$500 a barrel for oil?

by on December 23, 2007 at 10:11 am in Economics | Permalink

With energy five times as expensive … we would take a
substantial hit to incomes. Our living standard would decline by about 11
percent. But we would still be fantastically rich compared to the pre-industrial
world. … Our income would still be above the current living standards in
Canada, Sweden or England. Oh, the suffering humanity! At current rates of
economic growth we would gain back the income losses from having to convert to
solar power in less than six years….

That is Greg Clark, link here.

1 Stephen Downes December 23, 2007 at 10:35 am

I think it’s very quaint that Americans still feel they have a higher standard of living than those in Canada or Sweden.

2 Bill December 23, 2007 at 11:29 am

Standard of living in the traditional economic sense would be 11% lower. But think of this. What if oil was that expensive to us because we imposed a $410 to $490 tax per barrel? My guess is that the world price would drop (go, monopsony power!) a lot. Who would be hurt? The Saudis, Iraqis, Iranians, Russians, Venezuelans, Nigerians, Texans…. With all our enemies having significantly reduced resources, we could make up half the drop in our standard of living by reducing military spending. Ask the troops what they think of a $400 tax on oil.

3 anon December 23, 2007 at 1:49 pm

Why not nuclear power? Look at the hard numbers guys! Wind and solar power just dont cut it: Capital investment, seasonality, low power densities and a million other factors.

Man is a very irrational risk assessor and unfortunately Greenpeace, Sierra-Club and other misguided, ill-informed lobby-groups keep the doomsday propaganda hyped up.

4 Rich Berger December 23, 2007 at 2:37 pm

Well you can always count on EV to argue that forcing us to do the “right thing” can be good for us.

Furthermore, wouldn’t the supply of energy be increased mightily by a sustained increase to even $100?

5 Anonymous December 23, 2007 at 4:22 pm

Our living standard would decline by about 11 percent.

How exactly was this figure arrived at? At best it’s just an (optimistic?) estimate. He also sounds just a little too gleeful at the demise of the suburbs — is this a dispassionate analysis or a sociopolitical wet dream?

He’s also not including the enormous one-time costs and disruption of the transition. New infrastructure won’t build itself.

Anyway, let’s hope he’s right.

6 Anonymous December 23, 2007 at 4:27 pm

Even if we’re facing peak oil, we’re centuries away from peak coal. As Daniel Gros argues (via Naked Capitalism), switching to coal will worsen global warming.

7 Varangy December 23, 2007 at 4:59 pm

@Stephen Downes

Looking at GDP (PPP), the USA bests both Sweden and Canada. To reiterate another poster’s point, people vote with their feet, what do the net migration patterns tell us?

8 Barkley Rosser December 23, 2007 at 6:18 pm

Offhand I was not able to find any stats on migration
between the US and Sweden and Canada. Quite aside from
adjusing for relative populations and differences in rules,
it is far from obvious that the claim made by several here
about the net direction of such migration is all that obvious.
I know people who have moved from the US to both Sweden and
Canada, more to the latter than the former, which as has been
noted is not so easy to do.

Regarding living standards, these are indeed hard to measure.
The US is ahead of both countries on measured real per capita
income. But then both of them beat the US on life expectancy,
infant mortality, and measured happiness levels, and Sweden
beats the US on the UN’s Human Development Index, which takes
education into account along with health and real per capita
income. Not so obvious here.

9 G December 23, 2007 at 8:06 pm

America is so much larger (in population) than Sweden and Canada, I don’t see how you can compare them. There are certainly small countries with higher standards of living than the USA, just as there are small states with higher standards of living than the rest of the USA. So what?

Although I do get the impression than America has very bad government compared to other industrialized nations. Libertarians don’t argue that all forms of socialism are equally bad, of course. If we must have Big Government, there are certainly large differences between the best (Sweden maybe?) and the worst (North Korea?).

10 Bernard Yomtov December 23, 2007 at 9:18 pm

There’s such a thing as asking economics to answer questions that economics isn’t really suited to answer, no?

Heresy.

11 Michael December 23, 2007 at 9:38 pm

ABSOLUTELY SPOT ON with the immigration question…Canada to USA is over twice as high as the reverse, even in raw numbers (so it’s much greater in percentage terms). Sweden to USA is about the same as the reverse in raw numbers which means it too is much higher in percentage terms.

The USA must be really great to attract all those Canucks and Swedes despite such a lower standard of living, eh?

