Skip to content

Regulations Hurt GDP Growth

May 20, 2016

Fracking has increased the availability of low-cost oil and natural gas.

By definition, low-cost oil and natural gas results in an increase in productivity, and an increase in GDP.

From the previous article:

∆ GDP = ∆ Population + ∆ Productivity


Productivity = output / Input

The case for natural gas is straight forward.

Chart of Henry Hub Natural Gas Price from EIA

Chart of Henry Hub Natural Gas Price from EIA

Prior to the advent of fracking, the United States was running out of natural gas. It was becoming necessary for the United States to build import terminals for importing LNG at world market prices which were linked to the price pf oil. The price of natural gas had increased to around $8 per million BTU by 2008, with spikes to even higher levels.

Fracking has resulted in an abundance of natural gas at a current price of $2 and less.

Natural gas has an important effect on the economy, and the lower price means an increase in productivity and GDP. A lower input cost, in the formula for productivity, results in increased productivity.

The case for oil is somewhat convoluted, but fracking has resulted in the United States becoming the swing producer, replacing Saudi Arabia in this regard.

Until the United States developed fracking in conjunction with horizontal drilling, Saudi Arabia controlled prices, by either increasing or decreasing production depending on whether it desired a lower or higher price for oil.

Because of fracking, the price of oil will be capped at a lower price than would otherwise have been the case. If the price of oil increases above a certain point, oil output from fracking will increase, thereby increasing supply and capping the price of oil.

This results in the denominator being lower in the formula for productivity, which results in increased productivity and GDP.

The EPA has reported there are no systemic adverse environmental consequences from fracking, so there are no environmental costs.

Unfortunately, both Democrat candidates for president have vowed to outlaw fracking.

Introducing regulations or outlawing fracking will result in higher cost natural gas and oil, which means reduced GDP growth.

As with Obamacare, government intervention will result in lower GDP growth, which hurts all Americans.

Moody’s Analytics estimated that hundreds of thousands of jobs were lost as the result of the oil price crash last year, and that GDP growth was cut by half a percentage point.

Oil is now recovering, so that these hundreds of thousands of jobs will be restored as fracking and oil production increases in the United States.

But, these jobs will be permanently lost if fracking is banned.

A petition signed by 45 environmental groups urged the President to stop all offshore drilling as well as fracking, so as to limit global warming.

Such a move would hurt all Americans as per capita GDP would be hammered even further.

It’s abundantly clear that government intervention and regulations are stifling growth, and that eliminating government involvement would allow the economy to grow at a faster rate, perhaps at 3.5% again, as it did between 1950 and 2000.

As shown in the previous article, this will make a huge difference in America’s standard of living, as expressed by per capita GDP.


* * * * * *

Nothing to Fear, Chapter 9, The Utility Death Spiral, explains why displacing fossil fuels with wind and solar will result in the bankruptcy of Utilities and the possible takeover of the industry by the government.

Nothing to Fear is available from Amazon and some independent book sellers.

Link to Amazon:

Book Cover, Nothing to Fear

Book Cover, Nothing to Fear

* * * * * *


It’s easy to subscribe to articles by Donn Dears.

Go to the photo on the right side of the article where it says email subscription. Click and enter your email address. You can unsubscribe at any time.

If you know people who would be interested in these articles please send them a link to the article and suggest they also subscribe.

© Power For USA, 2010 – 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author, Donn Dears LLC, is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Power For USA with appropriate and specific direction to the original content.

3 Comments leave one →
  1. John permalink
    May 20, 2016 11:17 am

    “The EPA has reported there are no systemic adverse environmental consequences from fracking, so there are no environmental costs.” At least try a little bit to be unbiased, after spending 1 min reading an EPA report I found this paragraph, so there ARE environmental costs:

    We did not find evidence that these mechanisms have led to widespread, systemic impacts on
    drinking water resources in the United States. Of the potential mechanisms identified in this report,
    we found specific instances where one or more mechanisms led to impacts on drinking water
    resources, including contamination of drinking water wells. The number of identified cases,
    however, was small compared to the number of hydraulically fractured wells.

    • May 20, 2016 2:03 pm

      You need to know that fracking never caused water contamination or contamination of wells.
      There were a very few instances where the handling of waste water caused some contamination of surface water supplies. And, a very few instances where casings were not properly completed which caused some natural gas to seep into water supplies.
      Fracking never caused contamination of water supplies, and the EPA tried for five years to prove it did. The best they could come up with was a very few instances as described above.
      Fracking has no environmental impact, and the handling of waste water and casing completions had minuscule impacts.
      If the had found that fracking had caused contamination of water supplies, you can be 100% certain they would have broadcast their findings to the world.
      The EPA hid the true meaning of their conclusions by using the term mechanism, where people could draw the conclusion that fracking caused the problem when it didn’t.
      All drilling operations, not just fracking, have waste water and well casings that must be handled properly.


  1. Weekly Climate and Energy News Roundup #227 | Watts Up With That?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s