For a long time I have argued that one of the keys to restructuring the economy must be a reduced reliance on energy imports.
For the last many years the US has run persistent trade deficits, of late in the $40 to $50 billion a month range. What that means is that EVERY month about $40 to $50 billion LEAKS out of the US economy. That is money that can not circulate in the US economy and create jobs ... because it has left the economy.
There are of course two ways to reduce a trade deficit. One is to reduce imports, the other to increase exports. In this economic environment it is tough to increase exports .. but it is possible to reduce imports ... and here is the key - until recently almost 1/2 of the US trade deficit each month was due to oil/energy imports. So in the simplest terms becoming energy independent would cut the trade deficit in half ... leaving an extra $20-$25 billion a month IN THE ECONOMY (a great form of stimulus).
So here is the good news:
U.S. oil production surged last week to the highest level since January 1997, reducing the country’s dependence on imported fuels as new technology unlocks crude trapped in shale formations.
Crude output rose by 3.7 percent to 6.509 million barrels a day in the week ended Sept. 21, the Energy Department reported today. America met 83 percent of its energy needs in the first six months of the year, department data show. If the trend continues through 2012, it will be the highest level of self- sufficiency since 1991. Imports have declined 3.2 percent from the same period a year earlier.
Citigroup Inc. estimated in a March report that resurgent U.S. energy supplies could lead to a “reindustrialization” of America that could add as many as 3.6 million jobs by 2020 and increase the gross domestic product by as much as 3 percent.
Let us summarize the key points because they are really important.
1. Oil production is at the highest since 1997! (So much for Obama killing the energy industry)
2. America is now at 83% energy self sufficiency.
3. Imports are down 3.2% (helping reduce the trade deficit).
4. The increase in domestic energy supplies could add 3.6 million jobs by 2020! (Do the math and that is about 40,000 a month, not bad when the economy is only adding 100-200,000 a month now).
Of course there is some bad news .. you can only use each barrel of oil once and each 1000 cf of natural gas once. Use them and then they are gone ... forever.
So a long run solution can not just rely on finding more stuff ... cause eventually there is not more to find, or it becomes prohibitively costly to extract.
That is why two other policies are crucial:
1. Alternative energy. I would recommend that as a minimum, the amount of money saved on reduced oil imports (remember this is money that now stays in the economy ... instead of leaking away to places like Saudi Arabia and Iraq) should be plowed back into alternate energy (solar, wind, etc) and fuel efficiency (see next item). This is a win win. This ''found'' money can be used to generate new jobs at home AND actually increase energy production so that even fewer barrels of oil need to be imported. Talk about a virtuous cycle!!!
2. Improved fuel efficiency. Thankfully we are getting, thanks to Obama, new automotive fuel efficiency standards that will hopefully further reduce energy use and therefore imports. This is an essential long run policy, but it will take time to work.
But reduced US demand may have the perverse impact of causing oil prices to fall. To further encourage the shift I want to suggest a new minimum price for oil/gasoline. This will provide long run support for more fuel efficient cars and public transport, ensuring there is no backsliding and that America continues forward on its path to energy self sufficiency.
One last little side benefit:
Once the US becomes 100% energy self sufficient it can back off on its defense budget, much of it being of course used to police the Middle East and the Straits of Hormuz. The savings again would be massive and would create jobs in the US. And of course this might force China to actually have to spend more to defend the routes for the import of its own energy needs (a lot of it form the same area now being protected for free by the US). Again win win (defense being in the end a leech on the economy).
One hopes that Obama throws this in Romney's face at the debate if Romney starts to whine about Obama's lack of an energy policy. Slowly and below the radar the US has started to fix one of the biggest holes in its economy.
... while this is great ... my next diary will be on why we will not be able to get too excited about any economic recovery for a long time yet (5-10 years). Still it is nice to see one thing going right for a change.