High gas prices are overrated

So I was just watching some talking heads pontificating on the news, and the topic du jour was the roaring economy despite the high gas prices.  These pundits were trying to figure out how, how on Earth, how is it possible that the Dow Jones is climbing, business is booming, and people are working, despite the incredibly high gasoline prices ("damn it," I could almost hear them say, as in "damn it, why can't the economy tank so we can blame Bush?").

They talked about interest rates.  They talked about the national debt.  They talked about tax cuts for the rich.  They talked about the war for oil.

But there is one thing they didn't mention: for most people, high gasoline prices are merely a nuisance, and not a reason to stop spending money.

Yes, that's right.  I said that.

Let's do some math:

The average person drives about 12,000 miles each year.  That works out to 1,000 miles per month.  Now, let's say your average car gets about 20 miles per gallon.  That works out to 50 gallons of gasoline each month.

Now, if gasoline prices climb 50 cents, that works out to an increase in your expenses of...

$25 per month.

That's an annoyance.  But that is hardly a deal breaker.  That's one night at the movies.  Or that's one steak dinner.  Or that's one Britney Spears CD.  This is not the difference between buying that second house on Cape Cod or not.  This is not the difference between Bennington and Fresno State.  This is not a reason to put off that big screen high-definition television set one more year.  This is not a factor in your big-dollar spending.

Nor is it significant in terms of the cost of business.  Sure, higher gas prices mean higher shipping costs.  But the difference is not really nearly as much as people think.  It's not like every product in commerce is out there in a bunch of passenger cars, each one sucking up gas.  No, most of what is traveling in commerce is in the massive trailers of diesel trucks, on board 100 car trains, etc.  Yes, the cost of one trip across country goes up with the price of fuel.  But that cost is spread out over an average of tens of thousands of units per shipment.  Think about it: a 50' trailer might easily have 10,000 widgets boxed up inside.  If the cost of a single shipment goes up $100 due to the increase in fuel cost, that cost is spread out over all 10,000 widgets.  That means a penny a piece.

Big whoop.

Anyone who tries to tell you that the high gas prices are driving up business costs is full of it.  The impact on individuals driving passenger cars is far more significant, and as demonstrated above, the impact on the individual driver ain't that much.

Now, who is hurt the hardest by an increase in gas?  Not the big SUV drivers.  If you are driving a brand new Suburban, odds are you have enough disposable cash that even an extra $50 each month (since you are getting more like 10 mpg than 20 mpg) isn't going to hurt you.  The payment on something like a new luxury SUV can easily surpass $500 each month, with another $100 or more each month on insurance.  In comparison, the increase in fuel costs from a 50 cent spike in gas prices is meaningless.

I have no sympathy for luxury SUV drivers because they feel no real pain.  No, the hardest hurt are the people driving around in 1982 Plymouth K cars, working for minimum wage.  These folks need that extra $25 a month.

But guess what?  These folks are the most likely to be smokers.  And a carton of smokes runs about $40 these days.  A pack a day smoker, once you add in lighters and stuff, can easily spend over $100 each month just keeping the habit going.

If people have to start choosing between cigarettes and driving to work, hopefully they will choose work over tobacco.  Maybe higher gas prices will result in fewer deaths from lung cancer.

Guess what else?  These folks are also the most likely to have a refrigerator full of beer.  A case of beer, even cheap beer, runs more than $10.  I've known plenty of blue collar folks who go through a case of beer (or more) each week.  Well, that's about the same as the increase in gas.  Maybe higher gas prices could result in reduced obesity, fewer DUIs, and less domestic violence.

But you won't hear pundits saying low income folks need to cut back on the beers and smokes.  No, you'll hear them talking about "tax cuts for the rich" and "blood for oil" and "runaway gas prices."  That's because they don't want to actually advocate relief for the working poor.  No, they want to create class envy, because liberals count on the working poor to vote for democRats.  Rather than tell people to stop spending hundreds of dollars each month on alcohol and tobacco, they tell people that Bush is to blame for high gas prices without offering any real solutions to the problem.

Am I wrong?

I doubt it.  So next time you hear some talking head rant about the runaway gas prices, ask yourself, "what is this guy's agenda?"  Because odds are, if you hear some pinhead on TV talking about the gas "crisis," you are simply hearing someone looking for another way to tar and feather George W. Bush.

Comments

[Diane]

I have to shoot a *very* small hole in your theory. My hubby owns a Ford Expedition, which he got when our son was in high school debate and he used to drive for the team on long trips sometimes ... he bought it used and he's upside down in the loan because he took advantage of a "we'll even pay off your old car loan" deal ... he only pays $300/month, but he also uses it to drive for work because he works for PeaceHealth in the IT department and supports off-site locations, so he puts a lot of miles on it each month. The son is now graduated, in college and married for nearly two years (with a puppy on the way ... they're picking it up today ... I'm going to have a grandpuppy) ... so he doesn't really *need* a rig that big ... he tries to cut the cost of gas by taking our daughter's car to work on the days she is out of school and works a full day instead (He makes her pay for half a tank a month because he puts more miles on it these days than she does).

So, we don't make big money, don't have a huge house (you've seen it) but have a large mortgage (damn Californians!), three cars (one for the daugter), jobs in different parts of town. We're not the "big money, luxury SUV drivers" ... but while we're trying to cut down the miles on that rig, we're not necessarily stopping the driving...we have to get to work, we have to get to the store, we have to get out of the house (yes, I hate yard work ... and housework ... yes, you've seen my house). But other than that, I think I'm with you.

Although my sister, whose husband runs a trucking company, will tell you that his up-front costs that he has to charge his customers are higher. In the long-run, though, we'll see lower gas prices, and I'm sure we'll see higher ones, too.

Heck, back in 1979 I distinctly remember saying "Man! If gas gets up to $1.25/gallon ... I'll give up driving" ... and I've yet to do it.

[-keith in silicon valley]

I drive a '95 6-cyl 4.9-liter (wtf?) Ford F-150, and with both tanks filled, theoretically I can make it from here in the Bay Area to Winnemucca Nevada. That's with another guy, two dirtbikes, and a bunch of gear in the back probably max GRV - and I'm kinda a ledfoot driver, especially in Nevada.
I've always kept one tank at least half-full on my drives across the wasteland up to Idaho that way, but the mileage has always worked out.
I really don't give a fig what the cost of gas is.

[Gullyborg]

Not much of a whole there. As you said, you have the daughter's car to cut back on gas costs, and she is paying her share of the gas. Yes, you may be paying a lot for gas in general (on top of all else), but what I am really getting at is the INCREASE in the gas. When gas goes from $2.50 to $3.00 a gallon, you are really looking at a very small additional cost compared to what you were already paying before.

I'll bet you spend more on foofy coffee drinks than the increase in your gas budget...

:-)

[Chris Byrne]

my wife keeps freaking out about how expensive gas is, then I remind her that it is costing us $3.20 more to fill up our 18 gallon tank (and we go through six tanks a month at 16 gallons per, never draining the tank) than it did a month ago.

$19.20 a month.

Hell, lets go back to 2002/3 prices at about $2 a gallon (depending on where you live).

That's less than $30 a week ($28.80) for us. Sure it's nothing to sneeze at, but it's really not all that much. In fact, adjsuting for inflation it's more like $26.

So it costs us about $105 more a month to drive than it did four years ago, or $1260 more a year.

If your rate of pay kept up with inflation, then you made up about 50% more than that in inflation raises. Amazingly enough, food costs have actually gone down slightly in most areas. Assuming you rent, or own your own home and havent purchased a new home in that time, your housing costs wouldnt have gone up much more than the difference, and may not have gone up at all (depending on where you live. Average rents have been decreasing relative to compensation as more people buy homes).

Yeah, I'd say that if you got a basic inflation indexed cost of living raise you'd pretty much be in the same spot you were four or five years ago.

Of coruse people don't want to be in the same spot, they want to be gaining; but if you're only getting COL increases over five years, you are either in the wrong job, or you dont really care very much about getting ahead.

[Kitty C]

As a non smoking 06 Suburban driver, I am proud to say I get 14mpg avg. I'm sure someone will say I am selfish, but there is a lot of metal between me and that drunk driver on I-5. I look at the costs (your pretty accurate on your estimates) as the price to pay for added safety of a large truck.

[Dan]

Sure, probably the hardest hit are the poorest, but isn't that true about almost any price increase on a "essential" goods.
Cigarettes are only $40 dollars because of unjustified taxes. The money typically doesn't go for anything related to health care or education. Think about this; do non smokers all get some sort of disease and die?. Unless of course the die quickly like an accident or suicide. Actually, lung cancer is pretty quick. Very quick compared to diabetes. The only real logic for the taxes is to take advantage of an addiction. Can you really believe it is a deterrant to teens to have them cost more? Who has the most disposable income? So we might as well make everthing addictive legal and taxable. Everything with a "draw" especially a physically addictive one could be taxed. Naw, That would be heartless and evil. Just tax the smoker, they stink anyway.

[Heartless Libertarian]

And you won't see any of the talking heads advocating lowering taxes on gas. Or alcohol or tobacco for that matter.

And there's a reason why the rich get all the tax breaks. It's because the rich pay 96% of the taxes. It's hard to give tax breaks to folks who don't pay taxes.

[DarePDX]

Gully you ignorant slut.

Just kidding.

In reality the high cost of gas and diesel is putting a drag on the economy for alot of small businesses. These business create roughly 30% of the GDP in the US but contribute over 50% of the jobs. So the cost of gas and diesel is creating a drag on the economy in the small businesses that now pay fuel surcharges on every delivery, have trippled the cost of delivering their goods to market, and essentially reduced the profits available to reinvest in new jobs and higher wages.

Little known fact in the US (as the news always talks about individual cars) but the majority fo the petroleum usage is by business. From 8am to 4pm its the economy on the road. Trucks, sales people, contractors, etc... These drivers are the ones producing all the miles and they are feeling the pinch way harder than any dude rolling out to run his dirt bike.

