In times like these, it helps to recall that there have always been times like these,” says Paul Harvey, a leading radio commentator. A “great transformation [is] taking place around the world … a tectonic power shift … the world is very different,” writes Fareed Zakaria in his “The Post-American World.”
They’re both right. We have indeed seen economic downturns many times in the past, and gone through periods of rising oil and commodity prices, of a falling dollar, and of rapid technological change. So Paul Harvey is right.
But so is Fareed Zakaria. We are finally seeing the impact on the world economy of the emergence of China, India and other once-poor countries. The good news is that free trade has enriched billions of people so they can afford to eat regularly, and trade their bicycles for cars. The less good news is that the process of adjusting to this increased demand on the world’s resources is proving painful.
Previous increases took the prices of oil and gasoline to levels that were merely annoying, and anyhow proved to be temporary. The current price spurt, which has taken gasoline prices to more than $4 per gallon, is different.
For one thing, it coincides with major increases in food prices. More importantly, consumers are betting that the new higher gasoline prices are here to stay. So they are changing their behavior. Sport utility vehicles sit, unloved and unsold, on dealers’ lots, while there are long waiting lists for the Toyota Prius and other hybrids.
Meanwhile, during the long period in which the vehicle fleet is turning over, consumer behavior is changing. Miles driven are down about 4 percent, and mass transit use is up 20 percent. Ride-sharing postings on the Web are up 88 percent here in the Virginia suburbs, a Colorado IT consultant tells me she has switched to a motorcycle, consumers are trekking to the malls less frequently, rural community colleges are cramming classes into four-day schedules, and town governments are converting to four-day workweeks. More is to come: Hewlett-Packard is quadrupling its videoconferencing facilities to eliminate 20,000 employee plane trips every year, according to The Wall Street Journal.
The rapid and immediate shift in behavior has caught operators of mass transit systems here and in other areas by surprise. Officials are scrambling to get more buses and to add rail cars to commuter trains — but some cannot, as high gasoline prices and/or falling tax revenues decimate budgets. In the longer term, some commuters will find exurban living unbearably expensive relative to near-in town houses or urban apartments.
There is a lesson here for politicians. For years, successive presidents and congresses have railed against America’s dependence on foreign oil. Recently, they have forged an alliance with environmentalists who allege that the end of the world is nigh as a warming globe inflicts upon us floods and droughts, not to mention pestilence and a world devoid of polar bears.
So they have increased mandated fuel-efficiency standards, forcing automakers to include in their output mixes cars no one will buy; subsidized the production of ethanol from corn, adding to upward pressures on food costs; and spent billions subsidizing new power-generation technologies. With an effect that few will argue is proportionate to the cost.
Now comes the market, and it does what politicians won’t. Prices go up. Lo and behold, energy use goes down. Thermostats are adjusted to cut electricity use; gasoline use falls as more consumers carpool and switch to mass transit; and all of the things politicians have been trying to force consumers to do are getting done.
Unfortunately, politicians remain adamantly opposed to allowing high prices to do what high prices do best: curtail demand and increase supplies. So they browbeat oil company executives to force them to lower prices, promise to cut gasoline taxes, beg Organization of the Petroleum Exporting Countries to show mercy. Areas in Alaska and offshore remain closed to exploration and development, while politicians responsible for these bans rail against OPEC for not producing more oil.
Vladimir Putin, eager to stem the decline in Russia’s oil production, is reducing the tax burden on his nation’s oil companies to increase their incentive to drill and produce increasingly high-priced oil.
America’s politicians, the Democrats leading the way, want to raise taxes on U.S. oil companies, never mind the supply-side effect of such a move. “Across the world,” Zakaria writes, “economics is trumping politics.” Unfortunately, the triumph of economics is not yet complete in Washington, D.C.
