Monday, February 28, 2011

Working in America: Once Again, the Poor Don't Get Any Richer

Our friends at the Congressional Budget Office (CBO) released a report in February entitled "Changes in the Distribution of Worker's Hourly Wages Between 1979 and 2009" which shows how the rate of hourly wages have changed over the past 30 years, how the wages at the top and bottom of the wage distribution (which is defined as dispersion) have changed and by how much.  In addition, the CBO has studied these wage changes by gender.

First, let's look at how the CBO defines hourly compensation.  Hourly compensation is defined as the sum of hourly wages, non-wage benefits provided voluntarily by employers such as employer-based health insurance and pensions and legally required benefits such as Medicare and Social Security.  In 2007, non-wage benefits represented 27 percent of total hourly compensation with 8 percentage points for health insurance, 6 percentage points for paid leave, 3 percentage points for retirement benefits and 9 percentage points for legally required benefits.  The cost of health insurance benefits rose from 5 percent to 8 percent of compensation in the years between 1987 and 2007.

The study looks at wage dispersion using 3 points of the United States wage distribution; the 10th percentile (10 percent of all wages fall below this point), the 50th percentile (or median which is the middle of the wage distribution) and the 90th percentile which is the top 10 percent of wages (90 percent of wages fall below this level).  Wage dispersion over time is measured by how much the 90th percentile wage exceeds the 50th percentile or median and by how much the 10th percentile wage is less than the 50th percentile or median.  As the spread between these values change over time, wage dispersion changes.

On to the details.  In 2009, the median wage for men was $18.50 per hour or about $37,000 annually.  The 90th percentile wage was $43.00 per hour or about $86,000 annually and the 10th percentile wage was $8.90 per hour or about $17,800 annually.  Between 1979 and 2009, the median wage rose 8 percent after adjusting for inflation, the 90th percentile wage rose by 40 percent and the 10th percentile wage rose by 5 percent.  Here is a graph showing the changes in 2009 dollars:

What I find particularly interesting is how slowly wages have risen in real terms (after inflation) over the 30 year period.  For median wage earners, their annual real increase in hourly pay averages out to 0.27 percent (not compounded) annually over the thirty year period, a rather insignificant raise, don't you think?  When median wage is put into context with real output per worker over the same time period, there is a huge disparity; over the 30 year period, real output per worker rose by 59 percent

Using the data for women is somewhat complicated by the fact that the participation rate of women in the labour force rose sharply from 59 to 69 percent of the total labour force over the thirty year period.  Women's educational levels, choice of occupation and hours of work changed much more than those of men, making comparisons more difficult.

That said, among working women, the median wage in 2009 was $15.10 per hour or $30,200 annually ($6,800 less than men), the 90th percentile wage was $33.50 per hour or $67,000 annually ($19,000 less than men) and the 10th percentile wage was $8.00 per hour or $16,000 annually ($1,800 less than men). Over the 30 year period of the study, women's median wage rate rose 37 percent after inflation (compared to 8 percent for men), the 90th percentile wage rose by 70 percent (compared to 40 percent for men) and the 10th percentile wage rose by only 8 percent (compared to 5 percent for men).  Overall, the median wage rate of women in 2009 was 82 percent of the median wage of men; the gap between men's and women's wages narrowed substantially over the 30 year period for women at the median and at the 90th percentile.  Here is a graph showing the changes in wages in 2009 dollars:

Back to the concept of dispersion.  First we'll look at the changes between the median wage and the 90th percentile or high income wage over the period studied then look at the changes between the median wage and the 10th percentile or low income wage over the same period.

1.) Changes in the difference between the median and high income (or 90th percentile) wages:  Over the 30 year period, there was an increase in the difference between the median wage and the 90th percentile wage for both genders, meaning that higher income earners saw their wages increase at a faster rate than those who earned at the median.  For men, the difference (or dispersion) between the median and the 90th percentile rose from an 80 percent difference in 1979 to a difference of 129 percent in 2009.  For women, the difference (or dispersion) between the median and the 90th percentile rose from 79 percent in 1979 to 122 percent in 2009, roughly the same as that for men.  Most of this increase in dispersion is attributed to growth in the number of college graduates compared to the number of high school graduates over the 30 year period; it was during that time that the differences between what a college graduate would earn compared to a high school graduate changed markedly.

