Monday, December 08, 2008

What is a dollar?

What does a dollar represent? 

It's a store of value. It represents a future claim on a good or service that someone is willing to sell for that amount. But that is obvious.

But drill down a bit further. These goods and services that are bought and sold with these dollars - what are they "made of?" All sorts of things, obviously. Raw materials, labor, capital equipment, brainpower. 

But on a deeper level, every good and service in our economy is really made of energy. Any product that has been manufactured can be thought of as an accumulation of various forms of energy that are manifest in the physical product.  The raw materials took energy to mine or produce, and the capital equipment for the manufacturing process had to be itself be manufactured, and the raw materials for it had to be extracted, processed, sold, delivered, stored until used, etc. 

The products themselves had to be inventoried, packaged, sold, delivered, inventoried again, and sold again. Every step of the way, for every material in the good, used energy as its base component.

So a dollar can be thought of as a future claim on the sum total of societies' production of energy. 

Why am I going through this admittedly pedantic and abstract exercise? Because it is relevant right now, due to the fact that so many people don't seem to understand this truth, which is resulting in some very harmful decisions being made.

If a dollar is a store of energy, would you give that dollar up for anything less than a dollar's worth of energy? Of course not - that would be stupid. It would be a waste of energy. But that is precisely what our politicians are requiring us to do. 

Worse, they are pretending that they are doing this to SAVE energy! 

For example - under the new alternative energy mandates, the state of Oregon is giving all sorts of tax incentives to stimulate wind and solar energy production. The energy produced from these projects costs as much as four times per kilowatt hour than energy produced through conventional means (hydro and/or natural gas.) 

So, by government mandate, we are spending four times as much in energy to produce electricity. That is BAD for the environment!

The very policies that the politicians and the environmentalists claim are good for the environment are actually harming it. They don't understand economics. They don't know what a dollar represents. 




4 comments:

Anonymous said...

Very interesting way of putting it, Rob. I've never thought of it that way, but it makes sense and it sure shows the stupidity of subsidizing that stuff.

huck said...

Rob, I don't want this to sound like an attack (though it does, especially as I'm posting under psudonym), but more like constructive criticism for what could be an educational outlet. Your writing of late doesn't support itself. Several examples:

1) Above: while your point about inefficient investment might be true, nothing in your "pedantic and abstract exercise" or the examples that follow are conclusive. Unless your goal is only to preach to the choir, you need to offer more evidence. I can easily contest (and not back up) that investment in wind, while initially more expensive, is a proper hedge in our energy portfolio against future fuel price fluctuation, is good for rural economies, and actually complements existing hydro and natural gas (baseload) energy supplies. I'm not saying you need a 10-page white paper, but c'mon.

2) Regarding Jack Bog, your disparaging comments about L&C students, of which I am a proud Law alum, betray your own tendency to guilt by association and false conclusions that is nearly as bad as the one you accuse Jack of. For example, while disagreeing on the Palin issue (one which I am not persuaded by either side, one not having sufficient evidence, and the other being defensive and overly protective of medical records), that should have no bearing on his ability to teach the income tax code, and you should know that. You seem to allow him that with his reporting on the city, where it agrees with you, but oddly you don't allow him that in the area in which he really does command respect.

3) Your argument about why people vote Republican starts off with a false choice. Simply because Democrats espouse views more supportive of progressive taxation and government involvement does not make them any less open to reform. While it may be true in practice, it is not true per se, and you fail to distinguish that in your writing, which is dangerously misleading and the PRIMARY cause of our nation's poor political discourse.

4) I've wanted to call your show several times when you've claimed that liberals are behind historical forms of fascism. Really? Mussolini, Hitler, and Franco were all right-wing fascists, no? I'm sure you've got ammo to refute this, but you might as well start by defining right wing and left wing, because that is what it all boils down to. I'll start: right wing is defined by combining military might and xenophobia to control a popluation; left wing seeks to diminish military might and xenophobia. Seems fascism meshes more with the former than the latter.


Look, Rob. I seriously agree with you on more than I agree with most left-wing nuts because I don't see much understanding of political and economic reality on the left. But if the right can't be more effective in their arguments, then they're going to be continually marginalized. That's why this country continues it's march to socialism. Not because liberals are evil, but because conservatives can't convey their points effectively to liberals.

It's your blog and you can do what you want with it, but who are you talking to? If you were a business your growth strategy would be suspect. If it's just an outlet to blow off steam, so be it, but you're a sharp enough guy, the world needs people like you to set the standard.

Take care

Rob Kremer said...

Huck:
I don't take it as an attack, and I certainly don't mind you using a pseudonym. Here are my thoughts on your critique:

1) The point I am making on the alternative energy issue is that it doesn't make economic OR environmental sense to have government policy promoting a less efficient form of energy production. Supporters of subsidies somehow pretend that wind energy is environmentally superior to other forms, so it makes sense to subsidize it.

My point is that all costs boil down to energy, so spending more to make the same amount of energy means that MORE environmental harm was done with the less efficient wind (or solar, or wave, etc.) energy project.

Yes, you could argue those things you list, but they don't in any way refute the point I am making.

2) Regarding Jack Bog: I didn't criticize L&C students. I criticized specifically the environmental law program at the L&C law school. I accuse them of printing out an annual crop of extremists who then go out and ruin our economy.

I never said anything about Jack personally and whether he was a good teacher. So I am not really sure what to make of this particular criticism.

My beef with Jack is that he is off the deep edge with this Palin thing, and I have to believe that it will damage his overall credibility, just as it would mine if I used my blog to make relentless and breathless posts about President-elect Obama's birth certificate.

