AEI » Blog http://www.aei.org American Enterprise Institute: Freedom, Opportunity, Enterprise Sun, 25 Jan 2015 20:47:15 +0000 en-US hourly 1 Texas, the ‘great American job machine,’ is solely responsible for the +1.2M net US job increase since 2007http://www.aei.org/publication/texas-great-american-job-machine-solely-responsible-1m-net-us-job-increase-since-2007/ http://www.aei.org/publication/texas-great-american-job-machine-solely-responsible-1m-net-us-job-increase-since-2007/#comments Fri, 23 Jan 2015 23:30:59 +0000 http://www.aei.org/?post_type=publication&p=829007 The Texas Workforce Commission released state employment data today for the month of December, and job growth in the Lone Star State continues to lead, and in fact carry the nation’s improving labor market as the chart above shows. Here are some highlights of the December employment report for Texas: 1. Texas ended the year [...]

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The Texas Workforce Commission released state employment data today for the month of December, and job growth in the Lone Star State continues to lead, and in fact carry the nation’s improving labor market as the chart above shows. Here are some highlights of the December employment report for Texas:

1. Texas ended the year with the state’s largest ever year-over-year payroll gain with the eye-popping addition of 457,900 new jobs between December 2013 and December 2014. That’s more than 1,700 new payroll jobs that were added every business day last year in the Lone Star State, and 220 new jobs every business hour or almost 4 new jobs added every minute!

2. In just the last month of December, which marked the 51st consecutive month of employment growth, Texas added 45,700 new payroll jobs, which was more than 2,000 jobs every business day, almost 260 jobs every hour, and more than 4 new jobs every minute! The strong job growth in December brought the state’s jobless rate down to 4.6%, the lowest Texas unemployment rate since May 2008.

3. Total December employment in the Lone Star State reached a new record high of 12.45 million workers (11.783 million nonfarm payroll jobs and another 667,000 self-employed and farm workers), which was above the December 2007 level by 1,444,290 jobs (and by 13.1%), see chart above. In contrast, total employment at the end of the year in the rest of the country (US minus Texas) still remained 275,290 jobs below the pre-recession, December 2007 level (see chart above).

It’s a pretty impressive story of how job creation in just one state – Texas – is solely responsible for the 1.169 million net increase in total US employment (+1,444,290 Texas jobs minus the 275,290 non-Texas job loss) in the seven year period between the start of the Great Recession in December 2007 and December 2014. The other 49 states and the District of Columbia together employ about 275,000 fewer Americans than at the start of the recession seven years ago, while the Lone Star State has added more than 1.25 million payroll jobs and more than 190,000 non-payroll jobs (primarily self-employed and farm workers).

And while the oil and gas boom has certainly contributed to making Texas the nation’s No. 1 job creating state by far, the job gains in the Lone Star State have been pretty broadly based across many different sectors and industries. In percentage terms, the 11.5% payroll job gain in the “mining and logging” sector led the state’s 11 industries for job growth last year as that sector added 4,900 new jobs in 2014. An even greater absolute number of new jobs – 47,500 – were added in the state’s booming construction industry, which grew by 7.7% last year. As one example that highlights the construction boom in Texas, there were more permits for single-family homes issued last year through November in just one Texas city – Houston (34,566) – than in the entire state of California (34,035) over the same period. Other sectors with job growth last year above the state’s average payroll increase of 4% include financial activities (+5.1% and +34,800 new jobs) and professional and business services (+5.8% and +85,800 new jobs).

Bottom Line: Texas clearly deserves the title of America’s “economic miracle state.” It’s the most important energy-producing state in the US, and now produces so much crude oil that the state’s daily production of more than 3 million barrels represents more than 37% of the nation’s crude oil and would rank the Lone Star State as the world’s sixth largest oil producer as a separate country. Along with the gusher of shale oil and gas in Texas has come a gusher of more than 1.44 million new jobs since the start of the Great Recession, while the rest of the US hasn’t even yet recovered all of the non-Texas jobs lost during the recession, and employs 275,000 fewer people than in December 2007. Without the strong support of the Texas job machine and without the economic stimulus of the perfectly-timed shale revolution, the Great Recession would have been much longer and more severe, and the current US economic recovery and job market would be much weaker than it is today. Simply put, “Saudi Texas” is the shining star of The Great American Shale Boom, and the American state at the forefront of the US economic recovery.

