Weblog

Saturday May 24, 2008

Is America ready for what's coming?

This morning over breakfast, I heard a cook in a restaurant comment that a large container cooking oil had risen in price from around $13 to over $60 and that a bag of flour and risen from $8 to over $30 (if I heard right and a blog post here seems to suggest it's not far wrong.) Last year the minimum wage went up about 12% and this year it is set to do the same ($5.85 (2006) -> $7.25 (2008)) In a recent article in a Nevada newspaper, the state was casting doubts over its wage rise for state workers due to a drop in its revenue - a cost of living increase of 4%. Question is, how would those people make do without it?

What's the root cause? Hard to say. The price of gas is not tipped to drop until at least 2016 as the futures market for oil has already sold supply to that date at current prices. But maybe that is a dream and the more realistic picture is the price of oil is not ever going to go down to where it was. The oil honeymoon is over.

So what has this got to do with the title? America, as a nation, runs on oil. There are a few hold out examples, such as New York City, Washington DC, Chicago, Boston and San Francisco (city area only) that have functional mass transit systems. Expand the view to, for example, the entire San Francisco Bay Area, to places such as Silicon Valley, San Jose, there is barely any worthwhile public transport. Now get out to some of the other populous cities, such as Los Angeles, Las Vegas, etc, there is a bus system that kind of works, but anything else...where's your car man?

It would seem that the basic cost of a lot of things is going to rise this year and next, perhaps pushing many into poverty. But something that cannot be missed is the amount of money that these rises are going to take away from the average person on the street, giving them less discretionary spending. This won't necessarily show up in the US GDP figures, as people will still be spending the same (or more) money but the fraction that goes to transport and food will increase, meaning something else will have to give.

A shift away from driving (too expensive) and maybe smaller portions of food (keeping cost dost.) Is America ready for that? Or will it go for the same size food portions, albeit more expensive, and find more fuel efficient vehicles and keep on polluting?

For further reading:

• The Market Begins to Believe in Peak Oil
• Why Crude Oil price is zooming
• FACTS ON POLICY: Consumer Spending