How High Oil Prices Will Permanently Cap Economic Growth  

Posted by Big Gav in ,

Bloomberg has an article by Jeff Rubin arguing that high oil prices cap economic growth ("permanently" - though I'd argue its really until we reconfigure our economies to be based on renewable energy) - How High Oil Prices Will Permanently Cap Economic Growth.

For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil has quadrupled, and that shift will permanently shackle the growth potential of the world’s economies.

The countries guzzling the most oil are taking the biggest hits to potential economic growth. That’s sobering news for the U.S., which consumes almost a fifth of the oil used in the world every day. Not long ago, when oil was $20 a barrel, the U.S. was the locomotive of global economic growth; the federal government was running budget surpluses; the jobless rate at the beginning of the last decade was at a 40-year low. Now, growth is stalled, the deficit is more than $1 trillion and almost 13 million Americans are unemployed.

And the U.S. isn’t the only country getting squeezed. From Europe to Japan, governments are struggling to restore growth. But the economic remedies being used are doing more harm than good, based as they are on a fundamental belief that economic growth can return to its former strength. Central bankers and policy makers have failed to fully recognize the suffocating impact of $100-a-barrel oil.

Running huge budget deficits and keeping borrowing costs at record lows are only compounding current problems. These policies cannot be long-term substitutes for cheap oil because an economy can’t grow if it can no longer afford to burn the fuel on which it runs. The end of growth means governments will need to radically change how economies are managed. Fiscal and monetary policies need to be recalibrated to account for slower potential growth rates.

1 comments

Rubin is wrong in so many ways.

Even before we move to a renewable substitute for oil we are cutting our oil usage. US oil usage peaked in 2005, it was down 10.1% in 2011. Oil usage was falling prior to the recession. Driving is down 0.8%, flying 3.7%, freight (air, road, rail and water) is down 2.7%. Heating oil use peaked in 1996 and is down 40%.

About 2% of the 10.1% drop is due to less "travel", the rest to efficiency.

We're moving to supply a larger percentage of our oil domestically which will boost our economy. We've been sending roughly $1 billion offshore for oil each day. We're doubling our CAFE standards by 2025. A lot more money is going to stay in the economy and stimulate growth.

Then, we're likely short years from "adequate" EV batteries, affordable batteries which would let one drive about 200 miles and get a 90% recharge in less than 20 minutes.

When we can drive distance on electricity then our movement away from oil will be swift. Driving on electricity is like tanking up with $1/gallon gas.

I'd say that Rubin is very wrong. We are likely on the cusp of a major economic boom as we build renewables and switch to EVs and pay for them with oil savings.

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