Spending Expands to Fill the Available Budget

Sunday, September 4, 2011

The following is a letter to the editor from John K:

Thanks for this article (Putting the Free Market to Work in the Interests of National Security). I'd particularly like to add to the discussion of Saudi Arabia.

I was outraged, and rightly so, when I first saw you post the fact that it costs Saudi Arabia only $1.50 per barrel to produce oil (posted here). In a competitive business environment where retailers of many sectors are struggling with 3% profit margins, the profit charged by Saudi Arabia and OPEC is truly obscene. It's also an illegal monopolistic business practice, but that's the subject of another article. And yet Saudi Arabia tries to hold OPEC prices down and is considered a friend of the US in this respect.

There's an article at Foreign Policy this week regarding Saudi Arabia's failing economy:

Kingdom of Magical Thinking

As we say, spending always expands to fill the available budget, and Saudi Arabia's economy is now dependent on oil prices at a minimum of $85 per barrel just to break even. And what does this go for? Entitlement programs for Saudi citizens that we can no longer afford for our own citizens, and government jobs to subsidize said citizens.

In many Arab Muslim cultures, manual labor is considered below one's dignity and suitable only for non-Muslims or slaves. Hence Saudi Arabia and other oil-rich Arab countries import vast numbers of foreign workers. Arabs largely just want the government jobs for the prestige, and the government gives out so many of these jobs that it really just amounts to welfare. The jobs don't require much real work or responsibility, so they can largely spend the day reading the newspaper and talking with colleagues. If you follow the topic, you will see this kind of news frequently reported in articles like this on at Strategy Page:

A Lack Of Suitable Work

Our own people are in need of real jobs, so the last thing we want to do is send our hard-earned money abroad to support cultures like this.

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