Friday, January 7, 2011
The Economic Equation Is Out of Balance
If you view the economy as an equation as I do, then you might also understand why I continually call for a more level playing field. There must be a balance between those that invest and those that create and trade those investment products. When there is no balance there is a meltdown and the game grinds to a halt. But, that is only one piece of the equation.
Energy is a most important piece of the economic equation, and that part that is dependent on the price of oil, which is then made into gasoline, is very important for two reasons. First, the price of oil and gas acts like a tax in that it takes purchasing power out of the system. When you are going to be paying $3, $4 or $5 for a gallon of gas, you will have fewer dollars to spend on consumer durables. This will slow the growth of our gross domestic product.
Second, the dollars that are leaving our economy as a result of our oil purchases, and going to foreign corporations and countries, is taking with it the life blood of our domestic economy. It too is a form of a tax.
We say we want to grow the pie, but everything points in the opposite direction. The size of the economic pie of the United States has a huge rock tied to it. That rock is the price of oil. The fact that so many of those dollars being spent on gasoline are leaving the country is holding the economy back. When you couple that with the fact that we import far too much stuff from China and other countries, that limit what we are allowed to export to them, we have an equation that is seriously out of balance. This is not rocket surgery or that hard to understand, and yet no one talks about this. Why?