Really, the Oil Spill Isn't Good for the Economy
Will the oil spill actually raise U.S. GDP? Implying that the oil spill will be good for the U.S. economy is one of those bizarre claims that you wouldn't think even need to be humored, but it has been made by a JPMorgan energy analyst. Maybe Washington should have just blown up an oil well in the Gulf as part of its economic stimulus? Even if there are slight short-term gains, the long-term harm will overshadow them.
Here's the Wall Street Journal reporting (via Annie Lowery) on the claim by JPMorgan analyst Michael Feroli:
The six-month moratorium on deep-water drilling may cut U.S. oil production by around 3% in 2011 and cost more than 3,000 jobs, according to J.P. Morgan's energy analysts.
Commercial fishing in the Gulf is also likely to suffer, but that's only about 0.005% of U.S. GDP. The impact on tourism is the hardest to measure, although it's fair to expect that many hotel workers who lose their jobs will find it hard to get new ones.
Still, cleaning up the spill will likely be enough to slightly offset the negative impact of all this on GDP, J.P. Morgan said. The bank cites estimates of 4,000 unemployed people hired for the cleanup efforts, which some reports have said could be worth between $3 and $6 billion.
"If realized, this would likely mean a near- to medium-term boost to activity that might offset the drags," Feroli said.
The idea is that these 4,000 cleanup workers would more than offset all the negative costs? Let's reflect on what those include. Here are the ones Feroli mentions:
- Lost deep-water drilling jobs (during the moratorium)
- Lost fisherman jobs
- Lost Gulf seafood revenue
- Lost tourism-related jobs
- Lost tourism spending
These are all short-term, and Feroli may be right for the next year or two, though a net positive seems hard to believe even initially. But there are also long-term consequences that will lower GDP for years to come, including:
- Higher energy prices: Liability insurance will likely increase across-the-board for oil companies who drill off-shore, which will ultimately be paid for at the pump by consumers.
- Lost natural resources: Gulf fishing and beaches will be harmed for years to come. The values of these natural resources have been irreversibly harmed.
- Even more Gulf drilling jobs: Watch to see some companies move more of these jobs overseas where they will face lower liability limits and escape the additional regulation Congress is sure to soon impose.
- Loss to BP shareholders: Lots of Americans owned, or still own, BP stock. It will be paying for these cleanup workers, which will impact its profits, dividends, and share price. This is money that would have likely been reinvested or spent.
It's also important to remember that any jobs created to cleanup oil aren't the kind you ultimately want anyway. They're temporary, low skill jobs. To get them, we're trading jobs on oil rigs, hospitality jobs, and fishermen. All of those positions likely pay better on-average and include the cultivation of skills that will have ongoing demand. Oil cleanup won't go terribly far on most resumes.
And unlike cleanup, the lost jobs also have productive returns. Oil rigs produce fuel for our energy needs, vacationing results in much-needed rest that enhances worker productivity, and fishing provides food for sustenance. These ends all ultimately further the economy. Cleanup just puts the Gulf back to where it was before the spill. It doesn't advance anything, just reduces some of the harm committed. It's the economic equivalent of one set of workers digging a ditch and another set filling it in afterwards.