Natural gas could revolutionize New Mexico’s economy. The fuel of which New Mexico is among the nation’s leading producers, has seen incredible growth in production with the advent of horizontal fracking and new drilling techniques resulting in a 25 percent increase in US production since just 2007.

The advent of cheap, plentiful natural gas has caused production and drilling to decline temporarily here in New Mexico, but the trend holds great opportunity for our state as well. Why is cheap, plentiful natural gas a good thing?

• It’s relatively green. Compared to coal, natural gas generates less than half of the carbon and a fraction of the sulfur dioxide, nitrogen oxides, and particles such as ash;
• It could drive a rebirth of American industry. Natural gas is a feed-stock in many chemicals and plastics. Having a cheap, plentiful supply here in the US could lead to the re-shoring of manufacturers and thousands of new jobs, a stated goal of the Obama Administration;
• It can be exported for the economic benefit of New Mexicans and the US as a whole. Japan is just one energy-poor nation that is eager to import natural gas from producers in New Mexico as the gas currently available in many overseas markets if four times as expensive as it is here.

So, why do natural gas prices remain depressed and why have producers like ConocoPhillips said they will suspend drilling operations in New Mexico?

Simply put, there is one major road block in the way, the Obama Administration. According to Bloomberg News, President Barack Obama’s administration is currently debating whether to allow these producers to export liquefied natural gas to countries with which the U.S. has no free-trade agreement. Until the Administration makes a decision, investments in the infrastructure necessary to export large amounts of natural gas from New Mexico will not be made.

Why would Obama not support an environmental win that could also boost the economies of New Mexico and several other natural gas-producing states?

Simply put, it’s an unholy alliance of “Big Business” and “Big Green”. Big business which includes Dow Chemical likes the concept of having feed stock for its products available at a fraction of the cost found overseas and, while the company supports free trade for its own products, they refuse to apply that same principle in ways that might reduce their competitive edge.

Big green groups like the Sierra Club are adamantly opposed to the fracking process which has been in use for decades. And, while natural gas is relatively clean, the group has opposed wind farms and solar projects as well and could accurately be described as simply “anti-energy.”

The point of this article is first-and-foremost to educate. New Mexicans uniquely benefit from the jobs and tax revenues associated with natural gas production and could benefit to an even greater extent if the Obama Administration embraces free trade in natural gas.

This article is meant to agitate as well. You can bet that “big business” and “big green” are swarming Capitol Hill and the White House looking to convince Washington that special favors for the few are actually beneficial to the many (when in reality that is not the case). We need average New Mexicans, the oil and gas industries, and our elected leaders including Gov. Martinez and our Congressional delegation to start making the case that free trade in natural gas will be a good thing for the Land of Enchantment and its people.

Our state has been poor for too long. That poverty exacerbates negative trends in areas as diverse as education, health, safety, and individual self-esteem. The boom in natural gas is a once-in-a-generation opportunity to embrace an economic trend that is clearly working in our favor. We need to demand that our representatives seize it!

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility

See the video of Ebell’s presentation this afternoon below:

Myron Ebell Discusses the economic impact of regulations in the US and New Mexico from Paul Gessing on Vimeo.

Ebell’s slides are also available. Ebell’s organization is the Competitive Enterprise Institute, a great organization.

Commentators have repeatedly asked the question “why does the unemployment remain elevated?” While there are literally hundreds of significant factors, one of the most important is how our various political leaders choose to regulate and over-regulate the job market. John Goodman has an excellent article today that details some of the reasons (new and old) for elevated unemployment rates (and, even more importantly, depressed work force participation rates) as seen in the chart below.

What can be done? Simply put, when you are in a hole, stop digging! Stop enacting additional rules and regulations that pile costs on top of the rules and regulations already in existence. You can sign a petition to stop a proposed hike in the Bernalillo County minimum wage. Also, send an email to all County Commissioners at: commission@bernco.gov

Of course, while I am not holding my breath waiting for Washington to act to liberate the job market, there are several things that can be done right here in New Mexico that would help put people back to work. Check here, here, here, and here for some specifics.

