Midterm elections, oil profits and the yacht market – Chicago Tribune

The world is experiencing economic turbulence. The price of bread, eggs, butter and fuel has skyrocketed globally. According to Forbes, post-COVID supply disruptions continue to drive global inflation, compounded by the destabilizing effects of Russia’s Ukraine invasion.

As economies around the world went into lockdown to slow the pandemic, domestic economies contracted, creating a ripple effect that continues to move through international supply chains. Long-established free market economies of the U.S. and EU are adjusting, while emerging markets in Africa, Asia and South America face worsening instability.

Following pandemic closures, stimulus plans were implemented in most free market economies, which caused prices to climb either through government-subsidized private sector wages (Hong Kong, Denmark, the UK, South Korea, the Netherlands) or direct stimulus payments (Germany, France, Australia, Japan, Ireland, Spain, Italy, and Malaysia).

In the U.S., stimulus payments under both the Trump and Biden administrations played their collective parts. Trump supported stimulus payments of $2,000 per person in 2020, with payments landing at $600, then $1,400 under Biden in 2021. As states began to reopen following closures, an unusually high number of job openings led workers to demand and obtain higher pay. More income along with increased hiring costs for employers caused more consumer spending, pushing US prices higher still.

Globally, while COVID-era inventories and demand remained low, stimulus payments created strong demand that immediately outpaced supply, leading to a sharp rise in global prices that are still adjusting.

Energy markets experienced a COVID whiplash similar to other commodities. During the worst of the pandemic lockdown, demand for oil hit an all-time low. Prices at the gas pump bottomed out at around $2 per gallon in July 2020, leading Reuters to describe oil as “worthless.”

Reacting to demand that had contracted around the world, oil producers reduced their production blueprint for upcoming cycles. According to the U.S. Energy Information Administration from the Trump years, production of crude oil decreased in the U.S. by 16.6% in May, 2020, the largest monthly decrease in over 40 years.

Oil and gas prices remained historically low during the worst of COVID due to lack of demand. Then, in early 2022, just as world economies were adjusting to post-pandemic demand increase, Russia invaded Ukraine.

Russia is the world’s largest exporter of oil, and the second largest crude oil exporter behind Saudi Arabia. NATO responded to Putin’s war with sanctions, and by restricting or halting purchases of Russian oil, which led to a dramatic reduction in world supply. Energy prices immediately soared to record highs around the world. Gas prices increased nearly $2 per gallon in 2022, with experts attributing most of that increase to Russia’s invasion. Worse, Saudi Arabia’s bone saw prince joined Putin in a despots’ cartel pact to limit oil production, a move intended to kneecap NATO’s sanctions, keep oil prices inflated, and counter Biden.

Going into the midterms, political slogans about the price of gas reflect a simple fact: most consumers don’t understand energy markets.

The price of gas is driven by market fluctuations beyond the control of the federal government. The most important determinant of prices at the pump is the world price of crude oil, over which domestic administrations have almost no control. Crude oil prices in Europe ebb and flow in almost perfect tandem with U.S. prices, demonstrating stubborn independence from government policies and strategies on both sides of the pond.

At a time of peak demand and price volatility, oil production by U.S. suppliers remains slow. According to a survey of 141 oil executives conducted by the Federal Reserve Bank of Dallas, American oil production is calibrated and limited to protect industry profits. “The most salient reason — the one offered by 60% of respondents — was that investors don’t want companies to produce a lot more oil, fearing that it will hasten the end of high oil prices.”

The UK is experiencing 10% inflation due to the same pandemic and Russian invasion impacts. Following the economic isolation of Brexit, some reports predict UK inflation will rise to 18% next year. Liz Truss, the UK’s shortest-serving prime minister, was soundly routed from office last week after she proposed to stimulate the economy by cutting taxes for the wealthy.

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Employing trickle-down economics, Truss thought the tax cuts to the wealthy would reignite economic growth. Her fatal miscalculation, experts said, was passing sweeping tax cuts for the rich without corresponding spending cuts. According to Indian Express, investors panicked at the spectacle of a tax cut for the wealthy amidst record inflation. The pound went into freefall, the Bank of England bucked, and the prime minister was shown the door.

Biden inherited a COVID-19 economic crisis in 2021, and spurred the strongest economic and labor market recovery in modern history. With limited bipartisan support, he modeled the economic recovery package of FDR with his left hand, while galvanizing NATO’s response to Russia with his right. The resulting infrastructure, chips, and manufacturing initiatives had not been seen in the U.S. in half a century.

In counterpoint, going into the midterms, the GOP unveiled its “Commitment to America” platform addressing inflation, energy independence, and a strong economy. The platform is full of criticisms and goals but includes no plan — zero, as in none whatsoever — for how to achieve them. The GOP’s only solid economic proposal to date is to extend the 2017 tax cuts for the wealthy, limit the number of IRS agents who can go after tax cheats, and codify trillions of dollars in lower taxes for top earners and corporations, as if Liz Truss never happened.

The national debt, clearly another driver of inflation, is also a talking point. The national debt rose by a staggering $7.8 trillion during the Trump administration, ranking “as the third-biggest increase, relative to the size of the economy, of any U.S. presidential administration…” The only other presidents in U.S. history who oversaw larger debt increases were George W. Bush and Abraham Lincoln, but Trump did not “launch two foreign conflicts or have to pay for a civil war.” The national debt is now so out of whack from COVID spending and the 2017 $2 trillion tax giveaway to the rich that Republicans have already said that if they retake Congress, they will use debt limit negotiations against entitlements like Medicare and Social Security.

Market complexities don’t fit into a three second sound bite the way culture wars do. In every political debate of this midterm season, republicans have blamed Democrats for inflation, which is fair political fodder. But they are relying on an uninformed and misinformed electorate to do it, which is craven.

Ultimately, if voters don’t turn out, we will get the government we deserve. Fear not, all is not lost. Yacht sales in the U.S. rose by more than 40% following the GOP’s 2017 tax giveaway. Surely — eventually — someday, that wealth will trickle down.

Sabrina Haake, a Chicago attorney and Gary resident, is a freelance reporter for the Post-Tribune.