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Bill James

Bill James

Bill received a BS in 1972 from West Point with concentrations in math, physics, chemistry, and engineering. He was an NCAA All American Wrestler and…

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Metrics: Replace GDP with Disposable Energy

The Federal Reserve Bank of Dallas report, Assessing the Costs and Consequences of the 2007–09 Financial Crisis and Its Aftermath: "Our bottom-line estimate of the cost of the crisis, assuming output eventually returns to its precrisis trend path, is an output loss of $6 trillion to $14 trillion. This amounts to $50,000 to $120,000 for every U.S. household, or the equivalent of 40 to 90 percent of one year’s economic output.   ...output may never return to trend—the path of future output may be permanently lower than before. If that’s the case, the crisis cost will exceed the $14 trillion high-end estimate of output loss." Under the section on Unintended Consequences is listed other costs “favoritism accorded to special interests” and “the 2008–09 bailouts exacted an unfair and nontransparent tax upon the American people.”

GDP v Disposable EnergyWhy was the worst economic crisis since the Great Depression a surprise? Gross Domestic Product, GDP is an ineffective metric, completely failing to warn or inform.

Effective metrics are predictive, aligned with the mission, actionable, simple, timely and ungameable. Gross Domestic Production (GDP) metric is none of these. This paper recommends replacing the economic metric of GDP with Disposable Energy. Disposable Energy is an extremely simple measure of how much energy can people buy with their disposable income. Disposable Energy increases as people obtain energy more economically, expend energy more efficiently, employment increases, and the economy becomes healthier.   

Approaching the Sept 2008 crash, the worst economic event since the Great Depression, GDP completely failed to provide a warning as indicated by the Blue Line. In contrast, Disposable Energy warned of both the crisis and its scale in 8 of 10 years.

What gets measured, gets done:

GDP increases as resources are exploited, taxes raised, consumption and borrowing increase. Since the concept of GDP was created for Congress in 1934, Federal policies shaped the economy to increase GDP. Policies shaped President Hoovers concept of “a chicken in every pot and a car in every garage” into 3 car garages and sprawling cities. Thousands of miles of railroads (average 480 ton-miles per gallon) were displaced by Interstate Highways as oil was institutionalized as the lifeblood of the American economy

US Peak Oil
The long-term view of measuring economic health by GDP is seen in century graph of domestic oil production, oil imports and national debt. Federal policies changed America from a nation of makers to consumers, from savers to debtors, from gardeners to food stamp recipients.

Life requires energy. Self-reliance is the foundation of liberty. The scale of the threat to liberty and survival are indicated by the US Federal government’s $16 trillion in debt, the 50% of oil is imported and the 46 million Americans receiving Food Stamps.

GDP grew by borrowing and printing money to import oil. That transfer of wealth from America to oil exporters is vividly clear by looking at the benefit to oil exporting nations. Energy delivered to needs becomes wealth.

DubaiDisposable Energy increases as people obtain energy more economically, expend energy more efficiently, accumulate and store energy at lower cost. The more energy, the greater the efficiency, the more energy to pursue happiness. Shifting to the metric of Disposable Energy is expected to encourage self-reliance as people and industries focus on manufacturing and using the tools to exploit sustainable energy sources, improve energy efficiencies, shifting from consumers to makers. The need for oil-wars and occupation of the Middle East is also expected to diminish.

Oil and transportation energy costs are used in this document because the data is officially published by the US Department of Energy. Disposable Income is published by the Department of Commerce.

Alignment with the Mission
Measuring economic performance by how much energy people’s disposable income can buy is directly linked to the Intent of We the People and Mission of the Federal government of United States of America. Liberty requires self-reliance.

The Intent of the people of United States of America is defined in the Declaration of Independence: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,...”

The Mission of the government of United States of America is defined in the Constitution: “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

The mission of the Federal government to defend Liberty for ourselves and Posterity so we might exercise unalienable Rights to pursuit Happiness. Life requires energy. Measuring economic performance based on the energy people can afford is highly aligned with both the intent of the people and the mission of the government.

By contrast, GDP measures the welfare of institutions, corporations and governments. The more the governments tax, the more governments borrow and spend today, the more money and power the Governing have to give contracts to their friends the greater their ability to shape GDP for their benefit. The more the Governing avoid taxing people by socialize war, pollution and resource depletion costs, the greater their power to grant favors to selected unions and corporations without being held accountable by voters. The Bank/Auto Bailouts after 2008, Solyndra, oil-wars since 1990, Climate Change exemplify socializing costs as the Governing select who profits.

