The Daily Reckoning October 30th

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In Praise of Gridlock

I want gridlock. If the House of Representatives and the Senate both go Republican, as I expect they will, then the best chance for political paralysis may be a hostile Democrat in the White House. I want an angry Congress and a president with fingers itching to veto.

Ironically, a second-term presidency for Obama could well be America’s shining hope for fewer laws in the next four years. And less law is a situation to be devoutly desired, especially since it would come with a weakened presidency.

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Political gridlock is a safeguard of freedom, and a constitutional restraint that the Founding Fathers consciously tried to place on power.

IN PRAISE OF AMERICAN GRIDLOCK

Political gridlock generally occurs in one of four ways: Congress is evenly enough divided so that no one party has the majority needed to push laws through; one legislature is Republican while the other is Democrat; the majority in the Senate is not large enough to overcome a filibuster; or,Congress and the executive are controlled by different parties. The opposite of political gridlock occurs when one party has across-the-board control.

Such a consensus of power produces strong or activist presidents. For example, both Franklin D. Roosevelt, who forged the New Deal, and Lyndon B. Johnson, who created the Great Society, had the advantage of one-party control during the entirety of their terms. This means they were able to push through sweeping social change that laid the foundation for much of today’s social control.

According to historian Bruce Bartlett, from 1856-2010, there were 91 years during which one party controlled the White House, Senate, and House of Representatives, There were 63 years during which power was shared. In other words, 59% of the time, the United States has had a consensus of power.

The Founding Fathers would have been appalled. They consciously sculpted a political structure in which power would be balanced or antagonistic so that there would be a high bar for the passage of law.

The most obvious check on power is the tripartite separation of power. During the Constitutional Convention of 1787, the delegates explicitly considered and rejected a parliamentary system similar to that of Great Britain. In that system, the prime minister heads the executive branch and, as a member of Parliament, also heads the governing party. Passing laws is comparatively easy.

Instead of a parliamentary system, however, the Constitutional Convention adopted a tripartite division of power. Three branches of government were given independent powers and responsibilities that act as restraints on each other: the executive, the legislature, and the judiciary. For example, while Congress controls the federal budget, the president can veto bills passed by Congress. In turn, Congress can override the presidential veto by a two-thirds vote in both houses. This makes it more difficult to pass and to enforce laws. (Some consider the American system to be a four-way division of power because of the bicameral Congress in which the two legislative houses often obstruct each other.)

Even the structure of the electoral process itself facilitates a check on power. The Federalist Papers, o 51 is titled “The Structure of the Government Must Furnish the Proper Checks and Balances Between the Different Departments.” In the essay, the constitutional architect James Madison highlights the danger that the legislative authority would dominate.

“The remedy for this inconveniency,” he concludes, “is to divide the legislature into different branches; and to render them, by different modes of election and different principles of action, as little connected with each other as the nature of their common functions and their common dependence on the society will admit.”

The executive and the legislature come from entirely different electorates, so those chosen are more likely to be diverse. Midterm elections ensure that most of the legislature comes to power at a different time than the president, so the elections act as a check on an unpopular leader. hat was the purpose of Madison’s “different principles of action”? To protect minorities from oppression by the majority, and no minority requires protection more than “the individual.”

From the juxtaposition of states’ rights and federal power to a political distribution that gives the same number of Senate seats to California as it does to Rhode Island, a salutary tendency toward gridlock is at the root of American government. The tendency has been strengthened by additions like the filibuster rule in the Senate. This rule allows a senator, or a series of them, to speak on the floor for as long as they wish unless or until “three-fifths of the senators duly chosen and sworn” bring the process to a close.

ADVANTAGES OF GRIDLOCK

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Sometimes, actions that not taken are more significant and advantageous than the ones that are. For example, if even one legislative house and the president are at loggerheads, then budgets are less likely to be passed and the deficit may cease to climb at its present rate. Stephen Slivinski writes in the Washington Examiner (Sept. 15, 2010):

“Between 1965-2009, the average growth rate of real per capita federal spending in the divided-government years [one House versus the presidency] was 1.9%. For the years of united government, that average was 3.1%…. The take-home message for fiscal conservatives? If it’s a bad idea to put your faith in politicians, the good news is you can probably put a decent amount of faith in institutional gridlock.”

Yet political gridlock is most often discussed as a sign of dysfunctional government. In a 2011 hearing of the Senate Judiciary Committee, Justice Antonin Scalia offered a refreshing rebuttal of the dysfunctional claim:

“I hear Americans saying this nowadays, and there’s a lot of it going around. They talk about a dysfunctional government because there’s disagreement — and the Framers would have said, ‘Yes! That’s exactly the way we set it up. We wanted this to be power contradicting power’ because the main ill that beset us, as Hamilton said in The Federalist, when he talked about a separate Senate, he said, yes, it seems inconvenient, but inasmuch as the main ill that besets us is an excess of legislation, it won’t be so bad. This is 1787; he didn’t know what an excess of legislation was.”

We do.

And that’s why — even though I long for a fresh face to detest and long for a world without democratically elected dictators — there might be good reasons to prefer Obama over Romney as the next president.

