The Collapse of Oil IS the Economic Boom
6th February 2016
Applied to commodities, while essential to economic progress they’re nowhere close to first order goods in economic importance. Oil is a crucial high order input, but per Brookes again “it was the internal combustion engine that gave oil its present value, and not the other way around.” The world would be awful without oil, but it’s first order products like automobiles and planes that gave oil value in the first place.
This is of course why it’s not important that rich countries (think Japan, Switzerland, Singapore, etc.) be resource abundant. Figure commodities are easily importable at the market price, and as plentiful oil exports from economically backward countries like Venezuela, Iran and Equatorial Guinea constantly reveal, commodities in a normal world free of currency distortions would largely be exported by less developed countries to developed ones full of entrepreneurs creating the first order advances that give the prosaic (commodities) life.
Cheap resource inputs mean cheaper resulting products, and that benefits everybody. As the perennial fights over protective tariffs demonstrate, it is very easy to identify those who are harmed by low prices, while those who benefit are more obscure; that’s why lobbyists get rich and politicians convert stupid policies into law.
The beauty of cheap oil is that it will make it more likely that U.S. economic actors import it, and at the same time more and more U.S. investment will migrate toward the Mengerian first order goods that give oil and all manner of other commodities life. Back to Brookes, this is once again what he meant by an economy of the mind. Predicting a broad economic boom amid a “commodity recession” in 1981, Brookes was arguing that falling commodity prices would be brilliant for a country like the U.S. populated by the greatest minds on earth in need of cheap inputs to drive true innovation. From a consumption standpoint, it will surge thanks to cheap oil simply because our production will surge as fewer Americans extract already plentiful oil, and more focus on creating the first order goods that render oil marketable to begin with.