I am adding a new entry to my list of phrases that put me on guard that someone is trying to con me: “balanced approach.” Obama is always blathering about balanced approaches to fiscal matters. And in today’s WSJ, Dow Chemical CEO Andrew Liveris pleads for a “balanced approach to shale gas exports.”
To say that “balanced” is highly subjective is the understatement of the century. In Obamaland, “balanced approaches” mean large tax increases now, and hazy promises of spending cuts in some distant future. In Leveris’s oped, “balanced” means imposing restrictions on exports of natural gas to lower the cost of his most important input. Funny, ain’t it, that things seem to tip the way of those advocating “balanced approaches”? In other words, if it helps me, it’s fair and balanced!
Liveris couches this as a means of stimulating employment in US manufacturing and increasing GDP:
Moving manufacturing facilities back to the U.S. from abroad—the trend known as “reshoring”—could create up to five million American jobs over the next seven years, according to the Boston Consulting Group. This figure is so high partly because in the chemical industry jobs created by investing in domestic manufacturing are eight times more beneficial to gross domestic product than are simple gas exports, as documented by the American Chemistry Council.
To which I reply: Bull. National income is maximized when goods are allowed to flow to their highest value use. If domestic gas prices are $3/mmBTU and foreign prices (net of transportation, etc.) are $4, that means that at the margin 1 mmBTU of gas consumed in the US-including by Dow-generates $3 of value, and if consumed overseas it generates $4. Letting that mmBTU go overseas therefore generates $1 of value-of income. No BCG or American Chemical Council mumbo jumbo can change that simple fact. And I’m sure that the ACC is totally objective. Totally.
Leveris pleads that all he wants is a rule-based system:
The truth is that every firm in every sector benefits from exports and rules-based free trade. But what are the rules for exports of liquefied natural gas? Who sets them? Oil and gas companies, states, Japanese government agencies? Or are they part of rules-based free-trade agreements that the U.S. government has negotiated so as not to disadvantage domestic consumers, manufacturers and workers?
Here’s a balanced rule for you, Mr. Leveris: Producers can sell to whomever offers them the highest price. Short. Simple. Easy to understand. No bureaucrats required. And to show what a broad minded guy I am, I propose that the rule be applied to Dow.
But Leveris wants to insert bureaucrats into the process:
The Department of Energy has already received applications for the export of half the gas consumed in the U.S. today. Under a 1938 law, the department must determine if those applications for exports are in the national interest (taking into account all segments of society).
Several manufacturers, including Dow, are calling for faithfulness to current law. We are concerned that hasty government action, coupled with growing domestic and international demands for natural gas, will trigger a severe supply pinch that will send the U.S. back to the days of higher and more volatile domestic natural-gas prices.
Ah. “The national interest.” That’s the ticket.
The 1938 law inserts a government bureaucracy that can distribute rents among rent seeking supplicants-such as firms like D0w-based on political calculations. Resources are wasted in the influence process: e.g., chemical companies and energy companies engage in an influence arms race employing lobbyists and other resources to importune the bureaucrats. More resources are wasted as this process inevitably leads to inefficient outcomes. The uncertainty generated by the vagaries of this process also serves to damp investment.
So here is my balanced proposal: scrap the 1938 law.
Everywhere you look you see that energy is highly politicized. Politicians and bureaucrats exert a huge influence over the allocation of energy resources. Look at Keystone XL. Look at cockamamie subsidies for solar and wind. I could go on and on. These interventions destroy huge amounts of value.
Balance is a relevant concept here, because politicians and bureaucrats balance competing political interests when choosing policies that divide up the pie. But that “balanced” process destroys wealth.
We need less politicized energy market. Allowing free export of US natural gas-and oil-should be a no brainer if your object is-as Mr. Leveris claims his is-to maximize national income. But that’s not his real objective. His real aim is to maximize Dow’s income, to redirect wealth from the shareholders of E&P firms to his shareholders.
Leveris’s piece is a gaseous plea for mercantilism, though of a rather apostate form since traditional mercantilism advocates the maximization of exports. But the essence of mercantilism is government control and manipulation of trade. And moreover, one staple of mercantilist thought is that domestic raw materials should only be used in domestic manufacture because manufactured goods are more valuable than raw materials. Leveris repeats this long discredited fallacy in his oped. Proving that few things live longer than bad arguments.
Sadly, it is likely that the chemical industry, and other energy consuming industries, will exert some influence and succeed in restricting the exports of natural gas. That’s the way things work, alas. But don’t buy the bilge that these restrictions are part of a “balanced approach” that advances (ill-defined) “national interest.” Instead, they are inherently unbalanced and advance very specific economic interests.
And one last word of advice: when anyone says they are only advocating a “balanced approach”, grab your wallet and call bull.