That advice comes not from Gordon Gekko and his friends on Wall Street, but rather from James Hamilton, a prominent academic economist and observer of the petroleum market. Hamilton writes:
If you can figure out a way to find resources whose value in their current use is not very great– in other words, if you buy low– and redeploy them somewhere else where their value is much greater– in other words, sell high– then you will not only add to your personal wealth, you will be creating new wealth for society as a whole. The process of allocating resources to their most efficient use is the heart of what drives economic growth. The fact that individuals have a strong personal incentive always to be looking for better ways to do that is the primary factor responsible for the standard of living that we enjoy today.
What is an oil economist doing writing about wealth creation? Hamilton shows us with a simple example:
On Friday, you could buy a barrel of light, sweet crude oil produced in North Dakota for less than $81. On that same day, oil refiners in Port Arthur on the coast of Texas were paying around $110 to import a similar grade of oil produced in Nigeria. That’s $30 worth of incentive to you to try to figure out a way to transport oil from North Dakota to Port Arthur in order to replace a barrel of imported Nigerian oil with Williston sweet. As a nation, if we could divert some of the resources we are currently devoting to pay for oil imported from Nigeria, and use them instead to enable the Port Arthur refinery to get its oil from North Dakota, we will become richer.
You don’t have to be an oil expert to come up with the best solution for that: pipelines. This wealth effect is yet another reason that the Obama administration’s capitulation to green hacktivist hysterics over the Keystone XL pipeline is a loss for anyone concerned about the immediate well-being of the nation over far-flung hypotheticals.
Great, the skeptic replies, but how do we know the wealth effect isn’t the same sort of abstract idea with little real world merit? Well, Hamilton points out that a private company (who, unlike certain government-funded green technology companies have to worry about their bottom line) has offered to build a key part of the project…for free…with just a signature.
The president is still studying the matter. Via Meadia is with the economists on this one: sign, Mr. President, sign.