Over the years, we have become accustomed to a rising standard of living. One of things that has helped this happen is a gradually declining ratio of food costs to total personal expenditures. Energy costs have not followed as clear a trend, but are higher again now, and seem likely to be higher in the future as well.
Figure 1. Food (excluding restaurant food) and fuel as percentage of personal income, based on Bureau of Economic Analysis data, Table 2.5.5
As long as the sum of food and energy costs were declining, an increasingly larger percentage left over after covering “the basics” could be used for other purchases. This no doubt contributed to a rising standard of living, because a larger share of income could be used for education, and for recreation, and for new homes. The greater share of income that was available to spend on new homes no doubt contributed to the long-term rise in home prices.
Now, it looks like this long-term trend of lower food and energy prices in relationship to personal expenditures is turning around because of higher oil prices and higher food prices (and, as will be discussed below the fold, lower employment figures). Higher food prices are partly the result of higher oil prices, since oil is used in the production and transport of food. Other contributing factors include more land use for biofuels, rising meat expectations from “emerging market countries,” and weather “issues.”
How do we plan for this new situation, in which food and energy seem likely to again be rising in relationship to incomes, and as a result, living standards quite likely declining? The following are a few of my thoughts:
1. Plan as if one of the big issues in the years ahead is likely to be job loss in the conventional oil-dependent market.
Figure 2. Number of jobs from US Bureau of Labor Statistics non-farm employer; oil consumption is "Product Supplied" from US Energy Information Administration
I have shown previously that the number of jobs held by workers tends to follow oil consumption closely. This is not unexpected, given the way today’s economy is constructed: If a worker produces goods or services, this process often uses oil. Furthermore, if the worker has a salary from his job, he/she can afford to buy goods produced with oil. If the job moves to, say, China, the energy use for the job moves over there, and the Chinese employee, (rather than the US employee), will have the income to buy goods and services made with oil. If the Chinese employee’s salary is lower, he/she will be able to buy less goods produced with oil than the American employee, but will still raise the total amount of oil consumed in China.
Figure 3. US Bureau of Labor Statistics employer non-farm employee counts divided by US Census Bureau resident population estimates
It seems to me as though what we should expect is another step down in the percentage of the population that is employed, probably led this time by a reduction in government employees and in jobs funded by “stimulus” programs, as governments find that tax revenue is not sufficient to pay for everything. Note that in Figure 1, a rise is the ratio of food and energy consumption to total personal income can come in two ways: (1) Food and energy costs rising and/or (2) Fewer people employed, and those who are employed working fewer hours or for less pay. It seems to me that we are likely to see a combination of these effects, and it may be that (2) is the bigger issue.
A traditional response to job loss is to move together into large family or friendship groupings. Then those who have formal jobs can help support those without jobs. Very often, people to start providing more services for each other outside the formal economy, including raising a garden, caring for each other’s children, caring for elderly parents, and making crafts for sale.
