Our Energy Efficient Economy Can Handle $112 Oil

Compared to the early 1970s, the U.S. economy is now twice as energy efficient, requiring only about 1/2 of the energy consumption per dollar of real GDP in 2007 (8.78 BTUs per dollar of real GDP) as in 1973 (17.44 BTUs per dollar of real GDP), according to data just released by the Energy Information Administration.

Bottom Line: The energy-efficient economy of today is much better able to absorb higher energy prices than in the past. Although high oil prices crippled the economy in the 1970s and early 1980s, and contributed to three serious recessions between 1973-1982, the energy-efficient Goldilocks Economy of the 21st Century just keeps humming along, recession-free.

Comments

[buyitcheap]

I just filled my tank for $70 - it was $40 18 months ago. that $30 * 5 fills a month isn't chump change, $150 up in "smoke" (pardon the pun.) There's got to be some marginal impact at the consumer discretionary level where this gets "handled" by fewer visits to the Mall, the restaurants, etc. Or is that being "covered" with the rising use of credit cards?

[fatcat]

I agree buyitcheap,over the near term it must have a dire effect. Also,nobody talks about the huge heating cost just past.I paid almost $1000 twice this winter for lp gas and i kept the on 65 most times and my tanks are almost empty now.

luckily,I can afford it,but what about the marginal families,this has got to really hurt..

[orca]

I have n.e.v.e.r. read such a stupid article on SA before. Congratulations on providing an utterly useless graph, it is a pity it doens't go back all the way to the Stone Age. Buyitcheap is being polite but really, with Mr Ph.D. here bottomlining the way he does, without regard to price (at the very least), my only question is how much did you pay for your lifetime-achievement-degree.

[tuj]

Twice as effiecient (you are completely correct on that point), yet EROEI is 4 times worse (you completely neglect this). Those two slopes ain't parallel buddy. Maybe you should do some more research before you declare things goldilocks so flippantly.

Yes, you are getting more GDP per unit energy, but your unit energy produced from raw resources is using more unit energy than it used to (and at a rate faster than we are increasing GDP per unit energy).

Technology shifts could change that, but those are major shifts, not band-aids like ethanol or tar sands.

[tuj]

Or in Comic-book-guys terms: "Worst. S.A.Article. Ever."

[linenoise]

This is a fail. TOTAL FAIL.... Why are you posting this drivel?

[linenoise]

I apologize for my previous, mostly useless comment... The REASON this article is at total fail is that it makes a sensational statement that would require real research to build an argument for, more than a pretty chart and ten column inches to communicate that argument and someone with a PHD to create it. Oh, well one out of three ain't bad....

[willibald]

Mark Perry,
what have you been smoking? We are done!
We'll be in a depression within 12 months.

[CrossingtheT]

willibald, you're a wimp. Bet, you are a liberal.

[Saildog]

I agree with the negative sentiments above. He also conveniently ignores (or maybe has never learnt) the Jevons paradox. Anyway the argument is worn and tired. I first heard it years ago. It doesn't in any way illuminate anything - it is just a fleeting meaningless soundbite, something the Labour Party would be proud of.

[tuj]

Even Julian Simon would be embarrassed.

[Joules Burn]

The problem with an analysis such as this is that the US Economy is not a closed system. If you look at this graph:
www.geocities.com/WallStreet/Exchange/74...
you will see that the percentage of the GDP that is manufacturing has gone down by about half. What does this mean? Quite simply, China is doing a lot of our energy-intensive manufacturing -- and using their energy to do it.

[AnotherPhD]

What that graph shows is that America has shipped much of its energy-intensive industrial capacity - and jobs - to China.

[Indyphil]

Joules, probably the most intelligent comment yet.
A service based economy is more efficient than a manufacturing based economy. The problem with his comparisons to previous crisis, is that we are not finished with the current crisis. In the 1970's and the 1980's high energy prices were a temporary problem, solved by OPEC's ability (and willingness) to simply open the spigot.

"The Goldilocks economy of the 21st Century just keeps humming along"

Wow, what planet is this guy on? And which box of cereal did his PhD come in?

[ponchovilla]

research.stlouisfed.org/fred2/data/GDP.txt
1950 GDP = $315B
2008 GDP= $1400B
5th grade math indicates 1400/315= 4.45 larger GDP with an improvement in energy efficiency of ~19/8.78= 225%. Another way to look at relative to 1950 4.45/2.25 = 1.97 or 197% worse per dollar of GDP.
I am convinced Mark Perry is looking to replace Larry Kudlow on CNBC. He only needs a blond wig.

[wayneS]

Those people that believe the politicians that we are victims of the energy companies and don't adapt are the ones that will be hurt. The economy will survive crude priced where it should be. Our government has held down the price of gasoline for too long and people are increasing in their selfish, wasteful habits. Extravagant excise taxes aimed at American oil companies producing and selling in the U.S. has driven jobs and profits overseas. They are using these excise taxes to enable people who, by their habits, maximize the amount of green house gases produced.

