Monday, October 29, 2007

Energy and "Cultural Development" in the US

I'm posting this as a new entry rather than as a comment to the Week 11 post in order to include graphs.

White (1943) presents a very simple model of energy use and cultural development, E X F = P, where E is per-capita energy, F is efficiency of energy use, and P is productivity or the "degree of cultural development". The US Government, through the Energy Information Administration, provides just the data we need to get a picture of how this has worked in the US economy for the past nearly 60 years.

This first graph is P, "the total amount of goods or services produced" as measured by Gross Domestic Product, corrected for inflation by being expressed in year 2000 dollars. There has been some skepticism expressed in class that real wealth has been increasing in the US over the past several decades, so this figure should lay that myth to rest. Average real wealth has increased nearly 3 and a half times over the time span represented.

US Real GDP per Person 1949-2006
The next graph features E, per-capita energy use. Notice the increasing trend until the oil shocks of the early 1970's, after which per-capita energy consumption has remained statistically constant.

US Energy Consumption per Person 1949-2006
If we're not buying increased production through increased energy use, White's model predicts we're doing so through an increase in efficiency. This can be seen in the next figure, which graphs F, the productivity gained per unit use of energy.

Dollars of GDP per Unit Energy 1949-2006
While efficiency was increasing slowly before the oil shocks, the pace picked up in the 1970's, efficiency doubling in the years since 1973. This increase in efficiency shows up through more "efficient" use of pollution, as the next figure shows. The amount of greenhouse gases produced to generate each dollar of wealth has fallen significantly over the past quarter century for which we have data.

US Greenhouse Gas Emissions per Dollar of GDP 1980-2005


Aaron McCarty said...

Thanks, Justin...your graphs have enlightened me. The decrease in greenhouse gas emissions per million dollars GDP is cause for optimism. As oil becomes rarer and more costly, it will make the transition to alternative energy more cost-effective; this should further decrease pollution per unit GDP. One question, though...How much of the increase in per capita GDP is due to the massive growth in income for the top 10%? What are the data on the supposedly widening gap between the richest and poorest Americans, or "middle class" income?

Justin Smith said...

Good question, Aaron. You're right, due to distributional issues, per-capita GDP isn't always the best measure of incomes, but it's what White's model called for. To answer your question we'll have to break his assumption that all people are the same.

Unfortunately the US Census Bureau seems to have moved a bunch of pages around and I'm getting mostly dead links looking for this kind of data there.

Wikipedia has a graph that at first appears to answer your question, but if you look at the report you'll see that it's actually measuring household income, not personal income, so while it looks like incomes in the bottom category have been static this is an artifact from a steady reduction in household size over time, as in Liu et al. A household in the bottom 10% of incomes is significantly less likely to have two income earners in 2003 than 1967.

Income inequality is a big complicated topic, and a lot of different ways to measure it.

An economics graduate student at Harvard, Bulent Temel, has an article on that tries to tackle how well per-capita GDP measures incomes and looks at other distributional issues that should help answer your question.

To get a quick idea of relative growth rates across quintiles I took the data from Temel's Table 2, personal income data from the Census Bureau, 1967-2001, but it's not corrected for inflation. Ignoring the effect of inflation, which is constant across quintiles, per-capita income for the bottom 20% of earners grew by an average of 5.53% per year, which is actually faster growth than the 5.28% and 5.42% annual growth in the next two quintiles. The penultimate quintile grew more rapidly, at 5.78% per year on average, while the top quintile saw incomes rise the fastest, a 6.36% average annual growth rate.

So yes, incomes for top earners have grown faster than those at the bottom, but incomes have risen steadily all across the board.

Oskar said...

Thanks for a great post! I'd like to point out to the class that they are all encouraged to write substantive postings to the blog! but for the most part none have! Follow Justin's lead! - who now has about 80 million extra credit points - rest of class: 2. ;-)

I think the points in the blog are good but I have two questions - ultimately then, what is the implication for White's ideas? In a macro setting do we say that there is some support? It seems like you are in part looking at White's ideas but also dropping the 'economic hammer' down on some of the sustainability arguments in the disguise of an analysis of White's ideas - huh? !! I'm mostly kidding.

The other thing is that I have data showing a really strong positive relationship between per capita energy consumption and time in the United States over the course of the last 150 years or so. And its strong and linear - I need to go through the methodology notes on both sources and see what the differences are...

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