Paul Jacob

Not long after, NASDAQ collapsed along with much else. It couldn’t happen. And yet it did.

Normal cycle of boom and bust. Or boomlet and bustlet.

The same goes for oil. ABC’s Adam Shell may report that recent gasoline price rises were “unexpected” and qualify as somehow “unprecedented,” but we don’t need to buy into such ahistorical hype. Similarly, when all around you are saying the price can only go up, start thinking that the very opposite will happen. What goes up must come down.

Now, I am no economist. Peak Oil may make little near-term sense, and its predicted forces may have negligible effect on current prices, but Peak Amateur Econ Theory Metatheory tells me that I’m about to pass the point where my supply of meaningful things to say runs out. Still, one idea remains worthy to flag onto the main drag, if for no other reason than the application of a little common sense. (I have a mild addiction to that term, by the way, not merely because I like Tom Paine, but also because I have a multimedia commentary program called Common Sense — in which I usually stay closer to my area of expertise.)

Here goes: Every time oil prices have spiked in the past, they’ve gone down again. Often plummeting.

And let me do my journalistic duty and quote an expert, Cato scholar Alan Reynolds. “Marginal uses of oil become less and less attractive when the price goes sky high.” And this will have an effect. Has had an effect. Demand for oil in America is lower today than in 2004. And even in China, he says, high oil prices are starting to curb usage. (All those plastic products are made from good ol’ oil, and the profit margin on a lot of them is extremely thin. Costs go up? Production ceases.) Singapore production is down 6 percent.

Reynolds confirms every suspicion I’ve had that prices will fall. For every reaction, there is an opposite reaction? Something like that Newtonian idea governs economies, too. Prices rise, and demand falls, and prices then fall. If the price whoppingly spikes for a commodity like oil, a recession happens — as businesses and business projects fail in reaction to increased costs — and demand goes down, and so prices must go down.

“In the last three recessions,” says Reynolds, oil prices have “fallen by 44 to 76 percent in a reasonably short period of time. How does that happen? It crushes demand and to clear the markets the oil sellers have to accept whatever prices the market will bear.”

There you go. Very few trends always shoot ever upward. Same goes for gas prices.

Prices are rising, understandably, but they will go down again, almost certainly — perhaps even in the not-too-distant future. And by a substantial amount.

Before a recession, or after it? Reynolds claims you don’t need a full-blown recession to spur a price fall. Will prices rocket up to $7 per gallon, first? My crystal ball, once again, ain’t handy.

I’m not vying for a gig as chief prophet, just throwing a little cold water in the face of paranoia and panic. Yes, times have gotten tougher, and may get tougher still. But if the marketplace is left free to react, we’ll not only survive, we’ll flourish.


Paul Jacob

Paul Jacob is President of Citizens in Charge Foundation and Citizens in Charge. His daily Common Sense commentary appears on the Web and via e-mail.