in his op/ed piece yesterday, krugman had a few comments on the economy. since krugman is an economist, i typically gain quite a bit of insight from his commentaries–check out his blog from time to time if you don’t already!
yesterday’s piece still has me wondering about a few things:
That said, I don’t believe we’re really facing anything comparable to 1970s stagflation. For one thing, we’re less dependent on oil: America has more than twice the real G.D.P. it had in 1979, but consumes only slightly more oil.
i’d have to see some real figures before i’d buy this. our imports are still really high and increasing. lots of goods coming from asia among other areas. does this comment take into account the oil required to ship those products to america or is he just measuring our “at the pump” consumption? along the same vein, is he including the oil needed to ship our oil to the US?
the following graph shows a double in oil imports from the mid-to-late ’70s to now, so the doubling in GDP would corespond w/ a doubling of oil imports, making us relatively equal in dependency now as in the ’70s.
(from department of energy, energy efficiency and renewable energy)
these figures aside, i have to wonder if krugman is taking into account the dependency of our food system on oil. aside from food imports from mexico, requiring oil, we ship a lot of food domestically from corn producing states to the processing plants and then from there out to stores across america. i see a lot areas within that supply chain that are extremely dependent on oil and oil prices.
the other big difference between now and the ’70s is the growth rate of nations still industrializing. the global demand for oil is so much stronger. take a look at the two following graphs, also from the DOE:
i see some big differences in oil dependency that krugman is brushing aside.
so, has he gone off his rocker or am i missing something here?
6 responses so far ↓
1 jefff // Feb 22, 2008 at 12:12 pm
Your oil imports graph is interesting, but doesn’t contradict what Krugman said.
Oil imports != oil used. I beleive US oil production has also dropped significantly over that time period (peaked in the 70’s as I recall).
Look at your second graph: oil consumption by region.
North America is only slightly up since 1980, and surely the vast majority of north american oil consumption is the US (With the regions as described “North America” is the US, Canada, and Mexico). Even if the other countries are a large chunk do you really think their consumption is way way down while ours is way up?
Nope, that second graph is what you want and it agrees with Krugman.
2 messels // Feb 22, 2008 at 1:09 pm
hey jefff.
i’m not sure i follow your second statement. how are oil imports not equal to oil used? why would we import if we weren’t going to use it? our reserves aren’t that large…
also, my second graph contradicts the first so i’m not convinced that i proved krugman right.
check this out:
http://www.hubbertpeak.com/nations/2004/images/US.gif
our production in the US has only declined by 3 million barrels per day but our demand has shot up through the roof.
i think kurgman is wrong. at least at this time.
3 jefff // Feb 22, 2008 at 4:17 pm
Imports are less than consumption. Consumption = imports + domestic production - exports - inventory building.
I suspect that US oil exports were pretty negligible even in the 70’s. The inventory is surely negligible as well. Even the SPR was not all that big once the rest of the economy started using lots of oil.
Uh… whats the red line? Whats the black line? I’m guessing the black one is domestic production. That hubbertpeak website is a mess, heh.
Just look at your first graph and subtract 3 from the end point (not the projections, the current end). That is taking out the imports that are just replacing domestic production decline rather than going to increased consumption.
Oil imports go from 6mb/y to 12mb/y, and increase of 6mb/y. Subtract 3 for domestic production decline and consumption went up by about 3.
Guessing that the black line on that hubbertspeak graph is US production domestic production peaked at 11, so consumption went from 11 to 14 from around 1970 to 2005, a 27% increase.
GDP went from 3.7T to 11T 2000 dollars from 1970 to 2005, nearly tripling (up 197%).
It so happens that inflation adjusted oil prices are now pretty similar to what they peaked at in the 70’s. With the economy tripling and oil consumption going up by 1/3 oil must be a much smaller part of the economy today than it was in 1970.
4 jefff // Feb 22, 2008 at 4:33 pm
Wait I messed up a bit in there.
Ok, first of all Krugman said 1979, not 1970 or 75, somehow I thought he said 70.
Secondly I messed up that consumption calculation by 3.
US consumption in 1970 was 14mb/y, not 11. We were already importing 3 then. That matches the red line on the hubbertspeak website. In 2005 judging by your import graph it ought to be 3 higher, 17mb/y. Other sources, and the red line indicate that it is 20, and the red line vs the black line shows imports being up by about that from 70 to 75, so that makes sense.
So that hubbertspeak graph is exactly the one we want, the red line is consumption.
In 1979 it shows the US using 18mb/y, in 2004 or so (I think the line ends in 2004) 20.
So oil consumption up 11%. 1979-2005.
Here is a us GDP in 2000 dollars dataset:
http://www.measuringworth.com/datasets/usgdp/result.php
1979 gdp $5.2T, 2004 $10.6T, just over double.
So oil consumption up a bit over 10%, maybe even 15% by 2008 while GDP is up 100%, maybe 120% by 2008. That is exactly what Krugman said.
It happens that oil prices now are very similar in inflation adjusted dollars now to what they were at the peak in the 70’s. With the economy doubling and oil consumption being up only 10-15% oil is less of a choke point for the economy. This suggests that higher oil prices are required to get the same effect on the economy. Quite possibly high enough prices are coming in the next 5-10 years, but they aren’t here now.
5 messels // Feb 24, 2008 at 4:39 pm
great follow ups, jefff. i’m slammed as heck right now and want to look this over again later when i have more time.
regardless, maybe it’s something beyond the numbers that i’m hung up over; it’s just hard for me to swallow the “we’re not *that* dependent” pill. i have a sense that we’re ignoring the externalities of our economic system such as distributed infrastructure, being completely reliant on foreign-oil, etc?
6 New Energy Bill — End the BS, Republicans. It’s time for a change. Seriously. // Feb 28, 2008 at 4:27 pm
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