A vision of what American economic growth over the next decade could look like might also help us address our immediate economic problems.
Macroeconomists have often used Japan in the 1990s as an example of bad monetary policy. It is abundantly clear that their outcome would have been better if the real estate bubble had been arrested earlier. And even taking the problems of the aftermath of that as given, a more expansionary monetary policy after the collapse could have still helped. But Japan also was burdened by longer run structural problems– other countries were taking over the manufacturing markets in which Japan had historically excelled. It’s easy to focus too much on monetary issues and too little on the more fundamental structural challenges in trying to draw the right lesson from Japan’s experience.
Columbia University Professor Jeffrey Sachs worries that the United States today may also be paying too little attention to those long-run challenges:
Obama’s economic strategy assumes that the U.S. economy has a strong natural tendency in the medium term (say three to five years) to bounce back from the 2008 recession with renewed growth. The interpretation is that demand for new homes has temporarily declined as a result of the bursting of the housing bubble and the bankruptcy of Lehman Brothers, but that private demand will quickly recover, especially if jolted by a temporary stimulus. Yet the problem in the US is deeper. The collapse of housing is actually a symptom rather than the fundamental source of US economic weakness.
The structural problem is that America has lost its international competitiveness in basic industries including textiles, apparel, and several other areas of manufacturing. The production jobs are now in China, India, and elsewhere, where wages are much lower while productivity is more or less comparable to the US (and where production often involves US companies, using US technologies, producing overseas and re-exporting to the US market). Only US college grads can resist the international competitive pressures; high-school grads have found the labor market fall out from beneath their feet.
The housing boom between 1998 and 2008 was an indirect reaction to the loss of manufacturing. As the US shed manufacturing jobs in the 1980s and 1990s, the Federal Government and Federal Reserve tried to compensate by boosting jobs in construction and other sectors shielded from international competition (so-called non-traded sectors). The Fed cut interest rates and the White House and Congress promoted housing finance, including through reckless deregulation and irresponsible behavior by government-backed entities like Fannie Mae. These efforts produced a temporary boom in housing, followed by the bust in 2008.
If U.S. growth were to resume with the current account in balance, what would it look like? Although many people share Sach’s focus on manufacturing, I would call attention to this conclusion from a 1990 study by Stanford Professor Gavin Wright:
The United States became the world’s preeminent manufacturing nation at the turn of the twentieth century. This study considers the bases for this success by examining the factor content of trade in manufactured goods. Surprisingly, the most distinctive characteristic of U.S. manufacturing exports was intensity in nonreproducible natural resources; furthermore, this relative intensity was increasing between 1880 and 1920. The study then asks whether resource abundance reflected geological endowment or greater exploitation of geological potential. It was mainly the latter.
For over a century, the U.S. produced more oil than any other country, and even today we are still the third biggest oil producer in the world. The U.S. today is the world’s leading producer of items such as lumber, corn and poultry, number 2 in coal, oranges, soybeans, and gypsum, and third in cotton and lead. Our abundant natural resources have always been an important advantage for America, and are still an important advantage today.
And it is within our power to do more with our natural resources. A decade ago, the U.S. was the second biggest producer of rare earth elements, which play a critical role in many of today’s high-tech devices and systems. But U.S. production stopped in 2002, as a result of environmental regulations and competition from cheap Chinese imports. With prices back up, U.S. production may resume.
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Is taking maximal advantage of our natural resources a top priority for U.S. policy? Recent decisions by the U.S. Fish and Wildlife Service would pose significant impediments to California agriculture [1], [2] and Texas oil production [3]. Luminant, a Texas utility, claims it will have to close lignite mines and power generating facilities to comply with the Environmental Protection Agency’s Cross-State Air Pollution Rule, causing the loss of 500 jobs. [4]. National Cement Company claims it has suspended a $350 million project to build a new cement kiln in Alabama, whose construction would have employed 1500 workers, because the company says it cannot figure out which of three proposed air quality standards it is supposed to meet. [5]. Each of the over a dozen offshore drilling rigs that have been idled or relocated overseas as a result of the Department of Interior’s drawn-out approval process may have caused a thousand workers to lose their jobs. [7].
Peter Dorman argues that regulation cannot matter much for the current U.S. employment situation:
If you increase the cost of making something, you need more people to make the same amount, or you need people to make something else instead, something you wouldn’t have wanted to make without the regulation. That’s why economists who study regulations measure their impacts on productivity and output, not jobs….
As those following current economic debate know, our unemployment is almost entirely due to insufficient demand; structural factors have nothing to do with it. (We don’t see wages shooting up in sectors starved for the right kind of labor.) In theory, environmental regulation could cause short-term industry shifts that would exacerbate structural unemployment– if we had any.
I see the labor market as much more dynamic than this kind of discussion supposes. In a typical month of normal economic growth, 7.2 million workers in the U.S. might quit or lose their jobs, and a somewhat different group of 7.4 million workers obtain new or different jobs. All this churning produces the net gain of 160,000 or so new jobs we’d usually see reported. A key thing that happens during a recession is that there are fewer of those new positions available, so that when people lose their jobs, a greater number than usual remain unemployed, and the economy simply loses whatever those people had been contributing instead of replacing it with something better. From that perspective, if new regulations cause someone to lose their job or kill a new project that would have been hiring, the regulations are making a direct contribution to our cyclical problems, and are significantly more costly than if the same regulations had been implemented when the economy was operating at full employment.
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Of course this is not to argue that no new regulations should ever be imposed in times of recession. Ed Dolan explains clearly why by proposing a facetious example:
For unemployed urban youths, a Licensed Shoplifter Corps. LSC members would have immunity from prosecution for theft. They could appropriate cell phones, Levis, and canned goods from local stores and sell them at discounted prices in special neighborhood shops. Jobs would be created both for LSC members and for workers who resold the stolen goods.
Obviously what we need to do is weigh the costs of regulation against the benefits. Just because the costs are higher in a recession, that does not mean that new regulations during a recession are always a bad idea. But I do believe Americans need to acknowledge that, both because of the current economic weakness, and because of the longer-run challenge in finding a basis for future economic growth and current-account balance, we are poorer than we used to be. A challenge of this magnitude needs to be approached with some humility about just what we should be willing to do to get back on track.
And doing things the way we used to offers one sensible guideline for how that might be done.
We are pre-eminent in oil field technologies and a leading country for oil production.
We are leaders in low cost natural gas production.
We are leaders in many agricultural areas.
And we are strong in many mined materials, like coal.
We were, until recently, pre-eminent in finance, and still perhaps the leading power there–but clearly dminished compared to pre-2008.
