This article correlating the gap between two types of crude oil prices with economic growth doesn’t make any sense to me for three reasons. First, economies around the world are booming and recovering despite the spike in across-the-board energy prices. Slovakia, for example, experienced higher costs per gallon of oil than the U.S. yet its growth rate is among the highest in the world. Same holds for the Scandinavian and e-bloc countries. (There’s a food price argument here, too, but I’ll spare your lovely souls!). To say that price increases in crude affects U.S. economic to the extent that “120,000” jobs are lost belies the fact this hasn’t happened elsewhere - never mind arguing, as this article does, that the gap between two oil indexes has a direct effect over economic recovery. It’s flat out BS.
Second, you may be thinking that the above examples show that economies are more complex than a 1:1 ratio of oil prices to job losses and economic recovery. Well, you’re absolutely right - economies are ultra-complex beasts, which shows why this article is deeply flawed. Economies are not 100% tied to the cost of one commodity. Nor are they tied to a market gap within a particular commodity, and there are many commodities!
The U.S. economy is one of the most complex in the world, and it is not uni-dependent on one source of crude over another. The article claims that WTI is a better choice than Brent Crude, and that if only U.S. consumers purchased WTI the economy would be recovered. This is booger balderdash and snakey trickery!!
Housing and local tax receipts are huge drivers of growth, in fact, these are the key growth metrics, which are nowhere mentioned in the article. One could argue that VMT is down, causing growth to slow. But VMT is down only slightly at around 3-4% (and there are signs VMT is on the rise).
Even if people are traveling less, there are barely any correlations between driving less and economic growth. Recall that millions of people have moved to cities over the past 10 years, and they voluntarily gave up their vehicles. Nor does the article take into account a) the number of people who are retiring (e.g., baby boomers leaving the job market in the millions) b) the mega trend that young people are not interested in buying cars relative to the previous generation and c) car, truck, and tractor sales are (surprisingly) robust (I own stock in Ford and pay attention to sales).
Which brings me to the third reason why I believe this article if FOS and economists have no friggin clue what’s going on in the world. No one chooses where their gasoline comes from when they visit the Shell, Hess, or 7-11. Despite the argument that BC and WTI are experiencing a historically wide spread, prices at the pump do not favor one source of crude over another. The local Shell station competes with the local 7-11 who competes with the local Hess, and all try to balance complex, volatile, sometimes arbitrary costs-of-operations all with respect to the crude markets.
OK, a fourth problem. The article concludes that the price gap between the two is closing. Well, if this is the case than the opposite argument should hold true for the author - that as the gap closes, the U.S. economy will grow. Is the author willing to bet that as the gap closes, an equal amount of economic growth will occur?
I get what the author is trying to say - that consumers are losing jobs and spending less because of the price of energy. He’s flat wrong. The spread between Brent Crude and Sweet is not hurting the recovery to the extent argued.
Crude Awakening: How Historically High Gas Prices Hurt the Recovery