I am no economist, but bear with me while I try to explain why I think we are in for a very long and difficult economic period. My thesis for The Long Recession goes something like this: Historically, when oil prices rose quickly and remained high the economy struggled. High oil prices lead to recessions and depressions, because they suck so much money out of the economy. A person whose energy bills go up by $100 or $200 per month has that much less to spend on other things. It is essentially like a tax applied to everyone that uses energy — with a large chunk of the money exiting the U.S. and contributing to our trade deficit.
Historically after a period of high oil prices, people start to modify behaviors, and at the same time producers rush in to take advantage of higher prices. This generally leads to a decline in oil prices and the economy recovers. But I believe this time is different. And if not this cycle, very soon. Because while we are already seeing consumers modify behaviors (U.S. oil demand is creeping back up, but still below the levels of 2 years ago), we aren’t seeing a lot of new oil coming online “to the rescue.” The reason for that is that there just isn’t a lot of new oil to be produced; i.e., the Peak Oil factor. So despite the fact that prices did crash following fast the run-up in 2008, prices quickly recovered back into recession-inducing territory.
That leads me again and again to the question: How do you recover from a recession when oil prices are high and show no sign of abating? We could recover from recession if demand drops a bit more and takes oil prices down. But, what happens when we start to come out of the recession? We use more oil, and if there are supply constraints this will send prices right back into recession country.
Today comes more bad economic news, and like much of the bad economic news makes zero mention of the role of high oil prices:
Downward revision of GDP growth a strong signal of stalled recovery
Second-quarter economic growth was revised to an anemic 1.6%, a decline that was slightly less than many economists had predicted. But the report was a sobering cap to a week of bad economic news that has raised fears the nation could plunge into another recession. Bernanke says the Fed is ready to step in to provide additional stimulus.
What I continue to forecast is a very difficult economic period in which we start to power down or continue to suffer the economic consequences. I don’t believe future economic cycles are going to look like those of the past 100 years because of oil supply constraints. I believe we are looking at an extended period of (at best) no-growth or very little growth. At some point, there are alternatives that will begin to fill a respectable gap, but I think that oil price point is back up over $100/bbl.
No doubt the housing crises was a major contributor to our current economic predicament, but even if we miraculously recover from that the oil price risk still hangs repressively over us. So while I appreciate that It’s the economy, stupid and the economic indicators get all the news, I believe the reason we are in for prolonged economic bad news is “It’s the oil, stupid.”
Robert,
I agree with your basic premise, that we’re in for a long slow period with no clear way out. I agree that oil costs (and energy costs generally) are a significant ongoing drain which will make recovery much harder.
However, I think these are (important) contributing factors, but the core of the problem is actually rooted in economic expectations and the resultant policy. This is not an optimistic conclusion, because it makes the problem (even more) political rather than technical in nature (and thus harder to grapple with directly). But I’d like your take on it.
In my mind, we’re stuck economically because there is a fundamental contradiction at the root of our economy. It can be seen in a very short list of policy themes:
- Consumer spending is the engine that drives economic growth and maintains throughput, resource consumption, and employment (and these things are all “good” and deemed to be the goal, or the indicators of economic recovery)
- The financial crisis was the result of excessive consumer borrowing and spending; the American consumer is vastly over-leveraged
The paradox here is, hopefully, obvious. The disturbing thing is that I hear these two themes over and over, in the media and from the mouths of policymakers and economists. They want to see consumer spending increase, and they acknowledge that the average American is overleveraged and needs to save rather than borrow. And they apparently don’t see that these two things are directly and mutually contradictory.
Like I said, energy costs, particularly oil, are a huge drag on the economy. They are a very real part of the problem, and may be the reason that the fundamental contradictions in our economy are now being exposed. But they are not, from my view, the root issue. The root issue is that we quite literally want have (save) our cake and eat it too. I don’t see how it will be possible to even consider, much less implement, sensible policy until this paradox is acknowledged and addressed. So any recovery that happens will happen despite, rather than because of, the business and financial communities. And that sort of accidental recovery is pretty unlikely while the economy is weighed down with a large and growing cost of energy.
Your thoughts?
Indeed, the problem is the depletion of oil, and gas and coal and phosphorus and all the other resources we have been using at unsustainable, exponential growth rates — in a futile attempt to have and endlessly ‘grow’ a technological civilization, on a finite planet. We are beginning to hit the limits of these resources, and that means… this is also the beginning of the end of technological civilization. But since a rational explanation native to the existing paradigm is non-existent… denials and even hybrid-denials emanate. Such as the semi-acknowledgement by “GreenEngineer”, who continues to insist that the real problem isn’t a scarcity of resources (God forbid!), but an economic abstraction: We can’t save while spending so much for energy. Apparently his quest is to maintain business as usual… somehow. Apparently the GreenEngineer contends that all we need is a technological solution that provides cheap energy. Apparently all we need is an abstract economic solution, to heck with the real world. Maybe I can sell him some abstract food and water, perhaps even a parcel of virtual real estate he can happily call his own.
I can agree with this. After all, there are countries that have had very high energy costs and were able to grow. I think you are right that the systems and expectations we have in place were an underlying problem, and were it not for those we might not be in this position (yet).
But with the system we have in place — where we expect spending to get us out of this spot — high energy prices are going to make it very hard moving forward. But the truth is that much of the growth of the past few years was based on over-extended credit, and you can’t keep a system like that going forever, especially when energy prices put on the squeeze.
As far as having our cake and eating it too, as I always say “What’s the point of having cake if you can’t eat it?”
RR
No, RR, not again! You really can’t shake the Peak Oil paradigm, can you?
What exactly do you mean by “power down”? I don’t see us powering down, any time soon. Paying more for energy? Sure. Suffering because energy is so expensive? Maybe. Making a lot of unsavory characters rich just because they own energy sources? We’re doing that already. And the way we support them, it is hard to conclude that we don’t like the status quo.
But we’re not “powering down” whatever that means. At worst, we’ll all be working for the sheiks – they will be spending all the extra income on something. Who knows, they might even pay Kit and Rufus to make corn ethanol, as long as it is Halal.
I think your view that oil prices is the determining factor in whether the US economy grows or declines, is controversial, to say the least. Likewise, you seem to assume that oil is the only source of energy out there. Let me channel my inner Benny: a country with all this coal, and now natural gas, can surely not be held hostage over energy in the long term.
As a side-irritation, your argument always encourages to Malthusians to claim their man is right (after being wrong for 200 years, we have to hear, again: “just wait until next year…”).
Note to Rick: yes, it’s a finite planet, just as its always been. The difference is that technology allows us to use resources more efficiently (and in rare cases to even recycle them) and allows the finite planet to support ever more people. The planet cannot support 6 billion hunter-gatherers, but add some tech, and bar a few oppressors (human nature, eh?), people live pretty well.
So, snap out of it, RR! If energy prices remain high in the long term, some capitalist somewhere will figure out a way to get rich solving the problem. More likely a bunch of capitalists all over the place. If Uncle Sam stays out of the way, a lot of them may even be (A)mericans…
power down
Uhoh, sounds like Robert has moved to the doomer camp.
I’m not sure how much oil prices are dragging on the economy currently, but they will definitely play a role in the near future. I cringe everytime I see a brand new truck on the road. What do these people think oil prices are going to do in the near future? We have short memories indeed.
At worst, we’ll all be working for the sheiks – they will be spending all the extra income on something.
I think I’d rather power down
If the US can keep its production fairly high and Canada can deliver on the increase in production from tar sands as they say, the US may be able to have a less painful transition than other countries, but I have to agree with Robert that it will be painful none the less.
Of course oil is not the only energy source out there, but it is the best liquid fuel we currently have. I would personally sleep better at night if we were not dependent on it for transferring much of the food in this country.
Optimist said:
Start moving to lower consumption of depleting fossil fuels. We will do it one way or another. I think we will be able to outbid poorer countries for oil, but then we will pay a lot more for it which will be an incentive to use less. We have already taken some steps in that direction as prices shot higher the past few years. The consequences of not powering down will be further financial struggles; both as a nation and as individuals.
The problem is that we use so much oil, any move away and toward coal or natural gas will put a lot of pressure on those, both decreasing how long the reserves can supply us and increasing the price. So I just don’t see coal or natural gas as a real solution, albeit I do think they will help. I think the only long-term solution is to live on what we can harvest via solar radiation (direct capture via PV, wind power, biomass, etc.) and then a lot of nuclear power, hydropower, and conservation.
No doubt some people will get rich. People have always managed to get rich. But if they make the rest of the people poor in the process, there will be no economic growth. That’s my concern; that oil prices will continue to act as a repressive tax that will keep us in recession for a very long time. And so far, it seems to be playing out like that.
RR
OD said:
No. I don’t believe in the doomer scenarios (although every time I say “power down” people seem to think that). I do believe that we are going to continue through a painful period. But I think people will still take their kids to school in the morning and society will continue to function. I just think that energy prices are going to be a heavy burden both directly at the pump, and indirectly through inflation of goods that are energy intensive to produce and distribute.
