the talking dog

June 20, 2004, Show Me Some ENERGY...

First, a happy Father's Day to all, especially TD Dad, TD Father-in-law, TD Brother (a/k/a he Rabid Dog) and TD Brother-in-Law. Its beautiful in the Northeast today-- go enjoy it!

This week's visit to the People's Daily shows us that the PRC is asking for just that-- as higher oil prices coupled with other energy shortages will likely slow economic growth in the world's most populous country and one of the world's most rapidly growing economies. In some sense, this means one of our competitors is slowing down. But its obviously much more ominous.

Let's not kid ourselves: we remember Carter and Poppy Bush as one-term failures and Reagan and Clinton much more fondly for basically one simple reason: oil prices spiked during the former and were low during the latter, causing a softer economy in the former and more robust ecnonomy in the latter. High oil prices = lower economic growth than low oil prices. Why? Oil is one of those costs of doing business that's really quite variable from year to year (or month to month). Wages, rents, even taxes, tend to be stable and predictable. Commodity prices-- notably and espeically oil and energy prices-- ar emore volatile.

In short-- the more money that flows out so Saudi Royal family members can debauche themselves in the high class bordellos of the European Riviera mean fewer dollars avilable to invest in job-producing expansions, be it in Sheboygan or Shanghai.

Thus, I look at this as kind of a canary in a coal mine thing: if the Chinese with their (at the moment) lower overall thirst for petrol products than we have are suffering this kind of slowdown, whoa Nelly for what's coming here (it won't matter who is President at the time, btw). Polling shows people still believe that the economy is doing badly (and Bush's economic policies are on the wrong track). This persists, even as we have finally started to see some decent jobs growth and economic growth numbers-- because in perception, this is a lagging indicator. Certainly, people are upset at higher gas-at-the-pump prices, and they have soared over a third in most of the country (like businesses, rent and many big ticket costs tend to be fixed, but gas prices-- and food prices-- are variable, and get people pissed- especially when they go up A LOT.) The infinitely more troubling prospect (aside from the fact that many people-- especially at low incomes-- have their budgets busted and can't afford stupid things like the ability to get to work or heat their homes) is that businesses stop expanding-- or worse, and jobs are lost and economic activity slows down.

China tells us that this is happening there. Its a matter of time before it happens here, barring a rapid decrease in petroleum prices, which seems unlikely. I won't talk about deficits, or interest rates, which seem, anyway, to have been less "politically determinative", and frankly, economically determinative, than real oil prices (inflation adjusted, of course).

Long term, the supply of oil is inevitably going down-- while world demand continues to increase. That bodes price inevitable increases. At the moment, we are not doing anything to shift our economy toward being either less energy dependent or even less oil dependent. Until we do so (and people complaining about off-shore wind-farms because it will interfere with the views from their yachts are certainly the problem rather than the solution), our economy will continue to be volatile, and there will be continued political pressure to have a presence in the dangerous and volatile Middle East (an involvement which has led us into multiple wars and ongoing fear of terrorism).

But that's where we are. While I would hope a brief look to the East will tell us "trouble ahoy" and we will adjust our behaviours... the American people are big on inertia-- we will seize on any kind word telling us its o.k. to engage in business as usual. Well, in the petroleum world, the glass is a bit more than half empty, and there's more pressure on the straw.

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