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File this under ‘Economic Studies the Media Will Ignore’http://www.aei.org/publication/file-economic-studies-media-will-ignore/ http://www.aei.org/publication/file-economic-studies-media-will-ignore/#comments Fri, 23 Jan 2015 19:08:51 +0000 http://www.aei.org/?post_type=publication&p=828957 "Government spending multipliers in good times and in bad: Evidence from US historical data" by Valerie Ramey and Sarah Zubairy: [...]

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Government spending multipliers in good times and in bad: Evidence from US historical data” by Valerie Ramey and Sarah Zubairy:

What is the multiplier on government purchases? The policy debates during the Great Recession have led to an outpouring of research on this question and there is still a lack of consensus among economists. Most studies using aggregate post-WWII data have found estimates of modest multipliers, often below unity. If multipliers are indeed this low, they suggest that increases in government purchases are unlikely to stimulate private activity and that fiscal consolidations that involve spending decreases are unlikely to do much harm to the private sector.

Our findings suggest that there is no evidence that fiscal multipliers differ by the amount of slack in the economy or the degree of monetary accommodation. These results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession. Our estimates imply that government spending during WWII lifted the economy out of the Great Depression, not because multipliers were so large, but because the amount of government spending was so great.

Maybe this helps explain why the US recovery was only half as fast as Team Obama predicted. Anyway, I am sure this study will end the debate about fiscal stimulus the way this study ended the debate about the minimum wage. By the way, what Ramey and Zubairy find syncs nicely with new research by Alberto Alesina that suggests austerity measures “based upon cuts in spending are much less costly, in terms of output losses, than those based upon tax increases.” (Note, however, those spending cuts are still negative for growth. No “cut to grow” usually.)

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Two examples of how ‘competition breeds competence’http://www.aei.org/publication/perrys-law-competition-breeds-competence/ http://www.aei.org/publication/perrys-law-competition-breeds-competence/#comments Fri, 23 Jan 2015 16:59:55 +0000 http://www.aei.org/?post_type=publication&p=828821 When government agencies or heavily regulated industries are insulated from market competition, the incentives to offer better service and lower prices, along with the incentives to innovate, upgrade and improve are either significantly weakened or non-existent. But when faced unexpectedly with some market competition, it’s amazing how the normally sclerotic, anti-consumer and unresponsive government agencies [...]

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When government agencies or heavily regulated industries are insulated from market competition, the incentives to offer better service and lower prices, along with the incentives to innovate, upgrade and improve are either significantly weakened or non-existent. But when faced unexpectedly with some market competition, it’s amazing how the normally sclerotic, anti-consumer and unresponsive government agencies or protected industries can suddenly become responsive and consumer-friendly. Here are two examples:

1. The Kelston Toll Road in the UK. I reported last August on CD that an entrepreneurial UK grandfather built a 400-yard private toll in just ten days that allowed drivers to bypass a 14-mile construction detour. A landslide last February closed a road between the towns of Bristol and Bath and construction was originally scheduled to take until last Christmas to complete. The private owner was therefore expecting toll revenue through December to cover his $500,000 in construction and repair costs, along with the cost of staffing a toll both 24 hours each day, and hopefully generate some profit for his entrepreneurial efforts.

But the local government, possibly unhappy with the competition from the private toll road, suddenly made an emergency decision to spend an extra $1 million to speed up the road construction project, which was completed six weeks ahead of schedule in mid-November. Now the toll road entrepreneur and his wife are upset and have accused the local government of trying to bankrupt him with the early opening of the road five weeks ahead of schedule. And perhaps the road construction would have been completed early even without the private toll road, but it seems pretty likely that the presence of competition from the private toll road may have imposed some additional incentives that changed the normal “we don’t care, we don’t have to” attitude of the local civil servants (who often are neither very “civil nor “servile”).

2. Big Taxi vs. Uber. After being protected from competition for generations by government regulations that restrict the number of traditional taxis in most major cities like New York, Chicago and LA, the “taxi cartel” has recently come under competitive pressure from new ride-sharing services like Uber and Lyft that offer consumers a transportation alternative to taxis at lower prices and with better, faster service. Suddenly, the traditional, sleepy taxi industry is being forced to act and think more competitively in response to the upstart ride-sharing services, which is behavior that is completely alien to an industry that never faced the discipline of market competition before. For example, the LA Times is reporting that:

All taxicab drivers in Los Angeles will be required to use mobile apps similar to Uber and Lyft by this summer, according to a measure passed by the Los Angeles Taxicab Commission this week.

