Natural Born Drillers: Krugman Explains Why Fossil Fuel Boom Doesn’t Lower Prices Or Create Many Jobs

To be a modern Republican in good standing, you have to believe — or pretend to believe — in two miracle cures for whatever ails the economy: more tax cuts for the rich and more drilling for oil. And with prices at the pump on the rise, so is the chant of “Drill, baby, drill.” More and more, Republicans are telling us that gasoline would be cheap and jobs plentiful if only we would stop protecting the environment and let energy companies do whatever they want.

In place of the news round up today, I’m excerpting Paul Krugman excellent op-ed, “Natural Born Drillers.” The Nobel-prize winning economist debunks popular but fact-free right-wing myths:

Thus Mitt Romney claims that gasoline prices are high not because of saber-rattling over Iran, but because President Obama won’t allow unrestricted drilling in the Gulf of Mexico and the Arctic National Wildlife Refuge. Meanwhile, Stephen Moore of The Wall Street Journal tells readers that America as a whole could have a jobs boom, just like North Dakota, if only the environmentalists would get out of the way.

The irony here is that these claims come just as events are confirming what everyone who did the math already knew, namely, that U.S. energy policy has very little effect either on oil prices or on overall U.S. employment. For the truth is that we’re already having a hydrocarbon boom, with U.S. oil and gas production rising and U.S. fuel imports dropping. If there were any truth to drill-here-drill-now, this boom should have yielded substantially lower gasoline prices and lots of new jobs. Predictably, however, it has done neither.

Outside of the WSJ editorial page, though, even the newspaper itself doesn’t buy this nonsense (see Murdoch’s Wall Street Journal and Koch-Fueled Cato Agree: “It’s Not Obama’s Fault That Crude Oil Prices Have Increased”).  Nor does the public (see Poll: 66% Blame Big Oil and MidEast Countries For High Gas Prices, 23% Blame Obama).

Here’s more from Krugman:

U.S. oil production has risen significantly over the past three years, reversing a decline over decades, while natural gas production has exploded.

Given this expansion, it’s hard to claim that excessive regulation has crippled energy production. Indeed, reporting in The Times makes it clear that U.S. policy has been seriously negligent — that the environmental costs of fracking have been underplayed and ignored. But, in a way, that’s the point. The reality is that far from being hobbled by eco-freaks, the energy industry has been given a largely free hand to expand domestic oil and gas production, never mind the environment.

Strange to say, however, while natural gas prices have dropped, rising oil production and a sharp fall in import dependence haven’t stopped gasoline prices from rising toward $4 a gallon. Nor has the oil and gas boom given a noticeable boost to an economic recovery that, despite better news lately, has been very disappointing on the jobs front.

As I said, this was totally predictable.

First up, oil prices. Unlike natural gas, which is expensive to ship across oceans, oil is traded on a world market — and the big developments moving prices in that market usually have little to do with events in the United States. Oil prices are up because of rising demand from China and other emerging economies, and more recently because of war scares in the Middle East; these forces easily outweigh any downward pressure on prices from rising U.S. production. And the same thing would happen if Republicans got their way and oil companies were set free to drill freely in the Gulf of Mexico and punch holes in the tundra: the effect on prices at the pump would be negligible.

Krugman also dismantles the jobs argument.

Meanwhile, what about jobs? I have to admit that I started laughing when I saw The Wall Street Journal offering North Dakota as a role model. Yes, the oil boom there has pushed unemployment down to 3.2 percent, but that’s only possible because the whole state has fewer residents than metropolitan Albany — so few residents that adding a few thousand jobs in the state’s extractive sector is a really big deal. The comparable-sized fracking boom in Pennsylvania has had hardly any effect on the state’s overall employment picture, because, in the end, not that many jobs are involved.

And this tells us that giving the oil companies carte blanche isn’t a serious jobs program. Put it this way: Employment in oil and gas extraction has risen more than 50 percent since the middle of the last decade, but that amounts to only 70,000 jobs, around one-twentieth of 1 percent of total U.S. employment. So the idea that drill, baby, drill can cure our jobs deficit is basically a joke.

Why, then, are Republicans pretending otherwise? Part of the answer is that the party is rewarding its benefactors: the oil and gas industry doesn’t create many jobs, but it does spend a lot of money on lobbying and campaign contributions. The rest of the answer is simply the fact that conservatives have no other job-creation ideas to offer.

And intellectual bankruptcy, I’m sorry to say, is a problem that no amount of drilling and fracking can solve.



8 Responses to Natural Born Drillers: Krugman Explains Why Fossil Fuel Boom Doesn’t Lower Prices Or Create Many Jobs

  1. squidboy6 says:

    Dr. Krugman’s point about the WSJ’s use of job data from from Dakota as an example of job creation is the best example of the use of lies by Republicans, Murdoch, and Big Oil that I have ever seen. Some comments in the NYT by people opposed to Krugman’s analysis accuse him of being biased.