RR
OK, I can agree to that. “Power down” somehow sounds a lot more ominous. I agree: we’ll adapt. I don’t see it as a major crisis, somehow.
I lik that too. And I agree, we’ll get there. When fossil fuels are expensive enough. I guess I don’t expect to see that in my lifetime…
No, that’s just crony capitalism. Unfortunately, that is what unrestrained capitalism does. What is shocking to me, is how many poor people seem to be willing to do the political heavy lifting for the rich. Wall Street is SO thankful. Now get the @#$%$^% out of here, before they call security…
Rufus is retired and Kit has a
productive job. It will be hard to some of us old guys to sing ‘oh
woe is us’ on the cost of food and energy. The reason is the
productivity of American workers. However, if we keep sending jobs
other places, there will be not be enough tax payers to support the
freeloaders. You can give American farmers and energy producers a
tax break or you can drive investment to places that do not respect
the human rights or the environment.
We were raised by WWII and depression
survivors. Every time I pull in the drive way, hear the AC, click
on, or put a steak on the grill, I think life is good. I do not have
a problem with big energy companies because they provide me an
affordable product that I use frugally.
I am not an economist and I agree that
energy is a part of the issue. On a personal level I see lots of
people get into trouble. They do not know how to buy a used car or
make beans and rice. They do not know how to listen to a ball game
on the radio.
There are several generations that have
never learned about saving for a rainy day so the house and car does
not get taken by the taken away. It is the banks fault for loaning
them too much money.
Why power down when there is an ample supply of environmentalists, lawyers, and government bureaucrats to burn
Green engineer the contradiction comes from rampant overspending before the collapse and then serious reactionary underspending immediately afterwards which killed lots of jobs and sent the economy spirally down. Another factor is indiviually you should save money in case you get layed off but collectively we we should spend money to raise employment.
Im pretty optimistic. Even in worst case scenario its hard for me to see it being bad for more than 5 years.
Theres alot of efficiency to be had in our currently crappy vehicles. The Edison2 VeryLightCar which seats 4 people and is winning the progressive xprize got 101mpg epa. Thats 120mpg highway. I know a guy who moddified a full size pickup truck to get 35mpg. Very few people drive efficiently or use mpg meters. Dont forget theres alot of old suvs still on the road with really bad mileage.
How many years would it take us to ramp up natural gas to liquids production? We have abundant gas and could make cheap methanol. I believe we could do it much faster than the bogus ethanol ramp up.
Naturally within two decades we’ll have so much sustainable solar and nuclear thorium power we’ll say oil-shmoil I remember that stuff.
Robert Rapier said: How do you recover from a recession when oil prices are high and show no sign of abating? We could recover from recession if demand drops a bit more and takes oil prices down. “It’s the oil, stupid.”
RR: I agree with you. The $147 high price of crude oil is what spun global economies into this recent, BIG and very deep recession. Every time the price of world crude has jumped-up quickly, the U.S. has gone recessionary. Other financial elements such as housing loans were overstressed as well – but it was $147 crude oil that tipped everything into meltdowns beginning with Wall Street, greedy bankers and their golden parachutes!
[I attempted to locate a specific graphic which illustrates this point, but I'm traveling and my laptop doesn't have this EXCELLENT image which was produced by CNN about 15 months ago. I sought-out this graphic and copied it for file as I was so impressed with the clear message which it provided.]
Float-on-water hydrocarbon crude OIL is the current lifeblood of both transportation and electrical utility economies as well. Americans don’t understand that one-half of the crude oil produced on this planet is combusted by electrical utilities – especially up and down the Pacific Rim where coal is not available. In the lower 48 states we don’t see and interpret this as we have coal and hydro plants plus some nukes. But look no further than Hawaii to understand that it is tankers of $78 crude oil which provide carbon to power the electrical utility generators.
Today in New Mexico, utilities are pressing for 20% rate hike increases – and these are centralized energy systems which are NOT combusting crude oil to generate electricity…
It IS the OIL, stupid!!! Yesterday I purchased a $68 tankfull of $3.10 gasoline… This would be cheap transportation fuel for Canadians or Europeans.
–Mark
doesn’t this strongly suggest that we ought to cut our ties with the oil oligarchy and move on to alternatives?
MAC,
Of course we should move to alternatives, but so far, there is no alternative that yet offers the advantages, benefits, and monetary rewards of making transportation fuel from oil.
Despite the fact that it is getting more and more difficult to find oil; and despite the fact that we have to drill deeper and deeper for oil in more and more non-hospitable places, oil still offers the most bang for the buck.
Despite the increasing cost of what we have to do to find, extract, and refine oil, the EROEI of oil is still roughly 5:1, much better than any of the alternatives. (The EROEI of corn ethanol is roughly 1.2:1 depending on what study you believe, and on how wide a limit the studier put around energy inputs.)
It will be only when the EROEI of oil drops below the EROEI of the alternatives; or when a technological breakthrough causes the EROEI of one of the alternatives to move higher than oil, that oil will begin to lose favor with businesses that were formed to make a profit.
yes, $3.10/gal is not that expensive, current Candian (Vancouver) price is $1.15/l, which is $4.34. I use a tank a week, so that difference is all of $20/week hardly enough to break the bank. During the spike in 08 it hit $1.50/L which is 5.67/gal. While people would say that such prices would “kill” the American economy, the Canadian economy had these prices, and shrank less than US economy which had lower price rises. And of course, Europe has always been above the highest price it reached in US or Canada at the peak. So economies can adapt to high prices, it just means some adjustment, not wasting gasoline, not using heating oil, using F350′s as working trucks and not daily commuting vehicles, etc.
If we accept the theory that high oil (gasoline) prices mean we have less money for discretionary spending, then should we not also look at prices for other non-discretionary spending that have gone up, such as housing, insurance, college education and health care? None of these are discretionary or “consumer” spending, (well, maybe college education) but they have all increased faster than oil in the last decade. I know a self employed fellow in the San Francisco area who’s family health care is $1600/month – that is far more than his transportation costs, let alone the oil portion of it. Employers often pay health care, but if they did not pay so much, or none at all, then they could pay higher wages – I am not suggesting they do this, but just pointing out that, regardless of who does the paying, paying more for health care means that there is less money for other things.
Families that rent face similar increases, as do those that send kids to college (who don’t get scholarships), and there are almost certainly other examples
Thankfully, food, electricity (outside of California), clothes, landline telephone, even the cost of a car (but not insuring it) have not really gone up much at all over the last decade, and some have decreased.
So, yes oil costs more, but so do a few other things too, all of which lead to less “consumer spending”. But given that much of this spending has, been on imported flat screen tv’s or other such things, I am not sure how much value it really adds to the economy.
Rather than “power down” I think, to borrow a term from the investment industry, we simply need to “reduce our exposure” to oil, and particularly imported stuff. This will involve some change, maybe some minor inconvenience, less personal vehicle miles travelled in smaller vehicles and almost certainly higher oil prices, but many other OECD countries have had all those things for years, and their standards of living are comparable to the US.
Oil cost = consumption x price. We can reduce the oil “cost” by reducing consumption instead of reducing prices. We just need to find, and implement, ways to do it that help the economy rather than hurt it.
If we can envision a low oil lifestyle that is as good as, though not the same as, the present high oil one, then people can embrace it. At present, there has been no such vision clearly espoused, and lots of fearmongering – no wonder people prefer the status quo.
CarbonBridge..
You say it was $147 oil that set the economy into recession, but yet if you were to plot mortgage resets against the timing of the recession they fit perfectly. So was it truly having to spend $300-400 more on energy a month that set it off, or the $300-1000 increase in mortgage payments that set it off? I suppose you have a 50/50 chance of being right either way.
Also, you are going to have to provide a source for your claim that oil provides 50% of the electricity in the world. Everything I have read states it is right around 7%. Unless it has truly grown from 7% to 50% since 2005, I’m doubtful.
http://earthtrends.wri.org/upd…..s/node/277
I agree, we will adapt. However, the Two Thousand and Teens have the potential of being a pretty rough decade.
This is not entirely on the same theme, but picks up on Paul N’s important remarks about how economies adapt over the long run. Drivers have been paying far, far higher prices for gasoline and diesel in Europe and even Turkey (until recently a low-income country) than drivers in the United States for decades. And, guess what, the vehicles in those countries are much more fuel-efficient.
But, of course, improvements in energy efficiency do not necessarily translate into proportional reductions in energy use. That depends on other factors, particularly our demand for the service provided by that energy. And while there is a limit on how many kilometers a person might want to drive in a day, the demand for lighting, it seems, is nowehere near sated.
I can’t resist sharing this interesting finding by researchers from Sandia National Laboratories, published recently in the Journal of Physics D. (“Solid-state lighting: an energy-economics perspective“, by J Y Tsao et al., 2010 J. Phys. D: Appl. Phys. 43 354001). The quotes here are from R&D Mag:
In short, if the cost per lumen falls, people will keep consuming more lumens.
Fortunately, little of the energy the developed world uses to generate electricity comes from oil products anymore (Hawai’i and other islands and other small, remote locations are notable exceptions), it does give pause for thought as to the interplay between rising energy prices and technological advances.