[anengineerr]

A BTU is a BTU no matter what and if the USA uses half the energy per unit of GDP than 30 odd years ago than that is a good thing. And in the future it will be lowered by half again. The doomsters and cry babies can only be made happy when someone writes that the world is going to end. It has changed forever but it is not going to end. Buyitcheap is smart enough that he will reduce his five fillups a month as are millions of other Americans. In the past month even my wife has started to consider the gas usage in the trips she plans.

[tuj]

Yes indeed all BTU's are equal, but not all fuels have equal BTU's. For example, gasoline has 1.5 times the BTU content per gallon than ethanol. Crude oil has 6 times the BTU content of nat. gas.

If it was all about BTU's, we'd just all use coal since there's tons of that. Obviously that doesn't work on an individual scale (and gasification has poor net energy returns) and it has numerous other environmental problems, besides just covering everything in fly ash.

[Joules Burn]

In response to "anengineer", what you say would be true if the US was manufacturing the same amount (relative to the size of the economy) but just more efficiently, but it is not. It is perhaps great that the rest of the world will pay the US to push paper, write software, etc., but that fact masks the effect of higher priced energy on the economy. Energy drives the world's economy, and a higher cost for that energy will impact the US the same as anywhere else.

[unimpressedpragmatist]

Spurious logic is no substitute for reasoned discourse. This article is a prime example of stupidity in action. Put this writer out to pasture, his gray cells have atrophied!

[tuj]

www.eia.doe.gov/oiaf/archive/aeo00/figur...

[sivere]

The only goo that will come out of the high petroleum prices is that we will defvelop alternate enrgy sources:

1. Coal- both bulk and liquifaction;
2. Nuclear- fission and possibly breeder, possibly fusion.
3. Other- solar, wind tidal etc.

Let's forget about the speculation on global warming and start developing these resources now.

[richandmer]

If the Europeans can survive on gas prices over $6 per gallon, it would make you think that we should also be able to live with higher prices. If not, please explain why they can get along with those prices and we can't? I think the Canadians are in the same boat as their prices are much higher than the U.S.

[Joules Burn]

Yes, there is likely a scenario by which the USA could get along with what Canadians pay, and another one for what Europeans pay. The key is the transition from where we were to where they are. Ask independent truckers and major trucking companies how that transition is going. Or airlines.

[tuj]

European cities are fundamentally designed differently. They don't have the extensive suburbs, strip malls, McMansions, and average 12.1 mile commute that America has. Europeans also get a different selection of cars, generally taxed by engine displacement. Their taxes have been high on petrol historically, and they have well-developed public transit, for both short and long distances. Its possible to go from Central London to Berlin entirely by rail. There's a city planning and design issue in America that has to be addressed if fuel consumption is to be reduced.

[iThinkBig]

Good insights Joules. The first stage of any possible negative change is denial. Washington is spinning hard these days. Socialism sounds good to a lot of people right now because the irresponsible expect to be bailed out by the responsible and this is an election season. The country can now go two ways:

1) Attempt massive socialism which will work in the short-term and we have depression later (cumulative -20 GDP). Unfortuntate that liberals are running this nation. Any real conservative values or how to properly address major looming economic problems are muted.
2) Attempt massive energy independence, heavily subsidize alternatives energy. This is my choice, although whether we succeed or not in time to stave off systemic banking failure remains to be seen. Main St. needs real attention and right now inflation is considered 'contained'.

[CrossingtheT]

Well i am here in Europe, to be more precise in the greater Munich area in Bavaria and I can tell you, that in an area of let's say 80 miles around Munich everything is full with people, who work in Munich. And our public transport sucks too, believe me!!

When I first got my drivers license and went clubbing in Munich (what a waste of time and money, anyways), i broke speed records with my Daddy's beamer on the 50 miles from my hometown to Munich.

When you do that today you stand bumper on bumper in the middle of the night.

What I am trying to say is: Of course, folks here in Europe drive less than in the US, simply because the distances are shorter. But they drive a hell of lot more than 15 years ago. And since the iron curtain fell, the number of trucks driving through Germany to Eastern Europe has multiplied.

The cars here simply consume less fuel, because it always was expensive.
Right now a gallon of gasoline costs around 9$, Diesel around 8$. About 70% of the price are taxes.

For example: I drive a Jeep Grand Cherokee with a Mercedes Diesel engine. It has the same torque like the HEMI V8, it's just a little slower. But it is about twice as fuel efficient than the HEMI. I am not kiddin'.

The more expensive gas becomes, the more consumers will demand more efficient vehicles. When this worked in Europe, why wouldn't it work in the US.

[tuj]

Europe also gets low-sulfur diesel fuel, which is just now starting to make it to the US, which is one reason why diesel has been popular for a long time in Europe, and not in the US; it smells bad here because our diesel is crap. Its also has been harder to find a station that has diesel and even then there is usually only 1 diesel pump. All of this is slowly changing, but it has limited the adoption of diesel significantly in the US. Diesel of course has been more expensive than gasoline here in the US for about 5 or 6 years now.