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Contact Jim: jdipeso@rep.org (253) 740-2066 / 2009 Archive / 2008 Archive / 2007 Archive / 2006 Archive / 2005 Archive
Is $100 Per Barrel A Lot?
January 4, 2008
There’s a scene in the movie Star Trek IV: The Voyage Home
where Kirk, on a mission to the 20th century, peddles a pair of ancient
spectacles to an antiques dealer in order to raise some 20th century
cash for his time traveling crew.
Says the dealer,
“I’ll give you $100 for them.” Says Kirk: “Is that a lot?” The dealer
shrugs, as if to say, it all depends on your perspective.
Is
$100 for a barrel of oil a lot? It wasn’t so long ago that $50 per
barrel was considered horrifyingly high. Energy from oil is embedded in
countless products and services – transportation of people and goods,
home heating, food grown on farms that use synthetic fertilizers and
pesticides, plastic products, pharmaceuticals.
Yet
so far, the economy has not plunged into a tailspin. Why not? Give
credit, first and foremost, to efficiency, which Vice President Cheney
once said cannot be the basis for a sound national energy policy.
Between 1970 and 2006, efficiency measures helped the United States
save the equivalent of three-fourths of current energy use. Total
savings: $700 billion.
In
1979, the price of oil reached an inflation-adjusted high point
exceeding $100 per barrel. In those days of odd-even rationing and gas
station fistfights, the equivalent of $100 per barrel was a far greater
economic burden than it is today. In the seven richest industrial
nations, oil consumed per dollar of GDP has fallen by more than half
since 1970.
Another factor seems to be that there is
less expectation that rising oil prices will trigger another bout of
inflation. It’s all a matter of market psychology. As The Economist
pointed out in an analysis published last November, consumers expect
central banks to keep the inflation beast tamed, so there is less
demand from workers for higher pay and less pressure on companies to
raise prices.
Still, when the price of oil is $100
per barrel, there is less of a margin for economic error than there is
when the price is $50 per barrel. Credit worries and the moribund
housing market have taken some steam out of the economy. High oil
prices are another reason for consumers to cut back.
The
higher the price of oil, the more money America must borrow to pay for
imported oil. The higher the price of oil, the more money we are
transferring to unsavory regimes overseas that spread fanaticism and
dabble in nuclear weapons. And the higher the price of oil, the closer
we are to an inflection point at which serious economic damage could
occur.
So to answer Kirk’s question, yes, $100 is a
lot for a barrel of oil. Cutting back oil dependence makes more sense
now than it did at $50 per barrel.
The
best news out of Congress last year was the long overdue passage of
legislation to raise motor vehicle fuel economy standards to 35 miles
per gallon by 2020. No need to rest on our laurels; the next necessary
step is passage of cap-and-trade legislation to accelerate
diversification into cleaner, less problematic energy resources.
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