We are leaders in telecommunications and related technologies. We probably still lead in software and internet applications.
We lead in entertainment, although again much diminished from a decade ago.
It’s a great country, but it doesn’t have enough oil. We need more low cost transportation fuel, first and foremost.
I think that the US oil & gas industry is critically important to the US economy, especially since we are among the small number of real producers in the economy, but I think that the industry is collectively making a huge mistake in overpromising what the industry can actually deliver.
Note that the US is still the world’s largest net oil importer. While there is some pretty crazy stuff out there about the US export/import situation, the fact remains that the US is dependent on imports for two out of every three barrels of crude oil that we run through US refineries.
US crude + condensate (C+C) production has been between 5.4 and 5.6 mbpd since the fourth quarter of 2009, versus a 1970 peak of 9.6 mbpd, and for the first time since the 2005 hurricanes hit, US C+C production in 2010 very slightly exceeded the pre-hurricane production level that we saw in 2004.
On the natural gas side, a good deal of the blogosphere is talking about the US becoming a natural gas exporter. The most recent annual EIA data show that the US consumed 9% more natural gas than we produced in 2009, while we consumed 12% more than we produced in 2010. While we had a small increase in production, consumption rebounded, causing net natural gas imports to increase year over year, and we remain one of the world’s largest net natural gas importers (EIA).
Regarding coal, the most recent EIA data show that we are just barely self-sufficient, consuming about 95% of production on a tonnage basis. In fact, on a tonnage basis, a few years ago we were actually a net coal importer for a year or so.
Global annual C+C production has been between 73 and 74 mbpd since 2005, except for 2009 (EIA). Global annual total petroleum liquids production has been between 81 and 82 mbpd since 2005, except for 2009 (BP). In both cases, this is in marked contrast to the rapid increases in production that we saw from 2002 to 2005.
We have seen a measurable decline in Global Net Exports (GNE), with 21 of the top 33 net oil exporters showing lower net exports in 2010, versus 2005. Furthermore, a simple model, and numerous case histories, show that net export decline rates tend to accelerate with time.
The data show that the developing countries, especially China & India, are generally outbidding the developed countries for access to GNE. Our work suggests that the US is well on it way to “freedom” from our reliance on foreign sources of oil, just not in the way that most people hoped.
Following is a chart showing Global Net Exports (GNE) and Available Net Exports (ANE). I define ANE as GNE less Chindia’s combined net oil imports:
http://i1095.photobucket.com/albums/i475/westexas/Slide1-13.jpg
The observed GNE 2005 to 2010 net export decline rate was 1.3%/year (BP + Minor EIA data, Total Petroleum Liquids, top 33 net oil exporters in 2005).
The observed rate of increase in Chindia’s net imports was 7.7%/year for 2005 to 2010.
Note that ANE have declined at an average volumetric rate of about one mbpd per year for the past five years, from 40 mbpd in 2005 to 35 mbpd in 2010.
2010 to 2015 Projections for ANE:
For the low case, we assume a GNE net export rate of change of -1.3%/year and a Chindia rate of change in net imports of +5.0%/year.
For the middle case, -2.5%/year (GNE) and +7.7%/year respectively (Chindia).
For the high case, -5.0%/year (GNE) and +10%/year respectively (Chindia).
Chart Showing Historical ANE and Projections to 2015:
http://i1095.photobucket.com/albums/i475/westexas/Slide4.jpg
The low case is basically a continuation of the volumetric ANE decline rate that we saw from 2005 to 2010, i.e., about one mbpd per year, but note that this requires no increase in the GNE decline rate and it requires about a one-third decline in Chindia’s rate of increase in net imports.
Thank you for the intelligent arguments here, I only recently found this site and it’s a wonderful change.
The examples you cite seem to condem uncertain regulation rather than regulation itself. Are there ways to preserve the protections of regulation while lowering investment costs?
Don’t some regulations lead to a net increase in jobs? A dirty plant in Texas may close, but someone had to manufacture the air scrubbers installed in all the plants that didn’t close.
Thanks for the enlightenment.
US consumption to production ratios for US oil, gas and coal (EIA):
http://i1095.photobucket.com/albums/i475/westexas/Slide1-5.jpg
And following is a link to one of my favorite essays by Kurt Cobb, which has a graph showing the remainder of the US economy resting on the shoulders of the food & energy producers:
http://www.energybulletin.net/node/32718
Professor Hamilton, why not look at the effect on economic growth if America stopped doing certain things inefficiently? The classic is our health insurance system, which costs about 7 points of GDP more than any major industrialized nation. If this were righted, it would reduce the deficit and greatly improve the competitiveness of American manufacturing and contracting are rife with corruption and waste. There are many weapons systems that are not useful. And then there is the enormous army of the unemployed. If we agree that they should not perish but be allowed to eat and sleep indoors, then we can either do it through charity and social programs, or we can do it by hiring them to do productive work.
You’re looking for rare earth mines. Our underused (nay, abused) human capital, the corruption with which our system is rife, the utter waste is so massive that it constitutes a mine far richer than anything Molycorp could work.
I also doubt that regulatory changes will have much effect, and indeed may have a perverse effect. In industries such as pharmaceutics, regulations forced companies focus on productivity. They invested more. They trained their employees. And highly-motivated employees discovered means to lower costs. The result, up until the mid-1980s, was an industry that was the envy of the world. And then regulations started being weakened. The US industry stopped focusing on productivity, and started to focus on cost-cutting and outsourcing. Employees were demotivated, and the industry has gone downhill.
Low-regulation countries tend to be low-wage and low-productivity nations. High-regulation nations tend to be productive and offer high wages. I think there’s a connection. I wish you would consider that hypothesis.
Did you know that US petroleum exports are now equal to almost one-third of US petroleum imports?
http://www.angrybearblog.com/2011/09/petroleum-exports.html
Largely because of our dysfunctional political system I expect the US to follow Japan into our era of economic stagnation. How can anyone realistically expect the US to return to its old long term growth rates?
Spencer,
The primary reason for the decline in US net oil imports, relative to our 2005 peak, is a decline in US demand, basically as we were outbid for developing countries for access to declining global net oil exports. We have seen some rebound in US production, but the most recent annual data show that 2010 US crude + condensate production just barely exceeded the pre-hurricane 2004 rate.
To put our dependence on oil imports in perspective, in early September, 2004 the US was reliant on imports for 67% of crude oil inputs into US refineries. In early September, 2011, we were dependent on imports for 64% of crude oil inputs to US refineries, and we remain the world’s largest net oil importer.
As noted up the thread, the reality facing us that we are being forced to take a declining share of a falling volume of Global Net Oil Exports.