Source: http://www.migrationinformation.org/datahub/countrydata/country.cfm

12 A student of economics December 23, 2007 at 11:24 pm

Michael, you need to think a bit harder about your conclusions: “Sweden to USA is about the same as the reverse in raw numbers which means it too is much higher in percentage terms.” Given your data, revealed preference does not indicate that either nation is preferred overall by the citizens of the other.

After all, Americans are a much bigger share of immigrants in Sweden than Swedes are of immigrants in the USA. It’s higher in percentage terms in the reverse way when you look at it in the other direction.

But either way, the net flow is zero, and that’s the bottom line. Another way to see this is to substitute “Peoria” (or any other town) and “the rest of the U.S.” for “Sweden” and “the U.S.” If people are indifferent, then random movements will lead to zero net flows regardless of the units being compared.

That said, there may of course be other factors like weather that affect immigration, yet have nothing to do with the aspects of living standards that policies can affect.

Jim, it’s true that “of course draconian enviro policies will lower our standard of living.” It’s also true that lack of reasonable environmental policies will lower our standard of living. The quasi-religious free marketers want to believe this isn’t true, regardless of the overwhelming scientific evidence to the contrary. I hope you aren’t one of them.

13 Barkley Rosser December 23, 2007 at 11:41 pm

I managed to find the data source in question.
While indeed flow from Canada to the US is about
twice that going the other way, the numbers going
from the US to Sweden exceed the numbers going the
other way, although not by a whole lot.

14 2 December 24, 2007 at 4:00 am

“The quasi-religious free marketers want to believe…”

Here’s a tip: Whenever someone writes something like that, their credibility approaches zero.

“Student of Economics,” what college do you go to? And what sort of “economics” do you study?

15 A student of economics December 24, 2007 at 9:45 am

2 at 4am: My reference to “The quasi-religious free marketers” was a sarcastic response to the phrase “religious dictates (ie Environmentalism) ” by Jim at 9:21 which I was discussing. Of course it undercuts a person’s credibility to use such phrases. That was the point. I thought Jim might understand that better if he saw it in a slightly tweaked mirror.

Sorry the reflectional humor was lost on you, but thanks for the tip. It’s odd that you didn’t share your sage advice with Jim, but maybe you think he’s beyond educating?

As for me, among other things, I study “economics” on the Internet and elsewhere, learning what I can from Alex, Tyler, Paul, Greg, Brad and most of all fellow commenters like you and Jim.

16 8 December 24, 2007 at 10:48 am

Given the earlier debates on the Laffer Curve, conservatives would be wise to accept the static model and make a deal with environmentalists. Repeal the income tax amendment, eliminatiing all income, capital gains, and payroll taxes. A $100 tax on a barrel of oil would generate about $750 billion, so $400 oil would fund the entire government.

17 johnleemk December 24, 2007 at 2:11 pm

I fail to see why what or where “A student of economics” studies should have anything to do with the validity of his or her arguments. A few over-the-top statements need not discredit the rest of his or her reasoning.

He or she is perfectly right, by the way, that correcting externalities is part of Econ 101 (though of course, as Econ 101 also should point out, not all externalities require government intervention). I believe Ken Arrow’s cost-benefit analysis of reducing carbon emissions was also linked to earlier.

18 Barkley Rosser December 24, 2007 at 4:52 pm

Eric h.,

Canada is clearly using a lot of nonsustainable energy sources that are not clean,
but besides hydro, Sweden is one of the largest users of nuclear for its electricity
production, ony surpassed by France, I think, in percentage terms, although maybe also
Belgium.

19 Elliot December 25, 2007 at 2:36 am

Despite common belief to the contrary, a shift to solar power is completely feasible with current technology, and relatively limited infrastructural change.
The main obstacles to reliance on solar power have always been the lack of sunlight, and therefore power, during the night, and the method of transportation from the solar plants (presumably in the southwest) and the consumer.

The answer to the first is storing power generated during the day, not in battery banks, but rather in potential energy, ie compressing air, or pumping water uphill. Then, at night, this potential energy is converted into actual electricity via turbine.

As for transporting this energy, what has been proposed are long distance DC lines, which lose far less energy over long distances than AC lines, and are also cheaper and easier to put up, that run along the interstate highway system, and then feed into existing regional powergrids.

Anyhow, that’s my contribution to this little discussion. As my knowledge of the subject is limited, I would point those who are interested in more detailed/additional information towards the following Scientific American article:
http://www.sciam.com/article.cfm?id=a-solar-grand-plan

20 swede December 26, 2007 at 2:09 pm

What a load of crap! I’m stunned by all the ignorant posts here.
Sweden is not a socialist state (my guess is that only an american would ever believe that). Sweden is on the contrary right now ruled by the moderate (right) coalition, and has by any reasonable definition never been ruled by a socialst government.
About 30% of the electricity in sweden is nuclear in origin, hardly the highest number in Europe.
And from first hand experience I can say that mean “living standards” are way higher in Sweden compared to USA.