2.) Changes in the difference between the median and low income (or 10th percentile) wages:  Over the 30 year period, there was an increase in the difference between the median wage and the 10th percentile wage although not to the degree seen between the median and the high income earners.  For men, in 1979, the 10th percentile wage was 50 percent lower than the median, this rose to 56 percent by 1986 but then rose and levelled off at the previous 50 percent level.  For women, in 1979, the 10th percentile wage was 33 percent lower than the median, this rose to a 47 percent difference in 1986 where it has remained.  

Here is a graph showing the changes in dispersion (differences in percentage) over time for both scenarios:

Why have wage increases for high income earners outstripped those at the lower income level?  

1.) Growth in demand for workers skilled in technological innovations that require non-routine complex analysis, evaluation and decision-making.  These requirements are often associated with advanced education.  Here are two graphs showing how the median hourly wage is impacted by educational level over time for both men and women:

2.) Changes in patterns of international trade due to globalization.  The increase in imports over exports has changed the type of workers required by businesses operating in the United States.  Many of the goods and services that would formerly have been produced domestically are now imported, resulting in a decline in the demand for U.S. labour that would have been in demand in the past.  As well, advances in long-distance communication has lessened the disadvantage to having workers in other countries.  Despite these observations, changes to wage patterns in the United States cannot conclusively be attributed to globalization.

3.) Growth in the supply of highly educated workers slowed over the study timeframe.  The increase in well-educated immigrants over the study affected the high wage earners by preventing wages from rising as much as they might have.  As well, an influx of foreigners with little education kept wages at the lower levels from rising.  Overall, the share of foreign workers rose from 6.5 percent of the work force in 1980 to 15.5 percent in 2009.

4.) The influx of highly educated women also impacted the high wage earners by preventing wages from rising as much as they might have because there were fewer constraints on the supply of skilled employees.  Women's share of the workforce rose from 38 percent of the workforce to 44 percent over the 30 year period.

5.) The decline in unionization from 20.1 percent of workers in 1983 to 12.3 percent in 2009 had an impact on wages in manufacturing  most specifically.  The power of unions to lift wages of low and middle skilled labourers has declined markedly and it is believed that up to one-third of the increase in dispersion between the median and the high wage earners is due to the decline in unionization.  In fact, a January 2011 data release from the Bureau of Labor Statistics shows that union membership declined to 11.9 percent in 2010, its lowest level since comparable data were first collected in 1983.  Overall, in 1983 there were 17.7 million union workers; that has declined to 14.7 million in 2010.

To sum up this posting, I am going to back up and change the subject slightly.  In an earlier paragraph, I noted how little median wages had changed over the 30 year period.  For men, the median wage rose only 8 percent after inflation and for women, the median wage rose by 37 percent.  Now let's look at what happened to the wages of those who lead the companies that we work for over the same time frame as a multiple of what an average production employee earns.

In 1979, an average CEO made 34.9 times the compensation of their average production worker.  That ramped up rapidly to 298.5 times in 2001 and, in the tough year that was 2009, fell to 185.3 times.  Here's a graph from the Economic Policy Institute's State of Working America website showing just how the disparity has grown over the past 4 decades:

This rather makes both an 8 and 37 percent increase in the real median wage of a working stiff over a 30 year timeframe look rather paltry, doesn't it?

In researching this posting, I found it rather interesting to see just, on the whole, how little wages have changed over 30 years.  Changes in the wage structure in the United States have made it exceedingly difficult for the "little guy/gal" to get ahead and may explain, at least in part, why the country is experiencing both a foreclosure and a debt nightmare.  Certainly, many people over the past decade have spent far more than they could afford on housing (and toys), but wage stagnation especially at the median and below, explains at least part of the problem.  It's pretty hard to get ahead when increases in the cost of living are, in general, vastly outstripping what enters your bank account every two weeks.

Friday, February 25, 2011

Quantitative Easing Part 2 - Can it cure the common cold and cancer too?

On February 24th, St. Louis Federal Reserve President James Bullard took the floor and trotted out his version of the Fed's "dog and pony show" for the folks gathered at the Bowling Green, Kentucky Area Chamber of Commerce Coffee Hour.  In his presentation, he discussed "Quantitative Easing, Global Inflation and Commodity Standards".  It sounds like a real eye opener (?) but I'll persevere and  hit the high points from his presentation which is available here.

As we all know, the Federal Open Market Committee (FOMC), of which Mr. Bullard is a member who voted in favour of QE2,  announced last November that it was going to purchase Treasury securities totalling about $600 billion over an eight month period ending in Q2 2011 at a pace of approximately $75 billion per month.  This is what is known as quantitative easing and has frequently been labelled QE2 since it is the second in what will presumably be a series of not so subtle economic nudges.

QE2 was enacted for the following reason:

"...Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities..."

Basically, the Fed has kept interest rates at near zero levels for an extended period of time in an attempt to prod the economy out of its moribund state and came to the conclusion in November that "free money" simply wasn't working and that it was pretty much out of ammunition.  The Fed's "ultra-easy" (Mr. Bullard's words) monetary policy created a disinflationary trend (a decrease in deflation) in 2010 and raised the horrifying spectre of deflation, that fiscal nightmare that creates many sleepless nights for central bankers around the world!  Here's how bad disinflation looked until the Fed came to the rescue:

The Fed will have to create money to purchase Treasury securities.  The resulting increase in money supply and the increased demand for Treasuries is expected to push their price up and their yields down further out the yield curve than normal.  As a result, corporations and individuals want to borrow and spend more, creating demand for labour and demand for goods resulting in lowered unemployment and somewhat raised inflation miraculously fixing all that ails the American economy.

Mr. Bullard also noted that the "Japanese experience with mild deflation and a near-zero nominal interest rate has been poor.".  No kidding.

Here's Japan's nominal discount rate for the past 15 years:

Here's Japan's inflation/deflation rate for the past 25 years:

It certainly looks like inflation took right off - except that it didn't for long.  In fact, Japan's inflation rate has been negative since February 2009, three short years after the end of quantitative easing.  Japan's QE policy was in effect from March 19th, 2001 to March 9th, 2006 during which time the Bank of Japan raised its current account balances nine times and increased its purchases of long Japanese sovereign bonds.  This flooded Japan's banks with reserves which kept interest rates at zero.  By the Federal Reserve Bank of Cleveland's own admission, the program was, at best, a modest but temporary success.  Here's a quote from one of the Cleveland Fed's analyses of the Bank of Japan's QE program:

"The connection between the quantitative easing policy and the macroeconomic recovery remains somewhat more flimsy. Most observers believe that because the quantitative easing policy aided the banking sector, economic activity at least did not deteriorate further. The pace of economic activity did pick up, with contributions from consumer spending and investment, but exports, which benefited from growth among Japan’s trading partners, spurred much of the improvement. Although deflation ended in 2006, along with the quantitative easing policy, it returned after a very short hiatus in 2007, and continued until the recent commodity price boom.(my bold)

Hmmmm.  Is non-existent another word for flimsy?  It begs the question how things will be different this time out, doesn't it Mr. Bernanke?

Here are a selection of slides from Mr. Bullard's speech where he shows all of us just how brilliant the Fed's QE2 program has been at...

...bumping up inflation:

....pushing up equity prices and making ALL of us richer!:

....and pushing down real interest rates:

My goodness, I'm surprised that the Fed hasn't claimed that QE2 has cured both the common cold and cancer!  But, as the saying goes "if you don't toot your own horn, no one else will".

Back to Japan for just one moment.  Here's how well their program of quantitative easing worked over the long-term for....

