Thursday, May 12, 2011

A Lot Less Petroleum Could Go A Long Way!

Today they announced that the produce price index is up 0.8% for April and that it was up 0.7% for the month before. Inflation is pretty easy to understand even if you are not an economist. When prices go up for products and services and those products and services are exactly the same now as they were just a short while ago, we say we have experienced inflation. Our dollars don't buy as much gasoline as they used to is just one example.

But, gasoline is a very important piece of our economy. Our economy to a very large extent runs on gasoline and diesel. So, when the price of gasoline and diesel goes up, every business that depends on gasoline or diesel must raise their prices if they are going to maintain their profit margins. Businesses that make no profits go bankrupt and close or else are sold to other companies that will find a way to make them profitable.

Fuel affects so much of our economy that it touches just about everything we produce or services we provide. Whether it is growing corn or delivering a package, fuel is a piece of the cost structure of that enterprise. In an earlier piece, I made mention of the fact that oil is priced in U.S. dollars, and that the United States imports and uses millions of barrels of oil each day. As oil prices rise, gasoline and diesel prices follow, and as these prices go up the products and services that depend on these fuels go up as well.

The answer to the problem is energy independence. When we can reduce the amount of oil we import, we can have a better balance between the amount of U.S. dollars leaving our domestic economy and the dollars that come back to buy products and services here. Too many dollars leaving and not enough coming back in to our domestic economy has the affect of reducing the demand for U.S. dollars and as a result of this, drives the price of oil by the barrel up in price.

It might sound too simple, but unfortunately, sometimes it is the simple things that are the hardest to fix. If the United States could reduce the amount of oil it imports every year, the U.S. dollar would get stronger. Alternative energy sources to supply our cars and trucks with fuel would change our domestic economic situation profoundly. The manufacture and use of electric vehicles could over the next decade have a significant affect, for the good, on our domestic economy and the U.S. dollar's strength in the world currency markets.

Stay tuned.

1 comment:

winslow said...

Instead of the Democrats and Republicans arguing and fighting all the time, they should come up with a comprehensive energy policy to guide us the next 5-25 years. With all the expertise and knowledge in this country, we are really idiots.