Pickens and economics mix like oil and water
Tuesday, July 22nd, 2008 By James Nesbitt
There has been a lot of talk lately about Texas Oilman T. Boone Pickens and his plan to save us all from our “oil dependency.” Today, he outlined his humbly-named “Pickens Plan” before a Senate panel, seemingly adding to his credibility as an expert for solving the energy “crisis.” However, his plan has many faults, starting with the principles used to create it.
Many, including Governor Strickland and Senator Voinovich, are blinded by a politically convenient plan from an industry expert; as a result, they fail to remember (or ignore) both where Mr. Pickens’ strengths lie and where they end. Pickens may know a lot about oil, but this does not mean he knows how energy drives an economy. He has no special ability to predict the results and consequences of his recommendations on this nation’s economic health, for which cheap and efficient energy is crucial. In less than a minute, Mr. Pickens lets slip several insights into his lack of economic prowess—his use of the term “transfer of wealth,” and his wish to “slash our dependency.”
There is a big difference economically between a “transfer of wealth” and an “exchange of wealth.” Transfers are one-way transactions. One party receives while one party gives. Charitable gifts, welfare taxes, progressive income taxes, Medicaid, Social Security, and thefts of other types are transfers of wealth. Exchanges are two-way transactions. Any transaction where parties exchange money for goods (such as oil purchases) is not a transfer of wealth but an exchange of wealth. Both parties still possess the same amount of wealth; they have simply changed the medium by which their wealth is measured. Mr. Pickens commits a fundamental error in his economic analysis by confusing these concepts.
A second fundamental economic error Mr. Pickens commits is to hold a negative view of the word dependency. For economists, dependence is a key to increasing the production of wealth. Humans figured this out long ago when they divided their labor. If you want to be truly independent, start growing your own wheat, making your own shoes, mining your own metal to make your own car, and creating your own toothpaste. Independence really makes no sense in economics, as it is not an efficient investment of time and resources.
These are just two examples of fuzzy economic thinking by Mr. Pickens. Mr. Pickens may be good at drilling for oil, but his ideas for our economy are flawed at a fundamental level. Keep this fact in mind when evaluating Mr. Pickens’ proposal.
Tags: dependence, energy
