For a while now, I have been writing about the theme of “unlock energy to unlock the economy”. There is nothing more true than that statement. While the conventional wisdom is that the burst of the housing bubble caused the global economic downturn, the reason for the lack of recovery seems to elude every economist and political official with a degree from any university. Maybe they just don’t teach economics anymore like they did 30 years ago when I was in college.
The only way to create sustained demand is not to start at the end of the production process, we have to start at the beginning. That is why programs like our failed “Stimulus” and the UK’s government sponsored £1 billion “hire a yob*” program are doomed to failure – these programs assume that the government can just inject money into an economy to increase spending, which will automatically increase demand. In theory that would work but like every policy, there are multiple variants that are associated with them.
In my research, the reasons that no demand was stimulated this time after spending $825 billion (the new CBO estimate), at least for the US, are that:
- The money was spent on political patronage and “non-value added” projects. While roads and bridges are necessary, they are projects that do not increase demand in the short term and are of a finite duration – they start, they are executed and they end. As long as the currents assets are still usable, there is no change or benefit to the economy as when the construction stops, there is no change in activity except for the construction workers being laid off.
- Any money getting through to the individual was used to cover the rising costs of living. We all know that things cost more. The government economists know it, too…but the way this administration has handled it is to produce misleading statistics that hid the fact that it is happening, mainly because it cuts down on costs of programs that are indexed to inflation. You know what you are paying for gas at the pump, for milk and bread at the grocery store and for clothing – and you know that they are all more costly than three years ago, some significantly so.
- Any money getting through to the individual was used to cover existing debt or the rising uncertainty. Money went to catch up or sustain existing debt and since the debt service created nothing new, there was no net effect. Those that were current or had little debt load, used the money to bolster savings or reserve accounts, again – no net gain to the economy, only stasis.
Why am I writing about economic issues? I am because applying money at the back end of the economic process is like putting a bandaid on a sucking chest wound.
To stimulate demand, the process has to start where costs are created. By doing this, the costs can be lowered to a point where people can feel comfortable consuming without accepting additional risk. This answers both the cost and uncertainty questions in the same fell swoop. That is why energy policy is key to our recovery – energy is the one common theme that runs through every single facet of modern life and ripples here run through the entire economy. Changing this dynamic goes beyond the topical application of a “stimulus” and penetrates all the way to the root of the economy.
Where can we go to get this “bottom up” process started to create sustainable demand?
One word – energy.
Economists have largely ignored the largest causal factor in the chocking off of any signs of recovery. It is not a coincidence that at the same time as we had a global downturn, that we have had the most restrictive global energy policies in the history of our modern economies. At every turn, the governments around the world have sought to strangle exploration, development and production of proven, cheap energy sources that have four things in common:
- They are reviled by the political classes because of unsubstantiated “science” – that just coincidentally coincide with these government’s and lobby’s desire for more control and,
- They are present in every single facet of modern human existence and,
- More new reserves are being discovered almost every day and,
- They are still the cheapest source of energy available by far.
We are speaking specifically of fossil fuels – crude oil, natural gas, coal, shale oil and tar sands.
The fastest way to increase demand across the board is to reduce the costs to the economy of just about every product or service provided and that can be accomplished in only one way – buy reducing the cost of the most widely utilized sources of raw materials and that is energy.
TRNL has noted here, here and here how we are ignoring the cheapest sources of energy in a quest for “clean” energy sources. We are spending trillions of dollars of taxpayer funds on a quest for not just clean energy but politically correct clean energy. There is a huge and costly difference.Those two little words, politically correct, increase the cost and waste factors hundreds of times and assure that like “climate “science”, there will be more politics than science guiding the efforts. We don’t have to guess at the damage that this does to an economy. Spain was put forward by the Obama Administration as a model but we now know from real research there that “green jobs” kill more jobs than they create and cost far more to sustain than those created by the market by a factor of 3.7 jobs lost for every 1 “green job” created.
The current quest is socially and environmentally based, not economic, because the mantra is that we have to be socially and environmentally responsible and the higher price for energy is just the cost of that responsibility. The truth is that even if these alternatives were viable, there is not enough to go around…but they aren’t viable – at least not in any real sense. They only serve as a vehicle to foster crony capitalism for favored companies like GE and failed efforts of political cronies like Solyndra and BrightSource and to assuage a “progressive” political constituency, the environmental lobby.
Walter Russel Mead has also picked up on this theme:
The New York Times editorial page is doing its level best to kill any chance of American recovery and prosperity by crusading against anything anywhere that might help our energy woes, but sometimes its news pages inadvertently remind us that prosperity and energy development are closely connected.
