Gas prices, common sense, and the economy


gaspumpI keep hearing how the economic downturn “caused drivers to tighten the grip on their wallets” last summer as gasoline prices soared through the $4.00 / gallon mark.  Apparently, a declining economy is what caused us to stop driving, and to start looking for more economical vehicles.  In a nationwide game of  “which came first?”, the prevailing theory is that people couldn’t afford to pay for gas because everything else was already screwed up.

Give me a break!

I would like to propose a differing opinion.  Although I believe that the banks and homebuyers were extremely foolish with credit options being extended through the past 10 years or so, I think that soaring gas prices played at least a contributing factor to the start of the economic downturn, and was secondarily responsible for the worsening and subsequent economic breakdown.  Pair this with the fact that, for most people, the amount of gas they use on a weekly basis is essentially fixed – after all, you have to be able to get to work! – and you’ve got the makings for our current economic crisis.

At the start of 2007, gasoline prices in the Cincinnati area –  and Cincinnati tends to be a touch lower than the national average – were right around the $2.00/gal. level, having averaged around $2.50 for the entire year of 2006.  An average car’s gas tank being 12 – 15 gallons, this means it took $24 – $30 to fill your vehicle at the start of 2007.  For most people, this price fit into their budgets.  Starting on January 25  the price trended steadily upwards, finally peaking on on May 21 at $3.40/gallon.  This represents a 70% increase in the price of gasoline.  The price bounced around the $3.00 mark until the start of 2008.  

It was around the end of 2007 that prices began to steadily rise on just about everything else as transportation costs started to be passed on to the consumer in the form of retail price increases and delivery charges being tacked onto things as inocuous as pizza.  This just served to increase the economic pressure on the consumer.  Now if your ARM’s percentage rate started to rise, like so many consumers’ did, your options became very few, indeed!   We’re still seeing the effect in Cincinnati, as December’s gas & electric bills nearly doubled over last years’…due to the fact that energy prices were locked down in July, at the height of the gas price surge.

So let’s stop ignoring the effect of soaring gasoline prices – the car and gasoline are inextricably a part of American culture…and when prices soar, it hurts average Americans.

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