Oil Price Slippage Constitutes Warning

Producing Our Economic Life-blood

Over the life of this blog, one of the subjects that has arisen repeatedly is our energy problem, and the effects Obama’s policies are having on our nation’s economic condition.  I have offered you charts, graphs, economic theory, and an understanding of why we remain in the economic trouble we’re in, and much of our troubles originate with energy concerns.  Again validating what I’ve previously reported, global oil prices are now falling in response to the economic outlook in the US and in Europe.  The reason I again bring this to your attention is not to thump my chest, since there’s nothing revolutionary in what I’ve argued, but instead to reinforce the point, because in the broader media, there are too many sources interested in obfuscating and otherwise muddling the matter.  To have a growing, vital economy, the US has relied historically on inexpensive energy.

The American economy is a vehicle of vast capacity for growth, and the American people remain its vital engine, both as consumers and producers.  What the Obama policies have done is to choke down this engine, and the result is an economy that is bottom-bouncing at an idle, struggling for air that a reckless government policy forbids it to consume.  Every time the American people start to accelerate, the market effects of the regressive policies of our government govern the capacity of our economy like a vast engine choke. You could rightly call the policies of Barack Obama the “stuck choke” of American economics.

An engine makes a great analog for the state of our economy, because an engine must both consume energy, and convert it into motive power.  In a healthy state, that’s what the US economy does, and it’s why we must not ignore the grave costs of the current Obama policies.  Consider what happens when you step on the gas in your car:  The throttle opens up, allowing the engine to draw more of the air-fuel mixture, permitting the engine to accelerate, reciprocating more rapidly, and those converting the energy to the horsepower needed to make the vehicle go.  This is how our economy functions: It’s demand for consumption increases, and we have traditionally answered it by permitting more air-fuel mix(energy and capital) into the engine, and it accelerates(grows) providing output some of which is reintroduced back into the stream going in.  It’s a marvelous thing, and the prosperity of every American increases on average.

The situation we’ve been placed in by the Obama policies, combined with the inflationary policies of the Federal Reserve is that the air-fuel mix becomes prohibitively expensive.  Imagine driving down the road at 30mph in order to conserve fuel.  You could come up to speed, but because fuel is so expensive, you really can’t afford to put your foot in it, so instead, you patiently move along at a snail’s pace because you’re trying to do the minimum consumption you can manage and still get to your destination.  This is what happens each and every time the economic engine gets going these last several years:  The price of fuel begins to tick rapidly upward, we get a price spike, and everybody goes into conservation mode, and as a result, the economy slows down.  Naturally, as soon as the economy slows, the prices for fuel begin to fall again, and one can expect that at around the time they hit the bottom of the trough, people will begin to feel safe accelerating their cars back up to highway speeds, and the process begins once more.

The slippage in oil prices this week constitute a warning, because what it implies is that you’ve already hit that point of conservation.  Of course, it’s not merely consumers, but businesses and every form of productive endeavor that uses energy, which is of course all of them.  In that environment of rationing, what occurs is that people necessarily become more frugal, but so do businesses.  It’s unavoidable.  You can only afford to spend so much of your capital on energy, because you must still pay for all of the other necessities of living, and the United States has been operating very close to this line for several years.  A rational Federal policy would realize that this is a supply-side problem, and that to alleviate the problem, what we must do is increase the supply of energy available to the market, but our government has instead answered with tepid notions about conservation, and highly speculative and fanciful programs for “green energy” while it chokes off the supply of real energy to the market.

This is our situation, and the current drop in oil prices is a result of the fact that our economy is again on the downside, and that is further substantiated by the poor numbers of jobs being created.  At this point, it should be so obvious to every living person with two brain cells remaining to clack together that there ought to be a national movement to remove any politician who isn’t focused on this problem.  Instead, we have an administration that is dithering, and is actually making things substantially worse through its regulatory paradigm that insists America simply do more with less.  This insane, nearly maniacal policy is impossible to sustain, because it is driving us to the poor-house, and yet the radical left is fine with that outcome.  They want to make us poorer, and the reason is clear:  Poor people who must choose between groceries and gasoline are easily managed by a central authority, and they are only too willing to do the “managing.”

Let us place this in context:  Imagine that you have a home that is all electric.  Many Americans do.  Imagine that the power grid that supplies electricity to your home generates that power with coal, oil, and nuclear processes.  You might also have a little hydroelectric power, or a little wind and solar, but on average, those supply only a small fraction of our power generation.  Remembering that oil derivatives are one of the primary fuels used in power generation, what happens if we take away one of the others, like coal?  Coal currently provides half of our electric generation, nationwide.  What happens to the price of oil and all its derivatives, including the gasoline or diesel for your vehicle when coal is taken away from power generation?  The answer is obvious, and so is the result, because we’re living it.

Understanding the relationship between energy and our economic prospects is key to understanding our current economic malaise, and the impending disaster we face if our policy is not soon changed to promote more energy production, and to unshackle energy producers from the chains that prevent them from providing to the market the energy that a growing economy requires in order to sustain itself in that state.   This is why Newt Gingrich’s idea of $2.50/gallon gasoline was important, and it’s also one more reason so many of us had hoped that  we would see a Sarah Palin candidacy, because she understands, perhaps better than any other politician in the country, how thorough is our reliance upon energy, but also how to best develop the resources we already have at our disposal.  We desperately need an “energy President,” who understands that growth and prosperity are only possible with abundant and inexpensive energy, permitting the American people to do what they already know how to do, and want to do: Build, grow, and prosper.

The proof of this thesis is contained in our cycle of boom-spike-conserve-bottom. When energy prices fall, the economy (and the American people who drive it) respond with jobs, growth, and productivity.  The problem is that in our current environment of government regulation and governmentally-induced inflation, when the growth begins, the price of energy begins to immediately climb upward, eventually spiking to unsustainable costs.  This places the entire economy into conservation mode, and very rapidly, we slide to the bottom again.  It’s no longer a matter of proving the theory.  It’s proven, and the evidence is all around us, but until we make the conscious decision to end the misery, we’re stuck.

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5 Responses to Oil Price Slippage Constitutes Warning

  1. the unit says:

     Warning citizens…one if by Lewinsky, two it by Alinsky. Take heed, necessary contraceptives, and defenses as required.  

  2. Jeff1000 says:

    Awesome metaphor and explanation, Mark.

    Declining oil prices don’t bode too well for the stock market either, obviously I guess. The stock market in general pretty much moves in lockstep with oil prices, which ties in nicely with your essay. Thanks.

  3. the unit says:

    CNOOC…deep water oil drilling in South China Sea.  Probably lots of dinosaur methane trapped and ripened to crude oil there.  And it’s in contested waters which China is willing to go to war over.

    Some posters have said good.  Strike oil and flood the world market and drive down prices…you think oil will go on world market and not directly to Chicoms?

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