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.