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Two Underlying Economic Shifts

12:00 AM, Dec 10, 2011 • By IRWIN M. STELZER
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We all spend so much time trying to make sense of the daily data deluge—retail sales, jobs, exports, deficits, political polling—that we often overlook more durable shifts in the underlying economy. Two are worth considering.

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The woes of the financial sector have been much in the news. Bank of America will be telling 30,000 employees to clean out their desks in the next few years. Citigroup is to lay off 4,500 employees—in the jargon of the bank, these are “targeted headcount reductions in certain businesses.” “The tip of the iceberg” for a company with 267,000 employees, Nancy Bush of consultants SNL Financial told Bloomberg Businessweek. Even once omnipotent Goldman Sachs has announced some 1,000 layoffs, with more to come if rumors are to be credited.

All of this is part of a worldwide trend. Britain’s HSBC holdings will cut 30,000 jobs by the end of 2013, France’s BNP Paribas 1,400, and Italy’s UniCredit over 6,000 by 2015. And these announcements were made before Britain’s chancellor of the Exchequer George Osborne discovered that times will be tougher and for longer than he had originally thought, before France was warned that its triple-A credit rating might not prove a permanent entitlement, and before Mario Monti announced the austerity plans that will undoubtedly turn Italy’s no growth economy into a shrinking one.

All in all, over 200,000 jobs in the financial services sector have disappeared this year, more even than in 2009, when 174,000 financial industry workers were sacked. If this were in response to a transient economic factor, it would be painful, but not of long-term significance. But it isn’t. It is a structural change, a permanent unseating of the one-time masters of the universe. Marisa Di Natale, an economist at Moody’s Analytics, is forecasting that Wall Street will not regain lost jobs for more than a decade.

This permanent change is due in part to legislative restrictions on the areas in which banks will be allowed to operate and what they will be allowed to charge for various services, and in part to the new capital requirements that will make lending less profitable as more capital is needed to back the banks’ loan books. The U.S. and other world economies will sooner or later recover, but the rising tide will not raise banks’ boats.

The opposite end of the economic spectrum is occupied by the U.S. energy industry. Rarely has an industry changed so rapidly. For one thing, it is no longer fashionable to talk about running out of oil. Daniel Yergin, Pulitzer Prize-winning energy expert, argues persuasively in his latest book, The Quest, that not only have we not reached the peak of the world’s capacity to produce crude oil, we have not even reached the plateau. Since 1865, every report that we are running out of oil has been followed by the development of new technologies that postpone the day on which old fields will be exhausted, and large new discoveries. 

Consider, too, this headline in the Wall Street Journal: “U.S. Nears Milestone: Net Fuel Exporter.” Because of the economic slowdown in America, and rapid growth in emerging markets, this year marks the first time in 62 years that America will be a net exporter of gasoline, diesel and other oil-based fuels, a shift from massive importer that is not likely to be reversed for a good long while. Because the country remains dependent on its imports of nine million barrels per day of crude oil from which to refine the products we use and those we are now exporting, “the energy independence” promised by presidents from Richard Nixon to Barack Obama remains a chimera.

But we are now in a position sharply to reduce our dependence on oil from volatile and unfriendly countries. Canada is rapidly developing its massive reserves of shale oil, and only President Obama’s decision to delay approval of a new pipeline from Canada and his restrictions on domestic drilling stand in the way of a reduction of dependence on the Middle East, Venezuela, and other countries that do not wish America or its democratic allies well.

More important is the discovery that America, like other nations, including China, which last week announced the discovery of vast reserves of shale gas in Sichuan province, is sitting on almost infinite supplies of shale gas. Development of those resources is predicted by forecasters at IHS Global Insight, in a study prepared for the natural gas industry, to create 870,000 jobs in the U.S. by 2015. The stuff is everywhere, and can be produced by hydraulic fracturing, a process of forcing chemically treated water underground to break up the rock in which the gas is trapped.

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