Carey King, BURN Contributor
Stein’s Law states: “If something cannot go on forever, it will stop.”
For nearly 60 years after World War II, the percent of U.S. household income spent on food and energy – or personal consumption expenditures (PCE) – declined.
But then things started to change. Again. Between 1998 and 2002, PCE for food and energy stopped declining and started increasing. The PCE for “food + energy” reached a minimum of 18% in 2002. Whether or not this will be the minimum percentage PCE for “food + energy” for the US for all time is a good question.
But this percentage cannot decrease forever because energy and food will never be free – back to Stein’s Law. As we’ll see shortly, the reversal of these trends could be an indicator of a fundamental transformation for our economy and society.
Figure 1. Personal consumption expenditures of US households expressed as a percentage of total expenditures. Data are from the US Bureau of Economic Analysis Table 2.3.5. Food = “Food and beverages purchased for off-premises consumption” and “Food services and accommodations.” Energy = “gasoline and other energy goods and of electricity and gas.”
The reason to consider both the PCE for energy and food is because food was fundamentally an energy source of pre-industrial power from humans and animals. Before fossil fuels and significant industrialization using wind, wood, and water power in the early 1800s, food was the major energy resource for prime movers.
The food that animals and people ate was the fuel that powered them, and therefore the machines and tools they operated. Thus, the quantity of food and fodder produced from the land had a major influence on the amount of power for agriculture and a little industry.
In a large sense, fossil fuels and subsequent technologies drove down the relative cost of food and energy. Those energy-dense resources enabled the technical change that generated economic growth. Fossil fuels also meant fewer and fewer workers were needed to grow food and mine energy sources.
Since 2002, we have been spending an increasingly higher proportion of our personal income on food and energy, due to resource scarcity. Thus, there has been an increased demand for more investment (capital and labor) in these basic needs.
In other words, food and energy have become increasingly scarce – and therefore, more expensive – because of the rising demands for each around the world.
As a result, an increasing proportion of workers and other resources may be needed to produce the same quantity of food and energy (fossil and renewable), possibly with declining per capita consumption. This is the exact opposite trend of fossil-fueled industrialization!
The truth is that constraints in food and energy supplies, together with consumption patterns (and demographics, too, but that’s another subject) have caught up with much of the ‘advanced’ economies (e.g. EU, US, Japan). Unconventional oil alternatives – oil sands, deepwater, oil shale, biofuels – don’t have the same level of pure energetic value as energy sources of the past.
In considering the ongoing debate about American jobs and decreasing unemployment rates, note how the oil and gas commercials tout the jobs they create. Then, remember the figure in this article. Historically, the economy has grown the most when we’re moving jobs out of the energy sectors.
The rising cost of energy is a primary cause of our slow economy, and there is a limited rate at which we can adjust to this new reality. The sooner citizens, businesses, and politicians accept this fact, the better we will be in the future.
Carey King is a research associate in the University of Texas at Austin’s Center for International Energy and Environmental Policy. King researches energy systems and how they work together and within the environment. King contributes blog posts for Environmental Research Web, under Energy – The Nexus of Everything.