Thursday, March 12, 2009

How Houston will weather the recession

Joel Kotkin has an article both on the New Geography site and in Forbes (hat tip to David) this week on how Houston will weather the recession. It's a good piece and I recommend reading the whole thing, but here are a few excerpts that appealed to me:

Until recently Texas, and particularly Houston, has been one of the last bastions of that great traditional American optimism--and for good reason. Over the past few years, Houston has outperformed every major metropolitan area on virtually every key economic indicator.

Last year, the region was rated among the major metropolitan areas as the best place for everything from earning a living to college grads to manufacturing, according to such publications as Forbes, Business Week and Kiplinger's.

From there he gets into many of the building negative economic indicators as Houston gets dragged down with the rest of the country. Then he gets into Obama policies that are actually discouraging domestic energy production and moving us away from energy independence, instead of towards it - and how Mayor White, who was on the short list for Energy Secretary, is trying to steer them back towards embracing domestic oil and gas, the only realistic short-to-medium term alternative. Continuing:

Yet even if the green Torquemadas have their way, White thinks Houstonians will find a way to keep their city ahead of the country's other urban sad sacks. Throughout the expansion of recent years, when other cities went on insane spending sprees, Houston has kept the cost of services low and focused on basic infrastructure. Critically, Houston is also among the few big cities that has streamlined its pensions for public employees.


So despite all the problems surrounding energy and the encroaching recession, Houstonians continue to be cautiously optimistic about their future.

They still excel at all the hallmarks of a progressive economy, such as improving both road and rail transport, reforming the school system and working to expand new industries, such as medical services, that have not yet been targeted by the Obamamians.

To be sure, Houston, which missed the Bush recession, is beginning to feel the pain during the new administration's watch. But Houstonians long have displayed remarkable grit and creativity in the face of tough times. Having survived catastrophic energy price declines, several huge hurricanes and endless humid summers, Houston is still among the best bets to survive these tough times and come out, in the end, a strong winner.

Let's hope so. Keep your fingers crossed...

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At 10:14 AM, March 13, 2009, Blogger Appetitus Rationi Pareat said...

First, Bill White as Energy Secretary will not happen. Another Texan, from the oil capital of the world, even if he is a Democrat, will not be politically palpable to the rest of the country. After eight years of Texans running everything from our energy policy to our foreign policy, I can assure you that the rest of the country is ready for a break.

Now to your larger point, clearly we are not going to be able to shift to a purely fossil-fuel-free economy anytime in the next 20-30 years. Oil and (more importantly) natural gas will still have a role into the foreseeable future. I think the point of the Obama administration and the point of administrations in essentially every other major post-industrial country is that we need to start moving away from fossil-fuel based fuels, whether they be domestically produced or international imports. What that means is reducing the tax incentives and subsidies on, for example, oil exploration and shifting those incentives to wind, solar and other alternatives.

But I think the point about nuclear power in the article is a little off base. First, Houston is primarily an oil-based city and oil is an increasingly rare fuel for electric generation here in the US. Oil is primarily used in cars and the chemical industry. The chemical industry will likely continue to be an important part of our economy going forward. Now, oil as a fuel for cars is probably another issue. I foresee some type of increase in fuel duties to pay for infrastructure improvements. This will of course affect the demand for gasoline. Additionally, although it might not seem like it here in Texas, Americans are increasingly turning away from gas-guzzling behemoths. GM and Ford, two companies that have essentially been buoyed by demand for these vehicles, are on the verge of oblivion. I would not be surprised if we see a “gas guzzler” tax in the near future from the federal government as has happened in basically every other country. Finally, again you may not realize it living in Houston, but there is a national movement for smart-growth, smaller homes, less sprawl, and more pedestrian-oriented development. All this will negatively affect the demand for oil. Couple this with an almost certainty of electric cars in the near future and all this could seriously damage the long-term economy of an oil-dependant Houston. Thankfully, the city seems to have diversified (i.e. health care, education, etc.). What I would like to see is more work attracting clean energy companies from Europe.

At 9:27 PM, March 15, 2009, Blogger Brian Shelley said...

It will be interesting to see if oil prices continue their slow upward climb. The prices are edging towards upper 40s, rebounding from the mid 30s.

At 10:26 AM, March 16, 2009, Anonymous Anonymous said...


The key to understanding oil markets is that both the world supply curves and world demand curves for oil are both pretty inelastic, or they are in the short run. A guy like you should be able to work out what that means for the price of oil and why it goes up and down the way it does.


At 12:48 PM, March 18, 2009, Anonymous Anonymous said...

Neal, you must be a very rich man if you know how oil goes up and down to the extent that you don't have to wonder, like Brian, if it will continue going up. It leads one to wonder why you would waste time posting on this little blog.


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