Windfall

by Meghan L. O'Sullivan

  As the IEA assessed: International Energy Agency, Mexico Energy Outlook, 14, http://www.iea.org/publications/freepublications/publication/MexicoEnergyOutlook.pdf.

  In contrast, the “no reform case”: Ibid., 107–13.

  Lourdes Melgar, a soft spoken: Lourdes Melgar, in-person conversation with author, Cambridge, MA, April 14, 2017.

  With almost two-thirds: “Mexico: Analysis,” U.S. Energy Information Administration: Beta, December 9, 2016, https://www.eia.gov/beta/international/analysis.cfm?iso=MEX.

  Throughout the 2016 U.S.: Maggie Severns, “Trump pins NAFTA, ‘worst trade deal ever,’ on Clinton,” Politico, September 26, 2016, http://www.politico.com/story/2016/09/trump-clinton-come-out-swinging-over-nafta-228712.

  A senior industry official: Senior industry official, telephone conversation with author, April 21, 2017.

  The mechanisms established: “Overview of the Dispute Settlement Provisions,” NAFTA Secretariat, 2014, https://www.nafta-sec-alena.org/Home/Dispute-Settlement/Overview-of-the-Dispute-Settlement-Provisions.

  Five: Hard Power Accelerator

  The real median family: “Real Median Family Income in the United States [MEFAINUSA672N], U.S. Bureau of the Census, retrieved from FRED, Federal Reserve Bank of St. Louis, www.fred.stlouisfed.org/series/MEFAINUSA672N.

  Meanwhile, the poverty: Statistics in the next two sentences are from Peter Ferrera, “Reaganomics vs. Obamanaomics: Facts and Figures,” Forbes, May 5, 2011, www.forbes.com/sites/peterferrara/2011/05/05/reaganomics-vs-obamanomics-facts-and-figures/.

  As Reagan recalled in his memoir: Ronald Reagan, An American Life (New York: Simon & Schuster, 2011), 333.

  Bernard Brodie, a military: See Bernard Brodie, Strategy in the Missile Age (Santa Monica: RAND, 1959), 358.

  Battling the worst recession: See U.S. Bureau of Labor Statistics, United States Department of Labor, “The Recession of 2007–2009,” Spotlight on Statistics, February 2012, 2, www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf.

  On average, household consumer spending: See ibid., 15.

  The situation was so dire: “Warren Buffett: This Is an ‘Economic Pearl Harbor,’ ” YouTube, 3:17, posted by “GettingtotheTruth2,” October 2, 2008, www.youtube.com/watch?v=LkMS3Oz1xkc.

  Hank Paulson, secretary of the treasury: See Henry M. Paulson, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System (New York: Business Plus, 2010), 241.

  In 2011, with the economic: Barack Obama, “Remarks by the President on the Way Forward in Afghanistan,” The White House Office of the Press Secretary, June 22, 2011, www.whitehouse.gov/the-press-office/2011/06/22/remarks-president-way-forward-afghanistan.

  In a 2013 public opinion poll: “Public Sees U.S. Power Declining as Support for Global Engagement Slips,” Pew Research Center, December 3, 2013, www.people-press.org/2013/12/03/public-sees-u-s-power-declining-as-support-for-global-engagement-slips/.

  According to one study: IHS Energy and IHS Economics, “Unleashing the Supply Chain: Assessing the Economic Impact of a US Crude Oil Free Trade Policy,” IHS, March 2015, 4, www.energy.senate.gov/public/index.cfm/files/serve?File_id=6fcbe64a-7a34-4ac8-ba14-b7be1cfe1bee.

  A 2015 Harvard Business School/Boston Consulting Group: Michael E. Porter, David S. Gee, and Gregory J. Pope, “America’s Unconventional Energy Opportunity: A Win-Win Plan for the Economy, the Environment, and a Lower-Carbon, Cleaner-Energy Future,” Harvard Business School and Boston Consulting Group, June 2015, 19, www.hbs.edu/competitiveness/Documents/america-unconventional-energy-opportunity.pdf.

