Economic Distortions

(Jackup rigs at Sabine Pass, Texas, being prepared to be towed into the Gulf of Mexico and put to work drilling for oil and gas. Photo by Bonnie D. Huval, copyright 2015.)

A while back, I wrote about the nature of money now that it is not pegged to anything tangible, inflation, how inflation obscures our view, and why it’s convenient for governments to have a certain amount of price inflation puttering along in the background. Not enough to rile the population, but enough to make paying down government debts cheaper.

I neglected to highlight how easily the nature of modern money can be weaponized for political ends.

Much of the price inflation we’re seeing around the world is due to or magnified by disruptions caused by the pandemic. To that extent, the cost of living crisis happening in so many countries is not government’s fault.

But in some countries it has been worsened by political choices. As an example, in the UK where I live, the impact is compounded by Brexit. I hasten to add that is not a political statement. It’s from dry number-crunching reports of the effect of our departure from the EU on our economy.

I never expected to see inflation deliberately pushed up to painful levels for the sake of electoral politics, but it looks like that is happening too. Inflation can be used as a campaign weapon.

For this example, look to Texas.

Weaponized Price Inflation

My brother moved to Colorado more than 20 years ago. I started working there off and on a few years before he moved there. Our family went there during a summer vacation when I was in high school. Through all that time, automotive fuel has cost more in Colorado than in our native Texas.

So much oil is produced and refined in Texas, just the southeastern corner of the state makes about one quarter of all the gasoline in the USA. Anywhere in Texas, we’ve always paid less per gallon to fill our tanks than most of the rest of the country. The cost of transporting fuel to distant parts of the country where it wasn’t produced added to the price that had to be charged at the pump. Colorado is several hundred miles away from the Texas refineries. Until recently that caused gasoline to cost about 30 cents more per gallon in Colorado.

When you look at the USA price map on Gas Buddy, it looks like gas is often still slightly more expensive in Colorado, but in some places it is comparably priced. Comparably priced? That shouldn’t happen.

Here's a dose of the real world. It’s even more strange.

My brother drove from Colorado to southeast Texas to visit our mother for Mother’s Day. He prefers a scenic route for most of the trip rather than taking interstate highways the whole way. Prices at the pump along older scenic routes tend not to be at a premium like they are along the interstates. He noticed something weird. Prices at the pump didn’t match the Gas Buddy heat map of general pricing. If he drilled down in Gas Buddy to be more specific, the price there started to look almost equal between Colorado and Texas, away from the highways. As I said, that’s unfathomable, something that simply never happens, but what he actually saw as he drove was even more bizarre.

Gasoline costs 30 to 50 cents more per gallon in Texas than in Colorado.

Diesel that costs $1 more per gallon than gasoline in Colorado is $1.80 more per gallon in Texas.

What the heck is going on? This makes no economic sense whatsoever.

On the pumps in Texas, next to the price, there are routinely stickers saying Thank You Biden or Let’s Go Brandon.

Oh. Now it begins to make sense.

We’re talking about a state where GOP Governor Greg Abbott sent 10,000 National Guard troops to the border for Operation Lone Star. It’s a theatrical border security operation which costs $2 billion per year, a bill of $4 billion so far. Abbott claimed this deployment was necessary to combat a flood of drugs or illegal immigrants coming from Mexico. When Texas ran out of money to fund it, Abbott shifted about a billion from public health and safety budgets, then replenished the raided funds with federal money provided to Texas for coping with the pandemic. (This has spawned calls for federal investigation of whether it really amounted to spending federal public health money on National Guard operations at the border.) How many hordes of immigrants and tons of drugs have been intercepted? Um… surely that will start to happen any year now.

Last summer the state legislature jumped on the bandwagon by passing a bill to more than triple border security. The new taxpayer burden for that is about $3 billion, including $750 million to build a wall at the border. Federally built sections of border wall don’t keep people from crossing over, but the legislature wants more wall.

All of this having failed to generate results, this spring Governor Abbott established checkpoints on the Texas side of federal crossing points at the border. After passing through Customs, every commercial vehicle had to undergo further inspection by Texas to find drugs or illegal immigrants. This created tailbacks comparable to the UK’s post-Brexit queues of trucks crossing the EU border, with trucks delayed by several hours to a few days.

Abbott made the rounds of Mexican state governors along the border to set up new deals involving enhanced security on their side, which he announced in multiple press conferences. The deals are vague, essentially toothless.

During this operation, which had to be ended after a matter of several days, about 4100 trucks were specially inspected. No contraband, no drugs and no immigrants were found.

Tons of produce spoiled, with resulting tight supply pushing up food prices across the USA. Truck drivers lost pay due to the delays. Texas businesses and people that rely on cross-border trade suffered.

Abbott’s shenanigans along the border caused Mexican truckers to start taking their imports through New Mexico instead of Texas. That’s a permanent loss to the Texas economy and therefore a permanent loss to Texans.

Every way you could look at this, it was a disaster in Texas. Every way except one.

A clear pattern has emerged. Abbott is willing to torch the wallets of Texas voters in order to make them feel plenty of financial pain. If he can convince enough voters that Democrats in Washington did this, not the Texas GOP that actually did it, the upcoming November elections in Texas will be a cakewalk. Watch a Fox News or Sinclair channel, or peek into the social media bubbles where Texas Republicans spend their time, and it’s easy to see why he thinks he can make such a classic act of psychological projection stick.

An Unexpected Factor

Despite everything I said before about how the current economic squeeze is an outgrowth of supply chain disruptions, pandemic effects, Brexit (if you’re British), the nature of money in the absence of the gold standard, and so on… you may personally be in a place where that isn’t the whole story, or even the main story. For you, I may have been wrong, or more to the point I missed an essential factor. You may be in a place where other factors are more glaring, such as:

• a war zone, or

• the aftermath of a natural disaster, or

• where politicians think increasing your pain will make it easier to get you to vote irrationally against your own best interests

Whatever we are being told about the economic distortions swirling around us, regardless of the source, we should check before we believe it. We should also remember there is no rule of the universe that requires every question to have a simple answer.

All of that is ordinary. But the malevolence of weaponizing price inflation against the people for campaign purposes is an element I didn’t see coming.