Comment 27990

By A Smith (anonymous) | Posted December 25, 2008 at 06:45:48

Ryan, real GDP in the U.S. averaged 3.14% from 1978 to 1998, a time period where U.S. oil consumption was stagnant. In 1978, U.S. oil consumption was about 18.9 mbpd and it didn't hit that mark again until 1998. Therefore, the numbers show that real economic output can grow quite nicely, even though basic inputs like oil are reduced. Therefore, even if one assumes your prediction that oil production is maxed out, based on an extremely short three year trend in production, this still does not mean that real growth in the economy will be markedly affected.

The reason that this is the case, is because of human ingenuity and the resulting gains in productivity smart businesses are able to produce. Humans have a long history of creating more goods and services in ever more efficient ways, but this usually comes about through private entities, who seek to maximize the return on their investment. This is in contrast to government spending, which is not disciplined by market forces and therefore does not concern itself with producing more output with less inputs. Since it can always borrow money to fund its projects, the government is more likely to waste resources on highly visible and politically popular programs, but which do nothing to increase real output in the economy.

By reducing government spending as a percentage of the economy to around 10% and then leaving it there, private sector businesses could ensure that capital was used in a much more efficient way then is currently the case, driving productivity and therefore real wealth creation.

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