Crunch time

Is a century-old social experiment finally going kaput?

A friend writes:

The United States is indeed the largest oil and gas producer in history and no longer depends on hydrocarbon imports. But its social model is uniquely vulnerable to increases in the retail price of gasoline – and Trump explicitly made cheap petrol a central promise of his second term. Every trip to the pump is a stress test of the fundamentally car-centric American social contract.

So argued a London-based economist named Dominik A. Leusder in a recent article in Jacobin, the democratic socialist website. To which one can only reply:

Quite right except you don’t know the half of it.

Leusder is on target when it comes to cheap gas. It’s as central to the American political order as cheap bread was to the French political order of the 1780s. From a chicken in every pot – a phrase coined not by Herbert Hoover, but by France’s King Henry IV, who ruled from 1589 to 1610 – expectations had risen by the early 20^th century to the point where a car in every garage was becoming de rigueur.

The dream turned into reality starting in 1908 when the first Model T rolled off the Ford assembly line. By the mid-teens, traffic jams were tying up American cities from coast to coast. Two other components fell into place after World War II: roads to drive on and homes for all those garages to be attached to. Levittown thus opened its doors in 1947 while the Interstate Highway Act followed in 1956. That was the same year that Elvis had a breakthrough hit with “Heartbreak Hotel.” Middle America not only had a house and car but a sound track to go with them.

Now it’s all coming undone. Ostensibly, the reason is rising gas prices, up nearly 50 percent since Trump launched his unprovoked attack on Iran on Feb. 28. But that’s putting the cart before the horse. The real culprit is a hideously expensive social arrangement whose elaborate support structures are under growing strain.

America is indeed an outlier when it comes to auto transport. It has more motor vehicles per capita than just about any comparable country – 15 percent more than Canada, 29 percent more than the UK, and 32 percent than Germany, land of the Autobahn and BMW. It’s off the charts in terms of gasoline, consuming 2.6 times as much per person as Australia, more than seven times as much per person as France, and more than eight times as much as Italy. Not surprisingly, the US is also a world leader in carbon emissions, pumping out 60 percent more than China per population and nearly four times more than Mexico.

Although Trump told reporters a couple of days ago that the United States “shouldn’t even be” in the Strait of Hormuz “because we don’t need it, we have a lot of oil,” Leusder is right to point out that sky-high consumption levels leave Americans more vulnerable to price fluctuations rather than less. The extra dollar per gallon that US consumers are now paying works out to roughly $135 billion per year or about $400 for every man, woman, and child.

That’s a hefty surcharge for the privilege of spending 11 work weeks behind the wheel, which is what the average American adult does per year. (The figure is based on the 13,476 miles that Americans 16 or older drive annually divided by an average speed of 30 miles per hour.) A way of life that was billed as economical in the 1950s is turning into the opposite as the economic long wave draws to a close.

But that’s not all. Average new car prices are now at $49,353, up nearly 25 percent since 2021. Auto insurance premiums were 55 percent higher as of last fall compared with three years earlier, while repair costs rose 36 percent versus 2019. Congestion is multiplying. In 1982, an average driver spent 20 hours stuck in traffic per year according to a study by the Texas A&M Transportation Institute. By 2024, the figure was 63, the equivalent of eight work days doing nothing other than spewing out exhaust and taking up space.

Then there’s the astonishing explosion in housing prices. In 1968, the cost of a new home equaled 2.5 times US median household income per year. By 2024, it was better than five. In early 2020, analysts calculated that $78,236 in annual household income was needed to qualify for a mortgage on a typical home. Today, it’s nearly $117,000, almost a 50-percent increase. Existing home sales fell 19 percent in 2023, close to a 30-year low, while single-family housing starts have fallen 17 percent since 2021 even though the number of households is up five. Childcare, a necessity when both parents are working overtime to cover expenses, is rising at nearly double the rate of inflation.

It’s like a tripod whose legs – cars, homes, and gas – are buckling all at once. Costs are up, efficiency is down, and stress is mounting as people spend more and more time in bumper-to-bumper traffic while losing economic ground. Ultimately, the problem is technological since it makes no sense to strap oneself into a two-ton vehicle in order to fetch diapers or a bottle of milk. But with a multitude of highway subsidies crowding out all other forms of transport, Americans have no choice.

