Energy — Not Housing — The Root Cause Of U.S. Recession, UT Expert Says

Subprime mortgages, a real-estate bubble, the Lehman Brothers collapse — we all think we know what led to the recession. But one UT researcher says another root cause has been overlooked: a 10-year decline in the quality of the U.S. energy supply.

Carey King, a research associate in UT’s Center for International Energy and Environmental Policy, says the Energy Return on Energy Investment that economists commonly calculate doesn’t tell the whole story.

In the latest issue of the journal Environmental Research Letters, he introduces an Energy Investment Ratio that is highly correlated to the Energy Return on Energy Investment — but, he says, even more powerful.

His formula measures how much profit is gained by energy consumers relative to energy producers. The higher the ratio, the better; that indicates greater value businesses, governments, and individuals are getting from their energy.

Plotting out Energy Investment Ratios for various fuels on a timeline, King sees two large declines: one before the recessions of the mid-’70s and early ’80s and another leading up to our current recession during the early 2000s.

“Many economists don’t think of energy as being a limiting factor to economic growth,” King says. “They think continual improvements in technology and efficiency have decoupled the two factors. My research is part of a growing body of evidence that says that’s just not true. Energy still plays a big role.”

King suggests the real-estate bubble burst because individuals were forced to pay a higher and higher percentage of their income for energy — including electricity, gasoline, and heating oil — leaving less money for their home mortgages.

To get the economy growing again, King says, the country will have to produce and use energy more efficiently. Read his full research here.


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