The Geography of Success

Weak U.S. economic growth continues to be discouraging. But it’s worth taking a look at a few places where things going well for America.

There has been a remarkable resurgence in U.S. oil production over the last few years, with levels now back up to where they were in 1992, though still 28% below the peak reached in 1970.


U.S. field production of crude oil in thousands of barrels per day, Jan 1981 to May 2013. Data source: EIA.

oil_prod_us_aug_13.png


Interestingly, two states– Texas and North Dakota– account for more than 100% of the increase in U.S. production since 2009. While some other states, such as Oklahoma, New Mexico, and Colorado saw modest gains, declines in production from the Gulf of Mexico, Alaska and California were bigger than the combined gains from the states outside of Texas and North Dakota.


Change in oil production between June 2009 and May 2013 for selected areas (thousands of barrels per day)
Region Change in production
US 2041
Texas 1454
North Dakota 595
US (excluding TX and ND) -8
Oklahoma 123
New Mexico 117
Colorado 75
California -41
Alaska -56
Federal Offshore–Gulf of Mexico -348


It’s also interesting, and in my opinion not entirely a coincidence, that it is the region in a central swath through the middle of the United States that has been most successful in terms of connecting workers with jobs.


Unemployment rates by county, average over July 2012 to June 2013 (U.S. average = 7.8%). Source: BLS.

unemp_county_aug_13.png


Texas and North Dakota accounted for only 8% of all U.S. jobs in 2009, but between them produced 18% of the increase in employment between 2009 and 2013. And the energy boom in these states has clearly benefited their neighbors as well. For example, on a visit to St. Cloud Minnesota last year, I was told that many of the local carpenters and plumbers were commuting to perform work in North Dakota.

Two years ago, I proposed that supply-side policies could be key for future U.S. economic growth. The response of many people was that our economic problem was one of inadequate demand for workers and products rather than inability to produce more on the supply side. But I think the record of the last two years has shown that I was right. Demand for workers and products derives fundamentally from an opportunity for mutually advantageous production and exchange. Finding new ways to produce energy at prices consumers are able to pay is itself an effective program for getting people back to work.

Of course, it helps to have rich hydrocarbon deposits inside your borders, and most states don’t have that. But the declines in production from Alaska, California, and offshore were all the results of deliberate policy choices. Permit delays are one reason Shell’s $5 B investment in Alaska has yet to produce oil, and developing the potential of ANWR has yet to be approved. Some analysts think thatCalifornia’s Monterey Shale has even more potential than Texas’s Eagle Ford or North Dakota’s Bakken, though the political challenges are daunting. The big losses in offshore U.S. production were another deliberate policy decision.

I continue to urge that those who want to help more Americans find jobs should begin with the basic question, what could America be good at?

This piece is cross-posted from Econbrowser with permission.

3 Responses to "The Geography of Success"

  1. ThomasGrennes   August 26, 2013 at 3:16 pm

    Interesting geography. Can the differences in production changes in Texas and North Dakota versus the Gulf and possibly Alaska be attributed to state level decisions vs. Federal government decisions? How does California fit this pattern? Does the Federal government influence offshore drilling and production?

  2. George N. Wells   August 27, 2013 at 8:29 am

    Interesting conclusions. However, the petroleum deposits experiencing new exploitation have been known for some time. What is different is that drilling technology has made it possible to get to these deposits and the price of crude has increased sufficiently to make the exploitation viable. Also, the expiration of lease options on the properties has to be considered as a factor in the growth in drilling.

    The economic equation is not one-sided. As Drucker noted: "A business only exists in the perception of a customer" – without that customer, productivity and innovation have zero value. Of course we return to the basic question of: "Which came first, the demand for the product or the supply of the product?" Perhaps the answer is: "communication" that a need was expressed to another who had been considering a supply.

    We have tried, time-and-again, one-sided solutions and always come to grief. It is not a question of supply or demand side, we require both.

  3. Harvey   August 28, 2013 at 9:48 pm

    I wonder how the change in production numbers are based on percentage change rather than absolute production. Also from my limited reading there are also technical problems that need solving before successfully drilling the Monterey Shale it is not solely a political problem at the present time.