If you are doing calculations, one thing to keep on mind is how much of out manufacturing we have offshored. Japan may be using energy to make cars for sale in America, and I am not sure if we should count part of that as American energy use per GDP.
also, this isnt typically expressed as a calculation using the actual dollars spent on energy. The usual chart would show energy in btus, or something of the sort, vs gdp, to show gdp/energy efficiency. Of course with energy costs rising at their current clip, youre going to see a chart like this as a result, even with 4% GDP growth, but it doesnt tell you a whole lot.
Dr. Stephen Leeb, who published a book about $100 oil, came out this year with Economic Crisis: $200 oil, where he predicts the collapse of our civilization (along with investment tips for those who want to prepare), unless we can find alternative energy sources. We are at peak supply, and demand from Chindia is rising exponentially. Leeb says this is the greatest crisis our country has EVER faced, bigger than the depression, tech stock collapse, housing bubble. Each of those could be solved with liquidity injections, but the oil shortage and high prices cannot be solved economically. Just as with other problems (bubbles, SS fund), the media, government, and Wall Street are in denial.
Geoff, Wyss was making an agrument that energy consumption, as a % of GDP, was far below the levels of 1981. I was just checking his assertion - and it appears he was using an old number (from 2001).
I've heard this same assertion many times on CNBC. I think it is helpful to know these guys have their facts wrong in this case.
In this post I didn't try to argue that energy would impact the economy - this is just a fact check post. For thoughts on the economic impact, I recommend Dr. Hamilton's post.
But CR, we already KNOW they have a rather casual disregard for the facts. Hehe. Stale data, twisted statistics, vague variable definitions, misleading time comparisons - there is a whole bag of tricks at their disposal, and they arent shy to use any of them to try to put a shine on the turd.
I think the element of offshoring (esp. manufacturing) should not be underemphasized.
While I believe it is fair enough to assume much of offshoring is because of "cost" concerns (rightly or wrongly), I also believe that major drivers besides cost of labor are environmental regulation and other regulatory/compliance/legal costs. Some of these, including labor, are indirectly proxies to energy.
In other places you may have to bribe more, but that can "abate" other costs, and I suspect bribes are calculated accordingly. You don't want to overstretch the bow.
That is, requests for bribes. I don't really know how bribes are negotiated, but I imagine you don't ask for a specific amount, but stop putting forth hints when it's enough. But then maybe it's far less subtle than that.
You do have data on personal conusumption of energy through the first quarter from BEA.
The seasonal adjustment appears questionable but in the first quarter of this year it was 5.9%-- down from 6.2% in the fourth quarter and the 4.2% 1999 bottom.
This data implies your adjument is the correct order of magnitude.
The table to which you link has a column headed "Energy Consumption per dollar of GDP" that goes through 2004 It use chained dollars (appropriate when "btu" is used as the unit of energy consumption) and shows a continued decline in energy use per unit of GDP. Looking at a nominal dollar calculation is a good idea, too, but we need to take care not to conclude rising prices matter because energy prices are rising.
Geoff,
Beg to differ. Nominal values tell you a great deal. Households don't make spending decisions after price adjustment. Current account payments are not made in price adjusted dollars. Constant dollar calculations tell us a great deal, but we should not assume nominal values are uninformative. If all we want is an engineering view of the economy, constant-dollar calculations are fine. If we want to understand flow of funds, we need nominal terms.
Add Mort Zuckerman, editor-in-chief of US News World Reporst, to the list of dipsticks who think the US is 'safe' because energy is such a low percent of GDP. I heard him use this argument on Maclaughlin Group.
It's really annoying to here a rich person act as if they are an authority just because they are rich. Although, W. Buffet does seem to have a good grasp of economics for a lay person.
Totally agree with you K. However, the post was in response to someone talking about energy as a share of GDP. So, if you are refuting a comment, you have to stick first to the point expressed. What the person was talking about (I think) is that since we are more efficient with our use of energy, for any given price increase, the passthrough via inflationary pressure is likely to be less severe, and thus the interest rate response will be less drastic.
This does not say anything about current account issues, consumer spending diversion, etc, which clearly matter.
I was wondering if you ever followed up with finding comprehensive calculation of the numbers--- I am trying to find out THE CLOSEST TO POSSIBLE energy percentage of the GDP, and am intrigued by your post... Anyways, if you have any follow up information, I would really love to see it!
