Reading Between the Lines
The price of tea in China
The economy is gaining steam in the United States. Other parts of the globe mired in recession are showing signs of economic recovery as well. India is a growing economy. China's market oriented moves have introduced tremendous growth in Asian markets, fueling a recovery in Taiwan and Japan.
“What has that to do with the price of tea in China?” you might ask. Not much, but it has a great deal to with the price of gas - in China, and in the United States.
With growth, comes increased demand. With increased demand comes increased production to fill that demand. Moreover, increased production means an increase in shipments of both raw materials and finished products.
All of that commerce requires fuel, and that fuel is oil. The increase in demand has caused a sharp spike in gas prices. I was listening to Bill O'Reilly on the radio the other day, and he said that President Bush was saying nothing, and that the American people expect to hear from Bush on this issue. Why should they? Does anyone think that Bush has been staying up at night, phoning oil company executives and encouraging them to jack up prices? Anyone, that is, other than the folks at MoveOn.org?
Common sense dictates that if it were in an incumbent's power to keep prices low, he would certainly do so in an election year. Bill Clinton sold off part of our strategic oil reserves just prior to the 1996 election in an effort to meet growing demand and keep a lid on prices. So, even though it would be a purely political stunt, Bush could do the same.
Would that be the right move to make? Not while we have troops in Afghanistan, Iraq, and elsewhere. Not while strategic alliances and the threat of terror mean we might have to mobilize troops anywhere in the world at a moment's notice. Our strategic reserve is one of our most valuable resources now more than ever.
Of course, if you are an ardent environmentalist, you are probably happy with the high prices. But unfortunately for you, recent polls show that the prices aren't putting a damper on demand. Part of the reason is that in real dollars, prices aren't all that high. In inflation-adjusted dollars, prices are no higher than in the early 1980's.
But rising prices are a deterrent to continued growth, so it is in the interest of the nation's leadership to do what can reasonably be done to relieve the pressure on the market. Artificial measures such as price controls won't work, and would be wrong even they did work. After all, this isn't a totalitarian state. And government can't force conservation or additional production for the same reasons. Of course, they could ease restrictions on drilling and exploration to make production more feasible.
Let's see, the government could set aside a small portion of the Arctic National Wildlife Refuge. Oh, but wait. They've already tried that. There were protests to high heaven, so Congress scrapped the idea. Perhaps some of those protestors will call their Congressperson and tell them they should reconsider.
I thought it was ironic that the other day I was following a small car, which was billowing black exhaust smoke. On the rear window was a bumper sticker which read, “Save ANWR.” If he's that interested in saving ANWR, he could start by getting a tune-up.
Alaska's governor Frank Murkowski stated that he will re-open state waters offshore of the Arctic National Wildlife Refuge and the National Petroleum Reserve-Alaska for drilling. That will help ease the supply shortage, but continued economic growth overseas will likely mean that demand keeps up with increases in supply.
This means that there is no long-term solution. There are market-based solutions on the horizon. Engineers at the University of Michigan have developed the first economically feasible method of producing hydrogen as fuel for homes and autos. Their method would produce hydrogen from ethanol, and is a far more efficient use for ethanol than burning it in a mixture with gasoline. They are also zeroing in on the problem of storage methods, which has been the most elusive variable in the “hydrogen as fuel” equation.
While such developments as this sound good and in many ways are, the only real difference is that in 30 years some columnist somewhere will be writing a column about a President releasing part of the Strategic Hydrogen Reserve in an effort to ease rising hydrogen prices.
Face it - no matter what the fuel of choice, someone will always own the means of production, or the means of bringing that product to market. So when hydrogen hits a record high of $2.00 a cubic foot, just look for that column by the guy telling you about market forces and the newest form of alternative energy.
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