Carbonbridge
OD said:
“Also, you are going to have to provide a source for your claim that oil provides 50% of the electricity in the world. Everything I have read states it is right around 7%. Unless it has truly grown from 7% to 50% since 2005, I’m doubtful.”
My stats say the same thing as OD……….
//quote//
“The role of oil in the world’s electricity generation market has been on the decline since the 1979 oil price shock. Oil accounted for 23 percent of electricity fuel use in 1977; in 2001 its share stood at 7 percent. The oil share of world energy use for electricity production is projected to remain stable at between 6 and 7 percent through 2025.”
/www.clean-energy.us/facts/electricity.htm
Along with OD I also doubt that oil price spikes caused the Great Depression. But this seems to be a line of reasoning that crops up all the time where oil is given an inordinate power and importance it probably does not deserve. (the Peak Oil frenzy, )
At only 7% it seems to me that oil is of relatively little significance in the production of electricity. For oil we use in the transportation sector there are a number of substitutes and work-arounds, namely vehicles powered with bio-fuels, CNG or electricity. Perhaps we could eliminate the need for at least some of our un-necessary vehicles with mass transit, carpooling or shipping our freight across country by rail instead of trucks.
All these alternatives have problems and drawbacks, but then so does oil.
MAC
Somebody just paid $18 more in taxes
than I did for transportation. This somebody just paid $30 more for
a tank of gas I did for transportation and I think they did not go
as far on a tank and filled up more often too.
Really I would like to a see link to
this one. Pacific Rim countries have a lot of coal and use it to
make electricity. Those that do not like Japan and South Korea have
a lot of nuke.
“plus some nukes”
The US has a lot of nukes, 104 and
building more.
Who care about Hawaii (no offense RR)
it is a small place that does not have much affect on the world
economy.
Why is that, is it the cost of NG or
pollution control for coal plants? I do not know since I do not live
there and it is does not have much affect on the world economy. What
happens in California, Texas, and NY does however.
It kind of depends on what you are
talking about. As Mark illustrates, people get confused between
transportation fuel and making electricity. When we started
increasing the amount of generation (10% in ten years) NG was in the
range of $1.50-2.50/MMBTU now it is in the range of $5-6/MMBTU for
long term contracts for electricity. This change has resulted in
lots of jobs leaving the US. For example , the anhydrous ammonia
production facility in Benton County, Washington is now shutdown.
When we push the production of nitrogen
fertilizer and aluminum out or the US because energy prices, the
effect is compounded by losing both productive jobs and sending money
out the country to buy those commodities.
Oil prices are up just as much for China as for the US, yet their economy is robust. The US currently spends 3.5% of GDP on oil (500b out of 14,000b). In 1983-84 we spent over 4% of GDP on oil while experiencing very strong growth (6%). The massive overhang of houses due to overbuilding and the extremely high mortgage debt levels which financed the bubble are by far the #1 problem in the US economy today. Other major problems:
2. Rapid offshoring of productive jobs and the redirection of the labor freed up into non-productive occupations such as finance
3. Out-of-control health care costs, which are 16% of GDP vs. only 3.5% for oil
4. Demographics – baby boomers retirements will dramatically slow work force growth for the next two decades
I’d probably rank the cost of oil (specifically, the cost of oil imports) as #5, but I’d have to think about it. I wouldn’t rank the cost of energy overall in the top 10.
Ronald Steenblik said:
This is Jevons Paradox. It is one reason why economists do not take Amory Lovins seriously.
http://en.wikipedia.org/wiki/J…..ns_paradox
It’s possible 0.7% of world GDP goes toward artificial lighting, but in the US it’s more like 0.25% (DOE data shows about 10% of the 350b US electricity market goes toward lighting). More anecdotally, we have not upped our lighting consumption at all as we have gradually switched from incandescent to CFL. We could certainly afford vastly more artificial light, but there is a saturation point beyond which additional light does not improve your life. This argues directly against Jevon’s paradox, at least in developed countries.
Walter,
Thank you for pointing that out. This was a side chat. Discussion at a UN forum I attended on urban transport. Any oil substitute odlr innovation will be seen by the masses as a way to further increase consumption, and not to change their lifestyle. Sounds like a nice opportunity to invest in the company that supplies this expected increase in demand with innovation.
Kevin
I’m on travel typing on my IPhone. Please pardon the typos above.
Well, I am optimistic about the future.
First, oil may have played a role in the recent recession, but trust me, it was debt. We have $2 trillion in bad home loans in the USA, and another $1.5 trillion in bad commercial property loans. It is bad. Long story short, underwriting standards went to hell.
If we can wiggle our way out of this debt-hell, the future is bright on the energy front.
Commercial makers of autos already are bringing PHEVs to market. This shifts demand from liquid fuels to the grid. The grid can be powered by anything, including nukes, wind, solar, hydro, geothermal, natural gas, coal. There is nothing on that list we are short of. And we have been building nukes for 50 years now. France gets 80 percent of their energy from nukes.
We can make methanol from natural gas, btw.
Secondly, RR recently posted that at $4 a gallon, maybe even cellulosic becomes viable. Back of the envelope figs, I say that comes to $100 a barrel oil.
Is this a ceiling on liquid fuel prices? I say yes–hold on, I know what you are thinking. No way we can make enough biofuels.
That’s true, and for another long while, we don’t have to. It works like this–let’s say oil goes to $100, dampening demand, and spurring fossil fuel production. Call it global 85 mbd, a flatline of supply and demand, that will probably last many years, perhaps 10. (Iraq goes to 12 mbd? Who knows.)
Now, let’s say oil production begins taper off, perhaps at 1-2 mbd a year. Not enough profit at $100 a barrel. The biofuels only need to fill that portion, the 1-2 mbd. At $100 a barrel, there is enough profit in biofuels for production to ramp up every year. That buys another 10 years or so–now we are talking 20 years out.
And remember, we have another 20 years to bring in the PHEVs, the BEVs, CNG cars, very high mpg ICEs, to move closer to work, mass transit etc. Maybe even methanol cars.
The price mechanism will bring this about, and I contend with higher living standards, especially in the United States, which has been a silly energy hog for generations. The less oil we import, the bigger our domestic economy will be, and the cleaner our air.
We could have brought much of this about already with higher gasoline taxes.
I look forward to this future–I am particularly hopeful that the PHEV will become the default choice. I suspect in Europe, China and Japan, the government may just go ahead and mandate PHEVs, or cities may mandate such vehicles within city limits, or the driver has to pay more etc. I see no reason why city residents should be compelled to breath poisoned air, or have their property air rights violated by polluters. It was a necessity a generation ago–but any longer?
I deeply respect RR’s wide-ranging knowledge of energy markets. But I contend he consistently underestimates the power of the price mechanism to smooth transitions to a post-fossil fuel transportation world.
Robert Rapier said:
Oil hit a local absolute peak of $36.93 in Feb 1981; in December of that year the recession began; 22 months later in Nov ’82 it was $31.73, 80.04% of the peak price. May 2010 was 22 months after the corresponding local price peak of $123.24 obtained in June 2008; 80.04% of that figure would be $98.73, a difference of $29.25 from the actual of $69.48. Note that was in an era with massive oversupply from new oil, huge stock builds, and monstrous dropoffs in demand; by all rights the price should have quite quickly fell through the floor.
This suggests to me that something is tamping prices down now, or was defending a price floor then; or, conversly, that direct comparisions between the two eras aren’t entirely apt, for whatever reason – greater severity of current recession, difference in carbon intensity of economies then and now, faulty data etc. But on a real numbers basis prices remained higher for much longer then, until completely crashing in ’86.
I’m using the EIA F.O.B. Costs of Imported Crude Oil by Area for this, btw, since the numbers go all the way back to 1973, unlike so many EIA series which start in 1980 or thereabouts, right when things were changing in a big way.
I don’t mean to downplay the role of the housing bust. It definitely played a key role. But someone once insisted to me that it was primarily the housing bust and had little to do with oil. I then went and checked the price difference in energy over the past few years, and people were paying about as much in additional energy costs as they were when their mortgages reset.
Think about this. Oil is trading in a band that is $30/bbl higher than just a few years ago. At our present oil usage, that means the country is paying $200 billion more per year in oil costs, with much of that leaving the country. That has to have a chilling effect on the economy.
RR
Well, RR I have long been in total agreement with you that spending hundreds of billions annually on imported oil, and then more hundreds of billions (even trillions) in oil wars is folly.
I can’t image a worse folly–and I wish the biofuels crowd the best of success, along with the CNG cars, the methanol cars, the PHEVs and whatever else comes to market.
Ben,
A guy buys a PHEV and gets 3 of his neighbors to carpool with him to work
Net effect ???
Four gas guzzling, smog producing vehicles are taken off the road at rush hour.
It’s a “can’t loose scenario”.
Best of all, money is not flowing like a Tsunami into the hands of people who regard us as “the Great Satan”.
MAC
Robert,
Robert thinks that oil price spikes caused the recent recession .
