What Makes Newspapers Conservative or Liberal?

Here's an interesting graph. The graph measures how conservative or liberal American newspapers are. The vertical (y) axis is an objective measure, in which...

Gentzkow and Shapiro propose to measure the slant of a particular newspaper by searching speeches entered into the Congressional Record and counting the number of times particular phrases were used by representatives of each party, mechanically identifying phrases favored by one party over the other. For example, a Democrat is more likely to use the phrase "workers rights" whereas a Republican is more likely to use the phrase "human embryos". They then counted the number of times phrases of each type appeared in a particular newspaper to construct an index of the political slant of that newspaper.

The horizontal (x) axis is a subjective measure, where readers of the Mondo Times ranked newspapers according to their own beliefs about how liberal or conservative various newspapers are. Thus, newspapers are more conservative the further to the right and the higher they are on the graph. For the most part, the two measures largely agree with each other (for example, the Washington Times is both furthest to the right and third-highest from the top).

As for why newspapers take a particular slant one way or another, this study found that the most important variable is the political orientation of the people living within the paper's market. In other words, "papers to some degree are just giving their readers what the readers want so as to maximize the newspapers' profits."

For more on this study, see Econbrowser: What Drives Media Slant?.

Business/Economics Links (16 June 2009)

Advertising is Good for You:
How restaurants get you to spend more


Angry Bear:
Context for Trade Deficit

Trade Deficits Resume Upward Climb


Crooks & Liars:
President Promises 600K New Jobs This Summer

Report: The Employed Are Hurting, Too. Meanwhile, Heritage Foundation Blames Unemployment Checks for Unemployment.


Dilbert:
"Dogbert the Pirate." ("That's a different business model." Hah!)

"Job Interview"

"Pretend you don't know that."

"Dogbert the CEO"


Econbrowser:
The Dollar as a Reserve Currency: Apres le Deluge

Do you see what I see? ("I'm still looking for, and still not seeing, the economic recovery that everybody is talking about.")

How Important Is China to World Growth?


Economist's View:
Chinese Manufacturers Accused of Predatory Pricing in India

"Cultural Authenticity and the Market" (This was slightly off the beaten track for Thoma, but if you have any interest in archeology, you might find this post of interest.)

Rogoff: Rebalancing the US-China Economic Relationship

Fed Watch: Rate Hike? ("Seriously, a rate hike in this environment? Or anytime before the end of 2009? At the moment, I just can't see it happening. That said, long rate are higher, and inflation expectations in some corners of the market are rising. What is going on?")

2009 Reith Lectures: Markets and Morals ("After my piece ran, The Times was flooded with scathing letters - mostly from economists (LAUGHTER), some from my own university. I utterly failed to understand the virtue of markets, they said, or the efficiencies of trade, or even the most elementary principles of economic rationality. Amidst the torrent of criticism, I did receive a sympathetic email from my old college Economics Professor. He understood the point I was trying to make, he wrote, but could he ask a small favor: would I mind not publicly revealing the identity of the person who had taught me Economics? (LAUGHTER)")


Robert Reich:
The Great Debt Scare: Why Has It Returned?


The Bonddad Blog:
Volcker on Recovery

Flow Of Funds Charts, Part I ("Consider the following charts from the Flow of Funds. Then ask yourself, will the consumer be able to lead us out of recession?")

Consumer Confidence Up

Is the Debt Binge Over?

More Signs of Bottoming

It's Looking Like a Jobless Recovery ("Right now there is no reason to hire -- and there won't be for awhile." This is not a surprise.)

Economics Links (9 June 2009)

Angry Bear:
Untitled post on the Unemployment Report

Current Recession vs the 1980-82 Recession


Econbrowser:
DeGlobalization: Transitory or Persistent?

Not a Robust Recovery

James Pethokoukis: "An Improving Job Market"

Output, Employment and Industrial Production in the "1980-82 Recession"

More on Bank Lending Data

High Anxiety (about Interest and Inflation Rates)


Economist's View:
Too Big to be Restructured (The theme of this essay ties in very well with my post on Mikhail Gorbachev's essay from the other day, "We Had Our Perestroika. It's High Time for Yours.".)

Contributions to the Change in Nonfarm Payroll Employment

Shiller: Home Prices May Keep Falling

Uneven Unemployment Rates

"VAT Time?"

Bank Mergers

"Reducing Inequality: Put the Brakes on Globalization?"