The order, passed on a 5-0 vote, requires every driver and cab to sign onto a city-certified “e-hail” app by Aug. 20 or face a $200-a-day fine. The move is seen as a way to make taxicab companies more competitive with rideshare apps such as Uber and Lyft.

Los Angeles cab companies reported a 21% drop in taxi trips in the first half of 2014 compared with the same period the previous year, the steepest drop on record. Cab companies largely attribute the drop to the popularity of app-based ride services.

William Rouse, general manager of Yellow Cab of Los Angeles, says his company has utilized a mobile app for several years. The app, Curb, allows riders to hail and track a cab, provide payment and rate drivers. “If our industry is ever going to get a chance to move passengers from Uber back to taxis, each one of these companies should have an app,” Rouse told The Times. “It’s a shame that the city had to mandate it in order for this to happen.”

Last summer, ABC News reported that:

Meet the new secret weapon to get a leg up in the cutthroat competition among cabbies — charm school. Taxi drivers in Washington state are getting lessons that they hope will give them an edge against startups such as Lyft and Uber. About 170 taxicab operators paid $60 out of their pockets for a four-hour training session to learn about topics including customer satisfaction and developing relationships with institutional clients.

Pretty amazing how the taxi cartel is suddenly starting to change the way it operates now that its drivers are facing intense market competition/discipline from Uber and Lyft.

Bottom Line: Perry’s Law says that “competition breeds competence.” These two cases above help to illustrate that principle, and provide examples of how direct, ruthless, even cutthroat competition is often the most effective form of regulation, and provides the intense discipline that forces firms to maximize their responsiveness to consumers. To maximize the competence of producers and suppliers, we have to maximize competition, and to maximize competition we usually need to reduce the government barriers to market competition like occupational licensing and artificially restricting the number of taxis that are allowed to operate in a city. In other words, we need to move away from the ubiquitous crony capitalism that protects well-organized, well-funded, concentrated groups of producers like the taxi cartel, barbers, funeral home operators, and sugar farmers from market competition. Government regulation typically reduces competition, which then reduces the competence of producers, and reduces their willingness to serve consumers and the public interest, which make us worse off. I say the more market competition the better, for consumers and for the human race. As Bastiat pointed out in 1850:

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

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A clear and concise — but brief — explanation of why Obama’s new tax hikes are a bad ideahttp://www.aei.org/publication/clear-concise-brief-explanation-obamas-new-tax-hikes-bad-idea/ http://www.aei.org/publication/clear-concise-brief-explanation-obamas-new-tax-hikes-bad-idea/#comments Fri, 23 Jan 2015 15:52:41 +0000 http://www.aei.org/?post_type=publication&p=828910 AEI's Alan Viard:

However, even as the President's plan eases tax barriers to work, it introduces major obstacles to saving. The plan starts on the right track, with measures to make it easier for people to save at their workplaces. But it turns around and strikes a heavy blow against saving by taxing some capital gains at death and raising the top tax rate on capital gains and dividends. [...]

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AEI’s Alan Viard:

However, even as the President’s plan eases tax barriers to work, it introduces major obstacles to saving. The plan starts on the right track, with measures to make it easier for people to save at their workplaces. But it turns around and strikes a heavy blow against saving by taxing some capital gains at death and raising the top tax rate on capital gains and dividends.

Those proposals would amplify the income tax’s central flaw, its penalty on saving. People who earn wages and spend them immediately pay tax only on their wages. But those who earn wages, save and consume the proceeds in the future pay tax on both their wages and the returns on their saving. It doesn’t make sense to put heavier tax burdens on people who choose to save for the future rather than spend today, particularly when their savings finance the investments that drive the economy’s long-run growth.

Taxing capital gains at death could be a step forward if tax rates on capital gains and dividends were cut by enough to prevent an increase in the overall burden on saving. For that matter, the combination of taxing gains at death and raising the rates could be a step forward if it was offset by scaling back the corporate income tax, a particularly complicated and destructive levy on saving and investment.

But that’s a far cry from what the President is proposing. His plan would leave the corporate income tax in place while taxing capital gains at death and increasing the top tax rate on gains and dividends by more than 4 percentage points (on top of an increase of almost 9 percentage points in 2013). Taxing the savings of “the 1%” to finance tax cuts for the middle class may be good politics, but it’s a shortsighted approach that could undermine long-run economic growth. A better approach would have been to curtail the growth of entitlement benefits for those well above poverty and to limit tax breaks for expensive owner-occupied homes.