I doubt it, but even if all the blogers who are tuned into R Squared concede the point, doesn’t this strongly suggest that we ought to cut our ties with the oil oligarchy and move on to alternatives ?
John (MAC)
MAC said:
John,
I don’t say that it caused it directly, but it was a contributor. But I will say that based on history, a sustained spike alone is enough to cause recession. And that’s the point I always try to drive home: We can’t afford the oil price risk hanging over us.
RR
I’m in the camp that believes oil prices sank the economy. We’ve talked about what families spend on energy, but what about food? It takes 3X as much from our pocketbooks. Food prices shot up along with oil. No surprise, since products aren’t teleported onto store shelves. It’s no secret that Americans are over-leveraged, and have been for some time. But, i’m convinced it was the high food and fuel costs that was the tipping point for so many. They got behind on their mortgages and everything went downhill from there.
“Amy Brnger, 43, of Portsmouth, N.H., just needs to look at her grocery receipts. For a long time, feeding her family of three used to cost around $125 a week. Suddenly this winter, her bill leaped to about $200.”
http://www.boston.com/business….._hit_home/
Several of us have discussed other
contributing. That is the problem with the dynamics of the US
economy. There are many contributing factor.
If there is anything that does not have
anything to do with anything is is EROEI.
The primary goal alternatives to oil is
to reduce the amount of oil we import. A secondary goal is to reduce
the environmental impact of energy to work toward sustainability.
I have a problem with the magic wand
crowd. They are against progress because it is not perfect.
RR wrote;
and
Which prompts the question, is it the high price, or the high amount of money leaving the economy that is doing the damage? What if we could choose just one and not the other?
If US domestic production went to zero next year from 8mbd today, and assuming the world price stayed the same ($70), there would be an extra $200bn leaving the country, but no increase in prices, would that cause a recession?
Conversely, if the oil price (or effective oil price, through oil taxes) goes up to $150/bbl, but the country becomes self sufficient through a combination of increased domestic production/biofuels/electricvehicles/other efficiency-conservation measures, so that the $255bn/yr currently leaving the country stayed here, would that cause a recession?
Which recession would be worse?
There must be some price level, obviously much higher than today, where it will spur enough of an increase in domestic oil+alternatives production, and enough decreased consumption, that the country is self sufficient.
But how high is that price, and is it worth it to tell OPEC etc to go and fly a kite?
I have not seen a study that looks at that, though if there is it would be very interesting reading, and I would like to think that someone at the EIA or elsewhere in the government, has tried to answer that question.
If the price volatility is removed, and the price is high, and stays high, and everyone knows that it will stay high, then alternatives and efficiency measures will be more viable. They still have risks, of course, but the biggest risk, that the price of oil drops so low they are uneconomic, is removed.
After all, going from $70 to $150/bl is only another $2/gal, to take the gasoline price up to $5-6, still less than Euro countries today.
And, if the US was able to achieve, and maintain, oil self sufficiency, would it then be insulated against oil induced recessions in the rest of the world?
I’m with Benny here, I think a better future is one spent working harder to achieve maintain self sufficiency, than working harder to be able to continually pay for high volumes of imported oil.
Robert said:
“I don’t say that it caused it directly, but it was a contributor. But I will say that based on history, a sustained spike alone is enough to cause recession. And that’s the point I always try to drive home: We can’t afford the oil price risk hanging over us.”
RR
Robert……….
Just exactly what do you propose we should do ?
MAC
MAC said:
http://www.consumerenergyrepor…..-planning/
I then went and checked the price difference in energy over the past few years, and people were paying about as much in additional energy costs as they were when their mortgages reset.
This is all true, but my contention is you can reduce your energy consumption. You can carpool, you can combine shopping trips, you can turn off lights and use the AC less, you can even lower your food bill through coupons, but you can not choose to lower your mortgage payment, obviously.
We are in this mess because too many people lived not only beyond their means but out of the entire ballpark, imo. The people I know that did not try to keep up with the joneses were pinched by the increase in energy prices, but it certainly was not the end of the world. Some of us have even managed to lower our energy costs during the last decade by smarter choices.
OD, MAC & Kit P. said: As Mark illustrates, people get confused between transportation fuel and making electricity.
Still traveling and I don’t have a snappy link to support my posted statement of ‘one-half’ of crude oil is combusted in oil-fired power plants. It appears my estimate is too high for 2010, these were figures which I and other engineers used in the mid-1980′s. My how time flies and the data points listed for today’s crude to electricity are probably much more accurate. Mea-culpa.
And Kit, you seem to be guessing on what make/model of car I gassed up for $68. It was a 11 yr. old F250 4×4 which gave me 24 mpg highway carrying about 1,100 lbs. of fuel drums. Not bad for a 10% ethanol blend. Today I spied a Montana gas station billboarding “ethanol-free gasoline.” They raised yesterday’s prices, – today’s cheapest grade of gasoline was up 2¢ to $3.12 in Idaho. Two daze ago cheapest price was $2.64 in Colorado and yesterday at $2.96 throughout much of Utah.
Last: I agree with Benny and a few others here. You cannot produce enough biofuel. The federal RFS mandates being lowered these past two years are proof-of-the-pudding that new volumes of alternative fuels cannot even be legislated when anchored with a $1.01 tax credit…
–Mark
Only a crazed lunatic would loan, or borrow hundreds of millions of dollars based on a “tax credit.” Just look what happened to the Biodiesel Tax Credit.
The most interesting part of this thread has been the question, “How much of it is Price, and how much is Balance of Payments?” Big, Important Question. It might make for a Great Topic for a Post.
Thanks to the record trade deficits accumulated over the last 10 years, the U.S. economy is about $1.5 trillion smaller. This comes to about $10000 per worker.
Cutting the trade deficit in half would pull the country out of recession and get the economy on a stable growth path. A fiscal stimulus package, increasing the federal budget deficit by two or three percent of GDP, will make things much better for a period of time; however, successive stimulus spending and permanently larger federal budget deficits will be needed to sustain the GDP and employment gains. Whereas, cutting the trade deficit in half would yield lasting benefits for U.S. GDP and employment growth, far transcending any fiscal stimulus in its permanent effects. Cutting the trade deficit would substantially increase tax revenues and reduce the federal budget deficit.
http://www.directorship.com/th…..t-paradox/
One thing I am sure of is that raising
taxes on energy is not a solution.
This is exactly what we did. When I
was in the Navy my salary was fixed by Jimmy Carter but energy cost
were causing double digit inflation and unemployment. We never missed
paying my bills on time. We did not cut back on things like camping.
It was just 10 miles down the road at the city park.
MAC wants to know:
RR responds:
Raising taxes on the poor and lower then
on the rich is not a plan that is going to work to reduce energy use but
it will sure control those poor people.
I would just rather ration energy use
on the rich. RR would not being going to any more world conferences
where the rich define sustainability as keep the poor impoverished.
But then engineers like me replaced oil
fired power plants with nukes. The first one I was at lower the
price of electricity for that utility’s customers.
My second UV I bought in ’85 had double the
millage of the one I bought in ’75 but according to Mark, current UVs are 3 times
more efficient than during first energy crisis. See how adding the word ‘sport’ improves mileage.
I just love it when engineers say such
stupid things. Hey look at me, I am smarter than everyone because I
can do calculus. How are your root cause skills Mark?
First, Mark has no clue what things
will be like in 40 years. Second, Mark got the past wrong, which
makes me think he is a little weak on predicting the future. Third,
so what?
It took a combination of things to
solve the energy and environmental problems that caused the
doomsayers to make outrageous predictions. I do not know which
combination of solutions will solve things now. However, I do not
see any reason our high standard of living (not a high standard of
excess that got some in trouble) can not be maintained and shared
with the rest of the world.
It is sad that China did not learn that
you can keep building coal plants without pollution controls without
significantly damaging air quality. We learned that 50 years ago
which is why making electricity with oil seemed like such a good idea
at the time but turning control of the US economy over to OPEC
created a decade of hard times..
Just for the record, there were some
other problems at the time too. Periodically, the cold war turned
hot but as it turns out the USSR was not as tough as they looked.
Guns and butter politics creates a big debt. Here we are again, over
spending because POTUS can not veto pork attached to military
spending.
One thing I am sure of is that raising
taxes on energy is not a solution.
If there is anything that does not have anything to do with anything is is EROEI.
For a business that wants to make a profit, EROEI has everything to do with everything.
A company that can invest in one unit of energy and get back and sell five units (the oil industry right now), will be more profitable for its investors than a business that invests one unit of energy and gets back and can sell only 1.2 units (corn ethanol — depending on — of course — which EROEI study one uses).
That’s why in the early days of the oil industry when the EROEI could exceed 100:1, motor fuel from oil soared to prominence so quickly, and those in the oil business got spectacularly rich. As many know, Henry Ford envisioned his first cars burning alcohol. But in the 1910s, there was no way the EROEI of alcohol could compete with oil with its EROEI of > 100:1.
