In this Let People Prosper episode, let's discuss the large selloff in the stock market as international trade issues along with some signs of slower economic growth and higher interest rates give traders anxiety while incorporating how these influence lower gasoline prices. If you want to learn more, you don't want to miss this full episode. Thanks for watching and sharing with your friends and family! I'm truly blessed to have such amazing support.
While there have been some potential good signs on the trade front with a possible agreement between President Trump and President Xi, there continues to be much uncertainty about the actual agreement and the fact that it is only good for 90 days and does little to reduce higher imposed cost of trade between the two countries. In general, this needless trade dispute is far from resolved and has contributed to a steep drop in the stock market today, but there are some promising aspects of the agreement.
“Just because the U.S. and China have agreed to call a truce in their trade war doesn’t mean that it’s over: This was a classic exercise in can-kicking,” economist Tyler Cowen explains in Bloomberg Opinion. “Nonetheless, most cans have quite a few kicks in them, and overall this is good news for the global economy. Instead of sweeping everything under the rug, as was the case before Donald Trump took office, America and China have found a new way of addressing conflict by talking openly.”
According to the Wall Street Journal, "at the meeting in Argentina, Mr. Trump and his negotiators agreed to suspend a planned Jan. 1 increase in tariffs on $200 billion in Chinese goods to 25%, from 10%, as the two sides negotiate over Chinese economic policies."
Overall, tariffs are a destructive and counterproductive trade policy, and both the U.S. and China should work toward reducing them to zero. There’s a lot of work left to do on this deal to ensure that Americans can trade with the Chinese without taxes and uncertainty that will only drive up prices and decrease prosperity.
This action in the international trade arena has had costs not only of higher prices for Americans because of raising taxes through tariffs but also in raising the value of the dollar. Of course, the dollar market has many factors, which also include the Federal Reserve's potential actions of continuing to raise their overnight lending rate target. As U.S. interest rates go up compared with other countries, which essentially all developed countries have historically low interest rates, and people want to park their currency in dollars to reduce global risk, the value of the dollar appreciates compared with a host of major currencies, particularly the European euro.
When the value of the dollar goes up, the price of oil falls as oil is priced globally in dollars. In other words, a higher valued dollar makes it more expensive for people in other countries to purchase oil so demand falls contributing to a lower price of oil. Also contributing to this is higher inventories of oil from near record levels of production in the U.S. from innovative techniques through fracking.
This has contributed to the lowest level of gasoline prices this year, translating "to savings of about $200 million a day for Americans, said Patrick DeHaan, head of petroleum analysis for GasBuddy. DeHaan predicted that gasoline prices will fall further in coming days, but how long that will last is unclear." Given much of my academic research is in the oil and gas markets, there is much to the story of how the oil market works based on supply, global demand, and precautionary demand primarily driven by geopolitical issues.
Supply is increasing, global demand is waning, and precautionary demand is heightened by the previous two factors outweigh this push upward in price. Considering that gasoline is a byproduct of oil, there is, on average, about a 2% increase in the retail price of gasoline for every 10% increase in the price of oil, and a symmetric response for a decline in the oil price over time.
Ultimately, imposing tariffs on other countries naturally leads them to do the same to us. And families pay the cost. Instead of resorting to flawed mercantilist trade policy, America should lead the way in promoting free trade, which history shows supports freedom and human flourishing. This should also stabilize the stock market from such wild swings driven by policy uncertainty on a the trade and interest rate fronts. Gaining trust in money issues must also come in the form of reining in bloated federal government spending of taxpayer dollars today and in the future from rising debt.
Achieving freer trade, raising interest rates to a more normal level, and reining in government spending would put the U.S. a sounder foundation for economic growth contributing to more job creation and economic opportunity for more people to prosper.
In this let people prosper episode, I discuss two key reports released today. The first is that the Energy Information Administration reported that the U.S. oil production exceeded Russia and Saudi Arabia to become the top oil producer in the world in August 2018. The second is the Census Bureau released the latest income and poverty-related data that shows less poverty nationwide with little change in Texas' supplemental poverty measure (SPM) while California still has the highest SPM in the nation.
Regarding the EIA's data, the following figure shows this historic moment in U.S. history. Here's the EIA's projection through 2019: "Although EIA does not publish crude oil production forecasts for Russia and Saudi Arabia in STEO, EIA expects that U.S. crude oil production will continue to exceed Russian and Saudi Arabian crude oil production for the remaining months of 2018 and through 2019."
Much of this expansion in oil production has been in Texas. In fact, Texas is producing a record amount of oil at 4.4 million barrels per day as of June 2018 (latest data available), which is about 40% of total U.S. production that month.
The increase in oil production in the last couple of years has contributed to faster economic growth and job creation, thereby helping to reduce the poverty rate. Of course, this is a relatively small direct relationship, but the indirect relationship of more production capacity in the private sector is quite remarkable. Moreover, the regulatory cuts last year and the general increased economic activity and job creation in recent years has helped get people out of poverty.
