By Institute for Energy Research ——Bio and Archives--May 14, 2013
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Since June 2009 the volume of oil and gas extraction has risen by 24%. Over the same period the production of mining machinery has risen by 47% and the output of mining support services, which includes oil and gas drilling, has leapt by 58%. The only disappointment is that output of petroleum refining has risen by just 3%. But that rise explains only a small part of the economic recovery. Admittedly, it is responsible for a fifth of the 18.3% increase in overall industrial production. Given that the oil- and gas-related sectors account for only 2.5% of GDP, they have contributed just 0.6 percentage points (ppts) to the 7.6% rise in GDP. [Bold in original.]There are serious problems with this kind of analysis. Fundamentally, it assumes that the proper way to measure a factor’s contribution to economic growth, is to look at the share of total spending on that factor. OK let’s use the same approach to evaluate the contribution of, say, water to US economic growth over the last few years. An estimate from the early 2000s says that the median US household spent about 1.1 percent of its income on water and sewerage. So if all of the water and sewer infrastructure suddenly disappeared in June 2009, would cumulative GDP growth have been 6.5%, instead of the actual 7.6%? No, the economy and official measures of GDP would have collapsed, as the US would have been plunged back into medieval standards of living. Energy is integral to every sector of the economy, meaning expanded access and lower prices could stimulate measured “growth” all over the place. We see this when Plumer discusses an ostensibly better explanation for US growth:
In all, Dales concludes, it’s hard to give oil and gas more than a small bit of credit for America’s better-than-average economic performance since 2009. “[T]he recovery in US GDP since the recession has been driven by an improved performance across a wide range of sectors, including motor vehicle production and professional business services.” His preferred theory is that the United States has done better than its peers “partly due to its greater exposure to the faster growing Asian nations and partly due to the willingness of U.S. households to reduce their saving rate more significantly.”Does that make sense? When trying to understand the relative (though still inadequate) strength of the US recovery since 2009, does it make more sense to credit huge innovations in domestic energy production, or to thank our lucky stars that American households are going deeper into debt?
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The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.