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Migeru:
As Jerome pointed out recently, the fact that oil at $135 still is not making too much of a dent in demand indicates that so far we've just been consuming as much as we needed without regard to the price, but that is now changing and Oil is, for the first time in maybe a century, scarce.

It's only been a couple of weeks and people are still getting used to the idea. It's going to take months before informal demand reduction starts making a difference years before it sinks in that the party is over and some advanced planning would be a wise and sensible thing.

Migeru:

I agree, but we still define a recession in terms of economic growth rates over the short term, and the zeroth-order effect of an oil price spike is to eat away at GDP proportionally to the increased cost of imports.

It's the multipliers that will make it hurt, not the nominal price increase. We've been here before and I don't see it playing out any differently this time. Inflation will rise, interest rates will rise 'to combat inflation' (and good luck with that), and with so many people on borderline incomes already, including debt and food inflation, there's going to be extreme unhappiness.

The particular problem for the UK is that we have a national culture of whining, and very few people have experience of radical self-reliance or of 'make do and mend.'

It's the political implications that bother me the most. It's going to be easy to point the finger at immigrants and brown people (and Brown people) rather than doing anything constructive.

With a culture of blame to draw on, there's going to be a lot of blame going around.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 27th, 2008 at 06:06:51 AM EST
[ Parent ]
ThatBritGuy:
It's only been a couple of weeks and people are still getting used to the idea. It's going to take months before informal demand reduction starts making a difference years before it sinks in that the party is over and some advanced planning would be a wise and sensible thing.
Oil breached $100 just before the new year, and it was below $50 just two years ago. People would have had a couple of year to get used to oil prices rising, had it not been for the Very Serious People™ constantly reminding everyone that this was just a speculative spike due to geopolitical risk and evil scheming Arabs. our politicians are still blaming the producers when it's been clear for about 2 years that they just don't have the spare capacity.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue May 27th, 2008 at 07:30:06 AM EST
[ Parent ]
Yes, but hardly anyone here does that kind of forward planning. I bought an efficient car last year because I thought there was a good chance we'd be where we are now. According to the showroom, 4x4s were still selling well.

Dealing with reality now doesn't just mean looking at the bigger picture, it means understanding that the politicians are out of the game - they have no clue what's going on - and everyone is going to have to make their own plans, individually and collectively.

It also means accepting that most people won't be making plans, even now.

They're going to wake up next year in a different world with no clue what to do, and no support. They'll whine about how nothing has been done, then realise that nothing is going to be done for them - and then things will get 'interesting.'

You might see government start to wake up and realise there's a problem then.

Or, given Whitehall's record - perhaps not.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 27th, 2008 at 12:04:06 PM EST
[ Parent ]
ThatBritGuy:
I agree, but we still define a recession in terms of economic growth rates over the short term, and the zeroth-order effect of an oil price spike is to eat away at GDP proportionally to the increased cost of imports.

It's the multipliers that will make it hurt, not the nominal price increase.

Any help on getting data on the multipliers?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue May 27th, 2008 at 08:09:54 AM EST
[ Parent ]
The two key elements are business margins and disposable income.

As disposable incomes shrink, demand for everything except core essentials dries up, GDP is hammered, and there's a credit crash as people default on loans and mortgages. So there's a personal tipping point that creeps up the income curve, as more and people fall off the bottom and their GDP contribution switches from positive to negative.

Likewise if margins shrink and businesses become unprofitable, businesses die, unemployment increases, demand goes down, and GDP is hammered again.

A useful exercise with real numbers would be to get some of the annual accounts posted by haulage and logistics companies at Companies House - that would show what kind of margins they're running on, and how close they are to being killed by current and future price increases.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 27th, 2008 at 12:16:25 PM EST
[ Parent ]
So there's a personal tipping point that creeps up the income curve, as more and people fall off the bottom and their GDP contribution switches from positive to negative.

Negative GDP contribution?
by Colman (colman at eurotrib.com) on Tue May 27th, 2008 at 12:26:48 PM EST
[ Parent ]
Aka crime and benefits.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 27th, 2008 at 12:29:47 PM EST
[ Parent ]
How do they contribute negatively to GDP? Criminals are good for GDP - think of all the police pay, prison contracts and so on. And benefits are also good for GDP.
by Colman (colman at eurotrib.com) on Tue May 27th, 2008 at 12:32:57 PM EST
[ Parent ]
GDP may be a crappy measurement, but assuming that the state would have employed people doing other stuff if crime was not there, crime is bad for GDP. The part of the economy that is criminal is not taxable and not part of the GDP. Unless you guesstimate it.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue May 27th, 2008 at 05:32:44 PM EST
[ Parent ]
Say it switches from positive to zero.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Tue May 27th, 2008 at 02:19:52 PM EST
[ Parent ]

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