3) I totally disagree with this point. I have rarely if ever seen the Democrat Party propose and fight for reforms of government institutions. Can you give me an example? D's generally look for ways in which the government role can be expanded in order to remodel society in one way or another. That is not reform.

So my point was, aside from the usual "role of government" difference between D's and R's, R's are the reformers and D's are the "formers."

4) No, Mussolini, HItler and Franco were all left wingers. Just look at the Nazi party platform - every bit of it is left wing.

Along with its strident nationalism/racism (which has little to do with either right or left) here are a few of its tenets:

12 ...we demand the total confiscation of all war profits.
13. We demand the nationalisation of all (previous) associated industries (trusts).
14. We demand a division of profits of all heavy industries.
15. We demand an expansion on a large scale of old age welfare.
16. We demand the creation of a healthy middle class and its conservation, immediate communalization of the great warehouses and their being leased at low cost to small firms, the utmost consideration of all small firms in contracts with the State, county or municipality.
17. We demand a land reform suitable to our needs, provision of a law for the free expropriation of land for the purposes of public utility, abolition of taxes on land and prevention of all speculation in land.

Does that sound right wing to you?

The problem here is definitely one of definition. I completely reject your definition of right wing. In fact if you trace the history of the progressive movement, you will find that the left is far closer to what you describe as the right in its wish to use military might and xenophobia. President Wilson is a good example - the sedition act, the government shutting down hundreds of newspapers and magazines for criticizing the war, thousands jailed for not supporting the war. Even John Dewey was thrilled about the fact that a war economy allowed the government to achieve all sorts of "progressive" planned society goals.

I will grant you that today's left is not militaristic. But that wasn't the argument. The argument was whether the historical roots of todays left is of fascistic lineage, and it absolutely is.

While today's left is not militaristic, it most certainly is totalitarian. And that is how I define the difference between left and right.

Let's change terms: not "left" and "right," but how about "classical liberal" and "Modern-day liberal."

Classical liberalism is what I mean when I refer to the right. It was the ideology of our founding fathers. Limited government that doesn't choose winners and losers, and doesn't seek to have a ruling elite re-shape society using government force.

Modern day liberalism can traced to the ideology of Neitschke and Marx - government's role is to remodel society, by force if necessary.

If you think that is harsh on today's liberals, I ask you this: what would happen to a business today who didn't go along with, say, government's policies on affirmative action? Who refused to hire (fill in the blanks.. blacks, Jews, etc.)

The firm would be sued, forced to comply, and if they still refused, would be terminated. Heck, Hooters was a step away from having to hire men as Hooters girls!

So my definition of left and right is the question of whether government power should be used to remodel society. Fascism in all of its forms was precisely that - a use of government power to bring about a certain vision of society.

Sorry for the longwinded reply, but your serious questions required a serious reply.

huck said...

Rob - thanks for the reply. I'll chew on all that. You definitely have studied history more than I have, but I'm actively trying to pick this stuff up. Across the board, I agree with most of what you're getting at, and understand much more what you were trying to say in the original posts. I will nitpick just a bit with the following:

1) You're right about the energy formulation of a dollar, but (and this definitely goes to the heart of the following "role of government" discussion) a) if an energy "market" is truly to function, all costs must be paid, and I question whether that truly occurs now (I know what you think about carbon, but I still feel that both sides merely have "theories" at this point, and as it stands, the human-caused-climate-change theory is underrepresented in the market, though not in the media, I'll grant you that), and b) I can accept a government has a role in energy policy and hedging against fuel costs with free-fuel sources like wind, solar, wave, geo, even at initially more expensive levels, can have advantages. I'm not trying to refute your theory of a dollar, but I feel you are just excluding certain aspects to arrive at your point.

I know we disagree on that, but I do so from a position that is open to persuasion. I have yet to hear somebody from the right argue persuasively against a certain level of hedging in our energy policy.

2) I really don't care about your beef with Jack, but I believe something like "mushbrained students" was uttered, as was an implication of disbelief that Jack could hold his job. Whatever. I studied tax and business law, but many of the environmental students were people who previously held professional careers in the sciences and cared passionately for their field. Why is the right so dismissive of environmental economics? Ignore the wackos. Engage the open-minded.

3) I will try to think of a few Dem reforms. I was only trying to say that technically, expansion of a governmental program can be reform if it comes with a new strategy. Expanding health care would be an example, whether you agree with how it is implemented.

4) Very interesting discussion of fascism. I guess it brings up several thoughts for me: a) I question whether the nationalism/racism drove the military/socialist agenda, and therefore the latter can be ascribed to the former; b) I definitely associate nationalism and racism with the social right wing, and I think your discussion of classical liberalism and modern liberalism is dead on, and made me question how often I'm unfairly lumping social right-wingers with what you would call classic liberal conservatives. This is, I think, a common miscommunication in many political debates. I think a similarly unfair lumping-together is done by conservatives when viewing the liberal side of the spectrum. It reminds me to appreciate a centrist government that seems compromised.

Your final comment, though, about whether government power should be used to remodel society, is a deep one. It boggles my mind that this issue wasn't discussed more during this last election cycle. I obviously disagree, but I do so because I have a broader view of rights enumerated by our constitution, and because I don't believe a market economy can function without corrections for externalities. Those are two huge doors for a giant government to walk through. In the end, it remains the duty of the electorate to govern the government.

Rob, thank you so much for helping me refine my understanding of these topics. You do good work on your show and on your blog, but even better work when you respond to callers and readers. I wish I contributed half as much to society, but I'm trudging along with the rest of the trolls just to make my mortgage payments and pay back my school loans. Speaking of which, time to get back to work.