Life in an Inflationary Economy

Noooooooooo! Six dollar per gallon gas? Ouch, that hurts, but there are things that can be done to obviate the pain some. First (issues of price gouging aside), the rules of supply and demand are still in place. We all have the ability to affect the global economy, by affecting our own household economies. Second (conspiracy theories aside), we must accept the fact that we are at war. We are at war with a virus, we are at war within the world’s marketplace, and we are at war in Europe. The concerted changes in our behaviors relative to these facts; can have a profound effect.

1. Image if Americans were to take a gas holiday. That is: take one day a week off from driving. In theory, the results would be for demand to go down by one-seventh. That equals about 1.2 MILLION barrels of oil per day (for comparison: this equals about TWICE the amount of petroleum products import from Russia per day; bye, bye, Putin’s war). In the aftermath of 9/11, gas prices spiked to as much as $5.00 per gallon (effinghamdailynews.com). The cost of oil on the commodities market spiked to over $31 per barrel (ciaotest.cc.columbia.edu). While the price of goods fluctuates constantly, global events involving “instability” has always brought short-term spikes. In the current situation, there are a multitude of factors that contribute to the current spikes. Not the least of these factors is the war in Ukraine. However, the war is a factor that acts only to enhance the previous problems causing a rise in prices. This includes the continued effects of Covid on the global supply-chain. There are those who assert that “if America was more independent in its oil production, then we would not be held hostage to world events”. This is an overly simplistic viewpoint, and a lie. America is oil-independent (we actually exported more petroleum products than imported). As with all free-market products, the companies who are purveyors of petroleum products buy at the lowest available price and sell at the highest available price. Thus, Exxon may buy from Russia, because the oil being sold by Russia is cheaper (inclusive of transportation costs) than the oil being offered for sale in the U. S. Likewise, Exxon may sell to China rather than to the local “gas station”, because China is offering more money to purchase a gallon of gas, than is being offered by U. S. gas station operators (again inclusive of transportation costs). That how the “market” works. What is causing the rise in gas prices, is “uncertainty” in the global economy. This is due to the war in Ukraine, but also due to the pre-existing conditions of supply-chain issues (due to Covid, among other things). All the ideas bantered about regarding “increasing America’s domestic production” is a blatant lie. Its intent is to create a political backlash, for political gain; NOTHING MORE. These disingenuous actors, argue that selling more production leases would solve the problem. This is a lie. It takes between 7 and 10 years to bring a new lease into production (assuming the lease is acted upon immediately). Thus, if the Biden administration sold every possible lease available in the U. S. tomorrow; we would not see any results until about 2030. Moreover, over the last 20 or so years, most of the oil leases purchased by the oil companies, have gone undeveloped. The companies have been “stockpiling” leases for the future (betting that the value of oil will go up as available resources for the production of oil are depleted). Further, if the oil companies actually undertook to develop ALL their current oil leases, and developed them at the current average pace, it would take until about 2032 before the supply of existing leases are depleted. In short, this argument is specious at best. So, what can be done about current high gas prices?

a. A tax holiday. While the amount of the pump price in the U. S. that is a tax is very minimal (compared to the rest of the western world), a temporary “tax holiday” would theoretically reduce the price at the pump by about $.50 (fifty cent; federal tax = about $0.184, average state tax = $0.3102);

b. A gas holiday. Not driving one day per week (as stated above) would theoretically reduce consumption by one-seventh.

c. Release of supplies from Strategic Oil Reserve (oil being storage for emergencies by the U. S. government). This would immediately and temporarily increase supply, theoretically driving down prices.

d. Uncap high-cost wells. Not every well has the same cost of production. Over the last 20 years many wells were taken out of production, because the price of a barrel of oil on the market did not make the production from the well profitable. Now that the price of a barrel of oil has risen to $90+ per barrel, these wells are again profitable. However, the production companies are still sitting on these well as a “reserve” (much the same way they are sitting on undeveloped oil leases).

e. Put more pressure on other oil producing countries to raise production and market output.

f. Hasten the pace of conversion to high-efficiency devices and non-petroleum-based transportation, heating, cooking, and electrical generation. Transportation uses approximately 44% of all the petroleum consumed in the U. S.. Natural gas and LNG represent a reasonable “Transitional Product”. Conversation of buses from Gas/Diesel to Hybrid-LNG or Natural gas is one place that can be done. Also converting tractors (tractor-trailer or 18-wheelers) is another. Converting ports and agriculture is yet another. At home, converting from oil heated, and converting to energy-efficient appliances. Conversion of oil-burning electrical generating plants. And of course, adding more “renewable energy” production. The thing is: these things all benefit our environment and our pocketbook.

