Thursday, December 30, 2010
Oil: A Short Review of Our Political-Economic History
20-10 is almost history, so today I would like to review a little economic history. Not all history is political history, but because there are taxes to be paid at so many levels, it is more accurate to refer to past events as a political-economic interpretation of our recent history. Many years ago, when I was an undergraduate studying American History at the University of Cincinnati, I wrote a paper titled "An Political-economic Interpretation of the Louisiana Purchase of 1803". I discovered after reading old newspapers in the basement of the Cincinnati Public Library that there were strong economic reasons for President Jefferson to make the Louisiana Purchase. The importance of the Mississippi River was no small part of the consideration as the farmers in the interior states needed the Mississippi River to get their produce to market. This all takes place before the internal combustion engine, and yet the movement of goods on the water was a life and death situation for the producers in the interior.
The American economy runs best on inexpensive oil. Oil and our dependence on foreign oil has brought us to where we are today. Back in 1973, (I know this is ancient history to some people, but please bare with me) when the first oil embargo took place, the United States was put on notice that oil was now a political-economic weapon. From 1973 to the Gulf War of the early 1990s, the United States continued to grow its dependency on foreign oil, and its dependency on oil to move goods and services around the country became greater not less.
When Saddam Hussein attacked Kuwait and took control of their oil fields and appeared to be headed to over run Saudi Arabia, the United States was forced to take action. The American Armed Forces pushed Saddam and the Iraq army out of Kuwait and then stationed troops in Saudi Arabia to protect their production of oil. Oil plays a key role in the political-economic life of nations in the 21st century, as it did in the later half of the 20th century. Without oil, nothing moves, and when nothing moves there is no commerce and when there is no commerce there is no life. Oil is pivotal, it is the blood of commerce.
The cost of a barrel of oil has been going back up. For each penny a gallon of gas goes up in the United States, over a years time one billion dollars is taken out of our domestic economy. Taxes are not just collected by governments, money that leaves our domestic economy is a form of a tax. The future does not look good for the price of oil or gas to come down. Many economies around the world are growing more dependent on oil to grow their economies. We need to do one of two things: We need to take someone else's oil over and own it ourselves, or, we need to reduce our dependency on oil and gasoline. We have spent billions of dollars on wars that are directly related to our need for oil, and yet for all our sacrifices, we have no inexpensive oil to show for our efforts. I am not going to continue to connect the dots. Those of you who understand where this line of thought takes you can connect the dots yourself. We all are paying a higher price at the gas pump, and that higher price is taking the life blood out of our domestic economy. Think about that for a moment.