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Oil & the economy - Apr 24

Click on the headline (link) for the full text.

Many more articles are available through the Energy Bulletin homepage


Exxon Profits, Everyone Else...Not So Much

Clark Williams-Derry, Sightline Daily
Single oil company reaps 45 percent of Fortune 500 profits.

Exxon - high prices - flickr user TheTruthAboutWorth noting: the Fortune 500 -- a list of America's 500 highest-grossing corporations -- had their worst year ever last year. Total profits for the nation's 500 largest corporations fell from $645 billion in 2007 to just $99 billion in 2008. That's a decline of nearly 85 percent, if you're counting.

But the company in the number one slot -- Exxon Mobil -- did astonishingly well, with total profits surpassing $45 billion last year. In other words, a single oil company got over 45 percent of the net profts of the entire Fortune 500.

To be fair, a lot of Fortune 500 companies posted net losses -- so the 45 percent figure is a bit contrived. Still, it's no surprise that Exxon has had so much money to throw at global warming denialism -- they've got a whole lot of money to throw!
(20 April 2009)
Links at original.


Blame oil, not banks, for recession

Neil Reynolds, Globe and Mail
... Writing in the New York Post, economist Alan Reynolds (senior fellow at the Washington-based Cato Institute and author of Income and Wealth) subjected the Made-in-the-USA argument cited by Mr. Obama to statistical analysis – and concludes that the timing shows it is “all wrong” to blame the United States for the global meltdown.

... Mr. Reynolds does not deny the U.S. housing boom, and eventual bust, of 2002 to 2008. He simply argues that it wasn't the housing boom that set off the global meltdown. “What really triggered this recession should be obvious,” he says, “since the same thing happened before every postwar U.S. recession save one (1960).” The real cause, he says, was the spike in the price of crude oil.

The connection between oil price spikes and recessions was first advanced in 1983 by economist James Hamilton of the University of California at San Diego. He showed that almost all U.S. recessions have been preceded by spikes in the price of crude.

Using the Hamilton template, Mr. Reynolds notes that 10 spikes occurred between 1947 and 2007, each followed by recession.

... Mr. Obama proposes to tax crude oil at progressively higher rates as part of his campaign to switch the United States to renewable energy. But the price that induces significant conservation could well be the price that also induces recession.
(22 April 2009)
Mr. Reynolds at the Cato Institute (a libertarian think tank) seem to be selective about the facts in his analysis. On the one hand, he likes the link between oil prices and recession. However, he seems to lack the other half of the picture - peak oil production. This partial view does have the advantage that it reinforces the preconceptions of the Cato Institute.

Another oversight in Mr. Reynold's analysis is that he emphasizes President Obama's proposed oil taxes. As a good libertarian, however, he should also criticize the many subsidies given to oil and other fossil fuel industries. -BA



Further Evidence of the Influence of Energy on the U.S. Economy - Part 2

Steve from Virginia, The Oil Drum
Last week, Dave Murphy (EROI Guy) explored how increasing energy prices during the run up to 2008's $147 bbl peak affected purchasing power of consumers and subsequently the solvency of the establishment that relied on that purchasing power. He mentions James Hamilton:

Hamilton acknowledges early on in his report that the proportion of income spent on energy is an important determinant of consumer spending patterns. The theory is fairly simple: if energy expenditures rise faster than income, then the share of income for other things besides purchasing energy must decline, such as spending on mortgage payments for a second home in Las Vegas. In other words, rapid, large increases in energy prices may curtail consumption enough to trigger larger financial problems – like the bursting of a housing bubble – that when aggregated across an economy may cause or contribute significantly to a recession.

I will show an even greater connection between energy prices, interest rates, and the financial sector, based in large part on a review of minutes of the Federal Reserve Open Market Committee (FOMC) from the end of 2002 to 2007. It appears the Fed’s inflation expectations were very closely linked to petroleum prices. Because of this, the rise in oil prices led the Fed to raise interest rates in an attempt to control inflation, which in turn had unintended consequences.
(22 April 2009)

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