The job market seems to be the #1 subject on people’s minds. And government has a role to play at many levels. We hope the role is helpful. But it’s not always so.
The oil industry has known for many years that oil can be extracted from shale rock by heating it. But in the past, when oil was cheap, this process was too expensive, oil would have to be around $50/barrel to make it profitable.
Well, we hit that and more. Recent crude pricing has been hanging out at $75 a barrel. So it’s not surprising that shale oil has been developing in the background. Shell Oil had fully operational pilot plants, spent the money, applied for the permits. Shell also announced that the industry would create 10,000 jobs nationwide and capacity to directly reduce a fraction of our oil imports from foreign sources.
The Canadians were sitting on similar resources. I guess the geology of the Rocky Mountains is the same from Colorado to Canada. And the Canadians spent the money on pilot plants, applied for the permits and started building plants.
This is pretty big stuff. Getting tons of rocks crushed, transported, cooked until they release their oil, distilling the oil into a usable form. Big machinery, lots of equipment. Lots of work.
The only difference with these two stories is that Canada has completed its first two plants and is planning on a pipeline to the US through which they are going to sell and deliver the crude to US refiners. US Interior Secretary Salazar denied the permits to Shell Oil, at the last minute, saying that the land use was not consistent with our national goals for the use of the land.
As a former resident of Colorado, I have to say, the land in question is some of the most remote and unusable land anywhere to be found.
So what’s the deal? Before an election it was all about the jobs coming back to the auto workers. After the election it was jobs that are never coming back to automotive sector.
State governments have fallen victim to a similar myth in the green economy. Alternative energy is reportedly going to bring tens of thousands of new jobs to the economy. And government officials at the state level are trying to parlay renewable energy projects into increased employment in their states. And that’s fair. They should be looking for all the help they can.
But many renewable energy jobs are temporary. A wind farm project may only employ a few hundred people and after the project is done they have to find a new project. A new wind turbine manufacturing facility in a state is not like an automotive plant. The plants are usually manufacturing a sub assembly or part for the wind turbine. The actual number of people required to build a certain part may be 80-100. Much of wind turbine machinery content is offshore.
The other “new math” of the job conversation is jobs that are “created or saved” by government intervention. Well, that’s a tough one to prove. I surveyed several industries using the Department of Commerce industrial output data. For many industries the relationship is $220,000-300,000 of sales per employee. Obviously this number can vary quite a bit. But to “save or create” 30,000 new jobs takes sales of $7.8 Bil of new products or services.
Somebody has to spend a lot of money. Which means that somebody also has to earn a lot of money. Government cannot spend to offset a recession. They can only dig the hole deeper. New products come from entrepreneurs. And people who are working buy new products.
We need government to help create new jobs, not destroy them.