Gas: A Cost We Cannot Bear

At the height of the oil shock in 2008, midsummer futures had climbed to a record $147 per barrel on some markets in the United States and Europe. Since reaching a staggering peak, oil prices have declined to as low as $40 per barrel. Unfortunately, for the past year oil has marched unflinchingly up the charts.

As oil prices march forward, fuel prices follow, dragging the economy down with them. Higher gas prices increase the cost of all goods and services in the economy; with our economy still struggling to find its way the increases on the oil market could seriously hinder any chances of recovery.

According to AAA’s FuelGaugeReport.com, the national average for a gallon of gasoline has risen from $1.762 to $2.725 in the past twelve months. In just one week the average price has gone up $0.07. These increases hurt American consumers, squeezing more money out of their wallets and into the sunk cost of travel, rather than allowing it to flow freely in a bustling economy.

The Washington Post reported on Friday, January 8, that the national gasoline average will likely soon pass the $3 per gallon mark. Gas is already above $3 per gallon in Alaska, California, and Hawaii due to their particular tax schemes and distribution costs. Less costly markets may soon join this pricey club.

The high cost of gasoline hurts the American economy in many ways. First and foremost, when individuals have to pay more for gas they have less to spend on other things. As the price of gasoline goes up the rest of the consumer economy feels the pain; it may be a boom for those in the oil and gas industries, but it cuts into spending on everything else from groceries to clothing.

In our consumer driven economy we rely on even spending across all sectors. As more and more of this spending is driven into one area, the rest suffer.

Another drawback to the rise in oil and gasoline prices is where the money all ends up. The majority of our oil consumption is imported from overseas. Not only is our money being focused in just one sector of the economy, it is also going overseas. Instead of driving our own oil industry, we are actually stimulating the industry in Canada, Saudi Arabia, Mexico, Iraq, and elsewhere.

Perhaps making matters worse is the fact that the gradual increase in gas prices is not likely to force consumers to cut back. When oil rapidly rose to over $100 per barrel and gasoline hit nearly $4 per gallon around the country Americans began cutting back. This caused prices to collapse, and gave consumers some relief.

Now however, after a year-long march, Americans will likely be willing to pay $3 or more per gallon. We will be fine with oil approaching $100 per barrel, so long as it doesn’t once again hit $147.25. We will be fine with buying gasoline at $3 or perhaps even $3.50 per gallon so long as we don’t once again hit $4.25.

Every $0.10 increase in gasoline prices costs the United States roughly $14 billion annually. Most of the profit from this money is added to our trade deficit and shipped overseas. With a struggling economy and huge government and personal debts, that is a cost we simply cannot bear.