Congress and the Obama Administration are on the prowl for ever-higher tax revenues. As I pointed out earlier this week, they are so averse to cutting spending that they are instead stealing royalties payments from the states.

The Obama Administration is not only looking to attack oil and gas producing states, it is also hoping to raise taxes on the industry by denying it a deduction that is currently available to ALL industries. If the Administration and Congress were attacking this particular deduction as part of a broader, fairer tax reform, that would be a point of discussion, but this attack is about the industry and raising taxes, not about the merits or demerits of a specific tax policy.

The National Taxpayers Union has sponsored this website to help get average citizens engaged on the issue. Tell Udall and Heinrich what you think about this tax grab that will disproportionately harm New Mexico’s economy.

Should teachers and administrators be armed in schools and classrooms? I don’t know. The ideas seems to have merit, but it could certainly have drawbacks as well. I’d like to see local schools experiment with various policies. My hope is that such experimentation would lead to “best practices” that would bring about policies that benefit students and school employees alike, keeping them safe from mass-shootings while also reducing the discomfort of having gun-toting officers patrolling the schools.

Unfortunately, the unique power of the government school monopoly and the unions has eliminated the possibility for such innovation and experimentation. So, if you think the NRA is on to something with its proposals, you are out of luck. If you are a teacher or administrator who’d like to be armed, sorry, the union speaks for you and all teachers/administrators.

The gun issue is only the latest education controversy to have one-size-fits-all “solutions” dictated by unions and government bureaucrats rather than parent and student preference.

See the KOB-TV story on the gun issue below:

Albuquerque Business First ran a column poo-pooing the notion that the boom in natural gas production could lead to more jobs and economic growth nationwide.

This may indeed be the case for now and it is certainly true that manufacturing doesn’t employ as many people as it did in the past (largely due to technological innovation), but it doesn’t follow that the natural gas boom is lacking in impact or that it could not have a major impact on the economies of both New Mexico and America as a whole.

For starters, Japan is desperate to buy our cheap, clean natural gas (especially from New Mexico). Unfortunately, regulatory issues in Washington (and indecision on the part of the Obama Administration) have delayed investments needed to truly unleash the natural gas boom.

The point is that sometimes economic changes take a long time to flower especially when government is involved. Maybe the boom won’t be in domestic manufacturing, but will come about in the form of more drilling and exports. If so, that is the free market at work. Oh, and this boom will be especially beneficial to New Mexicans in terms of both jobs created and economic growth.

You can read a bit about the Tombsstone case from the Cato Institute or Goldwater Institute (the state-based free market think tank in Arizona which brought the case). The case involves the US Forest Service’s refusal to allow the town of Tombstone to use modern equipment to repair a water line that serves the town.

The full brief from ourselves and the other signatories can be found here.

Check out the following video from Fox and Friends which explains the issues in the case:

The following chart shows where each dollar of federal taxes collected is spent:

It may be surprising to note that Social Security and Medicare are not at the top of the chart, but those programs are primarily fast-growing “unfunded liabilities” (totaling $87 trillion) at this point. In other words, America has been running $1 trillion-plus annual deficits and the problems of Medicare and Social Security haven’t really impacted the budget yet.

This is why we need to reduce spending at all levels in Washington and do so now. Of course, the Obama Administration would rather cut royalties payments to states like New Mexico rather than actually reducing federal spending.

Stephanie Maez of the left-liberal Center for Civic Policy makes several reasonable points about the process that hatched the big tax compromise at the end of the 2013 legislative session. I don’t think anyone would say that the process was ideal.

But there’s no doubt that the liberals would have been the first to scream and blame Gov. Martinez if Intel had decided to close up shop in Rio Rancho and move over to more tax-friendly Arizona where the company already has several large factories.

True, the Legislature should have just gone along with the tax cuts (the combined impact of the corporate income tax cuts and optional single sales factor reporting will be $100 million in FY 2017). After all, those tax cuts combined are less than half the size of the annual spending increase contained in this year’s budget.