    This election season looks to be very entertaining but still unpredictable. The blather spewed out by Republicans has been nonsense for decades, but they always have high paid operators using any lie, any mistake by opposition, and any leverage they can find to steal an election. This is where the action is, not on the WSJ’s pages.

  2. Speedy says:

    Krugman has never won a Nobel Prize.
    The Bank of Sweden economic prize is not a Nobel Prize, but a later invention by bankers for bankers using Nobel’s name.

  3. Jay Alt says:

    Drilling oil wells (mostly modest producers) at an insane rate can’t improve job prospects for many Americans. It only continues the unmerited transfer payments to wealthy corporations and shareholders. Gasoline is a huge drain on the pocketbook, regardless of whether the sellers are in TX-OK-AK-Gulf or Saudi Arabia.
    Do something about it. I recently bought a 2012 car with double the mileage of the trade-in.

  4. Roger Blanchard says:

    There is an interesting discrepancy in oil production data for the Gulf of Mexico between the U.S. DOE/EIA and the Bureau of Ocean Energy Management (BOEM was formally the Minerals Management Service-MMS). Here are oil production data for the last 2 years from both agencies for GOM oil production (crude + condensate):
    U.S. DOE/EIA
    2010 1,550,985 b/d
    2011 1,390,797 b/d

    Difference = – 160,188 b/d

    2010 1,540,238 b/d
    2011 1,289,618 b/d

    Difference = -250,620 b/d

    The difference between the BOEM and U.S. DOE/EIA data is 90,432 b/d.

    Based upon U.S. DOE/EIA data, U.S. oil production for 2010 and 2011 were:

    U.S. DOE/EIA
    2010 5.474 mb/d
    2011 5.673 mb/d

    Difference = +199,000 b/d

    I suspect that the BOEM value for the GOM is more accurate than that of the U.S. DOE/EIA because the BOEM is in federal charge of GOM oil production so it wouldn’t be surprising if the U.S. DOE/EIA revises their U.S. oil production figure down for 2011. The media is making a big deal about the increase in U.S. oil production in the last 3 years but if the increase was only ~110,000 b/d in 2011, that isn’t a large increase.

    Based upon the weekly oil production estimates from the U.S. DOE/EIA, production so far this year is below that of Oct. 2011. I wouldn’t be surprised if the production rate for this year is below that of the last quarter of 2011.

    I personally expect a general decline in GOM oil production. The increase in U.S. oil production in the last 3 years has been almost totally due to production increases in the GOM, Texas and North Dakota. The GOM is now going down and I expect Texas and North Dakota to peak before 2015. The production data for this year suggests it’s getting more challenging to increase production in Texas and North Dakota while other areas are declining.

  5. Barry saxifrage says:

    95% of usa vechiles will soon become stranded assets. Sell yours before it becomes obvious to everyone.

    Oil prices have become inelastic to increasing demand. Infrastructure that demands oil to use is facing global game of musical chairs where you have to pay to sit. There is a long line of new players busting down the doors to join in for that same set of chairs.

    This is preview of all fossil dependent investments in coming years as climate nasties become impossible to ignore. Most expensive to operate go first. mIT showed this for tarsands vs conventional oil for example.

    Irrational carbon exuberance

  6. Frank Halasz says:

    And did you melt your old car down, or is someone else driving it?

  7. Brooks Bridges says:

    From Wikipedia:

    “In 2008, Krugman won the Sveriges Riksbank Prize in Economic Sciences (informally the Nobel Prize in Economics) for his contributions to New Trade Theory and New Economic Geography. ”

    “The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics,[1][2] but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (Swedish: Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an award for outstanding contributions to the field of economics, generally regarded as one of the most prestigious awards for that field.[3] While not one of the Prizes established by the will of Alfred Nobel in 1895, it is consistently identified with them.[3][4][5][6][7] The Prize in Economics, as it is referred to by the Nobel Foundation, was established and endowed by Sweden’s central bank Sveriges Riksbank, in 1968 on the occasion of the bank’s 300th anniversary, in memory of Alfred Nobel.”

  8. kinder says:

    while it would be nice if everyone could afford a car that got great gas mileage, like the dinosaurs of Cuba, the poor, or rather, 50% of the population of the US, simply has no money. none saved, and none coming in. the only cars they can afford, like the dinosaurs of Cuba, are cheap used cars that get awful gas mileage. when prices of oil go up, these people aren’t just gonna stop driving, they’re gonna start robbing. the revolution will be over gas my friends. and it’s coming sooner than you think. think “Mad Max” on a global scale.