Regards,
Wendy McElroy

Original article posted on Laissez-Faire Today

In Praise of Gridlock appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

Fracking Regulation And Its Impact On America’s Energy Boom

Come the night of November 6 (just a week from now), we’ll likely know a lot more about our nation’s energy future.

Will it be four more years of President Obama? Or will a new captain grab the helm of the U.S. ship of state? And what of the House and Senate races? And the many other state and local elections down the tickets across the country.

In my view, the elections matter. At least, it all matters for resource investing, which is our beat…

On that point, and in the event that President Obama wins a second term, I have it on good authority that the Environmental Protection Agency (EPA) will move aggressively to tighten controls over oil field fracking — the technique of using high-pressure fluids to fracture and break up deeply buried rocks to liberate natural gas and oil.

From what I know, certain EPA regulators are champing at the bit to increase federal regulation over fracking. They have their reasons. And on this topic, there’s none of that oft-mocked bureaucratic lethargy. The spirit of the fracking-control people is like that of horses in the prize race of the Kentucky Derby. They can’t wait to hear the bell and take off at a gallop — after the election, of course.

In fact, many of EPA’s new anti-fracking regulations are already drafted. They’re on the hard drives, awaiting the dawn’s early light of a second Obama term. Right now, it’s only a question of eager EPA myrmidons tweaking the edges of their efforts and then placing new regs into effect. Just thought I’d mention it.

Meanwhile, out in the real world — EPA regulation or no — fracking is a revolutionary, disruptive form of energy technology. Fracking can liberate all manner of hydrocarbon molecules that are otherwise locked up in tight rocks. Done right, fracking can lead to improved energy supply, stable (or lower) energy prices and better security for the nation.

It takes capital and energy to make capital and energy. But basically, fracking yields energy. Energy is power in every sense — which is why some people hate fracking, I suppose.

I’m reminded of something that Pennsylvania Gov. Tom Corbett told me a while back. He said, “It’s good that fracking developed far away, out in the wilds, under the radar screen, with the oil industry paying the costs. Nobody in the political class knew it was there. So nobody thought about taxing or regulating fracking until it became a successful, moneymaking technique.”

Then again, there’s plenty more to understand about fracking. Think of fracking as offering access to oil and gas that you simply could not recover with previous drilling and completion methods. Fracking is a means to create vast new wealth.

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But sad to say, fracking is not cheap, low-tech, low impact or in any way “easy.” Indeed, the energy industry drills and fracks complex wells because the “easy” stuff is long gone.

Overall, fracking is expensive. Speaking broadly, a directionally drilled well, with multistage completions, costs five-10 times what you’d pay for an old-fashioned “vertical” well. In other words, what used to be, say, a $1 million well now costs $5-10 million of upfront capex.

Plus, the decline curve of most fracked wells tends to be steeper than is the case with traditional wells. That is, with fracked wells, the volume of gas and/or oil output declines faster and sooner than is the experience with wells of the past.

Drillers have been putting equipment and energy down well bores since the 1860s and the early “Roberts Torpedo Gun” from the historic days of Titusville. Closer to the present, the energy industry has been using high-pressure fluids to fracture formations downhole since the 1940s. Thus, the idea of using high pressure to shatter rock and increase hydrocarbon flow rates from liberated surface area is not exactly new.

But when it comes to the contemporary concept of fracking — fracking as we know it today — the energy industry has less than a decade of experience with widespread use. The history is that modern fracking began in a big way in the early 2000s, with the Barnett Shale of Texas. Right now, a decade into things, it’s fair to say that industry is experiencing decline curves in the nature of two-four times faster than with traditional wells. (Some wells are better than others.)

Even more practically, last week, I saw troubling news from a “frontier” fracking region — Ohio, of all places. According to EnerVest Ltd., the largest oil and gas producer in the Buckeye State, the Utica Formation in central Ohio lacks sufficient reservoir energy to move crude oil from the rocks to the surface.

The Utica is one of the great hopes for new energy development in the U.S. The Utica may hold 5.5 or more billion barrels of oil, according to the Ohio Geological Survey. But this play is based almost entirely on fracking. So with low pressures (possibly) across the region in the Utica rocks, it means that future development will require increased costs for subsurface completions, plus long-term pumping and lifting equipment.

No, it’s not a showstopper if you have to use pump jacks and other specialized well equipment to coax crude to the surface. But the issue adds to the cost and complexity of operations every step of the way. Low formation pressures impact the economics.

I’ll sum up by saying that even the “good” case for fracking ought to make you stop and think. Fracked wells tend to cost five times what wells used to cost, and then your well depletes twice as fast. That makes for a factor of 10 in terms of reduced investment efficiency.

This all gets into the idea of the long-term decline of “energy returned on energy invested” (EROEI), which I’ve discussed before. It means that the Peak Oil idea is still alive and well and remains a useful tool for evaluating energy output and looking toward future energy supplies.

In the end, whether its EPA regulation or basic economics and EROEI, there’s nothing easy about modern energy development. You have to think long term. You have to be willing to let capital flow to the best ideas.

That’s all for now. Thanks for reading.

Byron King

Original article posted on Daily Resource Hunter

Fracking Regulation And Its Impact On America’s Energy Boom appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

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avatarThe Daily Reckoning - The Daily Reckoning posted Tuesday, October 30th, 2012.

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