For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil has quadrupled, and that shift will permanently shackle the growth potential of the world’s economies.Meanwhile, the Obama administration drags its feet on issuing permits to drill for the ocean of oil we have resting beneath the continental shelf. No doubt this is because Mr. Obama wants to limit oil availability so that the price of it stays high so that we'll use less of it. He said as much when he was campaigning for office the first time around.
The countries guzzling the most oil are taking the biggest hits to potential economic growth. That’s sobering news for the U.S., which consumes almost a fifth of the oil used in the world every day. Not long ago, when oil was $20 a barrel, the U.S. was the locomotive of global economic growth; the federal government was running budget surpluses; the jobless rate at the beginning of the last decade was at a 40-year low. Now, growth is stalled, the deficit is more than $1 trillion and almost 13 million Americans are unemployed.
And the U.S. isn’t the only country getting squeezed. From Europe to Japan, governments are struggling to restore growth. But the economic remedies being used are doing more harm than good, based as they are on a fundamental belief that economic growth can return to its former strength. Central bankers and policy makers have failed to fully recognize the suffocating impact of $100-a-barrel oil.
Running huge budget deficits and keeping borrowing costs at record lows are only compounding current problems. These policies cannot be long-term substitutes for cheap oil because an economy can’t grow if it can no longer afford to burn the fuel on which it runs. The end of growth means governments will need to radically change how economies are managed. Fiscal and monetary policies need to be recalibrated to account for slower potential growth rates.
What this seems to ignore, however, is the effect on the poor and the middle class of high oil prices. As oil prices rise everything becomes more expensive. It becomes harder for those trying to provide for their families on tight budgets to make ends meet. The upper middle class have a bit of a cushion, perhaps, but the poor have none. Moreover, the upper middle class may forego eating out as often, or going to the movies, or buying a new car or home entertainment system, but what effect does that reluctance to spend have on single moms who are trying to feed their own families by waitressing or working behind the counter at Sheetz?
As gas prices go up everyone gets poorer, and for some it's calamitous. We could avoid this by increasing the supply. We could approve the Keystone pipeline and drill offshore, but we won't as long as Mr. Obama is in office. The policies of the man who wants to be seen as the champion of the poor do nothing but insure that there'll be plenty of poor. It's a puzzlement.
Anyway, read the rest of Rubin's article at the link. It's good.