21 Michael December 26, 2007 at 11:44 pm

“Student of Economics” — first of all, don’t worry about whether you have a degree or not. Your ideas stand or fall on their own, regardless of whether they’ve been helped (or hurt) by formal education. and that’s coming from an Ivy League MBA.

Second, on one hand I can see your point about the net flow. After all, if an (approximately) equal number of people are making opposite decisions, isn’t that evidence of an impasse. But if you look at it in a larger sense, I think you’ll see that the evidence points to my conclusion. After all, we have 250 million people who each year are given the chance (let’s ignore financial and logistical barriers for now) to “trade” US citizenship for Swedish citizenship, and the data show that the chances of any one of them doing so are infinitesimally low. During that same year, 9 million Swedes are given the chance to “trade” Swedish citizenship for US citizenship, and the chances of any one of them doing so is much, much higher. So while the number of people “voting” (with their feet) for the opposite country is the same, both the number and the percentage of people “voting” for their own country is much, much higher in the US.

Of course, immigration patterns aren’t a perfect gauge of standard of living by any means, but one would assume comparative standards of living (by some definition) play at least some part in the decision to move.

Thoughts?

And btw, “Barkley Rosser,” the reason I didn’t address any questions to you is that, based on your response to my post I am assuming you are an idiot. If you’d like to post something with actual analysis (and preferably without referring to American, Canuck, and/or Swedish as “ethnicities”), by all means feel free.

22 Michael December 27, 2007 at 11:04 am

Yep, you’re definitely confirming my initial prognosis. First of all, as stated my earlier post, one’s arguments rise and fall on their own merit; there are just as many idiots in the academy as anywhere else (probably more). Your degrees and/or employment are irrelevant to this discussion. Logic, please.

Regarding my response to Student, I actually did provide some analysis, which you have not yet done (nor critiqued my analysis), so please do so and I’ll be happy to respond.

Regarding “Canuck,” I was basing my assessment of the word on the facts that most of the Canadians I have known (dozens) have used the word themselves, and NONE of them have ever expressed any offense at its use. Would you like to offer your own reasoning as to why you think it’s offensive? If you don’t want me to refer to you as a Canuck, I’m happy not to. But you can’t tell me that the word is offensive on its face, because all my experience tells me that’s ridiculous.

P.S. Wikipedia:

Canadians use “Canuck” as an affectionate description of nationality and the word carries no particular patriotic overtones. A few Americans misinterpret “Canuck” as an offensive noun but would be hard pressed to find a Canadian, French or English, insulted by the word.

Usage of the term includes:

* The Vancouver Canucks hockey team
* Canuck Place Children’s Hospice, providing specialized pediatric palliative care in Vancouver BC
* The Canucks Rugby Club, playing in Calgary since 1968.
* The Crazy Canucks, Canadian alpine ski racers who competed successfully on the World Cup circuit in the ’70s.
* Johnny Canuck, a personification of Canada who appeared in early political cartoons of the 1860s resisting Uncle Sam’s bullying. Johnny Canuck was revived in 1942 by Leo Bachle to defend Canada against the Nazis.
* In 1975 in comics by Richard Comely, Captain Canuck is a super-agent for Canadians’ security, with Redcoat and Kebec being his sidekicks. (Kebec is claimed to be unrelated to Capitaine Kébec of a French-Canadian comic published two years earlier.) Captain Canuck had enhanced strength and endurance thanks to being bathed in alien rays during a camping trip. The captain was reintroduced in the mid-1990s, and again in 2004.
* Operation Canuck was the designated name of a British SAS raid led by a Canadian captain, Buck McDonald in January 1945.
* “The Dark Canuck” is a song on The Tragically Hip’s album In Violet Light.
* In 1995, Canada Post released 45-cent postage stamps depicting Johnny Canuck and Captain Canuck.
* “Canuck” is a nickname for the Curtiss JN4 and Avro CF-100 aircraft. The CF-100 was the only Canadian designed and built jet fighter to enter operational service. From 1950-1958, 692 Canucks were built. They remained in service until 1981
* One of the first uses of “Canuck” — in the form of “Kanuk” — specifically referred to Dutch Canadians as well as the French.
* “Canuck” also has the derived meanings of a Canadian pony (rare) and a French-Canadian patois[2] (very rare).
* Team Canuck is a small-sized team at RoboCup.
* North Plainfield High School Canucks, is the mascot of this High School in New Jersey.
* “Canuck Rubber”, a reference to Canadian Tire stores.[citation needed]
* The Curtiss JN-4(Can) biplane was known as the Canuck.