Alternative fuels will be no more than a niche fuel — or used because of mandates — until the EROEI of oil has dropped below that of the alternatives (which it eventually will), or a technological breakthrough sends the EROEI of an alternative fuel above that of oil (which may happen, but there are no assurances).
“We can’t produce the biofuel equivalent of the oil we use today.”
Can we produce 60% of what we use today? That would get us off imports. We could even produce 30% and save another 30% through conservation and a move to EV’s and PHEV’s. We have to start somewhere. One foot in front of the other, and before you know it….
Perry said:
Realistically, we can produce 10%, and maybe push it to 20%. I have done those calculations using jatropha on marginal land, and rapeseed oil and corn ethanol on arable land. If you make some very generous assumptions and don’t take into consideration that you would be taking arable land out of usage for food, you could conclude that about 40% is an absolute limit.
RR
You have no idea how close you are to seeing your posting come to an end here. I have defended your right to post, but a number of posters would like to see you gone. This is a perfect example. You have utterly misrepresented my position on this (and insulted other posters in your post), and the sad part is that I think you know it. But you don’t care; you just want to make some point of rebuttal, even if it is a strawman: “Look at me, I am Kit. I couldn’t make it as an engineer, but if insult enough real engineers on the Internet maybe someone will think I am an engineer.”
For the record, my plan would keep taxes on the poor neutral. Only an idiot (read into that you will) could conclude that I am proposing to raise taxes on the rich and lower them on the poor.
And in fact, one thing you don’t seem to understand is that people respond to price. In countries where energy is more expensive, people use it more sparingly. Raising the price of energy would cause us to adopt measures that would lower the price risk hanging over us.
I was tempted to just delete your post, but I will leave it there as an example of what will no longer be tolerated. Changes are coming soon that will address this. I am through wasting time on your posts.
RR
Typical Kit. Make an insulting statement, yet no rebuttal at all that shows Mark is in error.
Back it up. Show how we can produce enough biofuels. It all has to do with arable land and efficiency of producing biofuels on that land. Show your work. I have done those calculations plenty of times, and Mark is correct. We can’t produce the biofuel equivalent of the oil we use today.
I may yet delete your post. I am wasting part of my Sunday morning addressing it, and frankly I have better things to do today.
RR
I can take those rock and make
transportation fuel too. The capital cost of the equipment is very
expensive but it has been done when other consideration were more
important. Again, the term ‘EROEI’ is not in one mathematical
formula.
Another way to make transportation fuel
is with biomass. Again, the term ‘EROEI’ is not in one mathematical
formula.
However, the term ‘EROEI’ is often used
in convoluted arguments explaining why it should not be done. It not
something business uses to figure out how to make a profit.
RR I am sure you are a well meaning
person. My electric bill has a new $20/month charge thanks to well
meaning people in Washington DC. They want to protect the
environment by adding more pollution controls.
One theory of economics is the law of
diminishing returns. The marginal environmental improvement will be
negligible but the cost to me is measurable and the the cost poor
people is more than negligible.
Unfortunately, I know what poor neutral
means. See when energy gets expensive, the government will help you
out. They will create job for people to go out and make you beg for
government help.
Count them, 4 paragraphs explaining my
position.
The first step is not a calculation.
The first step of solving a problem is carefully defining it,
followed by a root cause. We import oil because it is cheaper to
produce it someplace else and we have decided buying it from them.
One solution is using marines to take
it way from them at gun point. This is about as acceptable
increasing taxes on oil. I think I understand economics better than
RR and I also understand that politically unacceptable solutions are
indeed not a solution at all.
So biomass is still in the running for
being a partial solutions, since there is not a requirement that only
one solution, there is no requirement for me to do a calculation to
show that one is enough.
Since some here like calculations based
on false assumptions, it will be happy to comply.
Since the 2005 Energy Bill we have
increased ethanol production five fold and are at a E10 blend wall.
This has been accomplished in less than 5 years. Therefore, in
another 5 years we will at E50 and E250 by 2020. Assuming a 50%
reduction in driving, we will be able to supply the world with
transportation fuel.
To be consistent with my previous post.
Kit P that was really a stupid thing for an engineer to say. You
can not predict the future.
Kit P said:
Yet you didn’t show how he was wrong. To do that, you have to show your work.
That statement ranks somewhere between moderately and seriously delusional in my book. You don’t seem to understand that people respond to price, and when left to the whims of the market can cause serious economic problems when oil prices skyrocket. I submit that we would be far better off managing the price such that more of that price premium stays in the country.
Of course unlike you I have traveled a bit and seen how things are done in different places. I have seen what actually works and doesn’t work. I have seen how economies have buffered their economies against oil price shocks. You on the other hand don’t seem to think we have anything to learn from anyone else. Meanwhile we remain one of the most exposed countries in the world with respect to oil prices.
You need to take 1 step back and ask why we need to import as much as we do. That’s where I would begin to address the problem.
Then you shouldn’t call Mark’s statement stupid. Perhaps you should instead ask for context. If the question is whether we can produce enough biofuels to satisfy even half of the energy we use today in the way of oil, the answer is no. I have done the math.
Since the question was oil imports, how has that impacted them? I know. Do you? After all, the goal isn’t simply to increase ethanol. We were doing that to accomplish something else, which we are not accomplishing.
RR
doggydogworld said:
I agree, that there is a saturation point, Doggy, but the discussion in the paper on this question is interesting, and worth reading. Below is from the last three paragraphs of Section 5.1 of the paper.
In short, one can imagine more brightly lighted streets, sports arenas, parks, parking lots, unoccupied stores, etc. in the future if prices per lumen drop.
(Sorry for a slight diversion from the main topic.)
Once we, as a country, realize we have this problem we’ll solve it in a heartbeat. It is really incredibly easy.
I’ve made all of my pitches about how easy it will be to raise virtually any amount of biofuels we want to grow, but what Everyone keeps overlooking is the increasing efficiencies of the engines that we’ll burn them in.
When EPA sets the CAFE Standards at 35 mpg in 2020, or whenever, exactly, it is, That is Not a “suggestion.” It’s not a “Goal,” or a “‘Good Idea.” It’s the law. And, evidently, it’s not a law that’s going to be hard to comply with, as evidenced by the fact that the car companies fought against it hardly at all.
That will cut the need for gasoline down to around 72 Billion GPY. We can produce about 40 Billion GPY, today, from Domestic Oil Production. Let’s say that falls to 30 Billion GPY. That leaves 42. We’ll be doing a little over 14 Billion GPY of Corn Ethanol in just a few months. Now, we’re down to 28 bgpy. Well, if we did 9 bgpy from corn stover, and 9 bgpy from waste, ala Fiberight, that just leaves another 10 bgpy from something like switchgrass/agave/ etc. ( Less than 4 million gpy per county.)
Well, that is silly easy.
Now, since we’ll be able to produce about 2 million barrels/day diesel off of that 30 BGPY of oil, we’re going to have to replace 1.5 mbpd of diesel. We’ll probably switch about half of that to “rail,” and that leaves 0.75 mbpd to switch to either nat gas, or some biofuel (possibly, also, ethanol, but maybe biodiesel from palm oil, Chinese Tallow Tree, or whatever – we do have quite a few years to decide.)
Like I said, “Easy.”
I know it drives the “Doomers” Crazy, but the “Technocopians” Are usually right.
However, the term ‘EROEI’ is often used in convoluted arguments explaining why it should not be done.
Read more carefully. I didn’t use that as argument on why something shouldn’t be done, I said EROEI explains why no alternative fuel has yet displaced motor fuels from oil. And there is nothing “convoluted” about it — the explanation is quite simple.
It not something business uses to figure out how to make a profit.
It’s exactly what businesses in the transportation fuels business use to figure a profit. What comes out of the process to sell had better be worth more than what went in. In the motor fuels business, it is all about the energy that went in compared to the quantity coming out.
There are businesses where energy in vs. energy out doesn’t matter, but not the transportation fuels business. For example, companies in the molybdenum or vanadium extraction business consume far more energy that they get out, but they aren’t selling molybdenum and vanadium as a transportation fuel, they’re selling those elements as critical and extremely valuable metals to use in essential high-temperature alloys for jet turbines and other things.
Once again Wendell, it is the capital
cost and O&M that determines the cost of transportation fuel and
electrical. Both directly and indirectly. When you are paying fuel
costs, you are paying the capital cost and O&M of extraction.
Okay then lets examine the idea of
getting people to use less energy.
Consider for the moment that I have
traveled more than RR, and seen how things are done other places more
than RR. Maybe too I have more tools for solving problems than RR..
Been there done that, got lots of
t-shirts. What I learned? You can keep it, thank you very much.
I like how I live. I live the way I do
by choice. I use the amount of energy I do by choice.
I want everyone to have that choice.
Energy use improves the quality of life.
I have a fundamental disagreement with
RR. While I would encourage people to sue less, I do not want to
force people to make choices on how they live. It is like
carpooling. When there was an opportunity to carpool, I made the
same choice when I was making lots of money as when I was making
minimum wage.
If RR wants to get people to use less
energy, I am not sure why he does not like my idea of me rationing
the energy use for him and his family.