  This amount translates into: The $831 billion American Recovery and Reinvestment Act of 2009 sought to boost the flagging economy through investment in infrastructure, education, renewable energy, and health. Congressional Budget Office, “Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from October 2011 Through December 2011,” Congressional Budget Office, Washington, DC, February, 2012, www.cbo.gov/sites/default/files/cbofiles/attachments/02-22-ARRA.pdf.

  The burgeoning energy sector: Unemployment remained higher than during any other recovery from a recession since the 1970s. Natalia A. Kolesnikova and Yang Liu, “Jobless Recoveries: Causes and Consequences,” Federal Reserve Bank of St. Louis, April 2011, www.stlouisfed.org/Publications/Regional-Economist/April-2011/Jobless-Recoveries-Causes-and-Consequences.

  Estimates of the impact: “Net” jobs would also take into account whether such activities resulted in the loss of jobs in other sectors.

  Moody’s Analytics, a consultancy: Chris Lafakis, Moody’s Analytics, presentation to Atlantic Council Task Force on the Energy Boom and National Security, April 2015, quoted in Atlantic Council Task Force on the U.S. Energy Boom and National Security, Empowering America: How Energy Abundance Can Strengthen U.S. Global Leadership (Washington, DC: Atlantic Council Global Energy Center), 5, www.atlanticcouncil.org/images/publications/Task_Force_Report_PDF.pdf.

  Each of these directly: Ibid.

  These new jobs were roughly equivalent: December 2007 to June 2009 is the official duration of the recession according to the National Bureau of Economic Research, the official arbiter of recessions. “Employment, Hours, and Earnings from the Current Employment Statistics Survey (National),” Bureau of Labor Statistics, United States Department of Labor, November 10, 2016, http://data.bls.gov/timeseries/CES3000000001.

  In contrast, the 2015 Harvard Business School: According to this study, the total number of American jobs added between 2005 and mid-2015 was 4.9 million. Porter, Gee, and Pope, “America’s Unconventional Energy Opportunity: A Win-Win Plan for the Economy, the Environment, and a Lower-Carbon, Cleaner-Energy Future,” 6. The study cites “Current Employment Statistics,” Bureau of Labor Statistics, http://www.bls.gov/data/.

  The two companies describe: “About Us,” Gulf Coast Growth Ventures, www.gulfcoastgrowthventures.com/about-us; “Gulf Coast Growth Ventures Announces Site Decision,” Gulf Coast Growth Ventures, April 19, 2017, www.gulfcoastgrowthventures.com/press_releases.php?action=submit&story_id=51.

  The new $1 billion steel mill: Bret Schulte, “Can Natural Gas Bring Back U.S. Factory Jobs?” National Geographic, February 1, 2014, http://news.nationalgeographic.com/news/energy/2014/01/140131-natural-gas-manufacturing-jobs/; “Groundbreaking for a New Generation of Steelworks to Be Initially Built in Arkansas, USA,” MPT International 1 (2015): 24–29, http://bigriversteel.com/wp-content/uploads/2015/03/BRS-Metallurgical-Plant-and-Tech-Article-3_18_15.pdf.

  In early 2016, the mill: Ted Evanoff, “Big River Steel Begins Hiring at Osceola,” Commercial Appeal, March 18, 2016, www.commercialappeal.com/business/jobs-wages/Big-River-Steel-begins-hiring-at-Osceola-372566682.html.

  Several years later, Dow: Jack Kaskey, “Chemical Companies Rush to the U.S. Thanks to Cheap Natural Gas,” Bloomberg, July 25, 2013, www.bloomberg.com/bw/articles/2013-07-25/chemical-companies-rush-to-the-u-dot-s-dot-thanks-to-cheap-natural-gas.

