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Gail Tverberg on why high oil prices are the problem

 

 

I have been enjoying following Gail Tverberg's Our Finite World blog - a primary focus for her is the idea that high oil prices are the initial cause of the financial and political and economic problems around the world. High oil prices keep the great recession going, cause the debt and deficit spending problems, reduce innovaetion, and that they could well continue to block any recovery.

She describes a stuttering economy, in which a bit of headway towards economic recovery is made, but the increased activity causes an increase in the price of oil, which then stalls the recovery.

I find some of her arguments a bit undersupported, but many are brilliant. This article is a pretty good summary of her main arguments about the high cost of oil and economic recession and recovery.

The graph really tells the story.

Ten Reasons Why High Oil Prices are a Problem

 


Here's a snippet: 

 

8. The impact of high oil prices doesn’t “go away”.

Citizens’ discretionary income is permanently lower. Businesses that close when oil prices rise generally don’t re-open. In some cases, businesses that close may be replaced by companies in China or India, with lower operating costs. These lower operating costs indirectly reflect the fact that the companies use less oil, and the fact that their workers can be paid less, because the workers use less oil. This is a part of the reason why US employment levels remain low, and why we don’t see a big bounce-back in growth after the Great Recession. Figure 4 below shows the big shifts in oil consumption that have taken place.

Figure 4. Percentage growth in oil consumption between 2006 and 2011, based on BP's 2012 Statistical Review of World Energy.