Wednesday, July 23, 2008

700 Billion Dollars Lost?

According to T. Boone Pickens (an oil tycoon), the money America spends on foreign gas represents a huge loss for America. But don’t take my word for it:

I was going to write up a big long post on the various reasons why this is wrong; but luckily, a blogger at fibbertigbet has done most of the work for me:

First of all, 700 billion dollars may be leaving our country, but oil worth 700 Billion dollars is coming in. People aren't just putting dollars into envelopes and mailing them to the Sultan of Brunei. They're exchanging dollars for oil. It's trade.

That’s right. It like when you pay 5 dollars at a local market for a sandwich, you don’t consider that “transfer of wealth” a loss. In fact, we gave up five dollars so we could get something of personally greater value, in this case, a sandwich (that’s why we trade in the first place!) If you look at it rationally, we are actually gaining more then 700 billion dollars in value from this exchange.

It’s doubly untrue when you consider what inevitably happens to that 700 billion. A great deal of money we send overseas comes back to America in the form of investment capital.

The blogger makes another good point:

….this [the claims in the video] implies that it is a single transaction between just two entities, when in fact the trade of oil represents a massive supply chain of exchanges between innumerable entities.

This comes from the old fallacy that countries compete economically. At a macro-economic level you could look at it this way, but it doesn’t represent what’s really happening (even in countries with a great deal of economic control.)

Now, there are some good reasons to become less dependent on foreign energy; and to start drifting towered different energy sources (so long as this happens naturally.) But none of the ‘good’ reasons are mentioned in the video above by Pickens.

Just goes to show you: businessmen don’t necessarily make good economists (and vice versa.)

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