  Such stories are indicative: Barack Obama, “State of the Union Address,” January, 28, 2014, The White House Office of the Press Secretary, www.whitehouse.gov/the-press-office/2014/01/28/president-barack-obamas-state-union-address. In a subsequent testimony, Daniel Yergin references a report of $117 billion of new investment in the petrochemicals sector alone. Prepared testimony of Daniel Yergin, “America’s Natural Gas Revolution: What It Means for Jobs and Economic Growth,” Joint Economic Committee of the United States Congress, 103rd Cong. (June 24, 2014), 7, www.jec.senate.gov/public/_cache/files/e4afd2b5-0353-4070-8a15-37f8eec794e9/yergin-testimony.pdf.

  Of course, low energy prices: Some analysts rightly point out limits to how sweeping this U.S. “manufacturing renaissance” could be. The expansion of manufacturing frequently takes place in the context of a weak currency, which tends to boost demand for a country’s products overseas. The energy boom, by taming the current account deficit (as a result of fewer energy imports) and strengthening the dollar, would therefore seem to some to
run contrary to a growth in U.S. manufacturing beyond 2015. See Trevor Houser and Shashank Mohan, “Economic Impact,” Chapter Four in Fueling Up: The Economic Implications of America’s Oil and Gas Boom (Washington, D.C.: Peterson Institute for International Economics, 2014).

  But these sectors, which include: See “Value Added by Industry as a Percentage of Gross Domestic Product,” Bureau of Economic Analysis, April 21, 2017, https://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5101=1&5114=a&5113=gdpva,31gva,331va,332va,3361mvva,3364otva,322va,325va,441va&5112=2016&5111=2005&5102=5.

  Increased oil and gas production: Porter, Gee, and Pope, “America’s Unconventional Energy Opportunity: A Win-Win Plan for the Economy, the Environment, and a Lower-Carbon, Cleaner-Energy Future,” 55. An earlier (2013) IHS report included similar findings, stating that “The full value chain of industrial activity and employment associated with unconventional oil and natural gas contributed more than $74 billion in federal and state government revenues in 2012. Tax receipts will rise to more than $125 billion annually by 2020 and reach $138 billion by 2025.” “U.S. Unconventional Oil and Gas Revolution to Increase Disposable Income by More than $2,700 per Household and Boost U.S. Trade Position by More than $164 billion in 2020, New IHS Study Says,” IHS Markit, September 4, 2013, http://press.ihs.com/press-release/economics/us-unconventional-oil-and-gas-revolution-increase-disposable-income-more-270.

  For context, this increase: The 2014 Defense Budget was $520 billion, once the cap was raised by Congress. Lawrence J. Korb, Max Hoffman, and Kate Blakeley, “A User’s Guide to the Fiscal Year 2015 Defense Budget,” Center for American Progress, April 24, 2014, 3, https://cdn.americanprogress.org/wp-content/uploads/2014/04/DoDbudget-brief.pdf.

  The Brookings Institution found: While the report notes that all consumers benefited, producers on the whole experienced a loss, as their gains from the expansion of supply were outweighed by the fall in the price of gas. The gains to consumers are however greater than the loss to producers. See Catherine Hausman and Ryan Kellogg, “Welfare and Distributional Implications of Shale Gas,” Brookings Papers on Economic Activity, Spring 2015, www.brookings.edu/about/projects/bpea/papers/2015/welfare-distributional-implications-shale-gas. An American Petroleum Institute–ICF International study found that the “reduction in petroleum product prices have saved U.S. consumers an estimated $63 to $248 billion in 2013 and estimated cumulative savings of between $165 and $624 billion from 2008 to 2013.” ICF International, “U.S. Oil Impacts: The Impacts of Horizontal Multi-stage Hydraulic Fracturing Technologies on Historical Oil Production, International Oil Costs, and Consumer Petroleum Product Costs,” presentation, The American Petroleum Institute, Washington, DC, October 30, 2014, www.api.org/~/media/Files/Policy/Hydraulic_Fracturing/ICF-Hydraulic-Fracturing-Oil-Impacts.pdf.

