The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Aberdeen, South Dakota March 21, 1974 IMPACT OF ENERGY ON ECONOMY Short-run: A . Domes ti c 1. Slowdown coming anyway. a. Econoniy expanding faster than sustainable in I 73. b. Reached capacity faster than expected. 1) c. 2. employment 2) plant & equipment. Price increases - food & raw materials - outpacing wages. 1) reduced real income. 2) deteriorating consumer sentiment. Embargo - two interpretations. Great uncertainty: Administration strategy: consumer saves, sustain production. a. Rise in unemployment due to shortage layoffs (direct/indirect). Price increases worsened. Policy implication: b. Problem: don't expand credit. compounded uncertainty will dampen consumer purchases - more like traditional recession. Policy - ease. c. Undeniable effect: 1) 3. increased inflation. How can credit policy ease. Special factors that will disappear. Lifting of Embargo - effects. a. Assumptions: M.E. price remains $10 bbl. Output not more than pre-Sept. 2 mil. bbls/day increase, ie., imports (not up to trend) Consumer pays more (average cost of petroleum +7%). Good news/bad news. b. Results: Autos +1/2 mil. (10 mil. vs. 11% mil.) Housing +100,000 (1.7 vs. 2) Pit. & Equip. + Not much effect on real growth this year because: Prices pushed up faster w/ high cost imported oil. (Like excise tax - takes from high spenders & transfers to low spenders) c. Outlook Slow growth. Slowing price increases. Rising unemployment But stronger than a month ago. Ninth District insulted. B. International. Risk that international markets can't handle transfers of funds (50 billion) Not Great. Risk that each country reacts to save own skin - real but diminishing. Risk of starvation in LDC's - real. Long-run: Crisis real?: 1. question in short-run; pretty clear in long run. More government involvement in economic life - R&D, Allocation, Expropriation. 2. More potential for international strife - sectional strife - me first. 3. Slower growth in productivity. Frustration of expectation of rising standard of living. 4. Rest of world can't follow Western pattern of economic development.
@FedFRASER