Saudi America: Unpacking the consequences of the U.S. oil boom

Sometimes clean tech advocates will say something like "The U.S. is the Saudi Arabia of solar" or "The U.S. is the Saudi Arabia of wind." You know what else the U.S. is turning into the Saudi Arabia of? Oil and gas.

America produced more oil and gas in 2014 than any other country, including petrostates like Russia and Saudi Arabia.

The long-term significance of this cannot be overstated.

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In terms of geopolitics, while the Middle East will remain important but fractious for the foreseeable future, the shale revolution nonetheless means the long-term death of OPEC. The global marketplace for commodities will more and more resemble an actual market, instead of a political wrestling match with the health of the global economy at stake.

Speaking of which, increased global commodities production means lower oil and gas prices, which means higher economic growth. This is obviously very good and welcome. What's more, this is also an environmental bonanza, since most of the increased production comes from gas, which is cleaner than oil or coal.

But the consequences for the political economy of the United States might not necessarily be glorious. With pretty much the sole exception of Norway, the list of petrostates is not a who's who of the nicest places on Earth. Economically, high oil production often leads to what is called the "Dutch disease" — oil exports drive up the price of the currency, making other industries less competitive, smothering them. This leads to a vicious cycle where the oil industry becomes the dominant industry in the country, and other industries cannot develop. But the political consequences are more devastating. An enormous pot of money for politicians to allocate is an inevitable recipe for cronyism, corruption, white elephant government programs, outrageous welfare spending, and so on.

Conservatives can look forward to a future where everybody in the country is on the dole in one way or another. Liberals can look forward to a future where the oil industry's political influence makes Wall Street look like a lemonade stand. That is not a good future.

And finally, one very important lesson: central planning doesn't work; the free enterprise system does. Richard Nixon promised energy independence. Gerald Ford promised energy independence. Jimmy Carter promised energy independence. Ronald Reagan promised energy independence. George H. W. Bush promised energy independence. Bill Clinton promised energy independence. George W. Bush promised energy independence. Barack Obama promised energy independence. The U.S. is getting energy independence at long last — in a way that absolutely nobody in Washington (and most economic analysts) expected.

It's called the shale revolution, and it happened seemingly on its own, through the magic of what the author and entrepreneur Jim Manzi describes as the American System. This American System has a role for government in providing the rule of law, good institutions, and basic research — this is no Randian utopia — but otherwise lets the free enterprise system work its magic. And when it does, it really is magic.