This is noted by poverty measures improving some in the latest report for the average of the 2015-17 period (see page 26-27 of this report). The Official Poverty Measure (OPM) looks at one poverty level across the entire nation with the federal poverty level of $12,752 for an individual and a family of four (two adults and two kids) of $24,858. The OPM declined to 12.9%, or 41.2 million, nationally for the average of 2015-17.
However, the OPM is a poor measure of poverty because there are different housing costs in each state along with different levels of government benefits.
Several years ago the Census Bureau created the Supplemental Poverty Measure (SPM) that accounts for after-tax income, differences in regional costs of housing and other expenditures, and government transfers (see figure below). The SPM declined to 14.1 percent, or 45.3 million, nationally.
These measures for the 2015-17 period are also available by state. Let's consider the two largest states: California and Texas. California's OPM is 13.4%, which is near the national average, with 5.3 million people in poverty, and SPM is 19%, which is the highest nationally, with 7.5 million in poverty. Texas' OPM is 14%, more than a percentage point higher than the national average, with 3.9 million people in poverty, and SPM is 14.7%, which is near the U.S. average, with 4.1 million in poverty.
These data make sense because Texas is a relatively cheaper place to live that in California so Texans' dollars go a lot further than Californians' even as California has a more liberal welfare state and spends much more per capita.
Find this full post with charts here.
Proponents of a U.S. carbon tax have been coming out of the woodworks for years, but even more recently, shouting about the need to reduce carbon dioxide emissions primarily from the use of fossil fuels to save the environment. But is it worth it? According to a recently published paper by the Texas Public Policy Foundation, the answer is no.
A carbon tax is often called a free-market approach to reducing the negative externalities, or social costs, of CO2 emissions while causing consumers little harm. In reality, a carbon tax would drastically increase the price of every good or service that requires the use of energy…so, all of them.
A free market is, by definition, a marketplace where consumers and suppliers mutually benefit through voluntarily exchange for goods or services. The proposed carbon tax is most definitely not a free market tax because a tax of any kind interferes in the market.
The Australian carbon tax, one of the most commonly cited examples of a “success,” caused the largest-ever quarterly increase in consumer energy prices. The initial cost was $23 per ton of CO2 equivalent emitted into the air and was increased to $24.15 per ton a year later. The program was so unpopular that the program was formerly ended in July 2014, just two years after it was implemented.
Estimates for the U.S. of a tax of $49 per ton of CO2 emissions indicate there could be an increase of $21 per barrel of oil and could increase the price of natural gas by $2.60/mcf, nearly doubling the current price. There’s no doubt about it: price increases that massive will cause consumer electricity prices and gasoline prices to spike, harming Americans, especially those least able to afford it, in the process.
Additionally, there’s little conclusive evidence to prove that carbon dioxide emissions cause environmental harm. Dr. John Christy, a leading atmospheric scientist, says that our current environmental models are too inaccurate to provide any reliable data. For example, Figure 1 shows 102 environmental model runs in 32 groups of global temperatures compared to the actual observed data.
All one has to do is take a cursory glance at this comparison to call the scientific community’s “consensus” into question, with the facts showing the estimated average increases were more than 2.5 higher than actual temperatures. In contrast, there is significant empirical data showing carbon dioxide emissions are associated with improved quality of life.
Figure 2 shows the massive increase in GDP per capita, population, and life expectancy that is associated with increased CO2 emissions.
Other research finds that there is a 95 percent correlation between increasing use of fossil fuels and rising economic growth over time. There is also an 83 percent correlation between rising CO2 emission levels and average life expectancy at birth.
In summary, the proposed “free-market” carbon tax is, by definition, not a free market solution. The tax would unduly burden American consumers with increased electricity and gas prices.
One of the most prominent examples of an implemented carbon tax was so unpopular that it was scrapped after just two years.
Finally, perhaps most importantly, there is little to no evidence that there is a need to reduce carbon emissions in this country. For all of these reasons, and many more, the proposed carbon tax should be whole-heartedly rejected.
Today The Texas Public Policy Foundation released the paper Does a Carbon Tax Support Prosperity? which examines the economics, assumptions, and results of a carbon tax.
“Market decisions of millions of people generally provide better, more efficient outcomes than decisions by a select few in government,” said the paper's co-author Dr. Vance Ginn, senior economist and director of the Center for Economic Prosperity. “Calls for a carbon tax are based on flawed assumptions and climate models that have been highly inaccurate. Congress and state legislatures should not hinder our economic and environmental prosperity with a carbon tax.”
“We need to stop apologizing, take pride in our accomplishments, and lead,” said Megan Ingram, policy analyst for the Armstrong Center for Energy and the Environment. “History proves that removing government barriers to entrepreneurship allows more innovation to improve our well-being and clean the environment. We should not block prosperity by imposing a carbon tax."
Don't miss my discussion with @JackiDailyShow on why the #carbontax is bad policy because it's based on flawed assumptions and would result in costly economic effects, especially on the poor. http://www.stitcher.com/s?eid=54369618 #txlege @TPPF #energy
Just as Americans mutually benefit from voluntary exchange domestically, so can individuals in different countries within the rule of law. A perfect trade agreement would be one sentence that provides no more than a contractual obligation: “There shall be no trade barriers among countries X, Y, and Z.”
