The Petrol Paradox

Marshall Ramsey. The Clarion Ledger.

When I read news articles about the economy and think about my current unemployment, I try to think of where future growth might come from. Even if I did get a job tomorrow, there would still be millions of other people who want a job. If there is supposed to be a sustained recovery within the next year or so, which sectors of the economy will grow? Housing and construction don't seem very likely. Housing prices are still around a third lower than they were before the Great Recession started, and there is still a glut of office space so that building more would be foolish. The United States could export more manufactured goods or services, but to where? The euro zone faces great uncertainty with its currency, and emerging markets like China are difficult to enter without the Chinese government meddling and preventing competition with their favored companies. Maybe American businesses could expand to Brazil and India, but how many jobs would that create in the US? However, even if certain sectors of the economy gained traction and began to expand and hire new workers, the price of gasoline could put the brakes on any growth.

An article in The Atlantic explained that the economic recovery earlier this year sputtered because high oil prices caused consumers to reduce their spending on other goods. Some politicians and economists blamed the higher oil price on the Arab Spring and the Libyan revolution, but that is only a small part of the bigger picture. Yes, because the world is consuming as much gas as it can produce, even a small drop of oil supply will increase prices dramatically. However, high demand from India and China are the main reasons why oil prices have remained high. When the economy began to recover, more people had more money so that they went to more places. They bought more products, which needed to be delivered, which required gas for the trucks. But once people had to spend more money filling their gas tanks, they didn't have enough money to then buy the products that caused the expensive gas. The economy sputtered and flirted with a double-dip recession. If the economy recovers again, we'll have the same problem unless the recovery is robust enough to handle gas prices higher than $4 per gallon.

This paradox makes me wonder how much more the world economy can grow with the current amount of natural resources that we produce. Can we really produce more oil or other types of energy in order to support emerging economies? There's natural gas, but it's not like we're putting it into our cars. Perhaps we should, but it'd be slow and expensive to convert our cars and transportation systems. In the meantime, the lack of cheap and efficient energy will hamper growth. If wealthy nations found ways to pay for the more expensive energy, the poorer nations would lose out because they wouldn't have enough money or resources to buy energy and other necessary products, such as food. There could be more revolutions, like the Arab Spring, or famines. Or there could just be quiet misery. Therefore, I suspect that the next couple decades will be more tumultuous and dangerous than the past decade.