Week in Review
So if we drill, baby, drill for oil everywhere it won’t do a thing to lower oil prices. According to the Obama administration. Besides, we’ll just export the oil (or refined gasoline) anyway. So what’s the point? Well, here’s a thought. Oil prices are high. So if the U.S. drilled for oil everywhere and exported all of that oil it may not impact the price of gasoline (though most rational people believe it would) here’s something else that could come from it (see Petrodollar profusion posted 4/28/2012 on The Economist).
FIRST, the good news: China, the country at the centre of the debate about global imbalances, has a current-account surplus that has fallen sharply over the past few years. Now the bad: China was never really the prime culprit when it comes to imbalances at the global level. The biggest counterpart to America’s current-account deficit is the combined surplus of oil-exporting economies, which have enjoyed a huge windfall from high oil prices (see left-hand chart). This year the IMF expects them to run a record surplus of $740 billion, three-fifths of which will come from the Middle East. That will dwarf China’s expected surplus of $180 billion. Since 2000 the cumulative surpluses of oil exporters have come to over $4 trillion, twice as much as that of China…
The most effective policy tool to reduce oil exporters’ current-account surpluses is public spending, and investment in particular because of its high import content. Increased public spending could also help these economies diversify away from oil. That would support their future economic development and create more private-sector jobs for young, growing populations. To maintain social stability, many of these governments need to spend more on education, health care, housing and welfare benefits. Some oil producers, such as Russia and Nigeria, are running fairly balanced budgets, but the governments of the Gulf states are awash with cash. Since 2005 Saudi Arabia, Kuwait and the UAE have increased public spending by 7-8 percentage points of GDP. Even so, the three countries are expected to run an average budget surplus of over 15% this year. That leaves plenty of room to be a little more spendthrift.
Europe, Japan and the United States are suffering under huge budget deficits and trade deficits. Their aging populations and the pensions and health care for them is threatening the solvency of these nations. Who have no choice but to raise taxes and borrow ever more money to pay these obligations. You know who doesn’t have these problems? Those big oil-exporting economies. Who are “awash with cash.” Unlike Europe, Japan or the United States. Seems to me that it’s better to be “awash with cash” than to be mired in debt.
So drill, baby, drill I say. Let’s have the same problem the oil exporters are having. Too much cash. We could eliminate income taxes. AND pay all our Social Security and Medicare obligations. As well as all the education and women’s health programs you desired. Wouldn’t that be nice? I mean who would be opposed to that? Except, of course, the Obama administration. Because according to them there is nothing to gain from putting more oil onto the market during record prices. Too bad our president isn’t as much a free market capitalist as they are in Russia, Nigeria, Saudi Arabia, Kuwait and the UAE.
Tags: aging populations, budget deficits, current-account surplus, drill baby drill, Europe, gasoline, high oil prices, imbalances, Japan, Kuwait, Nigeria, oil prices, oil-exporting economies, Russia, Saudi Arabia, the UAE, trade deficits, United States