See the reason RR does not like that
idea of me making choices for him is that he think he can do a better
job of it than stagers. If fact RR is so smart he has a plan to make
help others make the choices that he thinks they should make. RR has
been to the EU and he sees high taxes means less energy use.
Like I said, you can keep it.
Since I am in the energy I like
solutions that allow solutions that include providing affordable
energy. I also like creating jobs for Americans. Heard of ethanol?
Paul N said:
Price hikes help the producer and hurt hte consumer. If a commodity is produced domestically, a price hike changes the distribution of wealth witihin the country but not the overall production of wealth (unless the price hike is so dramatic everyone quits their productive jobs to become incompetent oil wildcatters or something).
A shift from domestic to imported can actually help an economy. It’s not like Manhattan’s inability to produce oil (or much of anything else tangible) has limited their economy. They redirected their labor pool into more lucrative endeavours, such as selling the rest of us overpriced synthetic CDOs. If the US redirected our oil workers into more productive jobs then shifting to 100% imported oil would be an economic boon. I don’t know what they’d do that could produce more economic value than extracting oil, but I’m sure there’s something.
The problem with oil imports is not the economic cost but the dependence. We can adjust to a supply disruption of almost any other import, but we built our entire transportation infrastructure to be completely dependent on imported oil. Frankly, this is idiotic. It would be dumb even if the world’s oil exporters were friendly, but it’s completely inexplicable that we would volunteer to be utterly dependent on our sworn enemies. You can’t measure the cost of such idiocy in dollar terms.
Consider for the moment that I have traveled more than RR, and seen how things are done other places more than RR.
Sounds like a throw down. The only way to substantiate Kit’s claim is for each of you to list the names of the countries you’ve worked in or visited.
If the US redirected our oil workers into more productive jobs then shifting to 100% imported oil would be an economic boon.
Doggy,
Forgive me, but doesn’t that sound like one of the Soviet Union’s old “Five Year Plans?” As Joe Stalin might have said, “I direct everyone to build steel mills for the next five years.”
Doggy said:
“We can adjust to a supply disruption of almost any other import, but we built our entire transportation infrastructure to be completely dependent on imported oil. ”
Our present oil oriented infrastructure was not always dependent on foreign sources of oil.
At on time the U.S. was flush in oil. In fact, we are the only nation besides Saudi Arabia to ever produce oil at over 10 MB/day.
Some people credit the fact that we had oil resources (but the Germans did not) as a principle reason the Allies won.
High oil prices are an aggravation and a drag on the economy but the real culprit is “The Internal Combustion Engine”
Robert says :” It’s the oil, stupid….”
No…….
It’s our sole dependence on the internal combustion engine that keeps us dependent on foreign oil and so we suffer the economic distress caused by high oil prices.
It’s highly unlikely the U.S. will ever pump 10 Mb/day again.
Time to move on,,,,,
Long live Hybrids, PHEV’s, BEVs, mass transportation and Electric trains.
MAC
.
DDW, you still dodge the issue.
Yes, IF a commodity is produced domestically, but currently most of it (oil) is not, so we are redistributing wealth out of the country. And since part of the price hike is by taxation, the government can redistribute how it sees fit (that doesn;t mean they will necessarily do a good hob, but that not all of the price hike is going to producers.
and,
I would be interested to see how you arrive at that conclusion. So we shift a relatively small workforce into something else that is more productiove (so far so good), and instead of shifting some our the unemployed (non productive) workers into oil jobs, we’ll just import ot all? And exacerbate the dependence problems you highlight in your next paragraph.
I think there is still an economic cost but agree the dependence is a big issue, and then insuring that dependence becomes an economic cost therough securing supply routes, maintaing the SPR, oil embargo induced recessions, etc etc.
We can’t have an “economic boon” if the country is totally at the mercy of others, no matter how productive the former oil workers become.
I don’t think you realize, though, that you are some anonymous person making claims on the Internet. Your credibility over your claims isn’t the same as mine.
More boasts from the anonymous pseudo-engineer. All those tools and yet woefully deficient in the communication department. That is of course a critical tool for the engineer.
Given that the energy usage of my family is far below the national average, your “ration” would probably give me more energy than I would ever use.
Yet you have no issue with the government deciding that ethanol is good for all of us. They made that choice for us, and you have been very pleased with it. You are a walking contradiction.
RR
Robert,
It’s not the oil. It’s the internal combustion engine,
“It’s the oil, stupid” ???
No, ” It’s the Internal Combustion Engine, stupid.” …………….
MAC
Autobloggreen has an article about Mitsubishu admitting that the MIEV might suffer from very high Depreciation due to the fact that it’s . . . . . well, a “batttery” car.
The internal combustion engine has been good to us, and I doubt that it will be going away anytime soon. It will get a lot more efficient, though.
It can, now, push a 3,600 lb car 140 miles/hr, and get 25 mpg on ethanol. (with, virtually, no emissions.)
The computer chip has made a lot of difference.
Rufus,
PHEV’s with the on-board generator running on corn ethanol.
MAC
Make that Corn, And Cellulosic Ethanol, and I’m on board, MAC.
In trying to answer the question as to whether it really WAS oil that caused the recession, I have put together some numbers relating to oil prices in 2008, when the oil prices peaked, and the recession started (data from nationmaster.com and EIA).
Firstly, to look at the issue of was it high retail gasoline prices causing consumers to cut back, I have a chart of 2008 gasoline prices for selected OECD countries;
It would seem that higher prices do, generally, lead to lower consumption.
Since the theory is that gasoline spending left less money for other spending, we can look at gasoline spending (retail price *per capita consumption) as a % of per capita gdp;
So us poor folks living in Canada had to shell out 15% of our income into energy (i.e very exposed to oil prices), while the Brits spent just 6%. Yet Canada has had a mild recession, and Britains’ has been severe. Per capita energy spending in the US is similar to Canada, yet the US recession is much worse than Canada. The person doesn’t directly spend this much on gasoline, of course, the non gasoline oil use is priced into all sorts of other products and services, but the person pays for it in the end. A more accurate comparison tool would be gasoline as % of household income, but that data is harder to find.
Based on this, I would suggest that the high retail gasoline prices, and consumers cutting back, were not the primary cause of the recession.
And to look at the balance of payments issue, we can look at the value of net oil imports as %GDP (2008);
What I find interesting here is how similar oil (based on world prices) is as %GDP in most of these countries, at around 3%. As for the imports, I think it is safe to say that all the countries that spent more than 2% of GDP on oil imports had sever recessions, but so did UK which spends hardly anything on oil imports. Australia spent 1% on imports, and has largely dodged the recession.
Canada, being the only oil exporter of this group, did not spend any GDP on (net) imports, yet still had a mild recession.
So, I don’t think there is a clear smoking gun here. Oil prices clearly did contribute to the recession, maybe they were the straw that broke the camel’s back, but clearly some countries, like Canada and Australia, were much less vulnerable to recession than the US, UK and other countries. Given that Canada and Australia did not have such a wild runup of over-leveraged properties and companies (neither had to bail out banks and insurance companies), my conclusion is that oil may have started the recession, but other factors determined how bad it was (is).
So for the poor overleveraged homeowner (or company) high oil prices might have been what finally put them into the bankruptcy, but if they hadn’t been overleveraged in the first place, they would suffer, but not go bankrupt.
Just for interest, here’s a look at spending on health care, as % GDP (The dark blue represents gov spending on health care, and the light blue is additional private spending);
This looks like a much bigger drain on the American taxpayer, and a disadvantage for the employers that have to pay for it, than oil ever is – no wonder some companies prefer to have their employees offshore. That said, it can’t have been the trigger for the recession as US health care costs have always been high, and will probably remain so.
It was ordinary people like my father.
The backbone of the American military victors is an independent
thinking group of enlisted men and women.
Well MAC you better make them work
first. BEV are MIA, and PHEV are DOA.
MAC forgets he just told me how good
his ICE was.
My credibility is very good. The
tactic RR uses is labeling me a lier, therefore anything I say is a
lie.
The individual still has a choice of
not buying something if they do not like how it is produced.
Government regulates the energy industry, ethanol is not different.
When government regulates to control the action of the individual in
making choices, I have a problem with that.
Does MAC know that the on-board
generator is powered by an ICE. BEV are powered by either an ICE or
external combustion engine. FCEV use a chemical process. In France,
nuke plants load follow most of the time because because demand is
often lower than the capacity of their nuke fleet. The French are
trying demonstrate BEV now.
In the US, if we build 200 nukes to
replace coal, and then 100 nukes to replace oil and charge batteries,
maybe I will be wrong about the ICE.
Paul wrote,
Actually, it looks like disposable
income is the causal factor.
What is doing is looking at an effect
and finding something to blame. This is liberal root blame analysis. You get the amser you want.
The better method is root cause analysis (RCA). You find the answer you need to solve the problem.
A smart young man who was an operator
at a power plant in Spain. He was surprised that an engineer would
talk to him. I told that I had been a plant operator before getting
my engineering degree. He asked why the other American engineers
were friendly. The thing is all of us were the first in our family
to get a college degree.