Charles, according to your hypothesis, every country in the world could become a high-wage and high productivity nation simply by increasing the level of regulation.
My hypothesis would be that regulation has a negative impact on wage and productivity growth. Regulations can be welfare improving when they make the costs of externalities explicit, but the tradeoff is lower efficiency, wage growth and productivity growth, IMO.
Dorman is missing is that raising cost does not increase demand.
And, as a just posted on Menzie’s last post but is more fitting here:
Low demand is due to declining discretionary disposable income. This is due to money pooling in financial services and obligations made under bad expectations (that high price were termporary and that borrowing was OK because promotions and raises were certain). Banks were protected from the new reality, but the same relief was not made to individuals. Reducing obligations or a true “money drop” is the only way for money to get money where it is needed for demand (which exists) to be expressed. Right now, people generally have no money to express their demands and their basic demands keep increasing in price, leaving less and less to their discretion.
On top not getting the raises expected, the debt needs to be paid back from less discretionary income than expected, requiring cutbacks in spending to below what it would have been if debt wasn’t used for consumption previously and maintained for a longer time than the period of excess consumption. This is just to get balance sheets to where they should have been in 2005. The realization that uncertainty is higher than we thought means that we need to have more saving/investment than we thought back than.
We don’t need new spending, we need debt relief.
Spencer, some of the import/export ratio is likely due to making the input optimal for refinery configuration.
Prof. Hamilton is correct about the use of coal to generate power. I was talking with the head of distribution at progressive Austin Energy, and he said quite clearly that the new emission regulations will force them to forego a large amount of their electricity generated by coal.
I have to take exception with Jeffrey Brown’s view that this country is fossil fuel constrained.
For a number of reasons, we are presently fuel constrained. But at the right price and with the right investment we can produce enough transportation fuel for our needs for some time.
Celanese claims to be able to make ethanol out of natural gas at prices that would make its per BTU costs well below that of gasoline. It has not yet demonstrated this in production quantities so we do not know if it is true or not. We also do not know how big its plants have to be to be profitable. If they can be relatively small, then they can be built close to the well. This is important because ethanol must be shipped by truck or rail rather than pipeline.
Coal can also be converted to fuel but apparently the plants cost a great deal to build. First some company has to take the plunge and show that it can be profitable. Risks include regulatory risk and also competition over the long term from such fuels as natural gas and ethanol (and gasoline should the economy collapse and oil prices with it).
The main impediment to coal is not production capacity but rather rail lines. It costs little to surface mine coal in Wyoming. The cost arises from rail transportation. In good economic times coal has a real hard time competing with goods for routes out of Wyoming.
Furthermore when it comes to coal as a fuel source, high sulfur and low grade coal do just fine. We have plenty of both.
We will continue to import fuel regardless, first because other countries have already spent money for production capacity that is still viable and other countries such as Iraq have lots of resources that cost little to produce. But every gallon of gasoline from imported oil we replace with domestic fuel is a competitive advantage we gain over countries such as Japan that import everything. And China is growing so fast that it will have an ever increasing import bill. We are the only developed nation that can increase domestic production of fuel if the price is right and regulation permits. While I do not dispute that world fuel demand will increase faster than supply, causing chronic high prices, we in this country are not running out of fuel any time soon.
Here is what BP shows for recent US total petroleum liquids (C+C+NGL’s) production versus petroleum consumption:
Production – Consumption = Net Imports (mbpd):
2004: 7.2 – 20.7 = -13.5
2005: 6.9 – 20.8 = -13.9
2006: 6.8 – 20.7 = -13.9
2007: 6.8 – 20.7 = -13.9
2008: 6.7 – 19.5 = -12.8
2009; 7.3 – 18.8 = -11.5
2010: 7.5 – 19.1 = -11.6
In 2010, net US petroleum imports, relative to 2005, were down by 2.3 mbpd. A decline in demand was due to about three-fourths of the net import decline, with an increase in total petroleum liquids production accounting for about one-fourth of the decline in net imports.
Do you really believe that a $350 million plant was suspended becasue the company couldn’t figure out what regulations to meet?
That sounds like pure BS to me… somebody trying to put a political gloss on an economic blunder. It is foolish to even quote such stuff, let alone to base conclusions on it. If that company had orders for cement it would build the plant. Full stop.
colonelmoore,
You are certainly not alone in believing that there is no problem with maintaining an infinite rate of increase in our consumption of a finite fossil fuel resource base.
But consider a counterargument:
Let’s use oil as a proxy for fossil fuels.
I assume that we agree that discrete oil wells will eventually peak and decline, e.g, the discovery well in the East Texas Field.
And I assume that we agree discrete oil fields will eventually peak and decline, e.g., the East Texas Field, the sum of the output of discrete oil wells.
And I assume that we agree that discrete regions will eventually peak and decline, e.g., Texas, the sum of the output of discrete oil fields.
Where we seem to have a disconnect is what happens to global crude oil production, the sum of the output of discrete regions like Texas.
Following is a chart showing the 1972 Texas crude production peak lined up with the 1999 North Sea crude production peak:
http://i1095.photobucket.com/albums/i475/westexas/Slide1-2.jpg
Note that these two regions were developed by private companies, using the best available technology, with virtually no restrictions on drilling.
And following are charts showing annual crude oil prices (vertical scales) versus annual crude oil (C+C) production for Texas and the North Sea:
http://i1095.photobucket.com/albums/i475/westexas/Slide2-2.jpg
My position is that the sum of the output of discrete regions like Texas & the North Sea, which accounted for about 9% of global cumulative crude oil production through 2005, will show a similar peak.
As noted above, global crude oil production has been flat to down since 2005, despite a slowly increasing contribution from unconventional sources.
Spencer –
As a function of practical peak oil, US oil consumption declines, and for the reasons Jeffrey states. This means that US refinery capacity falls idle. However, in response, the refiners can re-purpose their capacity to refine crude for export, which is what has happened.
It does, however, reflect a struggling downstream sector. And it shows: Conoco and Marathon have split off their refineries, Sunoco is exiting the business. It’s what our macro analysis has suggested since 2007.
America is excellent at innovation and risk taking that comes from reworking products and services to generate demand, or creating new ones.
However, intellectual property is severely constrained in the U.S. Between much of the DMCA, process patents and software patents, there’s no way for ideas to be free. Once something is generating revenue, patent holders who might have a patent bearing some resemblance to the start-up litigate and collect their taxes.
The system bears an uncanny resemblance to racketeering.
Deregulate ideas.
Sure, the US would be more competitive if it implemented Chinese environmental and safety standards. Is that a good choice?
