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Why the NYT-Liberal Assault on Shale Gas? How About the Volt?

The New York Times has devoted more than four thousand words to the impending crisis of shale gas over the past four days. The attack began with a full-page investigative report in its Sunday edition. The barrage continued and Wednesday’s edition featured calls by Democrats for Congressional investigations.

You would think the NYT and its Congressional supporters would welcome a new technology that increases domestic energy, lowers the price of a clean fuel, turns us from an importer to an exporter, and creates new jobs.

Why this all-out assault? They need to rub “Big Energy’s” face in the mud in the mainstream press and the halls of Congress to divert attention from real problems.

What is the beef?  According to the NYT and Congressional Democrats, the evil energy giants have hatched another nefarious plot to dupe the gullible Federal Energy Information Agency, uninformed investors, and the general public into accepting an “irrationally exuberant” picture of the industry.  

E-mails obtained through open-records worry that gas “may not be as easy and cheap to extract from shale formations, and that  companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves.” The NYT praises skeptics “who question endorsing shale gas without understanding its economics.” They even complain “that dozens of black churches in Fort Worth signed leases on the promise of big money,” risking their tax exempt status.

This frontal assault on shale gas shows a profound lack of understanding of technology, economics, business, and energy.

Extracting gas from shale is a new technology that combines two established technologies – horizontal drilling and water flooding (which has been used at least since the 1950s and has not polluted our drinking water yet). As a new technology, we have no history to predict the future. Even with the best and most honest of efforts, we do not know how to extrapolate reserves from existing wells, and what the eventual extraction costs will be.

With such uncertainty, there will be a wide variety of estimates of reserves, some optimistic, some pessimistic. No one knows the truth at this point. There is nothing sinister on the part of those who choose to be optimists. All major innovations are made by optimists, not pessimists.

The reserves of any underground resources that can be economically extracted depend on prices now and in the future. If gold rises to $5,000 per ounce, there will be a new gold rush in the United States. The problem is that we do not know the future prices of natural gas. All we know is that it has fallen dramatically since shale oil extraction began. As long as we do not know the future price, there is no way to know the amount of reserves that can be extracted at a profit.

Presumably investors worth their salt know these two facts. They also know enough not to rely on a federal bureaucracy to make their investment decisions. After all, shale gas companies are not selling shares at Wal-Mart. Investors who are optimists will invest. Pessimists will not. Technology and market forces will decide who is right, not the NYT or Congress.

The NYT attack ends with a truism: “If natural gas ultimately proves more expensive to extract from the ground than has been predicted, landowners, investors and lenders could see their investments falter, while consumers will pay a price in higher electricity and home heating bills.”  Yes, if shale gas is a bust, investors will lose and prices will be higher, but what’s new? Why all the fuss? Why should this be Congress’s business?

My two pieces of advice:

First, to the natural gas industry: Avoid at all costs federal subsidies of cars powered by natural gas. This will give the federal government the right to stick its nose into your business.

Second, to the NYT and democratic members of Congress: Obtain e mails of internal discussions of the Volt or of lithium battery manufacturers to see whether  investors, taxpayers, and consumers are being sold an “irrationally exuberant” picture. I may have to wait a long time before the NYT takes me up.  

Blago Verdict: Only Broke Motor-Mouths Get Caught

The inevitable has occurred. Former Illinois Governor, Rod Blagojevich, has been convicted for his role in trying to personally benefit from selecting (selling) Barack Obama’s Senate seat.  He was found guilty on seventeen counts. The bad guys have been caught. We can rest more easily. Justice has been served.

The majority of long-serving members of Congress (or their spouses or offspring) are multi-millionaires. Most entered office with relatively modest wealth. Their incumbency wealth is unlikely the result of business or investment acumen.

Poor Blago! His crime was that he was an incompetent thief. He had maxxed out his credit cards, he had little to his name, he couldn’t keep his mouth shut, and he used cuss words (just like Nixon!). Those with whom he “negotiated” for the vacant seat were more clever. They knew the right words to use, how to say indirectly what poor Blago said openly. They emerged from this mess unscathed.

