Roosting Chickens

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Once again, I suspect we are stuck with $4-a-gallon gasoline for the foreseeable future. That’s $4 and more, I should say. I see nothing on the horizon that would lower the price. Certainly the political rhetoric coming from both Democrats and Republicans will not do it.

There are several roosting chickens that are the cause of the high price. First, there is the devalued U.S. dollar. Our dollar is just piece of paper, backed by or tied to nothing. Therefore, its purchasing power depends in a large part on how many dollars are in circulation. When lots of dollars chase relatively fewer goods, prices go up. We call that inflation. When there are more goods than dollars to buy them, prices go down. We call that deflation.

For many years now, Congress has been spending more than it takes in. That excess is borrowed from the Federal Reserve, which creates its money out of thin air with a keystroke. The borrowed dollars are then spent into the economy, along with all the borrowed dollars spent by the private sector. While the money supply can be increased with a keystroke and a vote in Congress, goods and services have to be created by labor and capital. It’s no surprise that there is soon more money than there are goods and services.

People with oil to sell want to compensate for the lost purchasing power of the dollar, so that’s part of the price increase. That’s chicken No. 1.

Demand is chicken No. 2. When demand exceeds supply, the price will be bid up. Right now, supply meets demand, but not by a large margin. This makes buyers of oil nervous. When American and Israeli war nuts yak about bombing Iran, the price of oil tends to be bid up. Ditto when rebels in Nigeria sabotage or attempt to sabotage oil production in that country. With the narrow margin between supply and demand, any political instability that threatens to disrupt supply will affect the price.

Also pressuring the demand side is the growing industrialization of countries like India, China, Brazil and Russia.

Chicken No. 3 is a shortage of refining capacity. This is due mainly to environmental laws, especially those that encourage lawsuits, and to the not-in-my-backyard mind-set. It is such an expensive hassle to build a refinery that not enough have been built.

In my childhood, I lived a short walk from the world’s largest refineries. The air stunk, but we got used to it. People in Port Arthur, Texas, used to say it was just the smell of money. A basic fact is that you cannot have both a pristine environment and an industrialized economy. A compromise has to be struck. When America was largely a pristine wilderness, it was a dirt-poor country.

The final chicken is a concept called peak oil. Peak oil is when you’ve found all the oil there is to find, and production begins an inevitable decline. That’s when the bidding war will really get hot — possibly hot enough to ignite real wars. Nobody knows for sure when the world will reach peak oil, but more and more people are beginning to see it in the relatively near future. That’s probably the true reason for the U.S.’s heavy military presence in the Middle East.

I call all these factors chickens that have come home to roost because they have all been known for decades. For you young folks, let me tell you that politicians in Washington have been talking about the energy crisis, energy independence, etc., since the 1970s, and their talk has produced nothing. Vibrating one’s vocal chords does not turn a shovel of dirt or drill a half-inch.

So I will make one prediction: As the cost of energy continues to rise, the influence of extreme environmentalists will decline. If Americans can’t have both, they’ll choose the smell of money over fresh air.

Charley Reese [send him mail] has been a journalist for 49 years.

© 2008 by King Features Syndicate, Inc.

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