The Texas Public Policy Foundation (TPPF) recently held an event co-sponsored with The Heritage Foundation that discussed whether Texans gain or lose from the 1994 North American Free Trade Agreement (NAFTA). Panelists included Texas Comptroller Glenn Hegar, Dr. David Kreutzer of the Heritage Foundation, and Dr. Vance Ginn of TPPF, with moderator Drew White of TPPF.
NAFTA is an agreement among the U.S., Mexico, and Canada designed to reduce costs of exchange among Americans, Mexicans, and Canadians. While it’s far from a perfect agreement, as more than 1,700 pages pick government winners and losers, data indicates it at least benefits Texas and the energy sector.
In 2016, Texas exports totaled $231.1 billion and imports were $229.3 billion, giving a trade surplus of $1.8 billion. Instead of evaluating a trade deficit versus surplus, consider that people agreeing to each transaction benefit from more than $460 billion in foreign trade.
Texas’ trade total with Mexico resulted in a $10.8 billion trade surplus and with Canada a $4.7 billion trade surplus, so NAFTA contributes to a $15.5 billion trade surplus in a $1.4 trillion economy.
Texans prosper from each individual transaction through overall lower prices and a growing economic pie. Research finds that fewer trade impediments among NAFTA countries helped Texas become economically diversified and more resilient to oil price fluctuations over time.
Moreover, a Texas industry that should support NAFTA is the energy sector. In 2016, Texas exported $37.1 billion in petroleum and coal products, the majority of that sum going to Mexico and Canada.
Critics of NAFTA point to trade imbalances as a reason for dissolving the agreement. This reason can be discounted in the context of the energy sector: the U.S. energy sector had a positive trade surplus with Mexico of $11.5 billion.
The agreement is also credited as a driving force in the North American resurgence in energy production.
North American economies produced a total of 22 million barrels of oil a day in 2016, with the majority produced in the U.S. Although the U.S. is the leading producer of petroleum in the world, we demand six million barrels of oil and related products per day more than we produce. Canadian producers who export about three million barrels a day to the U.S. satisfy the bulk of this excess demand.
NAFTA benefits the construction of natural gas pipelines stretching from the U.S. to Mexico. This helps expand the market for excess natural gas production in the U.S. while allowing Mexicans to convert to cleaner-burning energy production.
Members of the energy sector should support the continuation of NAFTA as well as an updating of the section of the agreement dealing with energy production toward freer trade. If U.S. producers could more freely operate in Mexico, the U.S. energy sector, Texans, and Americans, could prosper more.
This commentary was originally featured in The Hill on December 8, 2017.
In today’s politically polarized environment, compromise is a rare commodity, especially in the energy debate. While progressives push for the use of zero-carbon energy, conservatives counter by advocating for a reliable electricity grid.
Yet, nuclear energy could bridge the divide. Innovative technologies like molten salt reactors safely create power that is both carbon free and highly reliable. By removing onerous energy-related regulations and subsidies, federal and state governments can provide an economic environment that allows such a game-changing innovation to benefit Americans.
Countries around the world — particularly China and developing nations — see the benefits and are poised to increase their nuclear production. Even France has backed off its plan to reduce their 75 percent share of electricity from nuclear power as it finds alternatives scarce.
Unfortunately, new projections by the Energy Information Agency show a diminishing U.S. nuclear presence as closures of reactors mount. To improve the human condition — ensuring clean air, clean water, and a robust economy — nuclear energy must be a part of America’s future.
Nuclear energy is simply more reliable than all other sources of energy except geothermal. It has the ability to operate at full capacity 90 percent of the time. By contrast, solar energy can only sustain maximum output less than one-third of the time and wind generation just about half of the time because the sun isn’t always shining and the wind isn’t always blowing. Another source of energy must always be ready to back up unreliable renewables, which is often coal and natural gas.
Nuclear power has even proved its reliability in the face of devastating conditions. A two-reactor nuclear power plant located near Houston, known as the South Texas Project, took a direct hit from the Category 4 Hurricane Harvey. While Texas’ wind farms quickly cut off generation due to high winds, the nuclear power plant continued providing power at capacity for struggling communities during the disaster.
In other words, nuclear provided electricity when Texans needed it most.
The Trump administration has shown some support for nuclear energy’s unmatched resiliency. This new direction of energy policy along with rolling back crippling regulations and quickly ending wasteful energy subsidies to allow for a level playing field could reinvigorate implementation of molten salt reactors technology.
Most of today’s nuclear plants operate on systems that rely on water to cool and facilitate nuclear fission while exchanging heat to make steam that drives turbine generators. While these processes are highly effective and have become safer over time, both operate under intense pressure, which can build and eventually rupture containment cells when the system fails. This happened in the Fukushima accident in 2011.
Because molten salt reactors run not on solid uranium rods, but rather on a liquid fuel in their heat exchange, molten salt reactor vessels are able to operate at normal, atmospheric pressures making reactor blowouts nearly impossible.
