OPEC collapse is a boon for Reagan
The biggest world news of the week was not just the collapse of oil prices and of the OPEC oil cartel along with those prices. It was also the cushion this event put between Ronald Reagan and the long-term consequences of his unbalanced budgets. The most important element of strength in Mr. Reagan's position as a world leader is the plain fact that during his presidency, his country has enjoyed increasing economic prosperity with declining in-flation.
Rising oil prices and unbalanced budgets are both inflationary. If oil prices were still going up, the combination of those higher energy costs with rising public and foreign debt would almost certainly wreck the American economy -- as well as the foundation of Reagan's new military power -- before the end of his second term.
The fatal combination has not occurred. The debt is rising, yes, but oil prices are coming down. How far down will they go? Most oil experts seem to think they will go down to around $20 a barrel, but they could go lower.
After all, oil was selling for less than $3 a barrel only 20 years ago -- and gasoline in the US was selling for less than 30 cents a gallon. Oil, on world markets, went to a high of $37.05 in 1981, just as Mr. Reagan was being inaugurated. It has been coming down ever since. It is selling at around $25 a barrel now, but with OPEC's loss of control over the supply it is likely to go down, and down -- and thus balance off or at least defer the effect of rising debt on the American economy.
Mr. Reagan's two immediate predecessors, Gerald Ford and Jimmy Carter, suffered from the reverse condition. The Arab oil embargo during the 1973 Middle East war give OPEC its great chance. Oil went up during Mr. Ford's presidency from $4.08 in 1973 to $13.48 in 1976, his last year in office. That meant inflation gaining speed. It gathered more speed during the Carter administration as oil prices more than doubled -- up from under $15 to more than $35.
Mr. Carter's bid for reelection in 1980 was spoiled by the story of the American hostages in Iran. But that was the straw that broke the camel's back. His popularity had been undermined before the hostage story by his inability to check inflation. To a considerable degree, both he and Mr. Ford were the political victims of the oil cartel and those climbing oil prices.
As they were victims of rising oil prices, Mr. Reagan is the beneficiary of the collapse of the cartel and its high prices. Oil is a major cost item in the manufacture of everything grown or made in the US and in all industrialized countries. As oil prices fall, so will manufacturing costs. A combination of lower oil costs and lower interest rates could give the present comparative economic boom a duration well beyond what it would otherwise deserve.
Of course, that in turn means continued support for Mr. Reagan's foreign policies. True, he is having to take a slimming down of his military program. But it will still go along at a higher rate than almost any other military program in the world. He is outbuilding the Russians now in quality, if perhaps not in quantity, of most types of weapons.
Did you happen to see Mr. Reagan on television at the party his Hollywood friends gave him the other day? If a president ever looked happy and contented, he did on that occasion, and well he might.
He had just come back from that meeting with Mr. Gorbachev in Geneva that seemed to prove above all else that he can race the Russians in weapons without preventing peaceful relations. They are continuing to negotiate with him in spite of his determination to keep on with his ``star wars,'' in spite of his having posted his new medium-range missiles in Western Europe.
Two years ago many doubted that the NATO alliance could hold together over the deployment of the medium-range missiles. It did. They are deployed. Two years ago many feared that deployment would rule out any easing of tension with the Soviets. It has not. Those relations are easier today than at any time since the Soviet invasion of Afghanistan.
Why are the Reagan foreign policies prospering?
The main reason is the flourishing of the American economy. True, old industries are withering away, but new ones are taking over. Employment continues to climb. Americans are enjoying a buying spree. They are running up the world's biggest-ever debt. The US has gone over from being the world's major exporter to being the world's most lavish importer.
Eventually, the economists tell us, there must be a day of reckoning. Our children or grandchildren will have to pay for our current buying spree, for overspending at home, and for our low productivity.
But how soon? It would come very soon indeed if US production costs were climbing, US export capacity dwindling, and the burden of the debt rising.
Food prices have been relatively stable. Supply exceeds demand. No one need starve (provided there is distribution). Wages remain flexible. Labor no longer gets automatic raises every year. Labor no longer wins all the strikes.
Some call it all ``the luck of the Irish.'' Mr. Reagan is fortunate. Much of the groundwork for the favorable economic condition of today was laid by his predecessors. Jimmy Carter deregulated transportation, bringing down air fares and freight rates. Jimmy Carter laid the foundation for declining oil demand by providing for more fuel-efficient automobiles. Decline in US demand was a main factor in breaking the oil cartel.
But in politics the person in charge when it happens is the one who gets the credit and reaps the advantage or blame. At the present moment, the reasonable political calculation is that the awesome day of reckoning for America's present buying spree will come -- after Ronald Reagan leaves the White House.
At the very least, the day of reckoning is pushed farther into the future by the break in oil prices -- as the stock market testified by going on up to its highest-ever levels. The reckoning is bound to come someday, say the economists, but it won't be tomorrow.