And then there’s war. No, Trump did not attack Iran to distract attention from QAnon, er, I mean, the Epstein files. And, no, he didn’t do it because Israel twisted his arm. Rather, he did it for one reason only – oil. Since the 1970s, America has invested tens of trillions in militarizing the Persian Gulf, home to perhaps 50 percent of the globe’s known fossil-fuel reserves. As a result, it now has six major military bases in the region: Al Udeid Air Base, home to some 10,000 US troops, in Qatar; the Fifth Fleet naval base in Bahrain; Camp Arifjan and Ali Al Salem Air Base in Kuwait, etc. Supposedly, the purpose of all that firepower is to enforce the 1980 Carter Doctrine, which says that “an attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America.” But this is misleading since the only outside force seeking control at this point is the US itself. Instead, the bases are aimed at repelling an inside force, which is to say Iran, which occupies roughly half the Persian Gulf shoreline and has been a burr under America’s saddle ever since the shah.

The aim is thus to destroy Iran and Americanize the gulf. This will allow Trump to do two things: control oil prices so as to shore up political support at home while using the Persian Gulf oil spigot to enhance leverage over the world economy as a whole. Trump hopes this will give an edge on China, which relies on the gulf for 55 percent of its crude imports, while furthering the subordination of NATO whose European members also depend on the gulf for oil and fertilizers.

This is not a departure from past practice but a fulfillment since every dollar the Pentagon invests in the gulf serves to stir up militarism to the breaking point. This is why the region has seen five major wars since 1980 plus numerous smaller conflicts. But after Carter, Reagan, Bush et al. paved the way, it’s now up to Trump to deliver the final blow. If successful, the result will be US-Israeli domination of the entire “intermarium” from the Mediterranean to the Arabian Sea.

Can he do it? Although the war has certainly blown up Trump’s expectations, the near-term answer is still most likely yes. But even if Trump pulls it off, the victory is certain to be Pyrrhic both at home and abroad.

One reason is Iran’s multi-ethnic character. With a population of 92 million, it’s only 51-percent Persian or Farsi, with the rest Azerbaijani (24 percent); Gilaks and Mazanderanis (closely-related Caspian peoples accounting for another eight percent), plus smaller groups like Arabs and Balochis. Destruction of the Iranian state could therefore set the stage for ethnic disintegration on the scale of Syria or Lebanon, only worse. Strife could well spill over into Pakistan, Iraq, and Afghanistan, which are also torn by ethno-religious strife and are therefore ripe for destabilization. This means more violence, more hatred, and more refugees. What will Trump do then?

Domestically, the outlook is equally grim. Inflation in the US was accelerating before oil prices began to spike, but now it’s poised for another leap. With gulf production likely to remain crippled for months under the best of circumstances, the upshot will be higher prices at the pump and heightened financial stress overall. If the employment market continues to deteriorate, wage cuts and declining job prospects will follow. So will higher mortgage costs due to the Fed’s inability to cut lending rates. Slowing economic will throw another destabilizing element into the mix.

Finally, there’s the looming threat of a financial sector that’s increasingly unsteady due to turmoil in the $3-trillion private-credit market. Private credit is a form of shadow banking that has mushroomed in recent years due to stepped-up regulation of giants like Citibank and Chase in the wake of the 2008 financial meltdown coupled with the “quantitative easing” that has flooded Wall Street with liquidity. The effect has been to send hot money fleeing from traditional banks to a start-up sector in which rules are lax. Thanks to the Fed’s decision to tighten up starting in late 2022, rising interest rates are sending borrowers into default. In February, a $12.5-billion private-credit lender called Blue Owl Capital halted withdrawals to prevent what was in effect a run on the bank. Less than two weeks later, a $48-billion private lender called Blackstone did the same. A few days after that, BlackRock Inc., which has $170 billion in assets, followed suit. Last week, JP Morgan said it would cut back on lending to private-credit funds, an indication that the sector is coming under pressure from both ends.

With 2008 comparisons growing more common, the war, the run-up in energy prices, and the AI bubble as well are adding to the jitters. Is Trump’s war on Iran a final paroxysm of violence that will cause a great unraveling from the Middle East to the leafy suburbs of middle America? The answer could well be yes. If so, the consequences will be immense.

That’s the thing about a social contract: there’s hell to pay when you break it. Just ask Louis XVI. He’ll tell you a thing or two about the political consequences of rising bread prices.