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Wednesday, December 15, 2010
Nice graphic on how some things have changed since the year 2000...
Technology use by the masses has really taken off in 10 years...Quite incredible if you stop to think about it...The price of gas intrigued me. From 2000 until today (roughly $2.89) the price has increased 95%. Taking into account inflation, $1.48 in 2000 is the equivalent to $1.88 today (inflation calculator HERE). In other words, if gas prices had simply increased in price along with the prices of everything else, as measured by the Consumer Price Index (CPI), we should be able to buy gas for $1.88 a gallon (a 27% increase).
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Hi Gene. I heard once, during one of the gasoline-price spikes of the 1970s, that OPEC was just raising prices to make up for the declining dollar.
ReplyDeleteNever heard that again, which I thought was really odd.
What happens to your calculation if you factor-in the decline of the dollar relative to other currencies? What currencies? I don't know.
(Or is it double-counting to consider domestic inflation AND exchange-rate values?)
Ever curious about your question, especially the middle, single sentence, I found this at Econbrower
ReplyDeletehttp://www.econbrowser.com/archives/2007/10/does_dollar_wea_1.html
""In point of fact, one should expect two-way causality. A higher relative price of oil should weaken a country's real exchange rate if it worsens the country's terms of trade (i.e., the country is a net importer of oil). In addition, if the change in the relative price induces obsolescence of some of the capital stock, this would induce an economic contraction that might depreciate or appreciate the currency, depending on variety of assumptions …””
Whenever I see a graph of the dollar vs price of oil, the correlation seems strong. However, as this study shows it may be the oil "tail" wagging the dollar "dog". Is oil such an omnipotent commodity, that IT is the cause of the depreciation or appreciation of the dollar at any given time...I gotta admit, I have not thought about it from this perspective before...Is this what you were getting at, on some level????
If the cost of oil goes up, it will tend to push prices up throughout the economy, but by less than the oil increase. (As you point out in the post, prices in general increased far less than the price of oil in the last ten years.) If some other cost goes up, say maybe the cost of interest embedded in prices throughout our economy, that will push prices up relative to the price of oil. Both these things push the value of the dollar relatively down... Poor Dollar!
ReplyDeleteThe econbrowser article is interesting, but your excerpt there may be the weakest part of it: "...this would induce an economic contraction that might depreciate or appreciate the currency, depending on variety of assumptions...” I don't find it productive to make such indecisive statements. Take your best guess, I say, and don't be afraid to admit it when you're wrong! (Also, I don't make predictions.)
I think most statements about the economy made by knowledgeable people are true, but must be ranked in order of significance. Like your oil wagging the dollar-dog: Seems to me oil is a significant factor, but less significant than our domestic monetary imbalances.