...the Nikkei 225 Index (hint - it's down 30 percent since QE ended):

....and the country's unemployment rate:

Hardly a ringing endorsement for the long-term positive effects of quantitative easing, is it?

In the next part of Mr. Bullard's speech he goes on to discuss global inflation and the United States output gap, the difference between the actual output of a given economy and the output that the same economy can achieve when it is at full capacity.  If a country's output gap is positive, it is overworking its capacity and this can lead to inflation as the cost of both labour and production rise in response.  In the case of the United States, the output gap is rather large (the economy is struggling to produce at full capacity) which is putting downward pressure on inflation; in contrast, the global output gap is small or even positive which is putting upward pressure on inflation. 

He also notes that some critics suggest that the Federal Reserve's policies (i.e. "printing" sky-high piles of money) are encouraging global inflation and that the Fed is concerned only with domestic issues and is not considering the impact of its policies on the rest of the world.  He noted that:

"...the Fed is charged with controlling U.S. inflation, but perhaps global inflation will drive U.S. prices higher or cause other problems..."

Mr. Bullard also highlighted the different scenarios for the world's advanced economies which are experiencing modest growth and a deflationary trend (although definitely not the case for the United Kingdom which just reported CPI Inflation of 4.0 percent for the month of January 2011) and for the emerging economies which are experiencing strong growth and high inflation (think China and their 4.9 percent inflation rate for January 2011).  He's using these differences to explain why the Fed's policies really aren't impacting the worldwide economy. 

In light of mounting commodity prices, one has to wonder if central bank policies of increased money supply aren't creating yet another price bubble in the commodity markets, after all, all of that "money" has to go somewhere.  In the case of the United States, the economy is so weak that producers are unable to pass along the additional costs to consumers without threat of further drops in sales.  Perhaps low inflation in the United States is a reflection of economic weakness and under-utilized capacity more than it is a reflection of what is going on in the real world.

In closing, Mr. Bullard had the following to say:

"Inflation targeting is another way to force more accountability to the central bank and anchor longer-term expectations.   Make the central bank say what it intends to do and hold the central bank accountable for achieving the goal.” (my bold)

Either that, or reform the system so that a handful of people don't control everything that matters!

Thursday, February 24, 2011

Saginaw, Michigan - The Least Expensive Real Estate in the U.S.

According to Demographia’s 7th Annual Demographia International Housing Affordability Survey: 2011, the city of Saginaw, Michigan has the most reasonably priced real estate amongst 6 nations including the United States, Canada, the United Kingdom, Ireland, New Zealand and Australia.  Demographia defines affordability using a term they refer to as the “median multiple” where the median price of a house in a given market divided by the median household income in that same market.  In this case, the term “median” refers to the midpoint between the lowest price or income and the highest price or income.  Deomgraphia defines affordable real estate where there is a multiple of 3.0 or less (i.e. if the median income of a family in given market is $50,000, the median price of homes must be less than $150,000).  The median multiple for the city of Saginaw is 1.6, just below Flint, Michigan and Youngstown, Ohio both of which had median multiples of 1.7.  For my Canadian readers, by comparison, the lowest median multiple was for Windsor, Ontario which came in at 2.1 followed by Fredericton, New Brunswick which came in at 2.3.   For my readers in the United Kingdom, the lowest median multiple for a major urban centre with more than 1 million residents was for Leeds and West Yorkshire which came in at 4.6 and for my readers in Australia, your lowest multiple was found in Perth which came in at 6.3.  In the top 100 affordable markets (a multiple of 3.0 or less) in the study, there were no urban centres from either the United Kingdom or Australia. 

