Uncertainty is the Achilles Heel of economic recovery. Just as it can pressure individuals to keep their savings hidden in mason jars under mattresses, it can deter companies from reinvesting the $1.9 trillion currently sidelined in their balance sheets, and sway traders to drive up commodity prices. Consider the current energy landscape. By maintaining a moratorium (first explicit and then de facto) on exploration permits in the Gulf of Mexico for the past 10 months, the Obama administration unleashed a plague of uncertainty on America’s oil and gas sector.
In December, regulators exacerbated the effects by reversing plans to open areas along the Atlantic Coast and Eastern Gulf. The consequences of such sweeping policies extend far beyond limiting energy production to hampering U.S. investment, hindering economic growth and limiting job creation.
Before any American rig worker sees even a drop of fuel, companies must pour huge amounts of money into the U.S. economy for exploration and development. Understandably, investors behind these substantial funds want assurance their capital won’t be lost because of capricious political interventions.
If America’s political environment generates too much uncertainty, investors will direct those funds elsewhere. Such was the case last month when Seahawk Drilling, America’s second-largest offshore driller with 494 employees, filed for Chapter 11 bankruptcy.
Traders take notice as well. Speculators respond to political maneuvering in D.C. — and its resulting uncertainty over oil supplies — which, in turn, influences the price of energy. Prices in the global oil market depend on philosophical issues (i.e., political perceptions) perhaps as much as physical ones (i.e., actual supply and demand).
We have seen this play out in the market’s response to civil unrest in the Middle East. These countries supply a relatively small amount of oil, yet continue to send shock waves through the market.
To help stabilize these effects on American consumers, federal policymakers can signal their commitment to encouraging domestic production by stripping away onerous restrictions to exploration.
The two new permits issued by the Interior Department just this month hardly qualify as a strong signal from D.C. (One was for a project with BP as the largest owner, and the other simply allowed resumption of a previously approved operation.)
And President Obama’s call to add nearly $37 billion to the oil industry’s tax burden offers a much clearer message.
Fallout from policies that curtail development of traditional fuels isn’t limited to the energy industry. It ripples through the economy, hitting educators, health care providers, restaurateurs, etc.
By the administration’s own estimates, the moratorium cost the Gulf region 20,000 jobs through September 2010 alone, and its permitting freeze continues to directly and indirectly eliminate jobs and close businesses.
If Obama is truly committed to “winning the future,” he shouldn’t cross signals. His administration must work to reduce uncertainty by streamlining business policies, cutting corporate tax rates and introducing other incentives that overcome uncertainty in America’s business environment.
If our nation’s leaders fail to deliver this critical guidance, they will shoot our future economic prosperity in the foot … or perhaps, more appropriately, the Achilles heel.
Joseph R. Mason is the Moyse/LBA chairman of banking at the Ourso School of Business at Louisiana State University, and author of several studies on the economic effects of the administration’s energy policies.
