Oct

10

horseAs disorienting as the financial panic is, it is interesting that the U.S. economy is generally strong, apart from finance and housing industries, and unionized automakers. Home prices fell the most where they were some distance from job centers. The long commute to the Bay Area from Stockton and Modesto allowed those locked-out of Bay Area housing by local government home-building restrictions to commute from distant but reasonably-priced homes to well-paying jobs.

Easy money and and Congressionally-promoted bad lending practices inflated the price of new homes in Stockton, Modesto, and other distant suburbs, but high gas prices made them much less attractive. Gas over $4 a gallon made it harder to pay mortgages, and the demand for these homes fell.

High gas prices stalled SUV and truck sales, both profit-centers for US automakers (and slashed boat and RV sales). And high oil prices raised transportation costs across the US economy, reducing the economic advantage of America's integrated production and distribution inside the world's largest free-trade zone. And high prices hurt airlines and all those who operations depend on inexpensive business and tourist travel.

So now we have oil prices crashing down as demand falls and production in Asia and elsewhere has risen in response to higher oil prices. The media likes to emphasize the slowing economy as the cause. But though the housing and financial industries are down, the rest of the economy has continued to grow. Miles driven dropped dramatically as prices rose, but American industry expanded quarter by quarter.

Newspapers report that oil production rose unexpectedly in Asia this year. Production increases in response to high prices are unexpected only to reporters. In the U.S., increased oil production is banned by regulations on exploration and development in western US, and offshore, where state and federal socialism prevails. And environmentalists stand ready with litigation and lobbying as exploration and drilling bans are relaxed. But in Brazil, Africa, China, and the Middle East, energy enterprises enjoy more freedom to explore, drill, and produce, and both oil reserves and output are rising.

With oil prices down to $84 today, transportation costs fall dramatically across the U.S. economy from July highs, and leave consumers with more disposable income. Consumers will have more money to spend, and businesses will see energy costs drop. Housing in the far suburbs will become more attractive to workers willing to commute. Should we look this energy gift horse in the mouth and once-again fear dependence on foreign oil? I would argue that the only thing we have to fear is government itself.

Congress stands ready to protect consumers from lower energy prices with "renewable" windmill and solar mandates, and managed to stuff 100 pages of new alternative energy regulations, subsidies and carbon audit decrees (preparing the way for the coming carbon tax) into the financial bailout bill. Now that the bill has passed, Congressmen and the rest of us will have time to read through this new tangle of wishful thinking and special interests that has become the law of the land.

So, the U.S. economy has a few months to recover with lower oil and natural gas prices, until the next Congress slaps on a massive Carbon Tax to fund the vast array of government programs they were unable to slip into the recent bailout bill.


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