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SEIFFE:  Another View of The State of the Union

Wednesday, February 1st, 2006

By Ralf Seiffe

With the exception of “..hindsight is not wisdom and second guessing is not a strategy…”, the President’s address last night was not one for the ages. The pundisphere is wall-to-wall SOTU so you may have already had your fill of hindsight and second guessing.  If not, here are three observations I think indicate the State of our Union .  

The first is gas prices.  No doubt, we need to invent a new paradigm for propelling automobiles because after more than 100 years of development, we have probably reached the zenith of internal combustion.  In the meantime and despite the current pump prices, gasoline is an historical value. According to InflationData.com, gasoline prices are about at their average price, in real terms, when plotted over the last 90 years.  

True, the nominal pump price is as high as it has ever been. But, it is not as high as it has been historically.  From the 1920’s until 1953, the real price of gasoline was higher than it is now.  In fact, since the time Americans widely adopted automobiles during the Roaring Twenties, gasoline cost the most -- in real terms -- during the Great Depression and again when it spiked in 1979.  In today’s dollars, gas was just shy of three bucks a gallon back then.  

Two other factors are also at work.  The quality of gasoline is much higher than it was because of environmental considerations.  The EPA requires a number of different gasoline blends and has banned octane-boosting chemicals such as tetraethyl lead and MBTE to reduce air pollution.  Both regulations increase the cost of refining and managing gasoline stocks and had they been required in the 1930’s, the differential between prices then and today would be even higher.  

The other reason we should be pleased with gasoline prices is that we are now competing with Asia for oil.  They have become important consumers of energy, including gasoline, and their entry into the market should push real prices up.  That hasn’t happened in an historical context.  In the longer-term Asia ’s likely taste for automobiles is more worrisome.  These developing economies are seventy years behind ours, in terms of car ownership, and as they become wealthier they will buy more.  Their gasoline consumption will explode.  This will raise the real price of fuel and compel us to find alternative propulsion systems.  Hopefully Asian economic growth -- and gasoline demand -- will grow at a rate that will permit Americans to invent our way out of this developing problem before prices become prohibitive.  

The second development that tells me the Union is strengthening occurred in Detroit last month.  At the International Automobile Show, Chrysler and General Motors brought back pony cars.  The new Dodge Challenger and the Chevrolet Camaro were the hits of the show and Chrysler was so encouraged by the crowd reaction that they are reportedly accelerating the retail sales date for their gorgeous prototype.  

Both concept cars appear to be genetically descended from the muscular pony cars of the late 1960’s.  These models were so popular that all domestic manufacturers had a version with names like Firebird, Cougar, Javelin, AMX and ‘Cuda.   They remain popular today; a well-preserved 1970 Plymouth Barracuda sold at auction last month for $2 million.  To put that into perspective, at the mid-point of the 1970 model year, December 31, 1969,  the Dow Jones Industrial Average closed at 800.32.   To provide the same price change, the DJIA would have to close tonight at more than 320,000!  

Despite their popularity -- Chevrolet sold more than 700,000 first-generation Camaros --  most of these models became extinct by the mid -1970’s.  Most blame the first oil shock. But, gasoline prices stabilized soon after that first blip and did not rise significantly until years after the muscle cars were long gone.  Add the time the manufacturing planning cycle consumes and the connection between gasoline prices and the death of pony cars becomes tenuous.     

A more important reason may be that by the end of the 1960’s Americans had begun to delegate transportation decisions to the government.  The agencies that regulate the automobile industry were created then hijacked by Ralph Nader’s disciples including such anti-car zealots as Joan Claybrook and William Haddon.  By 1975, Haddon’s brainchild, the National Highway Traffic Safety Administration, had commandeered the car companies’ engineering departments by the proxy of Corporate Average Fuel Economy (CAFÉ) and safety regulations.  These agencies mandated the wholesale redesign of nearly all of Detroit ’s products and the result were awful automobiles like GM’s X-cars, Ford’s Mustang II and Chrysler’s bankruptcy. 

The return of the pony cars tells me that the domestic manufacturers have, at long last, mastered the government’s requirements and are resuming where they left off in 1974.  We have the same sort of gas price environment as we did in 1973 but this time we aren’t getting new CAFÉ standards.  Instead, Americans are letting the free market work rather than run to the government to outlaw choice..  That means the car companies are going to build what Americans want and from that, open, rather than close their factories.  

The last event that tells me we are strong is the recent behavior of the Democrats.  Their treatment of now-Justice Alito and of the President last night shows anybody paying attention that Democrats are nothing but power-seekers. By cheering the defeat of Social Security Reform they concretely demonstrate that they favor the continued larceny of worker’s “contributions” and have no competing vision.  Their stars didn’t help either; Hillary chewing gum, Kerry bored, Obama empty and Kennedy absent.   If Republicans have a brain cell operating they will capitalize on these Democratic gaffes and escape the disaster the MSM projects for them in November.  

Regardless of the President’s optimism and subtle nose-tweaking of the Democrats last night, most Americans will judge the state of our union not from this constitutional ceremony but from their own observations.  These are mine: despite gas pump dials that spin like a nickel slot machine, gasoline prices are not as bad as they have been. Regardless of huge operating losses, the car companies are positioning themselves to offer the kind of excitement they did when they enjoyed an 85% market share. Democrats, who think they have Republicans on the run, have utterly embarrassed themselves and, in the process, revealed their true nature for all to see.  From my point-of-view, our Union is strong, indeed.  

© 2006 Ralf Seiffe

Ralf Seiffe advises business start-ups and product launches from Chicago, Illinois and is a political analyst and columnist for the Illinois Leader and Illinois Review.