Should the money supply be increased with higher oil prices?

Because oil is the most important commodity, and as it becomes more scarce (which it has already started to do), entire economies will start to go down. Modern western economies are totally tied to oil. In fact, if you make a graph of oil use and GNP, you would find near perfect correlation. We have no technologies ready to take over for oil, and I doubt we will any time soon.

 

The influence of oil on economic growth has actually been declining ever since the seventies, especially because dear oil causes manufacturers to employ new technologies and different fuel sources. These are bold arguments you're using; you should back them up by some graphs.

 

You're looking at oil far too simplistically.

Take a company in Toledo, Ohio, that makes widgets and sells them throughout the Western Hemisphere for a moderate profit. Well, 10 years ago it offshored production of the parts that make up its widgets to China in order to reduce costs, stay competitive, and to continue selling their widgets throughout the world without losing market share to cheaper competitors. Well, those parts get made in China (in a factory that runs off electricity and diesel) and then get shipped on a tanker that travels across the Pacific and lands at the port in Long Beach. From Long Beach, it goes on a tractor-trailer and travels by interstate from Long Beach to Toledo. After the parts get to Toledo, they are put on an assembly line (which is powered by electricity and diesel), assembled into one widget, and then packed for shipment. From the plant in Toledo, the widgets leave to be distributed to the various markets to be sold to the end customer. These are either by tractor-trailer or by airplane.

So we have the Chinese factory line, the Pacific Ocean tanker, the transcontinental tractor-trailer, the Toledo assembly plant, and then the tractor-trailer distribution of the manufactured widgets. All of these steps require oil to operate currently. The reason companies can do these things of having parts made overseas for less money and also cheap distribution is...cheap oil. Make the oil cost more, and the price at all five steps goes up.

What cheap oil has allowed is for global society to be more spread out. (In other words, I am not required to live near farms to get my food.) People don't have to live in cities. Also, goods production has been outsourced, as I show in my above example. Yes, if the outsourcing stopped that would mean more local jobs and that would be good for Toledo residents if those Chinese part manufacturing jobs came to Toledo. However, it also means that the Toledo widget manufacturer could not sell their widgets all across the Western Hemisphere as more local companies in other areas do not have to pay as much for transporting their product. So that's a catch-22.

There's no silver bullet, and we'd all be better off if we just accepted that fact and changed our own lifestyles. Ethanol is a dead end, cause it takes more energy to make the ethanol (which requires oil) than if you just used the oil itself. Hydrogen fuel cells sound promising, but we're at least a decade from that.

Long-term changes: People will either have to live where they work or they're going to have to accept a distance tax (tax does not mean something the government imposes, just that if you don't want to live in the city, fine, but you're going to have to accept the money it will take in travel). The suburbs will gradually decline and some will become the slums. Rural areas will become more depopulated over time save the people that have to live there (farmers, miners, factories here and there).

Some parts of our country's extensive road network will no longer be maintained as well and decline in quality (this is already happening per a USA Today article I read last week, as asphalt requires, you guessed it, oil, to make it. Plus, the increased costs of shipping of that asphalt on top of it due to higher gas/diesel prices. A lot of state DOTs are downscaling their planned paving for this year as they have a set budget but can't do as much paving as they thought they could for it.).

 

Modern western economies are "totally tied" to people. They're "totally tied" to electricity. They're "totally tied" to rubber. They're "totally tied" to light bulbs. They're "totally tied" to silicon. They're "totally tied" to mobile phones. Et al. Energy accounts for just a couple percent of the GDP.

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a) That's no reason for some, to be blunt, asinine scheme to tie the dollar to oil.
b) That's a red herring; we've had huge energy efficiency gains the last few decades. It's not an all or nothing situation. Nor would somehow trying to link to two do anything to help encourage new technologies. That's only going to come from raw energy prices.

Heck, they're doing just in time with airplanes, too. But the reason they do it is not because of "cheap oil". They reason they do it is because of the benefits they gain from it versus the costs involved. Just because oil triples in prices doesn't mean it's not worth doing. After all long before we had this spike in prices we were seeing foreign auto manufactures setting up shop in the US to produce autos in our backyard. If it was as simple as "cheap oil" they would've just kept making them in Japan, South Korea or Germany and shipped them over here.

Please, spare me, there is no reason to believe this is going to happen. It reminds me of some bad made-for-tv movies in the1980s taking on some sort armagedeon scenario. WILL is a very strong claim; it implies 100% certainty. Maybe you didn't mean it.

The most jobs and the lion share of job growth is occurring outside of the city. If people are going to live closer to work, they most likely won't be moving back into the city. More so, it doesn't take into account other factors. For example, if commuting costs are going to be more expensive,why would an employer risk losing an employee over having to drive into work every day?

 

They moved supply overseas cause it was cheaper. Obviously overseas supply costs more in transportation, but it would still be less than domestic supply, otherwise they wouldn't have moved it overseas to begin with. If the price of oil increases, so does the cost for that overseas supply. No one makes anything for charity, they make it to make a profit. If shipping costs go up, those will get passed on to the customer. So the customer that sent supply overseas gets less of a cost reduction than they thought they would get. I've seen this in my own company that I work for, not only with oil but also in the rises in raw material costs. It's still less in cost, otherwise it would be moved back because trust me, working with overseas suppliers is a complete pain in the tail, but part of the reason for moving overseas to begin with, the cost savings, is lessened, and that hurts the bottom line.

Okay, I don't have 100% certainty. However, if you're a person in the Inland Empire commuting to Los Angeles everyday, won't $4 or $5 gasoline or whatever make you want to move closer to the city considering the time and expense involved? You can take your annual estimated savings in gas and apply it to part of the increase in mortgage.

 

Economies used to be tied to people. Now low population but high energy use areas are far more productive than high population areas.

So if all oil use stopped, our economy would only go down a few percent? That's just stupid.

You have the cart before the horse. Now that the world has stopped producing as much oil, we must stop doing those things. High prices are the economy's way of doing that. But high prices are a poor way of doing that, because it encourages bad behavior (spending now and not saving). We'd be better off in a deflation, where people's standard of living goes down more markedly but that pent up capital goes to creating a post cheap oil economy (higher density in cities, more rail, military spending to take over foreign resources, so on).

It will absolutely happen. It's happening right now. You already have poor nations rioting over food and massive truck driver strikes in Europe. And this is just with worldwide production down a few percent. What will happen when worldwide production is down by half, as will happen in a few decades?

 

Here's an article that supports this assertion.

http://calculatedrisk.blogspot.com/2008/06/oil-house-prices-and-exurban-lifestyle.html

From Bloomberg:

 

So the world is coming to an end and we are about to entire world wide* (not just in most 3rd world) famine and war? Economies are about to fall and there is absolutely nothing we can do about it, other than try to take overthe world? This is not a future I look forward to. Gee I am glad that I am going to graduate school and then about to face a world like that.

 

You'll be fine. Just be wise in investments and lifestyle choices.

 

Oh ye of little faith

http://www.economist.com/opinion/displayStory.cfm?Story_ID=11580723



Sometimes it only takes a little imagination not to think the world is going to sheits.