Sunday, November 30, 2014

Did demand collapse cause the crash?

This chart is oil consumption in the USA taken from Indix Mundi.  The peak years are:

2003 20,033.51
2004 20,731.15
2005 20,802.16
2006 20,687.42
2007 20,680.38

Now one would think that we would have had an oil consumption peak right at the point where we crashed, regardless of the cause.  That is true except that oil prices were the most volatile prices leading up to the crash.  In any event, one cannot claim that 2003 and 2007 were a period of reduced demand because of the housing collapse in 2006.  I serously doubt that depressed home owners serious reduced demand by importing more, not less, oil.

During the crash we reduced  consumption by 5.72% in 2008 and 3.73% in 2009, numbers that seem to match the reduction in GDP growth.

So, given this time series, what is the probability that a stimulus spending in 2009, that came after the oil price plunge, caused us to exit the crash? Oil consumption dropped during the first year of the stimulus, then rose 2.28% in 2009, and then dropped again in 2011 by 2.2%.

There is little proof either way, the stimulus advocates say we pulled out of the crash by mid-year 2009, yet we still dropped oil consumption over that whole period.  What we were doing in 2009 is increasing unemployment, yet none of the stimulus advocates claim credit for increasing unemployment in 2009!  What they do is pick and choose and require fraudulent economists sign pledges of Keynesian unionism.


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