Additionally, the liquid fuel provides the added benefit of acting as both the reaction catalyst and the coolant. In the event of a molten salt reactor system failure where pumps are not able to move the liquid fuel through the reactor, the reaction safely slows as the fuel cools and self-regulates the fission process. The ability to self-regulate makes molten salt reactors incredibly resilient in addressing the containment fears from not only system malfunctions but also modern-day concerns of targeted terrorist threats on the American grid.
Molten salt reactors also provide the country with an extraordinary opportunity to reduce its massive holdings of nuclear waste by reusing it as liquid fuel. While conventional reactors utilize between only two and five percent of the energy available in their fuel rods before requiring replacement, molten salt reactors can consume upwards of 98 percent of the energy. This uses less resources and reduces the amount of time waste remains radioactive from more than 100,000 years to 300 years.
As Americans balance a clean environment and reliable energy, one solution advances toward both. Add in safety enhancements and efficient waste recycling, nuclear energy offers a sustainable way forward.
Governments should remove barriers for development of nuclear energy and other energy sources so that markets provide the best mix of energy production. This will provide Americans with an energy future that is not only clean, affordable, and reliable, but also powers their lives and their potential for flourishing.
Economic Prosperity through Free Market Energy Abundance
Presentation by Dr. Vance Ginn at the Philadelphia Society meeting in Charlotte, NC
April 2, 2016
As the U.S. presidential election draws closer, politicians and voters are considering different ways to reignite a depressed economy and labor market during a historically weak economic recovery. At the heart of this is a debate between extractive, or progressive, institutions that forcefully redistribute resources and inclusive, or free market, institutions that allow individuals to satisfy their own desires through voluntary transactions.
The U.S. was once the envy of the world as it held the bronze prize in economic freedom in 2000, according to the Economic Freedom of the World Index published by the Fraser Institute. After years of government intervention in the economy and our daily lives, this ranking has fallen to 16th behind Taiwan, resulting in lackluster economic growth and job creation.
This decline precipitated from policies attempting to stabilize the economy through unprecedented fiscal and monetary actions. In fact, the current recovery looks to be one of the weakest on record with average annual growth of only 2.1 percent with no relief in sight. The direction of public policy must radically change.
Federal spending has increased by 27 percent since the fourth quarter of 2008, when the financial crisis took its greatest toll. This spending included bailing out banks and an almost trillion-dollar stimulus package contributed to an almost 80 percent increase in the national debt to $19 trillion. This debt now exceeds all of the country’s economic output. Though the sequester recently restrained spending, it has expired and didn’t correct the massive increase beforehand.
In December 2008, the Federal Reserve took historic action by lowering the federal funds rate to the range of zero to 0.25 percent and multiple rounds of bond-buying programs called quantitative easing. These actions were primarily intended to keep interest rates low to stimulate the economy.
A common benchmark for the direction of the federal funds rate is the Taylor rule, named after the Stanford economist John Taylor, that calculates the rate based on economic measures. The rule indicates that the Fed left the rate too low for too long during the mid-2000s, contributing to the housing market boom and bust, and has now left it lower than it should have been since 2010—with the current calculated rate of around two percent. After the previous lessons of failed policies, the Fed would be wise to return to a more rules-based approach that misallocates fewer resources.
Supporters of these policies cheer the drop in the unemployment rate from 10 percent in October 2009 to 5 percent in March 2016. But this measure misses the large number of people who have dropped out of the labor force and those working part time but would like a full-time job, which when added to the total unemployed brings the current underutilization rate to near 10 percent.
Collectively, these policies have misdiagnosed the U.S. economy. There is less economic activity with fewer dollars in the private sector due to higher taxes, more government debt, and more dollars flowing to unsustainable projects from excessive monetary easing. It’s no wonder that the U.S. has dropped so far in its ranking of economic freedom and Americans have been left to suffer.
Fortunately, the system of federalism provides an opportunity for a laboratory of state competition within an umbrella of federal policies. In search of a more free market model that would reward risk-taking and entrepreneurial activity, I recently published the paper “A Labor Market Comparison” at the Foundation’s website www.texaspolicy.com comparing economic freedom and labor market measures among the largest states—California, Texas, Florida, and New York—and U.S. averages during the last 15 years.
Ranking third in economic freedom and having the best labor market results compared with these largest states, Texas acts as a model. This high ranking isn’t an accident as Texas has kept taxes low, never enacted a personal income tax, and passed sensible regulations. These factors combined define the Texas model.
This model helped support the creation of 73 percent of all new nonfarm jobs in the U.S. from January 2000 to December 2014. Although critics often shrug these off as low-paying jobs, the inflation-adjusted private sector pay has been 67 percent higher than the U.S. average during that period with many more jobs added in high wage jobs than low wage jobs in the state and compared with the rest of the U.S.
The progressive policy prescriptions in D.C. and California continue to fail, especially regarding energy policy, which is what I’ve been asked to discuss today. These failures include the overbearing EPA, the lack of approval regarding the Keystone XL Pipeline, funding of uneconomical forms of energy, and the overall war by progressives on fossil fuels. Continuing down this path is one that will make Americans poorer, less productive, and more dependent on the government, which could be part of the progressive plan.
