Monday, July 28, 2008

The latest shamefaced lie behind oil prices

The newest rhetoric regarding escalating fuel prices is here. For the little bit of background, the initial reason bandied about before was the specter of rising demand and consumption by the BRIC economies (Brazil, Indian Russia and China). When nobody paid heed to that piece of drivel, it was the turn for the economists to pin the blame on speculators and the fact that hedging ones bets in the marketplace is detrimental to the stabilizing the price of oil. When this argument did not seem to stick, people opted for the convenience that came out of explanations like rising political tensions between the United States and Iran and the resultant skittish market psychology playing a role in the see-sawing fuel prices. Of course, a recalcitrant OPEC who refuses to change the output and the constant vitriol spewing from Venezuela's Chavez have always been ready reasons handy when all other explanations fail to stick to the wall.

The latest explanation doing the rounds (and this time being given wide coverage shamefully by the New York Times on its front page) is the fact that fuel subsidies overseas is taking its toll on oil prices in the United States. The current president of the United States made a telling comment last week in trying to bolster this explanation by telling us the following in sage terms: “I am discouraged by the fact that some nations subsidize the purchases of product, like gasoline, which, therefore, means that demand may not be causing the market to adjust as rapidly as we’d like”. It was the same person who made the equally sage comment on rising food prices around the world by telling us that “when you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up", until it was found out that that biofuels have forced global food prices up by 75%..

While most of the developed countries have had a bull run for the last two hundred years with established growth rates and a voluminous GDP built on the back of colonial booty and slave labor, it is indeed disheartening to note that these very same countries who have had two to three centuries to bootstrap themselves are wagging their really engorged fingers at the new kids struggling to get a little bit of the leftovers. Add to that the recent shocking statistic that the entire state of California with its 37 million people uses more gas than the whole Chinese nation with its 1.3 billion people.

California alone uses more gasoline than any country in the world (except the US as a whole, of course). That means California's 20 billion gallon gasoline and diesel habit is greater than China's! (Or Russia's. Or India's. Or Brazil's. Or Germany's.) One more choice statistic: gasoline usage in California has increased 50 percent, that's 6.7 billion gallons, since 1988. Has there been anything close to a commensurate increase in quality of life here to accompany that rise in energy use?

When nations who are bootstrapping themselves to climb aboard the great economic growth train (whether that is a good or a bad thing is a whole different debate) subsidize the costs of fuel to its citizens, all they are doing is trying to level a highly loaded playing field (that was tipped in favor of the industrialized west for many centuries) by lifting the basic standards of living for its impoverished millions to a little more of a decent level. They are trying what the industrialized west achieved for its citizens a hundred to two hundred years back. It is also worth noting that as these nations try and level the playing field in a short 20-30 year span, they are doing so without the booty plundered as a result of colonialism and the cheap labor juiced out of imported black slaves worked to the bone.

Apologies if that last bit sounded a little too bitter, but this time the spin really got to me..

Check the fuel price in this photo of a dilapilated gas station on Route 66. Picture ripped from here.

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