So, the questions remains: what would the “progressives” do? Further raise the job-killing minimum wage? Throw even more money at the film industry? Waste money on pre-pre-pre K when our existing government schools are failing and the data on pre-k is indeterminate at best? Allow one or New Mexico’s largest and best-paying private sector employers leave?

The legislative process is ugly and becomes increasingly difficult when it is split on partisan lines and in terms of outlook. The hard left will criticize the process with some justification, but the truth is that their ideas have failed New Mexico for decades.

Folks in one area of Albuquerque are currently embroiled in a heated debate over whether kids one one side or another of an arbitrary line should be able to go to a particular school. The Albuquerque Journal has editorialized in favor of onerous annual proof of residency checks for Albuquerque Public Schools to make sure that “the right kids” are going to “the right schools.”

What a joke! Why should where you live have anything to do with where you go to school and how good of an education you can get?

The principled left (as opposed to the self-interested labor unions which support the status quo) has been complaining about “apartheid” in our nation’s public schools. What do you expect when the home or apartment you are able to afford also determines the quality of your child’s education?

Unfortunately, the left appears not to have any good ideas on how to improve our schools. Universal vouchers available to all kids would do the trick, but are despised by the unions. Other forms of school choice like tax credits and charter schools can help overcome the segregation (geographical, racial, and class) that is rampant in our education systems, but again, the unions often stand in the way.

It is one thing to have a disagreement over priorities. It is another thing to think one’s opinions are that of a crackpot or are downright crazy. While RGF and New Mexico Voices for Children certainly don’t agree on much (even they agree that film subsidies are a bad idea though) Nick Estes’ column in today’s Albuquerque Journal is downright nutty.

His premises are twofold: 1) budget deficits and debt don’t matter; 2) trade deficits do matter and are bad. Naturally, he is exactly wrong on both accounts.

See the chart below as a starting point:

Yes, World War II saw an incredible run-up in the national debt. Thankfully, this was a TEMPORARY situation as the debt was “invested” in defeating Imperial Japan and Nazi Germany. That’s a good investment if there ever was one. Notice what happened to the debt after the War. It went down quickly. Notably, federal spending declined dramatically after WW II which was decried at the time by Keynesians who thought it would plunge our economy into another Great Depression. It obviously did nothing of the sort. Instead, the massive resource shift from war fighting to the private sector economy drove the economic boom of the following decades.

Today’s debt is a result of decades of overspending and the design of our so-called “Entitlement” programs, specifically Medicare and Social Security. As the chart above illustrates, the debt problem will get a whole lot worse, not better, with no end in sight.

Oh, and just because “we owe it to ourselves” doesn’t make indebtedness any less problematic. The problem with debt is not in the debt itself, but the burden it places on those who must pay it back and the potential for default. Remember the housing bubble? “Owing it to ourselves” didn’t make it any less painful. Ever make a bad loan to a friend or relative? Still painful.

Estes’ 2nd point is that trade deficits DO matter. Wrong again. China and other nations with which we have trade deficits are giving us stuff and accepting dollars. When it comes down to it, I’d rather have stuff than dollar bills because you can do a lot more with stuff than those slips of money which are being printed (not bills, but just zeroes these days) by the Federal Reserve. Oh, and Estes is wrong again in stating that China is not the world’s worst currency manipulator. It is actually the USA and Ben Bernake.

UPDATE: If Mr. Estes or anyone from Voices for Children reads this column, I’d love to set up a public debate on these issues, especially the all-important government debt/deficit issue. Any reasonable time, any reasonable place. It would be great to have a public discussion on these issues.

The latest information piling on to what we already know (Albuquerque’s economy is doing poorly) comes from the center-left Brookings Institute which finds the following:

Overall recovery in the Mountain region’s largest metropolitan areas continued apace in the fourth quarter of 2012. On the Monitor’s measure of overall recovery—which takes into account changes in employment, unemployment, output, and house prices together from each metropolitan area’s respective troughs through the fourth quarter of 2012—nine Mountain-region metropolitan areas
saw no change in standing relative to peers nationally over the quarter.