By the way, Viard also has coauthored a sweepingreform plan, which would “eliminate the corporate income tax and would instead tax American shareholders of publicly traded companies at ordinary income rates on their capital gains and dividends, with capital gains taxed, and capital losses deducted, as they accrue.” And I offer my two cents on the Obama plan over at The Week.

 

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Some thoughts on quantitative easing, Eurozone-stylehttp://www.aei.org/publication/thoughts-quantitative-easing-eurozone-style/ http://www.aei.org/publication/thoughts-quantitative-easing-eurozone-style/#comments Fri, 23 Jan 2015 15:12:44 +0000 http://www.aei.org/?post_type=publication&p=828843 Let the experiment begin. The Bank of Draghi is finally embarking upon a big bond-buying program to resuscitate the moribund eurozone economies. (Boilerplate: Yes, the region also needs pro-growth structural reform.) Wished it would have happened awhile ago -- and of course wish it were accompanied by a crystal clear nominal GDP target -- but hopefully better terribly late than never. MKM economist Mike Darda is modestly enthusiastic: [...]

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Let the experiment begin. The Bank of Draghi is finally embarking upon a big bond-buying program to resuscitate the moribund eurozone economies. (Boilerplate: Yes, the region also needs pro-growth structural reform.) Wish it would have happened awhile ago — and of course wish it were accompanied by a crystal clear nominal GDP target — but hopefully better terribly late than never. MKM economist Mike Darda is modestly enthusiastic:

The ECB surprised markets to the upside with a 50 billion euro per month asset purchase plan that will be open-ended, i.e., continued until inflationary dynamics are more consistent with the ECB hitting its just-under-2% inflation target. We believe this is a very positive step that will 1) reinforce the turn in both liquidity and money growth already under way; 2) support inflation expectations and 3) boost NGDP growth above its woefully inadequate 1.7% per annum trend over the last five years. Inflation breakeven spreads and equity markets have responded positively to the news and we expect more gains in the months and quarters to come. The trajectory of economic data may not start to improve until 2H15 given the standard lags, but markets discount so the rally in EZ equities and breakevens makes sense to us.

Lars Christensen also sees the ECB’s move as a “step in the right direction.” Among the positive aspects of the program is that the central bank is (a) more clear about what its nominal target (a 2% inflation level),  (b) stressing market expectations or, “targeting the forecast,”  and (c) “quasi-open-ended” in that the the ECB said “that the programme will run until ‘at least’ September 2016. Hence, this is likely a signal that the programme could and will be extended if needed to meet the ECB’s 2% inflation target.”

Meanwhile, Scott Sumner predicts the program “will still be somewhat effective, but not a game changer. Think ‘less bad times’ in the eurozone, not good times. Greece might still blow up.” Simon Wren- Lewis offers this summation: “Monetary policy is either perverse (2011), or 6 years too late (!) and continues to openly encourage fiscal austerity. That most policy makers in the Eurozone have still not understood past errors remains scandalous.”

And a cautionary note from Christensen: “There are lots of things that can go wrong – there is for example a clear risk that massive German resistance against the programme will undermine the credibility of the programme or that the ECB now thinks everything is fine and that no more work on the programme is needed.” Right, it’s always better a matter of policymaker will rather than not having the correct toolbox. Same in the United States.

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Saudi Arabia and the irony of Obama’s counter-terrorism policyhttp://www.aei.org/publication/saudi-arabia-irony-of-obamas-counter-terrorism-policy/ http://www.aei.org/publication/saudi-arabia-irony-of-obamas-counter-terrorism-policy/#comments Fri, 23 Jan 2015 15:09:02 +0000 http://www.aei.org/?post_type=publication&p=828856 It’s a bit ironic that President Obama couldn’t be bothered to send anyone to stand with world leaders in the march of solidarity against terrorism in Paris—Attorney General Eric Holder was in Paris but declined to attend—and yet bends over backwards to pay respect instead to the country more responsible than any other for financing the spread of the type of Islamist terror that led to both 9/11 and the Charlie Hebdo massacre.

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So it seems that Vice President Joseph Biden will lead a US delegation to Saudi Arabia to pay respects to the late King Abdullah’s family. That’s standard diplomacy, and soaking up Biden’s time with funerals and memorials is also a wise political move, unless Biden decides to use the venue to try out his latest jokes about religion or Saudi kings.