If you are doing calculations, one thing to keep on mind is how much of out manufacturing we have offshored. Japan may be using energy to make cars for sale in America, and I am not sure if we should count part of that as American energy use per GDP.
also, this isnt typically expressed as a calculation using the actual dollars spent on energy. The usual chart would show energy in btus, or something of the sort, vs gdp, to show gdp/energy efficiency. Of course with energy costs rising at their current clip, youre going to see a chart like this as a result, even with 4% GDP growth, but it doesnt tell you a whole lot.
Dr. Stephen Leeb, who published a book about $100 oil, came out this year with Economic Crisis: $200 oil, where he predicts the collapse of our civilization (along with investment tips for those who want to prepare), unless we can find alternative energy sources. We are at peak supply, and demand from Chindia is rising exponentially. Leeb says this is the greatest crisis our country has EVER faced, bigger than the depression, tech stock collapse, housing bubble. Each of those could be solved with liquidity injections, but the oil shortage and high prices cannot be solved economically. Just as with other problems (bubbles, SS fund), the media, government, and Wall Street are in denial.
Geoff, Wyss was making an agrument that energy consumption, as a % of GDP, was far below the levels of 1981. I was just checking his assertion - and it appears he was using an old number (from 2001).
I've heard this same assertion many times on CNBC. I think it is helpful to know these guys have their facts wrong in this case.
In this post I didn't try to argue that energy would impact the economy - this is just a fact check post. For thoughts on the economic impact, I recommend Dr. Hamilton's post.
Best Wishes.
But CR, we already KNOW they have a rather casual disregard for the facts. Hehe. Stale data, twisted statistics, vague variable definitions, misleading time comparisons - there is a whole bag of tricks at their disposal, and they arent shy to use any of them to try to put a shine on the turd.
I think the element of offshoring (esp. manufacturing) should not be underemphasized.
While I believe it is fair enough to assume much of offshoring is because of "cost" concerns (rightly or wrongly), I also believe that major drivers besides cost of labor are environmental regulation and other regulatory/compliance/legal costs. Some of these, including labor, are indirectly proxies to energy.
In other places you may have to bribe more, but that can "abate" other costs, and I suspect bribes are calculated accordingly. You don't want to overstretch the bow.
That is, requests for bribes. I don't really know how bribes are negotiated, but I imagine you don't ask for a specific amount, but stop putting forth hints when it's enough. But then maybe it's far less subtle than that.
You do have data on personal conusumption of energy through the first quarter from BEA.
The seasonal adjustment appears questionable but in the first quarter of this year it was 5.9%-- down from 6.2% in the fourth quarter and the 4.2% 1999 bottom.
This data implies your adjument is the correct order of magnitude.
CR,
The table to which you link has a column headed "Energy Consumption per dollar of GDP" that goes through 2004 It use chained dollars (appropriate when "btu" is used as the unit of energy consumption) and shows a continued decline in energy use per unit of GDP. Looking at a nominal dollar calculation is a good idea, too, but we need to take care not to conclude rising prices matter because energy prices are rising.
Geoff,
Beg to differ. Nominal values tell you a great deal. Households don't make spending decisions after price adjustment. Current account payments are not made in price adjusted dollars. Constant dollar calculations tell us a great deal, but we should not assume nominal values are uninformative. If all we want is an engineering view of the economy, constant-dollar calculations are fine. If we want to understand flow of funds, we need nominal terms.
Add Mort Zuckerman, editor-in-chief of US News World Reporst, to the list of dipsticks who think the US is 'safe' because energy is such a low percent of GDP. I heard him use this argument on Maclaughlin Group.
It's really annoying to here a rich person act as if they are an authority just because they are rich. Although, W. Buffet does seem to have a good grasp of economics for a lay person.
Totally agree with you K. However, the post was in response to someone talking about energy as a share of GDP. So, if you are refuting a comment, you have to stick first to the point expressed. What the person was talking about (I think) is that since we are more efficient with our use of energy, for any given price increase, the passthrough via inflationary pressure is likely to be less severe, and thus the interest rate response will be less drastic.
This does not say anything about current account issues, consumer spending diversion, etc, which clearly matter.
Hi Calculated Risk:
I was wondering if you ever followed up with finding comprehensive calculation of the numbers--- I am trying to find out THE CLOSEST TO POSSIBLE energy percentage of the GDP, and am intrigued by your post... Anyways, if you have any follow up information, I would really love to see it!
Thanks!
Emily