Comments on the Oil Boom

I've lived near the North Dakota border, so I've kept an eye on the Oil boom in the western part of that state.  I recently read this article describing the hardships of having too much economic activity and too many jobs.  There aren't enough workers, so the wages are high to attract them.  Housing and groceries and services are more scarce, relative to the number of people, so their prices are also up.  Trucks and heavy equipment have severely damaged the roads.  There are not enough classrooms for the expected new students in the public schools.  The volunteer ambulance system is overwhelmed.  All the while, the money from the state government, in the form of oil royalties, is not flowing fast enough.  Local officials' solution to this problem is to get money from the oil royalties from the state government moving faster.


Let's think about this situation like an economist might before we go on.  In any economy, prices are not just what something costs, they are also signals.  High prices both signal consumers to buy less of a product and producers to produce more of it.  They also encourage new producers to enter the market for that product.  Low prices signal consumers to buy more of a product and force marginal producers (those who produce least efficiently) out of a market.  For most of the problems above, there is no direct pricing mechanism to coordinate the markets.  Anyone can drive on the public roads, everyone must be able to enroll in the public schools, and the ambulance service is at least partially subsidized by government.  There are indirect prices of these services in the form of gas and property taxes, but their collection and distribution are complicated at best.  The article plainly states that local government feels the formula to distribute the oil revenues needs to be re-evaluated.

I would suggest that this situation requires a bit more free market, a little less bureaucracy, and local government.  Make the pricing mechanism work for you.  If roads are being destroyed by increased truck traffic, charge tonnage tolls on those trucks to repair the road.  Those tolls could also be used to build more safety into the roads.  These tolls would need to be collected and used locally.  This way the people (or corporations, which are collections of people) pay for the government (roads) they use.  Break the monopoly public schools have on customers.  Offer a voucher to each student which they can use to attend either the public school or a private school.  You can bet private schools would crop up to vie for those dollars.  And the new schools as well as the public schools will have incentive to provide services the most efficiently. 

For the rest of the problems, let the pricing mechanism work.  With high housing prices, more landlords and developers will want to provide housing because they will expect a larger and more sure profit.  This profit motive will increase the number of housing units and eventually rents will come back down as supply increases.  If price controls are attempted, then there's no incentive for housing to be built in this area over another area.  Instead of temporary high prices and temporary scarcity, you'll have permanent low prices and permanent scarcity.  The same goes for grocery stores and restaurants.  The promise of higher profits will bring in more supply and bring prices back down.  It's how the pricing mechanism works.

To close, I'll admit that I can't immediately formulate what to do about the ambulance service.  I'll suggest a private enterprise on principle, but I haven't read enough about it to say exactly how that would go.  Especially with health care insurance as it is today, it's tough to say how ambulance services get paid and where all those payments come from.