Monday, December 24, 2007

The U.S. Economy Could Handle $15 Gas?

According to Professor Gregory Clark, chair of the Department of Economics at the University of California, Davis, writing in yesterday's Sacramento Bee:

With energy five times as expensive as at present we would take a substantial hit to incomes. Our living standard would decline by about 11%. But we would still be fantastically rich compared to the pre-industrial world.

That may seem like a lot of economic hurt, but put it in context. Our income would still be above the current living standards in Canada, Sweden or England.

My "back of the envelope" analysis shows that per-capita U.S. GDP would drop by about 13% if gas was selling for $15 per gallon, assuming that annual per-capita consumption remains at the current level of about 464 gallons. At $3 per gallon, per capita spending on gasoline is about $1400, and annual spending would rise to almost $7,000 at $15 per gallon. If we assume that the increased per-capita spending on gasoline of $5,560 annually would reduce our living standard by that amount, we can estimate that per capita-GDP would fall from from $43,223 to $37,655, and we would still be above U.K., Sweden and Canada (see chart above).


At 12/24/2007 1:12 PM, Anonymous Anonymous said...

If we assume that the increased per-capita spending on gasoline of $5,560 annually would reduce our living standard by that amount, we can estimate that per capita-GDP would fall from from $43,223 to $37,655, and we would still be above U.K., Sweden and Canada

But because of greater income inequalities, high defense spending and higher health care costs the average American would still have a lower quality of life than people in the U.K., Sweden or Canada.

If that weren't bad enough if you consider the number of homeowners with mortgages that live paycheck to paycheck and you increase their monthly after tax expenses by nearly $200.00 then you have an economy ripe for collapse. So no, the U.S. economy couldn't handle $15 gas.

At 12/24/2007 6:58 PM, Anonymous Anonymous said...

I am married to a man who remembers what gas prices were like in the 1950's. Extremely expensive.

At this time of year, it seems appropriate to tell a Christmas story. My husband was born in 1934 and started working at the age of five carrying his father's tools to the jobsite. He graduated to laying out the tools his father would need and then to working as a journeyman.

When he was about 12, he started to help his father at Christmas. Each year, he & his dad would work to rebuild the ovens of the bakery because Christmas was the only day of the year when the baker wasn't working. They would rise at 3:00 in the morning and load the hand cart with bricks pushing it to the baker's at the other end of the village.

Next, they would run water on the oven for several hours to cool the bricks. The bricks were still warm when they started to take down the ovens which took several hours. Finally, his dad would rebuild the ovens with new brick and they would cart away the old bricks. Usually, the pair would be home by late afternoon for tea.

My husband always enjoyed working with his dad. He never considered it a hardship but a chance to earn some money. Both shared the pleasure of working with each other.

Perhaps, at this time of year, we should think about what we have and appreciate how much has changed since the 1940's.

Merry Christmas

At 12/24/2007 8:17 PM, Blogger Bret said...

You just multiplied by 5? That's pretty pessimistic in that it assumes absolutely no substitution or innovation. Seems unlikely to me.

At 12/25/2007 6:02 PM, Anonymous Anonymous said...

You get my optimist of the year award.

At 12/25/2007 9:09 PM, Anonymous Anonymous said...

Are you saying that $15 gasoline would have no effect on the UK, Canada, or Sweden?

At 12/26/2007 9:52 AM, Anonymous Anonymous said...

A House of Cards Begins to Fall

Our crashing economy can't handle $3.00 gas right now.

From today's Wall Street Journal...

Credit Downturn Hits the Malls
"The credit crunch triggered by the downturn in the housing market is creating problems in commercial real estate, driving down prices of office buildings, shopping malls and apartment complexes, and leaving some owners scrambling for cash."

Profit Outlook Darkens for Big Banks
"The subprime crisis and ensuing credit crunch have thrown a wrench into the highly profitable bank business model: Make loans that are then sold off to investors while arranging corporate financing through off-balance-sheet vehicles that keep banks' capital costs down."

Retail Rush Falls Short
"...factoring out spending on gasoline -- which soared thanks to a 27% average price increase since this time last year -- retail sales increased a lackluster 2.4%. Industry forecasts had predicted gains of 3.5% to as high as 4.5%."

At 12/28/2007 2:38 PM, Anonymous Anonymous said...

"But because of greater income inequalities, high defense spending and higher health care costs the average American would still have a lower quality of life than people in the U.K., Sweden or Canada."

That is nuts and for sure it comes from a person who does not have to live in Canada, like me, or from the usual innumerate lefty.

