Adam Smith economic growth

May 9, 2015
Adam Smith Books

KeystonexlThe saga over Keystone XL is an excellent example of why rich world economies are in general slow growing at .

President Barack Obama rejected the Keystone XL oil pipeline on Friday, in a move that infuriated conservatives but will bolster his legacy on environmental issues ahead of next month’s climate change summit in Paris.

No, not because the pipeline will now not be built, not because of those climate negotiations and no, not because conservatives are unhappy about this.

The pipeline was to bring Canadian tar sands oil down to the refineries on the Gulf Coast. Very simply, refineries further north just aren’t set up to process such heavy crude. The ones on the Gulf are. So, instead of changing all the refineries, build the pipeline to get the oil to where it can be efficiently processed. And that’s really it.

Given current crude prices those tar sands are shutting down some production and the whole plan is just less important than it was. And while the plan did indeed have a positive current net present value (and thus was something that made us all generally richer) it wasn’t either as earth shattering as the proposers suggested nor as earth shattering as the environmental protestors insisted. And in something the size of the US economy something like an oil pipeline or not is always going to be a marginal decision.

The decision whether to build it or not is obviously highly interesting for those directly involved and for the rest of us very much a “Meh” question. Except for this:

Mr Obama’s announcement follows a seven-year review process

It’s worth noting that it is only phase IV of the project that has been cancelled. The other three phases are up and running. And they each took between one and two years to build.

That is, we now have a system whereby it can take 7 years to get a decision on whether one can build something which takes two years maximum to build. And that is why modern economies have a slower growth rate than they perhaps should have. Not because people aren’t allowed to do things like build oil pipelines, but because the entire economy is being strangled by red tape.

Perhaps we should have environmental regulation of the type that stops such building. Perhaps we shouldn’t: the existence or not of such regulation isn’t the problem at hand. What is the problem is that whatever the decision is it needs to be made quickly. So that either the project can be built or, if rejected, then everyone can stop their efforts at filling out paperwork and go off and do something more interesting.

We obviously do have our view of which way this decision should have gone. But that isn’t our point today. Rather, if we’re going to have a system of regulation over who may do what then it has to be an efficient system of deciding who may do what, how and when. Even to whom. Otherwise the entire economy will descend into a welter of form filling that would make C. Northcote Parkinson proud and the rest of us poorer than we need be.

Econ Made Easy - How Economic Growth Helps the Environment.
Econ Made Easy - How Economic Growth Helps the Environment.
Economic Freedom and Growth
Economic Freedom and Growth
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