I just read an interesting article titled, “Could cheap gas save the economy?”  It’s by Martin Neil Baily, a senior fellow at the Brookings Institution and Chairman of the Council of Economic Advisors under President Clinton (CNN Money June 27).

Baily’s brief piece supports Over a Barrel conclusions (in earlier blogs) that cheaper natural gas could help boost America’s economy. His observation  that “America’s unique government structure in which many powers remain with the state, along with a very competitive market for the product, as opposed to the monopolies and oligopolies that control the market in almost every other country” will help assure lower natural gas costs is insightful.

Baily notes that the Energy Information Administration predicts that natural gas will be “only a quarter or a fifth of the cost of oil through 2030.” He suggests that the boom in natural gas will continue, as markets shake out. Cheap gas will serve the economy well and is already spurring investment. Like the good analyst Baily is, he notes that the changing fortunes of oil are not a result of the tax advantages given to oil companies. Oil companies stopped drilling on shore in a major way some time ago to “find big fields in other countries or offshore.”

According to Baily, only the environmental issues surrounding fracking could slow down natural gas drilling and a viable natural gas market in the future. “If disputes over fracking are not resolved in a way that addresses the public’s concerns,” the long term economic and, indeed, environmental advantages of natural gas could be muted significantly. After discussions with both environmentalists and natural gas folks, Over a Barrel suggests that technical solutions can be found to the drilling issues.  EPA’s new regulations, applauded by the NY Times, environmentalists and the industry, are a start.

My only criticism of Baily’s commentary relates to his failure to explicitly indicate the demand that could, and would, be created for natural gas, if the current monopoly conditions favoring oil with respect to transportation fuels did not exist. An open transportation fuel market, allowing consumers to choose among natural gas and its derivative methanol and other safe and less costly fuels, like ethanol, would generate investment in flex-fuel stations and flex-fuel automobiles. Why limit the market, and the growth of the American economy, by restricting the transportation fuel market, by and large, to oil? Let Americans have choices.