To renew the American dream, presidential candidates should consider similar free market measures taken by some states, particularly those in Texas. By providing inclusive institutions that allow free markets to work and support prosperity rather than extractive ones that redistribute resources and hinder progress, the American Dream that’s alive and well in Texas can be available for Americans nationwide.
Free Market Energy Policy
The world’s energy landscape has radically changed within the last decade because of surging production of oil and natural gas in the U.S. Unimaginable not too long ago, the U.S. is now the world’s largest producer of petroleum and related liquid fuels. More than three-fourths of the increased global oil production in the last decade is from domestic oil fields, contributing to a drop in our oil imports by roughly 60 percent since 2007.
This sea change is the achievement of a mix of innovative technologies, known collectively as hydraulic fracturing, applied by small and independent oil companies in multiple states. The shale revolution has been so successful that it has produced a large surplus of crude oil. The Energy Information Administration forecasts that there could be as much as 3.2 billion barrels of global oil inventory by the end of 2016. There’s been so much oil produced in the U.S. that there are barrels of oil parked in tankers in the Gulf of Mexico and in train cars until it’s more profitable to sell.
For our country to benefit from the colossal energy wealth now at our fingertips, the end of the antiquated 40-year old oil export ban starting this year is a step in the right direction. Tankers have now exported oil to other countries at an initially slow pace, but this is likely to pick-up as oil contracts run out for other countries and those countries find it in their best interest to purchase crude at a discount based on the West Texas Intermediate crude oil price.
Although this step provides a positive path in the energy arena regarding a source of energy that is portable, dependable, and affordable, there’s much more to do. Unfortunately, the Obama administration and many states have taken it upon themselves to make it more difficult to produce fossil fuels as renewables are propped up as a savior. This approach, if taken to its logical conclusion, will fail, as has been the case in Europe. We must rethink how we produce energy including how we can better allow free markets to allocate resources most efficiently rather than the current path of government manipulation without complete knowledge. This path towards greater dependence on free markets is one that will provide a brighter and more prosperous future.
Energy Revolution from Entrepreneurial Activity
The abundance of energy, especially fossil fuels, has transformed the world, particularly since the Industrial Revolution, helping bring more people out of poverty faster than in any other time in recorded history.
Economics is the study of human action and interaction whereby scarce resources are used to satisfy individual desires. Entrepreneurs are a vital part of this process in satisfying our desires as their ingenuity transforms markets into something very few thought possible. The shale boom is a terrific story of economic success.
Entrepreneurs helped create an environment conducive for the shale boom to bless us with abundant, affordable, and portable fossil fuels that provide efficient energy to satisfy our desires on a daily basis. Even still, with many of the cutting-edge fracking processes coming to fruition in the early 1980s, the price of oil plummeted during that decade making it not profitable to use these, at the time, expensive drilling techniques.
Things began to change during the 2000s. Not only did the techniques become economical, as entrepreneurs continued to work to bring down the cost of fracking, but also the price of oil and natural gas were such that it was profitable to frack.
The steady climb of oil prices during the 2000s, particularly in late 2007 and 2008 when the price of WTI hovered around $140 per barrel, there was plenty of profit motive using these more expensive fracking methods. Natural gas production that includes gross withdrawals and production took off around that time with production increasing by 31 percent from January 2008 to August 2015. Natural gas production was really the first round of the shale boom.
That didn’t quite transfer to an increase in oil production as the price of oil plummeted during the Great Recession to a low of about $35 per barrel in early 2009. It wasn’t until around the Arab Spring in early 2011 when oil prices recovered and were topping $90 per barrel and then reaching above $100 per barrel in March 2011.
Since then until the latest EIA data in December 2015, oil production per day is up 65 percent to 9.3 million barrels, which remains near the record high in late 1970 of 10 million barrels per day and the latest high of 9.6 million barrels per day in April 2015. This is in spite of the substantial drop in oil prices, showing the high level of efficiency of those wells online.
Texas has been a major contributor to this shale boom. Oil production per day in Texas is up 150 percent to 3.3 million barrels since March 2011 to December 2015, contributing to 55 percent of the increase in U.S. oil production during this period. Again, despite the drop in oil prices, oil production so far has not fallen off a cliff as those efficient drilling rigs remain in operation with a drop of 304,000 barrels per day since the record high in March 2015 of 3.6 million barrels.
It’s important to note that this drilling activity has been a bright spot in an otherwise dismal economic recovery. The U.S. labor force participation rate remains near lows not seen since the 1970s, but let’s somehow cheer the 5 percent unemployment rate—even though the more realistic underutilization rate sits at near 10 percent. The push to end the production of fossil fuels by the Obama administration is a push to end much of the prosperity that’s been created during the last decade.
Consider total civilian employment since the Great Recession started in December 2007. Texas has added 1.6 million new jobs while the rest of the U.S. has added 3.2 million. In other words, Texas has created 37 percent of all new civilian jobs in the last eight-plus years. The rest of the U.S. didn’t turn positive from massive job losses until January 2015 and didn’t surpass Texas until November of last year. Of course, these have not all been oil and gas jobs as Texas is a highly diversified economy with less than 3 percent of the labor force employed directly related to the oil and gas sector and less than 15 percent of the entire real economy. It was 5 percent and 21 percent, respectively, in the 1980s.
