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Tuesday, January 30, 2018

The Trump Bump in Coal

Mike Smitka
Washington and Lee University

I've no idea what Pres. Trump will say in his SOTU address, but it is useful for me, living near coal country, to look at what's happened in my neck of the woods. (BTW, I do live in woods!) In particular, can any president return jobs to regions with long-standing employment challenges? We in the US have tools to address "cyclical" unemployment, and hence affect what goes on at the national level. "Structural" unemployment is a different matter. Regional problems are, well, regional, with different origins. If we really want to do something, we need thus to diagnose causes and tailor solutions, region by region. No single national policy will do the trick. But in a Federal system we're not set up to do this: regional policy butts up against our many states, and a region may be comprised of slices of geography lying in several different states. Overcoming this institutional barrier – creating cross-state cooperation – isn't something possible without a great deal of hands-on, and likely heavy-handed, leadership.

Coal is a case in point. There's "met coal" that gets converted into coke and is used in smelting steel from iron ore. Imports aside, we (and everyone else) have become really good at recycling steel. The biggest example there is the rise of minimills, which recycle scrap into useable product. But even "basic steel" uses a charge of scrap that goes into the basic oxygen caldron alongside iron from the smelter. There are imports as well. The bottom line is that steel is a declining source of demand.

Then there's "thermal" coal that goes into power plants. Here the challenge is that alternatives are attractive. When oil prices are high, coal production does OK – but it doesn't rise, despite our growing economy. Today however energy prices aren't high, and coal output reflects that. Tax benefits aren't going to change that. (Note: The more important alternative today is natural gas. I tried to put natural gas prices into the chart, but it made the graph unreadable. Nor did I try to address how much coal is from WV versus Colorado or other regions where mining is less costly.)

Is there anything that a US president could do about this? Probably not: our current president is not to blame. But whatever might be done to help supporters in West Virginia won't help those in Ohio. There's no generic solution. Retraining programs might help, but even if community colleges could develop programs offering "portable" skills, those who finish programs would need to leave the region to find a job, so it might be helpful to add a one-time relocation allowance to training programs. That won't save the affected communities. It would help build a better future for the children of miners, and for younger Americans in general.