  Homeowners around the country: “Natural Gas Prices,” U.S. Energy Information Administration, October 31, 2016, www.eia.gov/dnav/ng/ng_pri_sum_dcu_nus_a.htm.

  In part by purchasing its supply: “PSE&G Proposes to Cut Residential Gas Bills by 5.7 Percent This Coming Winter,” Public Service Enterprise Group, June 1, 2015, https://www.pseg.com/info/media/newsreleases/2015/2015-06-01.jsp#.VZrc9YteHvM.

  One firm estimated that: Harold L. Sirkin, Michael Zinser, and Justin Rose, “How Cheap Natural Gas Benefits the Budgets of U.S. Households,” BCG Perspectives, February 3, 2014, https://www.bcgperspectives.com/content/articles/lean_manufacturing_energy_environment_how_cheap_natural_gas_benefits_budgets_us_households/; The Ongoing Rise of Shale Gas: The Largest Revolution the Energy Landscape Has Seen in Two Decades, BCG e-book, October 9, 2014, https://www.bcgperspectives.com/content/articles/energy_environment_ongoing_rise_shale_gas/.

  Had American innovators and entrepreneurs: Even Saudi Arabia would have not been able to compensate for the millions of barrels lost to the market, given limits on their spare capacity at the time.

  By one estimate, oil prices: An American Petroleum Institute study conducted in October 2014 in collaboration with ICF International found that “that international Brent crude oil prices would have averaged $122 to $150 per barrel in 2013 without U.S. HMSHF crude oil and condensate production increases.” (HMSHF stands for “horizontal multistage hydraulic fracturing.”) ICF International, “U.S. Oil Impacts: The Impacts of Horizontal Multi-stage Hydraulic Fracturing Technologies on Historical Oil Production, International Oil Costs, and Consumer Petroleum Product Costs,” presentation, The American Petroleum Institute, Washington, DC, October 30, 2014, www.api.org/~/media/Files/Policy/Hydraulic_Fracturing/ICF-Hydraulic-Fracturing-Oil-Impacts.pdf. “Europe Brent Spot Price FOB,” U.S. Energy Information Administration, November 9, 2016, www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rbrte&f=a.

  Similarly, another study suggested: A Brookings Institution study ran a counterfactual scenario where the authors matched the 2007 supply curve with 2013 to conclude that had the shale boom not occurred, the price of natural gas would be $7.33 per thousand cubic feet, with the reduction achieved by the shale boom amounting to $3.45 (a 47 percent reduction). The study uses thousand cubic feet (mcf) rather than mmbtu, so a conversion is done to determine the price in mmbtu ($7.07). Hausman and Kellogg, “Welfare and Distributional Implications of Shale Gas,” 3, 15–16.

  The International Monetary Fund estimates: In 2002, the IMF estimated that an increase in the price of oil by $5 a barrel, sustained over time, would adversely affect global growth by 0.3 percent after one year. A World Bank paper written in 2013 anticipates a similar impact, when it estimates that a 50% increase in oil prices could dampen global economic growth in 2020 by 1.29%. See Hiromi Kato, “Effects of the Oil Price Upsurge on the World Economy,” The Institute of Energy Economics, December 2005, 14, http://eneken.ieej.or.jp/en/data/pdf/313.pdf; “The Price of Fear,” Economist, March 3, 2011, www.economist.com/node/18285768; Govinda R. Timilsina, “How Much Does an Increase in Oil Prices Affect the Global Economy? Some Insights from a General Equilibrium Analysis” (policy research working paper 6515, Environment and Energy Team, Development Research Group, The World Bank, Washington, D.C., June 2013), 11, http://documents.worldbank.org/curated/en/405231468331249876/pdf/WPS6515.pdf.