A strong end to 2012 proved sufficient to advance Las Vegas ahead two full quintiles over the quarter into the second-strongest group
of performers since recession’s end. Of the metro areas with no change, Boise, Phoenix, Provo, and Salt Lake City remained among the most strongly recovering metropolitan areas in the country. Denver, Las Vegas, and Ogden followed in the second-strongest performance quintile on this composite measure. Tucson landed in the third quintile; Colorado Springs in the fourth; and Albuquerque, with the region’s slowest recovery, languished in the fifth.

Another choice quote:

Six Mountain metro areas—Boise, Denver, Ogden, Phoenix, Provo, and Salt Lake City—closed 2012 with four consecutive quarters of job growth. By contrast, employment levels in Albuquerque fell for the fourth straight quarter, by 0.2 percent in the last three months of 2012, to a new low.

While we support the recent tax compromise, the tax cuts don’t fully take effect for five years and (as we noted) the package contains several economically-harmful measures as well. The Legislature and its continued unwillingness to make New Mexico competitive is holding our state (and its largest city) back.

The Rio Grande Foundation recently hosted John Blundell for a series of talks on Margaret Thatcher and Ladies for Liberty. Video of the Thatcher presentation is below:

3-26-13 Blundell on Thatcher from Paul Gessing on Vimeo.

The Ladies for Liberty presentation can be found here:

Blundell Ladies for Liberty from Paul Gessing on Vimeo.

It is amusing and frustrating to read some of the opinion writers’ views on economics. Today we are treated to an author who states “tax cuts won’t bring more jobs.” The author argues against so-called “supply side” tax cuts on business and in favor of raising the minimum wage. He couldn’t be more wrong, but perhaps not for the reasons you might think.

Jobs are not the issue in our economy. Wealth creation is the issue. I could create millions of jobs in America overnight by banning the use of construction and farm implements. Doing all such work with shovels by hand would sure create jobs, but what would it do to our living standards? They’d go down. So, job-creation in and of itself is not a good thing.

The author mentions Henry Ford to justify the minimum wage. Ford paid his workers more because he wanted them to continue working for him and not to leave for his competitors. Ironically, the labor-saving assembly line which was invented by Ford was a huge job-killer. After all, the time and effort for one craftsman to make a car from hand would be immeasurable. The assembly line created tremendous wealth by reducing the amount of time it took for cars to be built, thus creating plenty of jobs, but it is also a labor-saving-practice which cost many other people their jobs. Imagine the poor horse-and-buggy makers!

Lastly, tax cuts, while not a panacea, should reduce the “friction” involved in every day economic activity. When they are applied at high rates and tax things like income, taxes provide a disincentive to do more of a particular activity. In a federalist system like ours, New Mexico’s high corporate tax rate will chase such businesses to other states. While we’re not celebrating the relatively minor tax plan passed at the end of the legislative session, it would be folly to say that tax cuts are not good for everyone.

It has been announced that New Mexico will provide a $2.5 million tax credit and the use of city-owned land (it is unclear what subsidies will be given in terms of lease rates and/or property taxes) to facilitate the construction of a grocery store in downtown Albuquerque.

What I don’t understand is why taxpayers are subsidizing a new grocery store when there is already an existing grocery store downtown. It just doesn’t make sense. Government should not pick winners and losers by directing taxpayers’ resources to specific projects. I wonder how the owners of the current grocery store downtown feel about having a taxpayer-financed competitor? Also, if there was a market demand for more supermarkets in downtown Albuquerque, wouldn’t someone have built it already (absent, that is, from government interference?)

It is time to tell Mayor Berry, City Council, and our state leaders that this is not a wise use of scarce tax dollars.

Despite an abject lack of progress on Right to Work during the 2013 legislative session, the push for a Right to Work law in New Mexico (begun most recently by RGF) seems to be gaining steam. Mark Mix, the head of National Right to Work made a return visit to the Land of Enchantment which was written up in Albuquerque Business First.

