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68 comments on Is the Economy Less Sensitive to an Oil Shock?

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Stuart Staniford on October 19, 2005 - 3:24am Permalink | Subthread | Parent | Comments top
I doubt it's as big an effect as you think Mike. Again, 80% of the economy is houses, cars, and food and beverages. House production and food production have probably not gotten offshored much at all. And cars only somewhat (until very recently) since the increase in imports in cars has been offset to some degree by the shift to trucks and SUVs. The offshoring is mainly going on in categories like consumer durables and clothing, but those are smaller categories in the overall economy.
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mw on October 19, 2005 - 4:07am Permalink | Subthread | Parent | Comments top
I dunno... these are pretty big numbers we are talking about, big numbers that keep repeating themselves month in month out.

In 1975 the US had a trade surplus and hasn't seen one since and likely never will again.

After 1975, oil got really expensive... and scarce, for a while.

Thus was born the need and desire to outsource to reduce costs, not to mention the fear of Japan taking over (remember those days?)

Its all inter-related, isn't it? Foreign imports reduced costs on other goods that otherwise, if were fully borne by The American Consumer, would mean they'd build smaller houses and other things.

So, the economy shifted gears and outsourced a ton of manufacturing overseas... literally millions of tons of manufacturing, annually. I happen to live in a massive port city and can assure you that all those containers coming into North America are filled with products made thanks to oil, somewhere along the line.

How big? Well lets first think about the impact oil itself has on the trade deficit, as clearly the advent of peak oil in the US has had a major impact on the deficit froom the 70's onward - increasing it as oil had to be imported, and also forcing outsourcing to other locales with cheaper labour to avoid inflation and keep the consumer spending.

The "trade deficit" is a simple balance sheet - what's really instructive is to look at the GOODS only number, and factor out the trade surplus that exists in services, and also seperate the oil imports. Census.gov gives all the numbers:

Some selected years... getting tired:
Goods only surplus/deficit:
Year  Petroleum    Non Petroleum
1990  -54,513      -47,205
1991  -43,617      -21,781
1993  -44,002      -71,567
1994  -44,315     -106,314
1995  -48,059     -110,742
1996  -63,119     -107,095
1997  -61,352     -119,170
1998  -42,828     -186,931
1999  -59,187     -269,634 (cheap gas and Internet fever!)
2000  -108,266    -327,839
2001  -114,658    -329,393
2002  -111,230    -408,126
2003  -118,693    -448,538
2004  -126,466    -522,922

Going from a trade surplus of 12 billion in 75 to a trade deficit of 600 billion or more but it would be worse if not for the exports of services and goods. The point I'm trying to make is that within the the next few years an annual deficit of 1 trillion dollars in goods will be hit.

1 trillion in goods = a ton of oil which is not on the US balance sheet.

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Stuart Staniford on October 19, 2005 - 4:24am Permalink | Subthread | Parent | Comments top
Sure - the trade deficit is 5% or so of the economy, and I'm happy to grant you that O(5%) of the energy savings per unit GDP come from outsourcing. Even 10% at this time of night and without going to do a real calculation. But we have a factor of 2 to explain since 1970. There's no way that's outsourcing - that has to mostly be efficiency gains. It isn't particularly hard to think things are 2x more efficient now - just remember what everybody was driving in the US in 1970.
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mw on October 19, 2005 - 4:52am Permalink | Subthread | Parent | Comments top
Sure... "consumer" efficiency has gone up.

My beef with Greenspan et al is that they glow on about how much less energy dependent the economy is... and while there is truth to that, in that some new industries have a low cost component of energy, the bottom line is that we are consuming (there is that word again) more than ever.

Besides... Hummers and 300 HP family wagons probably don't get much worse or better mileage than a souped up Dodge Charger of the past, which, ironically, is now reintroduced with a big engine.

That trade deficit is just going to get larger and larger as oil costs more and more, but somewhere there must be a limit to how much production one can outsource (for lower other costs) before the whole system breaks. On that note... time for a nap!

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mw on October 19, 2005 - 4:46am Permalink | Subthread | Parent | Comments top
Year     Nominal GDP
(billions of dollars)
1990     $5803.1
1991     $5995.9
1992     $6337.7
1993     $6657.4
1994     $7072.2
1995     $7397.7
1996     $7816.9
1997     $8304.3
1998     $8747.0
1999     $9268.4
2000     $9817.0
2001     $10128.0
2002     $10469.6
2003     $10971.2
2004     $11734.3

So the next question is... are these numbers big enough to be meaningful? Yes -- and growing more so rapidly:

http://www.trendvue.com/charts/2005/10/tv20051019-01.gif

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