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ECONOMIC ANALYSIS: Sky-high gas prices are revving up the political rhetoric

June 2, 2008

From all the noise surrounding gasoline prices, you'd think nobody actually benefited from the high prices. But, of course, some folks do benefit. Let's figure out who they might be.

Obviously, consumers don't benefit. The average car owner in the United States pays about $80 more per month with gas at $4 per gallon than he did back when it was $2.25. Not good news, of course, but hardly the end of the world.

Folks who provide goods and services that most Americans consider discretionary spending are likely to suffer. This includes some types of tourism, restaurants and the like. Luxury producers are doing just fine, as are grocery stores (it seems people continue to eat when gas prices are high and may actually spend less at restaurants).

Businesses that require goods to be transported face both higher input costs, and the worry over when to raise prices on consumers. Rail and barge transportation firms are having a heyday, since they move goods at a fraction of the fuel costs of trucks. Coal and natural gas producers are enjoying the boom that occurs for all energy when a substitute sees a price increase.

How about oil companies? Total profits are up, but profit rates are way down. In a good year, big oil makes about a dime on a gallon of gas. That's down to under a nickel today. Unlike the natural gas and coal producers, they get the raw materials from a commodity market over which they have no control. So, oil companies aren't really having a great season.

The folks trying to implement monetary policy sure aren't having a good time. There's nothing harder than pleasing everyone in a slowing economy with rising commodity prices.

There are two really huge beneficiaries of high gasoline prices. The first are those of us who write for newspapers. The gasoline prices provide us easy material, plenty of human interest and always a villain (oil company, OPEC, Iran, even Congress). What could be better?

The big winners in this oil price spike are a very select set of politicians. In recent days, Congress has held hearings with all the oil executives. One member of Congress even proposed socializing the oil industry. (That, of course didn't work well for the folks in Venezuela.)

Still, the oil crisis isn't good for all politicians. Hundreds of honest folks in political life, in both parties, suffer calumny because they tell the truth: Until demand for petroleum wanes, prices will be high.

But too few politicians engage in such straight talk. If their world vision is stale, their ideology discredited and their well of ideas long since dry and barren, high gas prices provide one last dance on the public stage. The coming year will bring a parade of such characters. They will trump up silly ideas to rescue themselves from obscurity. (Now that sounds an awful lot like the immigration debate, doesn't it?)



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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