Monday, May 21, 2012

Solutions to All of Our Problems! v.3

I must apologize. My last two attempts at solving all of our problems were probably not the best. I really think I've got it this time though.

It stands to reason that if higher oil prices can generate a few oil and gas extraction jobs in America, then dramatically higher oil prices can create an amazing number of jobs. Right?

Click to enlarge.

Oh yes! I can feel it!

It would seem that as the price of oil rises in real terms, the number of employees in the oil and gas extraction industry rises about 50 months later. And how did I arrive at 50 months? It offered the best correlation in the following chart.

Click to enlarge.

Heck, we even have a handy formula now. Let's use it to generate 12.5 million jobs.

What do we need to get the price of oil up to? Easy. We simply plug 12.5 into the equation and solve for x.

y = 0.00122x + 0.11659

12.5 = 0.00122x + 0.11659

x = (12.5 - 0.11659) / 0.00122

x = $10,150

If we want 12.5 million oil and gas jobs, then we'll need oil to cost $10,150 per barrel. Could it get any easier? All we need to do is immediately slap a $10,000 tax on each barrel of oil. Then, we wait. 50 months later comes the prosperity!

Oh oh. I think I just went down the sarcasm path again. Sorry about that.

See Also:
Solutions to All of Our Problems!
Solutions to All of Our Problems! v.2

Source Data:
St. Louis Fed: Custom Chart


Anonymous said...

I love your blog. You may want to look at credit growth vs inflation.

I read this a while back how credit growth leads inflation by some time but I have never seen a "correlation" study. This also explains why inflation is low today (little credit growth).

There was also a graph of government deficit spending vs inflation which is now showing a higher correlation (because government deficits are so large and making up for the shortfall in credit growth).

Eyeballing the data if you added credit growth + government spending you would get a decent correlation to inflation. Much like your PPI+wages gives an outstanding correlation.

Stagflationary Mark said...


Thanks for the kind words.

The chart you offer states credit growth is inversely correlated with inflation but does not actually supply that correlation. I for one, am not buying it. I think they are positively correlated (and you do too by your commentary... low credit growth leads to low inflation).

Here's the chart you are looking for. It includes all debt.

Here it is on a scatter chart. I took that into a spreadsheet. It has a *positive* correlation of 0.24 (r-squared).

I certainly think there is a relationship between credit growth and inflation, but there are other important relationships too.

The Quantity Theory of Aluminum

The world has cranked out a ton of stuff! Aluminum? Houses? You name it. Too bad we couldn't crank out oil at a similar pace. And too bad we cranked out credit far faster than we cranked out wages. What can't go on forever, won't.