Professor Paul Palley's
          Economics Seminars

Energy costs are an important contributor to the cost of doing business, and changes in consumer behavior. Given the profit maximization problem that all businesses deal with every day, it is important to understand this major cost contributor. As businesses focus on the bottom line, efforts to increase productivity in order to lower the cost of doing business are important. Businesses will seek greater energy efficiencies through engineering efforts and technological improvements on an ongoing basis. The follow details some data sources that help illustrate the role of energy in the U.S. economy, and some details related to one specific industry. I would encourage you to research this further.

One resource, the U.S. Department of Commerce, Bureau of Economic Analysis (BEA) is an excellent resource of GDP related data. If you go to this site, under U.S. Economic Accounts - National click on Gross Domestic Product (GDP), and then scroll down and click on Underlying Detail Tables. Then click on List of Underlying Detail Tables. Among other interesting data, here you have an opportunity to learn about the extent to which energy and energy related products contributes the overall size of the U.S. economy. Under Section 2 – Personal Consumption Expenditures you can get good indicators related to the amount which we spend on energy and energy related products in both real (inflation adjusted) terms and nominal terms as well. Scroll down further to where you will find details related to Gross Private Domestic Investment and Capital Transfers, and as a part of this data you will find further detail related to energy and power investments.

The U.S. Department of Labor, Bureau of Labor Statistics (BLS) is an excellent resource for historical data related to energy prices, and other price indices as well. This helps us evaluate energy and other price trends as they impact both consumers and producers. See under Subject Areas – Inflation and Prices. The Producer Price Index (PPI) is an indicator of the prices that businesses pay for the goods and services they use to make the goods and services they sell to consumers. As a result it is a good indicator of the cost of doing business. Here you can identify price indices for energy related goods and services that are utilized in the production process. If you click on PPI Tables you will find Relative Importance Tables, and here you will get indications of the relative importance of energy related components in this index. Clearly these energy products are relatively significant. You may also want to see under Subject Areas – Inflation and Prices, detail related to the Consumer Price Index (CPI. The CPI is an indicator of the prices consumers pay for goods and services. This is one indicator of the prices paid by households and businesses at the retail level. If you click on CPI Tables you will find Relative Importance Tables, and here you will get indications of the relative importance of energy related components in this index. Once again, clearly these energy products are relatively significant. The BLS also provides other very good resources for industries, business leaders, consumers, and economists.

Efforts to introduce greater energy efficiency in order to reduce greenhouse gases are being actively studied for a number of practical reasons. On the one hand health and welfare, and geopolitical stability, are identified as positive aspects of this effort among other. Yet studying the costs is also important. They are difficult to assess because in many cases technological advances are hard to anticipate, and these advances may be exceptionally rapid due the higher price of fossil fuels in the future. These cost estimates also illuminate the important role of energy in the economy and productive processes. One example was produced by the Congressional Budget Office (CBO) about the Costs of Reducing Greenhouse-Gas Emissions. A speech by Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve also illustrates interesting points related to this topic. The U.S. Energy Information Administration is another excellent resource to learn about trends and forecasts related to production, consumption and prices, and also to read useful reports. For example, this older report relates details about energy price impacts on the U.S. economy.

Oil and energy prices have an important impact on many industries, impacting both the producer of the good or service and the consumer. It is important to understand this because businesses study each aspect of its cost structures as a part of the profit maximizing effort. Consumers do incorporate energy prices in the budgets affecting their consumption patterns. Many industries are impacted by energy related costs, and I encourage you to study this issue in whatever context interests you. One example where this is readily apparent is the aviation industry. Jet fuel is one of the most important contributors to any airlines’ operations As a result; the Federal Aviation Administration (FAA) is a good resource for reports and data. For example, this report details the FAA Log-Range Aerospace Forecasts, and fuel prices are one of a group of factors. This report details risks to forecasts produced by the FAA, one of which is fuel prices.

I encourage to you research these topics further.

A good editorial (http://www.nytimes.com/2010/03/07/opinion/07sun1.html?ref=opinion) explaining why passing health care reform is important.

Here is an interesting column (http://www.nytimes.com/2010/03/07/opinion/07friedman.html?ref=opinion) about the benefits of investing even during bad times, and how people are working on clean energy sources at the same time.