The Governing’s gaming GDP is illustrated by the Federal Reserve (a private bank). Quantitative Easing, the printing of $85 billion a month, the setting of near zero interest rates, allows the Governing to borrow and spend $7 trillion in the last 8 years, artificially expanding GDP and disguising the fact that America’s dependence on imported oil is a direct threat to national survival. Debt of $16 trillion is a tax on future labor, Taxation without Representation on the labor of children that cannot vote against such tyranny as noted by James Madison and Thomas Jefferson:

Federalist #57 (Madison): "...the House of Representatives, restraining them from oppressive measures, that they can make no law which will not have its full operation on themselves and their friends, as well as on the great mass of the society. This has always been deemed one of the strongest bonds by which human policy can connect the rulers and the people together. It creates between them that communion of interests and sympathy of sentiments, of which few governments have furnished examples; but without which every government degenerates into tyranny."

Earth Belongs to the Living, Jefferson to Madison, Sept 6, 1789: "The question Whether one generation of men has a right to bind another, seems never to have been started either on this or our side of the water. Yet it is a question of such consequences as not only to merit decision, but place also, among the fundamental principles of every government."

"Then no man can by _natural right_ oblige the lands he occupied, or the persons who succeed him in that occupation, to the paiment of debts contracted by him. For if he could, he might during his own life, eat up the usufruct of the lands for several generations to come, and then the lands would belong to the dead, and not to the living, which would be reverse of our principle."

"...nor the nation itself can validly contract more debt, than they may pay within their own age, or within the term of 19. years?"

Gaming of GDP to support the Governing’s crony capitalism (socialism) is unconstitutional. The Constitution’s mission statement specifically limits Federal actions to “promote” welfare, not to control the means of production so welfare is granted to those favored by the Governing. Sovereignty over welfare is retained by the States and People as affirmed by Amendments 9 and 10 of the Bill of Rights and the ratifying documents of States Constitutional Conventions (Illicit Energy).

Simple, Relevant, Timely and Actionable
Disposable energy is so simple every individual can record and track their own version by calculating how many gallons of gasoline their “take home pay” can purchase. If a person gets a pay raise, their Disposable Energy increases. If gas prices rise, they have a pay cut, hours get cut, taxes rise or they get laid-off, their Disposable Energy decreases. Similarly, every family, community, city, state can calculate the consequences of their actions and policies to maximize their local Disposable Energy.

This graph of gasoline prices and unemployment two years later illustrates how simple and relevant measuring energy costs is on the harm to people. Life requires energy. Less affordable energy, less life. This CNBC article indicates the shift from buying goods and services to paying more for gasoline, Missing $4,155? It Went Into Your Gas Tank This Year.

Motor Gasoline Prices

This two year lag between changing gasoline prices and their impact on unemployment illustrates the momentum characteristic of the Economic Flywheel. The moment characteristic of gasoline prices seem about 2 years.

Economic FlywheelThe delay in fundamental changes in infrastructure seems to require about 40 to 200 year. There was a 36 year span between the Internet’s first use in 1969 until it was densely available in about 2005. On the negative side, the Governing have failed to police their control over highways and drinking water maintenance for so long that the American Society of Civil Engineers rates both infrastructures as a “D” grade.

The Economic Flywheel graphic is intended to illustrates how as Disposable Energy increases, more labor is required to deliver more services, momentum is added to the flywheel. Debts also provide more resources, adding labor and energy to build momentum. The problem with debt, is that as they are serviced and repaid in the future, they degrade momentum.

There is a Constitutional duty to Posterity. It is critically important that metrics be predictive and actionable, and that actions be taken recognizing the momentum characteristic of infrastructure.

Economic Impacts of Oil IndependenceThe 2010 MIT report “Electrification of Transportation System” indicates we are already very late in acting to adjust infrastructure to sustainable energy systems.  This graph from that study shows scale and the momentum of crisis as they accelerated from US Peak Oil in 1970.

Disposable Energy metric affirms the unfolding crisis. Although less predictive GPD Growth provided 1.5 years warning of the Sept 2008 crash and Oil Supply Growth provided 4.5 years warning. Disposable Energy metric indicated trouble was starting in 1999. .

The correlation between GDP Growth, Oil Supply Growth and Disposable Energy are visible on the larger scale of time in which infrastructure changes have consequences:

Growth was fueled by the 7.5% increases in oil supply in the 1960s.