This story on the “woes” of the midwestern oil boom shows how towns are throwing up housing for an influx of workers drawn by the breakneck development of new energy resources. In places the story exemplifies the whiny perfectionism so characteristic of millennial liberalism: everything has its down side and if we look hard enough we are sure to find it. (A Times story on Jesus turning water into wine at the wedding feast in Cana would not be complete without a reference to the economic plight of unemployed winemakers.) So a part of the country that hasn’t seen opportunity in decades is suddenly bursting with growth and new jobs, and the Times frets that conditions in the temporary housing are poor. Mourns the Times:
But now, even as the housing shortage worsens, towns like this one are denying new applications for the camps. In many places they have come to embody the danger of growing too big too fast, cluttering formerly idyllic vistas, straining utilities, overburdening emergency services and aggravating relatively novel problems like traffic jams, long lines and higher crime.
Via Meadia advice: get over it. This is what economic growth looks like. It is sudden, disruptive, often inconvenient. It messes with the status quo. New stuff gets built and not all of it looks like the Cloisters. All kinds of rough and hungry men flock to it; they sometimes misbehave. They spit on the ground, say unpleasant things about women, and generally fail to meet the behavioral standards of the Upper West Side.
Decline is so much more decorous. Prairie towns slowly wither on the vine; the young people quietly leave, the stores gradually empty and close. Reporters from the Times write haunting and moving stories about the gentle, drifting sadness of it all. Novelists in creative writing programs can write delicate tales of rural decline; filmmakers can make understated little films about the lost hope and vanished promise of the American dream.
Our political class and their media enablers will do anything to stop any development in traditional energy, even in the face of facts that are obvious to the everyday citizen. The also still playing the delay game in the Gulf of Mexico by only approving 35% of the permits and doubling the time for approval:
A new report from a New Orleans-based group reveals that the Obama administration is approving just 35 percent of the oil drilling plans for the Gulf of Mexico so far this year. It is also taking an average of 115 days — nearly four months — to secure approval from the Bureau of Ocean Energy Management, Regulation and Enforcement.
Those numbers contrast sharply from previous years. This historical average is a 73.4% approval rate. The approval time has nearly doubled; the historical average is 61 days for the government to approve plans.
For plans that require drilling activity, the numbers are even worse. New regulations require all deepwater drilling plans to undergo an environmental assessment process. Those plans have an average approval time of 222 days or more than seven months.
The data were included in the latest release of the Gulf Permit Index from Greater New Orleans Inc. It has monitored this trend since last year’s oil spill in the Gulf of Mexico. The delays have continued for more than 18 months later.
Drilling permits don’t fare much better under the Obama administration either. One sign of hope might be a recent uptick in shallow-water permits. Greater New Orleans Inc. reported:
Deep-water permit issuance continues to lag the monthly average observed in the year prior to the oil spill. Only 5.0 deep-water permits are being issued per month since September 2011, representing a 0.8-permit — or a 14% — monthly reduction from the average of 5.8 permits per month. This number also represents a 2.0-permit — or a 29% — reduction from the historical average of 7.0 permits per month over the past three years.
Shallow-water permit issuance is rising above the historical average. Since September 2011, 8.3 shallow-water permits, on average, were issued. That number represents an increase of 1.2 permits — or 31% — from the monthly average of 7.1 permits per month observed in the year prior to the oil spill. However, this number represents a 6.4-permit — or a 44% — reduction from the historical average of 14.7 permits per month over the past three years.
The slowdown of activity in the Gulf of Mexico is having an impact beyond Louisiana, where one deepwater rig can create 700 jobs locally. Lack of production harms employment across America. It also strips much-needed revenue from the federal government, according to Nick Loris, an energy expert at Heritage.
“Allowing access for exploration and creating an efficient regulatory process that allows energy projects to move forward in a timely manner will not only increase revenue through more royalties, leases, and rent,” Loris recently wrote, “it will also create jobs and help lower energy prices in the process.”
Beyond the cost issue, this is a national security issue. Suppose that we are militarily challenged by another country – say China. How many tanks and airplanes do you think can be fueled by windmills and solar power?
Obama knows that fact about energy , that is why he is supporting energy exploration everywhere but here. He knows it is a strategic weakness that he and his party are betting can be overcome via “friends” so he can appease the anti-energy segments of his political base. That realization is what makes this a political issue, not a real economic one and those “friends” might not be so friendly in a time of conflict .
Folks, time for fairy tales is over. There are no magical unicorns and woodland sprites dancing in the calm and blissful shire. A day will come when it is time for introducing renewable energy – but that day is not this day. It is time for rough and hard men to tackle dirty jobs to fuel our economy and that includes our leadership. This is serious and hard work for people unafraid to get their hands dirty, not for esoteric debate by dilettante politicians based on questionable “science”.
I reiterate this once more: the keys to global recovery are found in energy policy. You all know that…too bad our current president doesn’t. If for no other reason than that, Barack Hussein Obama should be shown the door in 2012.
Unlock energy and unlock the economy.
To make it easier to see my posts on the subject, I have sorted them an put all of them on their own page, accessible by clicking on the “Energy and Transportation Posts” tag at the top of the home page.
*A “yob” is UK slang for a thuggish young male, the antithesis of what a good boy should be – rude, obnoxious, violent and stupid. Formed by spelling ‘boy’ bacwards, it was coined in England in the 18th century as it was very popular amongst upperclasses to speak backwards at the time.