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Economic Collision Smoothes the Ride

October 5, 2012

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Thank goodness for gas.  I say that because many forces buffet the economy; things like technology, government regulation, and even natural events.  The effects cancel out when we’re lucky.  Let me explain the current collision of technology, nature and bad economics.  These offsetting factors are saving lives around the world and saving jobs at home.  And its all because of gas.

Natural gas is cheap.  Horizontal drilling and hydraulic fracturing increased the supply and lowered the cost of natural gas.  The increased supply lowered fuel prices and kept electricity rates down.  This happened at the same time that coal power plants were being outlawed.  Lower electricity rates kept some companies in business so there were a few more jobs in our economy.  Lower fuel prices helped offset inflation so costs didn’t rise as fast.  Yes, there is a significant inflationary bubble in our economy.  Thank you!

That is the least of the benefits of cheap natural gas.  We are inches away from a food crisis, and natural gas is used to make fertilizer.  Again, let me put the pieces together for you.  The US government requires that we buy domestic corn to make ethanol.  (We are not allowed to import ethanol, so this is a welfare plan for farmers rather than minimizing the environmental effects of burning gasoline.)  We are also in the middle of a drought that caused low farm yields.  Both the increased demand for ethanol and the reduced corn supply have bid up the price of food.  Fortunately, lower fertilizer costs are holding down food costs for the entire world, not only the US.  We would see world wide famine without the low price of natural gas.  We didn’t plan to increase food supplies around the world during our drought.  It just turned out that way.

The world is uncertain, but we do know about general trends.  Technology should lower prices over time, and fracking sure did that for oil and natural gas.  An economic depression should lead to lower prices as we buy fewer goods.  That effect was masked by inflation.  Crop yields.. well, they are never certain, but sometimes you get lucky and the effects cancel.(1)  Low gas prices kept people fed and kept our economy going while our politicians stumbled.  Lower prices for natural gas should have led to an economic boom in the US as it has in other countries.  We squandered that boom with bad economic policy.  The waves cancelled.  One effect offset the other, and our economy got a smoother ride.  So did people struggling to eat.

It could have been worse.  It should have been better.  We were lucky.. and I try to be grateful for the many gifts I did not earn.

~_~_

Would it kill you to leave some fingerprints so I know you were here?  Please rate, share and comment.

Rob the grateful

(1) The technical term for cancelling effects is interference.

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2 Comments leave one →
  1. October 5, 2012 4:54 pm

    I pray people can follow the logic here. Reposting to my FB page.

    Like

  2. October 5, 2012 8:56 pm

    Thank you, I think. Why do you think these particular puzzle pieces are worthy of prayer, or of particular importance?

    Like

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