I wouldn’t lead with the FWS impacts on California agriculture until you study the economics of this issue a bit more. While there are some CA agriculture interests harmed by the FWS regulations, there are other CA economic interests who potentially benefit from it including the endangered salmon fishing industry, and recreation and agriculture in the Delta region. While the cost on some farmers is high (although exaggerated), the net economic cost is relatively low even before attaching a value to endangered species. The govt financing and history of the Central Valley Project is also worth studying.
However, your main point is true, regulations do have a cost on competitiveness. But some regs have more value or less cost than it initially appears.
The US could take several actions to meet fuel demand. 1) Develop clean coal synfuel. Just 5 large plants could supply 100% of gasoline demand. 2) Increase telecommuter numbers. 3) Build out gas pipelines and subsidize natural gas electric power plants. It’s not rocket science.
Jeffery, my point is that because your analysis ignores oil exports it substantially overstates US dependence on foreign oil. Your analysis says gross imports are back to where they were 10 years ago. But net imports are back to where they were 20 years ago.
The expanded oil exports may partially reflect refiners taking advantage of the low price for WTI refined product to Europe where refiners pay more for crude.
to export
I’ve long argued that we had surplus refining capacity and that was the real reason we have not built new refineries, not political interference.
Note that domestic output grew in 2009 and 2010.
This is the first consecutive annual increases in domestic oil output since Carter was president and the oil industries faced price controls and a windfall profits tax. So maybe Obama is not doing that much damage to the industry.
Aaron, I do not understand your comment, what is your point?
Craig,
As noted up the thread, the US is presently consuming, based on most recent EIA data, about 95% of our coal production, on a tonnage basis, and the US remains one of the world’s largest net natural gas importers, having shown a year over year increase in net natural gas imports in 2010, versus 2009.
If your principal argument is that the solution to the ongoing decline in Global Net Oil Exports (GNE) and in Available Net Exports (ANE), which I have described above, is to vastly increase our coal production, to be used in a massive coal to liquids program, it’s certainly an idea, although I seriously doubt that it’s feasible, but in any case, I just wanted to point out that your solution to a liquids fuel problem is to increase the depletion rate of our other fossil fuels–the depletion rate being the rate at which we consume remaining fossil fuel resources.
@ Wallyfurthermore,
Actually, I find it very believable. I just got word this morning that my company may have to stop selling one of our products not because of some problem with our product and not because a regulation has changed but because some policy-wonk at the FDA has changed his/her mind about the interpretation of a regulation that has been in force for years. That change of mind leaves us with the prospect of doing some rather expensive animal studies to show that one of two approved and validated assays has some correlation to a claim we don’t even make for our product. We want to switch from one assay to the other because our vendor won’t support the original assay any more. Other companies sell similar products using the same assay we want to switch to (and they will be able to go on selling). But, if we switch to that assay, we will be required to prove a relationship between that new (but approved and validated) assay result and a product performance characteristic we do not even claim our product has.
So yeah, it is quite easy for me to believe that there are air quality standards administered by different gov’t agencies and the company is unable to determine which one to follow. I know way less about EPA than the FDA, but I know of a small company that damn near went bankrupt because they couldn’t get the FDA to tell them which of two product categories they should apply under. The company held several meetings with the agency and couldn’t get the FDA to get off the fence on one side or the other for damn near two years.
Jeffery, because your analysis is ignoring exports it is significantly understating the recent drop in domestic demand.
Refiners will blend various qualities of oil to get a mix suited for their setup.
Most US refineries are best set up for the low quality oil of South America and not the higher quality oil we now finding.
(politics is only responsible if it is what makes reconfiguration or new capacity prohibitively expensive)
Spencer,
I think that you will find that Gross Exports less Gross Imports gives you the same number as Domestic Production Less Domestic Consumption (see item below).
“Gross Oil Exports” from the US almost exclusively consist of refined petroleum products. We have recently become a net exporter of refined petroleum products, because of weak demand in the US, which is basically a function of forced energy conservation, as developing countries take an increasing share of declining global net exports.
Regarding your claim that “Your analysis says gross imports are back to where they were 10 years ago,” I don’t recall discussing gross imports.
We are focused on net exports, which are defined as domestic production less consumption and on net imports, which are defined as domestic production less consumption.
Regarding your claim that “Net imports are back to where they were 20 years ago,” I’m a little perplexed. Here is an EIA chart showing net US oil imports through 2009 (in this case net imports are shown as negative numbers):
http://www.eia.gov/countries/img/charts_png/US_petnet_img.png
And here is a longer term series of charts from the EIA, again only through 2009, (note that all numbers are positive on these charts):
http://www.eia.gov/emeu/aer/pdf/pages/sec5_4.pdf
What the data I have seen show is that US consumption is down from our 2005 peak rate, which accounts for most of the decline in net oil imports versus 2005. But the bottom line is that the US is still dependent on crude oil imports for two out of every three barrels of oil that we process in US refineries.
For readers, an explanation of net exports and net imports:
Let’s assume that we have two countries, Production Land (P) and Refinery Land (R).
For the purposes of this discussion, let’s ignore refinery gains.
Each country consumes one mbpd of refined product.
P has production of two mbpd, but no refining capacity.
R has refining capacity of two mbpd, but no production.
P ships two mbpd to R. R refines the oil and ships one mbpd of refined product back to P, and R consumes one mbpd of refined product.
So, for P:
Production of two mbpd less consumption of one mbpd = net exports of one mbpd
For R:
Production of zero less consumption of one mbpd = net imports of one mbpd.
Or, if you prefer:
For P:
Gross Exports of two mbpd less gross imports of one mbpd = net imports of one mbpd
For R:
Gross Exports of one mbpd less gross imports of two mbpd = net imports of one mbpd
Goldman Sachs predicts that the US will be the top producer of petroleum liquids in 2017.
Art Berman has an interesting take on this. http://www.theoildrum.com/node/8367
Art’s been skeptical about gas shales, and he’s also somewhat skeptical of shale oils.
He points out that the GS folks don’t appear to do good math; I can’t make the numbers work from my sources either.
But per the EIA STEO for September, here are the numbers:
US crude oil production is about 5.5 mpbd. And to this NGL’s and biofuels, and you get 8.6 mpbd. And to this you can add another 1 mpbd of refinery gains, which doesn’t count in some sense as production but does count for purposes of consumption. Total US production (including refinery gain) is half of US consumption.
Both Goldman and BoA/ML have very bullish estimates for shale oil production. Since the beginning of 2010, US onshore (lower 48) crude production is up 600 kbpd, and much of that was before the current shale oil boom.
