Econ prof. James Hamilton recently looked at how much energy price movements mean to consumers:
Americans consumed 142 billion gallons of gasoline last year. That means that when gasoline prices rose $1/gallon last spring, if consumers and fuel-using businesses had not reduced the quantity of gas they purchased, they would have had to reduce other expenditures by $142 billion. That's a bigger negative shock to spending power than the $90 billion that the federal government was trying to put back into consumers' hands through last spring's fiscal stimulus.
The run-up in gasoline prices hurt the economy not just by reducing consumers' spending power. The abrupt drops in spending on key sectors of the economy exerted significant effects of their own. As higher gas prices caused consumers to shun Detroit's gas guzzlers, U.S. production of motor vehicles and parts fell by 15% between 2007:Q4 and 2008:Q3 (BEA Table 1.5.6), subtracting an average of 0.6% from the annual GDP growth rate over the first three quarters of this year (BEA Table 1.5.2). The BLS reports that 135,000 fewer Americans were employed in motor vehicles and parts manufacturing in October 2008 compared with a year ago. And rocketing gasoline prices surely also contributed to plunging consumer confidence over the spring and summer.
I think oil prices are out of their control. They couldn't boost 'em if they wanted to do.
On that basis, a $700 billion package would send out checks of $3973.51. Why not?
Yes, they could, but it would require actual adherence to OPEC mandates and history shows that they don't have the will.
Besides, it wouldn't make any difference to them, because sales revenue = quantity sold x price. They raise the price, quantity sold goes down, they don't make significantly more money. Perhaps that's what you really were driving at.
The real problem is that they've managed to get themselves into a situation where even at historically ridiculous oil prices, they don't make enough money to prop up their economies/social networks. They somehow got to the point in one year where they needed historically ludicrous oil prices to do that. Now that we're back to ridiculous from ludicrous, they're screwed.
I heard on the radio the other day that OPEC had collectively lost $700B with the drop in oil prices, with the implication that they'd soon all be living in cardboard boxes. No mention was made of the fact that even at current prices, they're still making hundreds of billions MORE than they would have five years ago at then-current prices.
M
More pushing on strings. Give people money in this environment and they'll save it or retire debt with it. Neither stimulates consumption.
M
Given the precarious state of our banks, savings is exactly what we need. Unless it literally goes under the pillow or in the mattress, that money isn't just lost into the aether.
I couldn't agree more, but that's not how CongressCritters think. They'll spend on infrastructure now - and we need that too, although I'm sure they'll spend on the dumbest possible things - because that'll create jobs and stimulate consumption. But I don't see any more cash handouts to individuals because they know people won't spend them and all they care about is next quarter's numbers, just like the Street. Cash handouts to companies that'll use them to keep people working, sure, that could happen, but no more bribe checks - elections are over anyway.
M
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