Oil isn\’t expensive

Interesting numbers:

Consider this: in 1929, an average American would have had to pay 1.49 per cent of her or his annual income of $84.90 to buy a barrel of crude oil, which then sold for $1.27. Fifty years later, in the wake of the Iranian revolution, oil prices soared to $31.61. But the annual earnings of the average American rose had risen even more sharply, to $7,956. That meant that a barrel of oil would cost them just 0.39 per cent of their earnings – a quarter of what it did in 1929.
The numbers for recent years are even more revealing. In 2008, oil prices soared to $96.91 – very similar to now. But the average American earned $35,931 that year, which means a barrel of oil would cost them 0.26 per cent of their earnings: well below what it would have in the oil-shock 1970s.

And there\’s this as well:

Bar Norway, the world’s largest oil exporters are now poorer, relative to the world’s great economies, than they were five decades ago. “The conclusion must be,” the commentator Amir Taheri wrote in 2006, “that those who buy oil get rich and those who sell it do not.”

6 comments on “Oil isn\’t expensive

  1. Bar Norway [a liberal democracy], the world’s largest oil exporters [authoritarian dictatorships] are now poorer, relative to the world’s great economies, than they were five decades ago. “The conclusion must be,” the commentator Amir Taheri wrote in 2006, “that [liberal democracies provide the context for wealth generation while authoritarian dictatorships impoverish everyone except the ruling cabal] those who buy oil get rich and those who sell it do not.

  2. SimonF – nicely put! Another conclusion could be that it is very hard to form a democracy when there is a large, easily controlled income to the country.

  3. Oil is only expensive because people have short memories and things that were once unimaginable luxuries for the top 0.001% are now ubiquitous. So we get used to that state of affairs and think it’s normal, and those luxuries get redefined as necessities.

    I recently had an argument with someone claiming that the oil price was making poor working Americans really poor because they have to fill their cars. My counter that anyone who (figuratively) owns 150 horses can barely describe themselves as poor in the context of (a) history or (b) most of the poor suckers on this planet fell on the usual deaf ears of the economically illiterate.

  4. The rich / democratic part of the world is very adept at adding value to the commodities that it uses. Other wise it wouldn’t use them.

    Oil rich countries meanwhile, sell oil to their own citizens at below cost. Therefore every car on the road in Riyadh is destroying value, whilst those on the streets of Houston are adding value (externalities aside).

    No wonder the consumer is getting richer.

  5. Interesting numbers indeed, if they were correct. But a decimal point has slipped its moorings. US GDP in 1929 was $103.6 bn (US BEA national accounts) and population about 122m. This gives per capita GDP of $849, with a barrel of oil costing 0.15% of that. This turns the entire argument on its head.

  6. Bar Norway [a liberal democracy], the world’s largest oil exporters [authoritarian dictatorships]

    Russia’s authoritarian, but a dictatorship it is not. Nigeria is neither, but it is a complete clusterfuck.

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