Although I haven’t seen one of the traveling circuses that traverse the country since I was a youngster, I can still recall a few of the interesting and unusual performances at those I attended.
Among the many fascinating characters brought to town by the circuses, my favorites were the high-wire aerialists. Watching them slowly walk across a thin wire stretched near the top of the tent armed with just a long pole designed to help maintain balance almost took my breath away. In my mind as a child, those individuals with such unusual courage were true daredevils.
America has recently had the opportunity to witness some other unusual activities in what might be considered a circus of sorts. I have far too much respect for the US Senate, however, to ever use such a phrase to identify that body, even if occasionally the actions of a few lawmakers do bring to mind a few of the things I saw in the three rings under the big top years ago.
The unusual activities to which I’m referring are the recent hearings at which oil executives were grilled about the high energy prices and the big profits their companies reaped during the last quarter—an industry record-breaking $32.8 billion. The jousting among the participants was fascinating to observe as the oil industry officials sought to present details of the phenomenon.
Several explanations were given as to why gasoline prices jumped so sharply following Hurricane Katrina—in some places the costs soared upwards of $1 almost overnight. None of them seemed to be acceptable to the senators or media representatives.
On one hand, as a concerned petroleum consumer (I travel over 100,000 miles annually on the Texas highways and that many more on airplanes), I certainly can understand the reluctance people might have in accepting the energy executives’ rationales. On the other hand, as an economist, I have sympathy with the reasoning offered for the price increases and the large profits.
As you may recall, the oil company executives acknowledged that high prices had put a strain on Americans. They also gave various justifications for the situation and denied charges of gouging the public at a time of sacrifice.
One of the reasons offered for the large profits was the enormous size of the companies and the industry’s enormous revenues, noting that even when all that was taken into consideration, the profit percentage was in line with those of other large industries.
An explanation for the high fuel costs focused on the notion that without price increases, demand might have exhausted the supply which was already tight prior to the hurricanes. Forgotten, in all of the brouhaha was the duty these folks owe to their shareholders.
There is probably some truth in all the various raison d'êtres, but they boil down to the fact that until the amount of oil demanded decreases relative to our capacity to refine it, energy prices are not likely to drop substantially. Global energy needs are expected to surge by 50% over the next quarter century. As the economies of China, India, and other nations continue to expand, new sources of energy will increasingly be required. Unless production capacity is increased dramatically, there are very dim prospects for notable price declines.
Fortunately, there are sufficient quantities of oil and natural gas reserves to last quite some time, especially in the Middle East and North Africa. However, to get the supplies to the customers may cost as much as $20.3 trillion.
Prices for crude oil have moderated to some degree after soaring to more than $70 a barrel on August 30. In fact, they’ve dropped about 20% since then. That’s good news, but the bad news is with winter coming and the demand for oil and natural gas increasing, possibilities exist for a weather-led hike in energy prices.
In circus parlance, one could say that the US is poised at the edge of a tight rope and the consumers are waiting for the aerialist to move forward. What is the next step to be taken?
It’s not just one step, but a combination or an appropriate balance of steps that will be required. The refining capacity of our nation must be expanded, and additional energy resources should be provided. Investments in science and technology need to be increased as should the use of alternative energy fuels. In addition, we all need to practice better conservation of energy.
These small steps are vital if our nation is to take giant steps toward our energy independence goal for the future.