April 02, 2013
It’s always fun when major news outlets look at the same economic situation and come up with directly opposite conclusions. Hence we had the Washington Post telling readers,
“European industry flocks to U.S. to take advantage of cheaper gas,”
on the same day that the NYT had a piece headlined,
“Rumors of a cheap-energy jobs boom remain just that.”
When it comes to data, the NYT clearly wins the case. The Post piece has people whining about high gas prices in Europe, but little evidence of jobs actually coming to the United States. The NYT piece makes the obvious point that in most industries gas prices are a small share of total costs. Even in the most energy intensive industries labor is almost certain to be a higher share of total costs than natural gas.
Furthermore, the drop in gas prices in the U.S. is likely to be reflected elsewhere. This means that third countries that have cheaper labor, like Mexico, are also likely to have comparable natural gas prices.
In fact, the large differences in prices between the United States and Europe that are the central feature of the Post article are not likely to persist since the United States is likely to export surplus gas to Europe. The Post notes the likely impact of exports on U.S. natural gas prices, but it doesn’t acknowledge their likely impact on prices in Europe. While the Post may have missed this tendency towards equalizing prices through trade, manufacturers that are considering moving their operations almost certainly are aware of this likely outcome.
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