  When the world is growing: “World Economic Outlook,” The International Monetary Fund, April 2017, http://www.imf.org/external/pubs/ft/weo/2017/01/weodata/download.aspx.

  One calculation suggests that: Atlantic Council Task Force on the U.S. Energy Boom and National Security, Empowering America: How Energy Abundance Can Strengthen U.S. Global Leadership, 5–7.

  Estimates of the savings incurred: “Daniel Yergin Congressional Testimony—Joint Economic Committee of the United States,” IHS Markit, June 24, 2014, http://press.ihs.com/press-release/energy-power-media/daniel-yergin-congressional-testimony-joint-economic-committee-unit.

  The Harvard Business School/Boston Consulting Group: Porter, Gee, and Pope, “America’s Unconventional Energy Opportunity: A Win-Win Plan for the Economy, the Environment, and a Lower-Carbon, Cleaner-Energy Future,” 55.

  U.S. government revenues: Ibid.

  More than Wine for Cloth: This is a reference to David Ricardo’s 1817 discussion of trade in On the Principles of Political Economy and Taxation.

  Looking only at the volume: Wilson, Growing Together: Economic Ties between the United States and Mexico, 7.

  In 2016, Mexico was the first: These statistics are gleaned from data compiled by the U.S. Census Bureau. “Foreign Trade,” United States Census Bureau, https://www.census.gov/foreign-trade/statistics/state/data/index.html.

  Take this example from: Wilson, Growing Together: Economic Ties between the United States and Mexico, 7.

  Such an example clarifies: This 40 percent stands in contrast to 25 percent for Canada and 4 percent for China. See Robert Koopman et al., “Give Credit Where Credit Is Due: Tracing Value Added in Global Production Chains,” (Working Paper 16426, National Bureau of Economic Research, Cambridge, MA, September 2010), 7–8, http://www.nber.org/papers/w16
426.pdf.

  There is a risk that U.S. policymakers: On January 26, 2017, just a few days after taking office, President Trump tweeted, “The U.S. has a 60 billion dollar trade deficit with Mexico. It has been a one-sided deal from the beginning of NAFTA with massive numbers.” Donald J. Trump, Tweet, January 26, 2017, 5:51 a.m., https://twitter.com/realDonaldTrump/status/824615820391305216; For information about jobs reliant on U.S.-Mexico trade, see Wilson, Growing Together: Economic Ties between the United States and Mexico.

  By some assessments, Mexican manufacturing labor costs: Harold L. Sirkin, Michael Zinser, and Justin R. Rose, “The Shifting Economics of Global Manufacturing,” BCG, August 2014, 8, https://www.bcgperspectives.com/Images/The_Shifting_Economics_of_Global_Manufacturing_Aug_2014.pdf; Harold L. Sirkin, “China vs. the U.S.: It’s Just as Cheap to Make Goods in the USA,” Bloomberg, www.bloomberg.com/bw/articles/2014-04-25/china-vs-dot-the-u-dot-s-dot-its-just-as-cheap-to-make-goods-in-the-u-dot-s-dot-a.; Pan Kwan Yuk, “Want Cheap Labour? Head to Mexico, Not China,” Financial Times, January 14, 2016, https://www.ft.com/content/bddc8121-a7a0-3788-a74c-cd2b49cd3230; “International Comparisons of Hourly Compensation Costs in Manufacturing, 2015—Summary Tables,” The Conference Board, April 12, 2016, https://www.conference-board.org/ilcprogram/index.cfm?id=38269.

  Since NAFTA was signed: “U.S. Natural Gas Exports and Re-Exports by Country,” U.S. Energy Information Administration, April 28, 2017, www.eia.gov/dnav/ng/ng_move_expc_s1_a.htm. This volume of exports only accounts for roughly 4 percent of overall U.S. natural gas production, but 60 percent of all U.S. natural gas exports in 2015; BP p.l.c., BP Statistical Review of World Energy 2016 (BP, June 2016), 22, 28, www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-full-report.pdf.