Energy and the Economy: What the Candidates Aren't Saying
This election is being framed as a choice between two different approaches to return to robust economic growth. But what if both sides are missing a critical underlying factor in our economic troubles? What if tools of the past no longer fit the economy of the future? Economic growth, as we have known it, is being constrained by an unprecedented slowing of growth in world oil supply. America’s path to future prosperity needs to recognize and confront this new energy reality, and adapt our economy to run on a lot less oil.
World crude oil production has been on a century-long rising trend—from less than one million barrels per day (mbd) in 1900 to nearly 75 mbd today. There have been aberrations along the way, such as a large fall in production during the Great Depression, but the upward trend has persisted—until recently. Since 2005, global oil production has been essentially flat. There have been plateaus before, but what is different this time is that real oil prices—i.e. adjusted for inflation—have roughly tripled within the span of a decade, yet relatively little additional production has been brought forth.
For most of the 20th century, oil prices in 2009 dollars were less than $35 per barrel. During the 25-year economic boom following World War II, they stayed reliably below $20. Real prices shot up to the $50 mark in the early 1970’s following the Arab oil embargo and reached $100 shortly thereafter with the Iranian hostage crisis. Excepting those oil shocks, average real prices remained remarkably low.
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