The nation's economy may have just received the fuel it needs to accelerate growth. The recently released World Energy Outlook report by the International Energy Agency brings the decades-old dream of American energy independence one step closer to reality.
Advancements in hydraulic fracturing, or fracking, have freed up a tremendous amount of previously inaccessible, or uneconomical, oil and natural gas plays around the country. So much so that the agency predicts the United States will be a net exporter of natural gas in eight years and "almost self-sufficient in energy" by 2035.
This seismic shift in America's energy fortunes is certainly welcome news for President Obama's second-term economic recovery efforts and his stated "all of the above" energy policy. But it also has the potential to define the legacy of his presidency. Just as President Clinton presided over the Internet boom that accompanied rapid economic growth in the late '90s, the nation may be on the verge of an energy boom that will define the Obama economy -- and his presidency's legacy.
The broad parallels are glaring. Consider Clinton's first term. He began with a push to reform healthcare. Then, during midterm elections, Republicans swept into Congress and a Clinton-Gingrich stalemate ensued. His reelection served as a mandate from the American people for the President and Congress to compromise and move the country forward.
If today feels like déjà vu all over again, it's because it is. President Obama secured the healthcare reform that Clinton could not. The midterm elections that followed returned the House of Representatives to the Republicans, and the President-Speaker of the House interaction became the defining political relationship. And as President Obama stated in his post-election press conference, his only mandate came from the American people who are urging him to "work really hard to help us. Don't worry about the politics of it. Don't worry about the party interests."
This is important because without the party tensions and public mandates to cooperate, the conditions for the Internet-led economic growth of the Clinton years would have been less optimal. Clinton-Gingrich pairing led to the Telecommunications Act of 1996, which deregulated the industry and paved the way for the dot coms, and the Taxpayer Relief Act of 1997 that freed up cash that was used to invest and consume.
Likewise, the Budget Control Act of 2011, the impetus for the looming "fiscal cliff," may be sufficiently compelling to bring about the elusive Grand Bargain that will reduce the debt and deficit by increasing revenues, keep the middle class taxes low, and identify savings in entitlement programs. The deal would provide certainty for the markets and could spur the spending of cash that banks are currently stashing.
The key to success will be the regulatory structure that governs oil and gas.
The president's second act will determine whether the similarities continue, but all the ingredients are there.
If the nation makes it into 2013 having avoided sequestration, the economy will be ripe to heat up from oil and gas investments and production. The president's record has shown he is far from averse to the fossil fuel industry -- the Energy Information Administration reports oil production on public land has increased by over 200 hundred million barrels under his watch. He has openly advocated the use of American fossil fuels to carry the day until renewable energy sources are ready to bear a larger portion of the nation's energy load.
Internet growth occurred largely free of regulation. Venture capital, which was plentiful and readily available, and rather frequent dot com initial public offerings, provided the cash that these new companies burned through at alarming rates. The technology itself connected the world in a manner that allowed trade to occur at the speed of light. The move towards globalization began in earnest and the U.S. economy reaped the rewards. GDP growth accelerated, unemployment was just over 4 percent, and budget surpluses were the rule.
We all know what happened next. The Internet bubble burst due to the lack of regulation and unchecked speculation. This can happen to Obama's energy economy too, so a new era of prosperity is not a slam dunk. This is why the president's next steps are critical.
At some point in the last several years, the term "regulation" became a pejorative. The country has just emerged from a recession that can be largely attributed to lax regulations in the financial sectors. Reports are surfacing of oil and gas companies not bound by sound regulations causing detrimental effects on local communities surrounding large shale plays -- like the small town of Dimock, Pennsylvania where residents could light their tap water on fire.
If smart regulations -- the operative word is smart -- are set to govern the growing American fossil fuel industry, the associated environmental concerns, and the banking practices that avail investment dollars and fiscally sound business models, the president will have overseen a monumental turnaround of the national economy in a manner that is sustainable for decades to come.
Such a thoughtful approach will not only avoid the ballooning and bursting of an energy bubble, but it will etch his name in the pantheon of Democratic presidents and leave the country on sound footing for the century.
Theodore R. Johnson is a naval officer and served as a White House Fellow in the Department of Energy. The views expressed in this article are his own.