Tuesday, October 21, 2008


As much as I hate to admit it, occasionally I'm wrong. Very occasionally, I'm extremely wrong.

As gasoline prices drop below $3 a gallon, commodity prices in general crash, and the CPI comes in unchanged, I have to consider the possibility that my fears regarding inflation (and the concomitant stagflation I've ranted about) well may be unfounded. On the other hand, all of us might be in better shape if I'd been right.

Gasoline prices fell because the price of oil is down, due, we're told, to a steep drop in demand. And how much of a drop in demand does it take to bring about a 50% drop in the price of a barrel of light, sweet crude? Since oil is valued in dollars, the calculation is easy -- 50% -- and we know it can't be just from people cutting back the mileage they put on their SUVs.

(Yes, I know -- gasoline prices have fallen by about a third, not by a half. So where has that extra money gone? Give it a little thought. It will come to you.)

Since we haven't exactly gone green in the past few weeks, demand for oil ought to be a pretty good indicator of the world's level of economic activity -- which leads one to surmise that the global economic slowdown might be a good deal worse than we've been told. Also, consider that if the CPI has dropped again the next time the figure comes out, we'll have entered the realm of deflation. Bye bye recession, hello depression.

Apparently, a new stimulus package is in the works. I sincerely hope there are no "checks in the mail" to individuals this time, given how little multiplier effect there was last time. Previously, I called for aid to the states, tied to infrastructure spending, to get the construction trades back to work. Now, I say, just give the money to the states -- no strings attached. A lot of it easily can be spent on infrastructure -- not even by creating new projects, but just by continuing existing projects. Did you ever notice how the roads always seem to get repaired in the months just before an election? Keep fixing those roads, governor! Build us some new schools, and repair some bridges! Even if all the contracts are assigned by patronage, and half the federal aid is used to pay relatively unproductive bureaucrats, people who otherwise might be unemployed will be working instead.

Of course, nobody actually has a clue what's really going on in the economy. Bernanke really seem to be playing it by ear, and Paulson changes direction as often as John McCain. Movement in the stock markets, as you've noticed, is totally erratic. Marketplace should forget about playing "We're in the Money" or "Stormy Weather" when it reports the Dow and the NASDAQ, and just play Willie Nelson's "Crazy" every time.

Way back in my youth, there was a frequently quoted fortune cookie that went something like this:

"May you live in interesting times."
-- ancient Chinese curse

Well, whatever. Life sure is interesting these days -- but I can't help but hope that out of this painful mess may arise a kinder, happier, post-capitalist world.

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