Still, it’s a bit ironic that President Obama couldn’t be bothered to send anyone to stand with world leaders in the march of solidarity against terrorism in Paris—Attorney General Eric Holder was in Paris but declined to attend—and yet bends over backwards to pay respect instead to the country more responsible than any other for financing the spread of the type of Islamist terror workplace violence that led to both 9/11 and the Charlie Hebdo massacre.

Now, that’s not meant to be a slight against King Abdullah. He was a reformer. (David Burge from the Iowahawk blog put it best when he tweeted, “Let’s salute King Abdullah for dragging Saudi Arabia kicking and screaming forward into the 8th Century.”) But juxtaposing the level of participation at the two memorials does give unfortunate insight into Obama’s values and his casual disdain for those who suffer under terror as opposed to those whose ideologies promote it.

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King Abdullah has passed. The US must send more than just condolenceshttp://www.aei.org/publication/king-abdullah-death-us-must-send-more-than-condolences/ http://www.aei.org/publication/king-abdullah-death-us-must-send-more-than-condolences/#comments Fri, 23 Jan 2015 14:35:00 +0000 http://www.aei.org/?post_type=publication&p=828823 A Saudi Arabia facing the turmoil in the region with waning American support will not mean good things for the United States. Increased sponsorship of regional Sunni proxy groups, deeper military ties with China, and--of course--acquiring nuclear weapons will all be on the table.

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Saudi King Abdullah bin Abdulaziz’s death yesterday places a huge spotlight on the tenuous US-Saudi relationship. New King Salman and Crown Prince Muqrin should keep Riyadh on a stable path for now, but long-term succession issues and erratic US policies in the Middle East are making the royal family rightfully nervous.

American policy shifts in the past few years have strained Riyadh’s ties with Washington. The Saudis were stunned when the United States dropped support for Egyptian President Hosni Mubarak during the 2011 Tahrir Square protests. Following Mubarak’s ouster, the Saudi monarchy—and our other Middle East partners—wondered: Is this how Washington will treat us one day?

Saudi Arabia’s strategy in Syria since the uprising against President Bashar al Assad has largely been a failure, but ambiguous US policies only made things worse for King Abdullah. President Obama’s mercurial stance toward the moderate Syrian opposition is vexing. But after Assad was caught using chemical weapons against Syrian civilians, Obama’s last-minute decision to not follow through on a military strike enraged King Abdullah.

Then there is Iran. The Saudi Kingdom has been locked in a cold war with the Islamic Republic over leadership of the Muslim world and dominance in the Persian Gulf since Iran’s 1979 Revolution. Riyadh fears the growing Shia and Iranian strength around its borders will pose an existential threat to the monarchy.

The Obama administration left King Abdullah out of the loop about the administration’s secret talks with Iran in 2013 that presaged the current nuclear negotiations. The subsequent push to compromise with Tehran has fueled Saudi suspicion that Washington may sacrifice its traditional ally’s security for the chance at a new strategic relationship with Iran.

A Saudi Arabia facing the turmoil in the region with waning American support will not mean good things for the United States. Increased sponsorship of regional Sunni proxy groups, deeper military ties with China, and—of course—acquiring nuclear weapons will all be on the table. Tamir Pardo, head of Israel’s Mossad, hinted at this grim scenario yesterday noting that the “the bad agreement taking shape with Iran is likely to lead to a regional arms race.”

It is not all doom and gloom. The basic infrastructure of US diplomatic, military, and intelligence cooperation with Riyadh remains strong. The Saudi-led policies that have driven the price of oil below $50 a barrel have given the West critical new leverage against Iran and Russia. We are partners in the fight against ISIS even if we don’t always see eye to eye about the rest of Syria and Iraq. Our security interests are still aligned in Yemen, especially as the Iranian-backed al Houthi rebels push the country into yet another potentially crippling crisis.

The US-Saudi relationship is far from perfect even on its best days. Their human rights record and encouragement of Salafist and other extremist religious movements remain serious concerns. But an increasingly insecure Riyadh does no one any good. Whoever the US sends to Abdullah’s funeral needs to bring more reassurance than merely our sympathies and a card.

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King Abdullah is deadhttp://www.aei.org/publication/king-abdullah-dead/ http://www.aei.org/publication/king-abdullah-dead/#comments Fri, 23 Jan 2015 14:14:11 +0000 http://www.aei.org/?post_type=publication&p=828827 Despite the appearance of a smooth transition in Riyadh, there are choppy seas ahead for Saudi Arabia. Abdullah had effectively governed his country for almost two decades (one as crown prince when his brother was out of commission after a stroke), and was — in the limited context of the Gulf — something of a reformer.

