By Bill Wilson — Obama thinks the current run up in gas prices is a good sign, evidence that the economy is improving. Except, in 2011, the global economy slowed down while oil and gas prices were rising along with a broad range of other commodities including gold even while domestic consumption was declining. Additionally, just last month, the International Energy Agency has cut its projections of the growth of global oil demand for 2012, and Saudi Arabia is once again lowering its production this year. With oil traded in dollars, that all indicates inflationary pressures and a weak dollar are moving prices, not increased demand.
In addition, last year, another part of the run-up in prices was the Libyan crisis. This year, the Iranian crisis is in effect, with the U.S. and Europe placing de facto embargos on Iranian oil exports. This too has an effect.
Then there is the domestic regulatory environment that makes these price spikes all the more acute here in the U.S. The nation’s refining capacity is declining along with continued restrictions on domestic oil production. We simply lack the domestic capacity to increase output when we experience these price shocks. In fact, we have declined from producing 9.6 million barrels of oil a day in 1970 to little more than 5.5 million a day now.
Overall, these huge run-ups in oil and gas prices are not good for the economy. They did not work well in the 1970’s and again in 2008, when the roof blew off the economy. They always lead directly to increased producer and consumer prices, both of which take money out of other parts of the economy, and are detrimental to the growth picture.
Bill Wilson is the President of Americans for Limited Government. You can follow him on Twitter at @BillWilsonALG.