This is a question leftists are now asking in response to the fact that Barack Obama’s policies have resulted in the most expensive February gasoline prices we’ve ever known. Rather than treating it as an economic question, they tend to discuss it as a matter of politics, and mostly as a matter of damage control. Newt Gingrich is promising that if he is elected, he will work to reduce the price of gasoline to less than $2.50 per gallon, but what the liberals contend is that such a reduction isn’t possible, but more importantly, even if it were feasible, it’s not desirable. Let me make it perfectly clear for those of you who have questions about this issue, because it’s something we should examine in looking at the potential nominees: Newt Gingrich’s intention to reduce fuel prices to sustainably lower levels is an important national initiative in which government can play a role, and it offers a chance to boost the US economy in a way that nothing Obama has done will ever accomplish.
In previous articles, I’ve discussed with readers the important relationship between economic growth and the price of energy. By taking note of this fact, and addressing the issue in his campaign, Gingrich has signaled that he’s more in touch with the economic problem with which our nation is now confronted. Over the last dozen years, nothing has had a greater influence on economic prospects than the cost of fuels. Not financial market collapses. Not terrorist attacks. Not government spending. If you want to view the track of economic growth, all of those things have had short-run effects, but nothing undermines the economy more thoroughly than increases in the cost of energy. The reasons should be obvious under even superficial examination.
Everything humans do requires energy. Recognizing this fact is critical to economics, because as energy costs increase, there is a direct effect on the cost of all other commodities, and all other services. There are no exceptions to this fundamental, structural fact of life. More, since some items require much more energy to produce, and consume more energy along the entire chain from raw material to distribution, any increase in energy costs quickly ripples through the market. As such, this creates a drag on production, but also consumption, since energy needs tend to come first in one’s priorities. If you’re an employee, you must travel to and from work. This is something most employees share as an expense from which there are few option in relief.
For that employee, his or her pay is not likely to react to his or her costs. This fact means that at energy prices increase, the people who will feel it hardest are those who must engage in commerce, but whose compensation is least elastic with respect to the costs they must absorb. Most businesses can react by adjusting prices, although the competition they face places pressure on them to delay passing along costs to customers as long as possible. This was evident in the trucking industry and more broadly throughout the transportation sector when fuel prices first exceeded the three dollar mark a few years ago. This gave rise to a new phenomenon called the “fuel surcharge,” and it was intended to show that they weren’t simply jacking up prices without justification, but instead that their costs had dramatically increased. The point of all this is that there is no way to avoid the fact that for most people, and most businesses, you can’t easily augment your income simply because your costs have risen.
This being the case, there will be choices to be made, and all of those involved will need to decide which of their ordinary expenditures may have to be curtailed. New projects and investments are delayed, and necessary repairs or upgrades are put off indefinitely. What this means is that economic activity is curtailed, and therefore, fewer jobs are created, and thus unemployment rises. As this happens, it feeds back on itself because when unemployment is high, the average employee’s negotiating power on wages diminishes, and this makes the average person even less able to spend money on all of those things that create increased economic growth.
After a time, if this continues, the quantity of fuels demanded will begin to contract, and this will lead to the prices falling again, but there is a lag until economic activity recovers. Clearly, if this is the cycle, then what we should see is precisely what we have seen over the last few years: An economy that fails to launch because just as it begins to heat up, the corresponding increase in energy prices causes a clear diminution of the economic growth. The only way to combat this is to increase our energy resources, and to make safe such resources as we already enjoy.
Back in the 1990s, one of the things from which the American economy benefited was the reliability of OPEC members to undercut one another on production quotas. The quotas were intended to maintain a higher price point, but as prices went upward, one or more member nations would get greedy and cheat on the quotas. This increased the supply in the market, and the prices would inevitably fall. This was in an era when China’s demand in the market was relatively negligible, but since then, their bite out of the production pie has done nothing but increase proportionally to all others. It was also an era when OPEC was more fractious, and most of their members couldn’t coordinate on much of anything for long.
What Gingrich recognizes is that our economy cannot function properly, and in a healthy way without the energy we need at a price we can afford while still building economic activity, buttressing the points made by former Alaska Governor Sarah Palin. His stated goal of seeing a reduction in gasoline prices is the right thing to do, and he recognizes that it’s not just a matter of reducing the price to that point for a day or a week, but in making that the effective ceiling even as the economy roars back to health. That will require that we develop new sources of energy, and not just empty promises of “green energy.” President Obama can mock “Drill baby, drill” if he likes, but the truth is that developing domestic oil resources is critical to getting this economy moving in a sustained way. In short, we can’t merely increase the temporary supply on a short term basis, but must increase it in a structural sense: We need more wells, we need more oil-fields in production, and we need to develop other alternatives simultaneously.
This flies in the face of what leftists want and believe. They believe the ultimate goal should be to reduce consumption, but the only way to do this without eliminating people is to substantially reduce their standard of living. In short, their plans demand we return to a pre-industrial state where most people do not consume much energy. Wave goodbye to your electronics, your hobbies, and your lifestyles if these lunatics get their way. There’s no way to have what they seem to promise, and they know it. There is no rational way to grow or even sustain an economy while cutting the use of energy in any dramatic fashion. Can efficiencies be found? Absolutely! Can they be created by dictate or order? Absolutely not!
This is the difference in the position between Barack Obama and somebody like Newt Gingrich who actually recognizes that wishes are not the same as facts, and that nature is not to be cheated. You cannot build a modern, technologically advanced culture with prosperous people and a growth-based ethos when governmental policies are mandating a reduction of energy consumption. Nature doesn’t respond to arbitrary wishes, and yet that is the stance of the leftist, who thinks a government mandate can overwhelm the forces of nature and the rules of physics. The disparity in the two positions demonstrates their relative fitness to the presidency, and by no measure is Obama suitable to his office. Whether Gingrich is qualified remains a question to be answered, but on the matter of his understanding of the critical importance of energy, it’s clear he passes the test. We can have inexpensive fuel again, but it will require a comprehensive effort by the President and Congress to remove obstructions to the growth of the energy sector that is so vital to our future.