Skip to comments.America is headed for an economic golden age — and that should terrify us
Posted on 05/07/2014 10:38:03 PM PDT by 2ndDivisionVet
The economy has been underperforming for over five years now. It's easy to worry that this unsettling trend might go on forever.
Well, don't worry. Because shale gas will probably change everything.
Last year, the U.S. bested Russia to become the world's biggest exporter of natural gas, thanks largely to shale gas. President Obama celebrated the moment by saying that the United States is the "Saudi Arabia of natural gas." It later turned out that the United States is also the Saudi Arabia of...oil, with its oil production scheduled to overtake Saudi Arabia's by 2015. That's next year.
It's unclear just how big America's reserves of shale oil and gas are, but if the most optimistic estimates are correct (and when it comes to shale, optimists have often been proven right), America's soil holds enough economic value to completely change American society.
But not necessarily for the better.
Yes, America is on the brink of having a massive economic boom thanks to its ability to export oil and natural gas to energy-hungry countries all around the world. But here's the thing: History shows that extraordinary supplies of natural resources tend to be a curse rather than a blessing. Thinking of the United States as the next Saudi Arabia? Well...would you want to live in Saudi Arabia?
The "resource curse" is often explained in terms of a macroeconomic phenomenon knows as the "Dutch disease." The way the Dutch disease works is relatively straightforward: Because foreigners buy your oil, this bids up your currency relative to other countries of a similar income. Because your currency is higher than other similar countries, your non-oil-related industries are uncompetitive and see-sawed by the market gyrations of oil prices, and wither on the vine. Because of this, your economy becomes more oil-driven, which heightens the impact of oil sales on the currency. It goes on and on in a vicious cycle.
But the resource curse has as much to do with political economy as it has to do with monetary policy. If you think our hyper-polarized, hyper-partisan, hyper-awful political squabbling is bad now, think of what it would be like when there are trillions of dollars of free money to be apportioned, and everyone wants a piece. Think lobbyists and special interests have too much power in Washington? Just wait till America's energy industry explodes.
Hey, you, conservative! Do you think too many Americans are on the dole? Just wait until politicians can essentially buy votes by demonizing evil oil companies, taxing them to death, and handing out the profits to voters via subsidies and entitlement programs.
Don't laugh, you liberal! What do you think Congress' agenda is going to look like once the oil industry has an importance that makes Wall Street look like a lemonade stand?
Thankfully, there are a few ways America can avoid this. Take the example of oil-rich Norway, which is perhaps the closest thing to Utopia on Earth. College and health care are free and, unlike other places in Europe, they're actually good.
How did Norway do it? Among other things, it decided once and for all that all of the country's oil revenue would go into an oil fund and this is crucial all of the proceeds would be invested outside the country. This is key, because once the funds are invested inside the country, you're done, as corruption takes over society.
Think of a big mutual fund, except it's funded by oil revenues, owned by the government, which invests in foreign companies. Why is this a big deal? First, investing oil proceeds outside the country pushes down the currency's value, counteracting the Dutch disease. But most importantly, if there's no rule against investing the proceeds in the country, it means the biggest investor in the country will be the government (read: politicians and special interests). It would arguably be the end not just of the free market, but of any notion of limited government.
If the fund invests outside America, how would ordinary Americans benefit? Easy: Tax cuts. It's the American way.
Now, maybe gigantic oil wealth won't turn America into hell on Earth. The United States has surely surprised the world many times in the past. But using history as a guide works both ways and we should all beware the "resource curse."
forget Noway socialism - lets just bankrupt OPEC countries
A soveirgn wealth fund that invests outside the US may make sense. But I don’t think we will experience the curse of oil like other countries. Other countries nationalize their industries, which then become make work jobs programs, (ahem, Mexico, Venezuela) which then mismanage the assets into bankruptcy. At least here private companies are still expected to make profits and invest wisely.
“Hey, you, conservative! Do you think too many Americans are on the dole? Just wait until politicians can essentially buy votes by demonizing evil oil companies, taxing them to death, and handing out the profits to voters via subsidies and entitlement programs.”
this article is just ditzy.
How is this any different from what is going on now, with money borrowed from our children?
Does this writer think this government is not doing exactly this just because it has no money?
Need Fusion. But that won’t help if we continue to let every Tom, Dick and Jose into the country.
The author grossly underestimates the size of the American economy. It’s scope is much broader than that of Norway nor Saudi Arabia.
And as for where to invest the profits — that is up to the shareholders who put their money at risk to fund any oil boom that may come
And Saudis do nothing BUT oil.
They import all their help. They are desert dwellers and are very much like the Beverly Hillbillies, only not as educated, self reliant and well rounded.
They would be nothing without oil to sell. And that should explain a lot.
Norway, like Germany, has a single minded cultural makeup. They follow rules and understand the order. Americans, no. It’s why socialism doesn’t take as readily here. THe Germans...they’ll stand at the street corner at 7 am on a Saturday, no one around, and wait until the light changes, allowing them to walk without jaywalking.
Americans no. I imagine the Norwegians to be similar in their readiness to follow big govt ideas.
When the writer says health care is free, she shows idiocy.
Are the doctors working for free? Just donating their time? Do they get a free house and expenses, or do they get paid?
And that’s what people here expect. BO has no more understanding of economics, it seems, than to expect doctors to donate their services, as their money grows on trees, as does all the money of wealthy people.
Otherwise the EPA will come up with an excuse to outlaw Natural Gas just like they've outlawed Coal and end all use of petroleum products as well. It's not like they have to have a reason other than wanting the US to collapse. They make the regs and the Federal government enforces them, no voting or debate required.
Guys an idiot.
That can't be true. When Governor Palin said, "drill baby, drill," we were assured that the governor of an oil rich state had no idea what she was talking about and it would take well over a decade for new oil to come online.
How about paying down the debt if there is some massive tax windfall. The Liberals will just see this as an opportunity to massively increase the debt and the GOP would not be much better - Even if invested offshore they will leverage against it!
Typical liberal thought process.. the ability to become self sufficient and the leader in the world on fossil fuels, potentially eliminating any dependency of foreign oil imports, eliminating the export deficit, paying down America’s debt and creating thousands of jobs is a bad thing that should be stopped.
The clown understands economics well enough. If you start with the assumption he is TRYING to destroy America everything makes perfect sense.
Needs to be repeated.
Interesting article....too bad the author is living in lala land....
Saudi Arabia has oil and that’s about it. Not so with the USA. The author is way off base with his theory.
Comparing the USA to SA is an apples to oranges comparison in regards to both the diversity and breadth of the US economy and the size of it.
This author’s understand of economics would fit in a thimble with room to spare.
Now imagine all those great things totally under the thumb of someone like Harry Reid.
Keep the NG wealth out of the hand of Government, and the US will do well - very well indeed!
But if we allow the Government to control the wealth - to reward their toadies with Sheik-like wealth - we will not recognize what America will become.
But we mustn’t do what the article writer says - the only funds on earth worse managed and more wasteful than the Norwegian sovereign funds would be an American Sovereign fund (shudder).
Instead: the people extracting the NG wealth must be allowed to keep as much of their profits as possible. Also any Government royalties must be used to sharply cut taxes. No-one in government can be allowed a penny!