PeakTrader.com

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PeakTrader said...

According to the article below, energy use per unit of GDP (output = GDP = income) in the U.S. has been falling since the end of the U.S. Industrial Revolution (from 1871-1914) and WWI:

Energy use: Power slide | The Economist
Jan 19th 2011

The energy required to produce a unit of GDP is falling in most countries around the world.

Peaks generally correlate to the high point of heavy industry, before lighter industry and higher value-added businesses (such as services) begin to replace old-fashioned smokestack manufacturers. This often coincides with gains in energy efficiency, too.

http://www.economist.com/blogs/dailychart/2011/01/energy_use

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Morganovich says "the ben and alan printing press festival affects OUR buying power...if the value of a dollar falls, it buys less oil..." etc.

You can thank the Fed for smoothing-out business cycles, particularly at the height of the Information Revolution from 1982-07, which helped raise U.S. living standards.

Also, countries need dollars to buy oil. So, they sell their goods to the U.S., receive dollars, buy oil, and those dollars are invested in the U.S..

Foreigners paid more for oil, because they received increasingly smaller "gains-in-trade" for dollars, while the U.S. received increasingly larger gains-in-trade, which was necessary to maintain U.S. consumption (to keep dollars flowing to foreigners), because of diminishing U.S. marginal utility.

Moreover, the U.S. economy is the only economy that can expand with huge negative net exports.

So, the U.S. has been able to consume more than produce in the long-run, which also raised U.S. living standards, while monetary policy improved to keep domestic resources more employed.

You want an economy where limited resources are better and fully employed, and gains more than its trading partners in international trade.

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Morganovich says "the price of oil is 3X higher in dollars than in 1998...in swiss francs, it's only 1.5X...wages in switzerland have probably kept up with that, but not here."

In the real economy, you won't find low-skilled working immigrants in Switzerland, who can buy newer, bigger, and better houses, SUVs, light trucks, or minivans, and lots of other goods.

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marmico said...

Something seems amiss with the charts. Just eyeballing the second chart, the price of gasoline has risen too much relative to other prices since 1999 for there to be a declining energy share since the turn of the century.

My calcs show a 5% share in 1995, 4.8% in 2000, peaking at 6.3% in 2008 and 2011 clocking in at 6%. I just used nominal dollars in the BEA Table referenced.

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morganovich said...

marmico-

mark is using chained dollars.

i think your methodology is the better one.

if you compare nominal energy to nominal income, you get a pure number that reflects reality.

mark is adding a CPI bias that does not need to be there.

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Mark J. Perry said...

No CPI bias possible here, that's a BLS measure of prices, this is BEA data.

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morganovich said...

mark-

but aren't you using chained dollars?

why is the needed if you have nominal energy expenditure and nominal consumer expenditure/dpi?

seems like an easier way to get a number as opposed to using deflated figures.

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marmico said...

Okay. So Perry is using BEA Table 2.3.6U.

The BEA is using different 2005$ chained deflators for Energy Goods and Services [EGS](as numerator) and Personal Consumption Expenditures [PCE](as denominator) to calculate the spending ratio.

But the consumer pulls away from the gas station after payment with a nominal EGS dollar out of his total nominal PCE dollars which is why the nominal ratio not chained series should be used.

In other words, the EGS chained data is measuring the quantity of gasoline, electricity, natty gas, etc. purchased which is declining relative to the quantity of total PCE purchased. However, the ratio of spending on the quantities has changed.

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Mark J. Perry said...

I'll update the second graph in the post using nominal, instead of real dollars. Once I had the dataset for inflation-adjusted energy spending over time, I used the inflation-adjusted total consumer spending to get the ratio/share. I agree that for the ratio/share measure, it's not necessary to use inflation-adjusted dollars.

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Mark J. Perry said...

Post has been updated with a graph of the energy share of total consumption using nominal dollars, instead of real dollars.

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The charts show annual personal consumption expenditures from 1995-2011 on "Energy Goods and Services," which "consists of gasoline and other energy goods and of electricity and gas."

http://1.bp.blogspot.com/-ubVYhfruby8/T0o_GHzZu5I/AAAAAAAAQ68/PT6xKx2g4W8/s1600/energy1.jpg

http://3.bp.blogspot.com/-3kxItPndsrw/T0o_Gk6-9VI/AAAAAAAAQ7E/uHHDbq4bj74/s1600/energy2.jpg

http://2.bp.blogspot.com/-rAaicfADogc/T0u5KevbW_I/AAAAAAAAQ7k/6HvoKndPlXc/s1600/energy3.jpg

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MP: Thanks to Marmico for the link to the BEA data, and for the suggestion for the chart below using nominal dollars:

Update: The bottom chart above shows the share of spending on energy using real dollars, and the new chart below shows the share of spending on energy using nominal dollars. Adjusting for inflation, the share of energy spending goes down from 7% to 5% from 1995 to 2011, whereas the unadjusted share spent on energy goes up from 5% to 6% over the same period. I agree with Morganovich and Marmico that the unadjusted, nominal measure of energy's share of total personal consumption spending is better than the inflation-adjusted measure, and I stand corrected (and updated!).