Financial Times:
The ‘part-timezation’ of America


Reuters:
China influence to grow faster than most expect: Soros


Real Property Alpha:
California Home Prices in Ounces of Gold


True/Slant:
NASCAR helped GM down its path of self-destruction ("Better equipped to compete? How ironic, given NASCAR’s role in helping the auto industry race down its path of self-destruction. Major auto companies used NASCAR for years to push cars and trucks with poor fuel economy numbers. The sport, in some ways, came to symbolize America’s embrace of consumption.")


VoxEU:
Why is Japan so heavily affected by the global economic crisis? An analysis based on the Asian international input-output tables

Does climate change affect economic growth?


Washington Post:
Book Review: The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street

Is the Recession Over? Flip a Coin.

James Hamilton at Econbrowser has been looking over initial claims for unemployment insurance the past few weeks. His most recent post suggests a 50% chance that the recession may end by June. Remember that unemployment is a lagging economic indicator so that, if we really are nearing the end of the recession, then this decrease in initial unemployment insurance claims is a very good sign. On the other hand, as Dr. Hamilton points out, there's still a very good chance (50% historically) that unemployment claims could go back up again, something that's readily apparent in the first graph in my post back in February on US unemployment levels.

The Labor Department reported today that initial claims for unemployment insurance fell by 14,000 during the most recent available week. That brings the 4-week average down for the third consecutive week and puts it 3.3% below the peak reached April 9.

Black line: seasonally adjusted new claims for unemployment insurance, weekly since January. Blue line: average of 4 most recent weeks as of each date.


That ongoing drop in the 4-week average is noteworthy because in each of the last 5 recessions, once the new claims number began declining from its peak value reached during the recession, the NBER subsequently dated the recovery from that recession as beginning within 8 weeks.

...

If we leave out the 1970 recession, there are 230 weeks in which the NBER declared the economy to have been in recession during the 5 recessions of 1974, 1980, 1982, 1990, and 2001. In 22 of these weeks, we saw as big a drop as we've seen this month, namely, the 4-week average dropped by more than 3.3% over a 3-week period. Of these 22 favorable readings, 11 turned out to be part of the final move out of recession, while in the other 11, new claims turned back up to reach a subsequent higher peak. Thus, if all you had to go on was the data on new unemployment claims and its behavior in previous recessions, you might conclude that there's a 50% chance that an economic recovery will have started by the beginning of June.

For some other possible signs of "green shoots," check out Bonddad's post on inventory levels in the 1Q09 GDP report.

Update: Economist's View reposted an article by Robert Gordon that was originally published on VoxEU. Gordon has been a member of the NBER Business Cycle Dating Committee since 1978, although this article is his own work and was not written in collaboration with any other member of the committee. The article is a little long and technical, but the quotation below comes from the conclusion:

It is always too early to make definitive conclusions, but the recent 2009 peak in new claims looks sufficiently similar to previous recession peaks to allow a conclusion that it is highly probable that the new claims peak has now occurred. The evidence provided here suggests several differences between the recent peak and previous false peaks in earlier recessions. The recent peak occurred much later in the recession than previous false peaks, and the run-up of new claims in the two months prior to the recent peak was substantially faster than in previous false peaks.

To this point I have examined a single indicator to see if it is useful in predicting the end of recessions without any consideration of what is going on in the rest of the economy. Our conclusion is supported by the fact that previous false peaks occurred when new claims were at 80 to 90% of the level at the ultimate true peak. For the peak of 4 April 2009 to be false by this historical precedent, the ultimate future peak would have to be in the range of 730,000 to 800,000. As the weeks go by, such a sharp future increase in new claims looks increasingly implausible.

Bottomline – The US turn-around will come in May or June 2009

My reasoning leads me to conclude that the ultimate NBER trough of the current business cycle is likely to occur in May or June 2009, substantially earlier than is currently predicted by many professional forecasters.

(Emphasis author's.)

Why Oil Prices Dropped Recently

Rasheed Moore asked over at Tariq Nelson's blog, "How do oil prices just suddenly drop a dollar a gallon when our economic crisis hits?"

Because everyone stopped driving.

Not really, of course, but the trends against driving have gained the upper hand in recent months, which has caused the demand for oil (and gasoline) to drop. Several suggested readings:

James Hamilton at Econbrowser does a monthly post showing US auto sales. The most recent post (for October sales) shows that US-manufactured car sales are down 27% from a year ago, US-manufactured light truck sales (including SUVs) are down 40%. GM's chief sales analyst: "Clearly we're in a dire situation."

The Federal Highway Administration's (FHA) Travel Trends (August 2008 - most recent month available) - In the 12-month moving average, 2008 has the fewest amount of vehicle miles driven since 2003. The peak year was 2007. Most people aren't driving as much as they used to.

