Wednesday, May 23, 2007

Consequences

They're no surprise to regular readers here:
Gasoline prices have soared to levels never seen before as even the inflation-adjusted price for a gallon of unleaded topped the 1981 record spike in price that had stood for 26 years.

And higher prices could be on the way as Americans get ready to hit the road for the Memorial Day holiday and the start of the summer driving season.

The Lundberg Survey, a bi-weekly gas price tracking service, put the price of a gallon of unleaded at $3.18 in its latest reading released late Sunday, up more than 11 cents from its reading of two weeks ago.

While gasoline had already been in record territory in current dollars, Trilby Lundberg, publisher of the survey, said this is the first time that her survey topped her 1981 record high when adjusted for inflation.
Of course higher oil prices hurt beyond the gas pump; anyone who buys food, clothing, insurance, pays tuition, or visits the dentist understands that. With the equity markets at new or multiyear nominal highs, and public opinion polls about the "direction of the country" at new lows, by now it must be clear to the White House and Federal Reserve that the pain of inflation (and yes, Iraq) more than offsets the pleasure of higher stocks. The circa-1971 Arthur Burns model of "goosing the economy" for political benefit no longer applies.

Will the public understand that the rising cost of living is linked directly to the monetary policy necessitated by the occupation of Iraq, and not the media canards of "refinery outages" or "Nigeria unrest" or "we're running out of oil"? Will the Fed continue to monetize every blip in the economy and capital markets, thus ensuring far higher inflation in the years ahead? The dynamic of expediency will be interesting to watch:

If prices went up, people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed. More marks were printed, and more, and more.

-Adam Fergusson, When Money Dies

9 Comments:

Blogger Chase said...

Every time I see that the inflation adjusted price of gas has topped the 1981 spike, it makes me wonder if what we are seeing is pressure on gas prices or a failure of our inflation measurement. Haven't the inflation measures themselves been changed in the last few years?

So when you say higher oil prices hurt beyond the gas pump, I think you are in danger of conflating two different things: rising costs in goods as a direct result of energy costs and rising costs due to general inflation. Am I right here?

5/23/2007 3:33 AM  
Anonymous Anonymous said...

John Boener is blaming Democrats for the rise in gas prices. I guess he hasn't seen the trend since 1994. Maybe the Dems should introduce a bill to cap gas prices at $1.50 and see how many Republicans vote against it.

I really hate Republicans. I'm putting their demise on my Christmas list.

5/23/2007 10:25 AM  
Anonymous Anonymous said...

Great site, but I really appreciate your economic/monetary analysis. Keep throwing those in every now and then. Eventually the American populace will piece this together.

5/23/2007 4:55 PM  
Anonymous Anonymous said...

I'm saddened to hear that anonymous wishes for the death of roughly half of the population of the United States. Did you cheer on 9/11?

Or perhaps you didn't really mean you hope for the demise (i.e. death) of all Republicans? Do you know any Republicans personally? Why haven't you killed them yet?

Be careful with your words, people. They may actually be taken at face value.

5/23/2007 7:55 PM  
Anonymous wtf said...

Anon 7:55--Please, he's obviously talking about the demise of the party. Did you demonstrate this fake outrage when Ann Coulter--with a much bigger megaphone--called for the bombing of the NY Times building?

5/24/2007 1:07 PM  
Anonymous NeilS said...

"
Will the public understand that the rising cost of living is linked directly to the monetary policy necessitated by the occupation of Iraq, "

Wouldn't it be more correct to say monetary policy necessitated by large deficits?

The Iraq war is a large expenditure, but hardly the only one.

5/24/2007 2:26 PM  
Anonymous Anonymous said...

wtf -

He said "I really hate Republicans. I'm putting their demise on my Christmas list." I don't see a reference to the Republican Party there, I see a reference to Republicans, as in people who call themselves Republicans.

w/r/t Ann Coulter - I really pay no attention to what she says. Everything she says and does is calculated to generate publicity and to keep her name in the media. She obviously believes that no publicity is bad publicity. Had I known of her comment I would have condemned it, and I do now.

While she could argue that there is a difference between killing people and blowing up buildings (assuming they are empty - which is unlikely given the specified building), it's still a violent act in order to advance a political agenda. And in that sense Ann Coulter's statement and the statement by anonymous calling for the death of all Republicans are the same - they advocate terrorism.

5/25/2007 10:51 AM  
Anonymous Anonymous said...

You don't think refinery outages have something to do with the price of gasoline? Inventories are extremely low while demand continues to grow. To dismiss that seemss to be turning a blind eye. Do you think that if we build inventories 3mm+ for the next 4 weeks gasoline prices would remain where they are because of a 2nd derivitive of the US being in Iraq? It detracts from your credibility to stretch like this. If this situation was due strictly to monetary policy, would gas cracks be at 37 June, what 31 July now? No, there'd a generalized increase in petro and at least somewhere remotely near historical cracks.

5/25/2007 7:07 PM  
Anonymous Miami Information said...

people demanded not a stable purchasing power for the marks they had, but more marks to buy what they needed.

5/07/2011 5:56 PM  

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