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Saudi King Abdullah is dead. No surprise – he was old, and ailing. The kingdom moved swiftly to anoint Salman, the crown prince, as king; but Abdullah had, unusually, also provided for his successor’s crown prince — half brother Muqrin bin Abdulaziz. Muqrin will be the last of the sons of Saudi Arabia’s founder, Abdulaziz ibn Saud, to govern the Kingdom. The new deputy crown prince is Mohammad bin Nayef, a grandson of Abdulaziz.

But despite the appearance of a smooth transition in Riyadh, there are choppy seas ahead for Saudi Arabia. Abdullah had effectively governed his country for almost two decades (one as crown prince when his brother was out of commission after a stroke), and was — in the limited context of the Gulf — something of a reformer. His 79 year old successor won’t be. But much of the Middle East has given up waiting for reform from the top, and there’s no reason to believe Saudi Arabia will be immune to the ructions that have spread across the region since 2011. Some half of the country is under 25, and while there’s still enough money sloshing about to buy quiescence, the lack of jobs, prospects, or outlets for expression of any kind make for a pressure cooker of the type we’ve seen in Libya, Iran, Syria, Egypt and elsewhere. And then there are the neighbors: Yemen, home to al Qaeda in the Arabian Peninsula, scene of Sunni-Shi’i battles for power and failed state; Iraq and the Islamic State; Iran and its ambitions for regional domination; Bahrain and its own sectarian unrest; Qatar, and its affection for Islamic games of thrones; and on and on.

It’s nigh on impossible to like the Saudis (though John Kerry certainly appears to have taken Abdullah’s death hard), what with the beheadings, floggings, oppression of Shi’ites (at home and abroad) and women etc, but the reality is that Abdullah’s reasonably steady hand gave cover to many in the region to stand against ISIS, turn on the Muslim Brotherhood, and otherwise display more courage against terrorism than we’ve seen in many a year. And like him or not, Abdullah’s death will leave a vacuum in the Sunni world at a time when there are plenty worse angling to fill it. The Turks appear to have their fingers in every pie, and would-be Ottoman Emperor Recep Tayyip Erdogan will be happy to don the mantle of Sunni leadership. Then there’s Egypt’s neo-Nasser, Abdel Fatah el Sisi, beloved by all the anti-Islamists (including, so weirdly, the Wahhabi Saudis), who is dividing his country into an armed camp of military vs radicalized Brotherhood agitators and terrorists. And though there are plenty who would have the Emirati leadership carry the flag for the Sunnis, there’s some question about whether the small country has the necessary clout or reach.

Finally on the other side, there are the nuclear-weapons-building, Hezbollah-wielding, Iraq-interfering, Yemen-destabilizing, Lebanon-destroying, Assad-loving, Hamas-arming Iranians. In short, without a determined leader at the Saudi helm, there aren’t many to hide behind in the Arab world. Which is why, though he was an old man at the stern of an anti-democratic government, Abdullah will be missed.

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As a separate country, the top 500 US manufacturing firms would have been the world’s third largest economy last yearhttp://www.aei.org/publication/separate-country-top-500-us-manufacturing-firms-worlds-third-largest-economy-last-year/ http://www.aei.org/publication/separate-country-top-500-us-manufacturing-firms-worlds-third-largest-economy-last-year/#comments Fri, 23 Jan 2015 00:52:25 +0000 http://www.aei.org/?post_type=publication&p=828747    10 Largest US Manufacturing Companies, 2014 Revenue (Millions) Industry 1 Exxon Mobil Corp. $424,328 Petroleum, Coal Products 2 Chevron Corp. $221,321 Petroleum, Coal Products 3 Phillips 66 $171,736 Petroleum, Coal Products 4 Apple Inc. $170,910 Computers, Electronic Products 5 General Motors Co. $155,427 Motor Vehicles 6 Ford Motor Co. $146,917 Motor Vehicles 7 General [...]

