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Comments

Joeline

It stands to reason that if people are moved from rural areas where they are engaged in productive activities for their own consumption (and usually, at least, a few others) and are then moved from that situation that their consumption of consumer good would increase.

Can't make them, then you have to buy them. Simple.

I also notice that the author does not define 'household wealth'. Loving family? Unexploitive lifestyle? Plenty of time to spare?

Arthur Eckart

I think this is more relevant:

The Free Oil Market (By Arthur Eckart)

In the free market system, when demand exceeds supply, prices rise, and there's excess profit. So, new supply is created, until excess profit disappears. This is a mechanism to keep supply and demand in equilibrium. "Speculation" helps keep future supply and demand in equilibrium, to prevent future shortages.

The price of oil has risen from $50 to $135 a barrel over the past 18 months. In the 2000s, the U.S. underproduced and overconsumed, while export-led economies overproduced and underconsumed. The price of oil is linked to the value of the dollar, i.e. a negative correlation. For example, when the U.S. Fed increases the money supply, economic growth is stimulated. So, demand for oil increases. China's economy is linked to the U.S. economy. Consequently, when the U.S. economy is stimulated, China's economy is also stimulated, i.e. when the U.S. raises actual output towards potential output, China overproduces even more. However, China is adding "fuel to the fire" by subsidizing oil, which adds to overproduction.

The U.S. has made the proper adjustments. On the production side, U.S. firms became substantially more energy efficient. However, on the consumption side, there was less energy efficiency, because U.S. houses, autos, etc. became even larger. However, China has not made the proper adjustments to slow its overproduction. Instead, it continued to subsidize oil, with dollars, including shifting the flow of dollars from U.S. Treasury bonds into barrels of oil. China continues to squander its gains of trade to maintain high output and employment, while the U.S. has captured its gains of trade. The free market system has allowed the U.S. to either gain the most or lose the least, in the global economy, while Chinese economic policies created a lose/lose situation in China.

The free market system contributed to least three major booms in the U.S. during the 2000s. U.S. households had a consumption boom, including the housing & related goods booms (through rising incomes, abundant & accessible capital, low interest rates, and low prices). U.S. firms had a profit boom, because they offshored low profitable goods for higher profits, imported those goods at lower prices, and shifted limited resources into higher quality/higher priced/higher wage/more profitable goods. The U.S. government basically was able to refinance its debt at lower interest rates. Consequently, U.S. living standards rose at a steeper rate, while the U.S. economy strengthened substantially.

Arthur Eckart

Additional relevant information:

Oil consumption data: "U.S. per-capita oil consumption is 25 barrels annually, while Japan uses 14 barrels per person. China's 1.3 billion people consume just two barrels each per year."

Many complain the U.S. has no energy policy. Yet, the data above support the fact the U.S. is most energy efficient. For example, in 2006, U.S. per capita income was $45,000 and China per capita income was $2,000 (using a hard currency at world prices, see link at bottom). However, the U.S. used 25 barrels of oil and China used 2 barrels of oil per capita. So, one barrel of oil reflected $1,800 of U.S. per capita income, while one barrel of oil in China reflected $1,000 of per capita income. When the consumption side is added (e.g. value and volume of consumption), the U.S. is even more energy efficient, because U.S. consumer surplus is large, while U.S. per capita barrels of oil remain at 25 a year. Also, U.S. energy costs are lower. For example, gasoline is less than half the price in the U.S. than the E.U. It's remarkable, the U.S. pays less for energy and uses that energy most efficiently when it has no energy policy.

Below is what Professor James Hamilton stated, i.e. the ratio of U.S. living standards to per unit of energy is much higher today than in 1970.

For the typical household, heating and cooling comprises half of its housing-related energy usage. In 1970, the average new American single-family house was approximately 1,500 square feet; by 2005, the average home was 2,350 square feet. Appliances are more energy efficient, but there are more of them.

Survey data for 1980 and 2001 show increases in the share of households with microwave ovens from 14 percent to 86 percent, dishwashers from 37 percent to 53 percent, personal computers from zero to 56 percent, and central air conditioning from 27 percent to 55 percent (the share of households with no air conditioning dropped from 42 percent in 1980 to 23 percent in 2001).

In 1970, the average passenger automobile was driven 10,000 miles annually and consumed 737 gallons of fuel; in 2005, annual mileage was 12,400 using 554 gallons.

In 1970, light trucks (then used almost exclusively by business) averaged 8,700 miles annually, consuming 866 gallons of fuel; in 2005, near-ubiquitous trucks and SUVs averaged 11,000 miles annually, consuming 612 gallons of fuel.

