Here’s a metaphor that may help in explaining why high oil prices are choking off economic growth for the U.S., and to a lesser extent the rest of the world as well. Think of the oil price as the mercury in a thermostat. As the economy heats up, the mercury expands (oil prices go up). This shuts off the furnace (the factors of production and consumption in the economy that make it grow). As the economy cools, demand for oil contracts and oil prices decline. But with oil now cheap, the factors of production kick in again; this causes oil prices to be bid up, and high prices once again choke off growth.
The metaphor has other dimensions to it. The hypothetical room in which our thermostat and furnace are operating exists within a larger environment, and the temperature of the room is affected by ambient surrounding heat. In summer months, the furnace never kicks in; during the winter, it is blazing much of the time. Think of surrounding seasonal temperature as a broad set of conditions impacting the economy from outside. In one rather obvious way, the ambient temperature of the environment in which the U.S. economy operates is rising: climate change is producing more freak storms, more droughts, and more floods. At the same time, the environment is becoming more polluted and species are disappearing. Minerals are depleting, while fresh water is becoming scarce. The season is changing; summer is at hand.
At the same time, the furnace itself is wearing out: factors of production and consumption within the U.S. economy are being held back by a glut of debt, an aging workforce, and declining average household income and wealth.
Under the circumstances, our furnace of economic dynamism sits idle most of the time, and creaks and leaks when it does get going. That’s the end of growth in a metaphoric nutshell.
Get The End of Growth http://www.postcarbon.org/eog
Watch the animation Who Killed Economic Growth? http://bit.ly/whokilledgrowth
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