Congress hands out tax and spending favors right and left. If you stay on the good side of the administration, regulators will not harass you.  If you do not give enough, someone may sic the NLRB, EPA, or SEC on you. The cumulated effect of  these inducements, favors, and threats are of a greater scale than the sale of one measly Senate seat. Moreover, all these actions can be packaged as protecting the nations’ health, preventing mining accidents, keeping the public safe, or warding off the next bubble. Everything is perfectly legal and above board.

Thomas Friedman’s Shock Therapy (Insight into the Liberal Mind)

Thomas Friedman’s friends appear to be disgusted with American politics. They have concluded that the two parties think only of reelection and their special-interest constituencies. They cannot imperil their chances of reelection by doing the four things -- spend, cut, tax and invest -- that must be done simultaneously “if we have any hope of maintaining American greatness.”

Friedman’s disgusted friends are looking for a serious Third Party candidate to “deliver shock therapy to the corrupt, encrusted, two-party duopoly now running the show in America.”

In my vocabulary “shock therapy” describes a rapid course of transition from planned socialism to capitalism. Therefore, I expected more than I got from Friedman’s shock therapy, which consists of the following four points:

1)                  More stimulus to keep the economy from slipping back into recession.

2)                  An accompanying credible long-term plan for spending and deficit reduction — e.g., the Simpson-Bowles deficit-reduction plan.

3)                  New revenues (a gas tax and a carbon tax) to “reinvest” in education, infrastructure and government-funded research to push out the boundaries of knowledge.

4)                  Assorted other things like “shrinking” our presence in Afghanistan and raising mandated mileage standards on new cars.

Friedman opines that his hypothetical “spend, cut, tax and invest” platform is sure to attract his reasonable, sophisticated, and intelligent friends from both sides of the aisle.

I interpret it as a platform that elected liberals are too cowardly to pass for fear of voter backlash.

Why is this program the liberal Holy Grail?

Friedman’s “spend, cut, tax and invest” raises government spending now (bigger government), despite the failure of the massive fiscal and monetary stimulus of the past few years. (If once you do not succeed, try, try again). In return, Congress adopts Simpson-Bowles, which cuts spending and deficits over the long run (and perhaps never) by a combination of spending cuts and, yes, TAX increases.

But wait: Friedman is talking about cuts in “spending” not in “investment.” Government spending on research, infrastructure, green technology and other fads in liberal favor can boom because of new dedicated revenue from national gas and carbon taxes. No, the gusher of new tax revenue will not go into deficit reduction but into new windmills, bullet trains, and studies of the sex habits of mice, without which our economy cannot survive in the twenty-first century. I guess, in Friedman’s mind, we will have no innovation, no technological progress unless it is ordered and paid for by the state.

Friedman’s “spend, cut, tax and invest” is nothing more than a stealth program for ever larger and more intrusive government, in which the liberal state can pass out favors to its crony capitalists and labor allies.

A truly bold Friedmanian Third Party candidate could set the gas and carbon taxes high enough to raise total government spending to half the economy. With this accomplishment, we can at last join the genteel European brotherhood of enlightened welfare states, and  Thomas Friedman can return to foreign affairs, where he belongs.

The Red Campaign’s Allure: China Chooses Its Course

In 2012, the Chinese Communist Party chooses a new Politburo. This once-in-a-decade event will set China’s course through 2025. The new Politburo must decide whether the Communist Party will continue as the dominant force in politics and society, or will China evolve towards some kind of pluralism.

China’s successes over the past three decades should give “liberals” a strong claim to a solid Politburo majority. Under a continuing “liberal” majority, private enterprise will outgrow state enterprise, China will deepen its integration into the world economy, the party will explore pluralism, at least at the local level, and Maoist philosophy will become a remnant of the past.

The “Red Campaign” offers a quite different path: The party reasserts its central role, rejects Western or universal values in favor of “red culture, enacts statist policies to replace free-wheeling capitalism, and crushes challenges with a powerful security apparatus. 

The pilgrimages of top party leaders to Chingqoing party boss Bo Xilai are much in the news. New Leftist Bo, a favorite to take one of the Politburo seats, proposes to apply his brand of patriotic TV programming, red singing shows, extra-judicial crackdowns on crime and dissent, and government spending on worker housing to all of China. Bo’s “Red Campaign” has clearly struck a responsive chord.

