and “Fred”—want their anonymity preserved. They don’t want to provoke the government officials handling their case, and Cindy has very real concerns that she would lose her job if her identity was revealed. But to quell the idea that this couldn’t have really happened, here is page 1 below of the county court documents ordering the children to be removed from their home. (I blacked out anything I thought might reveal their identities. The full, unredacted document has been viewed by Reason editors.)
After this legal mess is safely behind her, Cindy may talk to the press—or not. Right now, the kids are back with their parents, but the family remains in limbo. At yesterday’s court appearance the judge instructed the family’s lawyer and the prosecutor to try come to a mutual arrangement and return to court at the end of the month.
MP: This story illustrates perfectly why it’s so dangerous to grant too much power to government authorities, and how concentrated government power eventually affects even the most innocent, law-abiding citizens. A government that will lock you up in a cage for smoking weeds grown in your back yard is a government that will take your children away from you for playing basketball unsupervised in your own yard. That same government will also seize your cash and keep it from you even if you broke no law and are not charged with a crime. They’ll anally probe you against your will with a forced colonoscopy if they suspect you are hiding a small amount of drugs. They’ll break into your house with a SWAT team kill your dogs and throw stud grenades that explode in your toddler’s face, scaring him for life, etc. etc. etc. You get the point……
A case like this is almost unbelievable because it goes way beyond nanny statism into the dangerous realm of state totalitarianism. For those of you who put faith in the government and tolerate them regulating your life, allow them to tell you what you can and can’t put in your body – which plants and weeds and what type of milk you’re allowed to ingest, accept government laws that force employers to pay their workers a mandated wage, etc., be careful what your wish for…. and watch out when a neighborhood snitch calls your government and they come and seize your unsupervised children.
Update/Related: An eye-popping op-ed in today’s WSJ by Brian T. Majeski (editor of Music Trades magazine, where you view the entire article) documents how the once-boring music industry has come under attack on various fronts by teams of federal regulators who have tormented the industry with punitive fines, armed raids and even threats of jail. Here’s an excerpt of “The Federal Marching Band of Music Regulators“:
For more than a century, the music industry escaped the gaze of government agencies thanks to its small scale—$6.8 billion now in the U.S.—and its wholesome, noncontroversial products. Few things seem less deserving of federal regulation than a 5th grader with an oboe. On the rare occasions in history when prominent officials took notice, the magazine I edit, Music Trades, ran celebratory headlines: “President Taft At Baldwin Piano Plant Opening,” or “Clinton Says Playing Music Made Me President.”
Over the past seven years, however, the tenor of the government’s interest in the music business has changed. Our magazine now regularly carries accounts of punitive fines, armed raids and threats of jail time.
Here are six examples from the article of the “federal marching band of music regulators” harassing the music industry:
1. In 2007 the Federal Trade Commission launched a broad and far-fetched price-fixing investigation against instrument and equipment manufacturers.
2. In March 2013 the FTC then turned its sights on the Music Teachers National Association, a 139-year old organization comprised primarily of women who give piano lessons in their homes.
3. In 2009 armed FBI agents burst into the Gibson Guitar plant in Nashville, Tenn., seizing pallets of ebony and rosewood. Two years later, agents staged an encore at the Gibson plant in Memphis.
4. Last year Gold Tone Banjo was fined $110,000 by the Fish and Wildlife Service over a few bits of oyster shell. These aren’t endangered species, but farmed oysters like on menus everywhere.
4. Then there’s the Federal Communications Commission, which evaluates electronic devices to ensure that they don’t emit radio waves that interfere with broadcast signals, wireless communication or other electronic devices. Recently, the FCC has used this authority to extract fines for technicalities: $50,000 for displaying a pre-production prototype of an audio effects processor on a website before it was FCC approved; $25,000 for placing the FCC labeling on the wrong side of the package of a digital mixer; and an inexplicable $425,000 fine for a guitar effects pedal that included a chip—the same kind found in virtually every smartphone—that it claimed was not compliant.
5. Proposition 65, a California statute covering potential carcinogens, has forced the industry to defend the legality of guitar strings because a nickel alloy that has been used for decades contains trace elements of lead.
6. Bans on ivory cause hassle for musicians traveling to the U.S. because 50-year-old violins and guitars contain a few grams of the stuff.
And what is the overall effect of these overzealous regulators and its sprawling bureaucracy on the music industry?
The fines and legal fees associated with these investigations have topped $35 million, a pittance in Washington, D.C., but a significant sum for a small, low-margin industry. In addition, they divert time from management and have depressed industry spirits, as many wonder what’s next. It isn’t coincidental that this increased attention from the feds has been accompanied by a period of stagnant industry growth. If the sprawling federal bureaucracy has sapped the vitality of the little music industry, is it having a similar effect on the rest of the economy?
MP: Thanks overzealous federal regulators with your sprawling federal bureaucracy, you’ve made America a much safer and better place. Not.