Sunday, November 18, 2007

Why Oil Hasn't Hurt Us Yet

In middle school they gave you this token dabble in economics through social studies which consisted of a stock market game where you'd pick a stock, based on it's cool name and somehow thought that over the next three weeks there was some rhyme, reason or wisdom to be gained by this pointless exercise. And so this is how we introduce economics to our kids.

But another thing I did remember was two years later my sophomore year in high school where my economics teacher pointed out that every time there was a spike in oil there was an ensuing recession. Thrice this happened in the past 30 years of the chart he showed us, so I figured that was enough to cause a relationship. However since the latest oil embargo, our economy has yet to slip into recession when there's an economic shock in the price of oil. Matter of fact, the economy remains stubbornly resistant to recession in the face of not only the high price of oil, but a crushing credit crunch as well. But the reason is that we produce more GDP with a mere fraction of the oil we did back in the day, making the price of oil less effective on our economy;

Of course, don't count a recession out.


Anonymous said...

Hey. I think there are basically two answers - capitalism, and computers. Everyone uses capitalism all the time, even those who are in the middle of fighting against it. Al-Qaeda buys stuff from independent producers. If they steal it instead of buying it, it dries up. The Soviets kept stealing instead of buying until their whole economy dried up. Capitalism.

Further, we in the West have just gone through the last 20 years turbo-charging our capitalism with the insane efficiency of desktop computers and now the internet for instant information analysis and exchange. I'm nervous saying this, but I'm thinking that the economy of the West (heck, even Europe) is becoming so ridiculously efficient that the likelihood of a real downturn is decreasing. I think the US has a real chance of getting through the next year or two, including $100 oil, the rest of the crappy-loans mess, and a general election, without a recession. Possibly without a downturn at all. Individuals will get hurt if they have put themselves in a vulnerable position by doing something dumb like borrowing more than they should have, but that always happens. I believe the US economy will keep bouncing. Downturn? Show me.

Captain Capitalism said...

You make a good point, I've been kicking around how "bad" a recession would be here in the US.

INstead of eating out at sushi three times a week, we'd cut back to two nights a week.

Instead of going out to the bars to drink, we'd drink at home.

ie- how "bad" could a recession be in the US even if it were a crippling 8% drop in RGDP.

That being said, I am more concerned about debt levels and the promises we've made to dying and passing generations for medicare and social security. THat would trigger a real recession where suburban sally would notice it hitting daddy's pocket books.