There’s a fascinating collision taking place between oil prices and the American Dream. And the results are unsettling.
By way of background, oil prices plunged last fall, a mix of gains in production and changes in consumption patterns.
For weeks we were awash in hyperventilating economists going on about this great windfall that was going to drive consumer spending higher and in general propel the economy into a new dimension.
A lot of that had a basis in truth. If Americans saved $20 every time they filled the family car, they’d have $20 more to spend on something else. And we did spend for a couple of months. Then we started saving and paying down debt. That’s sound policy for the family but not a great immediate help to the economy.
At the same time, other forces were looking at this windfall and wondering how to get a piece.
Some unionized refinery workers had the poor timing to be pressing for higher wages as the price of crude fell. They’re now out on strike and nine refineries – responsible for about 10 percent of U.S. refining capacity – are shut.
Other refineries shut down for maintenance. There was a fire at a major California refinery. Still others shut down to retool for making the environmentally friendly summer blend of fuel. Wall Street speculators moved in sensing an opportunity. And, voila, prices bounced about 40 cents a gallon in a month.
If you believe in conspiracies, you’re connecting the dots that seem like an eerie reminder of what Enron and so many others did 20 years ago in manipulating the power grid. Again, the common denominator is greed and an understanding that the supply chain is fragile.
Here in Las Vegas, we are feeling the impacts and are largely powerless.
For one thing, we’re reliant on California for our gasoline. That means we get the air quality benefits of their summer blend but we pay for the privilege both in price and in being captive to the whimsy of the California supply chain.
I always get concerned when somebody tells me events are creating a ‘perfect storm.’ Sure, it can happen. But usually it happens when opportunity meets greed in a lax regulatory environment.
It’s hard not to think about speculative bubbles these days as the stock market keeps climbing. It’s not that long ago that we all ignored warnings of “irrational exuberance” only to watch a housing bubble almost take down the entire economy.
Speculation is as old as organized civilization. We’ve celebrated the robber barons who built great wealth by manipulating supply and demand. We’ve drawn some lines, penalizing those who use inside information. But being the first to see a need, then fill it is one embodiment of the American Dream.
Still, what do we make of the morality of stepping in to control a commodity like fuel thereby forcing a higher price for a product that is so central to the way we live? Logic says it’s no different than speculating in silver or cocoa beans, but it just feels different.
America is built on a free market philosophy but as the creep of government extends into so many corners, it seems odd that protecting Americans from the economic vagaries caused by speculation in core commodities has escaped attention.
Clearly, I have no answer here. Beyond the macroeconomic argument, I’d rather have that $20 in my pocket than see a speculator or market manipulator grab it.
How to achieve that goal without tumbling down the slippery slope is just one of those things I’ll be thinking about next time I need gasoline.