In my original response, I linked to an FHA graph showing the 12-month moving average since 1983 to make clear the drop in the number of vehicle miles traveled within the US. The original FHA graph is rather difficult to read, so I've made a new graph, below, showing the same data:


If it makes you feel any better, The Economist is reporting that oil prices may be going back up to around $150 or so by 2010.

Update: How Much Oil Does America Import?

Currently, my most popular blog post by far is How Much Oil Does America Import?, written back in May 2006, two years ago. I thought it was time to update the figures and see how the U.S. is doing since I first wrote that post.

The U.S. gets its oil from two sources: either it pumps its own oil, called "Field Production" by the Department of Energy, or it imports oil from other countries around the world. In 2000, American commercial field production made up 38.69% of the total supply of crude oil, while imports made up 60.28%. In 2005, when I wrote the last post, those same percentages were 33.67% and 65.84%, respectively. (These numbers are different from what I wrote back in 2006 as adjustments have been made to the official statistics; these types of revisions are normal for economic statistics.) In 2007 (the most recent year), the percentages were 33.72% and 66.19%, respectively. While there has been an extremely slight increase in the amount of oil pumped domestically (0.05%), imports have also increased as well. (The reason why both numbers can increase is because a third number, "supply adjustments," fell.)

In 2007, the U.S. imported a total of 3,656,170 thousand barrels. Of those 3.66 billion barrles, the U.S. imported from a total of 46 different countries. The top 5 importing countries were: Canada (18.61%), Saudi Arabia (14.50%), Mexico (14.07%), Venezuela (11.48%), and Nigeria (10.80%), for a total of 69.47% of all American imports. In contrast, imports from countries six through ten (Angola, Iraq, Algeria, Ecuador, and Kuwait) made up only 17.95% of the total; countries 11 through 46 made up the remaining 12.58%.

Looking at petroleum imports in two other ways...

In 2007, imports from OPEC countries* made up 53.85% of all U.S. imports, compared to the 46.15% from non-OPEC countries. However, this is the exception rather than the rule. Since 1993, when the Energy Information Agency (EIA) started breaking out the statistics, non-OPEC countries have been the dominant exporters ten years out of the past fifteen. The year 2007 was the first time since 2001 that OPEC countries had sold more petroleum to the U.S. than non-OPEC countries.

With respect to the Persian Gulf, those countries** only made up 21.19% of the total imports. This is down slightly, one-half percent, from my 2006 analysis. Note that the U.S. imports no oil from Iran.

Conclusions/Predictions:
Two years ago, I made four points as to how I thought things would go with respect to American oil imports and consumption. We'll look at how good or bad those predictions were:

1. American field production will probably go below 25% of its total annual supply within the next five years.

I think we can write this prediction off; I don't foresee this happening within the next three years (or perhaps even the next ten).

2. In that same time frame, imports will probably be in the high 50s percentage (perhaps 58-59%).

On the other hand, I think this prediction is very much a lock at this time. In fact, I wouldn't be surprised if this number goes back up again, remaining in the 60-65% range.

3. America will continue to seek the majority of its oil from non-OPEC countries, such as Canada and Mexico, if only to avoid being as dependent on OPEC countries as they have been in the past. However, this will probably turn out to be a pipe dream in the long run unless Canadian oil reserve estimates turn out to be near the high end. (Estimates for Canada's proven oil reserves ranges from 4.7 billion barrels (World Oil) to 14.803 billion barrels (BP Statistical Review) to 178.792 billion barrels (Oil & Gas Journal). Obviously, this extremely wide range of guesses shows that no one truly knows how much oil Canada has.)

Since I wrote this, I've gotten a better understanding with respect to Canada's oil reserves. The problem with the Canadian oil sands is that it is made up of a very dense and viscous type of petroleum called bitumen. Bitumen is like molasses at room temperature, and needs heating just to flow. (The tar that we pave roads with is bitumen.) Oil refineries are set up to process certain types of crude oils, and bitumen is normally not one of them. So, while Canada has a lot of proved oil reserves, most of it is not in the form the refineries need to produce products like gasoline. In this respect, the lower reserve amount mentioned above is probably closer to the amount of crude oil Canada actually has. In time, more refineries may convert to take advantage of the Canadian oil sands, but that will probably be a gradual process.

4. Persian Gulf oil, which has ranged between 19.81% and 28.56% of all U.S. imports since 1996, will probably continue to hover in the high teens-low 20s, despite President Bush's goal to cut American consumption of Middle Eastern oil by 75% by 2025, per the latest State of the Union address.