We have done the research on the potential economic benefits of such a law. If we’d adopted a law during the 2013 legislative session:

By 2020, New Mexico would have 42,300 more people working as a right-to-work state,
with more that 2,000 in increased manufacturing employment.

By 2020, the state’s personal income would be nearly $5 billion higher and wage and
salary income would be $2.2 billion higher.

And, of course we welcome the support of NAIOP, Mayor Berry, and business and community leaders across the political spectrum. Of course, this Legislature can’t pass even modest tax reforms without raising taxes and increasing subsidies elsewhere. Game-changing free market reforms like Right to Work are simply too much for this Legislature to consider.

How else do you explain his refusal to bring legislation to a vote that would have preserved $5.5 million in federal funding for Temporary Assistance for Needy Families (TANF).

The bill, HB 12, breezed through the House on a 63-0 vote, yet Sanchez never brought the bill to the floor for a vote and even was the lone vote against it in the Senate Committee that heard it.

Now, there are certainly dozens of other policies that New Mexico’s Legislature has enacted over the years that continue to keep us poor, but if you believe in government welfare as Sanchez clearly does, how can you not push HB 12 through the Legislature?

If you haven’t already gotten your tickets to our exciting events on Monday and Tuesday, please do so here for lunch, here for our Santa Fe reception, and here for our Albuquerque breakfast.

However, we have another upcoming event coming up soon. Information on that follows (note that it is at the Marriott on Louisiana, not at the Pyramid off I-25):

One of the nation's leading experts on how over-regulation is choking off productivity and economic growth will be speaking in Albuquerque on Friday April 5th and you are invited.

Myron Ebell is Director of the Center of Energy and Environment at the Competitive Enterprise Institute (CEI). Ebell will speak from 12:00 noon to 1:00PM on Friday, April 5th, at the Marriott Hotel uptown (at Louisiana Blvd. NE and Interstate 40).

Cost of this event is $25 if you register before April 1, 2013 and $35 thereafter. You can pay online here or send a check noting that it is for the Myron Ebell event and listing the attendee names to: PO Box 40336, Albuquerque, NM 87196.

Mr. Ebell will give chapter on verse on how over-regulation such as the Dodd-Frank financial regulation, the Environmental Protection Agency, and the so-called "Affordable Care Act", among many others, are ill-founded, illogical and counter-productive, hindering a robust free enterprise market which can benefit all citizens.

Further, Mr. Ebell will address energy regulations due to the importance of energy to the nation and to New Mexico, a state with vast energy reserves. He is regarded as a national leader in challenging global warming assumptions, and was active in battling the proposed "cap and trade" congressional bill (that was defeated).

The event is hosted jointly by the New Mexico Prosperity Project, Citizens Alliance for Responsible Energy, and the Rio Grande Foundation.

Nobody reported on it, nobody talked about it. It got bi-partisan support. Now it is the law of the land.

Unfortunately, it has the potential to do incredible harm to New Mexico businesses. The bill was HB 216, the Fair Pay for Women Act. Who could be against that? After all, according to the folks who track such things, women earn about 77 percent of what men make. So, there oughta be a law, right?

Of course, as Reason Magazine points out, women make different job choices, take time off to raise children, and work fewer hours than men. All of those differences add up to significant salary “discrimination.”

So, it is now New Mexico law that “In addition to any judgment awarded to the plaintiff or plaintiffs, allow costs of the action and reasonable attorney fees to be paid by the defendant. In any new proceedings brought pursuant to the provisions of this section, the employee shall not be required to pay any filing fee or other court costs necessarily incurred in such proceedings.”

The potential for cases to be brought forth goes back up to six years, so if someone suddenly decides they were discriminated against five years ago, they can come back on their employer, take them to court, and force the employer to pay all of their legal costs. This is a disaster waiting to happen. UPDATE: some small good news is that the bill was changed before passage to state that suits “could be brought no later than two years from the last date of the employee’s employment.”

We at the Rio Grande Foundation apologize for not finding this before it was too late, but we wonder how such a business-unfriendly piece of legislation managed to pass through the Legislature with so little opposition.