In the US a plant operator and plant
engineer are equals. Yes, we have different jobs and different
educational backgrounds but we do not live in a system that hold
people back because of who their parents are. We have disposable
income to buy houses and cars.
If the system keeps you down, you can
not afford a house, you can not afford a car.
The house we lived in Spain had oil
heat. Before it was rented to us it did not have central heat.
Spain is a mild climate and small country with poor roads.
So there are numerous factors that
affect energy usage.
Kit P said:
You don’t understand. Nobody here actually knows who you are. So you can boast that you have been to the moon for all we care. That’s how the Internet works. Anonymous people can pretend to be all sorts of things they really aren’t. I can’t do that.
The individual still has a choice of not buying something if they do not like how it is produced. Government regulates the energy industry, ethanol is not different. When government regulates to control the action of the individual in making choices, I have a problem with that.
You are wrong about that. The government has mandated ethanol blends, and in many markets that is all you can get. Yet you say you don’t like the government deciding what’s good for people. Since you haven’t spoken out on the ethanol mandates, it is a clear contradiction when you speak out on my plans that would have the government making certain decisions.
RR
Spain is a mild climate and small country with poor roads.
Yup, for sure, poor roads in Spain Poorly-developed Spanish Autopista
Kit, exactly when were you in Spain? I’ve traveled all parts of Spain by highway except the far south and southeast corner. Their highways are just as good as ours, and I’d have to say their Autopistas are better than our Interstate highways.
Get into the remote, rural areas and some roads aren’t very good (I’ve seen some pretty bad roads high in the Pyrenees), but the same could be said for any of our 50 states (I’ve been on some pretty bad roads high in the Snowy Range in Wyoming).
Kit wrote;
Does it?
Since, as usual, you have made a statement like that without any backup, lets take a look at some data.
Since I think prices have something to do with consumption, we have historical US retail price and gasoline consumption (price is not inflation adjusted, volume is kgal/day)
I would also say the period from 1996 to about 2001 saw volume increase as prices decreased, and vice versa. Consumption and prices rose around 2002 and from there to 08 prices rose and consumption dropped. For 09, prices crashed and consumption still dropped, so something else at work there.
So I think that supports the assertion that, generally, higher prices lead to lower consumption.
Taking a look at US consumption and per capita disposable income for the same period;
Hmm, not much of a correlation there. There may be in specific cases/categories etc, but not in general.
So KIt, I think it doesn’t look like like disposable income is the causal factor in changes in national oil consumption.
So there’s my backup, where’s yours?
Wendell Mercantile said:
Ditto to all of that. I have criss-crossed Spain by car and rail, travel on and off the beaten tourist path. We spent eight hours once driving across desolate Clint Eastwood Spaghetti Western territory, with two kids constantly asking “Are we there yet?” Another time drove the rural roads in Basque country; talk about going back in time.
For Kit: I have been to over 30 different countries, and to most of the continents. I have lived in Europe on three different occasions (Germany, Scotland, the Netherlands), and have traveled to all but 4 states in the U.S. (all but Alaska, North Dakota, Wisconsin, and Delaware). Many of my travels are documented at:
http://traveling-in-europe.blogspot.com/
So tell me again how you have traveled more extensively than I have.
RR
Robert Rapier said:
You’ve never driven the I-95 corridor up from DC/Baltimore to NYC/NJ/Philly or the other way around? There’s roughly 15-25 miles of Delaware to pass through on that route.
Samuel R. Avro said:
I can’t swear that I have never passed through Delaware or connected in Madison, WI. I don’t think I have been to either. And while I have flown over North Dakota many times (so I know it actually exists) I have never set foot there. Then again, does anyone?
RR
Are we looking at the same curve? It is the economy stupid! It sure looks like the demand for gasoline is following the economy. For the first 14 years of the curve, gasoline prices were stable but gasoline demand was all over the place. Demand changed without a price signal.
Well, duh! That is my point, if you have a large disposable income, price signals are not very effective to reduce energy use. Now find a graph that shows what happens to those with for those whose disposable income leaves them after spending for essentials (such as food, clothing, and shelter) with not enough money to buy a car. I think they are going to not buy gasoline for a car they do not have.
What RR is saying is that folks with little discretionary income are in trouble when mortgage, medical costs, or energy prices go up. So show me that increasing tax on energy will lower energy use for anyone but those with little discretionary income.
To make simple, if you tell me high taxes in the EU reduce gasoline use, you have to show me a graph of people in the EU large disposable income who choose not to buy gasoline they can not afford it. No averages please. If 10 Germans buy big BMWs, 10 drive pregnant roller skates because that is all they can afford, 80 can not afford a car; you have made my point.
Actually, Kit, you can make you own point, you said, explicitly, “it looks like disposable income is the causal factor”, and have provided zero evidence to back that up. I am looking forward to seeing the root cause analysis that you say is th basis for m,aking such defintiive statements.
But now’
So, now you are saying it’s not household income after all, it’s actually the economy that determines gasoline use. Wish you had said so in the first place. So let’s look at the economy, stupid;
Yep, quite a correlation there! In the 20 year period of this graph, the economy grew for 19 of the,. Yet gasoline demand rose in 10 of the 20yrs, and dropped in 10 of them. So nine of out the ten years of decarsing gasoline deamnd, the economy was growing – what kind of correlation is that?
I’d be interested to see what ypu are “looking” at to come up with your conclusions.
And as for this,
I have re plotted the data with annual averages to make the graph simpler, so let’s take a closer look at those first 14 yrs;
So, from 1990 to 1997, gas volume did move independently of price, and from then on, in most years that prices rose, consumption fell, and vice versa.
That suggests that things have changed since the early 90′s, and my suggestion is that back then, it was cheap enough that people didnt really care. From the 1998 onwards, it would seem they did take notice of price, and reacted accordingly.
1998 was the year that prices bottomed out, and for the last 12 years the general trend in prices has been up, and the general trend in consumption has been down, regardless of economy or household income.
There are certainly several factors that influence gasoline consumption, price being one of them, and I think it’s fair to say it is likely the single largest factor.
Actually the same amount of evidence as
RR. He started out that by stating he is not an economist. So you
have two non-economist debating the economy.
How about you Paul. Are you an
economist?
Did you miss the down turn in the early
90s? Where do think the expression ‘it’s the the economy stupid’
came from? Then there was the slight recession at the end of
Clinton’s term and beginning of Bush’s term.
So this time Paul your problem this time is not
reading the graph but picking the wrong one.
When people tell me things that are so
obviously wrong based on my memory of living through something, I
check to see if I recall it correctly. Yep sure did. I sorry Paul,
you keep trying to me that I am wrong about places I lived and times
I have lived though.
Paul, people are trying to tell me how
great things are someplace else. So try showing a graph of someplace
else to back it up. Showing another graph of the US will just make
me explain how you can interpret economic data.
Liberal loves to protect poor people in
the dumbest ways. Stop helping by making energy more expensive so
they will use less. Find a better way. Like making ethanol.
RR,
You really should go to Alaska!!
Biocrude said:
It’s not for lack of wanting to go; it’s just that I haven’t had the chance. Thought I was going to end up there on a business trip last year, but it didn’t pan out. Was supposed to go there on a fishing trip when I lived in Montana, but something came up.
The irony is that when I first moved to Europe, the first vacation I took was to Norway. The reason? The pictures always reminded me of Alaska.
RR
Kit P said:
But you said you don’t like the government telling people what’s good for them. Except when they are telling them that an ethanol mandate is good for them; you seem to be pretty happy with that.
Just so you know, I am going to start deleting your posts over the slightest provocation. I am just sick to death of the time wasted on your posts. They are counter-productive; not just for me, but for just about everyone. If a post contains insults, misinformation, or frankly just blather, I will probably delete it rather than have people waste time responding.
RR
Actually Kit, I think that was exactly the right graph, you said gasoline use follows the economy, yet it trended down from 2002 to 2008 while the economy grew. If you think this is the wrong graph, then let’s see what you think is the right one.
Meanwhile, across the pond, there is this 2005 report from Germany;
Effects of Germany’s Ecological Tax Reforms on
the Environment, Employment and Technological
Innovation
They introduced their “ecotaxes” in 1999, with among other things, a 3c/L increase in fuel tax per year for five years, equivalent of about $0.57/gallon (whicg is still not that much, in my opinion).
But did it make a difference?
They interviewed a thousand people;
So, you said 10% would not care, and they found 20%, so you were pretty close. For the remainder, well, they drove less, and used less fuel when they did drive;
They used the tax revenue to go into their version of Social Security, and then reduced the contribution levels required from employers. In effect, reducing payroll tax, which makes it cheaper to employ people;
So far, so good…
So it made people and companies do more on energy efficiency, with more confidence – which was as intended.
This was followed up with another report in 2008 looking at so called “sustainability indicators”
While I have no interest in CO2 emissions, they do take a good look at energy usage (from p5).
So economy up, energy down. But you contend that “gasoline use follows the economy”, so what happened? (p5)
Indicator 11b is about passenger transport (p32).
