Rising Oil Prices Threaten Billions In Worldwide Stimulus
Rising Oil Prices Threaten Billions In Worldwide Stimulus
Yesterday, USA Today laid out the current depressing rise in the price of oil:
Pump prices are following the rise in crude oil, which set an 8-month high Thursday on a falling dollar and brighter economic outlook. Gas prices are not expected to approach last summer’s wallet-busting $4 per gallon, but they could eat into consumer spending just as the recession is showing signs of easing. The nationwide price for a gallon of regular gasoline averaged $2.63 Thursday, up 58 cents since the end of April and $1.01 since pump prices bottomed at about $1.62 at the end of last year.
The real problem here is that “eat into consumer spending” bit, as rising gas prices threaten to stymie some of the spending that the stimulus bill sought to promote. Fatih Birol, chief economist at the International Energy Agency, told the Wall Street Journal just how much oil prices are threatening spending worldwide:
Assessing the relief from last year’s record $100 average U.S. oil price, Mr. Birol estimates that an average $40 a barrel oil price in 2009 — below what most analysts expect — would pad consumer wallets in industrialized nations like the U.S. to the tune of almost $600 billion. But an average price of $70 a barrel, roughly the current price level, cuts the stimulus effect down to just $290 billion.
Robert J. Shiller, an economist at Yale, figured that the price hikes “could effectively offset the new $400 to $800 payroll tax cut most employees are receiving this year” due to the Obama administration’s stimulus package.
As Ryan Avent put it, “I don’t really know how else to say this, but oil prices are about to kill our chances at recovery dead. That’s all there is to it.” As possible solutions to use in the limited time before higher prices hit, he advocated trying to talk OPEC into more production, opening up the Strategic Petroleum Reserve, and providing “immediate funding to transit systems nationwide to increase service.”
In the grander scheme of things, it’s really absurd that the U.S. allows rising oil prices to wallop U.S. consumers every single summer. And via Matt Yglesias, we have Bradford Plumer suggesting that the U.S. “implement some sort of variable oil tax that would keep the domestic price of oil more or less stable: When world oil prices rise, the tax decreases; when oil prices plunge, the tax increases.” “That would help create a predictable price signal to encourage conservation and alternatives to oil, and raise revenue for energy projects (not to mention send fewer dollars overseas),” wrote Plumer.
4 Responses to “Rising Oil Prices Threaten Billions In Worldwide Stimulus”
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Your on Pump prices are following the crude oil price rise is it seems like a G8 wide phenomena, set a 8-month high Thursday. Regular gasoline price $2.63 average up 58 cents since the end of April is, unfortunately, its a very “Toyota-linked, Prius-loaded GMAC Japan phenomenon too.” Potentially, this could effectively block the new GM assembly rebuilding plan in China.
June 15th, 2009 at 9:20 amMeanwhile EXXON wallows in it’s obscenely high profits, as it always does – - – and we do nothing about it.
June 15th, 2009 at 12:24 pmYour on Pump prices are following the crude oil price rise is it seems like a G8 wide phenomena, set a 8-month high Thursday. Regular gasoline price $2.63 average up 58 cents since the end of April is, unfortunately, its a very “Toyota-linked, Prius-loaded GMAC Japan phenomenon too.” Potentially, this could effectively block the new GM assembly rebuilding plan in China.
June 15th, 2009 at 12:58 pmThe larger problem is not that the cost of gasoline at the pump is too high but rather who benefits disproportionally from higher prices under the status quo. Variable or not, the fuel tax on gasoline should be raised significantly. The new revenue should be allocated between roadway maintenance, public transportation projects/smart growth community standards, and assistance to lower income consumers that would be most adversely affected by the tax.
Europe has extraordinarily high auto fuel taxes and as a result has a robust market for small, fuel efficient vehicles. The U.S. has eschewed this approach, sacrificed on the almighty altar of “consumer choice”, making do instead with the byzantine CAFE or corporate average fuel economy. Automakers, domestic and foreign-based alike, have deftly gamed this system to the point of laughingstock. Ford even utilized a provision in CAFE to expedite transfer of production to Mexico prior to NAFTA.
If there is one lesson that should have been taken from the gasoline price spikes of spring 2008 (not to mention those of the two oil embargoes) it’s that high prices at the pump did more for demand for fuel efficiency than CAFE ever has. When prices were peaking last spring Toyota decided the Highlander plant is had under construction in Mississippi would instead become a Prius plant. Chrysler was left particularly vulnerable as the only manufacturer without a subcompact product and thus perceived as not having any fuel efficient models, exacerbating their irrelevance in the suddenly fuel conscious marketplace. As gasoline prices fell with the economic collapse automobile sales followed suit but mix rates for larger vehicles returned to levels seen before the price spikes. That Mississippi Toyota plant under construction, the one that was repotedly three quarters complete? Mothballed. Indefinitely. The last thing Toyota (or any manufacturer) needs in a severely contracted market (from 17 million units/year to 12 million in 2008; projected 10 million in 2009–would be lowest since 1982) is even more excess manufacturing capacity in a contracted market.
High fuel prices through taxation would at least mitigate if not prevent the level of profiteering by Big Oil. Consumers/taxpayers would instead get something more in return while moving toward a policy of reducing consumption of non-renewable, carbon-based fuels and hopefully toward reduced overall energy consumption.
June 16th, 2009 at 3:26 am