Gas prices: Can the economy weather another rise to $4 gas?
High oil prices and rising gas prices weaken an economy because they reduce discretionary spending and indirectly cause people to be laid-off from work, Tverberg writes. Can the US economy stand another jump in prices?
(Page 2 of 3)
The amount consumers have available to spend on cars and gasoline is very much affected by deficit spending. With deficit spending, government employment can remain high and transfer payments can continue, without anyone really “paying” for these costs, putting more money into the economy to spend on oil and cars.Skip to next paragraph
Eager to change subject, Obama touts healthy energy progress
Can Brazil and Iraq sustain world's growing thirst for oil?
Tesla CEO says no recall necessary after Model S fires
For US motorists, it's Christmas in November. Gas prices hit 33-month low.
US to be No. 1 oil producer, but it won't last
Subscribe Today to the Monitor
There are other government programs as well. Interest rates on homes and new cars are being kept at record lows, leaving consumers with more money to spend on cars and gasoline. Low interest rates and low taxes also stimulate employers to hire more employees. Quantitative easing helps contribute to higher stock market prices, and makes it easier for the federal government to keep adding large amount of debt.
To me, the fact that the economy is not currently completely “in the tank” speaks more to the success of stimulus programs than having anything to do with adaptation to higher price levels. Countries such as Greece, Spain and Italy do not have the luxury of being able to hide the impacts of their high cost of oil. They are doing less well financially, but were not included in Hamilton’s analysis.
Easy to Overestimate Impact of Recent Changes in Vehicles
With vehicles, we are dealing with a mixture of vehicles of all ages. The average age of automobiles is now estimated to be 10.8 years. The average age of trucks is no doubt greater. The EIA provides a summary of average fuel economy by type of vehicle based on US Federal Highway Administration Data, summarized in Figure 2.
This data is only through 2010. While it shows some improvement in efficiency of light duty short wheelbase vehicles, it shows little improvement in efficiency overall. The big increases in efficiency were in the period between 1973 and 1991.
The mix of cars by type is concerning.
The percentage of automobiles has been dropping, as the number of SUV and trucks has been rising. The change between 2008 and 2010 reflects the fact that the number of “automobile” registrations dropped by 4.5% in that time-period, while the number of other (larger) vehicles rose slightly. Thus, the long-term trend to relatively more of the larger vehicles continued. Obviously, this data doesn’t show carpooling and other adaptations, but it is difficult to see any recent big trend toward efficiency.
Can the Economy Weather another Rise to $4.00 Gasoline?
The question of whether the economy can weather $4.00 gasoline, to me, depends on the issue of whether the US government can keep coming up with more manipulations to hide its financial problems.