Oklahoma’s Improved Economic Performance Suggests Right to Work Is Working

My latest study for the Oklahoma Council of Public Affairs finds that critics of Oklahoma’s right-to-work law are wrong. From the study:

On September 25, 2001, Oklahoma voters went to the polls and passed a constitutional amendment—Right to Work (RTW)—which gave workers the choice to join or financially support a union. This made Oklahoma the 22nd state (plus Guam) in the union to join the ranks of RTW states.

However, RTW was soon challenged in court, and the matter rose all the way to the Oklahoma Supreme Court. It took two years of legal wrangling before all the challenges were settled. When the dust settled in 2003, RTW remained in place—along with the promise of greater economic performance.

Fast forward to today, and opponents of the law are still at work trying to discredit it. A recent study by the Economic Policy Institute (EPI), for example, claimed that RTW in Oklahoma has been a dismal failure. One of EPI’s most important pieces of evidence is that manufacturing employment is lower today than it was before RTW.

But EPI’s view on the economic impact of RTW is simply too narrow. RTW is about giving businesses and their employees the flexibility to create a better economic future. There are two ways to accomplish this: the company can hire additional employees to boost output, or the company can invest in new capital to boost output through higher productivity.

Just because manufacturing employment fell does not mean that Oklahoma’s manufacturing sector is in a death spiral. In fact, the opposite is true. It is widely known that America’s manufacturing industry has been shedding jobs thanks in large part to technological advancement. Today’s American manufacturing worker is one of the most productive, if not the most productive, in the world.

. . .

In summary, we have presented new evidence that RTW has been a boon for Oklahoma. Manufacturing output and productivity have outpaced the competition, and people from non-RTW states are voting with their feet by moving to Oklahoma in increasing numbers. This evidence from Oklahoma should help convince policymakers in other non-RTW states that RTW is good economic policy.

The chart below shows that since 2003, Oklahoma’s Gross Domestic Product for the manufacturing industry has not only grown faster than for all non-right-to-work states, but also faster than all right-to-work states.

Chart Showing Gross Domestic Product of Manufacturing Industry in Oklahoma 2003 to 2010

Frac, Baby, Frac . . .

Drilling rig
Creative Commons License photo credit: eMaringolo

As I’ve blogged before, technology has played an important role in keeping Wealth Alchemist at bay.  I recently came across this study–The Shale Gas Shock (pdf)–that thoroughly vets the pros and cons of this new hydraulic fracturing technology being used to squeeze natural gas out of shale rock.

Put simply, this technology essentially dispells any notion that the “peak production” of fossil fuels is just over the horizon.  And it’s no surprise that independent, wildcatters, not large, state-owned oil companies, are the ones responsible for this remarkable new technology.  As long as the US continues to protect private property rights and the pursuit of profit (no guarantees there), then technology will continue to push back the Wealth Alchemists.

The study, while 36 pages, is remarkable easy to scan through and I encourage everyone to do so . . . it’s worth the trip.  From the study’s introduction:

Shale gas is proving to be an abundant new source of energy in the United States. Because it is globally ubiquitous and can probably be produced both cheaply and close to major markets, it promises to stabilise and lower gas prices relative to oil prices. This could happen even if, in investment terms, a speculative bubble may have formed in the rush to drill for shale gas in North America. Abundant and low-cost shale gas probably will – where politics allows – cause gas to take or defend market share from coal, nuclear and renewables in the electricity generating market, and from oil in the transport market, over coming decades. It will also keep the price of nitrogen fertiliser low and hence keep food prices down, other things being equal.

None the less, shale gas faces a formidable host of enemies in the coal, nuclear, renewable and environmental industries – all keen, it seems, to strangle it at birth, especially in Europe. It undoubtedly carries environmental risks, which may be exploited to generate sufficient public concern to prevent its expansion in much of western Europe and parts of North America, even though the evidence suggests that these hazards are much smaller than in competing industries.

Elsewhere, though, increased production of shale gas looks inevitable. A surge in gas production and use may prove to be both the cheapest and most effective way to hasten the decarbonisation of the world economy, given the cost and land requirements of most renewables.

Can Technology Keep Wealth Alchemists at Bay?

