Posted by
m0t0r1zed on Thursday, November 06, 2008 4:51:08 PM
Gee, there's a phrase I haven't heard before - the standard phrase used by misinformed dumdums before they start spouting off stupidity about things they know nothing about.
But the temptation is just too hard to resist!!!!! ^_^ I have to get my dumb comments in!
I'm not an economist but ... I was looking around for the effects of gas prices on consumer spending. Kinda interesting and odd. I found a few articles that dismissed the effects as unimportant.
First, here's one from Kudlow citing Bowyer from NRO back in January, saying that there is essentially no effect.
and here's a more recent blog from Dick Green in May following more or less the same idea ...
Now, I'm not an economist but ...
something about the numbers in the "Math" blog seems a bit too simplistic. Wouldn't the economy behave more like discrete, distinct units, rather than just one giant blob that you can mash together using broad, general numbers?
Not being an economist, I really only have questions, not answers.
1) For example, in the "Math" blog, it states that gas and related fuel expenditures are a very small percentage of spending.
However, what about the flow of money out of the country? So if the cost of oil makes up 67% of gas (
http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp), then this is money that is steadily being bled out of the US and into oil exporting countries (of course, some of the money probably does come back into the country, but how much? and after how much time circulating outside?). I suppose this is worse than a tax increase since gov't spending gets reinjected back into our economy. Does this siphoning off of money out of the country have a magnified effect?
2) Furthermore, he states that increases in personal income of 0.4% are slightly greater than the 0.28% increase in gas.
I'm not an economist but ... can you really just lump everyone together like that? And where is most of the income growth coming from?
Suppose we divide up people into poor, middle, rich. (no, i'm not doing the class warfare thing) Is income growth primarily in the poor, middle, or rich class? If most of the income growth is skewed towards the top 20% with lesser gains in the remaining 80%, then the effect is going to be much different from evenly distributed income growth.
3) Furthermore, what is the % of disposable income that is being consumed on an individual basis?
High gas isn't going to affect one person that makes a million dollars, but it will have a drastic effect on 20 people that make $50,000 dollars, right?
4) How are different neighborhoods / sectors of the economy going to be affected? Poor and middle class neighborhoods and businesses might be hit harder than upscale areas because of #2, #3 above.
If you could spread the economic pain out as a giant amorphous blob, it would be nice and have minimal impact, but you're more likely to have discrete sectors / regions that collapse and get hit hard. It's these focal points of crisis that might trigger a cascade of larger negative effects. Dumb analogy - sunlight hitting your hand evenly = not scary. sunlight going through a magnifying glass first = scary.
I think a mistake people make is treating things as a giant lump, and then throwing a big, fat equation or number at it, when it would be better analyzed discretely. I remember a math professor in lecture once saying that "Nature abhors a discontinuity" (his take on "Nature abhors a vacuum"). However, I vehemently disagree. Mathematics is an abstraction and an idealized approximation. Nature is ruled by a hierarchy of discontinuities and discrete entities.
Oh well, that's more or less the main gist of the questions that I had. I suppose I could ask about
energy costs in general, cost of petroleum based goods, plastics, etc. Or maybe lag time in consumer spending dropoff - people increase balances on credit cards to adjust, companies lower prices to sell more, but eventually, credit cards get maxed, prices can't go lower, and something has to give. Or ripple effects and positive feedback, but too vague whatever blah blah blah.
unrelated - weird, i just keep seeing an image of people buying and trading around a bag filled with nothing. wonder what happens when someone opens the bag? oh right, keep on going like there's nothing wrong, sell it, then run away. then again, greed kicks in, you buy back the bag of nothing hoping it will go up in price before selling it again. after a while, everyone's figured out that it's filled with nothing, but they can't help themselves. :P