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   10 Largest US Manufacturing Companies, 2014Revenue (Millions)Industry1Exxon Mobil Corp.$424,328Petroleum, Coal Products2Chevron Corp.$221,321Petroleum, Coal Products3Phillips 66$171,736Petroleum, Coal Products4Apple Inc.$170,910Computers, Electronic Products5General Motors Co.$155,427Motor Vehicles6Ford Motor Co.$146,917Motor Vehicles7General Electric Co.$146,045Electrical Equipment, Appliances8Valero Energy Corp.$138,074Petroleum, Coal Products9Hewlett-Packard Co.$112,298Computers, Electronic Products10Marathon Petroleum Corp.$100,218Petroleum, Coal ProductsTotal$1,787,274

 

10 Largest US Manufacturing Industries, 2014Revenue (Millions)Examples
1Petroleum & Coal Products$1,617,688Exxon, Chevron, Conoco
2Computers & Other Electronic Products$788,267HP, IBM, Apple
3Chemicals$455,087P&G, Dow, DuPont
4Food$377,850General Mills, Kellogg, Hershey
5Motor Vehicles$350,695Ford, GM, Harley
6Pharmaceuticals$311,292J&J, Pfizer, Merck
7Machinery$284,866Caterpillar, Deere, Xerox
8Aerospace & Defense$275,893Boeing, Lockheed Martin
9Electrical Equipment & Appliances$239,477GE, Emerson, Whirlpool
10Motor Vehicle Parts$141,430Johnson Controls, Cummins, Lear
Total$4,842,545

IndustryWeek recently released its annual ranking of the 500 largest publicly held US manufacturing companies in 2014 based on sales revenue, and displayed above are: a) the top ten US manufacturing companies (top table) and b) the top ten US manufacturing industries (out of 28 total industries reported by IndustryWeek based on NAICS manufacturing classification categories here), with both groups ranked by 2014 sales. To put the size of US manufacturers’ sales revenue into perspective, here are some comparisons below to international GDP values in 2014 that help give context to the enormity of the US manufacturing sector.

(Note: Even though dollars of corporate sales revenues are not directly comparable to dollars of economic output as calculated to compute a country’s GDP, these comparisons are being used illustratively to put the trillions of dollars of US manufacturing sales into some perspective.)

  1. The combined sales revenue (including global sales) of the top 500 US-based manufacturing firms in 2014 was $6.07 trillion, almost identical to manufacturing sales revenue in the previous two years ($6.01 trillion in 2012 and $6.07 trillion in 2013). To put those sales amounts in perspective, if the 500 largest US manufacturers were considered as a separate country, their revenue last year of $6.07 trillion would have ranked as the world’s third’s largest economy behind No. 1 US ($17.5 trillion) and No. 2 China ($10 trillion), and even more than $1 trillion ahead of No. 4 Japan’s entire GDP of $4.8 trillion in 2014 (GDP figures are based on International Monetary Fund estimates).
  2. The top ten largest US manufacturing companies (Exxon, Chevron, Phillips 66, Apple, GM, Ford, GE, Valero Energy, Hewlett-Packard and Marathon Petroleum) had combined revenues of $1.78 trillion last year (see top table above),  slightly more than Canada’s GDP in 2014 of $1.76 trillion and not too far below India’s entire GDP last year ($1.99 trillion).
  3. The sales revenue from the top ten US manufacturing industries totaled $4.84 trillion in 2014 (see bottom chart above), which was equivalent to Japan’s entire GDP of $4.8 trillion last year, and about $1 trillion more than Germany’s entire estimated GDP of $3.875 trillion in 2014.
  4. Annual sales of $1.62 billion in 2014 for America’s single largest manufacturing industry – petroleum and coal products – was almost as much as Canada’s entire GDP of $1.76 trillion in 2014.
  5. Annual sales of $788 billion for America’s second largest manufacturing industry – computers and other electronic products was more than the entire GDP last year of Saudi Arabia ($772 billion) and Turkey ($767 billion). Just one of those American computer manufacturers – Apple – has a current market value of $642 billion, placing it between the value of the entire Saudi stock exchange ($483 billion) and all stocks on the Singapore stock exchange ($759 billion).

Bottom Line: The comparisons above helps bring some perspective to the enormous size of the US manufacturing sector and helps to demonstrate that American manufacturers are not withering and disappearing, but thriving and prospering. In 2013, US manufacturing companies as a group had their best year ever in terms of after-tax profits, with more than $600 billion in earnings according to the Department of Commerce. Based on data through the third quarter of 2014, manufacturing profits will likely increase slightly to a new record high of about $610 billion for the entire year when data for the fourth quarter 2014 are released in March. Despite the frequent rumors of its demise and decline, the American manufacturing sector is alive and well, as the $6 trillion in sales last year for the top 500 firms and the estimated $600 billion in total profits for the entire industry in 2014 clearly demonstrate.

