Hot off the presses, crude oil futures are trading above $53 a barrel today. An Associated Press article is rife with worrisome notes. Here are some:
"Those people who think we’ve entered a new paradigm where high oil prices don’t affect economic growth are wrong," said Lawrence Goldstein, president of the Petroleum Industry Research Foundation in New York.
"I believe oil prices and the economy are on a collision course and that it’s only a matter of time," [Peter] Beutel added, [president of Cameron Hanover Inc. of New Canaan, Conn., a provider of petroleum market analysis].
On the other hand, optimists point out that the US economy is drastically more energy efficient than it once was. And in inflation-adjusted terms, oil would have to reach $90 a barrel to match prices in 1980. They’re (partly) right.
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I’ve been doing a little digging, recently, into the energy-intensity of various economies. (Simply put, energy intensity is how much energy is required to generate a unit of gross domestic product.) For the early years of the 21st century, the US ranks a rather pathetic 18th out of the 30 OECD countries, which are our closest economic peers. Canada rates even worse, in 26th place.
But the good news is that the US and Canadian economies have become considerably less energy intensive during the past two decades. In fact, the only OECD countries to make faster progress are Poland and Hungary (both languishing under Soviet command-and-control in the early ’80s) and Luxembourg (a former center of European steel production).
On the other hand, North America’s economy has a very long way to go in energy efficiency to match our economic rivals in Europe and Japan. Dollar for dollar, Switzerland, Japan, and Denmark use about 1/3 as much energy as Americans (and about 1/4 as much as Canadians). Germany and France use about 1/2 as much as Americans (and about 1/3 as much as Canadians).
If escalating oil prices are indeed a fixture of the future, it’s pretty clear that long-term economic growth depends on generating more wealth with less petroleum. It strikes me that efficiency, conservation, and diversification will be critical to North America’s economic future. If so, smarter regulation may hold the keys to success in what may be an unusual alignment between environmental and economic interests. For one obvious example, higher fuel efficiency standards in vehicles, appliances, and homes could buffer people from rising costs.