Beware of Magic Bullets

Sean M. Robbins
3 min readOct 30, 2015

--

Pennsylvania oil rush c. 1862

Things that go up, go down. Tulips. Oil. Tech. A lot of things.

So tread carefully when someone says ”it’s not going to go boom and then bust,” as a North Dakota State University economist did of the fracking boom in 2011; especially if you are a unit of government making fiscal and policy choices in the face of it.

In 2008, hydraulic fracturing (“fracking”) helped spur a boom in North Dakota’s economy. The technique is credited with significantly reducing the nation’s reliance on foreign oil and, for awhile, North Dakota had the lowest unemployment rate of any state, one of the fastest rates of in-migration, and booming GDP figures. The heart of the hyped oil industry, Williston, was the fastest growing micropolitan in the United States in 2011.

Trade journals, site selectors, economic development professionals and mainstream media alike picked up on the story and, in some cases, extrapolated a moment in time into generalized public policy suggestions. Commentator Joel Kotkin, with whom I often agree, used North Dakota’s energy boom as a pillar for a 2011 piece in which he asserted:

“As the natural-gas boom continues, it could have another effect beneficial to industry: keeping energy prices low, which will give American manufacturers a leg up on their global rivals. Companies in the business-friendly midwestern and Plains states will profit the most, while New York and California — though each has ample fossil-fuel resources — will probably be too concerned with potential environmental problems to cash in.”

Cheap shots on California and New York aside, the opposite is largely true today. Oil prices are low but American manufacturers do not have a big leg up on their overseas rivals, Plains states are not profiting the most and New York and California are doing quite well. Weak global demand, an oversupply of energy, and a relatively expensive dollar are hurting domestic manufacturers (New York Times story here).

But what about North Dakota?

“The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn’t lasted long enough to support the oil-fueled building explosion,” according to Bloomberg article. Today, drilling-rig counts are at a six year low and the state has lost more than 10,000 jobs. Despite still boasting a low unemployment rate, the local communities who invested hundreds of millions of dollars into roads, water and sewer systems to accommodate the boom are now dealing with another set of problems.

In 2010, Williston, the heart of the hyped oil industry, topped $470 million in new construction and remodeling permits and added dozens of new hotels to contend with the housing shortage. Today, the city is overbuilt despite the predictions just a few years ago that fracking would sustain production and a robust tax base for decades. Housing vacancy rates in Williams County temporary worker camps are as high as 70% and new projects are struggling to fill up (Bloomberg story here).

And this is not just an esoteric statistic. The housing vacancy that now plagues this community will impact assessments and ultimately pinch local property tax revenue and services. Over investing in roads, water, sewer, and housing, especially when history tells us that what we’re investing in is likely to come down, is a knowable and avoidable public policy choice.

To be clear, harvesting American energy is an important economic development and national security priority. But for policymakers and on-the-ground economic development practitioners, the next time something appears too good to be true, assume it is. And when someone, especially an economist, suggests they have have a magic bullet, assume that they don’t and plan accordingly.

--

--

Sean M. Robbins

Health: of people, economies and communities | Senior Vice President of Public Affairs & Policy at Cambia Health Solutions