President Obama and many of his inner circle have subscribed to the economic theories of John Maynard Keynes. Keynes’ little catch phrase used to describe his thought process is that even if the government spends money paying workers to dig holes and then other workers to fill them, it will benefit the economy by getting money in the hands of the workers.
Perhaps you can see the effects of this thought in our current political policies. The full scope of Keyens’ influence and the administration’s misaligned economic policies are beyond this article; I want to address the reaction to the oil crises in the Gulf. Before I have used an analogy to punch a hole in Keyen’s theory. I’m going to resurrect it here and expand upon it.
The biggest problem I see with those that follow the the government injection model is misunderstanding or mis-defining The System. Think back to your physics classes. You had a closed system in which you would examine the exchange of energy. A cake and oven form a system, where the oven transfers heat to the cake. Expand it, and the electrical grid is supplying power to the oven which is heating the cake, etc.
In our economic example, lets have George and Jim. Jim has $100,000 in cash and George has $100,000 worth of labor. Jim pays George and his crew of legally documented foreign workers $50K to dig some holes and $50K to fill them in. Keyensites will rejoice that now $100,000 is in the hands of the workers to spend as they wish, furthering the greater economy. (Come to think of it, socialists, communists, union bosses and college professors will rejoice as well.)
But what about The System? The workers have the cash but what does Jim have? Nothing. He has filled in holes. The error is in assuming that the system began with $100,000. It didn’t, the system began with $100,000 in cash and $100,000 in potential labor. That labor has been wasted and now the system only has $100,000 in cash. The System has lost half it’s value.
Now, lets look at a different scenario. Jim pays George and his crew to build him a house. When it is finished the workers have the cash, but Jim has $100,000 worth of house. The system has remained equal, there is still $200K in total value.
Expand the system outward, now. We have men cutting down trees and selling them for an amount of cash equal to the value of the trees. Another business will take the tress and sell them as lumber for a price equal to trees +labor. On goes the process until a house is built.
But there is a problem. Once the trees are cut down, they are gone (in the immediate sense). All along the way these workers are eating (and paying for) food. Once that food is eaten, it is gone. These products are all being delivered by diesel fuel; once burnt the diesel fuel is gone. Our system is constantly reducing the products that are in it. So how do we go about increasing our system? How do you grow an economy?
The U.S. economy is HUGE. At trillions and trillions of dollars it encompasses every product or service known to mankind. Yet as big as it is, there are only 3 ways to introduce new items into the system. 1) Your sweat (labor). Labor may be ultimately limited, but you can give more or less of it. 2) Growing it (agriculture) and 3) digging it up (mining/drilling).
Think about it, everything in your possession was either grown or mined. The steel in your car was mined, the leather for the seats was grown on a cattle farm. Throughout our economy we have invented multitudes of ingenious ways of transferring, transforming and bettering these products for further sale. But every bit of it starts with those 3 ingredients.
Herein lies the error of the Administration in the Gulf. They seem to be laboring (pardon the pun) under the belief that the System will remain neutral on it’s own accord. The oil being produced by all those rigs President Obama has shut down is not just a way for some greedy oil baron to get rich. It is not just an ancillary product on the fringes of our economy. That oil is a vital input to our System; one needed to keep it from collapsing inward.
The same goes for the jobs of all those workers on the oil rigs. Thousands upon thousands of (highly skilled, specialized) man hours are being wasted, pulled out of our economic system. In effect we are being robbed of the input from these men.
These rigs, the oil they produce, the man hours of the workers will all end up being acquired/ spent in another system. China, Brazil or whoever can will pull them into their system. We will have given a system we are in competition inputs that should have been going into our system.
Continuing along President Obama’s economic path will lead to the eventual implosion of our economic system. The Gulf response is just one example.