Wednesday, April 4, 2012

Mr. President, Free Enterprise Works

Mr. President: Free Markets Work.

As doubtlessly you read this morning (March 27, 2012) in The Wall Street Journal, Mr. President, the article “Steel Finds Shale Sweet Spot.” It illustrates that free enterprise is alive and well in America and assisting in your agenda. Innovative technical advances from the private sector in oil and gas drilling, hydraulic fracturing (“fracking”) coupled with horizontal drilling, allows access to huge deposits of oil and natural gas nearing two miles below the earth’s surface. Usual vertical drilling reaches only a few hundred feet down. Some government projections indicate a hundred year supply of natural gas and twenty-four billion barrels of oil within these shale lands in the contiguous 48 United States.

In ways central control of an industry can never predict, as the Journal article described, the cascading consequences of this technology come from a newly-accessible large supply of natural gas which pushes prices down – more than 35% from a year ago. Lower energy prices benefit the national economic turnabout. More gas creates lower prices which triggers increased useage (demand). The unchanged price of the major gas competitor, coal, causes its demand (and useage) to drop. This forces companies to shutter the unneeded coal plants expanding your agenda, Mr. President, of exchanging dirtier coal-burning plants for cheaper and cleaner-burning natural gas. Lower energy costs increase the profits of energy-dependent companies, where natural gas can be substituted for oil. For the steel industry more sophisticated drilling creates more demand for tubular steel products, such as the needed pipes, tubes and joints. More demand from lower prices creates a need for more production employees and those needed for support of higher sales of these steel products. The increased profits in the steel industry spreads out to suppliers of everything from transportation to accounting computers to toilet paper. The expected higher profits have increased the price of steel companies, with X – U. S. Steel’s New York Stock Exchange symbol – increasing from a 52-week low of $18.85 to yesterday’s close of $29.54, a change of over $14 billion accruing on paper to retirees, pension and mutual funds and other investors.

You see, Mr. President, the free markets work and work to enable your agenda. You might relax and let them just happen.

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