Back to Saginaw.  The city of Saginaw, Michigan is located in the central part of the state of Michigan, near the shores of Lake Huron.  Here's a map showing the location of Saginaw:

In the 19th century, the Saginaw area was the site of a booming lumber industry; since much of Michigan was forested with white pine and the nearby Saginaw River provided water transportation for logs felled upstream, at its peak, 23 sawmills operated in the area surrounding the present-day City of Saginaw which reached a population of 75,813 in 1884.  As Michigan became the automotive capital of the United States in the early 20th century, Saginaw became the home to various divisions of General Motors.  During the Second World War, Saginaw was home to an M1 Carbine rifle production facility  As General Motors expanded during the post-war period, Saginaw grew to reach a maximum population of 98,265 in 1960.  In the 2006 Census, the population of Saginaw had dropped to 57,523 people, a 6.9 percent drop in residents from the April 1st, 2000 population of 61,799.  In 2009, the population had dropped further to reach 55,238.  In 2000 (the latest year that records are available for the City from the United States Census Bureau), the city had 25,639 housing units with a median value of $46,800.  Median household income was $26,485 in 1999 compared to $44,667 for the State of Michigan with 28.5 percent of residents living below the poverty line compared to 10.5 percent for the entire state.

In large part, Saginaw’s shrinking population is a result of de-industrialization.  The manufacturing industry employed a peak of 36,600 workers in Saginaw County in 1978; by December 2009, that had fallen to 10,400, the lowest number of manufacturing workers since 1920 when there were 12,319 workers.    It is hoped that expansions at the local Hemlock Semiconductor Corporation plant could help boost local manufacturing employment.  To summarize the employment picture, according to the Bureau of Labor Statistics, the Saginaw County area had an unemployment rate of 10.2 percent in December 2010, coming in below the national average of 9.1 percent and at 271st place out of 372 metropolitan areas.

Saginaw City’s 2010 budget reflected a “zero growth” strategy because of dropping revenue.  The decline in property values resulted in an increase in the millage rate; from the previous fiscal year, the total taxable value of residential properties decreased from $471.6 million to $445.1 million.

Onward to some examples of Saginaw real estate.

Let's start with the first house that comes up:

This rather small 728 square foot bungalow is located at  2726 Lowell and is listed at $2600.00.  It has two bedrooms and one bathroom and from the photos of the inside, it has pretty much been gutted.  Unfortunately there is no history of either taxes or selling price.  On the upside, it is less than a mile from a very well rated elementary school!

Here's a new listing at 3009 Fairview Street: 

This 2 bedroom, one bathroom 896 square foot bungalow is listed at $9500.  From the interior photos, it looks to be intact but definitely needs some work.  For the past 3 tax years, it has been assessed at just over $12,800 with property taxes ranging from $586 in 2008 to $641 in 2010.  Once again, it is located less than a mile from a very well rated public elementary school.

Here's a rather nice looking 894 square foot 2 bedroom, single bath bungalow located at 1827 Burnham Street with an asking price of $15,000:

From the inside photographs, it appears to be in "move in" condition, especially when compared to other listings.  According to the property history, it has been assessed at between $17,150 and $18,846 over the past 3 years with taxes of $868 in 2008 and $762 in 2010.

Let's move to the middle of the pack and see what you can buy for just over $50,000.  Here is a rather amazing looking all brick, two story, 3155 square foot, 4 bedroom, three bathroom home located at 430 S Weadock:

This home appears to be occupied and from the large selection of interior shots looks to be  in move-in condition.  Unfortunately, no tax or sales history is available.  As a lover of older homes, this is one that I would definitely consider purchasing for its character alone.

Just for fun, let's go to the top of the heap to see how the other half lives (well, okay, maybe not half).  This 4008 square foot, 4 bedroom, 3.5 bathroom home is located on 14 acres at 2150 South Thomas in suburban Saginaw:

The asking price for this rather palatial one and a half story log home is $989,500.  From the interior shots, it looks like a rather amazing home.  Once again, no tax or sales history is available but I guess if you have to ask how much the taxes are, you really can't afford a million dollar home.  And, as a bonus, just in case you have four cars, they can each have their own garage!

It is interesting to once again see how polarized American society is becoming and how real estate values are increasingly reflecting the great divide between the rich and the poor in our society.  I hope that you enjoyed learning a bit more about Saginaw, Michigan, home of the most reasonably priced real estate in the United States when measured in terms of price to household income.

