Sunday, February 17, 2013

Marcellus Shale Propaganda

The Pittsburgh Business Times accused me of irrational discourse given my attack on how the Marcellus Shale Coalition (MSC) has handled the Act 13 issue. I'll cop to crossing the line between strongly-worded and uncivil conduct. But my main point stands. The MSC has polluted the waters of debate with misinformation. I called it "shameless propaganda" because that's what it is. My conclusions are rational even if my behavior is uncivil.

The MSC may be more civil. It is certainly less rational. The arguments advanced in support of industry positions don't survive scrutiny. There are many assertions and little support. The logic is tortured. The issues are more confused.

I've spilled enough ink about the MSC. My column that ruffled feathers is mostly about Pennsylvania politicians and Governor Tom Corbett. The catalyst for this Sunday morning rant is State Representative Gordon Denlinger. I could quibble with his gushing love letter to Act 13. He makes some good points and contributes to the rational discourse about the energy economy. I would have let it pass without so much as a peep save for the how he decided to end the essay:

People sometimes forget that manufacturing declined in Pennsylvania and the Rust Belt not because of cheap labor overseas, but because federal Environmental Protection Agency regulations for factory emissions became so strict that the only way to meet them was to use natural gas. But because natural gas was too expensive in the United States and energy was cheap overseas at that time, away those manufacturing jobs went.

We've entered Tin Foil Hat territory. How does printing lies serve rationale discourse? How does that help Pennsylvania residents come to a consensus? Ah, the civil tone makes all the difference. As for my uncivil tone (see "Tin Foil Hat territory"), I'm clearly irrational:

When we look at the post-World War II data, a different story emerges. First, productivity grew rapidly in industry, faster than the demand for industrial products, while productivity grew relatively slowly in the service sector. This meant that we needed fewer industrial workers and thus many workers were pushed out of industry. At the same time, we were still getting wealthier and demanding more services, and slow productivity growth in this sector meant that to provide these services it had to pull in the workers shed by industry.

Both push and pull forces were present in both periods. But, pull factors (i.e., the increased demand for services) was the predominant cause of decreasing industrial output and employment before World War II while push factors (i.e., rapid productivity growth in industry and slow productivity growth in services) dominated after the war.

The decline of manufacturing started long before the Environmental Protection Agency existed (born in 1970). Often overlooked are the gains in productivity and how that has impacted employment. Less labor is needed to produce more goods. Something else to chew on are the innovations in shipping:

Just as the computer revolutionized the flow of information, the shipping container revolutionized the flow of goods. As generic as the 1's and 0's of computer code, a container can hold just about anything, from coffee beans to cellphone components. By sharply cutting costs and enhancing reliability, container-based shipping enormously increased the volume of international trade and made complex supply chains possible.

"Low transport costs help make it economically sensible for a factory in China to produce Barbie dolls with Japanese hair, Taiwanese plastics and American colorants, and ship them off to eager girls all over the world," writes Marc Levinson in the new book "The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger" (Princeton University Press).

For consumers, this results in lower prices and more variety. "People now just take it for granted that they have access to an enormous selection of goods from all over the world," Mr. Levinson said in an interview. That selection, he said, "was made possible by this technological change."

Without the shipping container, you can forget about the differences in costs of labor and regulation. Now use that same lens to better understand the economics of the Marcellus Shale. Natural gas doesn't travel as well as oil does. It's more expensive to transport. Hence, there is a huge variation in pricing around the world. Furthermore, it is cheaper to extract the gas in Pennsylvania than just about anywhere else on the planet. That means Pennsylvania could squeeze a lot more revenue out of industry and pile on more regulation without killing the goose laying the golden eggs.

The omission of this kind of discourse from the debate about shale gas is, to say the least, suspicious. I don't expect the MSC to shoot itself in the foot. Keep the cost of doing business as low as you can. But don't make things up in order to advance your cause. The EPA is a straw man and a red herring. Prior to Act 13, the shale gas industry boomed in Pennsylvania. We have to ignore history in order to appreciate industry's position. That is what the Pittsburgh Business Times calls rational discourse.

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