Sunday, May 25, 2008

Is $8 Per Gallon on the Way?

Posted by Matt Stoller, Open Left at 3:28 PM on May 22, 2008.

As gas prices climb higher and higher, everyone feels the pinch.

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Atrios makes the point: "$4 gas is annoying. $8 gas, if it happens, will be... different."

The Wall Street Journal has a piece out on the International Energy Agency substantially dropping its forecasts of global oil reserves. Joe Romm, an energy expert at the Center for American Progress, points to this study by the Bush Department of Energy on peak oil, in 2005, which says the following.

The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary. Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and revolutionary.

The public sort of gets the problem, without any explanation from elites or the press. Survey USA did a poll on gas prices, and found that 80% of respondents think that gas will rise to $5 a gallon before it drops to $3 a gallon. The good news is that only 34% of Americans say they have no mass transit options, while 15% say that mass transit is a convenient option. So there's lots of substituting away from driving with current infrastructure in place, and that's not even considering carpools and auto-centered ways to save energy. But the problem is not simply energy-related, and much of the peak oil doomsday pronouncers are allowing the real villains to get off scot-free. Here's the Cunning Realist, who has been pointing out the least-notices aspect of the story.

Last week, several indicators showed Fed-created liquidity at its highest level ever. Consequences: a new bout of dollar weakness, gold up about $70 in the past few weeks (are we "running out" of that too?) and of course oil at $130. And, most important for policymakers during an election year, a surging stock market (until Tuesday). While the Fed was doing its best imitation of Arthur Burns in '72, Bernanke, Paulson, and even Greenspan (not spending his days in a Venice gambling hall, apparently) all claimed that the worst of the credit crisis may be over. So why do the extraordinary measures continue? This madness is ripping the guts out of entire segments of society: wage earners, prudent savers, Social Security recipients and fixed-income retirees, independent truckers, mom and pop restaurants and retailers, the rural poor, long-distance middle class commuters -- basically anyone who doesn't own an oil well, corn field, or sit in front of a half-dozen trading screens in midtown Manhattan.

I was at an event put on by the New America foundation two nights ago with Senator Dick Durbin around globalization. Most of his speech focused on the link between globalization and carbon pricing. I asked him a question about economic statistics, considering that the real rate of inflation as per Kevin Phillips is between 6-9%, not the paltry 2% put out by various government agencies, and that unemployment is also goosed by not including prison populations and long-term unemployed. Durbin relayed a story about his winning campaign, in 1982, when he could wait until new unemployment numbers came out and issue a press release attacking his opponent. Today, he says, unemployment means nothing, the only statistic that matters to consumers is gas prices. And then he said he was praying that prices would come down.

It would probably be better if Congress did some real oversight on the Fed, peak oil, and gas prices.


Tagged as: oil, inflation, credit crisis

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