In any other administration, Obama’s energy policies would be dominating the political debate. It is only because the administration has pursued so many disastrous policies–government medicine, bailouts, faux stimulus, unheard-of deficits–that energy has taken a back seat. It will not be long, however, before rising energy costs are again in the forefront of economic anxiety and political debate. Reuters reports:
Oil rose on Wednesday after production shutdowns, falling U.S. inventories and growing demand sent Brent crude toward $100 a barrel for the first time since 2008.
U.S. government data showing U.S. crude stocks falling for a sixth straight week helped extend this week’s gains. Disruptions from Alaska and Norway stoked supply concerns and cold weather in the U.S. Northeast fed demand for heating oil. [EIA/S]
Oil’s climb back toward $100 a barrel — last touched in October 2008 — has raised concerns about the impact of higher fuel costs on the tenuous economic recovery. “Back in 2008, (U.S.) crude oil only traded above $100 a barrel for about six months before the world economy collapsed into the worst crisis since the 1930s,” warned Sabine Schels, commodity strategist for Merrill Lynch.
Crude’s rise on Wednesday was part of wider gains across commodities, with metals rising and soybean and corn futures touching 30-month highs that further stoked economic worries. London Brent oil LCOc1, benchmark for European, Middle East, and African crudes, rose 51 cents to settle at $98.12 a barrel, after touching $98.85 a barrel earlier, the highest level since Oct. 1, 2008.
The Obama administration’s announcement that permitting for deepwater drilling in the Gulf will “likely” resume in June is way too little, way too late, and basically amounts to kicking the can even farther down the road.
Was it actually rising energy prices rather than home prices that caused the Great Recession? I don’t think so, but The Fiscal Times makes an interesting point:
Some observers have suggested that the recent financial crisis had its roots in a jump in oil prices. James Hamilton of UC San Diego produced a report in 2009 saying that higher oil prices in 2007-2008 impacted domestic spending and auto purchases to such an extent that “in the absence of those declines, it is unlikely that we would have characterized the period 2007:Q4 to 2008:Q3 as one of economic recession for the U.S.”
In other words, the Great Recession may have stemmed from a sharp jump in the average cost of imported oil, which rose from $59.05 per barrel in 2006 to $92.57 in 2008 – and not from a collapse in the value of subprime mortgages. Since the 1960s consumer outlays on gasoline and heating fuel have ranged from a little below 5% in the late 1990s to nearly 10% in the early 1980s. When this ratio starts moving towards the higher end of the range, as it did in the mid- 2000s, the consumer cuts back on other spending, precipitating an economic downturn.
The Obama administration’s attitude toward energy costs is astonishingly cavalier. So far, President Obama and his advisers don’t seem to have gotten past the idea the America is an exploiter nation and therefore “too rich;” so if energy policy makes us all poorer, it is probably just as well. This is not, to put it mildly, an attitude that prevails among voters.
Michael Ramirez foresees–accurately, I think–the consequences of the reduced standard of living that higher energy costs entail. Click to enlarge: