Oil Addendum
I ended yesterday's piece with this statement,
Brazil and much of the rest of the world need to give up the idea they can use oil like contemporary Americans, indeed, if they dug a little closer, since the first Oil Shock, they will find the American economy itself has become increasingly inequitable and dysfunctional.
It needs a little exposition.
The American economy changed in many ways after the two 1970s Oil Shocks. It was the end of the post-war American economic boom, what became known as the American Dream. Economic growth which had become more and more inclusive, sharply diverged with two recessions, never recovering. Many people who had never participated in the American Dream never would, while an increasing number fell out, joining the bottom. This has continued for 50 years.
What's very interesting and sort of hides oil's impact is the growth rate of oil use. Oil didn't become integral to the American economy until after the war. From 1950 to 1978, oil consumption grew 300%, from 6 million barrels a day(mbd) to 18mbd in 1978, peaking with the second Oil Shock. Consumption growth collapsed with the hard early 80s recession to 15mbd in 1983, rising to a peak of 20mbd in 2006, which remains the record. The economy again had a severe recession starting in 2007, quickly kicking a lot more people to the bottom, expanding its size.
In the 40 years since the second oil shock, oil consumption growth was only 10%! This has led to a lot of theories that the economy is no longer oil dependent, but this is being proved wrong once again as this is written. With the decline in the growth rate of oil consumption, economic growth of each of the four following decades has continually been less than in the 50s, 60s, and 70s, the growth rate declining each decade in fact.
A number of factors combined for the decline of the growth rate of oil: lower GDP growth; a massive rise of inequity, – while dampening oil use, still keeps people dependent on the oil they do use; – societal deindustrialization; and no longer burning oil for electricity, which was 15% of generation capacity in the early 1970s.
Finally, there was an increase, not a great increase, in fuel efficiency for vehicles as shown in this chart,