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The Latest News on Gas Prices is Bad News for Our Economic Recovery

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Across the country, articles are showing up with the news that gasoline prices are down anywhere from three to fifteen cents since last week. The average drop was six cents per gallon according to data from the U.S. Energy Information Administration.

That sounds like good news, no? Well, there’s a catch…

The catch is that gas prices are UP 88 cents from where they were last year. And worse, they are nearly double what they were ten years ago, even after adjusting for inflation. So instead of more money in our pockets this week, we’ll have $2.4 billion less than we did last year and about $4.4 billion less than we had ten years ago—Ouch!

High Gas Prices Slow Down our Economy

It doesn’t take a rocket scientist to figure out that spending an extra $2.4 to $4.4 billion on gasoline in a week is a drag on our economy.

DOE Data on Oil Prices and GDP

High oil prices have stalled the economy over and over again. We need to guzzle less, not drill more.

Every major oil price shock since 1970 has either caused or contributed to an economic slowdown or recession.

In fact, every 10 percent increase in oil prices reduces U.S. gross domestic product by two to five percent, while increasing unemployment by 0.7 to two percent (see Table 11 from EIA).

Why the lost jobs? Well, as my colleague Don just posted, spending money on oil leads to fewer jobs than spending in just about any other part of our economy.

Relief from Pain at the Pump

Of course, talking about high gas prices inevitably leads some to chant “drill baby drill.” But with 25 percent of world oil demand and only about two percent of the world’s oil reserves, we can’t drill our way to less pain at the pump. Even if offshore drilling is successful, it will only cut gas prices by about three cents per gallon—half the change we saw in just one week.

What we can do is drive more fuel efficient cars and cut our projected oil use in half by 2030. If we use less, we pay less. Roughly doubling today’s average fuel economy by 2025 would deliver the same savings as cutting gas prices by more than $1 per gallon.

Now that’s real relief from pain at the pump!

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Gasoline consumption and price data are from the Energy Information Administration.
Image Source: U.S. Department of Energy

Posted in: Vehicles Tags: , , , ,

About the author: David Friedman is an engineer with expertise on fuel efficiency, alternative fuel, battery, fuel cell, and hybrid electric vehicle technologies and the policies needed to turn them into real solutions for U.S. oil dependence, air pollution and global warming. He holds a bachelor’s degree in mechanical engineering and is a Ph.D. candidate in transportation technology and policy. Subscribe to David's posts

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  • Stephen Y.

    I don’t like to complain, but the headline on this story really is misleading. In fact, the LATEST news is good news for the economy, but the problem is the REAL news is that the recent drop is far less than the longer term rise. Of course, your bottom line is right – though I would emphasize even if you can’t buy a more fuel efficient car, you can probably drive less than you do now, which is the best way to reduce use!

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