Gas Prices: Slippery When Wet
Gasoline prices have been edging up, and since a good deal of mass media lacks any perspective as far as what is critical to cover as “news” and what is not, this subject is as incendiary as the product itself.
Those of us who lived through the oil shocks of the 1970s after the 1973 Arab Israeli war remember how disruptive and inflationary this can be. Fortunately, we’re nowhere near that situation today for a host of reasons.
Oil goes into a lot of products besides providing fuel to power our vehicles. The petrochemical industry is a vast complex whose products range from plastics to polyester fibers. But the oil shock of the ‘70s only provided a powerful impetus to lean down the consumption of oil used for production of finished goods. With the impetus to de-carbonizing the economy, we’ll see a lot more of this in the coming years. That revolution is well on its way already.
Moreover, we’ve mandated better vehicle fuel economy, and while this policy has yielded solid results, it would have been far better if people stopped opting to buy such outsized vehicles, which is a trend I personally don’t understand.
People also have choices they can make. Work from home can save a considerable amount of expense and time, and cut fuel usage considerably. As a counterpoint, however, many former mass transit users are opting to use their cars in the COVID era, preferring the privacy of a steel cocoon. As this is written, the COVID crisis could finally be behind us. If that happens, perhaps old habits will return. Meantime, vehicle miles traveled quickly moved back up to near “normal” levels.
But even so, there’s less here than meets the eye. While a $4.00 a gallon price may be “shocking” to Americans since they’re not used to it, in terms of the share of personal consumption, gasoline is comparatively a screaming bargain. The average monthly payment for a new car in this country is over $575 a month. To lose your mind over a $1.00 a gallon price increase requires a bit of overacting. If we index the price of a gallon of gasoline to overall inflation, we’re actually paying less than we have at many other times in recent history. In terms of “wallet share,” gasoline expenditures have plummeted.
But the political angle is so treacherous. No President or Congressperson can tell the public that it isn’t that bad for fear of being mercilessly savaged by the press and the pundits. But the plain fact is it ISN’T that bad, not only from a price and consumption standpoint but also because people made choices based on their vanity and not their needs. And because of that, our “leaders” in government are going to turn heaven and hell in order to blunt the rise in costs, as meagre as they may be, in order to placate public profligacy. Given the present chaos in the world and its effect on commodity markets, that's going to be a fruitless task.