In late spring, oil prices dipped below zero for the first time ever. Futures contracts for May delivery traded as low as negative $37 a barrel, as producers and speculators paid refineries and storage facilities to take excess crude off their hands.
In some sense, this historic moment was inevitable. Oil markets are completely saturated. Worldwide coronavirus lockdowns have depressed energy demand. And in March, Saudi Arabia and Russia announced they would increase production, thus exacerbating the glut.
President Trump has tried to help beleaguered U.S. producers. He recently mediated a deal between Saudi Arabia, Russia, and other major oil producers, who collectively agreed to cut production by nearly 10 million barrels a day.
But prices are still falling. And now, the White House is toying with other ways to prop up U.S. oil producers, ranging from tariffs on imported oil to direct cash payments to energy companies.
This desire to help energy companies, and the millions of workers they employ, is commendable — but ultimately counterproductive. In the long run, the industry will emerge stronger if the White House allows the free market to resolve this crisis.
This pandemic-induced economic crisis is going to be painful for the energy sector. Cost-cutting and layoffs are already underway.
But the industry is strong and adaptive, and has bounced back from past crises by investing in technology. In fact, economic pressure encourages the kind of innovation and belt-tightening that helps companies thrive in the long run.
The United States last faced low oil prices in 2014 and 2015, when Saudi Arabia ramped up output to try to cripple U.S. producers that specialized in fracking — a technique used to extract oil from underground shale rock. By early 2016, prices had dropped below $30 a barrel, well below what U.S. shale producers needed to break even.
The government didn’t come to the rescue, which forced frackers to get creative. They researched how to extract more oil for less, and came up with a variety of new techniques, like drilling several wells simultaneously and using drones to detect faulty equipment. As a result, the average break-even price for frackers dropped from $69 a barrel in 2014 to an average of $40 a barrel by 2017. Had the government tried to solve the problem by slapping tariffs on Saudi crude, the U.S. oil industry likely would have never set its all-time production record of 13.1 million barrels a day in February.
We can be confident the U.S. energy industry will apply its ingenuity to this crisis, too — because these days, it excels at invention. In 2019, the oil and gas sector increased adoption of digital technologies, including cloud data storage and new software. Over the next five years, digitizing could slash the cost of oil production by almost 10 percent.
By using sensor technology — tiny, data-tracking devices attached to oil-field gear — producer ConocoPhillips recently cut in half the amount of time it took to drill new wells in South Texas. Other companies are using data analytics to search for the best drilling locations.
In short, the pressures of a downturn are likely to encourage even more future-focused transformation. The industry doesn’t need to hide behind tariffs. If we trust the free market to encourage creativity, in the long run, we’ll all benefit from a cheaper and more efficient energy supply.
The coronavirus was originally thought of as a health care issue. But then the stock market started to tank, and it became an economic issue. Now with the nation on virtual lockdown, the economic losses are not just paper losses in the nation’s stock portfolio. Hourly employees at America’s ballparks and arenas, restaurants, hotels, malls, airports, etc. are all facing economic disaster. But it doesn’t stop there — the economic slowdown will impact us all. Even if we never become infected, we are all victims of the virus.
This economic destruction is difficult to imagine, given that only a few weeks ago, our economy was strong and growing rapidly and all the indicators were that it was going to continue. But now economic catastrophe is staring us in the face as extraordinary measures are taken to protect the public health and the gears of our economy grind to a virtual halt.
The good news is that we can mitigate the severity of the outbreak so as to not strain the health care system to its breaking point. But in so doing we can’t let sectors of our economy that were vibrant until just last week be destroyed forever. This moment will require extraordinary measures by the U.S. government to protect and defend not only the public health, but also the waiters, waitresses, and hourly workers across our country who are in trouble. It will also require aid to some very large, very established companies — whose employees and the innovation and global competitiveness they support — are also at risk. In many cases, this isn’t just an economics question, it is also a matter of national security.
