The Repercussions of $4 Gas

...essentially, not much. That's the gist. People were handwringing over $2.00 gas. Then $2.50 gas. Then $3.00 gas. Consumer attitudes have shifted rather unmarkedly. I still hope we can increase our domestic refining and production capacity, as well as enjoying the benefits of seeing companies invest in alternatives. But for all the clamor, consumers aren't changing their attitudes and actions much. They do like to clamor, though

 

Here's the problem. People with middle to high incomes can absorb the high price of gas, even at $4-5 per gallon. People with lower incomes have no choice but to pay it, even if they have to do without.

 

That doesn't mean behavior will change. I, for one, think that gas prices are killing the economy (along with other factors), but I see no reason to believe that any behavior will change.

 

1. There is no consensus that we are in fact in a recesssion right now. WSJ surveys show that most believe we are not in one. As you know, we really won't know until months/years after. Cincinnati had a record snowfall this last week. It will be determined if it was a blizzard in a few weeks. Doesn't matter what the NWS calls it in April....it was snowy, windy, and cold, so call it whatever you want :laugh:

2. We have finally hit an inflation adjusted record high price (American average). I do believe the rising costs of gasoline will force consumers from all economic strata to spend differently, causing some household spending to be shuffled. Gas is a staple, much like utilities, given the commuter nature of our population. I do believe that there will be some indirect and direct (more of the former) affect on what may be more accurately termed stagflation right now. We'll see what the Fed does. I'm almost to the point that if the Fed acts like we're not in recession/stagflation, then that means we are, or vice versa!!!

3. Whether we are in recession, inflation, stagflation, Tomflation (more of a neoKeynesian economic situation):laugh: , the numbers say that consumers are just not altering their habits all that much.

4. Makes me wonder where we'd be if the winter had been harsher and there had been more of a spike in heating oil? Seniors would be feeling the hit much harder, and since they have a sizable and forcable voice in the public arena, there would be much more attention to that issue and I guarantee much more political action since this is an election year.

I love talking economics. Even if I show I don't know much about it :laugh:

 

Well, I think the Fed is potentially harming the economy just as much as rising gas prices with their monetary policies (cue the Ron Paul speech here). You say just as much as I do, yet use far fewer words...a talent I admire. Hats off to you, Stefan! :thumbs:

 

You are right Tom. You all will pay it, and behaviour will not change. I pay almost $7.00 a gallon and if you have to go someplace outside of walking range you will drive. Hey I even drive places within walking range if I am feeling lazy.

People will gripe, cry, whinge, and complain. But at the end of the day they will pay for their petrol, err, gas .

 

Very true. It won't change behavior, but it will reduce discretionary spending. The economy will therefore suffer the consequences.

 

Behavior

$3.00 a gallon gas changed my behavior. I walked much more, did more shopping for groceries at a store within walking distance even though it is not a store I really like a lot.

The price of gas is going to continue to go up. Demand around the world is growing. That alone will push the price of gas up more. And if the dollar continues to fall that will also put upward pressure on the price of gas. Could well be a time in the not too distant future when the Euro takes the place of the US dollar as the currence of world trade.

Currently gas is about $8.00 a gallon in the Czech Republic. Thank goodness they and the rest of Europe have excellent public transportation systems.:type:

 

Well, most of Europe - Ireland lags FAR behind. Unless you are going into Dublin AND live in the right suburbs you still have to drive or depend on a packed, expensive, and irregular train or bus.

If the euro replaces the dollar as the pricing for for oil we will see a quick strengthening of the dollar. I personally have my fingers crossed for that day .

 

They're doing without right now, and usually people have to cut their food bills, and cut how many household necessitities they buy.

 

When gas was selling for 25 cents what was the median wage? I suspect less than 75 cents an hour. When it hits $4 the median wage will be around $20/hour?

Most every car/truck commercial in the US advertises bigger engines and more power. Best all around vehicle I had was a VW bus with a 40 HP engine. With water cooling and fuel injection the same setup should get close to 30 MPG.

I had a '89 (?) 3 cylinder chev that averaged 48 MPG for 100,000 miles.

Motorcycles will become more popular. People will live closer to their work like in the old days. The farm communities will hurt the worst. Can't move the ranch closer to town.

 

It changed my behavior, too, but I'm "lower-income." I'm speaking on a mass-scale, though. There is a point at which one cannot reduce consumption any further without changing jobs or moving ...two things that are very difficult to do in this economy.

 

The price of gas will go up...
The democrats will increase the minimum wage.
Employers will pass on the wage increase to consumers.
The price of everything else will go up.
The oil companies will see that they can increase the price again because people will get used to paying high prices...

And around we go!

Up, Up, Up, and away....

Everything will keep inflating. As long as everything inflates at the same time... no problem.

IOWS as long as wages increase at the same time gas prices and all other prices increase, it will stay proportionate.

 

That won't happen. The minimum wage, before its increase, was almost at rock-bottom when considered proportionally.

Inflation is going to outstrip wage increases. Gas prices are far outstripping wages. These gas price increases are increasing the price of food and necessities. This snowballs the problem. Health costs are very, very much outstripping wages. College tuition is bordering on the ridiculous.

 

I think the notion that the "upper crust" automatically has more disposable income is a broad generalization, whoever those folks are. Just because people earn more money doesn't mean they have less debt, and thus more disposable income. Always dangerous when we generalize.

We'll see about inflation/recession/stagflation.

Tinytim makes an interesting point. I can remember Dems saying they wanted high pump prices. Well, they have them. Now what?

 

Not necessarily true. The Fed Min wage was virtually irrelevant because median wages far outpaced the FMW. The real min wage was higher than the Fed min wage. 16 year olds at McDonald's were starting at $7 an hour. No question healthcare, tuition, were growing faster than inflation. That's an entirely different can of worms. And inflation, to most economists, can't outstrip wage increases because it is caused by wage increases. If people earn more, they buy more. They demand more. If goods/service production remain constant (which they typically do because firms cannot spend more because they are spending on wages) then inflation naturally results. So goes the theory.

 

I should have instead referred to the weak dollar.