Remember That Other Economic Crisis?

Back before Wall Street was burning, Main Street was already feeling the heat from another very real economic crisis: the soaring price of oil. The credit crisis and our slowing economy have driven oil prices down and the energy crisis out of our minds, for now. But that doesn't mean the threat - to our economy and our quality of life - is gone. If we ever want our economy to truly recover, we'd be wise not to forget the other economic crisis.

I know it's hard to remember, given the events of the past weeks, but back before Wall Street was burning, Main Street was already feeling the heat from another very real economic crisis: the soaring price of oil.

The credit crisis and our slowing economy have driven oil prices down from historic highs. As stocks plummeted in the past two weeks, so to did the price of crude, falling by more than half, down from it's July record of over $140 to under $70 this week. That's the lowest price in fourteen months, but it's still three times higher than it was just six years ago, and prices are still over $3.00 a gallon across the nation.

Still, as prices at the pump have receded and the focus on the banking bailout bumped "Drill Baby, Drill!" out of the presidential election spotlight, the energy crisis is now out of most of our minds. Unfortunately, that doesn't mean the threat - to our economy and our quality of life - is gone. Oil prices will rise again - they are already inching up again amidst news of a likely OPEC cutback in production - and when they do, they'll continue to drag down our struggling economy. If we ever hope to see real economic recovery, we would be wise not to forget the other crisis that contributed to today's ailing economy.

I'll delve into this more next week, but for now, enjoy the new article in this weekend's New York Times Magazine (online here) by Roger Lowenstein, entitled "What's Really Wrong With the Price of Oil," which takes a close look at the temporarily forgotten but very real threat oil prices pose to our economic wellbeing. Excerpts below the fold...

Back before the mortgage meltdown turned into the worst financial crisis since the Great Depression, the country's big economic problem was energy. The presidential campaign was on fire over what to "do" about the price of oil. Gas cost more than $4 a gallon, it was slowing down the economy, people were driving fewer miles and they were flying less. Believe it or not, this was an economic crisis that affected people who didn't happen to be pinstriped bankers, hedge-fund managers or cabinet officials. You didn't have to read the stock-market columns to know it was happening. Ordinary people started walking to town or skipping errands -- taking the compact and not the S.U.V. Actually, I did that. And then, the price of oil plummeted, first because of slowing demand and recently amid panic selling during the credit crisis. And as it plunged more than 40 percent from its record high of $147 a barrel, the issue has faded.

Well, gas still costs $3.50 a gallon, and the price of a barrel of oil, last week close to $80, still is four times what it was all of six years ago. If that doesn't sound like a big deal, consider that in the half-dozen years of the housing boom, residential home prices rose only 125 percent, whereas oil prices, even now, are 300 percent higher than they were six years ago. So the energy issue is still here. Remember the winter after Katrina, when home-heating-fuel prices caused an uproar? This winter they are likely to be much higher.

When the new president takes office, high energy costs will be -- as they are already -- a drag on the economy, one that is becoming conflated with the credit crisis. Last month, the U.S. auto industry sold fewer than one million cars -- its slowest sales rate in 15 years. Tight credit and high gas prices each contributed to that. There is no way to completely unravel the two, but here is one fact: In the early part of this decade, when oil was cheap, Americans spent only 2 percent of their income on gasoline. Recently they have been spending about 4.5 percent -- more than twice as much. And you can bet that the percentage is higher among families with lower incomes.

The full article is online here and on news stands Sunday...

[Originally posted at the Breakthrough Blog]