The Seen and the Unseen at the Pump
Dave Hebert on the economic consequences of the Iran war
Every war is also an economic event, fought on two fronts: the visible costs at the pump and the invisible costs of decisions deferred, capital reallocated, and confidence shaken. The first front fills the cable news chyron. The second is harder to see, but no less damaging.
On the latest episode of Acton Line, I sat down with Dave Hebert, Director of Economics & Economic Freedom and a Senior Research Fellow at the American Institute for Economic Research, and an affiliate scholar at the Acton Institute, to walk through both fronts of the war that has been the dominant economic story of the spring.
What is seen
The visible costs are easy enough to enumerate. Gas above $4 a gallon. Jet fuel sharply up. Summer travel pricier. Headline inflation rising to levels we hadn’t seen in nearly two years. Bastiat’s “what is seen” is, as ever, the most visible part of the story.
But why does a regional conflict thousands of miles away show up at a gas station in central Pennsylvania within days? Dave walks us through the mechanics: how a global commodity market prices in disruption almost instantly, how the Strait of Hormuz functions as the single most consequential chokepoint in the world economy, and why releasing oil from the Strategic Petroleum Reserve does not move the needle nearly as much as the press releases suggest.
What is not seen
“What is not seen” matters just as much. Consumer spending pulled back. Supply chains rerouted at tremendous cost. Inflation expectations were unsettled. These consequences compound and shape decisions made by households, firms, and policymakers for years.
Among the costs not seen, and entirely self-inflicted, are those imposed by our own laws. Dave makes the case against one of them in particular: the Jones Act, the century-old protectionist statute requiring that goods shipped between American ports travel on American-built, American-crewed, American-flagged vessels. It is the reason that it is nearly impossible to move natural gas by ship from Texas to New England—even as New Englanders pay some of the highest energy prices in the country. The 90-day waivers periodically granted in moments of acute need paper over the policy without ever addressing it. A century on, the Jones Act remains a monument to how durable a bad idea can be when it is also profitable to a small and well-organized constituency.
The Fed’s walking contradiction
The Federal Reserve’s predicament is more a structural one. Dave describes the Fed as a “walking contradiction”: charged by Congress with both price stability and full employment, and now asked to deliver both in conditions where the two pull in opposite directions. Rising prices argue for tighter money. A softening labor market argues for the reverse. The Fed cannot have it both ways, and the more it tries, the more it confirms what classical economists have long suspected about the dual mandate itself.
This is not, in Dave’s telling, a failure of intelligence or character on the part of any particular chairman. It is a failure built into the institutional design. To ask one body to manage two variables with one instrument is to invite the kind of muddled, half-measured policy we have come to expect. Prudence, here, would begin with humility about what monetary policy can actually accomplish.
A small experiment in pedagogy
We close on a different note. Dave is in the middle of a fascinating experiment on his Substack, Economics Reality Check: turning four thousand of his old economics lecture slides into accessible articles, using Claude as a writing partner. The discussion that follows touches on the ethics of using AI as a tool rather than a shortcut and what we owe our readers and students when we adopt new instruments. It is also a small but instructive case study in what an economist’s habits of mind can offer to a question more often driven by moral panic.
Listen to the full episode here: