Thursday, February 9, 2012

Why the economy hurts so bad

We know there was a housing bubble that burst and a financial panic, but something else was involved in the Great Recession we're still trying to recover from.

And that was the price of gasoline, Derek Thompson writes in The Atlantic.
In 2009, economist James Hamilton published a paper that retroactively forecast what an oil shock, like the one we experienced in 2007-08, would do to GDP. And guess what? His model accurately predicated much of the collapse in GDP that resulted from the Great Recession -- as if there had been no housing bubble or financial crisis! The oil spike was that bad.
Still, there was a housing bubble. And there was a financial crisis. How do we account for them and still hold onto the gas story? Here's a one-paragraph theory of the Great Recession that begins with gasoline. Cheap gas ruled in the 1990s. This encouraged families to settle down farther from the cities where they worked. In the 2000s, super-low interest rates, declining lending standards, and an appetite for mortgages on Wall Street (among other factors) further encouraged sprawl and residential development in the 'burbs. As the price of gas went up, families stopped buying homes 30 minutes from the city. For folks shacking up in the exurbs, higher gas bills ate into mortgage money. For companies, higher energy bills shocked productivity. Classic oil-shock + housing development arrested + financial crisis = Great Recession.
That's why President Obama's energy policy/religion matters so much. Here's what the White House itself has to say about energy. This is the White House's energy page.
The President has taken unprecedented action to build the foundation for a clean energy economy, tackle the issue of climate change, and protect our environment.
"As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs - but only if we accelerate that transition. Only if we seize the moment." -- President Barack Obama
Nothing there about filling your tank to get to the grocery store. What do we know about Obamaman's energy policy? Roadblocks everywhere to brining online more oil and gas. Corruption and mismanagement in wishful thinking boondoggles like Solyndra.

If you approve of all this, go plug your car into a windmill.

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