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The ‘Doomsday Clock’ is, of course, ridiculoushttp://www.aei.org/publication/doomsday-clock-course-ridiculous/ http://www.aei.org/publication/doomsday-clock-course-ridiculous/#comments Thu, 22 Jan 2015 20:41:50 +0000 http://www.aei.org/?post_type=publication&p=828701 The Bulletin of Atomic Scientists informs that it has nudged the hands on its "Doomsday Clock" two minutes closer to midnight: "It is now 3 minutes to midnight.” What's the big worry? Nuclear weapons -- nukes are being modernized rather than dismantled -- and "unchecked" climate change are the baddies here. It must be a disappointing moment for the group. Back in 2010, the Bulletin moved the Clock's hands back a minute, likely placing a bet on the new American president who just promised to "work tirelessly to lessen the nuclear threat and roll back the specter of a warming planet." [...]

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The Bulletin of Atomic Scientists informs that it has nudged the hands on its “Doomsday Clock” two minutes closer to midnight: “It is now 3 minutes to midnight.” What’s the big worry? Nuclear weapons — nukes are being modernized rather than dismantled — and “unchecked” climate change are the baddies here. It must be a disappointing moment for the group. Back in 2010, the Bulletin moved the Clock’s hands back a minute, likely placing a bet on the new American president who just promised to “work tirelessly to lessen the nuclear threat and roll back the specter of a warming planet.”

Indeed, the language in the announcement back then —  ”We are poised to bend the arc of history toward a world free of nuclear weapons” — echoed some of Obama’s favorite phraseology. But it was not to be, thanks to “failed leadership” from unnamed politicians. From the Bulletin’s statement:

In 2015, unchecked climate change, global nuclear weapons modernizations, and outsized nuclear weapons arsenals pose extraordinary and undeniable threats to the continued existence of humanity, and world leaders have failed to act with the speed or on the scale required to protect citizens from potential catastrophe. These failures of political leadership endanger every person on Earth. … In 2015, with the Clock hand moved forward to three minutes to midnight, the board feels compelled to add, with a sense of great urgency: ‘The probability of global catastrophe is very high, and the actions needed to reduce the risks of disaster must be taken very soon.

Hey, when you lose the Bulletin of Atomic Scientists … . Anyway, given the Doomsday Clock’s track record, maybe we should all feel pretty good about the state of the world. The Clock is hardly a precision timepiece. It was created to highlight the dangers — either growing or ebbing — of the Cold War between United States and Soviet Russia. But the clockmakers, blinded by ideology, got it badly wrong. In 1981, the Clock moved to four minutes from seven, and then to three in 1984 with blame placed on Ronald Reagan’s Evil Empire rhetoric and military buildup — especially the Strategic Defense Initiative. (It was a worry shared by Watchmen writer Alan Moore, who riffed on the Doomsday Clock in that classic 1980s graphic novel. The above cover image is by artist Dave Gibbons.)

Actually Reagan was conducting a masterful endgame that helped lead to the Soviet Union’s disintegration just five years later. Stuff the Bulletin hated, like Reagan’s “Evil Empire” speech, was actually pushing the USSR closer to the dustbin of history. The supposed warmonger and his bellicose rhetoric was actually a great peacemaker. Peace through strength and truth and clarity, that is. By 1990, the Clock was pushed way back to 10 minutes from midnight. Will this move to three minutes be as spectacular a contrarian indicator as the alarmist 1980s changes were? Nukes are a worry, but the Bulletin seems more concerned about the US having them than, say, Iran. And it’s not US modernization that’s the problem, it’s degradation. As AEI’s Michael Auslin argues:

Yet while the world has been embracing the atomic bomb, the U.S. nuclear mission degraded. Only the U.S. and UK, among all declared nuclear powers, are not currently modernizing either their weapons inventory or delivery systems. … Contrary to President Obama’s dream of a “global zero” future without nuclear weapons, proliferation of the world’s most dangerous weapons is increasing. The Pentagon must revitalize its strategic forces or face the dangers becoming increasingly unable to respond to a more unstable world of nuclear powers.

Climate change? Not only is global warming in some sort of pause ( though hardly an excuse for inaction), there are some exciting advances being made in zero carbon energy sources such as solar and nuclear. (Also would have like to have a heard a calm analysis of the threats from emerging technologies. And not a single word about zombies, c’mon!) Then again, maybe the doom-and-gloomers will be proven correct. Even a stopped clock is right twice a day.

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