What strange, mysterious, magical force is loose that increased US production of both oil and gas by one-third in six years?
Is it targeted federal subsidies? Breakthrough law from the Congress? Socialist industrial policy? Keynesian monetary policy? Blockbuster documentary from Hollywood that changed minds across the country? More support for college loans? A landmark special on network TV? Quantitative Easing?
No. It’s none of those things.
Barron’s is pondering the question as well: The Secret of U.S. Energy Success.
Federal subsidies have produced a substantial increase in some things. The editorial provides a partial list. Subsidies have given us…
..our national surpluses of grain, milk, unemployment, nonprofit companies, disabilities, and mortgage debt.
Those subsidies didn’t produce the massive increase in oil production in Bakken and Eagle Ford.
The best paragraph from the editorial:
Because of a mysterious force unknown to most politicians, the U.S. now produces a third more natural gas and a third more oil than it did six years ago. U.S. production of oil and associated liquids in 2012 was 11.1 million barrels a day, almost what it was in 1985. By 2015 or 2016, it should surpass the old record production level set in 1970.
The article declares:
The mysterious force is liberty. It is the right to own and control private property and the right to enter enforceable contracts.
First, private property. Second, enforceable contracts. Liberty includes that and more.
I would add a few more factors:
- human ingenuity
- predictable regulation
- stable democracy
- legal system that will impartially enforce those enforceable contracts
- stable financial system (at least relatively stable)
Liberty does amazing things. Makes it worthwhile to accumulate property. Worthwhile to take a shot at developing something completely new (like combining horizontal drilling with hydraulic fracturing and experimenting with the right mix of sand & water) in order to get incredibly rich. Other people will take risk smaller risks with smaller rewards to build the infrastructure for people taking big risks. If you make a killing, you can calculate how much you get to keep (thanks to a predictable tax system).
That mysterious force is also the power behind the incredible wealth that exists in the U.S.
That mix of amazing things is a mystery to our many in our society.
(Hat tip: Million Dollar Way.- A Mysterious Force Unknown to Most Politicians Accounts For The Success Of the Bakken.)