The U.S. Oil Boom

Energy is in everything we buy. I’m drinking coffee this morning. Farmers used energy to grow the beans. A processor used energy to dry, roast and grind the beans. A shipping company used energy to pick/pack/ship. And, I drove my car to the grocery store to buy the coffee, and just used a coffee maker to brew a batch.

So, energy in some form was used at every step.

I’m writing about this because a NY Times article this morning, “A New American Oil Bonanza,” caught my eye. The journalist quoted one expert, who estimates that American consumers are saving $700 million a week vs. a year ago due to cheaper energy. Whoa! I don’t have data on other forms of economic stimulus, such as the effect of refinancings to free up cash for consumers, but the “oil dividend” must rank up there.

We have had some tremendous dividends in the past as an economy. The end of the Cold War gave rise to a “peace dividend,” as the government unwound defense expenditures and freed up capital for the private sector. The onset of the Internet has theoretically made some forms of commerce more efficient. But, I think this oil dividend is bigger than all that.

Moreover, this oil boom has been making our nation less dependent on others. Here’s a chart.


I think all this will have some huge second-order effects. First, are we less likely to engage with the Middle East? Frankly, I wonder if the U.S. would have been involved with the first Gulf War if it were not so dependent on Middle East oil. And, what are the “true” environmental costs of fracking?

Nevertheless, from out of nowhere starting in 2008 due to innovations in fracking, this oil dividend may be the key to U.S. prosperity for decades. No one predicted fracking. It’s almost as though a chunk of money just fell from the sky right when we needed it during the global recession.

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