Oil smoke…populist fire?

Oil prices are always an issue here in the Commonwealth. Ever fuel up at the gas station and not fume at the cost of petrol here? Cars are visible oil burners that we’re always aware of, but our electricity, ship service, and airline service also float on barrels of higher oil prices.

The United States, of course, isn’t insulated from petro-dependance either. Prices at the pump have almost reached Saipan (gasp!) levels in some places.

The U.S. has degenerated to European level ways of reacting to economic forces, so it was no surprise that American truckers staged a protest against higher oil prices lately. Higher oil prices are a bummer for most of us, but some of us realize that the bummer of free market movements usually is less, in the long run, than the bummer of government controlled markets.

Which brings to mind some insightful comments courtesy of an editorial in Barron’s financial, a weekly published by the brainiac boys at Dow Jones.

“We live in a political economy of mob rule…high (oil) prices arouse a mob,” observed Thomas Donlan in a piece entitled “Crisis or Conspiracy?”

Here’s a choice quote, which pretty much puts the entire economic and political scene in focus: “(The higher price of oil) is something to worry about if you are a politician, because people such as the aforementioned (protesters) and others similarly situated will be all over you with convoys and protest marches, demanding price controls…and all the other quack remedies that never seem to go away, no matter how many times they don’t work. You could lose your job in the next election if you don’t do something stupid right now.”

Nobody with any brains thought that the era of tell bucks a barrel crude was going to last forever. Gas was often cheaper than bottled water. Sports utility vehicles that got eight mpg flew off the lots. The “gas crunch” was a distant and meaningless memory, something we remember in grainy black and white, a smokestack issue not relevant to today’s perfectly sterile dot.com economy.

The sheiks over at the OPEC cartel are doing something cooly rational: they’re testing the market to see if reducing production, which raises prices, will actually give them more profits than selling more stuff at lower prices.

And they picked a great time to do it. With a robust economy in the U.S., the demand for oil is probably very healthy indeed. High demand will help keep upwards pressure on prices when the supply is squeezed.

For the Commonwealth, the timing was lousy. Our economy is tied to air service, of which fuel prices are a major cost component.

There’s nothing we can do about oil prices here. There’s probably nothing America can really do, either, but that doesn’t mean that an angry mob won’t look to its authorities for an Easy Solution to a problem that is more complex than most understand.

Mr. Donlan of Barron’s smells folly on the way, and he’s right. If oil prices stay high, look for the issue to become a magnet for populism and demagoguery in America during election time. Politicians will throw their weight around. Most economists will probably just throw up.