Dynamics
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If there's another recession, is it fair to blame it on oil prices?
Indeed, financial analysts are getting increasingly pessimistic about the possibility of another recession in the fall of 2004, after they were surprised by a Commerce Department report showing that consumer spending decreased 0.7%, after rising 1% in May. June's decrease was the first drop in a year, and the largest decline in three years.
Earlier this year, financial analysts were predicting very strong economic growth by this time. However, numerous economic figures have been disappointing, and indicated little if any growth. Most disappointing have been job reports, which have indicated that businesses are simply not hiring in anything like the magnitude that analysts have been predicting by now.
The highly anticipated July unemployment report will be available tomorrow (5-Aug).
Historically high oil prices have added to the pessimism.
In Germany, where the unemployment rate is 11%, the word from German Finance Minister Hans Eichel is that high oil prices are going to affect global economic growth.
But that argument carries very limited weight. It's true that high oil prices translate into high gasoline prices, and so consumers have to spend more on gas and have less money to spend on other things, and that depresses global economic growth.
But high oil prices also mean more money to oil producers -- Saudi Arabia, Russia, Venezuela, and so forth. That money is fed back into the global economy and should help global economic growth.
Of course it's true that any economic dislocation, including high oil prices, is going to affect global economic growth, if only because businesses take time to adjust to new conditions. Still, it's not clear that oil price changes should have a major change on the global economy.
Generational Dynamics predicts that the global economy is in a time
of generational crisis, and that we're entering a new 1930s style
Great Depression.
(5-Aug-04)
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