"Greater income inequalities." The US has a huge, huge middle class and even the poor and downtrodden are fat, have TVs and drive cars.

"High defense spending" - $239.00 in Canada vs. $935.00. Wow. BFD.

"High health care spending". $5,711.00 vs $2,998.00 in Canada. Likewise, wow. Peanuts in the face of that $43,000.00 per capita GDP. Only an innumerate would fail to recognize that the US can spend its entire defence (learn to spell the Queen's English, willya?) and health budgets and still have more than Canada.

All the anti-American Americans forget that they piss away a lot BECAUSE THEY HAVE IT. So the rich guy in the bar has an extra beer or buys his wife a useless face lift or flu shot. BFD, he still has lots left over. We Canuckis MUST pinch health care pennies and we still can't buy that second beer.

Oh well, the USA has more bullshit as well as more money.

At 12/31/2007 11:51 AM, Anonymous Anonymous said...

BlacquesJacquesShellacques you are welcome to move to the U.S. and take advantage of our wonderful (compared to Canada) system.

I have lived and worked in three countries including Canada and can only say that before you wish for things to be like they are in the U.S. come to the U.S. and experience them first hand. Stay out of the tourist destinations and see how different life is here compared to
Canada and then come back here and tell us which country you prefer.

I know that you think things can't be that different in the U.S. compared to Canada except that there is more money for everyone right?

Take a trip through U.S. slum and then try to find anything in Canada that remotely resembles it. Nothing in Canada even hints of the horror of a U.S. slum.

Look at the poverty rates for the two countries and tell me why it is better to have a poverty rate 16.7% higher in the U.S. vs. Canada.

Walk through a "bad" neighbourhood in Canada and then I dare you to even drive through a bad neighborhood in the U.S. with tinted windows so the locals can't tell who you are and tell me in which neighbo(u)rhood you feel safer.

Look at the infrastructure in the U.S. compared to Canada and what you'll see is neglect and deferred maintenance in the U.S. that a Canadian would find shocking. Look at the number of streets with sidewalks in Canada vs. the U.S. etc., etc.

Buy multivitamins in Canada and guess what you get? Multivitamins in the amounts listed on the label. In the U.S. there is no regulation that even requires vitamins to be presents in any amount listed on the label.

Need a knee replacement in the U.S.? No problem with good insurance you can expect around $20,000 in out of your pocket expenses. How much would you have to pay out of your pocket in Canada?

Think the health care system is so bad in Canada compared to the system in the U.S.? Tell me why that in spite of the wait times in Canada and greater amount of money spent per person in the U.S. do the two systems have at the end of the day approximately equal outcomes in terms of actual health results?

The U.S. health care system that is often touted as second to none does not cover 47,000,000 of the citizens here. How many citizens of Canada are not covered by health care insurance?

In Canada how much of a deductible do you pay for health care insurance for say, open heart surgery? Did you know that there is a deductible and other out of pocket expenses that are paid by the insured here in the U.S.?

Now before the anti-socialized medicine crowd chimes in with anecdotal evidence that Canada's healthcare system is bad be also prepared to tell me why the socialized healthcare systems of Japan and Germany produce better results than either Canada or the U.S.

Think the Justice system is better in the U.S.? Then tell me why with more people in prison per capita and more executions per capita than ANY other country in the world--why the U.S. has higher crime rates than in Canada?

At 3/08/2008 11:18 PM, Anonymous Anonymous said...

Let me give you some realistic figures.

My annual income $22,000
My annual gas usage
just driving to and
from work = 720 gallons.

Gas per gal. $3.00 $2,160
Gas per gal. $15.00 $10,800

My annual mortgage $7,080
My annual car payment $3,588

Total for gas @ $3.00 $12,828
Total for gas @ $15.00 $21,468

If gas were at $15.00 a gallon, that leaves $44 a month for groceries, electric, heat, phone, and insurance. Oh...and let's not forget taking care of my 7 year old as a single parent.

Get a clue....we aren't swirling the drain....we have already drown.

Sure, go ahead and say that I could work a second job or get a higher paying job. Funny, I had a higher paying job and LOST it due to a career ending injury. I am working at a job that I can do, and one that is available in my area (as there aren't many).

The things that make me ill - hearing how a person paid $50,000 for tickets to the Super Bowl; athletes holding out for $10 Million a year; welfare recipients making more money than I do while sitting on their butt popping kids out left and right; and fricking morons that say we could survive with gas prices at $15.00 a gallon.


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