Wednesday, November 30, 2016

The Energy Economy

I've argued for several years now that lower energy prices in the US provide us the opportunity to attract information age driven manufacturing enterprises to the US. Whether it's the Ford plant in Louisville, the Carrier facility in Indiana or a new iPhone manufacturing facility in western PA, low cost energy, in the form of readily available natural gas, enables the US to offer energy efficient information age manufacturing facilities to industry, freeing capital to be paid to US workers as higher wages.

The article linked below lays out the foregoing arguments in more detail, but the excerpt captures the essence of the emerging situation.

Trump’s popularity at home is likely to depend in large part on whether he can revive blue collar jobs. An energy boom offers the best prospect for growth in manufacturing jobs. Much of America’s new energy bounty comes in the form of natural gas; this has significant implications for America’s future industrial development. Natural gas can be exported, but it has to be liquified first — and that adds significantly to its cost. American manufacturers in energy intensive industries can expect secure supplies of natural gas at lower costs than their competitors in Europe or Asia will pay. That matters to blue collar workers; the energy rich United States is becoming significantly more attractive as a manufacturing site for large, energy (and job) intensive plants.

What we know of Trump’s economic plans looks like an effort to capitalize on this advantage. Reducing corporate tax will help pull industrial investment to the United States, especially from high tax Europe. German chemical and automobile manufacturers, for example, are under great pressure from high labor, energy and taxation costs. Trump’s America, however unpalatable it may be to German diplomats, may prove surprisingly attractive to German industrialists. Additionally, Trump’s plan to promote the return of some of the $2 trillion plus in offshore cash held by American companies overseas is likely to promote domestic investment, especially if corporate tax rates are also cut. Cheap energy and favorable regulatory treatment could well ensure a significant boost in investment in new production facilities during the first Trump term; that will make his voters happy and could solidify the coalition that swept him to the White House.

Welcome to the Golden Rule Alliance

James L. Salmon, Esq.
Collaborative Construction
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