Education Retirement Board member Brad Day has a must-read column in today’s Albuquerque Journal in which he outlines the sorry state of New Mexico’s pension system and how the situation is both getting to the point at which it will be irreparable and how the unions and the groups in charge of maintaining the system would prefer to stick it to the taxpayer rather than actually make these systems sustainable.

The pension bills passed this session may slow the bleeding, but more transformative changes like a shift to a defined-contribution system are needed.

Interestingly enough, a shift away from defined benefit to defined contribution, 401K plans, was recently approved by 83% of Boeing’s engineers. I don’t know all of the particulars of the negotiations and Boeing is obviously a private company, but it is possible to convince workers of the benefits of controlling one’s own retirement as opposed to relying on a business or government’s investments.

I’ve had a few opportunities to discuss the recent legislative session recently. This one was done with Mike Jaxson of KSVP radio as the session came down the stretch. I followed up with a second interview focusing on some of the last-minute tax deals made as the session concluded.

Lastly, I’ll be on with Bob Clark on 770 KKOB on Monday, March 25th from 9am to 10am to discuss the last-minute tax deal.

Gov. Martinez initially threatened to veto the budget passed during the recently-completed legislative session. The issues involved her priorities of “merit pay” for high-performing teachers and the 1% pay raise for government workers.

We support Gov. Martinez on both the teacher pay and the overall government employee pay issues, but more importantly, we don’t see how New Mexico can sustainably increase its budget by 4.4 percent in a single year with anemic national economic growth and an even more anemic New Mexico economy. How do we expect to generate enough revenue to pay the bills?

In summary, it would behoove New Mexicans if Gov. Martinez vetoed the budget or at least went in with a scalpel to take out some line-items that would bring annual growth down to 3 percent or less which is at least close to the combined effects of inflation and population growth on a year-over-year basis. It seems that her success in getting some corporate income tax cuts may have tempered her enthusiasm about vetoing the entire budget, but 4.4 percent spending growth at a time when the US economy is expected to grow by only 2.4 percent seems hard to sustain.

The sequester has been in effect for a few weeks now and, despite President Obama’s histrionics (and those of some Neoconservatives), the world has not come to an end. That said, some small reductions in government spending have taken place like the plowing of the main road into and out of Yellowstone.

Guess what? With a clear market incentive (tourist dollars), local chamber of commerce types stepped up to the plate and are paying the $70,000 or so to plow the roads! Imagine what other government activities the private sector could handle were it not regulated and taxed into oblivion by the overweening hand of government…road building and operation, air traffic control, trash collection, golf course maintenance, grounds keeping and building repair, and railroad operation (Amtrak), just to name a few.

In the waning hours of the 2013 New Mexico legislative session a compromise was achieved on certain tax policies that received a good deal of attention. The compromise does include one of Gov. Martinez’s top priorities (cutting the corporate income tax albeit from 7.6 percent to 5.9 percent over five years rather than going to 4.9 percent.

If that were the sum total of the legislation, we at RGF would be cheering the business-friendly change, but alas, that is only one part of the bill.

Additionally, the proposal revives the so-called “Breaking Bad” bill which we trashed recently. Again, the big hangup is that the proposal essentially expands the pool of money available for subsidies by carrying unused subsidy money (annual subsidies are up to $50 million) over from year-to-year. But this is not the worst part…

The worst aspect of the bill is that over time it eliminates “hold harmless” distributions to cities and counties over 15 years. Worse, it limits flexibility of local governments to apply those taxes to food or medical services. This is a gross receipts tax hike in waiting for New Mexico taxpayers.

Other provisions in the bill include a tightening of existing tax breaks such as the high wage tax credit (not a bad thing in exchange for lower taxes); allowing a single sales factor (a good thing), and mandatory combined reporting for “big-box” stores (not a good thing).

So, is this a good compromise? I think it is good enough to sign, but it is hardly the sort of “game-changing” reform that will make New Mexico a more business-friendly state. Were I the Governor, I’d probably sign the bill, but wouldn’t “take ownership” of this half-baked plan.