My statement on gains of trade and why small economies can grow faster:

U.S. per capita income is $45,000 and China's per capita income is $2,000. If the U.S. gains $700 and China gains $300 for each $1,000 in trade, then U.S. income rises less than 2% and China's income rises 15%. However, unfortunately for China, when social costs are included, the U.S. may capture all the gains in trade.

http://www.chinadaily.com.cn/china/2007-01/25/content_792311.htm

Steve Athearn

The significance of the increase in the GDP per unit of energy ratio over time is greatly exaggerated, for several reasons. (1) there's the logical implication of shortage: each barrel of oil has more GDP riding on it, making the economy more vulnerable, not less. (2) There's the finding of Gever et al (Beyond Oil) that a large part of the increase has historically been associated with greater proportions of higher quality fuels - i.e. switching from coal toward oil. That doesn't bode well for the age in which fuel quality and quantity are both decreasing.

But more importantly, this sort of analysis doesn't face basic facts about the modern world: the fact that we are all dependent on people we have never met, who live thousands of miles away, for the components of everything we rely upon, a situation that could only persist during a short historical interval - the Oil Age. In 1860, 80 percent of the physical work done in the "economy" was by human and animal muscle. By 1960, that percentage had reduced to virtually zero percent, at an enormously greater level of energy use. In the U.S., we use the equivalent of 20 million person-years of hard labor _every day_ in oil-based energy, by conservative estimate, and that's just the oil. But many economists make the bizarre assumption that the economy - or say growth in the twentieth century - can be discussed intelligibly without reference to this enormous subsidy. Energy is regarded as a tiny fraction of the economy even though virtually 100 percent is vitally dependent on it.

Unaided labor productivity probably reached its maximum in some of the Asian agrarian societies (though famine was also a frequent part of the picture), unpleasant though that conclusion may be. Lasting "development" never really occurred.

Arthur Eckart

Steve, over the past three years, the global economy has used roughly 85 million barrels of oil a day. Yet, real global growth has expanded much more than the supply of oil. Of course, there's less surplus oil, to meet demand, which contributed to higher oil prices. So, obviously, there was enormous energy efficiencies or substitution into energy alternatives.

People tend to be rational in every country. When oil prices rise, people find it profitable to produce more oil (increase supply) and purchase less oil (decrease demand). Titanium is used in many industries. However, without titanium, many goods cannot be produced, although it may reflect a small proportion of raw materials. So, your statement: "Energy is regarded as a tiny fraction of the economy even though virtually 100 percent is vitally dependent on it" can also be applied to raw materials that are even smaller fractions of the economy.

Of course, economies are more efficient using physical energy, e.g. in construction, transportation, manufacturing, agriculture, etc. I suspect, the quantity and quality of output will continue to rise more than the supply of all forms of energy.

Oyun Oyna

Comments
It stands to reason that if people are moved from rural areas where they are engaged in productive activities for their own consumption (and usually, at least, a few others) and are then moved from that situation that their consumption of consumer good would increase.

Can't make them, then you have to buy them. Simple.

Magdalena Szarafin

For FDIs in China and determinats where to locate them see:

Foreign Direct Investments in China: where and why?

Magdalena Szarafin
http://www.szarafin.info

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People tend to be rational in every country. When oil prices rise, people find it profitable to produce more oil (increase supply) and purchase less oil (decrease demand). Titanium is used in many industries. However, without titanium, many goods cannot be produced, although it may reflect a small proportion of raw materials. So, your statement: "Energy is regarded as a tiny fraction of the economy even though virtually 100 percent is vitally dependent on it" can also be applied to raw materials that are even smaller fractions of the economy.

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Of course, economies are more efficient using physical energy, e.g. in construction, transportation, manufacturing, agriculture, etc. I suspect, the quantity and quality of output will continue to rise more than the supply of all forms of energy.

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But more importantly, this sort of analysis doesn't face basic facts about the modern world: the fact that we are all dependent on people we have never met, who live thousands of miles away, for the components of everything we rely upon, a situation that could only persist during a short historical interval - the Oil Age. In 1860, 80 percent of the physical work done in the "economy" was by human and animal muscle. By 1960, that percentage had reduced to virtually zero percent, at an enormously greater level of energy use. In the U.S., we use the equivalent of 20 million person-years of hard labor _every day_ in oil-based energy, by conservative estimate, and that's just the oil. But many economists make the bizarre assumption that the economy - or say growth in the twentieth century - can be discussed intelligibly without reference to this enormous subsidy. Energy is regarded as a tiny fraction of the economy even though virtually 100 percent is vitally dependent on it.

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Steve, over the past three years, the global economy has used roughly 85 million barrels of oil a day. Yet, real global growth has expanded much more than the supply of oil. Of course, there's less surplus oil, to meet demand, which contributed to higher oil prices. So, obviously, there was enormous energy efficiencies or substitution into energy alternatives.

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Steve, over the past three years, the global economy has used roughly 85 million barrels of oil a day. Yet, real global growth has expanded much more than the supply of oil. Of course, there's less surplus oil, to meet demand, which contributed to higher oil prices. So, obviously, there was enormous energy efficiencies or substitution into energy alternatives.

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