September 4, 2023
John D. Rockefeller destroyed the whaling industry by replacing whale oil with Earth’s natural compost: refined oil. Whale oil had many uses, pharmaceutical and industrial, including lubricants for nearly all machines and trains. And it was the age of machines.
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The whaling ships of Nantucket were slow. Their primary prey were gray whales who do not navigate by echolocation, like many other whales. They follow the contour of coastlines, and they swim only about 3–6 mph. Modern ships move much faster, and they will have technology to find and kill the faster and more acrobatic whales, including blue whales and humpbacks. Using modern technology, they can find and kill them where they feed, in the Bering Sea.
Although this is mentioned to harpoon the left, and to grab your attention for the larger issue below, the point is not far-fetched. Whaling is still legal in some countries. And African countries, with all their efforts, cannot stop poaching. All that is required is for the price of refined oils to rise significantly. The whales won’t stand a chance.
Net-zero carbon may spell death for more whales. It will certainly result in more poverty for us. Poverty tracks with prices. If prices are low enough, there is no poverty. Our low point of poverty occurred in the Roaring Twenties, when an average home cost $4,000 and cars were $400. We could pay off our homes in 3–5 years (mortgage terms at the time) and pay off our cars with only two months’ average pay.
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It is the inflated price of goods that causes poverty. And contrary to the current groupthink that the money supply is causing inflation, inflation tends to track with the price of oil. That became apparent to me when I wrote my first economic essay in the late 1970s about oil prices and inflation. The price of oil started at a low of $1.25 per barrel in 1970 and climbed to $37 in 1980 as a result of three enormous tax increases. OPEC imposed an approximate $6.00 tax in 1976, followed by an $8.00 tax. Then oil more than doubled to $37 in 1980, when Jimmy Carter’s windfall profits tax took effect.
The Vietnam War had long since ended, and Gerald R. Ford vetoed all 63 bills during his tenure. It became evident that the increasing price of oil was causing inflation. Today, that is even more evident.
Overspending and the resulting money supply cause many problems, such as bloated bureaucracies, but it did not cause the current inflation.
In 2009, president Obama signed the $787-billion stimulus and added the remainder of TARP at $370 billion. This was more than three times the cost of the Afghan and Iraq wars over five years, all in Obama’s first 90 days. This was followed by continuing resolutions of $813 billion stimulus for each of the next four years, plus two years of Q.E. spending at $200 billion each. That is the largest increase in government spending and resulting money supply in our history.
Yet inflation did not budge. In fact, inflation during those years and beyond, from 2009 to 2020, averaged only 1.8 percent. That is undeniable proof that spending and the money supply did not cause inflation. The spending and money-supply cause of inflation is a worn out myth.
One does not offer $4.00 for bread when the price is $3.00 simply because the money supply is large. If there is a shortage of bread, one might offer more. Inflation is caused by a shortage or increased cost of usable goods.
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The old layman definition of inflation, too much money chasing too few goods, is wrong. Almost any amount of money chasing too few goods will cause inflation.
I too am a Milton Friedman fan; however, he was not correct about everything. He said twice that Jimmy Carter would not impose a windfall profits tax. When Carter did so, and inflation peaked at 15 percent, my observation was that Milton realized that it was futile to argue with the Democrats’ “big oil” hysteria, and the only remaining choice was to nearly shut down the economy by restricting the money supply. Even that took some convincing on his part. It worked, but the resulting recession was severe.
Professor Friedman was forced into mitigating the demand side of our economy. Do you really believe that he thought supply-and-demand works only on the demand side? That would be economic stupidity. He was not stupid. Stop believing that his only solution was to shrink the money supply. He had given up on trying to stop Carter’s tax increase.
When Joe Biden was elected in 2020, inflation was 1.4 percent. In 2021, in his first week, Biden cut off every source of oil within his jurisdiction. Oil prices doubled from $55 to $110, and the monthly inflation leaped to 9.6 percent.
The proof is staring us in the face, and groupthink economists insist that the Fed must raise interest rates to choke the money supply. That is like choking the patient rather than treating the ailment. It might work eventually, but at what cost?
Furthermore, they are letting Joe Biden and his net-zero policy off the hook, when he alone implemented that policy, which caused our inflation.
Why is inflation so affected by the cost of oil? Each barrel produces these derivatives: gasoline, diesel fuel, jet fuel, bunker fuel, heating oil, mineral oil, kerosine, naphtha, solvents, benzene, surfactants, propane, butane, propylene, ethane, ethanol, and natural gas. Each derivative has its own supply-and-demand market. That is why, in 2021, oil prices doubled but jet fuel tripled.
These derivatives create such products as plastics, synthetic rubbers, glues, cosmetics, lubricants, detergents, paints, paraffin, medical ointments, most industrial fluids, electric power, and a clean heating source for nearly all factories including food processors. The dilating cost of these products rises further due to subsequent processing.
Net zero carbon 2050 will cause runaway inflation that our country has never seen, and inflation causes poverty.
James T. Moodey is a retired entrepreneur (weights and measures testing), author, and economic essayist. His most recent book, The Ladder Out of Poverty, successfully determined why the poverty rate has not declined since the Great Society promised to end poverty.
Image: NASA Goddard Space Flight Center via Flickr, CC BY 2.0 (cropped).
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