23 Barkley Rosser December 27, 2007 at 1:48 pm

“Michael,”

Well, I just did a bit more googling on “Canuck.” Yes, Wikipedia
declares that it is not viewed as derogatory by Canadians, although
it is frequently used in a consciously derogatory manner by Americans.
However, Wikipedia is not always the most reliable of sources. I have
caught it being wrong. The OED says it is certainly derogatory when
used by Americans and says that it is a matter of debate whether it is
viewed as derogatory among Canadians.

My suspicion here is that this like many other ethnic identifiers of
borderline character. It is OK for a group member to use it, but not
nearly so OK for a non-group member to use it. So, black rappers can
say “nigger,” but non-blacks cannot; women can call each other “bitches,”
but men better keep their traps shut; politically active gays can call
each other “queer,” but non-gays should stay away from that one.

So, the bottom line is that it is probably not all that OK for you to
be using it. And, in any case, as already noted, you clearly used it in
a very insulting and derogatory way when you addressed someone from Canada.
So, “Michael,” whoever you are, clean up your act.

24 Barkley Rosser December 27, 2007 at 11:44 pm

Michael,

“Awwwww, look, the cute little Canuck is trying to be snarky.”

Perhaps this was meant in jest, but if I were Canadian I doubt that I would take it so.
I would say the problem is not the “snarky,” but the “cute little.” It has long been
the refuge of somebody making an ethnic slur to say “I meant it as a joke. Don’t you
have a sense of humor?”

As someone who lived in Wisconsin for a long time, I am not aware of anybody ever viewing
being called a “Badger” as insulting. However, quite a few sources report that Americans
calling Canadians “Canucks” is viewed as such, or may be so.

Of course, some in the US South do not use “Yankee” in a polite way…

Michael. Look, I do not know you, so maybe I was mistaken. If so, I apologize. Perhaps
you are really a nice and completely well-intentioned and unprejudiced person, or whatever.

I do recognize that some people need to use monikers for professional reasons, while many
others do not and just use them to be cool, or whatever. I guess I have a problem when
somebody starts making personally critical remarks about others, or appears to, while
operating semi-anonymously. I am not Canadian, and perhaps I was being overly sensitive
on the part of the Canadian who was on the receiving end of your remark (who, I believe
has not commented any further on this thread). This concern may also reflect a spilling
over of concern from some other threads here where there have been worse outbreaks of
people using monikers making more seriously nasty personal attacks on other people.

25 Brant Boucher January 14, 2008 at 5:34 pm

The USA: come for the sun, stay for the cheap buffet!

The pertinent question regarding health care is “why are so many Americans (disproportionately Hispanic and African Americans but many whites as well) getting Third World health care when Americans are paying Canadian prices plus 50%?

As for immigration, it’s a common “trope” of “patriots” (and chauvinists) of all nations to think there are more immigrants than there really are, and that the World is beating a path to their door. Canadian immigration to the USA and vice versa is more of a trickle, really surprising given the near-complete integration of the continental economy. Swedish immigrants? Why bother counting unless you are Greece? 19% of the population of Canada are immigrants. That’s a larger percentage than any of the other immigrant magnets (Canada, the US, Australia, the UK, etc.) So people must like Canada, eh? Probably for the same reason they buy Canadian TV shows–less sex and violence, more clean, mild, family-oriented entertainment.

In any case, I think Canada can very nearly match the US brown skin for brown skin thanks to large native populations and immigrants. Instead of race, you might want to compare Canada to the US minus the South. That’s the really big difference right there.

Mind you, Americans don’t take their medicine even after paying an arm and a leg for it, according to a recent study, so maybe Americans are just a tetch dumber in their use of healthcare resources than Canadians. They certainly have more of them, both private and public–both countries have mixed public-private healthcare with long lists of people (USA) and services (Canada) not covered by public healthcare.

But back to oil: It sure screws up a country. Thank God it is mostly in Alberta and not here. Even so, it’s killing our manufacturing sector while wasting enough natural gas and water to supply half of the country. And that’s just the tarsands.

Better off without the stuff, like the richest countries in Europe.

As for standard of living, the top 20% of Americans are probably better off than the top 20% of Canadians, but after government transfers and other considerations, the bottom 80% of Canadians are better off than the bottom 80% of Americans. I’ve seen studies that support that estimate as well and I’ve seen nothing to contract it in my experience or reading. The top 20% of Canadians are far more likely to be happy with this situation than you’d think.

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