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.
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!
Image Source: U.S. Department of Energy