The record economic boom is near a tipping point. Although no serious
inflation is being generated by the sizzling economy, increases in oil prices show up in the general price index. They also worsen America's balance of trade.
Meanwhile, the weakness of the euro is depressing profits that American
companies earn abroad. On all these counts, the stock market is getting very nervous.
A big stock market correction would cool off both consumer and business spending. It might scare off the foreign investors who keep buying our bonds. In this context, a misstep by the inflation-phobic Federal Reserve could help send the economy into deep recession.
Al Gore must be praying that the economy holds up until Nov. 7. His friend and mentor Bill Clinton must be using every diplomatic lever to pressure OPEC to open the spigots. Our European allies, faced with consumer revolts over the price of gasoline, are doing likewise.
The weakness of the West in the face of OPEC is puzzling, just as it was during the first oil shock of 1973. Although the oil-producing nations include some nasty rogue states, including Iraq and Libya, they also include countries that owe the West big time, notably Saudi Arabia, Kuwait, and Mexico. Where are our oily friends when we need them?
The two presidential candidates are already playing the blame game. George W. Bush blames the Clinton administration's lack of an energy policy, though Bush hasn't proposed one of his own. Gore, in turn, blames the oil companies, which just happen to be close allies of both Bush and Dick Cheney.
Neither stance is entirely fair. The oil companies are happy to profit from tighter oil supply, but they are not the main cause of the current price spike. The Clinton administration has basically had the same energy policy that Republicans commend: Trust markets to set prices.
The fault is bipartisan. For one thing, American foreign policy has been so focused on military and terrorist threats that the geo-economics of oil have not received adequate attention.
The more fundamental problem is not OPEC but one that environmentalists have been warning about for decades: America's excessive dependence on imported carbon-based fuels. But that concern fell from general favor as soon as oil prices eased in the 1990s.
Jimmy Carter's sweaters were never very fashionable, nor were subcompact cars. Economists laughed at the idea that any reasonable person could think that oil could stay at $35 a barrel; cartels never lasted long. And sure enough, the price of oil came back down below $12 dollars a barrel, gas at the pump dropped below a dollar a gallon, and Americans resumed their love affair with gas-guzzling cars, most recently SUVs.
But the West's increasing appetite for oil and our failure to get serious about conservation and alternative energy sources soon shifted the bargaining power back to OPEC. And oil is again at $35 a barrel.
The United States is the worst offender. Japan is well ahead of the United States in developing efficient hybrid-engine cars, while the United States continues to use carbon fuels at double the rates of European nations with comparable living standards. Our airports are a congested mess while plans for high-speed intercity rail corridors languish and Republican legislators threaten to put Amtrak out of business entirely.
In truth, Al Gore has shown more gumption on this subject than most American politicians. He pressed hard to win Detroit's agreement to a technology partnership to develop cleaner, more fuel-efficient engines. He once proposed a very modest increase in the tax on gasoline and has been pilloried for his stance ever since.
Bush chides Gore for failing to lead, but energy policy is one area where the vice president has genuinely led. For the long term, higher taxes to discourage gas consumption, coupled with more-efficient cars and other forms of transportation, are just what's needed. But absent the rest of the energy policy, no politician can propose higher gas taxes at a moment when consumers are already reeling from price shock at the pump.
Most elections turn out to be retrospective voter verdicts on the incumbent administration's performance. Despite Gore's initial wooden demeanor as a candidate, the strong economy gave him a big head start. When Gore lightened up and Bush started looking clueless, the vice president surged into the lead.
But an oil-fired economic burnout could reverse all that in a heartbeat. How ironic that if the country had listened to environmentalist Gore a decade ago, candidate Gore might not be biting his nails today.