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The biggest fraud in economics is economics

The biggest fraud in economics is economics thumbnail

What’s the point of having an economy, asks Bill Bonner? It makes no sense to waste trillions of dollars’ worth of resources just to “protect the economy,” he says. The whole point of an economy is to create more stuff, not to waste it.

Forget ‘peak oil.’ Or so they say. It has fracked its way to energy self-sufficiency.

Porter Stansberry:

… there are roughly 20 major shale oil plays in the US. The largest five of these new reservoirs have more than 20 billion barrels of recoverable oil… meaning that each of these new fields is not only the largest in US history (by a wide margin), but that each of them, individually, would more than double the proven reserves of domestic oil…

That is why America is on track to be the world’s leading producer of oil within the next five or six years… and why the most knowledgeable oil analysts are predicting a new all-time high of American oil production by 2017. In fact, we’ve already become a net energy exporter for the first time since 1949.

The Wall Street Journal tells us that the US will not import a single barrel of oil from the Middle East by 2035.

Hey, wait a minute. Wasn’t that supposed to be why we’re spending trillions on wars in Middle East…to keep vital supplies of black goo headed our way?

Of course, the numbers never really made any sense. Neither did the logic of it. It would have been a whole lot cheaper just to buy the oil on the open market. Trillions cheaper.

But money isn’t everything. The US needs to guarantee access to oil…or its whole economy might be brought to its knees.

Which is probably a good place to introduce a new idea:

The biggest fraud in economics is economics itself.

What’s the point of having an economy? It is so that people will get the stuff they need and want. The more efficient the economy, the more stuff people get with the least effort and expense of resources.

It makes no sense to waste trillions of dollars’ worth of resources just to “protect the economy.” The whole point of an economy is to create more stuff…not to waste it. You might just as well try to protect your health by committing suicide.

Most economists are fools or knaves. The knaves want to get prestigious jobs and Nobel prizes by offering crackpot advice. The fools think it will work.

A few months ago, they were concerned with peaks. There was a peak in oil production. There was a peak in food production. There was a peak in available water coming. Then, a peak in peaks must have been hit.

Now there is a peak in valleys. All of a sudden, the peaks are far away. Commodity prices are falling, not rising. Deflation is economists’ worry, not inflation. Deflation is an impediment to growth; everyone believes it.

The European debate is largely a dispute over which fraudulent solution will cause ‘growth.’ The austerity crowd believes it has to clamp down on government spending. This will give investors confidence in government bonds. The feds will be able to borrow again. The economy will grow. All will be well.

The stimulus crowd targets growth directly. It wants the feds to spend…creating jobs, incomes, spending and so forth.

Paul Krugman is in The Financial Times today.

“At a time when the private sector is engaged in a collective effort to spend less, public policy should act as a stabilizing force, attempting to sustain spending.”

Krugman says the real problem is a lack of demand. People just don’t want to spend their money. This is something that needs to be fixed!

Why? Why not let people decide for themselves when they want to spend and when they want to save? Why let the government do for them what they do not want done? Krugman doesn’t bother to think about it.

He is worried only about growth. He is afraid that the economy will collapse completely before austerity measures lead to growth. The austerity group worries that government-led ‘growth’ will blow up the economy before it has a chance to turn into real, private sector growth.

Neither side doubts that growth is the key. Almost everybody agrees: we have to pursue growth. “The Hero,” Ben Bernanke, does it by printing money. Congress and the administration do it by running trillion-dollar deficits.

Nobody doubts that ‘growth’ is the key to progress, happiness, and maybe even Heaven. But there’s the foundation of the great flim-flam right there.

Why do economists think ‘growth’ is such hot stuff? Because they can measure it…

Economists can measure GDP. They can tell when it goes up…or when it goes down. Generally, more is better…because it means the economy is creating more stuff. So, economists tailor their policy recommendations…their theories…and their editorial page blah-blahs to the goal of stimulating growth.

But is growth a good thing? Is it the same as progress and prosperity? Is more stuff what the world really needs?

Just 5 years ago, TIME magazine thought the US needed more stuff…in the form of houses. Seventy years ago, the US needed more stuff…in the form of tanks and fighter planes.

Forty years ago, US economists — notably Samuelson — were convinced that the Soviet economy would soon be larger than the US economy. Why? It could produce more stuff. They had charts to show how stuff production in the Soviet Union was increasing…and how it would surpass the US in just a few years.

And what happened? It didn’t matter. The stuff was worthless.

More tomorrow.


Bill Bonner
for The Daily Reckoning

CS Monitor

8 Comments on "The biggest fraud in economics is economics"

  1. BillT on Fri, 29th Jun 2012 1:54 am 

    Economists are charlatans that believe that they can change lead into gold because they want to. Growth, REAL growth is over. Pain is ahead for the West and is beginning to be obvious to even the deepest deniers. This is one time the 3rd world will have it easier. They still know how to live without. American’s do not, but they will learn.

  2. PrestonSturges on Fri, 29th Jun 2012 5:31 am 

    Oh yeah, those reserves are going to last for decades. The North Slope, the North Sea, those field s peaked after only a couple years. These low permeability shale wells peak within months. And then there is all the stuff the cornucpeans like to call “oil” but it isn’t. The reason the “Green River FORMATION” is not called the “Green Rive Oil Field” is because it’s not an oil field.

  3. Cloud9 on Fri, 29th Jun 2012 1:11 pm 

    Energy independence is simple. All we need to do is price the 99% out of the market.

  4. BillT on Fri, 29th Jun 2012 1:33 pm 

    Right on Cloud9!

  5. anselm on Fri, 29th Jun 2012 2:43 pm 

    Shale production will not create a new peak for the US. Each individual well only produces a value below 100 b/d. Then it’s over and done with pretty quick. So they just have to keep tapping and tapping like mad. That time consuming, energy intensive process, will not be able to make up the difference of the depletion of our conventional fields.

  6. george on Fri, 29th Jun 2012 6:19 pm 

    Porter = Stupid

  7. Newfie on Sat, 30th Jun 2012 12:31 am 

    Never ending growth is a cultural myth, a delusional fantasy, a fairy tale. But nearly everyone believes it. A global civilization based on a delusion is headed for big trouble.

  8. Bloomer on Sat, 30th Jun 2012 9:43 pm 

    People aren’t spending either because they have no job or have no disposible income after they have paid for the bare essentials. It is this lack of spending that is creating deflation.

    The energy that drives economic growth has become more dear and more expensive. I put zero faith in the fact that a trillion cubic feet of oily rocks will make us become awashed in oil. Shale oil is very expensive to extract and has a low return on energy invested.

    The high cost of energy equals lower standards of living for us working stiffs. Neither Government spending or subsidizing oil companies will change that. We must become more energy efficient, using less oil will carry us much further and give us time to develop alternatives.

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