Some might call the emergency actions that need to be taken to inoculate the nation’s economy against the Coronavirus a “bailout” (and as a conservative, my default position is to oppose bailouts). Subsidizing bad economic decisions is wasteful and unwise. But to be completely candid, this crisis is not akin to the bank bailouts of 2008, which I strenuously opposed. This economic downturn wasn’t caused by foolish business decisions. Rather, we are now facing a shock and downturn similar to that caused by the 9/11 attacks — only this may be far worse in size and scope.
One of the sectors whose plight has been most acute is commercial aviation. With airlines slashing flights and grounding fleets, there are cascading impacts across the flight attendants, baggage handlers, mechanics, ticket and counter representatives who serve the industry. Beyond these front lines are an additional 17,000 companies and 2.5 million good paying jobs responsible for building the airplanes. In the midst of this crisis, domestic and foreign airlines will not be buying more planes and they may not be able to pay for the planes they have already committed to.
We can’t afford to allow the health of our aerospace manufacturing sector to languish. These manufacturers and their high-tech suppliers are also a critical part of our national security apparatus and a foundational part of our ability to defend ourselves. Our nation’s leadership in aerospace is not something we can take for granted, as competitors in Europe and China work every day to outcompete our aerospace and defense capabilities. To cede this sector for the long term would do serious damage to our nation’s economy and security, as well as millions of workers in all 50 states.
April 21, 2016
Dear Members of Congress,
On behalf of Frontiers of Freedom, we write today to express opposition to the “Puerto Rico Oversight, Management and Stability Act” (PROMESA). Upon taking office, Conservatives in Congress made a promise to their constituents and the American people to end Washington cronyism by standing for the rule of law and the interests of the American taxpayer. A vote for the PROMESA does exactly the opposite.
The PROMESA bill is an unapologetic bailout of Puerto Rico’s government on the backs of average everyday American retirees, pensioners and investors across the Country, despite the fact that those bondholders played no role in the Commonwealth’s wanton disregard for the principles of sound governance. Further, the bill threatens to put American taxpayers broadly and directly on the hook for the mess in Puerto Rico. Continue reading
FAIRFAX, VA. – In a letter to House Republicans sent today, Frontiers of Freedom urged conservatives to reject the recently introduced PROMESA bailout legislation for Puerto Rico. The measure, which was introduced by Rep. Sean Duffy, puts Puerto Rico’s bondholders on the hook for decades of government waste and jeopardizes the American taxpayer.
“Some Republicans have been too quick to defend this misguided bill, claiming that it is not a bailout because it does not send taxpayer funds directly to Puerto Rico,” said Frontiers of Freedom President George Landrith. “But that claim misses the point and is not in line with reality. This is a direct bailout at the expense of the Commonwealth’s bondholders, who are regular American taxpayers themselves, and it risks putting all taxpayers on the hook for a taking of their retirement money. This problem was created by decades of the Commonwealth’s terrible fiscal mismanagement and atrocious policies that killed off jobs and crippled the Commonwealth’s economy. A bailout won’t fix this problem. It goes far deeper than that. Real and comprehensive reforms are needed. A bailout is actually a step deeper into the abyss.” Continue reading
The Virginia Governor put together a large economic development package—and bragged about bringing jobs—on the basis of fabricated promotional materials from a Chinese company.
by Steve Albertson • The Bull Elephant
Just over a year ago, in November 2014, Virginia Governor Terry McAuliffe beamed with pride at having concluded a deal to bring 349 jobs to the ailing economy around Appomattox. The plan was to use various state economic development incentives, including an upfront payment of $1.4 million from the Governor’s Opportunity Fund. From the Governor’s press release at the time:
Governor Terry McAuliffe announced today that Lindenburg Industry, LLC, a subsidiary of a Chinese-owned corporation, will invest $113 million to establish an industrial honeycomb manufacturing operation in the Town of Appomattox in Appomattox County. This project, which represents the first new company announcement in Appomattox in 15 years and the largest since Thomasville Furniture began construction in 1972, is a direct result of the Governor’s meeting with company officials in Beijing, China during his Asia Marketing Mission last month. Virginia successfully competed against North Carolina for the project, which will create 349 new jobs.
