The cycle works like this:
In the U.S., the cycle has reentered the first stage listed here. The oil and gas industry should worry about the last one.
Growing into surplus - The U.S. has done what tax raisers once declared impossible: grown itself out of a federal budget deficit. The achievement gives the country much to cheer. It also presents reasons for fear.
A country that can grow itself out of a deficit also can shrink itself back into one. Economies run through cycles. Expansion won`t last forever.
Furthermore, the deficit wasn`t all bad. It got big enough to remind Americans that the government can`t solve every problem of humankind. It thus helped to reverse a long march toward New-Deal, Great-Society liberalism and to suspend the tax-and-spend politics on which such a march depends. In fact, the deficit-not some wholesale turn of mind in Washington, D.C.-became the nation`s principal agent of fiscal responsibility. And now it`s gone.
Last week, President Bill Clinton disclosed an increase in the 2015 projection for the federal budget surplus to $5.47 trillion from $4.47 trillion. He also announced new spending plans: extending and expanding Medicare, supplementing a Social Security program headed for insolvency, enhancing the federal funding of education, and paying off the national debt.
Individually, each spending target has merit. What`s troubling is the compulsion to spend at the first glimpse of extra money rather than to return wealth to the taxpayers who created it. Indeed, Clinton`s gush represents a boundary marker in both his executive posterity and the contest of promises shaping the next presidential election. It shows how easily an accumulation of public money seduces government back into spendthrift habits. And it represents opportunity for politicians with superior vision.
Oil and gas companies should enter this ideological conflict early. Their markets benefit from economic expansion and suffer from contraction. The economy won`t suffer noticeably from spending dedicated to Clinton`s proposals. It will suffer from spending dedicated to Clinton`s proposals plus spending dedicated to all the other individually meritorious proposals from all the other politicians who slip the fiscal bridle while no deficit exists to enforce discipline.
As quickly as it entered surplus the federal government can slide back into deficit. And the economy once again would have to cringe against relentless calls for higher taxation.
New interest - If oil and gas companies don`t resist the trend on ideological grounds now they`ll have to fight tax hikes on practical and more difficult grounds later. A big tax target will, as always, be petroleum. And traditional defenses won`t work.
Tax raisers have a new transcendent interest on which to base demands for a rising state claim to private wealth: global warming. Popular fear from that issue unites naturally with the political urge to spend other people`s money. The result is a force that even consumer interests will find difficult to resist.