GDP Growth v Disposable EnergyThe crisis of US Peak Oil in 1970, the 1973 Oil Embargo and the 1979 Iranian Revolution can be seen in the dips of the 1970s. These two crisis underscore that the immediate threat to the oil powered economy is not from the depletion of oil fields but from politics. As the Arab Spring, conflicts in Egypt and Syria, Iran and Israel approach war, Mexico becomes more violent, the  risks to the oil supply lines amplify.  The Irish Potato Famines of the 1840s resulted in a 20% population loss because of a monolithic dependence on a variety of potatoes. Oil Famine is currently unfolding at  the slow pace of oil field depletion. Political consequences could suddenly deprive the US of 50% of current oil use.


Productivity gains from deregulation of industries and restoring of free markets to communication resulted in a long period of prosperity in the 1980s and 1990s. The $12 a barrel cost of oil in the late 1990s compounded benefits.  In the 15 years since 1998 gasoline prices increased 352%. Life requires energy. Less affordable energy, less life.

Measuring Disposable Energy Growth, a 5 year downward trend was established by 1996. There have only been 3 years of positive growth in the last 20 years.

DIsposable Energy

The US uses approximately 18.5 million barrels of oil a day (mb/d) and produces about 50% of that need. Despite the current fracking boom, never again will domestic oil supply meet the needs of the US economy with current infrastructure. The current access to inexpensive natural gas is critically important for use in re-tooling to sustainable transportation infrastructure.

Alternative Infrastructures
The Internet was created in 1969 and the first radio telephone network was in St Louis in 1946. In 1982 the courts declared the Federal communications monopoly created on Aug 1, 1918 unconstitutional. A century of rotary telephones under central planning was displaced as the Internet and cell networks found niches in which to commercialize. Millions of jobs were created vast innovations provided better services at lower costs.

As soon as free markets are restored to food, power and transportation infrastructure that success will be repeated.

Food is a critical issue. Federal policies resulted in removing labor from agriculture. In 1950 there were

Radically safer and more efficient transportation is known:

The 140,000 miles of freight railroads in the US average 480 ton-miles per gallon. Yet the Federal highway monopoly caused the loss of thousands of miles of railroads.

The Personal Rapid Transit (PRT or PodCar) network in Morgantown, WV, built as a solution to the 1973 Oil Embargo, has delivered 110 million injury-free passenger-miles. In that same period, 1.6 million Americans have died on the unconstitutional government highway monopoly.

As America had a century of rotary telephones under Federal monopoly, we have locked in a century of moving a ton to move a person in transportation. Alternatives to move just the person will likely convert 90% of current costs to profits, solving congestion, pollution and dependence on imported oil.  Recent considerable news circulated about Hyperloop and ET3 moving people from San Francisco to LA in 30 minutes using 1/50th the energy of airplanes or High Speed Rail. The author of this paper is the founder of JPods, a system similar to Morgantown’s PRT.

These alternative transportation systems measure themselves against existing transport in energy consumed per passenger-mile, a corollary to Disposable Energy.

Metric matter. Measuring GDP gave no warning of the Great Recession and its $6-14+ trillion costs. Disposable Energy is so simple a metric people can calculate their own version from their take-home-pay and their gasoline/food/electric bills. Simple, personal metrics empower the Governed to give their informed consent, or hold the Governing accountable.

By. Bill James

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  • Rob Denehy on October 22 2013 said:
    This new metric may be useful to individuals to measure how energy prices are affecting their budgets, and presumably the economy. But oil prices are subject to so many factors, so that price changes or spikes may not be indicative of near-term future prices. Many unexpected events have an impact.

    GDP may be misleading, but it measures cumulative activity, rather than an indication of where things are headed.

    I say, add the oil price parameter as an aid to the public, but it won't/shouldn't replace GDP.
  • Bill James on October 23 2013 said:
    Hi Rob

    Ref: "GDP... measures cumulative activities" seems correct on the surface, but consider that government borrowing and money printing adds to GDP, but at some later date, sometimes years, debts must be repaid and commodity prices will rise with inflation. GDP encourages the Governing to tax, borrow and print to buy votes with benefits spending today without regard to Posterity. It seems to me this is why we have $17 trillion in debt.

    By contrast, measuring the inputs, disposable income's ability to buy energy to apply work to build economic momentum, provides a much clearer picture. Yes the data points are smaller, but like a mosaic, they provide more resolution. The simplicity of calculation aids this resolution when needed.

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