I Got the Oil Price Blues

Hitting $30 a barrel, oil prices have generated a sudden flurry of activity in Washington. The United States, it seems, is unusually sensitive to the rise in oil prices — even while they remain relatively low in inflation-adjusted terms. Recently, the Clinton administration dispatched its Energy Secretary, Bill Richardson, to canvas oil producers and try to convince them to keep prices low.

Politically, high oil prices might be expected to produce a panic in the Al Gore-for-President camp. After all, Gore’s most persuasive argument with voters is that, while he has been Vice President, the U.S. economy has performed so extraordinarily well.

But high oil prices — which lead to higher prices for most other goods — are a recipe for disaster during a Presidential election. Just ask Jimmy Carter, the much-maligned president during the last oil shock. Therefore, the Clinton administration’s attempt to manage oil prices is really an attempt to save Al Gore’s neck.

Curiously, in the mad rush to lower oil prices, no one has bothered to point out this irony. While the Treasury Department and the Federal Reserve have convincingly argued that the prices of international financial assets — such as currencies — should be set by the market and not by governments, the government has never been so adamant when it comes to oil. Instead, the United States wants to sing a different tune.

Why do oil prices matter so much to Americans? First, consider how much Americans drive their cars. Average miles per motor vehicle reached 12,183 in 1998, up an average of 1.2% each year since 1990. And not only was each car driven more, there were more cars to drive. Motor vehicle registrations in the United States are up 1.4% per year since 1990. Quite simply, Americans drive a lot, and they are driving a lot more.

Anybody who has seen ex-urban growth in the United States will not be surprised by these numbers. Despite the warning shots of the 1970s oil crises, the country continues to be built on the assumption that travel by car is the only way to go.

When this crucial aspect of the American way of life is threatened, the response is entirely predicable. Rather than use the opportunity to rethink the system that creates congestion, accidents, and pollution, Americans react as though the very basis of their civilization was under attack.