Back in late 2014 and early 2015, this website soundly mocked any and every economist that suggested that plunging oil prices – in a globalized economy where oil has been financialized beyond recognition and impacts every asset class, the stock market, global trade flows, and international diplomacy – is “unambiguously good.”
It wasn’t and it took a dramatic escalation in activist central banking to preserve market stability after collapsing oil prices dragged down energy stocks, and have led to a surge in bankruptcies, a US manufacturing recession, whose contagion is slowly spreading to the services sector.
Which, however, meant that now that lower oil prices have been exposed as “unambiguously bad” for the global economy, it was time for a “very serious economist” to take the lead in explaining just why it is higher oil prices that are good for the economy.
Over the weekend, Goldman did just that, when its economist David Mericle, wrote a note titled “Cheap Oil and the US Economy: Too Much of a Good Thing .”
In it, he first does a mea culpa, one which soon every other economist will have no choice but to parrot, because it is now critical for the broader public to “understand” why higher gas prices – which even economists realize are critical to push the overall market higher – are “good for them.”
Here’s Goldman, proudly blazing a trail in this exciting narrative shift:
When oil prices first began to decline in mid-2014, most observers expected a boost to US and global growth as the windfall from lower energy prices raised consumer spending. But as oil prices continued to fall sharply to levels below the breakeven points of many US producers, the cost side of the growth ledger quickly became apparent. The response of US producers was swift, with energy sector capital spending falling to half its initial level, while the boost to consumption has seemingly been more gradual. Taken together, this has meant that the collapse in oil prices has had a disappointing and possibly even negative effect on the US economy. With oil prices now rebounding from their January lows, we revisit the impact of oil prices on the US economy and assess the outlook under various price scenarios with the help of rich new detail on the production cost schedules of domestic producers.
He then proceeds to goalseek and massage a whole lot of number, the same ones that two years ago “confirmed” that lower oil prices are absolutely great, to come up with the following observation: “Moderately Higher Oil Prices Would Boost US Growth.”
In short, our analysis implies that lower oil prices have become “too much of a good thing” for the US economy. Had the decline in oil prices stopped at $80, the consumption channel would have dominated and the net growth impact would have been quite positive. But in the sensitive range where oil prices now lie, the non-linear impact of oil prices on energy sector capital spending and the petroleum trade balance outweigh the steady per-dollar impact on consumption.
Get that: low oil prices…. but not too low oil prices. Goldilocks oil prices if you will. Ah, economists. Goldman continues:
Admittedly, our analysis does not exhaust all the possible channels through which oil prices affect the US economy. For example, lower energy input costs or transportation costs might lead non-energy companies to lower prices or increase capital spending. More indirectly, stable or higher oil prices could help to further reverse the widening in high-yield credit spreads, lessening the negative spillover effect on capital spending by non-energy companies that borrow in high-yield markets. But we view these effects as more uncertain, more diffuse and likely smaller than the three main channels discussed above.
However, because simply throwing out years of pseudo scientific economist canon would imply suggest that nobody really has any idea what is going on and the narrative changes at a whim to simply follow price action, Goldman felt compelled to provide an offsetting “bullish” angle to lower oil prices: its “yes but” conclusion is that “Lower Prices Would Be Better for Employment “
We conclude by considering the effect of oil price changes on total employment under each of our three scenarios. To estimate the impact on energy sector employment, we model energy sector payroll growth using energy capex, energy production, and oil prices. To estimate the impact on employment in other sectors associated with the boost to consumption from lower oil prices, we apply an Okun’s law relationship to convert the GDP effects estimated above into employment effects.
Exhibit 11 shows our estimates of the monthly net impact on payroll employment. The data through the present represent actual reported employment changes in the energy sector and estimates of the effect via consumption, while the figures thereafter reflect estimated employment effects from both channels.
For the remainder of 2016, our estimates imply that the rebound to $70 provides a larger boost to employment than the lower price scenarios. But by 2017-2018, the reverse is true. In contrast to the GDP impact, we find that the cumulative employment impact is higher in the $30 oil scenario than in the $70 scenario. The key reason for this opposite conclusion is that the energy sector is much less labor intensive than the economy as a whole. As a result, declines in oil prices even in the sensitive price range considered produce a larger impact on other industries via the consumption channel than on the energy extraction sector, which currently employs just 1 in 300 US workers.
Got it, so low oil is bad for economic growth, but good for jobs – what is missing here, of course, is the kind of jobs low oil is good for. The answer: bartender and waiter jobs, which is what some 200,000 former shale workers will soon become. And that’s why they are not laughing with you, dear economists.
Goalseeked “analysis” aside, Goldman’s overall conclusion is pure retroactive “we were wrong but…” comedy. It is as follows:
We draw three major conclusions from our analysis. First, the net effect of the oil price collapse on US GDP growth has probably been negative so far, with the sudden pullback in energy sector capital spending outweighing the boost to consumption. Second, going forward the net effect on growth is likely to be neutral at worst and would be significantly more positive if oil prices rebound to $70/barrel than if they fall to $30/barrel, reflecting the outsized impact of price changes in this crucial range on energy capex and production. Third, while cheap oil has become “too much of a good thing” from a growth perspective, the employment impact of lower oil prices is still positive, reflecting the more modest effect on employment of the capital-intensive energy sector.
And so the narrative has changed again.
Запись The Narrative Changes: Goldman “Explains” That Higher Oil Prices Are Actually Better For The Economy впервые появилась crude-oil.top.