Tag Archives: America

The consequences of American energy independence

The World Energy Outlook 2012 that was released on November 12 contained many interesting projections and comments. One that was particularly interesting from a political climate change perspective was the following:

The recent rebound in US oil and gas production /…/ is spurring economic activity – with less expensive gas and electricity prices giving industry a competitive edge – and steadily changing the role of North America in global energy trade. By around 2020, the United States is projected to become the largest global oil producer /…/ The result is a continued fall in US oil
imports, to the extent that North America becomes a net oil exporter around 2030.

On the one hand, this could imply that when the United States is finally generating an energy surplus, it may become serious in taking on climate change. But on the other hand, a more likely scenario in my opinion is rather that the United States will appreciate finally becoming energy independent and will show even less effort than today. As The Economist puts it:

[T]he elimination of ‘dependence on foreign oil’ as an economic and security bogeyman may lead the world’s largest economy to abdicate responsibility for global leadership on climate change even more than it already has.

Another interesting political perspective, albeit not so much related to climate change, is how the geopolitics of the Middle East will change when America no longer is dependent on oil imports from the region whereas China’s energy imports are projected to continue to grow. How will this shift affect the political dynamics in the world’s most unstable region?

Simon Hedlin

Gone with the Wind: America’s vanishing labour force

At first, the falling unemployment rate in the United States may have seemed to be only positive news when the April numbers were released a few days ago. However, as Mark Gongloff at Huffington Post noted, the decline was partly because the labour force participation rate “dropped to 63.6 percent, the lowest since December 1981”. In fact, even in absolute numbers, the American labour force is currently shrinking. The Economist makes the same correct analysis, and points out that compared with the Congression Budget Office’s (CBO) estimate back in 2008, the actual size of the labour force in 2012 is smaller by five million people :

True, the slide in the unemployment rate – a full percentage point since September – owes mostly to rising employment (as measured by the household survey). But the decline in unemployment has been helped by the failure of the labour force to grow more quickly. /…/ Yet in January, 2008, the Congressional Budget Office reckoned it would be some 5m larger by now, or 159.5m /…/”

In addition to a slow-growing labour force with a falling labour force participation rate, there is another growing problem: a relatively smaller potential workforce.

In last week’s issue of The Economist, there was an interesting article about the United States and China. It metaphorically hypothesized that had China been dipped in the river Styx to be given invulnerability, the country would perhaps had been “held” in its demography:

Alongside the other many problems it faces, China too has its deadly point of unseen weakness: demography. /…/ Between 2010 and 2050 China’s workforce will shrink as a share of the population by 11 percentage points, from 72% to 61%—a huge contraction, even allowing for the fact that the workforce share is exceptionally large now. That means China’s old-age dependency ratio (which compares the number of people over 65 with those aged 15 to 64) will soar. At the moment the ratio is 11—roughly half America’s level of 20. But by 2050, China’s old-age ratio will have risen fourfold to 42, surpassing America’s.

True, China’s demographic prospects from an economic viewpoint do indeed look glum. Considering several important factors such as population growth, median age and old-age dependency rate, America’s position does in comparison look better. But it is important to note the “in comparison”, because as stated, America has its own demographic issues. And aside from the fact that the labour force participation rate is falling, the number of persons in working-age (aged 15-64) in relation to the number of children and seniors is rapidly contracting, as this graph shows.

(Feel free to use this figure for your own purposes, but please do not forget to mention this blog as the source.)

So to sum up this post in three points:

1) America’s labour force is growing at a slower rate
2) America’s labour force participation rate is falling
3) America’s potential labour force (persons in working-age) is shrinking relative the size of the rest of the population

1) implies slower economic growth, 2) means fewer workers are active on the labour market relative to the number of people who are likely to need support, and 3) will likely make the effects of 2) worse.

Hypothetically, with a faster growing labour force and a constant labour force participation rate, 3) alone would still constitute a worrying development. Thus, if these three issues are not taken seriously, America might really be heading for trouble.

Simon Hedlin