Texas has certainly felt a pinch from the lower oil prices as real GDP increased by less than half of one percent in the second and third quarters of 2015, contributing to slower annual job creation of just 1.4 percent. There have been almost 100,000 combined job losses in the manufacturing and mining sectors during the last twelve months through February. However, Texas has added nonfarm jobs in 64 of the last 65 months and the 4.4 percent unemployment has been at or below the U.S. average for 110 consecutive months.
By keeping a high level of economic freedom, which Texas ranks third in the recent Economic Freedom of North America report by the Fraser Institute, Texas will continue to be able to weather this challenge and others in the future. This is something that those in other states and D.C. should try to emulate. By remaining fiscally sound, Texas families and small businesses will continue to prosper.
What’s Holding the U.S. Back from Reaching Its Full Energy Potential?
The solution for a more prosperous nation is to facilitate the ingenuity of entrepreneurs and let states have more discretion over what may work best there instead of a one-size-fits-all approach that fits none. Entrepreneurial activity and free markets, after all, is what led to the shale boom, and other forms of advancement throughout human history. So what are the steps that are necessary to create this prosperous and energy rich future for America?
The first was taken at the end of 2015, which was to allow exports of crude oil. As noted previously, this may take some time to reap major benefits, but the marginal benefits of this are likely substantial. There are already huge construction projects taking place at the port in Corpus Christi, Texas, where the first tankers shipped, to export more oil and liquefied natural gas.
Policies made on faulty science and the lack of looking at the true costs of EPA regulations are widely viewed as preventing the economic recovery that Americans want. A better solution could certainly be private regulation, end of the EPA, and a greater focus on regulation at the state level, but this will not happen overnight.
With that in mind, we should consider the following in the meantime: allowing drilling on
federal lands; building more refineries; ending all subsidies for energy sources; approving construction of pipelines to build a robust national network of pipelines; reducing the EPA’s overreach by letting states do what works best for them, building more nuclear power plants, and ending state and federal renewable energy standards.
The best path forward for economic growth and prosperity is for the government to get out of the way, especially when it’s costly for Americans, as in the energy sector.
It’s truly remarkable that the Malthusian argument that society will one day return to a level of subsistence as the population grows hasn’t held true through the power of entrepreneurs to innovate. Indeed, ‘peak oil’ and ‘peak gas’ concerns have been waylaid by reality. Therefore, if we do not produce it here, production will happen elsewhere, many times in places that have worse production techniques to provide a safe, pollution-free environment and in places that aren’t friendly with us—leading to less peace and prosperity.
By following these solutions and others that allow free markets to lead the way instead of governments, the American Dream can once again seem not so far out of reach for Americans. This will also help to improve the federal government’s fiscal problem as we spend less on wasteful projects and regulations.
Finally, I’d like to call your attention to a new book being released on May 23rd called Fueling Freedom: Exposing the Mad War on Energy co-authored by Steve Moore at the Heritage Foundation and my colleague Kathleen White at the Texas Public Policy Foundation. It includes the history of how fossil fuels have been a key contributor to economic prosperity and provides more information about these policy proposals and more. I hope you will take time to read it.
Thank you for the opportunity to speak here today. I look forward to answering any questions you may have.
Here's my interview on KEYE TV regarding the most recent steep drop in oil prices and its potential effect on the stock market and Texas economy.
By the end of trading on Friday, the New York Stock Exchange was down 391 points for the day, 1,437 points from two weeks ago. The reason: the plummeting price of crude oil and a faltering Chinese economy.
"There are some major headwinds moving forward," said Dr. Vance Ginn, economist for the Texas Public Policy Foundation. "We're almost in correction territory and when you look at the oil prices are down more than 20 percent since the beginning of the year which is what we call a bear market."
The price of crude oil has been a concern in Texas for months, as oil and gas companies lay off people. But for now, Dr. Ginn says don't panic about your 401k. "We're seeing substantial volatility, so this may not be the time to pull everything out," he said, adding it might be a good idea to wait and watch. Dr. Ginn says you should check with your financial advisor if you're nervous.
The bright spot right now is those low, low gas prices. At the Buccee's in Bastrop, KEYE TV caught up with drivers filling up. "At the high prices, it was 50 bucks. And now it's about 20, 30," said one man who was filling up his SUV.
Latrice Newton stopped on her way from San Antonio. "This is a wonderful thing for my budget. I live in San Antonio and I'm seeing $1.60 so to stop and see it at $1.44, it's great," she said.
But while gas prices might be freeing up some of your budget, Dr. Ginn says you might want to be putting that savings away. "It's important for Texans to be able to save for a rainy day just in case something does happen in the future," he said.
Here's my interview on KEYE TV with video here: http://keyetv.com/news/local/falling-oil-prices-could-spell-trouble-for-austin.
