Job Growth: No Apologies

Mark Green
Posted October 17, 2011

Well now. It's clear that growth projections assigned to a pro-energy development path - 1.1 million new U.S. jobs by 2020 - are attracting criticism in Washington, where it's always open season on forward-looking proposals.

First the Washington Post took aim at the oil and natural gas industry's job-creating ability, challenging aspects of a recent study by energy consultant Wood Mackenzie - though the newspaper article didn't refute the study's main point: The right policies could create hundreds of thousands of jobs, generate billions in government revenue and put America on a much more secure energy course.

The latest discordant note comes from the Council on Foreign Relations' Michael Levi, who writes that Wood Mackenzie's jobs projections are inflated because he believes the pro-development policies detailed in the study are unlikely. Basically, it's the same angle taken by CNN's "Truth Squad" a couple of weeks ago, discussed here.

We'll say the same thing to Michael that we said to the "Truth Squad": Thanks.

Thanks for underscoring the need for policy change, because this kind of job creation depends on fundamental shifts in policy. New, pro-development energy strategies are the key to unlocking the oil and natural gas industry's job-creating, government revenue-raising power.

Basically, Levi discounts Wood Mackenzie's jobs numbers for two reasons: a) because Congress and selected states would have to sign off on policy changes to allow the access to resources needed to create those jobs; and b) because he believes the consultant wrongly assumed the administration's regulatory policies will continue to restrict energy development.

We've always said the Wood Mackenzie numbers were about possibilities, about what industry could do - if given access to resources that currently are off-limits, if full utilization of Canadian oil sands occurred, if the nation returned to pre-2010 permitting levels in the Gulf of Mexico and if the development of natural gas and oil from shale continued to grow without overregulation. That's a lot of "ifs." Lots of policy would need changing - but then maybe 14 million people out of work is a fertile environment for such change.

Levi's point about Wood Mackenzie's assumptions is a little complicated: He says Wood Mackenzie overstates our industry's job-creating potential by assuming the administration's future environmental policies will be stringent. Levi apparently doesn't believe they will. He argues job growth will be higher under existing policy (which Wood Mackenzie says will allow a slight production increase) - reducing the number of jobs that could be created with pro-development policies, in addition to that status quo baseline. Follow?

We think Levi's too optimistic. Wood Mackenzie looked at the administration's past performance to project its future behavior. The administration's drilling moratorium in the Gulf of Mexico cut exploration and production, and although activity is increasing it's still behind pre-2010 levels. Sure, the administration's approach could change, which would be great. But right now it's not unreasonable to say that past usually is prologue, which means Wood Mackenzie is on sound footing when it projects job growth under policies that increase energy access.

But even so, assuming that Levi is correct and the administration does change its approach, what does that mean? It means that oil and natural gas will continue to be a great job creator. Which is, again, exactly our point. It might be a nice D.C. parlor game to debate whether the numbers are "status quo policy jobs" jobs, or "pro-development policy jobs," but for the rest of the country they are simply known as "new jobs."

Levi also treks down the same road as the Post when he implies that there's something devious in saying that industry's direct job growth (from increased access) will be accompanied by indirect or "induced" job growth. The concept of induced jobs is common in economic modeling, as API President and CEO Jack Gerard wrote in a letter to the Post editor, "used for almost 40 years by private and government economic forecasters - the Obama administration and our industry's critics among them." In addition, the multipliers used by Wood Mackenzie to estimate the indirect and induced jobs were conservative.

As noted last week, a million new jobs are a million new jobs. More Americans working is good for America, whether they're drilling rig workers and pipefitters, or receptionists and gasoline station cashiers.

But, getting back to Levi, it will require policy change, leading to the critical question: When do we start?

Update: Michael Levi responds on Twitter here and here: There's a reason I didn't go after the API study when it came out. It had nuances that Perry has discarded. Those matter...Of course, we also have genuine disagreements over where Obama policy is headed.