I consider the i-bank numbers supportable, while acknowledging Art’s point that it’s still very early days to be banking such large growth numbers.
I’ve heard coal–>hydrogen is cheap and easy.
“And even taking the problems of the aftermath of that as given, a more expansionary monetary policy after the collapse could have still helped. But Japan also was burdened by longer run structural problems– other countries were taking over the manufacturing markets in which Japan had historically excelled.”
But Japan had one huge advantage over the U.S. today – its monetary policy could (and did) bring a thriving yen carry trade, which brought Japan’s currency down and allowed it to export a good part of its problem to ROW. Ben has tried that recently, with what I predict will be disastrous results. With the yuan pegged to the dollar, his policy could only work if Europe were big and healthy enough to hold up Chimerica. So, how is that playing out now?
And Sachs is all wet on the causes of the housing bubble. His story on loss of U.S. international competitivess comes close to implying that the U.S. has lost its comparative advantage in everything. If the U.S. trade were balanced, the losses in manufacturing would be made up elsewhere. The problem is U.S. net foreign borrowing, but what is the cause? Well, over $5 trillion in Asian accumulations of foreign reserves is certainly suspect. As Krugman has pointed out, it is international imbalances, not loose monetary policy, bad regulation, or over-rambunctious fannie and freddie that led to the housing bubble here (and in other ocuntries).
And what is this line supposed to mean? “and because of the longer-run challenge in finding a basis for future economic growth and current-account balance”
We need to find a basis for current account balance? What kind of statement is that? We now have a big prblem of excess desired savings. The natural result of this would be trade surplus, yet we have big deficits (a de-stimulus of something like $600 billion annually). It is true that we are now competing with excess desired savings globally. But a big part of that is the result of deliberate government policies, namely currency interventions abroad.
Not all jobs and GDP increases are desirable. Imagine that we lifted all restrictions on, say, natural gas exploration. There would be fracing galore for some years, creating jobs and GDP growth. After that, there may be an increase in chronic health problems for people living in the area, creating healthcare jobs and more GDP growth. Finally, we’ll have lawyers filing class-action lawsuits against the energy companies involved, creating lawyer jobs and more GDP growth.
As long as the people affected don’t die, you could have large increases in employment in gas drilling, healthcare, and law, but is this desirable at the end of the day? People often poke fun at the government stimulus, which some describe as digging trenches and filing them back up, but tend to forget that the private sector can create a lot of useless economic activity too, increasing GDP but ultimately not making us better off.
Sorry, I knew a typo would slip by.
Corrected final segment:
Or, if you prefer:
For P:
Gross Exports of two mbpd less gross imports of one mbpd = net EXPORTS of one mbpd
For R:
Gross Exports of one mbpd less gross imports of two mbpd = net imports of one mbpd
Incidentally, the Production Land and Refinery Land example assumes a steady state relationship.
Let’s assume that Production Land (P) shows a 10% production decline, down to 1.8 mbpd, and a 10% increase in consumption, up to 1.1 mbpd. (Production was two mbpd and consumption was one mbpd).
P ships 1.8 mbpd of crude to R. R refines the 1.8 mbpd and ships 1.1 mbpd of refined product to P.
R is therefore forced to reduce their consumption of refined product from 1.0 mbpd to 0.7 mbpd.
Basically, except for the fact that the US has some production, the US post-2005 situation regarding product exports is analogous to the above example for Refinery Land.
For P, we see net exports of 0.7 mbpd, and R shows net imports of 0.7 mbpd. But note that a 10% production decline and a 10% increase in consumption resulted in a 30% decline in net exports from Production Land.
For more info, do a Google Search for: Peak Oil Versus Peak Exports.
BTW, I suspect that part of the confusion over exports less imports, versus production less consumption is related to differing definitions of production, especially regarding ethanol. Here is a data table that shows various components for the US through 2009:
http://www.eia.gov/emeu/aer/pdf/pages/sec5_5.pdf
If you add refinery gains and ethanol to C+C+NGL and subtract that from product supplied you get basically the same number as imports less exports for 2009.
BP only counts petroleum production, so they don’t count ethanol as production.
Is anyone here aware that total US gov’t spending, including personal transfers, plus household debt service to disposable income now exceeds US wage and salary disbursements?
Add in the cost of US oil consumption to wages, and the situation is even worse.
At the ’07 peak, total gov’t spending plus household debt service reached nearly 50% of nominal GDP and nearly 75% of private GDP.
But it’s worse. Private full-time US payrolls per capita are back to the levels of the late ’80s to early ’90s.
Total full-time employment per capita is back to the levels of the late ’70s to early ’80s.
Full- and part-time employment per capita for US males is back to the level of the ’60s.
Then look at the marginal returns to US oil production in net energy terms per capita to wages as a share of gov’t spending plus debt service, and we are in a deep net energy per capita deficit to wages and thus “uneconomic” activity, and the rate of deceleration is increasing.
IOW, real US private uneconomic growth per capita is over, and US small business and job growth cannot occur, only we do not yet know it because we are not looking at the right measures.
Moreover, we continue to externalize the costs of waste and consumption of non-renewable resources (at home and abroad), including the costs of squandering treasure on perpetual imperial wars for oil supplies and shipping lanes around the world.
The relatively lower EROI from production of shale and tar sands to crude oil will not reverse the aforementioned conditions. The marginal costs to net energy per capita to wages and overall uneconomic activity will increase and force demand to decline further, reducing marginal returns to the higher-cost energy production, which in turn will reduce growth of future investment (ex subsidies) in shale, tar sands, and “alternative energy” projects.
Many will be puzzled, if not surprised, when the rate of growth of production of shale, tar sands, and alternatives begins to decelerate and decline in the years ahead.
Jeffery — we have good data on what exports and imports actually are.
Why don’t you use the actual data rather than some convoluted indirect estimate.
Professor Hamilton,
To argue by analogy, one industry where deregulation has been rolled back over the last 30 years is the financial industry. How did that work out for our society?
Rolling back environmental regulations may make some projects viable economically by removing some of the regulatory costs of the harmful externalities of those projects.
You argue that going back to the old way of doing things is a sensible guide for how to improve our economy. I’ll just point out that Los Angeles air quality in the 70s was comparable to that of China’s in the modern day. The old way of doing things was dirty, unhealthy, and caused demonstrable harm to society. Our economy and environment have improved dramatically over the past forty years. I’m not sure why you think they are diametrically opposed now.
Jeffery == what you are doing is counting exports as domestic consumption.
Until recently that would not have made much difference. But because exports have been soaring in recent years it is now a significant error.
We’re pretty good at exporting debt and derivatives and at flipping houses to each other.