For the last year and a half, drivers across the nation have enjoyed paying less and less for a gallon of gasoline. "Lower gasoline prices help us to have more money to go buy food or put food on the table," said Dr. Vance Ginn, economist at the Texas Public Policy Foundation.
But Dr. Ginn notes, here in Texas, that good news is countered by bad news. "If it continues to stay low, there is going to be some larger effects moving forward," he said. "Oil and gas is the lifeblood of the Texas economy, and really, the nation."
Eighteen months after oil prices began to slump due to a global oversupply and a strong dollar, Dr. Ginn is using the R-word on Texas cities that depend more on the oil and gas industry. "In Houston or Midland-Odessa, they're really going to struggle. And we could see more regional types of recessions," he said.
Texas has diversified its industries since the oil bust of the 1980s -- more tech in Austin, financial services in Dallas-Fort Worth. And if you just look at job growth numbers, all seems well. "Over the last year, Austin job growth has increased by 4.1 percent. That's pretty fast," Dr. Ginn said. But Austin, even though it's heavy on tech, can't hold out on oil and gas trouble forever. "There is less consumption," said Dr. Ginn. "There's a slowdown in hiring, things of that nature that also has an effect on Austin itself." Already, the state is seeing a dip in revenues coming from the oil and gas industry.
So while Austinites enjoy the low gas prices, remember, if it seems too good to be true, it probably is.
"Fourteen percent of the private economy being dependent on oil and gas activity across the state of Texas, you are going to see that spread across the state including in Austin," Dr. Ginn said.
This commentary originally appeared in Real Clear Policy on January 4, 2016.
President Obama recently signed a $1.15 trillion omnibus bill that included good, bad, and ugly items.
The good was ending the oil-export ban, a move that's likely to keep gasoline prices low and stimulate economic activity and job creation. The bad was more spending on many frivolous items that will increase an already bloated $18 trillion-plus national debt. The ugly included extending production tax credits for wind and solar energy projects.
Ending tax credits and other subsidies for all energy production would allow entrepreneurs to operate within competitive markets, which in turn would best allocate scarce resources to meet our desires rather than government's. The shale boom provides a lesson in what market forces can accomplish in the energy sector.
As the economist Julian Simon noted, energy is the master resource. The abundance of energy has transformed the world, particularly since the Industrial Revolution, helping to eradicate poverty.
The shale boom epitomizes this success. Not too long ago, the geophysicist Marion Hubbert argued that oil production would eventually peak, given the finite amount of oil underground, which became known as "Hubbert's peak theory." While there is, indeed, a finite amount of oil underground, this theory overlooks the human ingenuity by which energy entrepreneurs created new oil and natural-gas production techniques.
One entrepreneur is George Mitchell, the technological father of refined fracking techniques. In the 1990s, he unlocked the oil and natural gas in shale rock. Another is Jim Henry, who applied Mitchell's techniques to tap the vast oil reserves in the Permian Basin. Bud Brigham is another; he used a new drilling technique that expanded by leaps and bounds the output from horizontally fracked wells.
These entrepreneurs and others helped provide an environment conducive to the shale boom of more affordable, portable fossil fuels. However, many of the cutting-edge, expensive production techniques weren't profitable during much of the 1990s and early 2000s with low West Texas Intermediate (WTI) crude oil prices.
Things began to change during the mid-2000s, when the prices of oil and natural gas steadily rose to profitable levels; prices plummeted during the Great Recession but rebounded following the Arab Spring in 2011. From March 2011 until September 2015, oil production per day went up 68 percent, to 9.4 million barrels, which remains near the record high in late 1970 of 10 million barrels and the latest high of 9.6 million barrels in April 2015.
This is all in spite of the roughly 60 percent drop in the WTI price since the summer of 2014. To the surprise of the Organization of Petroleum Exporting Countries (OPEC) and Russia, U.S. oil producers have quickly refined their drilling technology, which has helped to drastically cut production costs, and continued to produce in the most productive areas.
This drilling activity has been a bright spot in an otherwise dismal national economic recovery. The U.S. unemployment rate of 5 percent remains near what some consider full employment, but this rate is misleading. The labor-force participation rate remains near 40-year lows, and the broader underutilization rate is closer to a more realistic 10 percent.
Texas, where oil production per day is up 156 percent to 3.4 million barrels since March 2011, has been a major contributor to this shale boom. The state accounts for 55 percent of the increase in U.S. oil production during this period. And Texas has contributed to 48 percent of all new civilian jobs in the last eight years. Of course, these have not all been oil-and-gas jobs, as Texas is a highly diversified economy with less than 3 percent of the labor force employed directly by that sector.
The solution for a more prosperous nation is to facilitate the ingenuity of entrepreneurs. That, after all, is what led to the shale boom.
New Texas employment report shows unemployment rate has been at or below the U.S. average for 107 consecutive months
AUSTIN – Today, the Texas Workforce Commission released Texas labor market data for November 2015. The Texas Public Policy Foundation’s Center for Fiscal Policy Economist Dr. Vance Ginn issued the following statement:
“Texas continues to defy those who wish to hail the demise of the state’s model of no personal income tax, low taxes overall, limited government spending, and less regulation from the drop in oil prices with yet another month of positive job creation in November. The 16,300 net nonfarm jobs created last month brings the remarkable streak of more jobs added to 60 out of the last 62 months contributing to the state’s 4.6 percent unemployment rate being at or below the national average for 107 straight months.