Wealth Alchemists have done a lot of damage to our economy by encouraging consumption over the accumulation of wealth.  Fortunately, technological shocks have given a needed shot in the arm in favor of wealth.  Today we can produce more goods and services using fewer workers and fewer inputs than in the past.  Thanks to advances in technology, we are able to support increases in consumption and wealth.  Two recent articles caught my eye that beautifully illustrate this process.

The first article isn’t really beautiful, it actually stinks–literally.  It deals with a new process to deal with garbage.  According to the Economist magazine, atomising trash eliminates the need to dump it and generates useful power too.

DISPOSING of household rubbish is not, at first glance, a task that looks amenable to high-tech solutions. But Hilburn Hillestad of Geoplasma, a firm based in Atlanta, Georgia, begs to differ. Burying trash—the usual way of disposing of the stuff—is old-fashioned and polluting. Instead, Geoplasma, part of a conglomerate called the Jacoby Group, proposes to tear it into its constituent atoms with electricity. It is clean. It is modern. And, what is more, it might even be profitable.

For years, some particularly toxic types of waste, such as the sludge from oil refineries, have been destroyed with artificial lightning from electric plasma torches—devices that heat matter to a temperature higher than that of the sun’s surface. Until recently this has been an expensive process, costing as much as $2,000 per tonne of waste, according to SRL Plasma, an Australian firm that has manufactured torches for 13 of the roughly two dozen plants around the world that work this way.

Now, though, costs are coming down. Moreover, it has occurred to people such as Dr Hillestad that the process could be used to generate power as well as consuming it. Appropriately tweaked, the destruction of organic materials (including paper and plastics) by plasma torches produces a mixture of carbon monoxide and hydrogen called syngas. That, in turn, can be burned to generate electricity. Add in the value of the tipping fees that do not have to be paid if rubbish is simply vaporised, plus the fact that energy prices in general are rising, and plasma torches start to look like a plausible alternative to burial.

The second article deals with the application I recently discussed in terms of natural gas–hydraulic fracturing technology–being applied to oil fields in the U.S.  It turns out this technology is working out better than expected and is opening vast new oil fields according to Yahoo News:

A new drilling technique is opening up vast fields of previously out-of-reach oil in the western United States, helping reverse a two-decade decline in domestic production of crude.

Companies are investing billions of dollars to get at oil deposits scattered across North Dakota, Colorado, Texas and California. By 2015, oil executives and analysts say, the new fields could yield as much as 2 million barrels of oil a day — more than the entire Gulf of Mexico produces now.

This new drilling is expected to raise U.S. production by at least 20 percent over the next five years. And within 10 years, it could help reduce oil imports by more than half, advancing a goal that has long eluded policymakers.

Wow, so in the near future we may be creating new power from our trash and reducing our dependency on Middle Eastern oil . . . take that Wealth Alchemists.

Taxes Matter II: Lower Taxes on Capital Investment

In today’s Wall Street Journal, Thomas F. Cooley and Lee E. Ohanian make the case for lowering federal taxes on capital investment.  Here’s their bottom line:

Taxing capital income at a permanent average rate of 20% instead of the current average of 37% would yield substantial benefits. After several years of higher investment, we estimate that output would increase by about 8%, that employment would increase by about 3%, and that wages would increase by about 5%. Moreover, most of these increases would be realized within the first 10 years following such a reform.

Our estimate of the benefits of lower capital taxes is conservative, as we consider only the impact of lower capital taxes on the accumulation of physical capital. It is likely that lower taxes would also stimulate increases in research and development and other inventive activities, increase entrepreneurship, increase the accumulation of human capital, lead to more immigration of high-skilled workers, and encourage foreign firms to locate in the United States.

Additionally, beyond the tax rate itself there are other ways to make the tax code more capital-friendly.  Following on the provisions in the Bush tax cuts such as Section 179 Expensing and Bonus Depreciation, I would expand those to all businesses in the individual and corporate income tax code–in other words, enact Immediate Expensing (pdf).

In particular, immediate expensing would give a shot-in-the-arm to America’s entrepreneurs.  Since most small businesses never survive beyond 5 years, what use is it to them to have to depreciate capital purchases over 10 or 20 years.  All it becomes is a short-term windfall to government coffers . . . a better policy is to help these small businesses become large businesses which would fill both private sector and government coffers.