Over long stretches of time, the U.S. economy has become steadily more efficient in its use of energy, as measured by physical units of energy expended per dollar of real output. From 1949 to 2011, for example, the amount of gross output (in inflation-adjusted dollars) per unit of energy (in BTUs) almost doubled.[1]<\/a><\/p>\n \u00a0 Another way of seeing the long-term trend is to look at energy prices compared to average wage rates. This indirectly shows how much time a worker needs to spend, in order to make enough to buy a given amount of energy. The chart below shows the astounding improvement:<\/p>\n Adopted from “It’s Getting Better All the Time”<\/p>\n<\/div>\n What is truly shocking\u2014at least to those who don\u2019t appreciate the wonders of entrepreneurship in a market economy\u2014is that the economically relevant \u201csupply\u201d of so-called depletable resources has risen over the decades, too.<\/p>\n To take just one example: We can define how many \u201cyears worth of oil\u201d the United States has, by taking the known oil reserves and dividing by current rates of oil consumption. Since there is only a fixed amount of oil on planet Earth, and since the rate of oil consumption has steadily risen since the Industrial Revolution, one would initially suppose that the \u201cnumber of years left\u201d would constantly shrink.<\/p>\n And yet, the opposite is true. In fact, the window of oil availability generally improved over the 20th century. At the end of 1944, “proved reserves”\u00a0of crude oil were 51 billion barrels worldwide. By 2003, the number had grown to 1.27\u00a0trillion<\/i>\u00a0barrels of proved reserves.\u00a0Given the annual rates of consumption in the two years, the world went from a proven supply of under 25 years’ worth of oil in 1944 to a supply of about 44 years in 2003.[2]<\/a><\/p>\n For a more modern illustration, consider<\/a>: In 1944,\u00a0the U.S. had oil reserves of 20 billion barrels. And yet, from 1949 through 2010, the U.S. produced 167 billion barrels of oil from domestic sources. That means the U.S. produced more than 700\u00a0 percent of its reserves, starting from 1949. Obviously there is something fishy going on here.<\/p>\n The energy doomsayers\u2014who are constantly urging forced conservation and other restrictions on living standards\u2014miss this mechanism. They are analogous to a child who checks the pantry for three days in a row, then announces to his parents that they have to start making sandwiches with only one slice of bread. The parents would explain, with a smile, that before \u201crunning out of bread\u201d they would simply go to the store and buy more. It is similar with \u201coil reserves\u201d and other such categories.<\/p>\n Indeed, currently there is enough natural gas in North America to power the U.S. (at current rates of consumption) for 175 years. There is enough \u201ctechnically recoverable\u201d coal to last for 500 years.<\/p>\n Clearly, the United States does not suffer from a scarcity<\/a> of natural energy resources.<\/p>\n Energy Less Affordable in the Short Term<\/b><\/p>\n Unfortunately, although the long-term view is optimistic, over the last few years there have been disturbing trends in energy affordability, with the notable exception of the natural gas boom\u2014which obviously is occurring despite <\/i>government efforts to stymie it.<\/p>\n \u00a0 <\/p>\n The above chart shows that since 2003, there has been a steadily increasing gap between energy prices, relative to other consumer prices. In other words, energy has gotten more expensive than the rest of the items measured in the Consumer Price Index (CPI).<\/p>\n There are of course numerous factors explaining relative price movements, but what we can say with confidence is that government restrictions on the development of domestic energy resources, makes energy more expensive than it would otherwise be.<\/p>\n We can also point to monetary policy as being instrumental in driving at least a portion of the run-up in prices. Many economists believe that in response to perceived \u201cloose\u201d Fed policies, the dollar falls and speculators rush to inflation havens, such as gold and silver but also commodities in general, including oil. Look at the connection between crude oil prices and the various rounds of \u201cquantitative easing\u201d by the Federal Reserve:<\/p>\n![\"2.1.13-IER-Web-EnergyPricestoWages-GDP-MKM\"](\"http:\/\/www.instituteforenergyresearch.org\/wp-content\/uploads\/2013\/02\/2.1.13-IER-Web-EnergyPricestoWages-GDP-MKM.png\")
<\/a><\/p>\n![\"2.1.13-IER-Web-EnergyPricestoWages-MKM\"](\"http:\/\/www.instituteforenergyresearch.org\/wp-content\/uploads\/2013\/02\/2.1.13-IER-Web-EnergyPricestoWages-MKM.png\")
<\/a><\/p>\n![\"2.1.13-IER-Web-EnergyPricestoWagesReserves-MKM\"](\"http:\/\/www.instituteforenergyresearch.org\/wp-content\/uploads\/2013\/02\/2.1.13-IER-Web-EnergyPricestoWagesReserves-MKM.png\")
<\/a>\u00a0The explanation for this counterintuitive result is that, even though in a physical sense oil is a finite resource, in an economically relevant sense the amount of oil available for human use<\/i> can expand, when prices rise. This is because the rising price gives a signal for entrepreneurs to go find more oil. As the above statistic illustrates, the process can work so well that humans actually become more energy-abundant over time, even with a depletable resource.<\/p>\n![\"FREDCPIEnergy\"](\"http:\/\/www.instituteforenergyresearch.org\/wp-content\/uploads\/2013\/02\/FREDCPIEnergy.png\")
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![\"spot](\"http:\/\/www.instituteforenergyresearch.org\/wp-content\/uploads\/2013\/02\/spot-oil-price-FRED.png\")
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