Panic of ’04? Not here.

“The panic of ’04” is how my cyber-hero Matt Drudge is headlining it.

But you already knew it was coming.

Indeed, I’m receiving email from alert Saipan Tribune readers who are giving me a thumbs up for correctly predicting that oil would start getting kissy faced, instead of merely flirtatious, with the $50 a barrel level. This, of course, directly affects CNMI energy prices at the gas pump, and indirectly affects a lot of other stuff. If you’re asking why I’m the only economist involved in CNMI affairs to publicly predict stuff (and, what’s more, do it correctly), it’s because, frankly, I am a proven private sector economist, not a second-rate econo-crat. An econo-crat is just a bureaucrat with a different kind of jive-talk. Well, the only thing that economics is good for is: prediction. All else is folly and fakery. I’m not in the folly or fakery business. Would you want a weatherman who would “explain” today’s weather, but could not predict the coming weather? I think not.

True, whether oil will say above $50 in the immediate term is anyone’s guess, since trading fluctuations will drive these short term jags. But in the long term? Yes, over $50. Don’t blame your local Shell and your local Mobil; they don’t set global oil prices, and, in fact, high global oil prices are bad, not good, for your local gas stations.

Bottom line: CNMI gas stations have to confront the fact that the quantity of gasoline sold will be lower at higher prices. That’s basic economics. I want to ride a related technical tangent; I don’t usually hit you over the head with semantic gibberish, but I figure you can roll with this one since we’re old friends, you’re sending me so much nice email, and you can indulge me. If you have any interest in economics (you poor wretch, you), then the following two paragraphs might click with you. Hey, it’s worth a shot.

Higher gas prices do not reduce the demand for gasoline. Instead, higher gasoline prices reduce the quantity of gasoline demanded (and, therefore, sold). This isn’t a trivial distinction, it is a foundation of basic economics. Why do I inflict this distinction on you? Well, it’s not the CNMI’s fault; the world’s econo-crats and other hacks love to insist that a higher price for a good results in a lower demand for that good. I don’t know if this rooted in some wacky Marxist theory or whatever, and, as for the technical side of things, I have no idea how “economics” is taught at the legions of second- and third-tier diploma mills that stamp out econo-crats like fast food hamburgers.

But let’s continue…the price (of a good) and the quantity (of that good) sold are related, and that relationship is, by definition, demand. It’s a math thing. Yeah, it’s hard to describe in mere words, so, well, just take my word for it. If the price of, say, blue shirts goes up, then (all else being equal), the amount of blue shirts sold will go down. Easy to see, eh? Any sari-sari store owner can tell you that. But the demand for blue shirts didn’t go down, the quantity demanded went down. Demand is how much people are willing to pay for something. The quantity demanded is how much of that something they buy at any given price. Heck, that might be hateful gibberish to you, but I’m mighty happy with that description. Trust me, the whole thing does fly straight in the mathematical gig, and that’s the only gig that counts.

Why have I flogged this point? Actually, because it needed saying, and because a number of economics students and a few professors follow my screeds on-line or otherwise. Yikes!

As for oil, yikes again, it will inevitably wind up a lot higher than $50 a barrel, because, primarily, the U.S. dollar is going to have to sink by as much as 40 percent (eventually), according to my independent, proprietary, and, as it turns out, quite accurate (so far, at least) economic model.

In fact, the day may be arriving when oil is priced in euros, not dollars, and that event would merely accelerate the inevitable. Will this affect the CNMI? Yeah, big time. The euro was so weak I used to laugh at it, but the fundamentals behind the dollar are actually getting weaker. I wish this wasn’t true…but if wishes were reality, Paris Hilton and I would be at Pau Pau beach right now playing thong bikini bingo…but we’re not. (Darn. She won’t even return my phone calls.)

But this fact rings true: Higher gas prices are the long-term reality. They may zig and zag along the way, but the day is coming when the dollar sinks, oil spikes, and three buck gasoline is everyday reality. Of course, the econo-crats don’t understand that…but you and I do. The real oil panic hasn’t arrived yet, but we’re already braced for the truth.

(Ed Stephens, Jr. is an economist and columnist for the Saipan Tribune. Ed4Saipan@yahoo.com)