This piece at CNN Money falls into what is an entire sub-genre of business writing in which economists and business writers get together to explain why the latest development in government-induced market failure is not a problem at all.
The piece explains why $3 gasoline is absolutely no problem whatsoever and is actually good for the economy. Now, move along and get back to spending your money on shiny trinkets.
The claims in the piece are perched upon the assumption that needless spending on gasoline is fine because it is still spending, and that expensive gasoline has only a minimal psychological effect because people will just shrug their shoulders and keep spending on consumer goods. Spending on consumer goods, of course, is the most important thing in this line of thinking since it is seen as the most important source of economic growth.
What is ignored is the fact that gasoline is only as expensive as it is because of artificial limits imposed on supply by government regulations, and because of the devaluation of the dollar. Every dollar buys less gasoline as the money supply continues to expand. And let’s not forget the 40 cents or so per gallon in taxes paid at the pump. And we’re just talking taxes paid by the end user. The taxes paid at various steps of the production process are hardly negligible.
Also ignored is the possibility that households that don’t have to spend an extra $100 on gasoline every month due to these effects might actually save that money or invest it.
The talk about psychological effects is simply rubbish. People may indeed shrug their shoulders and continue to buy the same amount of gasoline as they might have bought at $2 per gallon, but there will be a real world effect on the household budget that has nothing to do with how the consumer feels about it. The consumer now has less money to save for retirement or education or investment or anything else.
But none of this matters to the economists whose full time jobs consist in patting the heads of the masses and assuring them that all is well no matter what.
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Is it me or did you read the same article I did?! The article never stated that 3$ gas is good for the economy but shows a correlation between increase in demand and the strength of the economy (Global). More demand from consumers increases price if supply is the same (Econ 101).
“If gas goes above $3 and stays there for any extended period of time, particularly after the summer, there would be broader concerns for the economy and consumer spending,” he said. “Any money you put in your gas tank means less you have to spend on anything else.”
In fact, the article advises against gas above $3 because it will affect consumer spending because money will be diverted into their gas fund.
Wow! That’s a rleyal neat answer!
Yep, because the whole point of the article is to communicate the idea that one should be satisfied with gas prices, and that the sentiment SHOULD be “oh thank god, gas prices are going up again, but not up too much. Look how moderate the price of gas is!”
Oh, and if the price stays up above $3 then it COULD be a problem later. Oh, well then, I don’t know why I’m concerned at all.
Advises against gas over $3, huh? I see. So, it’s at just the right price now. How fortunate for us.
Ryan:
You mention 40 cents of embedded taxes. Here in Tennessee, we have sticker on the pumps pointing out that we pay 87.4 cents in state and federal taxes per gallon. We’re sitting at prices around $2.65, so we’re paying around half again the cost of the gas in final-level taxes.
I didn’t read the same article either evidently. Though I’m no fan of CNN Money, I think you’re stretching to find any surreptitious Keynesianism here.
It’s not too bad. I can see the whole Svengali thing going on in the article:
“When gas hits $3 you will remember that such price increases are normal and not a cause for concern… and also, you will give me your sister’s phone number.”
Ha. Anyway, the biggest problem with that CNN piece is the assumption that America’s economy has indeed recovered and will not again approach the “crisis” levels of 2008 (I included the quotation marks because the next plunge downward likely will make 2008 look like the good old days).
“Also ignored is the possibility that households that don’t have to spend an extra $100 on gasoline . . . .”
Yes, but the majority of them should be Democrats, not Libertarians. Ayn Rand would not have lost
sleep over that argument. I have an extra $100 to spend on gasoline. Isn’t that all that matters?
Agreed. I for one have been affected by higher gas prices 3 $ per gallon is a lot when you are a college student. It forces me to think about how much im going to try during the week and keeps me worried that if I drive to much in one week ill be spending to much money. Thus its causes me to ditch out on social activities sometimes and makes me avoid leaving my home for anything but the up most important events. I also spend less money shopping wise and watch it much more closely because im spending like 15 dollars more every week on gas, so it causes me to be more careful money management wise. The thing is it shouldnt be that high the only reason it is, is due to all the taxes on the oil companies and on the gasoline as well. They are forced to raise the prices because their expenses keep going up, look at Europe where there taxes are through the roof on gasoline they pay like 3 to 4 $ per liter that’s disgusting.
I also agree with the comments on this page. It is very hard to actually “live” our lives with these gas prices. I don’t like the argument at all that this article presents. We’re bound to spend money but gas for over $3 bucks a gallon? That’s too much. I am also a college student driving Monday-Friday to school 50 miles round trip plus all the other necessary drives around town. I can no longer go out as much with friends or to hang out because of the burden it causes my wallet. It’s very tough to live life as a young person without the decent paying job and I do not want to ask my parents for money because they are affected negatively by the economy nowadays as well. I miss the times when gas prices were so low that I could drive as much as I want without worrying too much about my budget. Now, I have to be careful with every step of the gas pedal. What could help is lower gas prices, I’m sure that’s all we want.
All the extra money spent on trinkets now goes to the energy companys record profits so maybe the energy companys should supply the us with 8 million or so jobs and become none profit for awhile for the good of there country. Or is selfish the new rule in the world if thats the case i will continue not to spend nothing until this changes or big raises are giving to middle class to make up for 30 years of price increases. Hmmm what educated idiot thought 30 years of stagnet wages and 30 years of price increases was going to work out. real smart tough guy pull your head out of your rear and get some air for your brain!
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