That’s gotta count for something.
If China and India are so much more dependent on imported oil than we are, why aren’t we in a much better economic position?
I’m surprised that JDH overlooked the two most obvious things that this country is good at producing. The first is something near and dear to his own heart, and that’s higher education. American universities are still world class. And the second thing is something near and dear to my heart. As a Dept of Army analyst I happen to think that the US is pretty darn good at making war. Or to put it in softer terms, we’re good at producing a public good called peace. The bad news is that unlike the ancient Romans, we’re not so good at extracting tribute from the world for those protection services. A classic free rider problem.
JDH also mentioned the hampering role of regulation, but here I think he missed the mark. One of the reasons regulations are costlier than they need to be is that American voters are not adult enough to vote for Pigouvian taxes that would allow the market to regulate bad outcomes and negative externalies. As a result we’re left with second or third best solutions. A good example can be found in this new NBER paper that talks about suboptimal solutions that are driven by regulations generating small costs to a lot of people but high gains to a small group. The effect is a net welfare loss that could be overcome with a well designed Pigouvian tax.
http://www.nber.org/papers/w17386
Finally, I’m not really convinced by the natural resource argument. For example, oil is a natural endowment. We can extract it today or tomorrow, but once consumed it is gone forever. The economic decision is finding the optimal consumption path through time. To a first approximation (and with a lot of oversimplifications), the optimal path ought to resemble a Hotelling model. But yet we know that the oil industry does not follow a Hotelling model. So I think it’s highly unlikely that an unregulated oil market is finding the optimal consumption path across generations. Maybe, but it would be an accident. And this gets to the larger point. I would hope that the economics profession would focus on improving NIPA accounting such that we explicitly account for the depletion of natural resources in our NET domestic product calculations. It’s important to focus on NET product more than GROSS product when looking out over the long run because the NET product is a better meaure of welfare.
Here is the EIA data on crude and refined trade
in 000s of bbls/day.
NOW –will you finally pay to my point
rather than your convoluted theory.
It shows that exports have grown from some 10%
of imports to almost 25%– in early 2011 it is over 25%.
……………………….exports
year….exports…imports..% of imports
2000,,,,12,474,,,11,491…….10.9
2001….11,650…11,871……..9.8
2002….11,821…11,530…….10.3
2003….12,321…12,264…….10.0
2004….12,579…13,181……..9.5
2005….13,987…13,714…….10.2
2006….15,806….13,707……11.5
2007….17,186…13,468…….12.8
2008….21,614….12,951……16.7
2009….24,266….11,691……20.8
2010….28,208….11,793……23.9
Jeffrey Brown,
No I don’t believe in an infinite increase in fossil fuel production any more than I believe in infinite production of zinc or the sustainability of an infinite production of people.
However between here and infinity is a long way. We are situated much better than the rest of the oil importing countries, in that we have much more untapped total fossil fuel than they do.
Energy is like anything else that is for sale. As the price goes up, we become experts at finding substitutes, including efficiency and simple remedies such as eliminating driving commutes. It is unrealistic to assume that a dollar increae in the cost of a particular type of transportation fuel means a dollar less elsewhere in the economy.
As gas prices go up, office workers people can start doing more telecommuting. Also areas with good public transportation become more competitive, so they are able to attract more jobs.
The Inland Empire in California is on its knees because it depended on sales of bedroom housing for people commuting into LA. But last I was in downtown LA it was full of derelicts, which would make it a rather unpleasant place to live. With the cost of commuting going up, downtown LA could easily gentrify. I see this in San Francisco, where ghetto areas have steadily become yuppified.
Fuel substitution takes place as well. Right now it costs half as much to fill up on natural gas as on gasoline.
Finally, the price of oil in Canada is just as high as here. But Canadians aree doing well because the profits from oil sales get recycled into other parts of its economy. To the degree that we reduce our outflow of oil dollars we too will benefit.
At some point the fuel will become so pricey that we will be out of luck. And if we have not come up with some substitute for fossil fuel when it does then things will get nasty. But you are talking as if it is a steady downhill slide starting today. I don’t see it quite like that.
I realize this won’t make a dent in the thinking of someone who is fixated on peak oil. I understand this way of thinking, as I am fixated on the Fed as the main reason for the housing bubble.
Wisdom Seeker – You pose an interesting question:
“If China and India are so much more dependent on imported oil than we are, why aren’t we in a much better economic position?”
If we view oil as an enabling commodity, then its value is greater than the value of the oil itself. Thus, if higher oil prices mean you can’t afford to drive to work, then if you stop consuming the oil, you also lose your job. The loss is much greater than the oil itself. If this were true, we would expect to see inelastic demand, as consumers struggle to hold consumption even above their long-run demand level. And further, when consumption is ceded, we might expect that to occur in a traumatic fashion, for example, with a recession.
If the supply growth of oil is less than demand growth, then oil consumption will tend to move from the slowing growing to the fast growing economies. And it has.
The loss to the mature economies, by this line of thinking, is thus greater than the loss of oil itself. Thus, we might expect to see median income stagnate, or even fall. And we might expect, for example, that we would we struggle to re-hire the unemployed because there is no additional oil available to them. And unemployment has indeed remained high.
There should be a long term benefit to society as a whole: the Chinese will be better off than we are worse off, and their increased economic activity should benefit us as well over the long run. But this assumes a return to something like full employment over time, which is likely–eventually. In the interim, short- to medium term adjustment may require pain before the gain.
I wonder if any of the posters has ever looked at the US trade deficit in Advanced Technologies…
TJ says, “Charles, according to your hypothesis, every country in the world could become a high-wage and high productivity nation simply by increasing the level of regulation. ”
First, are you seriously arguing that waste and corruption will make a country rich?
Second, I have presented observations, for which I have listed specific examples. While I present it as a hypothesis, that’s for the purpose of form. I’m requesting that James Hamilton, instead of focusing on growth, focus on another factor in wealth, i.e., productivity.
Third, there’s no assertion that regulations per se cause productivity to increase. Regulations can be smart (oriented toward valuable outcomes) or stupid (oriented toward irrelevant outcomes). It does make a difference!
Finally, if every country adopts the same strategy– any strategy–to improve productivity, the benefits will be shared. So, there’s no guarantee that any particular country will get rich, only that countries that fail to improve productivity will get poorer, and that those countries who improve productivity will benefit.
Just answer the question of why Nigeria, rich in natural resources, is poor, while Germany, poor in natural resources, is rich. The answer has something to do with how they use their respective resources.