Tuesday, February 22, 2011

Libya's Contribution to the World's Oil Picture

In this posting, I'll take a brief look at Libya's contribution to the world's oil picture.

Libya is one 12 current members of OPEC, joining the Organization in 1962, two years after OPEC was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.  Libya played a pivotal role in the world's 1973 oil crisis and, for nearly 3 decades, played the role of a rather belligerent producer.  According to OPEC, revenues from Libya's oil sector contribute about 95 percent of its export earnings and about 25 percent of its gross domestic product.  As well, because Libya has a relatively small population of 6.4 million people and a relatively high GDP of $67.2 billion, it has one of the highest per capita GDPs in Africa at $10,479 although the wealth is distributed far from evenly with approximately one-third of Libyans living below the national poverty line.

Here are two pie charts showing OPEC's share of the world's crude oil reserves in 2009 and a country-by-country breakdown of oil reserves in each of the 12 OPEC nations:

Within the OPEC family, Libya has the seventh highest reserves at 4.4 percent of the total; well below Saudi Arabia at 264.6 billion barrels and Venezuela at 211.2 billion barrels.   

According to the Energy Information Administration (EIA), Libya has total proven reserves of 44 billion barrels of oil as of January 2010, the largest proven oil reserves in Africa.  Here is a graph comparing proven oil reserves for major oil producing nations in Africa:

Notice how, other than Nigeria, Libya's oil reserves total more than the other four major African oil producing nations.

Here is a map showing the location of Libya's oil fields and the country's major pipeline infrastructure:

Exploration for oil began in 1956 when the first exploration concessions were granted to foreign-owned corporations.  Oil was discovered in Libya in 1959 and oil exports began in 1961.  Rapid development of the country's oil fields resulted in oil production exceeding 3 million barrels of oil per day (BOPD) by 1969.  Fortunately for Libya, their crude is relatively light and sweet with gravities ranging from 26 to 43 degrees API.  In 1970, the Libyan government nationalized the country's oil industry and by 1972, production had dropped to 2 million BOPD.  By 1973, Libya's support for the oil embargo to the United States resulted in further production drop to 1.5 million BOPD and to just over 1 million BOPD by 1987, the year that Pan Am Flight 103 exploded over Lockerbie.  Despite sanctions imposed by the United Nations in 1992, oil production rose to 1.4 million BOPD where it remained until the turn of the millenium.  Sanctions were lifted in 2004 and cooperation with international oil companies led to an increase in production to nearly 1.9 million BOPD.  Here is a graph showing Libya's oil production over the entire history of its oil industry as well as its production forecast to the year 2030; Libya's oil production is forecast to rise to roughly 2.2 million BOPD over the next decade and then gently decline to just around 1.6 million BOPD in 2030 by which time the country will have produced 35 billion barrels:

Here is a graph showing Iraq's oil production and consumption for the last 10 years from the EIA.  Notice how small Libya's domestic consumption rate is when compared to its overall production:

In the most recent year for which data is available from OPEC, Libya produced at average of 1.474 million BOPD (its quota) but according to the EIA, the country produced 1.65 million BOPD, 150,000 BOPD below its capacity but well above its official quota.

Here is a graph showing cumulative oil production and cumulative oil discoveries.  Note how discoveries rapidly rose during the 1960s and rapidly levelled off from 1990 onward:

By 2003, oil discoveries totalled 52 billion barrels of which 23 billion had already been produced.  At the discovery rate of 100 million barrels per year (average for the immediate previous years), Colin Campbell at the Association for the Study of Peak Oil (ASPO) estimated that Libya's ultimate reserves will reach 55 billion barrels of oil.  By 2007, over 27 billion barrels of oil had been produced meaning that the country was at or near its reserve midpoint (think peak oil).
Like other Middle East nations, Libya is experiencing rapid population growth.  Libya's birth rate reached 7.59 births per woman in 1971 and dropped slowly to 2.69 births per woman in 2008.  In 1950, Libya was home to 1 million residents; by the turn of the millenium, that number had reached over 5 million and is projected to reach 8 million people by 2025.  As the population has risen, so has the country's domestic oil consumption.  On top of the rise in population, per capita consumption has risen by around 2.5 percent per year since 2003 from 14.3 barrels of oil per person per year in 2000 to 17.3 barrels of oil per person per year by 2007.  As shown in this chart, per capita oil consumption is projected to rise to around 26 barrels of oil per capita by 2030, equal to today's per capita consumption level in the United States:

