It’s a myth that the world’s oil is running out
THERE are more misunderstandings about the oil market than perhaps any other. In America, drivers are fuming and politicians are demanding explanations because petrol has hit about $3.50 a gallon. That’s 47p a litre, less than half the 105p-115p being paid by British motorists. So “high” in Cambridge, Massachusetts, and Oxford, Mississippi, is “low” in similarly named cities in Britain.
But assume that prices are “high”, which indeed they are by historic standards. We are mistaken when we think these “high” prices are causing inflation. High oil prices can force consumers to spend more on petrol and heating oil, at the expense of other purchases. Ask any suffering restaurateur or clothes retailer if you doubt that. But high oil prices can’t trigger a rise in the general price level – inflation – unless someone pumps money into the economy so that, to use an oldie but goodie from the economists’ lexicon, there is more money chasing the same amount of goods. If you want something to blame for inflation, don’t look at oil prices, look at the billions the Federal Reserve’s monetary policy gurus and their confederates at the US Treasury are pouring into the economic system.
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