I don't see this forecast changing at all. What President Bush said in 2006 about cutting the amount of Middle Eastern oil America consumes was complete and utter bullshit (and shame on you if you believed him). BTW, shame on you again if you believe either McCain or Cheney that drilling for oil offshore or up in Alaska will make a significant difference. Two reasons: "drop in the bucket" and "long-term projects," neither of which will lower your gas prices. I may post on this in the near future, insha'allah, but in the meantime I recommend that you read John McCain's Oil Scam over at Informed Comment (Juan Cole), and Drilling Our Way to... by Menzie Chinn over at Econbrowser.


References:
US Crude Oil Supply and Disposition (DoE)
US Crude Oil Imports by Country of Origin (DoE)

Notes:
* OPEC countries include Algeria, Angola, Ecuador, Indonesia, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the UAE, and Venezuela.
** Persian Gulf countries include Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates. However, Iran and Qatar export no oil to the U.S.

Econbrowser on Oil

Econbrowser, the blog on economics by James Hamilton and Menzie Chinn, have published two interesting posts on oil. The first, The Oil Shock of 2008 by Hamilton, looks at the potential for recent oil price increases to contribute to an economic downturn. Some quotations:

...[W]hen oil prices started to rise again five years ago, many of us suggested that things would be different this time, in part because the price was rising much more gradually and so should be less disruptive of consumer spending patterns. Others emphasized that, despite the price increases, oil was still cheaper than it had been historically if you took into account inflation. However, once you include the most recent data, neither of those claims would still be true.

Another reason consumers had been largely shrugging off the oil price increases of the last few years is that they could afford to do so, since energy expenditures had fallen so significantly as a fraction of total income. However, as a result of rising oil prices, that, too, is no longer the case.

...

We've reached the point where American businesses and consumers simply can no longer afford to ignore the price of fuel, and we're getting clear indications of real changes in behavior. Counts of the number of cars on the roads suggest that U.S. vehicle miles traveled fell 4.3% in March. U.S. gasoline consumption so far in 2008 has been 70,000 barrels/day lower than in the first five months of 2007. And sales of SUVs are crashing. Sales of light trucks manufactured in North America last month were 26% below the level of May 2007.

...

BLS seasonally unadjusted establishment data indicate that the number of Americans employed in motor vehicles and parts manufacturing fell by 107,000 between April 2007 and April 2008, which is bigger than the 88,000 decline between April 1990 and April 1991. GM this week announced plans to close 4 North American plants, idling an additional estimated 8,000 workers. Ford plans a 15% cut in its 24,000 salaried employees.

Continental Airlines announced plans to cut 3,000 jobs in response to higher fuel prices, following similar announcements from United, Delta, and American Airlines. Based on the experience in earlier oil shocks, we can anticipate that there will be broad changes in many other categories of business and consumer spending that will pose challenges to a number of affected industries.

Is America's economy able to dodge a recession at this time? Hamilton's conclusion: he's not sure.

Chinn's post, Oil Prices in Other Currencies, is quite short and compares oil prices in terms of the US dollar, the Euro, and the Special Drawing Rights (SDR)* from 2000 through 2008. Chinn concludes that the US dollar is helping to raise the price of oil due to its devaluation, especially with respect to the Euro and SDR, but that other factors have driven the price of oil up much more significantly than the dollar's devaluation. (I wrote a similar post back in March that came to the same conclusion despite looking at a much shorter time frame.)

Be sure to check out the two posts directly; I haven't used any of the graphs that Hamilton and Chinn incorporated into their posts here. Looking at the graphs might be helpful to you.

Special Drawing Rights are a type of international currency used by International Monetary Fund (IMF) members that is itself a "basket" of four currencies, the US dollar, the Euro, the Yen, and the Pound Sterling.

James Hamilton: Oil Price Fundamentals

James Hamilton at Econbrowser looks at the question of what's been driving oil prices higher, market fundamentals or speculation? I've got some additional comments down below.

The developed economies consume a disproportionate share of the world's energy, with North America and Europe accounting for about half of the total oil use in 2006. However, it is the newly industrialized countries and oil producers that account for the recent rapid growth in demand, with Asia and the Middle East accounting for 60% of the increase in petroleum use between 2003 and 2006. North America and Europe contributed only 1/5 of the growth.

Particularly dramatic in this growth has been China, whose petroleum consumption between 1990 and 2006 increased at a 7.2% annual compound rate. It's always amusing to project these impressive exponential growth rates. If that rate of growth were to continue, China would be using 20 million barrels a day by 2020, about as much as the U.S. is today. By 2030, China would be up to 40 mb/d, twice the current U.S. consumption.

