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!
Oil is already purchased with dollars worldwide. There would be no “Dutch effect” causing foreigners to suddenly want dollars. They already need dollars to buy oil. Duh.
And there is certainly something to say for not having the gov’t decide whom to favor with investment. But the scale is all wrong. There is no way a country the size of the Us could take all of our oil money and invest it only in other countries.
Why would we want to do that?
Under Osama Obama, an economic golden age would be unlikely even if we found diamond caverns under every state.
Wake me up when they tart running natural gas lines out into the countryside. Propane is a killer of household budgets....
And then there’s that
If we become the Saudi Arabia of oil, our currency retains its value because we can trade fuel today for the debt rung up yesterday.
SUMMER OF RECOVERY! IT'S HERE! AT LAST...NO, REALLY...
No way that is true. We haven't completed a single LNG export terminal yet, besides the decades-old tiny one in Alaska that was shut down.
In 2013, we imported 2,883,359 Million Cubic Feet.
We exported 1,572,351 Million Cubic Feet.
The US is still a net importer. I quit reading at that nonsense claim. If the author is that uniformed, he should pick a different topic to write about.
Even if you ignore imports and pretend we are an exporter by only counting exports, Russia is about double our exports.
The Saudis are building one of the largest petrochemical complex in the world in Jubail; a lot of it is up and running and it is still growing. Don’t kid yourself they will only depend on exporting crude oil.
Any economic progress has been in spite of the regime, not because of it.
Sound like they’re making money from oil
Politicians will just tap into the well gushers to pay for ever-expanding Socialism and bigger and bigger government.
Even the modest braking effects of the debt and deficit would be off.
THAT would be my main concern.
No doubt that is the source of original income. But they do not plan to leave it as their only source of income. I believe the industrial city/complex is already 100 square miles.
The writer compared them to us.
If you want to say that after 50 years they are only talking about doing other things, when they have no motivation, they import all of their talent, all workers, that they compare to the US, join her.
Normally, the appearance of a dramatically cheaper natural resource would diffuse prosperity throughout the economy.
Unfortunately, all of Obama’s policies, designed to impoverish and ultimately destroy the U.S., are still in place.
It’s hard to believe there are still people who think Obama is just an incompetent, rather than a NWO Fascist.
They have built 100 square miles of industrial complex. They will build at least a 100 square miles more in the same area.
While the Saudis have spent unbelievable amounts on social welfare, they have built out for depending on far more than crude oil.
Spot on and if conservatives gain a foothold or better in the Senate and get a GOP POTUS in two years the trend will be for a more dynamic economy. If the economy takes off at the same time the GOP will be remembered as the growth party and that will help us hold power for a generation or two. You can fix a lot of things in that time.
I totally agree that the USA is on the path to being an oil exporter. That there is a huge wall of money coming the way of the federal government.
Oil is currently providing and extra 100 billion or so to federal revenues. Likely that number will go up to 300 billion or so annually in five years. That’s great.
However, the money will only be enough to fund what’s already on the books: social security and medicare—or that freak show obamacare if its still on the books in five years.
That said, while we’re entering a new era for oil—I don’t think it will be a decades long event. Sometime in the next 5-15 years there going to be an energy disruptor that will kill the demand for oil. There’s lots of candidates. The obvious ones are natural gas trains trucks and buses and electric cars. So maybe it will be consortium of several different energy sources. Maybe it will be something else.
The thing to focus on here is that oil in btu terms is currently over three times the cost of coal and natural gas. That is, coal and natural gas in btu terms are at about $32@ gallon while oil is around 100. Historically, these things tend to correct.
I had a friend in New Zealand who’s country went to the brink and back and it turned to hell.
She told me that the public finally became outraged and elected adults. The new administration turned it around and they went from a deficit to actually having money in the bank. Taxes went down, the economy was booming, and everything was roses.
Then, less than a generation later, the public started to look at the rich coffers and getting greedy. The politicians started making promises and they went right back into socialist hell.
Once people figure out that they can vote to give money to themselves, it’s all over.
Recently on FR there was an article posted which pointed out that part of the downward pressure on NG prices was, ironically, due to the high price of propane. The point being, that oil companies drill for propane - and find themselves with a lot of NG easily produced for low marginal cost. So the fact that they drill for propane increases NG production, thereby putting downward pressure on the NG price.The other thing that holds down the NG price, unfortunately for you, is the high capital cost of distributing NG out into the countryside. NG is a wonderful fuel, if you are a stationary application close to a pre-existing NG pipe. Im buying a house, and the fact that it is heated with NG was a selling point for me. So at least you dont have to worry about me bidding up the price of propane . . .