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."
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.
http://www.eia.gov/dnav/ng/ng_move_impc_s1_a.htm
We exported 1,572,351 Million Cubic Feet.
http://www.eia.gov/dnav/ng/ng_move_expc_s1_a.htm
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.
What ever
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.
I agree.
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.
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