Are such projections plausible from the point of view of potential demand? During 2006, China used about 2 barrels of oil per person. For comparison, Mexico used 6.6-- Chinese oil consumption could triple and they'd still be using less per person than Mexico is today. The U.S. used almost 25 barrels per person. According to the data collected for a new research paper by Max Auffhammer and Richard Carson, there were 3.3 passenger vehicles per 100 Chinese residents in 2006, compared with 77 in the United States. Yes, I would say that these astonishing numbers for potential future Chinese oil demand are not at all inconceivable.

...

I do think there are prospects for a significant boost to world petroleum production this year, thanks to a number of big new projects scheduled to begin production. The Wikipedia database reports 7 mb/d in eventual gross new production capacity eventually expected from projects that are supposed to begin producing during the current calendar year. Before you get too excited about that number, however, several cautions are in order. First, 7 mb/d refers to the eventual peak production, not the amount that can be produced this year. Second, there is inevitably some slippage and delays. For example, the list includes 250,000 b/d from Thunder Horse, BP's Gulf of Mexico project that was initially hoped to start giving us oil in 2005, but is still undergoing repair work. Third, the above tabulation refers to gross new capacity, much of which is needed to replace declining production currently being observed in the world's mature producing fields. At any point in time, some of the world's producing fields are well into decline, some are at plateau production, and others are on the way up. It is not clear what average decline rate is appropriate to apply to aggregate global production, but a plausible ballpark number might be 4%. That would mean that in the absence of new projects, global production would decline by 3.4 mb/d each year. To put it another way, a new producing area equivalent to current annual production from Iran (OPEC's second biggest producer) needs to be brought on line every year just to keep global production from falling. Of the 7mb/d in gross new capacity from the projects tabulated above, projects in Saudi Arabia, Russia, and Mexico account for about a third of this gross increase. Data currently available for the first two months of 2008 show actual production in Saudi Arabia down 350,000 b/d from its average 2005 value, though the latest news suggests that Saudi production may be close to returning to 2005 levels. Mexican production is currently down 400,000 b/d from 2005, and Russian production is down 100,000 b/d from its average level in the second half of 2007.

To summarize, I think we will see some net production gains this year, and expect this to bring some relief for oil prices. But I cannot imagine that the projected path for China above will ever become a reality. Oil prices have to rise to whatever value it takes to prevent that from happening.

So yes, I do believe that speculation has played a role in the oil price increases, particularly what we've observed the last few months. But it's a big mistake to conclude that speculation is the most important part of the longer run trend we've been seeing.

I've been studying petroleum consumption for a number of months now, and have done my own forecast for China through the year 2012 (a five-year forecast). Although I haven't had the chance to post the executive summary of my Northeast Asia forecast on my new business blog, J2TM, China's petroleum consumption rate on a per-capita basis is very, very small. Hamilton said that China "used about 2 barrels of oil per person" in 2006, but the actual number is 1.0256 barrels per person. Likewise, the petroleum consumption growth rate on a per capita basis has been very weak as well. The Chinese compound annual growth rate between 1985 and 2006 was 1.86% per year. I'm forecasting a per capita growth rate of 0.61% to 0.88% for the period between 2006 and 2012. Of course, aggregate consumption growth rates should be somewhat higher but, at current consumption growth rates, it will take decades for China to reach Mexico's consumption level, let alone that of the U.S. (To be honest, I don't think that China will ever get that far; I suspect most oil worldwide would be gone before China could get up to the U.S.'s level of gluttony.)

Overall, though, I agree with Hamilton's analysis; I think oil prices are primarily driven by market fundamentals. There probably is some speculation at work here (as there is for commodity prices), but I think a relatively stable level of supply and an ever increasing level of demand are the primary factors bringing oil prices higher.

(Update: Thanks to Dr. Hamilton for his comment; I went back to my original analysis and found an error in my original analysis (it only affected China, thank God). Mea culpa! According to my new analysis, the annual compound growth rate for Chinese petroleum consumption between 1985-2006 was 6.64%, not the 1.86% I wrote above. Likewise, my new petroleum forecast has a growth rate of 5.79% through 2012, by which time I would expect per capita petroleum consumption to be 2.8362 barrels per person. I also ran out the projection for China's consumption through the year 2030; by that time consumption would be 8.4452 barrels per person; China would reach Mexico's current consumption level in the year 2026; in that regard my initial forecast is not too far off - almost two decades instead of "decades." I still stand by my comment regarding China matching American consumption. That sort of forecast is just too far into the future to be of any value, IMO. So, I stand corrected, and I thank you for that.)