But, as it turns out, McAuliffe’s enthusiasm about prevailing over the Tar Heel State was misplaced. You see, the Chinese “company” has now apparently bailed out, without refunding the Governor’s check. It seems that folks in North Carolina were a wee bit more responsible with taxpayer funds. They did background research that the Governor’s office did not. In fact, an investigation by The Roanoke Times found that: Continue reading
America’s declining score in the index is closely related to rapidly rising government spending, subsidies, and bailouts.
by Anthony B. Kim • Daily Signal
According to the 2016 Index of Economic Freedom, an annual publication by The Heritage Foundation, America’s economic freedom has tumbled. With losses of economic freedom in eight of the past nine years, the U.S. has tied its worst score ever, wiping out a decade of progress.
The U.S. has fallen from the 6th freest economy in the world, when President Barack Obama took office, to 11th place in 2016. America’s declining score in the index is closely related to rapidly rising government spending, subsidies, and bailouts. Continue reading
by Betsy McCaughey • New York Post
How dare the Obama administration bail out insurance companies with our money in order to hide ObamaCare’s failures. Thursday, just hours after giant insurer UnitedHealthcare said it’s losing money selling ObamaCare plans and will likely exit the health exchanges next year, the Obama administration quietly promised to bail out insurers for their losses — using your money.
Nearly all insurers are bleeding red ink trying to sell the unworkable plans. Without a bailout, more insurers will abandon ObamaCare, pushing it closer to its demise. A bailout would benefit insurers and the Democratic Party, which is desperate to cover up the health law’s failure. Ironically Democrats (including Hillary Clinton and Bernie Sanders) bad-mouth bank bailouts but are all for insurance-company bailouts. Truth is, it’s a ripoff for taxpayers, who shouldn’t have to pay for this sleazy coverup. Continue reading
How many times did the Obama Administration promise that GM would repay every dime of the taxpayer provided bailout? And how many times have you heard the lie that GM has fully repaid the federal government for the taxpayer provided bailout? The truth is the taxpayers lost $10 billion on GM, but GM CEO says the taxpayer took a risk like any other investor. That sucking sound you hear is the government taking $10 billion out of the taxpayer’s pocket.
by Todd Spangler
The General Motors bailout may have cost the government $10 billion, but GM CEO Dan Akerson rejects any suggestion that the company should compensate for the losses.
He says Treasury officials took the same risk assumed by anyone who purchases stock.
“I would not accept the premise that this was a bad deal,” Akerson said during a question-and-answer session at the National Press Club in Washington. He also said the government’s $49.5-billion aid to GM helped save billions of dollars in tax revenue and government social services. Continue reading
A Brookings Institution study found the $2.85 billion program “provided a short-term boost in vehicle sales, which were pulled forward from sales that would have occurred in subsequent months. There was a small increase in employment but the implied cost per job created ($1.4 million) was far higher than other fiscal stimulus programs.”
The study — from researchers Ted Gayer and Emily Parker — said the “Car Allowance Rebate System,” or CARS did little to boost employment. This is at least the fourth major study since 2012 that has raised questions about the value of the program. Continue reading
It should come as no surprise that politically connected banks received larger bailout loans from the federal government during the 2007 financial crisis than banks that spent less on lobbying and campaign contributions. That’s the conclusion of a new analysis by Prof. Benjamin Blau of Utah State University. His findings were based on data from the Federal Reserve and published by the Mercatus Center at George Mason University. Continue reading
They don’t call it “Government Motors” for nothing.
Once one of the “bluest” of America’s blue chip corporations, General Motors has seen better days. Early in President Barack Obama’s first term, it was nearly subsumed into the U.S. government on the grounds that a federal bailout – which amounted to a near takeover of the company – was necessary in order to save it from bankruptcy and to protect tens of thousands of American jobs.
The president campaigned for re-election on the success of his bailout of the auto industry which, truth be told, was confined to GM and Chrysler. There are plenty of companies that were and still are building cars and trucks in the United States that did just fine without the kind of interventions needed to keep two of what used to be called “The Big Three” from sliding into an economic abyss despite the recession. Continue reading
President Obama is proud of his bailout of General Motors. That’s good, because, if he wins a second term, he is probably going to have to bail GM out again. The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.
Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion. Continue reading