Energy, Inflation, and Recession

Worldwide shale oil production could add $2.7-trillion to the global economy annually by 2035 by slashing the price of crude by as much as $50 a barrel, PwC said on Thursday. Shale oil production could surge to 14 million barrels per day, or as much as 12 percent of total oil output from around 1 percent now, as it expands from its U.S. base over the next two decades, the world’s largest accounting firm said in a report.

The grim economic news from France keeps piling up. Today, Europe Online reports Number of Unemployed in France Hits New High. The number of unemployed people in France has hit a new high as the country grapples with the fallout of the financial crisis and a sluggish eurozone recovery, the Labour Department reported Friday.

A correspondent reminds me of… Scott Sumner (March 2012): TheMoneyIllusion » Eugene Fama makes me look like an MMTer: Now from the sublime to the ridiculous.  The interview continues…. Russ [Roberts]: Ben Bernanke is not a fool. If you could get him alone in a quiet place with nobody else listening and say: Ben, what were you thinking? What do you think he’d say?

I confess that I am having a hard time understanding Marty Feldstein's latest column… To paraphrase, the argument as I see it seems to go as follows: "Banks and investors are currently paying much more than the fundamental value for long-term treasury bonds."

The Markit/JMMA Japan Manufacturing PMI™ shows Downturn of manufacturing sector accelerated during December. Key points: Output and new orders register sharpest contractions for 20 months Employment, purchasing and stocks all continue to be cut Output charges lowered further as input prices remain unchanged

You don't go to Inflation Report press conferences nowadays to get cheered up. The "news", if we can call it that, is that the Bank's Monetary Policy Committee (MPC) now thinks inflation will be significantly higher than they previously thought, not just in 2011 but in 2012. Indeed, if reality - by some freakish accident - follows the path suggested by the new forecast, the target measure of inflation will still be within shouting distance of 3% a year from now.

The President's new initiative on increasing energy independence inspired much commentary on how much it was aspirational, rather than realistic; see for instance this extensive NYT article. In this post, I want to consider whether reduced dependence on imported energy is a worthwhile objective. Oil Price Shocks: How Important in the Past? What are the macroeconomic consequences of oil shocks.

Some additional observations (see Jim Hamilton's take, as well as others) on the GDP release: (1) the five year revision indicates that GDP was larger than we thought, but it also declined faster in 2009Q1; (2) GDP growth was lower throughout 2008 than earlier estimated; (3) GDP growth in 2008Q2 at 1.5% SAAR would have likely been at zero or negative in the absence of the January 2008 stimulus package in which