Energy and the Economy

Energy prices have a significant impact on the U.S. economy, as evidenced by the oil embargoes and the recent rising energy prices (i.e., for natural gas and oil). Prior to the oil embargo of 1973/1974, total energy expenditures comprised 8% of the U.S. GDP; the share of petroleum expenditures was slightly less than 5%, and natural gas expenditures accounted for 1% [12]. The price shocks of the 1970s and early 1980s resulted in these rising dramatically to 14, 8, and 2%, respectively, by 1981. For the next two decades, the shares have decreased consistently to approximately pre-embargo levels; however, these shares are now beginning to increase again starting in the late 1990s due to higher natural gas and petroleum prices.

High energy prices result in increased inflation. Viewed from a long-term perspective, inflation, as measured by the rate of change in the consumer price index (CPI), tracks movements in the world oil price [12]. Oil and other energy prices constitute a portion of the actual CPI but also impact other (downstream) commodity prices that will have a lagged effect on the CPI inflation. Since the 1970s, observable and dramatic changes in GDP growth have occurred as the world oil price has undergone dramatic change [12]. The price shocks of 1973/1974, the late 1970s/early 1980s, and the early 1990s were all followed by recessions, and higher energy prices in 2003 contributed to the downturn in the U.S. economy.

The strength and security of the U.S. economy are closely linked to the availability, reliability, and cost of electric power. Since 1970, real GDP in the United States and electricity generation have been clearly linked, as

0 0

Post a comment