Michael Giberson
Holman Jenkins makes another good point in his WSJ column on energy (in addition to his conclusion, which I cited in an earlier post). He points out in response to Boone Pickens’s concern over the “transfer of wealth” to foreign oil producers:
[Pickens] says we spend $700 billion a year on foreign oil, which he calls a “transfer of wealth.” But exchanging money for oil at the market price is an exchange of things of equal value. If we didn’t value their oil more than our dollars, we wouldn’t participate in such a bargain.
It strikes me as so obvious as to be beyond mention, but for the frequently-expressed concerns such as made by Pickens. Even as wise a energy market commenter as Geoff Styles makes the mistake (in this post). Jenkins has it right: in a market transaction, wealth flows both ways. Typically, one party gives the other goods and receives money in exchange. Don’t like the terms of trade? Then don’t trade.
Worrying about the outflow of currency is old-fashioned mercantilism: a mistaken view 200 years ago, and still wrong now.
Not to mention the absurdity of “getting off” foreign oil. Unless Pickens envisions the federal government ordering refiners to buy only domestic product, then what’s to stop them from buying their crude from non-domestic sources, if they can get a better deal, or if their refineries are better suited to crude of a composition less likely to be produced domestically?
The market for oil is a global one, and it doesn’t necessarily follow that for every additional barrel produced domestically one less is purchased from foreign sources.
He’s upset when the transfer of wealth is NOT TO HIM. Same thing with offshore drilling. You don’t expect contracts to go to Total, Shell and the like, do you?
I think Jenkins makes some good points, but not on the wealth transfer issue. Money is a clear form of wealth. Energy purchases for short term consumption is not. “Equal value” doesn’t mean equal wealth.
Because there are willing buyers and sellers doesn’t mean wealth isn’t being transferred.
The Wall Street Journal a few weeks back had a front page piece on UAE citizens participating in auctions for vanity license plates. The guy who purchased “1” paid $14M. That’s $14M for a license plate. Bottom line, wealth is accumulating in the middle east and deteriorating in the US due to oil. That’s not in the best interests of the US.
Thank you for the informative blog.
Thank you for the informative blog.
And because of oil can make a war.
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FOREX Nedir? Nas?l ok kazan?l?r? what is forex? Can you earn money from your computer?