Why this nostalgia for the Mao era despite its horrors and China’s enormous economic successes? President Obama would have few 2012 election jitters with such an economic record. The New Leftists are, in effect, proposing dramatic changes to what the rest of the world views as a most successful policy.

Let me suggest possible explanations:

1). China’s communist party faces irrelevance under the current course. As the state enterprise share shrinks below one fifth, all pretense of China as a socialist market economy disappears. The private sector will be clearly exposed as the engine of growth, not the “wise leadership” of the Communist Party, as is currently claimed.

A market economy integrated into a global economy does not leave room for party domination. Markets replace plans and administrative allocation, and state influence is exercised through macro policy and regulation, as it is elsewhere.

To avoid redundancy in the economic sphere, the party must reestablish a statist economy based on party direction of a dominant state sector, as proposed by the Red Campaign.

2) China’s “New Left” believes that the Chinese people associate the market economy with the corruption of party officials and their Princeling offspring. They offer a  “pure” party and a statist economy as a cure.

China’s communist party finds itself in much the same position as Boris Yeltsin’s “democrats” in the 1990s.  The Soviet Communist Party was no longer around to take the fall for corruption and unpaid pensions, so democracy and capitalism got the blame.

In China, the party is still very much around to be blamed for theft, corruption, illegal land grabs, unemployment, and the Princeling Mercedes Benzes that run over workers on the streets

The Red Campaign offers a simple solution:  A return to the days of a pure party motivated not by money but by ideology. The party of Mao made disastrous mistakes, but al least it did not steal.  Although the mass starvation of 1958-1960 and the Cultural Revolution of 1965-1968 left dark shadows on millions of Chinese families, the New Left counts on such memories dimming.

Many Russians feel nostalgia for the “old days” when the party kept order, they had their jobs, and party theft was limited.  For Russians, the Stalin terror and famine lay almost a half century back. The Chinese New Left hopes to play on similar nostalgia, especially now that Mao’s excesses lie more than thirty years in the past.

China in 2012 confronts the same choice as Gorbachev in 1989, but under quite different circumstances. Gorbachev in 1989 was firefighting the crisis of the collapsing command economy. The Chinese Politburo in 2012 will face a non-crisis. Even with slowing growth, China will still be among the world’s fastest growing economies and an envy of the world.

Confronted with his crisis, Gorbachev chose to end party dominance of the economy and weaken the party’s central apparatus.  His Politburo hardliners timidly acceded at first.  Their amateurish coup, launched to save the party, came too late.

If China’s 2012 Politburo attempts to implement the Red Campaign, it will discover the genie of private enterprise cannot be put back in the bottle. They can restore the dominance of state companies only through extreme favoritism and even repression of the private sector. The New Left will find themselves like a King Canute trying to hold back the sea. They cannot mount enough political power to revert back to the economic statism of earlier years.

Gorbachev did not understand that the reforms he launched would inevitably end the Soviet economic and political system. Had he understood, he would have followed the course of his predecessors. The Chinese New Left apparently sees the handwriting on the wall. They see 2012 as their last chance to save the party as they want it to be.   

Obama Didn’t Save Union Jobs, He Saved Union Pay

Contrary to popular belief, bankruptcy does not mean companies close their doors and send employees home. This is the false message President Barack Obama tried to sell on his victory tour of Detroit. If General Motors had gone through a normal bankruptcy without taxpayer bailouts, there would still be GM jobs–maybe even more than there are now. We do not know because that was the road not taken.

We do know, however, what happened to the airlines that went through bankruptcy. Their planes kept flying, and pilots, mechanics and flight attendants reported to work, even if there were fewer of them.
Over the past decade, no industry has had worse breaks than the airlines. They took a huge hit from 9/11. They have been buffeted by fuel prices. The TSA’s intrusive airport screening angered passengers. Furthermore, the airline industry is cyclical; it suffers disproportionately from economic downturns.

Compared to the airlines, GM has had a cake walk.
Continue reading Paul Gregory at Forbes.com…