Oil Prices

Irwin Stetzer is quickly becoming one of my favorite economic writers. In his latest column for the Weekly Standard, he points out the pluses and minuses of this current oil "crisis."

The first thing that he points out is that it is a canard to argue that oil prices are the "highest" they have ever been. That is a lie. Adjusted for inflation, gas prices at the pump would have to rise to $75 dollars a barrell, or $3.50 a gallon at the pump to match the prices this country saw in 1981.

Likewise, it seems that this increase in gas prices has not stopped Americans from buying gas guzzling SUV's or visiting Grandma. People are continuing to buy and travel because the increase in gas prices has been overwhelmed, so far, by strong economic growth....

which does not seem to be letting up anytime soon. For those who worry about inflation, 80% of inflation is influenced by wage growth, with 20% left over for other factors like energy costs. Likewise, economists estimate that this increase in oil prices will shave about .5% of of GDP growth. Oh the horror of growing at 4.5% instead of 5.0%. Somebody better tell John Kerry this.

But, Stetzer points out, there is reason to worry. First, this increase in oil prices may be a plateau as our friends in Saudi Arabia flat out "suck." The oil cartel seems to be holding strong which means. To top this off, oil demand is growing at a rapid pace, with China demanding much more oil than they normally have in the past. Thus we have a double wammmy, a decrease in supply and an increaes in demand. Crap

Yet, he points out, the real worry for the future of oil prices is not from Saudi Arabia, it is from:

That, however, may be the least of our problems. The greater problem, and a potential catastrophe for the world economy, would be an American defeat and withdrawal from Iraq that signals bin Laden and crew that they are free to pursue their goals without fear of an America that is sulking in its tent, as it did after Vietnam.

It seems, then, that is we want to see sustained permanent increases at the pump we need to elect John Kerry as president of the United States.