g. Switch to biofuels. One of the best sources of biofuels is “hemp”. The growing of hemp in the U. S. was outlawed in 1937. It was originally billed as means to control the production of marijuana (mis-named: The Marihuana Tax Act). However, it was really designed to eliminate the competition from hemp to the wood-pulp and cotton industries (as established by the industries that pushed for the law to be passed). Hemp is a near ideal product that has more industrial uses than almost any other known natural product. There is almost nothing that cannot be made out of hemp (cloth, construction materials, biofuels, paper, plastics, et cetera). Furthermore, an acre of hemp sequesters 25 times more carbon from the air, than an acre of trees or cotton. It takes less energy to produce products from hemp, than it does producing those same products from traditional resources. And hemp takes less water to grow. In 2016, the U. S. government began to experiment with allowing hemp production in the U. S. again. Yet, the complexities of restrictions and red tape still makes such production on an industrial scale very difficult. It’s time to end the restrictions and red tape.

2. Other means of offsetting inflationary pressures:

a. Ending personal waste. Don’t cry about the cost of food going up 10+%. Americans waste 30%-40% of the food supply in the country. If we STOPPED food wastes, it would mean that the demand for food is lower, and thus the cost of food is lower. In short, simply not wasting food would more than offset the rise in prices on all things. The average cost of groceries in the U. S. is $4,942 (per household 2020). Ending food waste as a general principle would net a reduction of cost by about $2,000 per year. Given the median income for U. S. households was $31,133 (U.S. Census Bureau 2019). The elimination of food wastes would COMPLETELY ELIMINATE AND OFFSET ALL INFLATION CURRENTLY BEING EXPEREINCED. And it saves gas (less transportation of products to the market, and less costs of the consumer to obtain food; thus, and lower price for fuel; a double savings);

b. Cancel un-used or under-used subscriptions. Americans are paying on average about $350 per year for subscription they are not using. In addition, they are paying on average $500 per year for subscriptions that they are under-utilizing (or for services that they can get cheaper from another source). Further, the average American overpays about $350 on automotive insurance, and twice that on home/renters insurance.

c. Postpone buying. The rules of supply and demand states that the more demand there is for products, the more the products cost the consumer. When the supply of such products are limited in its sourcing, this too causes prices to rise. We already know that the movement of products from their sources have been negatively impacted. This has meant that the availability of products simply cannot keep up with the demands of the consumers. At the same time, the U. S. government has provided unprecedented economic support to individual American families. This support has had the effect of exacerbating demands as Americans have spent the windfalls (beyond the paying down of consumer debts). Taken together, this has introduced extraordinary inflationary pressures on our economy. The solution is simple: where Americans have the availability of cash, they should pay down debt. If there is cash leftover, put it in savings (eg. IRA’s, 401K’s, et cetera). The result of this is an inflationary offset, and a reduction in prices. Further, by lowering the demands, then the supply chain issues have time to balance out. A large part of the inflationary pressures come from increases in the cost of transporting goods from foreign manufacturing plants to the U. S. consumers. For example, the cost of a shipping container has gone up by an order of magnitude. There is no reasonable explanation for this level of increase, except that demand continues to drive the economy. Our own GDP has grown (albeit not quite equal to the inflation), the move to forego purchases in the short-term will have the least negative impact on our economy, and the greatest rebalancing impact on the inflationary pressures.

During the “Great Depression” Americans learned valuable lessons in personal economy. These are lessons that have been lost to the past generations. We have an opportunity to relearn these lessons, and become better people in the process. In sum, we each can act directly to ease inflation and strengthen our economy. Real inflation (that is: in and above growth of GDP and wages) is only around 1.5%-2%. Adjusting our own personal economies, can easily offset such inflation and help put the genie back in the bottle. This is not what some want. They wish to continue to stroke the fears and flames of division, by proclaiming the sky as falling, and a coming economic holocaust. Their purpose is political, not economic. We can thwart such machinations and inure to ourselves dividends at the same time. Thus, rather than complaining at every turn, change what can be changed: ourselves and our own choices and behaviors.

The ”Serenity Prayer” notably states: “God grant me the serenity to accept the things I cannot change; the courage to change the things I can; the wisdom to know the difference.” Wise words for today.

Copyright D. J. Adams 2002 All rights reserved

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