Tuesday, August 5, 2008

Stimulus Rebates and Energy Prices

In response to the proposed stimulus rebates, Mike Huckabee said: Whose economy are we stimulating? Ours or China's. I would go further than Mr. Huckabee and suggest that we have also done a lot to stimulate the Venezuelan, Iranian, Saudi Arabian and other oil producing economies too with the stimulus rebates.

What is my theory? That the stimulus rebates were created to increase demand for goods. And, that by artificially driving up demand for goods, the stimulus rebates increased demand for the diesel oil that is required to ship those goods. (Not to mention directly increasing the individual's amount of money that he can spend on gasoline.) Thus, if demand for goods increased by 100 billion dollars more than what otherwise would have been shipped as a result of the stimulus rebates and the diesel oil required to ship such goods is 7-10 billion dollars, such an increase in demand above what otherwise would have been the case caused the price of oil to rise rather than fall. Therefore, its not simply a coincidence that the highest oil prices in history coincided with the stimulus payments.