We all love cheap gas, don’t we? Well, maybe not everyone.
Money magazine recently published an article with the head-turning title, “Cheap oil is killing my job.” It told the story of Marcus Benson, who in 2012 moved from Philadelphia to North Dakota to take advantage of the shale boom fueling that state’s rapid economic growth. And take advantage he did. He quickly moved up the ladder from $8 to $30 an hour loading fracking sand from rail cars. With the recent plunge in oil prices, however, he has been laid off and is worried he won’t find another job before he has to move out of company-owned housing. I don’t want to downplay his misfortune. It’s genuine. But there is an important economic lesson here.
What to do now that the petrochemical goose has grown stingy with her golden eggs? Pondering that, I thought about my own family history, but more on that later.
At first glance, the story is a description of how risk, reward, and price elasticity combine to create a vibrant market process—the kind that enabled Mr. Benson to achieve 300-percent wage growth in a short period. But the kind that can also be fickle and can turn a boom into a (temporary) bust. And then the cycle starts all over again.
Supply and demand curves are not hypothetical thought experiments drawn on chalkboards, but cold, hard fact. And they apply to everything and everybody.
Changes in oil prices affect more than those directly engaged in the oil business, as domino effects cascade down supply and demand lines. Entire networks of people and institutions contribute and benefit from the complex confederation that produces barrels of oil or cubic feet of natural gas. Tugboats in the Gulf states, for example, now sit idle or empty because oil companies are not spending the money on offshore projects.
There is another side of the coin. Yes, it’s true, as one of those idle sea captains said, “This is sad because the crews of these vessels are just trying to make a living for their families back home.” But so are many others who now benefit, as consumers have more money to spend. As it is, that captain had been making $100,000 annually and is now complaining about a 10 percent pay cut.
And it’s not that Hummers and SUV sales are on the rise again now that gas is cheap. Bus drivers, taxi cabs, and tourists all benefit. Florida beaches will welcome greater influxes of Spring Breakers. Retailers are enjoying increased profits as discretionary monthly income shifts from gas stations to Walmart. And when that supply and demand curve slopes back in oil’s favor, these consumers will have restricted choices again, and Mr. Benson and boat captains may see a return to their “normal.”
But Mr. Benson need only look in the mirror to be reminded of his greatest asset—himself. Just a few years ago, he had been living in Philadelphia working odd jobs but “not doing much,” when he heard that North Dakota had the lowest unemployment rate in the U.S. So he drove 1,500 miles to get there without knowing what he’d be doing, or where he’d be living. That’s more than simply wise: It’s courageous. And if he had the guts to do it once, he can do it again.
The story of Mr. Benson is the story of modern America. In fact, I’m writing this thanks to someone else who had the gumption to pull up stakes and risk it all in a new and strange land.
In 1902, my great-Grandfather James Cormack set off from the Scottish highlands bound for a new life in the New World. Leaving his siblings and parents behind, he settled in Oregon, established a career, and returned to Scotland to marry my great-Grandmother. He could have remained in “the auld country,” but he knew where opportunity lay, so he returned to the U.S. and thus fostered my legacy of kilts, bairns, and wee drams. As he left he wrote in his diary:
[A]ll must be forsaken for a far distant country, a foreign shore, where, for an indefinite unknown period, I must sojourn among strangers, adopt a new life and form new associations…
He left behind everything and everybody, because he had a vision a dream, and an opportunity. So he took it.
Mobility and choice are among the greatest gifts of a free-enterprise system. But as my great-grandfather knew, it also brings risks. Unless you’re the local funeral home director or tax accountant, few of us have job security anymore. Creative destruction does precisely what it is supposed to do.
Marcus Benson and James Cormack lived a century apart and probably had little in common. But they knew they wanted something better and different. They understood entrepreneurial yearnings. They were willing to roll the dice, and their families benefited from their risk-taking. Mr. Benson’s will benefit again.