Thursday, December 5, 2013

Message to Houston: "Fail or Else"

Houston's Response: "Else" then. 
I just visited Houston and was blown away. I saw capital being deployed everywhere. Recession? What Recession?
color photo of construction cranes in Shanghai, China
Shanghai Construction Boom
While not quite the same as Shanghai, China at the turn of the century, there were construction cranes all around the I-45 corridor.
But how is this possible? I live in another large and powerful metropolitan area with lots of wealth and I have not seen a construction crane in years. How is it that two similar cities could be so different?
Moreover, why is Houston experiencing such great infrastructure boom; especially when it is the center of energy in the US and Obama, arguably the most powerful man in the world, has declared war on hydrocarbons?
black and white illustration of president Obama angrily pointing towards the phrase "Obama to Energy: Fail or Else"
Fail or Else Campaign
In economics, long term capital spending is a sign of business confidence. Most large projects require quite a bit of money to launch. Such large investments typically create returns only after decades. It is therefore paramount that businesses are confident in their projects' viability for management to want to part from money for such a long time. In this context, construction cranes symbolize long term capital spending because small projects do not usually call for their use.
In the United States, 20-year capital spending has dropped close to zero. While there is no public denouncement against any guilty party, it is my opinion that Obama's wealth redistribution threats have successfully scared businesses out of any notion of long term investment.
Photo Image of traders screaming their orders to buy and sell
All the capital in the markets today is being used for immediate gains. Starbucks borrowed money to buy back its stock and immediately improve earnings per share; thus increasing its valuation. Last year, Costco borrowed money against long term earnings to distribute an unusual dividend before tax increases started. Risk-adverse money is being deployed to buy volatile stocks everyday, in this way pushing the stock market to record levels. The signs are clear. Make money as fast as you can because there is no certainty that you may be able to keep any in the future.
But Houston seems to be different. Apparently, a confident outlook exists there. Could it be that American innovation has come to the rescue of our nation once again? After our energy resources were deemed to be in the path to extinction, we suddenly have the technology to extract oil and gas from previously unreachable places and at very competitive costs. In fact, it is now said that we are the Saudi Arabia of natural gas. We have so much gas that we do not know what to do with it... literally. In North Dakota, the excess of gas and the absence of a pipe to send it to the rest of the country means that enough energy to light up Chicago gets burned every night.
night time image of the US showing how the North Dakota gas facilities illuminate the sky
Click to enlarge map of US at night
Compare night-time satellite images of the US from just three years ago to today and you will see that suddenly a large metropolis much larger than Denver illuminates the skies above North Dakota. The issue is that there isn't a metropolis there. It is the gas being burned that creates the effect. Think about it. We have so much energy that we have to burn it.
Why not send it to the people who could use it around the country? Because there is no infrastructure to do it. Regardless of the jobs that such project would create, the President refuses to support the permits needed or anything else associated with hydrocarbons. So, North Dakota residents get their gas for free and the rest is used to increase the atmospheric carbon; a fantastically green solution.
By the way, next time that a hipster environmentalist accuses you of destroying the earth, ask them how exactly is it that they wash their fashionable clothing. Last I checked, environmentalists had not quite made it back to hand washing or hand drying their attire. They too have yet to go back to the old way to keep food refrigerated. So, to Mr. Obama and his environmentalist bodies who refuse to let the rest of the country get into the US energy boom, I say "stop moving your lips and get out of the way". "There is lots of work to get done!"
At least, this is exactly what Houston has replied to Obama.
black and white image of Houston's response to Obama: "Else" with construction cranes in the background.
Houston's Response: "Else" then
Even when North Dakota and Pennsylvania are also booming with all the new energy that has been found, Houston is the captain of this ship.
Since the beginning of the 80's, US energy production continuously dropped year after year. But in just three years, it is now up to levels from 1989. Considering the fact that California, a former juggernaut in energy, has continued to refuse to participate in the renaissance, it should be clear how magnificent Houston's feat has been. Even under threat from the most powerful man in the world, the city has pushed upward at a rate never again though possible in the US.
Things have moved so fast in Houston, that I had almost missed the changes. I constantly scan all sorts of economic data for signs of change but it was the cranes that made me come to my senses. If we could only replicate the effect around the US.
Capital spending means jobs. Jobs mean the end to the stagnation. The change would demonstrate once again that progress can be had without cheap labor. US inventiveness would save the day once again. But the president is lost in LA-LA-Land while the rest of his nation grows hungry.
image of luggage set for traveling
Moving to Houston
When will he learn that markets respond not to political-will but to consumer demand? When will he understand that jobs are the best kind of welfare? When will he capitulate and let the infrastructure needed around the country take place? Once out of the way, businesses would do the investing without a single dollar being taxed.
Until then, I am moving to Houston.

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