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Oil Drilling Myths Exposed By Paul Krugman

New York Times economics writer and Nobel laureate Paul Krugman analyzes two major reasons for increasing oil drilling - reducing unemployment and lowering gas prices, and describes why it does neither.
March 20, 2012, 5am PDT | Irvin Dawid
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Paul Krugman asserts, "The irony here is that these claims (of reducing oil prices and unemployment) come just as events are confirming what everyone who did the math already knew, namely, that U.S. energy policy has very little effect either on oil prices or on overall U.S. employment".

Acknowledging how fracking has increased both oil and natural gas production, he also notes that the increased natural gas supply has caused those prices to plummet, yet oil prices continue to rise.

Krugman repeats what others have stated - oil is priced on international markets, while natural gas prices are set domestically. Factors outside of supply and demand are at work, including rising demand from China and Mideast tensions that raise the price due to speculation. However, Krugman himself argued against blaming speculators for the rapid increase in oil prices in June, 2008.

Next, Krugman turns to what is now the third largest oil producing state, North Dakota, having just replaced California where oil production is on the wane. North Dakota enjoys the nation's lowest unemployment rate, largely attributed to the booming oil drilling in the Bakken shale rock formation.

"I have to admit that I started laughing when I saw the Wall Street Journal offering North Dakota as a role model. Yes, the oil boom there has pushed unemployment down to 3.2 percent, but that's only possible because the whole state has fewer residents than metropolitan Albany.

The comparable-sized fracking boom in Pennsylvania has had hardly any effect on the state's overall employment picture, because, in the end, not that many jobs are involved."

Thanks to Kenyon Karl

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Published on Thursday, March 15, 2012 in The New York Times - The Opinion Pages
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