Saturday, January 09, 2010

Why spend a little when you can spend a lot?

There is a lot of justifiable hand-wringing over labor productivity and international competitiveness. Economists, who rarely agree on anything, accept the wisdom in producing things where the overall cost is lowest, so that society's scarce resources can be best stewarded.

But wait! Everything that gets made, grown or dug out of the ground requires energy. Can an economy be competitive when others pay less for energy?

And within a jurisdiction, when consumers pay an increased percentage of their incomes for energy, then they have less money left over to consume other things.

Here is a fact: 70% of the US economy depends on consumers. More and more consumers in the US continue to lose their jobs (85,000 more in December alone). Consumers who are employed are working fewer hours. The US consumer is less able to support the economy than she was a year ago. And US industries are closing due to increasing power costs, putting more consumers out of work. This is a death spiral for an economy.

So check out the graphic above, courtesy of the Wall Street Journal, and judge the quality of the leadership that pushes an economy to spend a lot on energy, when the US could spend very little.

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