August 14, 2006

Not much fizz but way too much oil consumption!

Stephen Roach warning that there is “Not much fizz left in the global economy”, August 14, is on the dot reminding us that what has kept the economy going lately has been the hot air provided by the foreign willingness to hold dollar assets and the US consumer spending stimulated by the boom in the housing market. He then goes through the list of support alternatives, comes back empty-handed, and declares the need for “back to basics”, which in this context must clearly mean getting some balance to the US economy. Since if the rest of world is going to help out sustaining some growth it will have to draw down on its dollar assets (do you remember recycling?) and consequently rates will go up and consequently the US must find immediate and drastic ways to curtail their various deficits, fiscal, energy, current account and the environmental responsibility in the most effective way, which of course could best be achieved by imposing a sufficiently large tax on the runaway consumption of gasoline in the US.

It is quite amazing to see how Roach can ignore the issue of the excessive oil consumption in the US, to such an extent that he even mentions that “big oil producers would also feel repercussions from a Chinese slowdown”, even though the US consumes about fifteen times more oil on a per capita basis than China. Being capable of sending away their sons to faraway places to die but not of putting some breaks on runaway consumption of oil is mind-boggling but there must be something so inconvenient about having to tax gasoline oil consumption in the US that even Al Gore finds it convenient to ignore it. Nonetheless, history will look back and shame the lack of leadership in the US for not being able to act on this issue in time, before the crisis.