“Although the mining and logging industry, which is dominated by the oil and gas sector, has lost 30,300 jobs during the last 12 months, the industry has reason for optimism as Congress looks poised to lift the arcane 40-year ban on oil exports. Considering the oil and gas sector has been a bright spot in an otherwise dismal national economic recovery with Texas creating a large share of U.S. jobs since the Great Recession, lifting the ban will likely help boost job creation in Texas and nationwide.”
by KATHLEEN HARTNETT WHITE, VANCE GINN
AUSTIN – The Texas Public Policy Foundation’s (TPPF) Distinguished Senior Fellow-in-Residence and Armstrong Center for Energy & the Environment Director Kathleen Hartnett White and Center for Fiscal Policy Economist Dr. Vance Ginn issued the following statements on the agreement announced this morning to end the 40-year ban on oil exports:
“Ending the outdated ban on exporting domestic crude oil would provide a substantial stimulus to our sluggish economy and could help stabilize the now shaky geopolitical order,” said the Honorable Kathleen Hartnett White, distinguished senior fellow-in-residence and director of the Armstrong Center for Energy & the Environment at TPPF. “In only the last few years, the shale revolution has made the United States the world’s largest energy producer. Allowing our burgeoning supplies of crude oil and natural gas to enter the world markets would change the global energy landscape. “
“We applaud the action taken by Congress to end the antiquated ban on oil exports,” said Dr. Vance Ginn, economist at the Center for Fiscal Policy at the Texas Public Policy Foundation. “Limiting the global oil supply by prohibiting sale of domestically produced oil has distorted global oil prices for far too long. However, it is preferable that all energy sources be allowed to compete on a level playing field without government support of production tax credits and the like so that Texans and all Americans can benefit from greater prosperity.”
Recent TPPF commentary on this issue ran in The Hill, Real Clear Policy, and the McAllen Monitor.
The Honorable Kathleen Hartnett White is a Distinguished Senior Fellow-in-Residence and the Director for the Armstrong Center for Energy & the Environment. She is also former Chairman for the Texas Commission on Environmental Quality (2001-2007).
Dr. Vance Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation.
The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin, Texas.
This commentary originally appeared on Fox News on September 10, 2015.
The vote Thursday by the U.S. House subcommittee on Energy and Power to repeal the now outdated ban on crude oil exports benefits every American. Repealing this prohibition will help revive our economy and protect our country’s security.
The energy landscape in the world has radically changed within the last few years because of surging production of oil and natural gas in the United States. Unimaginable a few years ago, the U.S. became the world’s largest producer of petroleum and related liquid fuels in 2013. More than three-fourths of the increased global oil production is now from domestic oil fields.. And our imports of oil have decreased by roughly 60 percent since 2007
This sea change is the achievement of a mix of innovative technologies, known as hydraulic fracturing, applied by small and independent oil companies in multiple states. The shale revolution has been so successful that it has produced a surplus of crude oil.
For our country to benefit from the colossal energy wealth now at our fingertips, the ban on oil exports must be repealed.
Although both chambers of Congress will likely pass the legislation, it’s unclear whether the President will sign it. Given that the productivity of upstream oil and gas businesses has been a bright spot in an otherwise historically dismal economic recovery, he should sign this vital legislation.
Congress originally imposed the ban on domestic oil exports in the early 1970’s in response to the Arab oil embargo and an assumption that U.S. oil and gas production would continue to decline. Now we have a large oil surplus that creative technology made possible and can continue.
We’re just in the beginning of the shale revolution. Access to the massive store of energy now recoverable in shale is widely projected to expand. Politics may shackle but cannot destroy the success of these technologies. The conditions which led to the ban on exporting crude oil no longer exist. there’s no good reason to continue the ban on international trade of this most powerful of global commodities.
Half of the drilling rigs have left the oil fields since the plunge in oil prices that began last summer. Rig count, however, is not a good indicator of production levels in the shale fields. Production has continued to rise to historically high levels. According to current figures, domestic production in 2015 will average a whopping 9.3 million barrels per day.
By freeing the oil market from a failed oil exports ban, oil producers have the opportunity to meet the needs of a much larger global population and consumers can continue to have relief at the pump. This also makes us more secure as the U.S. is less reliant on Middle East oil from countries that are not our friends.
Labor Day travelers felt relief at the pump when they paid the lowest average price for gasoline in more than a decade. If basic economics and the conclusions of multiple government reports are worthy guides, we should expect lower gasoline prices with the end of the export ban.
Consumers benefit most in markets that freely trade goods. Limiting the global oil supply by prohibiting sale of domestically produced oil keeps global oil prices artificially high. For decades, prohibiting U.S. oil exports has driven prices at the pump higher than they otherwise would be.
Americans win from ending the oil export ban as freer markets have repeatedly proven that they are the best path to fuel prosperity.
Vance Ginn, Ph.D.