Spencer,
Perhaps I missed it, but have you explained your claim that net (US) imports are back to where they were 20 years ago? Here is an EIA chart showing net US oil imports through 2009 (in this case net imports are shown as negative numbers):
http://www.eia.gov/countries/img/charts_png/US_petnet_img.png
In any case, as noted in my Production Land and Refinery Land Model up the link, if the production and consumption numbers are accurate and consistent (a big “If”), there is no difference between production less consumption and gross exports less gross imports (by definition, exports are not consumed domestically).
And the EIA uses the production less consumption measurement in the above chart.
However, our primary focus is on the supply side, where we have seen a measurable decline in Global Net Exports, versus a rapid 5%/year increase from 2002 to 2005, and where we have seen an even sharper decline in Available Net Exports, using a consistent metric of domestic production less domestic consumption (BP + Minor EIA data).
The only question for the US is how sharply our net imports have fallen post-2005, as the US has been forced to take a declining share of a falling volume of Global Net Exports.
Re: Wisdom Seeker
Using the BP data base, the Chindia region in 2010 consumed 253% of their total petroleum liquids production, while the US consumed 254% of its total petroleum liquids production.
But as noted up the thread, Chindia and the US are headed in different directions, relative to 2005 consumption levels.
At Chindia’s 2005 to 2010 rate of increase in their combined net oil imports, as a percentage of Global Net Exports, their net imports would approach 100% of Global Net Exports in about 20 years. As they say, somethings gotta give.
Central planning economies rarely works out well. The highest probability way of improving the long run economy is to allow the free market to once again set prices. This will avoid the misallocated capital problem exemplified by the housing bubble.
IOW, stop printing to manipulate prices. Let market price discovery return the supply/demand informational content to prices. The invisible hand will once again move Americans to their most productive use.
Spencer,
Incidentally, regarding the supply side, I just compared the BP data base for the (2005) top five net oil exporters* versus the EIA, for 2009 (the EIA net export/import data base has not been updated and appears to have been a casualty of recent cutbacks). In both cases, net exports are defined as domestic production less domestic consumption.
BP shows combined net exports of 21.0 mbpd in 2009, while the EIA shows net exports of 21.4 mbpd in 2009. Basically pretty close (EIA is only 2% higher than BP).
Here are the 2005 to 2010 BP data for the top five’s combined net oil exports (mbpd, total petroleum liquids):
2005: 23.7
2006: 23.3
2007: 22.7
2008: 22.5
2009: 21.0
2010: 20.8
*Saudi Arabia, Russia, Norway, Iran and the UAE (about half of Global Net Exports)
yes, my bagger friend, I too could make lots of money if I could just dump all the noxious waste produced by my process onto other peoples’ property rather than paying through the teeth to dispose of it properly.
But as anyone who passed Econ 101 understands, polluters must pay for markets to work. Grow up, and get over it.
Charles,
It’s called corruption and civil war in Nigeria. If only Nigeria would let our EPA impose a few regulations on them, then Nigeria’s problems would be solved (sarc).
More regulation vs. less regulation, let alone more regulation vs. no regulation, are false dichotomies. There are other alternatives.
Today we have multiple competing entities within the federal government producing and enforcing regulations, fifty states producing and enforcing regulations, and thousands of local governments doing the same. Streamlining the compliance process would introduce efficiencies without stripping necessary regulations. There are thousands of ways to do this. Just eliminating or reducing competing agencies at the federal level would be a start.
I’m always amused when I come to an econblog and read the comments from folks who don’t think like economists. I would guess that there is a declining marginal utility to regulations, with none being equally undesirable as infinite (where we are on that utility curve is a function of where we are on the income/wealth utility curve.) And yes, Chad does lack regulation in the form of a capable central government able to enforce those regulations/laws (like contract/property rights.)
Dear Wisdom Seeker, you should go visit the IEA website. Domestic energy issues are dealt with primarily through the Dept. of Energy’s Energy Information Agency. http://www.eia.doe.gov. International energy issues are dealt with primarily through the International Energy Agency http://www.iea.org. To answer your question, neither China nor India have nearly as high an energy component to their GDP. Both are expected to be increasing their energy consumption as they economically develop, and this is expected to increase presure on us. My weird take on this is that we are much better off, as we have greater substitution opportunities than the other OCED states that are already highly energy efficent. Our available improvements are cheap wheareas they have already done the cheap things and are only left with the expensive ones.
We sold out manufacturing, yes now lets liquidate all natural stocks and make ourselves as dirty and poor as possible so domestic labor is a cheap as China’s. What an absurd post- so little data, so little imagination. But typical of what the economics profession has become. Predictive power: zero. Post-hoc rationalization: infinite.
Yeah, deregulation, that’s the answer! Nevermind that Germany and Japan and any number of other nations stay competitive despite these horrible regulations.. and Germany even has social programs beyond the imagination of any American worker! How do they do it! I’m sure it’s because they have the business elite take control of their domestic economic policies, because only the business elite know how to run a country!
Vorpal, Germany and Japan do it because they are:
1) racially/ethnically homogenous (not multi-cultural like the US with a growing Third World-like underclass and ongoing invasion of tens of millions of migrants) and more inclined to social solidarity, empathy, and mutualism rather than hyper-indidividualization, hyper-competitiveness, and predator-prey, power-dependence social relations;
(2) they don’t spend 10% of private GDP on perpetual imperial wars around the planet;
(3) they don’t spend 16-17% of GDP on “health care” (of which the sickest 5% receive nearly half of all spending for the chronic conditions);
and (4) they don’t have extreme wealth and income concentration as in the US in which the top 1-10% of households receive 20-50% of income and own 40-85% of all financial wealth (and pay 70-75% of federal income taxes and thus own the best gov’t money can buy while the rest of the population experiences no representation without taxation).
The problem with relying on natural resources is that it makes you stupid, then the resources run out. It happens again and again. You have to move upstream in production and do whatever import replacement you can. No nation has ever developed its economy without rigid import restrictions and high tariffs. Look at England, the US, Japan, or China. They all had a host of anti-import mechanisms, government development policies, and cross subsidies during their growth stages. Trying to model ourselves on Saudi Arabia, Uruguay or Bolivia is a pretty lame strategy.
tj said “My hypothesis would be that regulation has a negative impact on wage and productivity growth.” That’s an interesting hypothesis, but it works as well as my hypothesis that water runs uphill. The data show otherwise.
tj says, “It’s called corruption and civil war in Nigeria. If only Nigeria would let our EPA impose a few regulations on them, then Nigeria’s problems would be solved (sarc).”
TJ, suppose we use another phrase to describe what I have been talking about: “rule of law.” Would you agree that establishing the rule of law is essential for prosperity?
