Coal Delusions

You’ve got to hand it to those Republican legislators from Billings: they love their fossil fuels.  A few weeks ago Rep. Doug Kary was all bent out of shape because he thought President Obama was doing in domestic oil production, and now we have Sen. Ed Walker, equally outraged because environmentalists are trying to do in Montana coal.

According to a broadside in the Billings Gazette, Walker thinks we’ve been invaded by a troop of “out-of-state” environmentalists, beating bongo drums and enveloped in a “smoky haze of questionable origin,” who are trying to stop expanded production and export (to China) of Montana coal. The result, Walker claims, will be to turn down a “huge” economic opportunity that can have a “transformative effect” on the state’s economy.  It would be, Walker says, “like tearing up a jackpot lottery ticket.”

I’m not sure how Walker arrived at his snarky description of the coal protestors in Helena – the press account I read said plain old Montanans were leading the gathering and there wasn’t a word about bongo drums or questionable smoky hazes – but I suppose it makes for good, devoid-of-the-facts, campaign rhetoric.  When it comes to coal and the Montana economy, however, Walker really needs to do a reality check.

The senator is apparently deeply impressed by the contention that the proposed Otter Creek mine would create, between mining itself and its ripple effect on other industries like services and retail trade, a total of 2,000 jobs.  Actually that figure is a little high: according to a study supported by Arch Coal, an out-of-state  corporation that will run the mine, the total number of jobs created when Otter Creek is up and running will be about 1,750, with just 300 at the mine itself.  Let’s assume 1,750 is correct. It sounds like a big number, but placed in the context of the Montana economy, it’s a drop in the bucket –a little less than one third of one percent of all the jobs in the state.  And between 2000 and 2008, those relatively normal years before the onset of the Great Recession, Montana added an average of about 875 jobs every month, despite the fact that natural resources employment was essentially flat.*  In other words, if and when these 1,750 Otter Creek jobs ever materialize,  we will be about where we would have been in another two months without them.  1,750 jobs aren’t negligible, but judge for yourself if they are “huge” or “transformative.”

Walker also argues that putting a lid on Montana coal development will have no impact on carbon emissions because the Chinese can always get their coal somewhere else.  If that’s true, it sounds like China doesn’t really need us and Walker is advocating an economic development strategy whose success will be depend heavily on the good will of China as it works out its own trade, energy and climate change policies. Judge for yourself whether being an economic colony of China is Montana’s ticket to prosperity.

We can also do better than to abandon responsibility and sell coal to customers who will use it to despoil the planet, just because if we don’t, someone else will.  Any self-respecting Montana barkeep will tell you that reasoning doesn’t apply when it comes to selling another drink to a drunk. It doesn’t apply to a pharmacist when it comes to selling more pills to people addicted to prescription medications.  Judge for yourself if it should apply to a state that is pledged to engage only in responsible resource development.

*I derived these jobs numbers from the US Bureau of Economic Analysis Regional Economic Accounts.

The "Obama Hates Oil" Myth

In a guest column in yesterday's paper, Billings Republican Rep. Doug Kary tries to convince Missoulian readers that “President Obama and his allies in Congress” are hostile to domestic energy development and to the energy independence, lower gas prices, jobs and economic prosperity that supposedly go with it (you can read Kary's column here).  By “energy development” Kary evidently means oil production (although he doesn’t make that clear), and he reaches his conclusion about the President from a heated reading of two proposed changes in the tax code that the White House apparently supports and oil companies don’t like.

Whether or not changing the tax code is a good idea, and whether or not it will have the dire consequences Kary predicts, are big topics that we could debate for a long time. But the important point is that to say that President Obama is hostile to domestic oil production is arrant nonsense. I've already blogged about this point before, but just to be on the safe side, let me restate the facts.

 After President Obama took office, US oil production increased for the first time in 24 years. Indeed, with the exception of a small (.8%) upward bump in 1991, US oil production fell every single year from 1985 up to 2008; over all those years together, it fell 45% - almost in half. Since 2008, production has risen by 15%; that's an increase of about 725,000 barrels a day.(You can look up these US Energy Information Administration figures for yourself here).

It may well be that the tax code revisions that Kary laments will put a small dent in astronomical oil company profits, and that in turn will mean less money flowing into the superpacs that will be working to defeat the President (and Jon Tester and other Democrats) in November. So no wonder Kary is upset. Republicans have been working to defeat the President for the last four years, and they will say just about anything (regardless of the facts) that they think will get the job done.

Job Creation, Job Destruction

As you have no doubt heard, Mitt Romney thinks he can end the recession and do a bang up job managing the nation’s economy because, as a successful former businessman, he “knows how to create jobs.”

Romney has taken a lot of flak about this claim from the Obama campaign, which discovered that Bain Capital, Romney’s former firm, in some cases acquired companies, fired their employees and still made money on the deal.   The President’s campaign has run ads showing the distress that these firings cost, with the clear implication that Romney was one of those greedy, thoughtless business types who destroy jobs in the name of profit, rather than being one of the good business people who create them.  At least one Democrat, Newark mayor Cory Booker, thought Obama was out of line and called the ads “nauseating.” And Bill Clinton even declared that Romney’s record at Bain was “sterling.”

What we have here is yet another example of campaign rhetoric running off the rails. But get used to it - there’s no doubt more to come.

I don’t know if Romney really believes, or wants us to believe, that businesses only create jobs. I would hope not.  But I would also hope that Obama doesn’t believe that only wicked business owners lay people off.  Because like it or not, people are in business to make money, not to create jobs. Good businesses are supposed to make money by producing at the lowest possible cost something people want and are willing to pay for.  And that, in principle, is what we want and expect them to do.

But when businesses create jobs, that is, hire people, they incur costs in the form of wages, training, payroll taxes, and the like. And since the whole idea is to keep costs low – and remember, we want businesses to keep costs low – they will hire as few people as they can get by with. Sometimes, when production can be profitably expanded, that means more workers get hired.  But other times it means they get laid off, as companies contract or send the jobs to China.

An awful lot of jobs are being lost all the time.  From the beginning of 2008 up through the end of April this year, 103 million workers lost jobs and filed for unemployment.  That’s an average of a little more than 455 thousand per week.  Of course all those workers didn’t stay unemployed.  As jobs were being cut in one place, about the same number was being created in another.  When times are good, more jobs are being created than lost, and we experience net job growth. But during recessions, when job creation falls short of job destruction, there is net job loss. From 2008 to 20010, for example, there were more than 5 million private sector jobs lost, on net. And during that time, business people were doing what it was expected of them, given the heartless logic of the market.

So, if “knowing how to create jobs” uniquely qualifies business people to manage the economy, does knowing how to destroy jobs about equally well uniquely disqualify them? No, because neither conclusion makes much sense.

Businesses respond to the macroeconomic environment that surrounds them - consumer and investment spending, inflation, interest and wage rates, international value of the currency, consumer confidence, financial system stability, and so forth – and  that means that sometimes they add jobs and other times they eliminate them. Business people like Mitt Romney may well know how to take advantage of favorable macroeconomic conditions to create jobs. But don't expect them to know how to create those favorable conditions in the first place. That’s the job of macroeconomic policy makers, and it requires political and economic expertise that business people don’t typically have. If you want to predict how well Romney would do managing the economy, you should probably look at his record as a policy maker when he was governor of Massachusetts. He doesn't talk about it much, but it's probably more relevant than all those years snapping up companies at Bain Capital.