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The Free Dictionary: Cheap
a. Relatively low in cost; inexpensive or comparatively inexpensive.
Let's attempt to compare the cost of energy to the cost of everything to find out how relatively low in cost energy actually is. The following chart shows the annual average of the consumer price index for energy divided by the consumer price index for all items.
Click to enlarge.
Did I somehow manage to transport myself to a Pulp Fiction alternate universe? It's sure starting to feel that way lately.
Say "cheap energy" one more time! I dare you!
See Also:
The Pulp Fiction of Rising Interest Rates
Source Data:
St. Louis Fed: Custom Chart
12 comments:
As a side note, I was told that cheap energy is one of the reasons the economy is doing well and should continue to do well.
Fascinating theory.
Did I somehow manage to transport myself to a Pulp Fiction alternate universe?
Nope, the new alternate reality was brought to this universe.
How did it get here? Well, in the old reality, you could only get what you paid for. In our new reality, that's no longer the case (the Federal Reserve's actual mandate notwithstanding).
For better or worse, we no longer pay for our Gov't . That should be obvious (political rhetoric about Gov't insolvency notwithstanding).
But a small minority pay for some of our Gov't. And I'm not talking about taxes which are a ruse. I'm talking about political contributions. I figure a few billion a year can buy control of the majority of the stooges in CONgress. This gives a small minority access to the trillions in the vault.
Cheap energy is a nice sound bite for the masses. But cheap politicians are decidedly inside baseball.
Pulp Fiction or Pulp Reality!
Things are cheap relative to their substitutes, i.e., for what function it performs.
What is the substitute for pushing my 3,0000lb car (and four occupants) 35 miles for $3.30?
Or how about pushing a 777 airliner through the atmosphere at 700 mph?
Compared to historical experience, we do live in an era of extremely cheap energy.
Compared to historical experience, we do live in an era of extremely cheap energy.
Since 1999 the price I pay for a gallon of gas has risen by ~%67 ($1.09/1999 - $3.33/Today).
How have paychecks done during the same time period? I'm not making nearly three times as much today as I was in 1999.
That's the message I took out of the chart. Just a different way of looking at, that's all.
mab,
You are right of course! We have so much pulp!
USA: #1 in pulp exports!
oji,
What is the substitute for pushing my 3,0000lb car (and four occupants) 35 miles for $3.30?
Free gym membership! Go prosperity, go!
Fritz_O,
I'm not making nearly three times as much today as I was in 1999.
On a relative basis, human energy is getting cheaper! If we can keep improving like we have been, automation won't stand a chance!
"Shouldn't we be using that conveyer belt to move that big screen TV?"
"Nah, we found a guy who will do it cheaper."
Sigh.
"Shouldn't we be using that conveyor belt to move that soylent green?"
"Nah, pretty soon, supply will be exceeding demand!"
oji,
In all seriousness, is energy cheap right now for a minimum wage worker who commutes 10+ miles to a part-time job?
"Cheap energy" enticed us to live further from where we work. Take that "cheap energy" away and more than a few people end up on food stamps.
[Devil's Advocate Mode On]
Taking the optimistic side, if energy does get cheaper over time from here, that WOULD tend to be a positive for growth. For instance, the peak on the chart in about 1980 helped to set the stage for the nice boom of the mid-80s to late 1990s. And conversely, the trough in the late 1960s proved unsustainable, creating tough economic headwinds in the 1970s
In addition, one might think of cheap energy not in terms of consumer prices, but in terms of the amount spent on energy normalized to the amount of value produced by said amount of energy. If the economy is getting more energy efficient, producing more for less energy cost, that's also a positive for growth. In a resource-constrained world, we need a given amount of energy to be able to produce more goods and services in order for standards of living to rise.
Fritz_O,
Soylent? I'm game.
Q: Why are the nonfarm payrolls so flaky?
A: It's people rolls!
Sustainable Gains,
No disagreement here.
That said, energy prices can also fall in response to a weakening economy (as last seen in the Great Recession).
Cheaper energy is therefore not a guarantee of future prosperity. We better hope prices fall for the right reason (if indeed they do fall).
For what it is worth, I'm not bullish on energy prices. As a society, I think we drive way too much as it is.
Vehicle Miles Traveled per Capita
There's plenty of fat left to cut, especially if internet sales continue to grow relative to brick and mortar store sales. Won't be good for job creation though.
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