The Great Showdown: Stimulus vs. Energy

The global economy has gotten ever so slightly better this year. Hooray! Of course, even a slightly stronger economy means rising oil prices. Brad Plumer tells us what that means:

In 2011, as gas prices have risen, Americans have cut back on fuel consumption by about 1.8 percent. But that’s not nearly enough to offset the price increase: overall gas expenditures still rose 25 percent over the past year, or $102 billion. That essentially wiped out all of the benefits from President Obama’s middle-class tax cut.

….The amount that families are spending on gasoline has leapt dramatically since 2004, as fast-growing countries like China and India nudge up oil prices. In states such as Montana and Mississippi, where even routine trips are long and transit alternatives rare, a whopping 19 percent of median income now goes toward gas.

Stimulus is hard in an energy-constrained world. I confess that the more I think about this, the more I wonder if conventional fiscal/monetary policy has as much traction as we believe. I’m not an energy fundamentalist by any stretch, but the constraints are real. Ordinary stimulus measures still work, and we should be pursuing them more aggressively, but I can’t help but suspect that we’re entering an era where they’re getting less effective all the time.