With the recent spate of poor statistics spreading gloom about the American economy, the question arises how do we turn the situation around and get back to the sort of consistent growth that we had prior to the recession. We know that the policies being followed by Obama are not working. Unemployment is stuck around 9% and is likely to rise a bit in the near future. Economic growth is barely positive; the first quarter shows a growth of less than half of one percent in GDP for an annual rate of 1.8%. There do not seem to be any major engines of growth out there that will pull the economy out of this rut. So we need to find something else that may work.
One clear solution to the problem is a change in energy policy. Let me explain. In 2010, the USA imported 4.3 billion barrels of petroleum according to the US Energy Information Agency. That same government agency says that the average price of that oil in 2010 was a few cents under $80 per barrel, so the total amount spent on imported oil was about $350 billion. This comes to about 2.5% of the US gross domestic product. In other words, in 2010, from every dollar of goods and services produced in the US, two and a half percent went to pay for imported oil.
So far in 2011, the average price has been about $103 per barrel according to the government. That means that in 2011, the cost of imported oil has gone from 2.5% of GDP to 3.1% of GDP assuming the same level of imports. Imports, however, have been rising in the first five months of the year, so the cost of imports is even higher than 3.1% of GDP.
A good way to think about the impact of the cost of imported oil is to compare it to the Stimulus bill that Obama said would turn around the economy. The stimulus amounted to about $800 billion to be spent mostly over three years. That comes to about $266 billion per year that was pumped into the economy to get things moving. Imported oil is taking one and a half times that amount every year out of the economy. As a result, the effect of the imported oil is devastating on American growth.
Thus far in his presidency, Obama has taken a series of steps that have pushed up the cost and quantity of imported oil, with the end result of dramatically slowing growth in the American economy. Look at the record: Obama declared the Gulf drilling moratorium in 2009. After the moratorium was “ended”, the federal government still did not issue drilling permits in a timely fashion. Reviews that used to take six days now take close to a year. As a result, drilling in the Gulf has dropped and production from wells in the Gulf has fallen way below the level where it should be. The estimate is that for 2011, gulf wells will produce about 600,000 barrels per day less than they otherwise would. Further, areas around Alaska and other coastal areas have also be closed to drilling either explicitly or by bureaucratic foot-dragging designed to prevent drilling from proceeding. Recently, Shell oil was denied a permit in Alaskan waters on an area that Shell had leased for billions of dollars from the government; the stated reason was that Shell had failed to discuss in its application the possible emissions from tug boat engines that might be used to move drill rigs. Drilling in this tract is expected to produce hundreds of thousands of barrels of oil each day. Still another area where the Obama policies have held up energy production is in connection with the production and use of natural gas. Both the EPA and other federal agencies have been “investigating” the process called hydrofracking which allows for enormous increases in production of gas and oil from shale formations. Obama and his cronies are using the threat of “regulating” this process to slow down development of these shale formations and to cut energy output. Obviously, to the extent that natural gas supplies are more plentiful, some of these supplies can be used to substitute for oil products which will cut oil imports further.
Instead of pushing for greater use of natural gas which is available domestically and which is substantially less expensive than oil, Obama has placed his efforts on solar and wind energy. These alternative fuels still cost more than oil, even at the current elevated price for petroleum. This means that wind and solar can only survive with substantial federal subsidies and further that development of wind and solar put no downward pressure on oil prices.
Imagine now, a crash program to increase US oil output and to shift from fuels based upon petroleum to those based upon natural gas. There are bills pending in Congress to promote the use of natural gas powered vehicles, but Obama and the Obamacrats do not support them. A major effort to increase drilling and to switch to natural gas powered cars could easily and quickly reduce US oil imports by two million barrels per day with increasing amounts each year after that. That reduction in oil usage might lower the world price of oil, but it certainly would lower the price paid by the US for the oil it imports. That lower price would be in the neighborhood of $85 billion dollars in the first year. Put another way, that would mean that the change in oil costs alone would be the equivalent of one third of the stimulus each and every year moving forward. But there is much more. The drilling programs for oil and natural gas would employ hundreds of thousands of additional folks around the country. Landowners would get royalties from the new production. With the multiplier effects from these efforts, we would be talking about another huge source of growth. And the best part of this growth is that it would be duplicated year after year after year.
If a new president were to push for the use of natural gas powered vehicles, we could see an ever increasing shift to that power source over his four year term. In other words, the $85 billion savings mentioned above could rise to $150 billion or $200 billion by the end of the four years. This shift would add an enormous amount of growth to the US economy. And the key is that this extra growth requires nothing more than a shift in policy. No new technologies are needed. No great discoveries must be made. No ecological risks are required. In fact, since natural gas is 40% cleaner than gasoline, the should be a reduction in air pollution. The only thing that stands in the way of this growth is Obama’s simplistic belief that all fossil fuels are bad. His ideology requires the use of “renewable” fuels even if these renewable sources of energy do not yet work in an economically efficient manner. Obama is throwing away American jobs and economic growth based upon a silly ideologically inspired misconception.
There is a way to get back to more robust economic growth. The first step is to retire Obama in 2012.
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