While the per capita rise may seem high, in 2009, Libya was only consuming 280,000 barrels of oil per day and this is projected to rise to just less than 600,000 barrels of oil per day by 2030.  

According to the EIA, Libya's net exports for 2009 were roughly 1.5 million BOPD with the vast majority of oil being exported to Italy (425,000 BOPD), Germany (178,000 BOPD) and France (133,000 BOPD).  Here is a pie chart showing the beneficiaries of Libya's oil exports:

According to the EIA, Italy imported 1.36 million BOPD total in 2009 and Libya contributed the most of any nation by a wide margin supplying Italy with 31 percent of its needs.  In the case of Germany, Libya supplies 8 percent of its net oil imports and in the case of France, Libya supplies 7.6 percent of its net oil imports.  Libya exported an estimated 80,000 BOPD to the United States in 2009, well off highs of 117,000 BOPD in 2007 because of the economic slowdown and drop in demand.

While Libya is not a huge player in the world's oil industry compared to giants like Venezuela and Saudi Arabia, the oil they produce is an important component of Italy's imports in particular and, while the country contributes only 2 percent of the world's daily oil production, as the point of peak oil is reached and passed, continued production of oil from Libya will remain key to maintaining balance between supply and demand.  That said, in the grand scheme of things, freedom of repressed people around the world is far more important than how much it costs us to fill our vehicles with gasoline.


Monday, February 21, 2011

Defining and Quantifying Freedom in the Middle East

In light of the recent uprisings in the Middle East, I thought I'd examine the concept of freedom in that region.  Freedom House was founded in 1941 by Americans that were concerned about the mounting threats to world peace and democracy, a threat that despite their efforts still exists today.  Freedom House is "an independent watchdog organization that supports the expansion of freedom around the world..." and acts to oppose tyranny throughout the world by promoting United States policymakers to adopt and advocate policies that advance human rights.

Freedom House releases an annual report that assesses the world's political rights and civil liberties by country.  Each country is scored on a scale of 1 to 7 for each of political rights and civil liberties with the following characteristics for each level as taken from the Freedom House website:


Rating of 1 – Countries and territories with a rating of 1 enjoy a wide range of political rights, including free and fair elections. Candidates who are elected actually rule, political parties are competitive, the opposition plays an important role and enjoys real power, and minority groups have reasonable self-government or can participate in the government through informal consensus.
Rating of 2 – Countries and territories with a rating of 2 have slightly weaker political rights than those with a rating of 1 because of such factors as some political corruption, limits on the functioning of political parties and opposition groups, and foreign or military influence on politics.
Ratings of 3, 4, 5 – Countries and territories with a rating of 3, 4, or 5 include those that moderately protect almost all political rights to those that more strongly protect some political rights while less strongly protecting others. The same factors that undermine freedom in countries with a rating of 2 may also weaken political rights in those with a rating of 3, 4, or 5, but to an increasingly greater extent at each successive rating.
Rating of 6 – Countries and territories with a rating of 6 have very restricted political rights. They are ruled by one-party or military dictatorships, religious hierarchies, or autocrats. They may allow a few political rights, such as some representation or autonomy for minority groups, and a few are traditional monarchies that tolerate political discussion and accept public petitions.
Rating of 7 – Countries and territories with a rating of 7 have few or no political rights because of severe government oppression, sometimes in combination with civil war. They may also lack an authoritative and functioning central government and suffer from extreme violence or warlord rule that dominates political power.

