Here is another chapter in Real Economics. This is a new slat on extraction and value added, plus the Darwin Limitation. How can I combine those two, you ask? It is easier than you may think.
A little review of the Darwin Limitation which was an earlier blog. Over time the economics of the world have shifted to where intellect is far more important than a strong back or good eye sight. This is because economics have gotten more technical and shifted away from physical labor. Horses were replaced with motors and humans are also being replaced with more powerful and smarter machines. This is a fact and it is not ever going to go back. As this trend continues, there will be a point where there will not be enough humans with the necessary intellect for the economic model to keep expanding. That is the Darwin Limitation. Humans don't change as fast a technology or machines. Next, how does this relate to extraction or value added?
As I have pointed out in other blogs, there are two components to the GNP, those that result from extraction of natural geographical resources and those that result from human value added. If you have that point, you will understand the next. In the case of value added, every country in the world has to compete with every other country. The world of economics is "flat". This is a dog eat dog section of the economic system and the most valuable asset that one of the competitors can have is intellect. The value added multiplier for intellectual work is much higher than that for physical labor. It is physical labor that is the easiest and cheapest to replace with machines. To optimize an economic system, the country has to fully utilize its intellectual assets, but that does not account for those who can not compete intellectually. What does a country do with them? It is not socialism as Obama is promoting, but someone has to feed them.
Now, take a look at extraction. If a country has the potential for extraction due to their natural geographical resources, they do not have to compete with the rest of the world directly. They don't have to use their limited intellectual resources in this segment. This is where they can use those workers who can not compete in the competitive intellectual value added arena. I used to work as a rough neck in the oil fields. With workers of average intellect, we could produce oil just as efficiently as if we had the smartest people. You can't import the work of a rough neck from China just like you can not import a carpenter or a plumber from China or any place else. Follow this?
The main point of having a significant component of the economy come from extraction is that it provides a productive way to utilize those in the population who can not compete on the world stage in intellectual value added. This is one more reason why I have been pointing out why counties with few natural resources are going to fall behind and those who do have natural resources risk diluting their impact if they do not control their population thru all means including restrictions on immigration. If it is not crystal clear that we need to both prevent illegal immigration and restrict legal immigration, I don't know what is!!
Parents should be thinking about their children and considering jobs in the extraction areas rather than fuzzy feel good jobs that can not compete in the area of intellectual value added. The states with the lowest unemployment rates are those who are now "frac-ing" for natural gas. Simple!!!
