The Key to Keystone

5 years if unending studies show no reasons why the Keystone pipeline shouldn’t be built…but still the Obama administration drags its collective feet.

Why does 5 years of dithering on the Keystone pipeline matter?

Why is it that nothing seems to turn the key in our economic engine? The President and his band of merry economic advisors have been furiously manning the handle of the Keynesian pump, “Zimbabwe” Ben Bernanke sloshed drums of ink into the Fed printing presses – and yet the economy is still wheezing like a ’73 Chrysler with a dying battery.

We have sold the future of our children to China for debt like a drunk sells his last drop of blood for just one more drink of Mad Dog 20/20. Congressional Democrats have been busy lowering our health care bills by giving birth to Obamacare (the one time we wanted them to be pro-abortion, they let us down). What went wrong? Why is the economy not moving forward? Why is the labor participation rate still falling?

All of it can be explained in two words – energy policy. Many would say that it is the lack thereof but that isn’t true. As with so many things that this current administration does, an energy policy exists, it is just being enacted in a back-handed, de facto manner.

As with the Keystone pipeline, not making a decision is making a decision because it has real effects.

One of the most significant hurdles that our economy has to overcome is the lack of fuel to feed growth. Keynesians believe that government involvement in the economy by “incentivizing” consumption via “stimulus” (government) spending is an appropriate way to initiate growth. Part of that is true, an increase in demand does spur consumption and generates economic growth but the caveat is that there must be a reason for the consumer to spend. The big fallacy in the Keynesian proposition is that not all spending is equal, especially if debt is involved. Government creating debt has an impact on the market for leverage by crowding private sector instruments out. If debt must be generated to spend and the net consumption is not greater than the cost of the debt, the net effect on the economy is at best zero and at worst negative…and the availability of leverage to finance growth disappears.

That is the reason sustained growth and recovery simply cannot be generated by short term bursts in government “incentivization” via public works projects that yield no economic impact (repaving roads is nice but it does not provide a benefit as long as the old road is adequate for purpose), cash for clunkers (replacing a serviceable asset with a new, more expensive one only serves to reduce static inventories and the destruction of usable assets drives supply down and prices up in the secondary markets) or direct payments/tax credits to citizens who are cautious or uncertain about the future (they use that to offset current expenses or save the money and reduce spending).

Then how do we increase demand and what has that to do with energy policy?

Energy is the key. Energy in its various forms – electricity, oil, natural gas and coal – is at the root of every product, process and environment in the world. Things are made from it, it is required to fuel the processes used to create and it is required to make harsh or uncomfortable environments habitable or more comfortable for living beings. Take a basic item, food, as an example: production productivity relies on the fuel for mechanized equipment to cultivate, harvest and process, it requires the use of chemicals – seed coatings, fertilizers, herbicides and insecticides, processing and packaging requires energy to keep factories running, transport it to market and to make the sanitary packaging for mass distribution…it is clear that an increase or decrease in energy costs can have a significant impact on the cost of food.

Even at 3-4 bucks a gallon, gasoline is still the cheapest, safest, most portable and plentiful BTU bang for the buck energy source ever known to man…and despite what the environmentalists claim, with modern engines it is also 10 times more efficient to use than just 20 years ago.

The best way to generate sustained demand is to make a product less expensive without sacrificing quality or availability. This means that working on the price side of the equation, as Keynesian economics does, while ignoring the cost side will never produce a sustained recovery or period of growth. Lower costs mean people can afford to buy more at a given level of income and not only will they buy “more” in quantity, they are able to buy “more” in relation to the quality as well.

“Drill, baby, drill” is more than just a slogan – it is an economic necessity and an answer to a national security issue.

The most common comment that one hears when there is a push to open new resources is “it is not enough and besides, it will take 10 years to get into production”. The “not enough” argument is ridiculous because there are more and more petroleum reserves being documented with every passing week, the “10 year” statement is based on some truth – but is it really a reason not to start development?

No it isn’t. Every day, week, month or year delay is not a “knock for knock” delay because over time there are changes in regulatory and legislative constraints that get in the way. There is always a “new normal” – what was possible 10 years ago is either far more expensive today or has been made virtually impossible by a changing political climate.

While the Obama administration sits on it’s collective hands with regard to energy security, abdicating its responsibility to America just as the Democratic controlled Congress did in the years since 2006, the world is not standing still – energy consumption boomed last year in the middle of a global economic retreat. As I have written, the reason that we are behind the curve is the destructive stealth energy policy that this administration is implementing.

 

 

One thought on “The Key to Keystone

  1. What I don’t get is this administration’s “shoot-yourself-in-the-foot” approach. They seem to be coming after fracking in the midst of it being a huge economic success. I understand their want for green energy, but I don’t understand why it must not be held up due to the same regulations as other forms of energy; in fact it is gifted tax-payer money. #soconfused

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