Here's a graph of oil cost as percentage of GDP:
Modest relief on energy costsThis info is from 2001, but it generally illustrates the point pstarr was talking about with respect to energy prices(and by extension, EROEI) and the effects it has on the economy:
Prior to the embargo of 1973-74, total energy expenditures constituted 8 percent of U.S. gross domestic product (GDP), the share of petroleum expenditures was just under 5 percent and natural gas expenditures accounted for 1 percent. The price shocks of the 1970s and early 1980s resulted in these shares rising dramatically to 14 percent, 8 percent, and 2 percent respectively, by 1981. Since that time, the shares have fallen consistently over the last two decades to current levels of about 7 percent for total energy, while petroleum has fallen even further to 3.5 percent and natural gas to just over 1 percent.
Looking from the 1970s forward, there are observable, and dramatic changes in GDP growth as the world oil price has undergone dramatic change. The price shocks of 1973-74, the late 1970s/early 1980s, and early 1990's were all followed by recessions, which have then been followed by a rebound in economic growth. The pressure of energy prices on aggregate prices in the economy created adjustment problems for the economy as a whole.
In the past year, forecasters have acknowledged that higher energy prices can become a drag on the overall economy. Initially, overall CPI inflation was still very low, principally because inflation in commodities other than energy and agriculture was extremely low. However, the sustained high level of oil prices has begun to effect core inflation (minus energy and food) through continued pressure on prices of other commodities, in the United States and worldwide. And as historical events suggest, a downward adjustment in the growth of economic activity might be expected. In 1999, the inflation rate for the Consumer Price Index (All Urban Consumers) was 2.2 percent and the core inflation rate was 2.1 percent. However, during 2000 the CPI inflation rate rose to 3.4 percent, led by energy prices. Moreover, the core inflation rate also rose to 2.4 percent. The economy was no longer able to absorb the energy price rise, and higher energy prices began to affect prices of other goods and services.
Similar to the U.S., all countries stand to experience higher inflation due to rising oil prices. While the U.S. has been successful in reducing its dependence on oil from a consumption-per-unit of output perspective, this is not the case in many other countries, where oil use is key to their developing industrial and transportation sectors. Moreover, for the U.S., the net import share of total oil consumption is above 50 percent, and this share is expected to rise steadily in the future. Other countries face the same prospect. Higher oil prices have direct and dramatic effect on the trade patterns between countries. Here, trade in oil is just one side of the story. As higher oil prices get translated into higher commodity prices, there are likely to be changes in the prices of non-energy exported and imported goods which will affect trade beyond just the oil accounts.
Energy Price Impacts on the U.S. Economy
Posted: Fri 10 Dec 2010, 16:32:48
What difference? Why the price , that's what difference.Our economy is addicted to oil that is both abundant and cheap. As the share that conventional oil holds declines and expensive substitutes increase the net value we receive from burning liquid fuel declines.