Monday, July 11, 2005
Hillary Clinton says,
"Ours will be the last generation to rely so exclusively on fossil fuels," she said, adding that the "ups and downs of the global oil market cost the U.S. economy $7 trillion last year ... almost enough to pay off our entire national debt."Let's get some context: We're in a $11 trillion economy, meaning fluctuations must have cost about 63% of a year's GDP. That probably isn't right. National debt is indeed $7.8 trillion, so we need to believe that she really thinks this number is right. If she meant billions, as commenters on Oliver Willis' blog suggest, the line about the national debt would be wrong.
But she must have the order of magnitude wrong here. So how much should we think it is? I'm no James Hamilton, but here's a back-of-the-envelope guess:
In the late 1970s oil prices doubled, somewhat less than they have today (and to a higher level, in inflation-adjusted terms, than today). GDP fell by $114 billion (in 2000 dollars) in the 1980 recession. (Here's a link to the Bureau of Economic Analysis' data server for GDP data. Have a ball.) Even if you assign all the blame for that recession to oil -- which isn't right, because we had Carter's ill-fated interest rate ceilings at that time too, which have to bear some of the blame -- that's far off the mark. And the economy is much less dependent on oil than it was at the time. Probably half as much, maybe even less than half. So it seems unlikely the size of the effect of this one is even $70 billion. I'd make it somewhere between $35-50bn (at 2000 prices -- mark that up about 10% to get to today's dollars) as the best guess, meaning it's probably shaving about a quarter of one percent from GDP growth.
My point is really that "tens of billions" is the right order of magnitude. Which doesn't help Hillary very much get out of her mistake.