What does all this mean for the economy? Well it's simple really; this means prosperity. Just over three months ago, the already infamous hurricane known by all as "Katrina" and dittoheads as "Katrina vanden Heuvel" struck the Gulf Coast and led to a month of economic uncertainty followed by cries of corporate exploitation of its victims. State and federal politicians continue to maintain that oil company executives lined their pockets by "gouging" consumers during the hurricane aftermath. I've explained it many times, and so have conservatives of much higher intelligence, but here goes for one last time: when a product undergoes an adverse supply shock, supply decreases while price increases. In the Dec. 5 issue of National Review, Jerry Taylor and Peter van Doren state:
The storm took more than 10 percent of U.S. refining capacity offline and knocked out many of the pipelines needed to deliver Gulf Coast gasoline to the rest of the nation. By mid-October, 1 million barrels a day of U.S. crude production remained shut down (5.2 percent of U.S. consumption, 19 percent of U.S. production, and only 1.4 percent of world production). Simultaneously, 1.6 million barrels per day of refinery capacity remained offline (7.8 percent of U.S. consumption, 1 percent of world consumption).It's good to see in numbers what I've been trying to say for the past few months. But that's old news now. What remains important is that consumer spending, production, productivity, and the strength of the dollar are all increasing steadily. And this morning, the numbers show yet another month of steady employment and job creation. Prices across the board are settling back to pre-Katrina levels and inflation has been kept under control by the Fed and its timely rate hikes.
An economic analysis of those numbers predicts that a reduction in supply of that magnitude would result in a gas-price increase of 33 percent, or 84 cents per gallon. We saw exactly that as prices went from their August average of $2.50 to nearly $3.30 per gallon, but prices have since fallen back to below August levels.
Meanwhile, not a word has been uttered from the mouth of the most powerful man in the world. He is leading the world's largest economy through a prosperous period rivalling the Clinton years (growth rates of Clinton years versus Bush years are nearly identical) and hasn't even taken credit for it. Even President Reagan spent large amounts of time in front of news cameras telling the nation how great the economy was doing. He understood that the American people react favorably to good news from their leader.
President Bush needs to take at least some credit for going through Katrina with minimal harm done to this economy. Yes, indeed, prices went up and people lost money. But less than two months later they were below pre-Katrina levels and today they continue to drop. Three months after gas prices peaked at a national average of $3.057, the national average for all grades of gasoline is only $2.244 with regular unleaded at only $2.129. Gasoline is at its lowest price since March and the trend is still heading downward.
I can hardly wait until January 6 when the final set of employment numbers for 2005 are released. One more month of numbers like those from November and we'd be completely free of Katrina's effects with a full quarter of increased employment and economic growth.