Fracking has increased the availability of low-cost oil and natural gas.
By definition, low-cost oil and natural gas results in an increase in productivity, and an increase in GDP.
From the previous article:
∆ GDP = ∆ Population + ∆ Productivity
Productivity = output / Input
The case for natural gas is straight forward.
Prior to the advent of fracking, the United States was running out of natural gas. It was becoming necessary for the United States to build import terminals for importing LNG at world market prices which were linked to the price pf oil. The price of natural gas had increased to around $8 per million BTU by 2008, with spikes to even higher levels.
Fracking has resulted in an abundance of natural gas at a current price of $2 and less.
Natural gas has an important effect on the economy, and the lower price means an increase in productivity and GDP. A lower input cost, in the formula for productivity, results in increased productivity.
The case for oil is somewhat convoluted, but fracking has resulted in the United States becoming the swing producer, replacing Saudi Arabia in this regard.
Until the United States developed fracking in conjunction with horizontal drilling, Saudi Arabia controlled prices, by either increasing or decreasing production depending on whether it desired a lower or higher price for oil.
Because of fracking, the price of oil will be capped at a lower price than would otherwise have been the case. If the price of oil increases above a certain point, oil output from fracking will increase, thereby increasing supply and capping the price of oil.
This results in the denominator being lower in the formula for productivity, which results in increased productivity and GDP.
The EPA has reported there are no systemic adverse environmental consequences from fracking, so there are no environmental costs.
Unfortunately, both Democrat candidates for president have vowed to outlaw fracking.
Introducing regulations or outlawing fracking will result in higher cost natural gas and oil, which means reduced GDP growth.
As with Obamacare, government intervention will result in lower GDP growth, which hurts all Americans.
Moody’s Analytics estimated that hundreds of thousands of jobs were lost as the result of the oil price crash last year, and that GDP growth was cut by half a percentage point.
Oil is now recovering, so that these hundreds of thousands of jobs will be restored as fracking and oil production increases in the United States.
But, these jobs will be permanently lost if fracking is banned.
A petition signed by 45 environmental groups urged the President to stop all offshore drilling as well as fracking, so as to limit global warming.
Such a move would hurt all Americans as per capita GDP would be hammered even further.
It’s abundantly clear that government intervention and regulations are stifling growth, and that eliminating government involvement would allow the economy to grow at a faster rate, perhaps at 3.5% again, as it did between 1950 and 2000.
As shown in the previous article, this will make a huge difference in America’s standard of living, as expressed by per capita GDP.
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Nothing to Fear, Chapter 9, The Utility Death Spiral, explains why displacing fossil fuels with wind and solar will result in the bankruptcy of Utilities and the possible takeover of the industry by the government.
Nothing to Fear is available from Amazon and some independent book sellers.
Link to Amazon: http://amzn.to/1miBhXy
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