COUNTING THE COST

June 2, 2004 - The price of a barrel of crude oil has soared to record levels dragging the pump price of a gallon of gasoline along with it. Oil company profits have climbed with the price of crude. The Bush administration continues its policy of buying oil on the spot market, diverting it from the stream of consumption into the nation’s strategic oil reserve. At the same time the military, fighting two wars in the Middle East is soaking up millions of gallons of fuel every day as it patrols the roads and highways of Afghanistan and Iraq, flies combat air support missions and patrols the seas. As the price of crude rises the analysts tell us that it is a result of increased global demand, citing the massive increase in Chinese consumption coupled with uncertainty of supply raised by unrest in the Middle East. What is not mentioned is the consumption dislocations resulting from combat and patrol operations.

The effect of sudden fuel price increases are being felt across the economy and having an impact on every segment of it. Fuel cost increases raise the cost of bringing goods of every description to the market place and, ultimately, the consumer price of those goods. The construction industry, a bright spot in the uneven economic recovery, will feel the price rise in the costs of getting building materials to the jib site. The troubled airline industry, barely recovered from the effects of 9-11 on its market, is being forced into market depressing fare increases and fuel surcharges. Price inflation, kept under control with 15 years of fiscal discipline and enlightened monetary policy, is looming as a result of energy costs that the Federal Reserve’s Alan Greenspan cannot control and that the Republican Administration and Congress lack the political will to tackle.

It is a cost of war that can neither be submerged in the Federal Budget nor absorbed by a burgeoning Federal Deficit because it is a cost that falls directly on the citizen, cannot be deferred, and must be paid at the pump. In an economy of stagnant wages it will come at the expense of other consumer spending that the administration is counting on to boost the economy and save the President’s political neck. This is not our first experience with an energy crisis originating in the Persian Gulf. We have followed this path before but previous Presidents, Republican and Democrat alike have acted.