What am I personally going to do about four-dollar a gallon gas? I’ve been thinking about buying a motorcycle. Whoa… Hold on. Let me explain.
I was 64 on my last birthday, and my wife tells me that I’ve become more pessimistic with each added year since she married me. Perhaps she’s right; I certainly don’t antici- pate the price of gasoline to come down by much anytime soon. But is this pessimism or am I just thinking like an economist?
We’ve all heard the most commonly accepted reasons for the recent rise in the price of gasoline: growing world-wide demand for crude and the declining value of the dollar. But have you heard this one: price speculation driven by fear of an imminent dis- ruption of thirty percent the world’s supply of oil caused by an expansion of the conflict in the Persian Gulf region? Even with China and India subsidizing the cost of gasoline for their citizens, world demand is currently being met. So the laws of supply and demand alone do not fully explain the rapid rise in cost.
The Strait of Hormuz is a 21 mile-wide choke point through which nearly a third of the world’s total supply oil must pass to get to world markets. Having just completed a two-day economic summit for educators at the Dallas Federal Reserve Bank, I’ve been left thinking about this quite a bit lately.
Osama Bin Laden has said, “Oil is the umbilical cord and lifeline of the crusader community.” Maybe al-Qaeda is winning this war and our current leadership doesn’t even recognize it.
History may recall that our decision to invade Iraq, however noble our rationale for this may have seemed at the time, was the biggest economic blunder of all time. Consider the following two charts. The first one shows the rising price of oil since 2003, the year that we invaded Iraq. But on closer inspection, one can see the rapid increase really started soon after our 2001 invasion of Afghanistan. The second chart shows the dollar’s decline against a broad basket of currencies over the same period.
Surely the war is not the only thing causing our economic woes, but the correlation of these two trends, the rising price of oil and the declining value of our dollar, to 911 and our declaration of war on terror cannot be just a coincidence. HELLO!?!?
So, what am I personally going to do about this? Well, for one thing, I’m certainly not going to vote in the upcoming national election for the same kind of thinking that got us into this mess. Aside from that… I’ve been thinking about buying a motorcycle. Yes… this will save me money on gas and help the economy, especially if I buy a Harley Davidson, the only motorcycle that’s still made by Americans right here in America.
My wife and I will be getting an economic stimulus check soon. I didn’t think we would owing to the amount of money that we had to claim on our 2007 income tax, but the IRS only prorated our $1200 downward based on the amount over the maximum for a couple filing jointly. Woo – woo! Now, we could do the smart thing and pay-down some of our remaining consumer credit we still owe – we’ve been trying in recent years to eliminate as much of this liability as we can. But the government is borrowing money, adding something like another $100 billion to the national debt this year on top of the separate resolutions to pay for the war in an attempt to jump-start our stalled economic engine – consumption. So the least we can do is our patriotic duty, right?
Let’s see now… the bike I want is a 1200 Sportster XL with an extension package for my longer legs and a passenger extended seat, just in case my wife overcomes her dread and decides to ride with me someday. Not counting finance charges, sales tax, an increased premium to my existing auto insurance, an increased premium for a greater amount of accidental death insurance, and safety gear — can’t forget the safety gear — that’ll run me $11,000, give or take, for a new one. If I ride a little more than half of the time and drive a little less than half of the time, let’s say 6300 miles annually on the motorcycle and 5700 miles in my car, and the motorcycle gets 80 mpg, I’ll be saving $758.17 a year in gas assuming the long-term average price stabilizes at $4.25.
Wow! At that rate the motorcycle will have paid for itself after just 15 years. Of course, I could get rid of my car and only travel on my new motorcycle, assuming that I could find someone who wants to buy my 2004 Magnum. I already know that it’s worth thousands less now than what I owe on it. If I could get rid of it without having to take too much of a loss, the payoff time would be greatly reduced, of course. But the risk of having an accident would be greatly increased and I’d be sacrificing a whole lot of flexibility.
How many seventy-nine year-olds do you know who still ride Harley Davidsons? Anticipating that I will live long enough to see my purchase pay for itself, or even that it might last that long, would be pretty optimistic, don’t you think? But, hell, let’s say that I am an optimist rather than the pessimist my wife thinks I am — MISSION ACCOMPLISHED!
Hmmmm… where have we heard that before?
I guess there are some drawbacks to thinking like an economist after all. We can’t always justify everything we want. Even when we can, there are always trade-offs to consider.
I wonder if John McCain can follow this logic; it’s called cost-benefit analysis. We already know that George Bush can’t.
I invite your comments pro or con to this posting.