CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Tuesday, October 30, 2007
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
Previous Posts
- Close-up of One Subprime Mortgage Deal Gone Bad
- Political "Solutions": Socialism on Installment Plan?
- What's The Difference Between Wall St. and D.C.?
- Creative Housing Offer: You Get Your Money Back
- Google Government
- Harvesting Cash: Urban Farming in Mpls.-St. Paul
- Global Stock Market Capitalization Sets New Record
- Historic Milestone:Indian-American Elected as Gov.
- Carpe Diem Milestone
- Trading Places: Computers Now Rule in Chicago
6 Comments:
For what it's worth I saw it live and my first thought was I hoped they got your permission, and my second thought was it was good advertising regardless.
You're famous! First Mankiw found you and linked to you, now CNBC. :)
Lol. Kudlow (on CNBC) just showed your world stock valuation chart too!
What I'd love to see is someone post your chart on the subprime tranch ratings. I don't think anyone would be shocked, but it is still illumintaing for anyone who hasn't realized how far and fast these things have gone down, and all the news isn't out yet....
Well, Mark. Why don't you re-express energy per GDP in Euros, Canadian Dollars or some other currency that isn't tanking!
Holymoly: The chart shows the number of Btus (in thousands) required to produce one dollar of REAL GDP. Therefore, the changing value of the dollar would have no impact on real GDP, adjusted for inflation.
holymoly,
You are missing the point of the chart. Pundits everywhere who aren't aware of this chart and its implications are confused why the economy isn't in great distress today the way it was during the 70's when oil was also going to the moon just like today.
The reason why the economy isn't tanking is precisely because energy is simply a much smaller percentage of the average paycheck and the average company's bottom line than it was in the 70's.
Think of it this way: if the price of broccoli quintupled in the next month, how would it affect your lifestyle? Assuming you are like most Americans, it wouldn't affect your ability to live your life the way you did before the price soared. Why? Because the amount of money you spend on broccoli is a small percent of your total spending.
Replace broccoli with oil in that last sentence and also look at the chart again and you can see that it would take oil being priced about twice what it is today to have the same economic impact that it did in the 70's.
Mark -
I missed the "real" part on the Y-axis. But I think one should ask whether the GDP deflator does an adequate job of telling us what a "real" dollar is in an open economy. In CY 2006, the implicit price deflator for GDP went up by 2.9% During that same time period, the nominal dollar lost 10.25% against the Euro. It just seems to me that in an era of dollar free-fall, simple inflation adjustment isn't enough to keep the denominator in "real" terms on your graph.
happyjuggler0 --
I guess one could also say that in the 70's, it was a truly unanticipated supply shock (or shocks, I guess). IMO, a big part of oil's rise today is movement *along* the supply curve as demand for oil increases (what was the Chinese growth rate again?). In some sense, movement along the curve is easier to anticipate than an oil embargo.
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