 have failed to list) can be rewarded more than adequately for their services, with Goods and Services produced by the economy. The transfer of these Goods and Services occurs through the use of money.
Everyone can get rich at once!
The top line is GDP growth including inflation; the bottom line is GDP growth excluding inflation. Before the dotted line, both GDP growth rates and inflation rates are high; after the dotted line (when energy growth was lower), they tend to be lower.
Interest rates were raised to try to damp down oil and other energy prices. We will see in a later section that reducing interest rates helped hide the fact that energy growth was slower after 1980.
The wages shown on Slide 24 have already been inflation adjusted. Thus, in the period before 1968, wages for both the lower 90% of workers and for the top 10% of workers were rising rapidly, even considering the impact of inflation. Many families were able to afford a car for the first time. After 1980, the wages of the top 10% rose much more quickly than the wages of the bottom 90%.
In 1930, wage disparity seems to have been at about today’s level. Early mechanization had replaced many jobs, both on the farm and elsewhere. Farmers who could not afford the new technology found that they could not produce food cheaply enough to compete with the low prices made possible by the new technology. The growing wage disparity meant that a large share of the population could not afford more than the basic necessities of life. The many people with low wages kept demand for most goods and services low. Oil prices were low, and there was a glut of oil, not unlike what recent markets have experienced. New tariffs were added, and immigration was restricted.
The period before the mid-1970s is when a great deal of the United States’ infrastructure was built. The Eisenhower Interstate Highway System dates from this time period. Many of the oil and gas pipelines and electricity transmission systems in use today were also built in this period.
Once the price of oil and other energy products started rising, it became much more expensive to add or replace this type of infrastructure. Once oil prices rose, more debt at lower interest rates seemed to be needed to keep the economy growing, as I will explain in Part 2 of this write-up.
The least expensive to extract oil supply–US oil supply in the contiguous 48 states that could be extracted by conventional means–was developed first. Alaska production was added when it was clear that the early supply was starting to deplete. It was more expensive, as was North Sea oil, which was also added after early US oil began to deplete.
Once oil prices rose in the 2005-2008 period, companies became interested in developing oil from shale formations (sometimes called tight oil). This oil seems to be much more expensive. It is doubtful that this oil is profitable at today’s prices.
Many people believe that oil prices will rise, indefinitely, with the cost of production. The thing that they don’t realize is that high oil prices tend to lead to recession. When this happens, employment drops, and the average buying power of the population no longer rises–it tends to remain flat or falls. As a result, high oil prices do not “stick.”
We are today in a situation where oil prices have been too low for years. For a while, this situation can be hidden, but eventually low investment can be expected to lead to lower production of energy products. It is even possible that some governments of oil exporters may collapse from lack of adequate tax revenue. Governments of oil exporters often obtain over half of their total tax revenue from taxes on oil production. Adequate tax revenue for these governments requires a high selling price for oil.
The situation with food prices tends to parallel oil prices. This occurs partly because oil is used in growing and transporting food, and partly because of substitution issues. For example, corn can be used to make either ethanol for vehicles or food for people.
M. King Hubbert was one of the early scientists who t