Oil Recession?

The WSJ had an Econoblog August 11th, Will Oil History Repeat Itself?, between James Hamilton and Stephen Brown. Both accept the posis that the rise in Oil pricing resulted from the growth in Oil Demand Worldwide this time, rather than specific Short-term Oil Shocks as in previous Oil-induced Recessions. Each ascribes in some form to the proposition this latest Run-up in Oil prices did not incite either Consumer or Producer cutbacks, due to the Housing boom building equities and Consumer choice to expand Credit Debt with equal contraction of Personal Savings. This author also concurs with the sentiments expressed.

The Question becomes will this condition persist?

Hamilton fails to provide clear comment, but Brown suggests an economic slowdown. Study of the elements of the current Consumption choice must be made. The nature of Consumers has changed in the interval since most of the previous Recessions. Consumers of previous Recessions, along with Producers, were graduates of much harsher economic times; especially the crucial Middle Class buyers who were the children of the Great Depression. Younger Buyers in these earlier Recessions had experienced the hard times in Employment after the end of the Vietnam Conflict, and the hard Economic policy of the early Reagan era.

The current list of Buyers were either too young, or firmly emplaced in the economic structure, and did not suffer from the duress of the later Recessions. They are the first Generation totally comfortable with Credit Cards, Debit Cards, and Overdraft insurance. Their Wages, Salaries, and Equities have been rising competitive with the Inflation rate, also gaining in Work experience so that normal Wage increases for Productivity have also applied. They have not seen the Bear yet!

The trouble comes in that their Home equities are decreasing, their mortgage rates are increasing, their Credit Card balances are at an all-time High, and probably, Work Incentive bonuses and Seniority Wages may have maxed. The Need is to keep them Buying, but they have not learned the methodology of how to stretch their Paychecks, or economize on the Entertainments. The Need may be a tough Sell. lgl