Wednesday, July 08, 2009

US Economy In Lilliput

Larry Kudlow went on a beauteous rant last night (video here, synopsis here) and he is right. Our government is holding business back in almost every dimension - tax policy, antitrust policy, regulatory policy, energy costs, labor policy, and, by their behavior in the auto company takeovers, they have even shaken the faith in the rock solid rule of law that investors and businesses took for granted. The landscape for the business world looks just dreadful - and much of it just doesn't make sense. Here's just one example of the numerous Lilliputian ropes that the government is lashing the US economy down with. We extract natural gas in many cases using an advanced technology called hydraulic fracturing. This technology has made some massive (and I mean massive) natural gas shale deposits economically recoverable. Natural gas is cleaner than oil and it is a domestic source. Tapping our massive shale gas deposits with this technology ought to serve the dual goals of substituting cleaner energy sources for dirtier energy and reducing our reliance on imported energy. This is great, right? We should encourage this, no? Not so fast. The feds are going after hydraulic fracturing. They want to ban it. Ban it! This would take trillions of cubic feet of clean, domestic natural gas off the books (mean make them unrecoverable). That's just one example.

The effort to stymie business activity in this country is happening at almost every level, large and small. The bleeding is coming from open sores as well as a thousand small cuts. That this is all happening at the same time, so comprehensively might even prompt conspiratorial thoughts. If I had to design a policy approach that would bring the US economy into an effective state of hibernation, what we are experiencing today is exactly what I would design. There is simply no way - no way - the economy can turn around in this environment. We need the current policy trajectory altered or we will not get out of the ditch. Other than a big moderation of the current zeal to tax, regulate and stymie business activity from the current ruling crowd, the only hope is a sweeping roster change of those who hold so much sway over the rules of the road for the economy. I sense little hope for the former. The only thing I see on the horizon that could potentially change the game for the economy is the 2010 mid-terms elections. Gridlock would be a great outcome. Better yet, we could have a slaughter of the incumbents and significantly reset the mentality and character of the lawmaking body of this country and get some common sense approaches to the economy that actually understands that we have to help, encourage and ease the way for business activity. Still, that means rough sledding ahead through late 2010.

UPDATE: Huh, whaddaya know...Exxon announces a big ass shale gas success in...Canada. Canada wants to find energy, they want Exxon there investing and creating jobs and they act like it. And guess what, Exxon is there finding energy, investing and creating jobs. Go bloody figure.


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