Opportunity cost is perhaps the most important concept in all of economics. Each country has a production possibilities frontier, which reflects the stock of production factors and the institutions underlying the economic system. At full employment, producing more of one type of good usually means producing less of other goods.
The Economist has a great article about the extraordinary success of the US energy industry. Over the past 15 years, the United States has gone from being a major importer of energy to a major exporter. We are now the world’s leading producer of both oil and gas. However, some parts of the article seem to be incorrect.
The United States, which had been a major oil importer for many years, began to see its need for foreign crude oil decline in 2008, when oil shale fields became widespread. By 2019, for the first time in more than half a century, energy exports exceeded imports (we produce more than we consume domestically, but some varieties only need to be produced abroad) (still importing huge amounts of oil). Last year, America had a net energy surplus of about $65 billion.
Shale has boosted American growth in a number of ways. Strictly speaking, America’s trade balance has improved due to a decrease in imports and an increase in exports. In most other areas, America buys more from the world than it sells to it.
In fact, our country’s trade balance fluctuates at around 3% of GDP and does not appear to be improving significantly.
The current account balance is calculated by subtracting domestic investment from national savings. It is not clear why energy exports promote that balance. In fact, if the fracking boom increases investment in domestic oil equipment, the trade deficit will tend to widen further. The energy boom probably had little impact on the trade balance.
However, it is true that the energy boom has had a major impact on the energy sector’s trade balance, with trade going from a deficit of more than $370 billion (2.5% of GDP) in 2008 to almost balancing by 2023. It became. (according to this source). The Economist claims a surplus of $65 billion).
If Japan’s energy trade deficit has almost been eliminated, why has the overall trade balance worsened in recent years?The concept of opportunity cost suggests that increasing energy production means decreasing the production of other types of goods. I’m doing it. Ethan Soltani’s research suggests that manufacturing is bearing the brunt of the increase in US energy production, which explains why the overall trade deficit has not improved significantly. are.
Voters should be skeptical of politicians who propose to achieve two goals:
1. Much higher energy output.
2. Increase in output of manufactured goods.
If you succeed in the first goal, you will probably fail in the second.
PS.The current account deficit as a percentage of GDP is slightly smaller than in 2007-2008. However, those years were distorted by extremely high oil prices, which reached $147 per barrel. Most of the increase in U.S. domestic energy production has occurred since 2010.
