As Oil Drilling Moratorium Ends, Idea Engine poses a Riddle

Q: Overbuilding : foreclosures :: overdrilling : ________?

In case it is not obvious; the U.S. overbuilt single-family homes before 2008- we built more than we would ever need and did it way too quickly.

Some consequences of that poor allocation of resources, which have been playing out painfully for the last couple of years, include, but are not limited to:

  • Wasted Resources – Both money and physical resources- land, timber, energy, etc.- were wasted building things we did not need, to say nothing of the opportunity cost of not using all of that great human and creative energy in other industries which are still badly in need of innovation, like education and healthcare.
  • Crash – The subsequent drop in house prices has turned many Americans upside down in what for many is their largest investment.  Many people have lost their shirts.  Not to mention the subsequent ripple effect into every other part of the economy.
  • Permanently Lost Jobs – The unemployment rate in the construction industry right now, and other supporting industries, is as high as 60-70% in some markets.  Like the whalers of the 19th century, we must face the reality that many of these jobs will never return.  Many more people trained to be concreters, architects, draftsmen, etc. than there is a sustainable level of demand to justify in the long-term market.  Even if we return to a higher sustained level of building on an annual basis, which we clearly exceeded before 2008, there are not enough jobs in construction for all of these people.  This is a real-life horror story playing out right now in the lives and families of many people who were employed by this over-inflated industry before 2008.

Like any good parent would encourage their child to do, we should of course be generalizing the lessons from that boo-boo when we talk about other overbuilt industries, which can be defined as any industry that will inevitably face a lower sustained level of demand in the future.  (Does that describe the industry that employs you?)

For example, as the White House lifts the moritorium on oil drilling the Gulf today, you will hear the jobs argument made loud and clear by Gulf state’s politicians, residents, and oil companies.  But this is a short-term view on jobs, like a home developer in SW Florida in 2007 begging City Hall to grant just one more housing permit to keep all of those contractors employed.  What else will they do if you don’t let us get back to work building more houses we will never sell?

When demand for oil is not what it is today, oil company profits will not be the only thing affected.  So why are we supporting the overproduction of oil now, when there are so many positive-return-on-investment, technologically simple, readily available options already well known for using dramatically less today?  I am not talking about solar panels on homes.  Chilled beams were used in my former office in Australia and cut the building’s energy use by more than 40% per year, and they are mostly unheard of in the U.S.

Not to belabor the point made so well by so many others, but building new industries around these innovations creates jobs too.  Why not focus on all of the good that can come from that, rather than on the negative of what more drilling means for the environment?  We’ve already proven how good we are at creating soft landings for inflated industries.

* Note: I do not intend to criticize any one individual working in either of these industries personally, but rather to critique the general trajectory their industries are on.  I know many smart, innovative people in both the energy and property industries who are the ones who have the ability to bend this trajectory with their creativity and awesome know-how.  Many of them already are.

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