Rating of 1 – Countries and territories with a rating of 1 enjoy a wide range of civil liberties, including freedom of expression, assembly, association, education, and religion. They have an established and generally fair system of the rule of law (including an independent judiciary), allow free economic activity, and tend to strive for equality of opportunity for everyone, including women and minority groups.
Rating of 2 – Countries and territories with a rating of 2 have slightly weaker civil liberties than those with a rating of 1 because of such factors as some limits on media independence, restrictions on trade union activities, and discrimination against minority groups and women.
Ratings of 3, 4, 5 – Countries and territories with a rating of 3, 4, or 5 include those that moderately protect almost all civil liberties to those that more strongly protect some civil liberties while less strongly protecting others. The same factors that undermine freedom in countries with a rating of 2 may also weaken civil liberties in those with a rating of 3, 4, or 5, but to an increasingly greater extent at each successive rating.
Rating of 6 – Countries and territories with a rating of 6 have very restricted civil liberties. They strongly limit the rights of expression and association and frequently hold political prisoners. They may allow a few civil liberties, such as some religious and social freedoms, some highly restricted private business activity, and some open and free private discussion.
Rating of 7 – Countries and territories with a rating of 7 have few or no civil liberties. They allow virtually no freedom of expression or association, do not protect the rights of detainees and prisoners, and often control or dominate most economic activity."

Each country is then categorized by their overall rating.  Ratings of 1.0 to 2.5 are considered free, 3.0 to 5.0 are partly free and 5.5 to 7.0 are considered not free.

Let's take a look at Freedom House' assessment of overall freedom in the Middle East in their Freedom in the World 2011 Survey Release.  Please note that the 2011 Survey reflects results from the previous year, 2010.  On an entire area basis, 78 percent of Middle East countries are considered not free and by total population, 88 percent of Middle East countries' citizens are considered not free.  Here is a graph showing the results for the Middle East:

Let's compare this to Central and Eastern Europe and the former Soviet Union, a region that was in large part considered not free in the past.  On an entire area basis, 24 percent of Central and Eastern European countries are considered not free and by total population, 54 percent of Central and Eastern European countries' citizens are considered not free.  Here is a graph showing the results for the Central and Eastern European countries:

Even Sub-Saharan Africa fares better than the Middle East.  On an entire area basis, 35 percent of Sub-Saharan countries are considered not free and by total population, 37 percent of Sub-Saharan countries citizens are considered not free.  Here is a graph showing the results for the Sub-Saharan countries: 

Now let's summarize the freedom scoring for the Middle East countries that have been in the news lately.  Please note that for comparison's sake, I've added the scores for Myanmar and China, two nations that are not widely considered to be free.

Here's a screen capture of the Freedom House world map showing the Middle East region; the purple colour highlights the nations that are not free, the yellow colour highlights the partly free nations and green colour highlights the nations that are free.  As we sense, there certainly are not many nations with anything approaching even partial freedom in the Middle East:

In their 2001 report, Freedom House makes the following statement:

"Freedom House concludes that there is a dramatic, expanding gap in the levels of freedom and democracy between Islamic countries and the rest of the world. Freedom in the World 2001-2002 finds that a non-Islamic country is more than three times likely to be democratic than an Islamic state.

"This freedom and democracy divide exists not only between Islamic countries and the prosperous West," said Adrian Karatnycky, Freedom House president and coordinator of the survey. "There is a growing chasm between the Islamic community and the rest of world. While most Western and non-western countries are moving towards greater levels of freedom, the Islamic world is lagging behind."

"In the wake of the terrorist attacks against the United States on September 11, it is imperative that policymakers around the globe give serious attention to the democracy gap in the Islamic world," said Freedom House chairman Bill Richardson."

Apparently, those involved in the uprisings of the past few weeks are growing rather tired of high levels of unemployment and associated poverty accompanied by a lack of freedom in countries where they are so obviously ruled by those who lack for nothing and control everything.  Perhaps it is time for policy makers in democratic nations to step up to the plate and do the right thing for those who so badly need assistance, without attempting to gain yet another form of colonial control over those who are so vulnerable.