06.04.2013 0

America’s economic crossroad

By Rick Manning

Why is opening up America’s natural energy resources and defeating an environmental movement that has massive wealth, a pliant media and the capacity to play on emotional heart strings, the most important domestic question facing our nation?

The answer is that cheap, abundant energy may be the only way that our nation’s economy thrives in the future.

The profligate federal government spending over the past five years has put our nation on the precipice of an impending debt crisis, and growing the economic pie is the only way out.

Consider just how much it costs the federal government to make interest payments on the national debt.  In 2012, total interest payments on the nation’s then-$16 trillion debt totaled $359 billion.

By 2018, Obama’s Office of Management and Budget (OMB) projects that the national debt will grow to $21.696 trillion and interest payments will balloon to $657 billion.  The projected total revenues in 2018 are $3.65 trillion, up from $2.4 trillion in the year ending in October, 2012.

Why do these numbers matter?

If OMB is correct, normalizing interest rates combined with continued borrowing by the government will ensure that in just five years, one out of every six dollars taken in by the federal government will be spent on interest payments, including those owed to the Social Security and Medicare trust funds.

The scary part of the equation is that as time moves forward, federal obligations with lower interest rates will be  coming off the books, replaced by higher cost one’s.  In fact, an Americans for Limited Government analysis of OMB projections shows that by 2023, gross interest payments on the debt will exceed $1 trillion a year.

It should be clear that the odds are virtually nil that the federal government will continue to show spending restraint in light of the whining and gnashing of teeth associated with the sequester-mandated cuts.

This makes increasing tax revenues through private sector economic growth, rather than job killing tax increases, imperative if we are going to have a hope of stopping our nation’s slide into a Greek-like future.

The good news is if government gets out of the way, energy development can produce the stimulative effect of lower overall costs, as well as moving Americans from being government dependents to thriving taxpayers.  Hopefully generating the economic growth needed to overcome our nation’s past fiscal sins.

The proof is in the impact of low natural gas costs are already having in places like Texas, Pennsylvania, Ohio and Minnesota, and the story is just beginning to be written.

Reuters quotes Wolfgang Eder, the CEO of Austrian steelmaker Voelstalpine, that his company chose the state of Texas out of 17 sites in eight countries because, “In the USA, re-industrialization is being promoted very consistently, ambitiously and with great conviction,” and “Low energy prices gave us the final — and not insignificant – push.”

Think energy production doesn’t matter?  Shale extraction of natural gas brought prices in the United States down to just one quarter of the cost of the same energy in Europe.

Reuters continues by quoting Peter Loescher, CEO of German engineering giant Siemens Corporation saying, “The idea that energy costs in North America would always be more expensive no longer holds true. The new reality is that natural gas has turned that equation on its head.”

The private sector energy development revolution is the result of the ingenuity of individuals and private companies which took risks in developing techniques to profitably extract oil and natural gas from shale formations.  And this revolution is just at the beginning stage of transforming the United States from a nation that buys goods produced around the world, to a nation that makes products here.

Maryland based Marlin Steel Wire, has been aggressively hiring and investing in new equipment to fill orders from other U.S. manufacturers. Owner Drew Greenblatt, attributes the increased number of orders to the lower price he can offer due to the drop in natural gas and electricity costs.

An NBC report quotes Greenblatt saying, “That’s making U.S. companies that used to be at a price disadvantage now uniquely positioned to win contracts they never won in the past — or haven’t for a while,” he said. “Everyone talks about what’s going on in North Dakota, but it’s filtering down now to conventional factories throughout America.”

In Minnesota, companies are expanding to meet the development needs in neighboring North Dakota, providing an economic boost to the state and increased employment to its workers.

In Youngstown, Ohio mills that have been shuttered for more than thirty years are rumbling back to life due to the need to support the oil and natural gas extraction industry.  An oil and natural gas industry study estimates that by 2015, the fracking phenomenon will generate more than 200,000 jobs and $22 billion in economic output in Ohio alone.

And the renaissance of the U.S. manufacturing sector is just at its nascent stage with the lower natural resource related energy costs driving rational market decisions around the globe to expand and build factories in America.

Yet, places like California, New York and the Obama Administration itself remain almost recalcitrant in their opposition to developing the massive shale oil and natural gas resource our nation has been blessed with.

The Los Angeles Times editorialized in favor of a wait and see approach on fracking in the state after it was projected that 15 billion barrels of oil lay within the rocks beneath the San Joaquin Valley.  This in spite of a University of Southern California study projecting energy extraction would result in hundreds of thousands of new jobs for a state with a persistently high unemployment rate, and billions of dollars in new revenues to the chronically broke state government.

Yet, the Times urged delay, even going so far as to endorse legislation that would shut down one oil producer who is currently using the hydraulic fracturing technique over legislation which would stop new development but leave existing operators alone.

In New York state, the government is attempting to decide whether to allow hydraulic fracturing to occur on their side of the border with Pennsylvania where they are already deriving the economic benefits.  New York’s dilemma is based upon a desire to impose the most restrictive regulations in the nation on the industry, while recognizing that those very regulations are likely to discourage the development of the resource and resultant benefits within the state.

The federal government has just this year taken millions of acres of shale oil resources on federal land off the table in recent months throwing a roadblock in the path to an inexpensive, sustainable energy future.

In response, thirteen states are threatening to sue the federal Environmental Protection Agency if it dips its intrusive toes into regulation hydraulic fracturing issue arguing that it is the state’s Constitutional purview to regulate the industry.

In 2013, America is at a crossroads with one path leading to certain insolvency, and the other giving us a chance to grow our way out of the hole we have dug through free market based industrial expansion, and some modest continued government cost cutting.

A natural resource extraction driven economic expansion that rapidly expands the tax base throwing off dramatically increased government revenues.  Revenues generated by a private sector economy growing based upon market principles and not through higher punitive taxes on those who were willing to risk everything to create the wealth.

And that is why America’s future prosperity depends upon winning the battle against the environmentalist’s, who fight energy extraction at every turn.  With interest payments on the debt projected to consume one out of every six tax dollars in just five years, under the rosiest of scenarios, our economy needs a game changer to turn around, and in spite of the best efforts of the green movement, the real energy industry has provided one.

But, if the green movement has its way, the goose that laid the golden egg will be cooked, and our nation’s future prosperity will end up in the same broiler.

Rick Manning (@rmanning957) is the Vice President of Public Policy and Communications for Americans for Limited Government.

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