So their tax regime led to an improvement in average vehicle fuel mileage. For the same period, (1999-2004) in the US, according to the the BTS, average vehicle mileage went from 21.4 to 22.5 mpg, and for light trucks decreased from, 17.1 to 16.2
So the country with the fuel taxes and efficiency incentives improved fuel efficiency, and decreased transport intensity (and oil intensity), while maintaining robust economic growth. For the same period, the US, without any equivalents, also saw robust economic growth, but no improvement in vehicle fuel efficiency.
Q.E.D.
As explained by unemployment, not GDP.
Paul it looks to me like you are playing a gotca game rather than try
to learn from those older and wiser.
There is a concept here that some are
missing. There is not rule that says if you post a calculation or a
graph that I have to post a graph or perform a calculation. If you
tell me the son rises at 7am where I live in December I know that is
wrong by experience. I do not need to look up the time of the
sunrise or explain the earth’s orbit to prove you wrong.
When younger less experienced people
tell me something based on having been someplace, I check to see if
something has changed. I am open to learning but what I learn most
of the times is that my skills at observation as a middle aged adult
were better than your’s were in the 2nd grade.
First your link did not work and second
your statement is a wild leap of logic. If you want to say economics
are complex and you do not have a clue about going on in Germany I
would agree.
Just so you know, what people say in
interview and what they do are two different things.
I am not sure why Paul is comparing
what they did in Germany to the US but something odd jump out.
Starting at 1999 we have, 17.0, 17.4,
17.6, 17.5, 16.2, 16.2, 17.7, (R) 17.8 & 18.0. We have an
increasing trend except for two years.
Back to my main point, I only hear rich
liberal with large disposable incomes want to apply a regressive tax
on gasoline to reduce the amount of imported oil. It will not hurt
them. Worse case one less trip to a fancy restaurant or a little
extra cheating on their income tax.
Does it work in the EU or is a system
that ensures a low standard of living so that many can enjoy the same
freedoms that transportation provides?
Paul N said:
BTW, I show US energy productivity rising 37% between 1990 and 2007, and over 43% from 1990 to 2009. From this one could argue the German policies had virtually no effect. But Germany’s energy productivity was arleady much higher than ours in 1990, and it is much easier to improve productivity off of a low base (e.g. China improves labor productivity almost 10%/year while we max out around 1.5%). Germany’s ability to improve energy productivity slightly faster than the US is thus a lot more impressive than it sounds.
Kit P said:
Yet the analogy is that you frequently tell us the sun rises at noon, and when people point to resources that show you are wrong you fall back on the old “I have experience and you can’t tell me I am wrong.” Thus, you constantly run afoul of those who would rebut you with calculations and references.
Imagine if we all argued like that: “You are wrong because I am older and wiser and have more experience.” Rebuttal: “No, you are wrong because I have more experience. I don’t need your graphs to tell me I am wrong.” It would be pretty pointless.
RR
Kit P said:
Explain how it is regressive if they are given tax credits that would be equal to their increased gasoline costs.
On the other hand, what truly is regressive is the rise in oil prices that just ends up sending the money out of the country. That’s what has so many people hurting. If we had followed my plan, gas prices would have risen, people would have gotten that money back, but they would have begun to modify their behaviors by making more efficient choices. The worst thing for the poor is to simply let prices rise as resources deplete. Your “do nothing” solution will be the most regressive of all.
RR
Energy productivity increased by 40.1 % in Germany between 1990 and 2007.
Some of that would have been due to the reunification of East and West Germany in 1990. At the time there was tremendous disparity between the two parts with respect to energy production. From 1990 to 2007 there would have been a tremendous jump in what used to be the East that would skew the average for the entire rejoined country.
Wendell, that is right: the reuinfication of Germany skews the figures a bit. Still, in the transport sector the fuel economy of new vehicles in the EU (including Germany) and Japan has improved steadily since 1995, while in the United States it actually worsened until 2004, thanks to all the regulatory and tax loopholes (including those for E85 vehicles) that encouraged the buying of large SUVs and other “light trucks”.
See Part 2 of the recent IEA booklet, Transforming Global Markets for Clean Energy Products, especially Figure 4. Europeans, for the most part, never adopted the habit of buying vehicles much larger than their needs. If they live in a rural area and have to on occasion haul, for example, a cord of wood, they tow a small trailer behind their car. Hardly a hardship.
Kit wrote;
Gee, I must apologise for not being a mind reader. When standard practice is to use GDP as the first indictor, you use the secondary indicator, but don’t say so.
Well, let’s take a look;
Well, according to Kit, gasoline use should go up when unemployment goes down, and vice versa, yet for ten of the twenty years on the graph this did not happen. There is no period where there is even a general trend following this pattern so, other than 2009, how valid is it to say “gasoline use follows the economy, as defined by unemployment”?
Well, that is what you asked for;
And we have data on people in the EU, as represented by Germany, who specifically instituted the sort of fuel tax system that is being discussed here. Their economy grew the same as here, they had a recession the same as here, but, they did make a concerted effort at reducing oil use, including five years of steadily increasing gasoline taxes, and, suprise, their oil use decreased.
Hmm, how’s your math? There are three years where it did not increase (17.6-17.5-16.2-16.2) , end of this 8 year period, mileage had gone up from 17 to 18, a 5% improvement over 8 years, while Germany achived an 8% improvement over five years. More importantly, during that five year period of the rising fuel tax, not only did fuel per mile decrease, but so did total passenger vehicle miles travelled. They became less dependent on vehicle travel, not more.
So, Germany set a clear goal, of reducing energy use, and especially oil for transportation, put a plan in place, including a five year schedule of rising fuel taxes and achieved meaningful reductions without compromising economic growth.
This did not insulate them from the world recession of course, but it does make them less oil dependent than they were, which was the objective.
Paul N said:
Didn’t you get the memo? Kit doesn’t need your fancy math telling him he is wrong. His personal experience tells him he is right.
This is how Kit argues a point:
1. Makes up his mind.
2. Posts anecdotal evidence and cites personal experience as to why he is right.
3. Is confronted with contradictory data.
4. Falls back to 2, or puts up a strawman and beats on that for a while.
5. Writes a lot of verbiage about all of his personal experiences, or just blathers on with irrelevant information without actually addressing 3.
6. Tell us how much better the world would be if we would stop trying to prove him wrong and just learn from him instead.
RR
Again Paul I must question your graph reading skills. Unemployment starts trending up is followed by demand decreasing. Unemployment starts trending down is followed by demand increasing.
No but I am open to more information why EU per capita fuel use is lower than the US.
You go first RR, explain your plan and I will stop saying it sounds like a rich guy wanting to tax the poor.
Now that sounds really condescending to me. Before anyone starts to modifying behavior of farmers and coal miners you may want to check the status of the gun rack in the those big PU trucks you think they should drive home from their productive jobs.
Some theories sound better sipping white wine in the VIP lounge of the airport.
I have a plan, ration energy use by those sipping white wine in the VIP lounge of the airport.
Kit P said:
I have linked to my plans numerous times. If you haven’t read it, then I have no idea what you have been complaining about. But your failure to read before criticizing would explain a lot…
Farmers and coal miners shouldn’t waste energy either. Or would you exempt them from rationing? Do I get to use more energy since I own guns? How would this plan of yours work? If I use less energy by biking to work than the coal miner who drives a gas-guzzling V8, whose energy would your plan ration? You really do have to explain the details. It is starting to sound like you have a grudge over your position in life, and you are simply fantasizing about bringing some people down from their perch. That doesn’t interest me as much as talking about real solutions to real problems.
Now THAT is condescending. Personally, when I am in the VIP lounge I am usually drinking beer. But I suppose you can only theorize about the inside of a VIP lounge.
Where can I read about your plan? I think you are just making things up on the fly, but I would like to hear about your plan. Please link to where you have promoted and discussed it. I am not at all opposed to rationing. After all, that’s what higher prices does: Rations by price. So tell me how you would allocate. Don’t forget that you may have a gun-toting coal miner to deal with.
RR
Well, let’s see. There are three distinct periods of rising unemployment on that graph. First one, gasoline use still goes up, but then turns down. Second one, unmployment hgoes up, and so does gasoline, third one, yes, gasoline is going down, though it had already turned down before unemployment wnet up.
So I would call those neutral, positive and negative correlation, so we are batting 1 1/2 out of three on your hypothesis – I don’t think 50% is enough to call a correlation.
lets look at the reverse, there are two distinct periods of decreasing unemployment, and in the first period gasoline use goes down, then up, then down again, to end up about where it started – what kind of correlation is that? The second period it just went down, up slightly, then down again, so completley against your theory.
But I’m open to hear your specific interpretaion of that graph to arrive at your conclusion.
As for the EU, we can boil it down to this;
1) they drive less than we do (on average)
2) they drive more efficient vehicles (on average)
There are numerous reasons why this is so, but high fuel prices (from taxes) and taxes on vehicles according to fuel efficiency ratings are two of them.
Robert – You have Kit P figured out perfectly.
It would be interesting to know what he really does for a living and in what field.