D.R.: Oil balloon ready to pop?
Never mind whether we’re about to run out of the world’s most precious elixir. When will the soaring prices of the gunk send the economy plummeting?
Or, alternatively, it must be asked, will it ever do that?
Of course, The Wall Street Journal once dared run a story basically claiming that America was beyond the reach of further recession. That was in 1998 or 1999, before the tech bubble burst, 9/11 happened and we were all treated to stories along the line of “will this ever end; is recession here to stay forever?” Which is about when the tide turned again.
So, now oil prices. Robert Samuelson in his column for Newsweek’s July 24 edition lays out how on the Fourth of July, more Americans than ever before took trips of 50 miles or more, and how June set a new monthly record for oil consumption.
The price of crude oil spiked to $78 a barrel when Israel got busy with Hezbollah. And here we sit, driving more than ever and at an unemployment rate of 4.6 percent, in the realm of what the economists declare as “full employment.”
Samuelson quotes an economist, Nariman Behravesh of Global Insight, as suggesting that the economic expansion continues right on through $85 a barrel and the resulting prices at the pump.
But what if those crude costs climb on up to, say, $120 a barrel. And given how much demand there is, small disruptions in supply send prices soaring as these markets operate on fear (not to mention huge profits for the oil companies).
So haven’t oil prices hit the economy hard? Samuelson suggests that today’s prices when adjusted for inflation are still lower than previous peaks; fueling up takes a smaller share of the household budget as we’ve grown wealthier; and outside the damn oil companies, business has not passed on its energy costs to their customers.
Samuelson sees those three factors edging closer and closer to tipping the wrong way, which then would start the next slide into recession.
Great so far, but then he ends on a shrug. Could be, maybe not, I dunno. “The American economy has consistently confounded powerful reasons for it to falter. It has shown itself to be remarkably resilient. If we are lucky, it will prove so again.”
Sounds to me like he just doesn’t want to tempt the gods with an outright declaration, or even an informed prediction.
Just as well I guess. Don’t want to say the word and call it into being. But it is hard to see how a balloon keeps floating as it fills with lead.