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My personal musings about anything that gets on my radar screen--heavily dominated by politics.

2005-08-23

A Reasonable Discussion of an Unreasoned Fear

Al Lewis, the business riter for the Denver Post, has written an interesting column today. In it, he does something rare and strange for the mainstream media--HE TALKS TO AN EXPERT. And, in so doing, very smartly shoots down fears of high oil prices leading to massive inflation.

The Producer Price Index, which measures prices before they reach the consumer, was up 1 percent in July. And the department's Consumer Price Index, which measures how much consumers pay at the retail level, rose 0.5 percent in July.

Those seem like big spikes against a backdrop of 2.5 percent annualized inflation, but they are nothing compared with the double-digit inflation Americans came to fear in the 1970s. . . .

In the 1970s, the Fed flooded the world with dollars to soften the shock of high gasoline prices.

But we ended up with too many dollars chasing too few goods - the classic definition of inflation.

Today's Fed is doing the opposite. It's raising interest rates - thereby tightening the money supply - and allowing consumers to take the shock.

I'm no economist, so I appreciate that Lewis was able to put the whole problem in terms that a person whose understanding is limited by his exposure to high school economics class.

I would also say that, even if inflation is not a byproduct, gas prices are still a major shock to the average American's system, and a large part of the President's falling approval ratings. Now is the time for him to get out in front of the problem and propose market-based solutions to this problem--solutions like building nuclear power plants to alleviate the cost of heating homes, like building a few more refineries to increase our capacity for creating more oil, solutions like finding our own sources of oil to decrease our exposure to world-wide spikes in fuel demand.

And solutions like increased incentives (read:funding) for initiatives that would permanently end our dependence on the internal combustion engine.

Yes, folks--I'm a big proponent of the end of the internal combustion engine. But not because I believe human activity is a threat to the environment (for the record, I think that until the science behind the global warming debate gets more scientific, I'm going to remain agnostic), but because I think our long-term dependence on oil is a threat to both our economy and our national security.

If I had any skills as an inventor or engineer, I would be dropping my current job right now and devoting all my energies to coming up with an alternative to the IC engine. The person who can do that will be rich beyond their wildest imagination!! And will have struck a great blow for the common good.

Again, I say, it's time for the President to get out in front of this debate. He seems to be getting the lion's share of the blame for the problem--until he proposes a solution, there will be no way to shift that blame.
Posted by: Michael / 8/23/2005 06:17:00 AM

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