Politicians have to act as though they know the solution to lowering unemployment and raising economic growth rates.
It is hard for anyone running for an election to admit that they might be powerless to affect some energy and economic realities. In this post, I discuss the trend in the figure below: US monthly personal-consumption expenditures (PCE) for food and energy goods and services as a percentage of total household expenditures. I think it is completely possible that the stop in the declining trend of PCE for food and energy that stopped in the early 2000s is indicative of the new reality facing the United States energy and overall economic (and debt) situation.
It doesn’t take a PhD in statistics (or engineering, or anything else) to notice the major change in the trends of the time series in the figure. In 1999, the 4-decade trend of decreasing PCE for energy stopped declining and started increasing.In 2007, the (at least) 45-year trend of decade trend of decreasing PCE for food stopped decreasing – just before the beginning of the Great Recession that began in late 2007. Adding the PCE for “food + energy” shows a minimum PCE percentage of 11.7% in the first two months of 2002.It is a good question of whether or not this will be the minimum percentage PCE for “food + energy” for the US … for all time.
Several analyses have been done investigating a seeming threshold percentage of US PCE that can be spent on energy goods (and services) before it induces or plays a large role in causing a recession (see James Hamilton’s blog entries here (July 14, 20102), here (March 6, 2012), here (September 19, 2012), and there’s another one or two or more in there somewhere tracking the same things). But there is much value in considering the role of food in PCE along with energy PCE because food is both the original source of pre-industrial power and it holds high priority in a “hierarchy of needs” sense.
The reason to add the PCE for food and energy is because food is technically an energy source.It is too bad that the statistics needed to plot the data of the figure even further back than 1959 are not readily available, but it is practically certain that the percentage of PCE for food continues higher as one moves back further in time. Before fossil fuels and significant industrialization using wind, wood, and water power in the early 1800s, food was the major energy resource for prime movers. These prime movers were the muscles in humans and animals doing the majority of the physical (‘useful’) work and providing the most aggregate power.Thus, the quantity of food and fodder produced from the land had the major influence on the amount of power for agriculture and a little industry. The book Heat, Power, and Light: Revolutions in Energy Services, by Roger Fouquet, shows a similar historical graph for the United Kingdom in which he estimates the expenditures for domestic power in the 1500s as at or above 100% of GDP. Thus, in preindustrial times, practically all GDP was to produce power, or useful work!
The data plotted in the figure should be shown in the United States presidential election debates. I’d like to know what our leaders think of this graph and why they think their policies can or cannot affect the trend (or rather new trend since the early 2000s). The likely truth is that demographics and resource constraints have caught up with much of the ‘advanced’ economies (e.g. EU, US, Ja
pan). There are less young people working to pay for older people to retire.There are fewer older workers retiring because their pensions and retirement funds are not sufficient, thus not making room for new and younger workers. The conventional oil alternatives (oil sands, deepwater, oil shale, biofuels) don’t have the same level of pure energetic value of those of the past, and this is the reason that oil prices must remain at current levels in order for new oil supplies to remain viable. I wrote in a 2011 article in Sustainability (see here) how energy return on investment (EROI) and oil price are related. Alberta oil sands are practically the marginal oil supply (in North America at least) and because the oil sands have EROI < 4-5 then the oil price must be near or above 90 $2012/BBL. The economy remains sluggish, unemployment is still below 8%, and the jobs that people are getting are lower paying.
I think that both the ‘extreme’ left and right are wrong in their approaches. The U.S. can’t borrow money and go further into debt to give people high paying jobs while lowering employment, and the U.S. can’t borrow money to maintain the same defense budgets of either the Cold War or recent post-Cold War eras. Resource constraints are imposing their real nature upon our real economy. No lowering of interest rates can prevent this impact, and this is why the unprecedented length and level of low US and EU interest rates are not having the ‘expected’ effects. What we see is that demand for fuels and energy services have decreased (particularly less light duty vehicle miles traveled) since 2008 at a peak near 3 trillion miles (for a nice graph of US vehicle miles traveled see above link to Hamilton blog on Sept. 19, 2012 and search Stanford research on ‘peak travel’).
A ‘bottom’ percentage PCE on food and energy. A ‘bottom’ of interest rates.Coincidence? I think not.
Article reprinted, with permission and minor edits, from EnvironmentalResearchWeb.
Photo illustration, via USDA, is in the public domain.
The author, Dr. Carey King, researches energy systems and how they work together and within the environment.
His research interests focus upon:
(i) relating measures of net energy to economics;
(ii) understanding how technology and policy can interact within the nexus between energy and water;
(iii) integration and transition to increased renewable energy production;
(iv) the economics and life cycle of system-wide/integrated carbon capture and storage infrastructure; and
(v) promoting objective analyses of energy tradeoffs for energy education, decision-making, and policy development for natural resources.
Dr. King is currently a Research Associate at the Center for International Energy and Environmental Policy at the Jackson School of Geosciences. He works as part of several other collaborative research groups at the University of Texas at Austin: The Webber Energy Group (www.webberenergygroup.com) and the Gulf Coast Carbon Center (www.gulfcoastcarbon.org) of the Bureau of Economic Geology.