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The Petroleum Matter or Mess?

By: Dr. Kenneth E. Lehrer
Tel: 713-972-7912
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At the present time, the fundamental question is whether the petroleum "event" will turn out to be a blessing or a curse for the United States, especially the nations middle class. The increasing price of petroleum, especially if it remains at elevated levels for a prolonged period of time (say 6 months or longer) could have a pronounced negative effect on the Middle Class. These effects can be broken down into three (3) major categories - direct, indirect and subsequential.

In the area of direct costs, higher costs for petroleum will clearly lead to increased costs for most items of the middle class daily routine, especially as these costs creep up over time. Significantly higher costs for transportation and travel to and from employment opportunities as well as higher costs for food and other staples that are in addition to "daily living" expenses. The increased costs for specific purchases that are not "daily" living items like purchasing a sofa or a rug or a set of drapes or other items purchased at limited times could and most probably will be negatively affected by increased petroleum prices.

On the matter of indirect costs, as general business slows down from higher prices of goods and services that the middle class can no longer easily afford, there is less opportunity for job / employment creation and the middle class and those entering the labor markets from the middle class could suffer in addition to the higher prices they are paying for a wide variety of their daily or semi daily items. Less job creation or even a general decline in the average work week (less overtime pay for many members of the middle class) means less total income for a solid percentage of the middle class. Less total income for the middle class - especially over longer periods of time - means a less enjoyable, productive, happy and healthy lifespan for that specific segment. Less total income usually leads to less total discretionary spending which in turns leads to additional lower levels of job creation, which under DIRECT effects (see above) leads to a lower level or standard of living. This can easily spread to less discretionary spending that also leads to less income for significant sectors that reply upon discretionary spending, such as - restaurants, hotels, travel and amusement / entertainment. These sectors not only employ substantial numbers of middle class persons, but also inject substantial amounts back into the overall economy by way of their own expenditures (such as advertising, promotions and high school, college and television sponsorships). A substantial slowing of this circular flow will clearly hurt and disrupt the accepted (and welcomed) life cycle of the middle class.

Lastly, in regards to subsequent effects, over a prolonged period of time, if petroleum prices remain high or drift even higher, a long set or series of effects will come upon the middle class. These include - less available funds for medical and dental care that will have longer term negative effects, effects that this country has sought to eliminate since the end of the Second World War, less available funds for secondary type social and personal education, such as - after school programs, boys scouts, girl scouts, little league and a whole host of other social and interactive programs that has helped develop a strong and dedicated middle class. All of these programs (that are expensive to operate and run) are based upon a society having a reasonable amount of "marginal" or extra disposable income. If all members of the middle class just cut their discretionary spending by 10.0% many of these programs would either substantially shrink in size or be eliminated based upon longer term negative subsequential effects of the middle class. In addition, it is projected there would be less available funds for personal home schooling such as computers and / or other items that middle class parents and those aspiring to the middle class often purchase for their children on an individual basis. Available funds dedicated to paying mortgages, car notes, credit cards, heat, light, power and telephone would take a much higher priority than funds allocated to extra teaching materials on an individual basis, leaving the middle class to have additional subsequent losses, maybe on an ongoing basis.

As an Economist who tries to be positive, the conclusion does not have to denote the middle class or those associated with the middle class will have a more difficult time maintaining themselves. They, the middle class and all of their "clout" can use this opportunity as a national "wake up call." When a large group of people undergo the same or substantial set of negative or semi negative circumstances, they tend to issue a call for action. Such a solid call has not been presented for a long time in the United States. A call for action for a cure for Polio clearly resulted in positive action and polio (partly thanks to ole NYU) is all but eradicated from our nation since the 1970's.

If the middle class fully uses its sustained powers, standing and voting abilities to press for a real national energy and energy conservation program, it may be the best thing for America since FDR got polio and woke up a nation to a full call for an all out medical attack. As Einstein has been quoted as saying - "Time can work for you or against you, it just depends upon how you use it." We can only hope and trust that the middle class will take the time to use it wisely in 2011.

Dr. Lehrer has been an independent Economist and Financial Consultant since 1980. He holds four degrees from New York University: Bachelor of Science (Finance), Master of Business Administration (Banking), Master of Arts (Economics) and a Doctorate in Urban Economics. After a career on the corporate lending staff of Bankers Trust Company (New York), Dr. Lehrer became a Manager for the Greek Shipper, Costas Lemos [dec'd]. Here, he assisted in a variety of projects in New York, Houston, Denver, Guam and in Europe. Dr. Lehrer relocated to Houston, Texas in 1977.

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