I’ve always thought robust economic activity could be measured by how much gasoline we use. Our ability to move ourselves, and things, quickly, saves our most scarce resource, time. This allows us to produce more with our time. I liken the consumption of gas in our economy to the consumption of nails for a carpenter. The more nails a carpenter uses signifies he is producing more output, and the higher the output, the wealthier he becomes. The more gas we use signifies we are producing more output, and the higher the output, the wealthier we become. Economies run on energy, and gasoline, which is specific to our transportation needs, is a big percentage of our countries energy supply. Electricity and heat are the other two parts of our energy needs.
Individuals use gasoline for productive activities and for consumption activities. An example of productive activities would be driving to and from work, and all other driving that is work related. Consumption activities would be all driving other than these productive activities. All of our consumption activities are made possible because of our productive activities, with the exception of consumption financed with debt, a Government transfer from someone’s production via taxes, or counterfeiting money, like the Fed. The monies received through debt, transfer, or counterfeiting, are essentially certificates which allow you to demand what someone else has produced without any corresponding present production, except in the case of debt, which would be paid back with future production.
CHART SHOWS LOWER CONSUMPTION
I say this chart, US Total Gasoline Retail Sales by Refiners (Thousands of Gallons Per Day), at zerohedge.com. It is from the U.S. Energy Information Administration (eia.gov) which was created by congress in the late 70’s. It shows our consumption of gasoline in the last 9 years is way down. Lets look at consumption for the month of April since 2006.
Year Thousands of Gallons Per Day (April)
2006 61,020.8
2007 57,354.7
2008 56,307.4
2009 51,215.6
2010 46,016.2
2011 41,555.0
2012 29,684.0
2013 28,179.6
2014 20,109.1
REASONS FOR DROP IN CONSUMPTION
That’s 40,000,800 less gallons being consumed in the month of April from 06 to 14, a drop of 66% or 2/3rds. What can account for this drop in consumption since 06. Lets look at some reasons. 1) Gas prices are high which means less will be consumed. 2) Higher unemployment means less work related miles driven. 3) Technology allows us to work at home, and also communicate with people without meeting face to face. 5) Shopping online reduces miles driven. 6) Our population is aging, and older people drive less. 7) Younger people are driving fewer miles. 8) Newer cars get better gas mileage, although this might be off set by a couple of things: A) people are keeping their lower MPG cars longer, and B) Because a molecule of ethanol produces less energy than a molecule of gasoline, mixing ethanol with gasoline lowers fuel efficiency. 9) Compressed natural gas is cheaper than gasoline, but substituting natural gas cars for our current fleet will occur some time in the future, and has no bearing on the present consumption.
Demographics and technology can’t account for the total 66% drop in gasoline consumption. Even if it accounted for half of the 2/3rds drop in gasoline usage, which it can’t, it still shows that Economic activity has slowed and doesn’t look like it is about to pick up any time soon. When the housing bubble, caused by the Feds dual edged sword of low-interest rates and electronically printing counterfeit money, popped in 08, it slowed economic activity. But the biggest drop in gasoline consumption has happened in the last year, at the same time we were being told the economy is improving. I think the drop in gasoline consumption is the canary in the coal mine when it comes to our economy.
WHAT TO LOOK FOR
The law of supply and demand states: less will be demanded at a high price than a low price, and more will be supplied at a high price than a low price. Since the demand is low the price should eventually go down. As the price goes down more will start to be consumed and less will be supplied. As demand rises and supply shrinks, a point will be reached where the price will start to rise. when this happens, less will be demanded and more will be supplied.
If gasoline usage doesn’t increase significantly at the lower prices, we will know the new normal for our economy is an over all lower standard of living.
Related Article – What Comes First Production Or Consumption, at austrianaddict.com.
Related Article – Capital Consumption, aka, Eating Our Seed Corn, at austrianaddict.com.
Related Article – A Look Over The Horizon At What Lies Ahead If We Continue Down The Central Planning Road, at austrianaddict.com.
Related Article – Is The Economy Improving? It Depends On How You Define Improving, at austrianaddict.com.
AUSTRIAN ECONOMICS ADDICT 