Regulations are an element of the rule of law. They are detailed explanations of what laws say. The law says that you can’t defraud investors. The regulation specifies that T+3 time frame in which to settle a trade. If it weren’t for the regulation, there’s no way to decide when a trade has failed, and ultimately no way to decide whether a fraud has been committed.
Feel free to disparage bad regulations. But disparaging regulations in general is the act of intellectual laziness. When you disparage regulations, you are arguing against the rule of law.
If the rule making process does not already require a cost benefit analysis of new regulations, they should. What is Professor Hamilton’s suggestion for how consideration of cyclical unemployment should be added to the proper cost benefit analysis?
tj My hypothesis would be that regulation has a negative impact on wage and productivity growth. Regulations can be welfare improving when they make the costs of externalities explicit, but the tradeoff is lower efficiency, wage growth and productivity growth, IMO.
Well, it turns out that we have a controlled natural experiment that tests exactly that proposition. And you’re wrong:
However, many low income countries may be hesitant to potentially sacrifice economic growth for possible improvements in environmental quality. This study suggests that gains in worker effort may help offset some of the economic losses that may result from more stringent environmental regulation. Specifically, we find that a one percent increase in SO2 results in a 0.43 to 0.67 percent decline in hours worked in the following week. Given an average annual wage of 13,700 1993 Mexican Pesos (USD 3,600), this resulted in an estimated 756 (USD 198) per-worker gain from reduced absenteeism over the course of a year.
“The Effect of Pollution on Labor Supply: Evidence from a Natural Experiment in Mexico City,” by Rema Hanna (Harvard) and Paulina Oliva (UC-Santa Barbara) Aug 2011, NBER #17302. Quote from conclusion on page 35.
So you’re wrong. Regulations can improve labor productivity.
Luminant’s claims should be taken with a GIANT grain of salt. The new EPA regulation, the Cross State Air Pollution Rule, is set to limit SO2 and NOX emissions from power plants to improve air quality. One method of compliance with these rules would be to install scrubber technologies to capture these pollutants. The technology exists, and can be run economically; in fact, Luminant recently completed a new lignite-fired unit (Sandow 5) that employs these very technologies.
The problem for Luminant is that the firm is a product of financial engineering (and also that the regulations take effect within a very short time frame); it was taken private in a leveraged buyout during the credit boom. In theory, the firm could make the necessary upgrades itself or sell the plants to someone willing to do so. Given the extremely high prices seen in Texas this summer, I surmise there would be a number of willing and well-capitalized buyers, provided there is certainty over the exact type of emissions controls needed. To me, this announcement from Luminant seems like a pissing match with the EPA, and yet another example of vested interests trying to extract rents from government policy.
There is a very reasonable argument to be made that Luminant (and the whole of Texas) should not be subject to these rules beginning on January 1, 2012, since many of the solutions require long lead times for implementation (note that this argument is not applicable to the rest of the industry subject to this regulation; Texas was not included in the draft version of this rule published in 2010). In my opinion, though, that is a case of poorly implemented regulation rather than unwarranted regulation; the practical effect may be the same in the near term, but poor implementation can be effectively addressed.
frankly, i think that some of these estimates of regulatory costs are junk economics. renewables are a perfect example: in texas,to support wind power, a considerable amount of gas needs to be burned by gas-fired power plants to maintain grid reliability. So for 6000 megawatts of wind power, which generates on average 2000 megawatts of electricity, 2000 megawatts of gas-fired power needs to be on standby in case the wind ceases. “standby” uses nearly as much gas as having the plant generate electricity…. so how exactly has the “environment” benefitted? Especially considering that the turbines were built outside the country where regulations are lax. Most of these estimates “benefits” and “costs” are skewed because the answer is a foregone conclusion. After all, who doen’t want tougher rules on dirty old coal burning? We all agree coal burning is nasty and should be stopped at all costs. Yes, thats sarcasm. The net result of these rules is to *export* the mess, not eliminate it. Pictures of Pittsburgh and other steel towns were nasty in the 20s and I am glad I did not live there… but China is happy to import and build manufacturing because they recognize that having a dirty job is better than no job.
we are poorer because we are subsidizing their economic development, conciously or not.Send the dirty jobs overseas.
But morally, is it really better to send your dirty laundry out than to clean it yourself? Personally, if you hire someone to commit a murder, you are still a murderer. If you write rules that merely encourgage pollution to migrate overseas, you are still a polluter. I don’t care how liberal you are, if you have a 32 inch HD TV in your house you are as much of a polluter as anyone else. The only difference is that your mess is being exported.
dwb,
do you have any references regarding the gas consumption by power plants on stanbdy? It does not sound credible.
Dwb: As an electric utility engineer, let me say that you dramatically overstate your case with respect to the grid costs of wind power. Do more homework.
One of America’s major competitive advantages is historic investment in government funded infrastructure. Ag and coal are competitive due to rail and water transportation networks, irrigation projects and power projects. Almost all of this was either government funded or heavily regulated and/or subsidized. Why not go back to what we used to do and build ourselves back to competitiveness? We’re too busy giving handouts to corporate interests to use the government to create prosperity. As an example, checkout what wind power would cost per kwh if developed on the model of Reclamation projects. About the same amount that we pay in incentives over and above a full market price, and we don’t even own the generation.
Random thought.
What about shifting tax from income to oil and making taxes U shaped.
1. Tax oil.
2. Lower taxes for the bottom three brackets below the capital gains rate. (Including the oil tax.)
3. Lower the tax rate on all income (not just marginal) as income increases for the bottom three brackets.
4. Tax marginal income progressively for the top two brackets.
“When it gets down to it — talking trade balances here — once we’ve brain-drained all our technology into other countries, once things have evened out, they’re making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here — once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel — once the Invisible Hand has taken away all those historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity — y’know what? There’s only four things we do better than anyone else: music, movies, software and high-speed pizza delivery” – Neal Stephenson, Snow Crash
tj says “If only Nigeria would let our EPA impose a few regulations on them, then Nigeria’s problems would be solved (sarc).”
You may think you are being sarcastic but in fact EPA style rules will prevent the oil spills which have destroyed the environment in eastern Nigeria which are on the verge of causing a civil war.
Of cause, if you agree with Shell that paying for the clean up will encourage terrorism
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/8284806/Nigeria-oil-spill-payouts-would-encourage-terrorism-Shell-claims.html
never mind!
The Oil Shale Play will be the game changer for the US Economy during the next ten years. It is spread across the Nation and notably in ‘swing states’ who will be realizing soon that the ‘oil bidness’ is not so dirty after all.
Fractionalization technnology will be continue to improve, lowering both costs of production and environmental impact concerns.