America's Next Economic Boom Could Be Lying Underground
There's a serious problem in the American economy: Big corporations are doing well, but real household income for average Americans has been falling over the past decade — down 9 percent, according to census data.
"That's not good for America," says Harvard economist Michael Porter. "That's not good for America's standard of living. That's not good for our ultimate vitality as a nation."
That's why Porter's excited about the deep reserves of natural gas and oil that have been made accessible by hydraulic fracturing technology, or fracking — a boon he examines in detail in a new report.
"It is a game changer," Porter says. "We have estimated that already, this is generating a substantial part of our GDP in America. It's at least as big as the state of Ohio. We've added a whole new major state, top-10 state, to our economy."
Looking not just at drilling jobs but at all related jobs — truck drivers, truck manufacturers, petrochemical engineers and more — Porter says the rise of fracking has added 2.7 million jobs to the economy, most of them with good wages.
Porter also says cheaper natural gas is helping businesses and people all around the country save money.
"The average household is saving about $800 a year," he says, much of it in passed-on savings from lower-priced consumer products. And his research suggests that figure may keep rising in the next 15 years.
But what about the environment? On this score Porter says energy companies made a mistake, failing to partner with environmentalists at the start to reduce fracking's impact.
Still, he says, natural gas is cleaner than coal, and that with the right set of policies, cheap natural gas from fracking and alternative energy can work well together.
At the Wind Technology Testing Center in Boston, Rahul Yarala is helping test new designs — cheaper, lighter and more efficient — for windmill propeller blades, the same kind you see spinning on hillsides to generate electricity. The current test subject is dangling in midair.
"It's 200 feet long; it's about 20,000 pounds in weight," Yarala says. "What we're testing is the minimal amount of structural elements to make sure it's also reliable and it won't break."
Bringing the cost down will be a key to success for wind energy.
The blades are now to the point where pound for pound, he says, they're cheaper than airplane wings, despite being more complex.
The center was built with stimulus money, but it's now funded by the private sector — innovation that is ongoing, Porter notes, regardless of the fracking boom.
"Many people believe that somehow, if we take advantage of these oil and gas resources, that will stop renewables in their tracks," he says. "That turns out to be just wrong."
But Paul Ashworth, chief U.S. economist at Capital Economics, doesn't see a cure-all in the recent petroleum and natural gas surge.
"I'm pretty much skeptical," Ashworth says of Porter's new report. "I think he overstates it for a couple of reasons."
For one, he doesn't think the country's going to keep gaining lots of jobs because of fracking. In fact, he says the U.S. recently lost tens of thousands of jobs after oil became so cheap that many companies stopped drilling.
"So the shale oil boom is actually already over," Ashworth says.
But fuel prices do remain low, and Porter says skeptics just don't appreciate yet how important that will be for the U.S. economy.
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Transcript
ARI SHAPIRO, HOST:
Everyone seems to agree that the American middle class could use some help. It's tough to get a raise, health care, and education costs are rising. Now a new study from an economist at Harvard says the help is already here. It's underground in the form of oil and natural gas. NPR's Chris Arnold explains.
CHRIS ARNOLD, BYLINE: There's a serious problem in the American economy right now. Big corporations are doing well, but real household income for average Americans, it's been falling over the past decade. Harvard economist Michael Porter says that's not how it's supposed to work.
MICHAEL PORTER: That's not good for America. That's not good for America's standard of living. That's not good for our ultimate vitality as a nation.
ARNOLD: That's why Porter's excited about the country's deep reserves of natural gas and oil that we now have access to because of hydraulic fracturing technology, or fracking.
PORTER: Out of nowhere came this kind of once-in-a-generation thing. It is a game changer. We have estimated that already this is generating a substantial part of our GDP in America. It's at least as big as the state of Ohio. I mean, we've added a whole new major state - top 10 state - to our economy. We've estimated that already about 2.7 million jobs have been created.
ARNOLD: To get to that number, Porter didn't just look at oil and gas drilling jobs but all the related jobs - truck drivers, the companies that build the trucks, petrochemical engineers. And overall, he says, these are better-paying jobs. Also, Porter says cheaper natural gas is helping businesses and people all around the country save money.
PORTER: The average household is saving about $800 a year, sort of a bonus. We think that savings will actually go up a bit.
ARNOLD: But what about the environment? On this score, Porter says energy companies made a mistake. He says they should have been working all along with environmentalists to reduce the environmental impacts. And, he says, since natural gas is cleaner than coal, it can be used as a bridge to the alternative energy future.
RAHUL YARALA: So we're going to go 30 feet up.
ARNOLD: Rahul Yarala is taking me up in a bucket lift at the Wind Technology Testing Center in Boston. There's a giant wind turbine propeller blade here suspended in midair. It's the same kind of blade you see spinning on hillsides to generate electricity.
YARALA: It's 200 feet long. It's about 20,000 pounds in weight.
ARNOLD: And what they do here is to test new designs that are cheaper, lighter and better. They're flapping and bending this one like a bird's wing.
YARALA: So what we're testing is the minimal amount of structural elements to make sure it's also reliable and it won't break.
ARNOLD: And that's a super important thing when it comes to having wind energy succeed. You have to bring the cost down.
YARALA: So that's exactly the point. These are, per pound, way less expensive than an aircraft wing, even though they're much more complicated.
ARNOLD: The center was built with government stimulus money, but it's now funded by the private sector. Michael Porter likes that it's spurring innovation. And he thinks with the right set of policies, cheap natural gas from fracking and alternative energy can work well together.
PORTER: Many people believe that somehow, if we take advantage of these oil and gas resources, that will stop renewables in their tracks. And that turns out to be just wrong.
ARNOLD: But not everyone is so excited about America's energy renaissance.
PAUL ASHWORTH: I'm pretty much skeptical. I mean, I think he overstates it for a couple of reasons.
ARNOLD: That's Paul Ashworth, the chief U.S. economist at Capital Economics. He doesn't think the country's going to keep gaining lots of jobs because of fracking. In fact, he says, we've recently lost tens of thousands of jobs after oil got so cheap that many companies stopped drilling.
ASHWORTH: So the shale oil boom is actually already over.
ARNOLD: But Michael Porter says skeptics just don't really appreciate yet how important cheap energy will be for the U.S. economy. Chris Arnold, NPR News, Boston. Transcript provided by NPR, Copyright NPR.
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