Throw on top of that the reality that we as a nation export a double digit percentage of our GDP for foreign energy and this increasing cost of energy is a bad thing. We after all are sending a larger sum of our wealth to nations that want us dead and use the proceeds to equip dictators with AK-47s and terrorists with training. If oil stays above $50 a barrel much longer we will turn Iran and Saudi Arabia into the next Soviet state.

I also think it is surprising that it isn't effecting the entire economy equally. It probably shows how much of our blue collar industrial is gone and the high end and creative service sectors are driving the wealth in this country. I expect to see some serious inflation hit our economy as eventually China will need to adjust their currency and subsidy practices within their own economy (China buys oil on the world market and sells it for less within their own borders subsidizing the energy within their nation). When China stops footing the bill for ultra-low cost crap you'll finally see the energy costs creep through your local Wal Mart in the form of inflation.

Then you will notice it.

(NOTE: All the numbers and facts were quoted from memory and should be assumed roughly correct. In the reality I live in that means they are lies created to make me look smart - feel free to fact check if you think I'm off)

[Dan]

I have paid over 30k in taxes to the fed. gov. in a year, that's after the breaks(mortgage, kids, loans etc..) if you add in the extra taxes, fuel, cigs, tires sales tax. it might be part of the reason that I didn't feel very rich, even though the gov said I was. I wouldn't mind doing it, if we were still the greatest or secound, or third, or even in the top ten places to live. Taxes anymore are good money after bad.

[J]

"trippled the cost of delivering their goods to market"

Mathematically, it is difficult to see how even a 30% increase in fuel prices could cause a 300% increase in delivery costs. This is especially true if one considers that fuel is only one of the inputs in a process that also includes labor costs for the driver, bridge/road tolls, and vehicle purchase/depreciation/maintenance.

[internal medicine doctor]

This post has so many misleading remarks in the post and the comment section, it's difficult to see how typepad didn't just reject it when you tried to publish it in the first hand.

you may be right about the rising fuel cost not effecting buisness significantly and having a lasting effect mainly on individuals. interesting that you limited effected individuals to lower class citizens.

first, in addition to increasing gas prices, the rise in heating expenses for private homes is very very significant. most of the people effected are in fact lower class citizens but also the middle class.

but how about this? how does an elderly couple who lives off welfare suddenly afford to heat their home? they don't smoke, they don't do drugs and they don't have a six pack in the fridge.

in addition, your entire stereotype of the working poor is so mis-shaped that it shows you probably don't have any contact with the poor in general.

"they're on alcohol and smoke".

They're the single mothers trying to raise kids on their own, they are the disabled veterans and adults riddled with chronic disease. they are also the elderly who counted on this country to pay them back when they get older and help them die with dignity and who's country is letting them wither away slowly in return.

come work in my hospital and I guarantee that maybe your view of the poor won't consist of what you see on "cops"!

and Dan (one of the commentors). please read up on the diseases caused by smoking. you may be surprised that lung cancer is actually not the main one and that the true heavy toll of smoking comes in cardiovascular disease (heart attacks, strokes etc) yes, that would be the number one killer in the
WORLD! would that increase health care cost significantly?

yeah

once again,
poor post
really shows your view of the poor and portrays you in a very unflattering light. I am also a republican. just one who's slightly more intelligent.

[empty spaces]

when i bought my v6 honda accord in 99, gas was 1.35/gallon. now its 3.35 gallon. thats $2/gallon more.
or about $60/mo more. plus my wife who's a student drives a car with slightly better milege but she drives twice as far. she spends an extra $40/mo. so thats 1200/yr. we dont drink/smoke or have a tv thats bigger than 19 inches. we dont really care about it either!

[Gullyborg]

heating costs are seasonal and aren't a factor in the summer driving season, as in right now, when the tv folks keep talking about the impact of the higher gas prices, which went up from when they were lower, during the winter, when people were heating their homes.

and you said I was the one who was misleading. I bet you aren't even really a Republican. in my experience, 9 out of 10 people who try to qualify their liberal stance by saying "and I am even a Republican" are lying. it's a dead giveaway. if you are REALLY a Republican, it is self-evident from your holding views that are in sync with the rest of us. you don't need to tell us that you are.

[Gullyborg]

also,

I actually AM one of the poor. My wife and I get by on about a grand a month in take home. She works full time and has been putting me through law school for three years.

and we have medical bills up the ass, not that it's any of your business. we don't like to get into personal health issues on the blog, but if you look at the sidebar, maybe you can deduce something.

guess what? we froze our asses off this winter. you know why? because the rat hole we've been living in, because it is the cheapest place we could find in this town, has no heat.

sad thing is, I've been worse off. like when I was in the Air Force, supporting an unemployed wife, on $800 a month, for DEFENDING THE COUNTRY.

so next time you want to lecture me about not knowing about the poor, poor, people and how they can't afford to heat their homes, maybe you ought to get to know me a little first.

Oh well, at least things are looking up now. I have graduated and the wife has a promotion. Now I can go back to lighting cigars with burning hundred dollar bills, like you doctors do.

yes, that was sarcasm. as a recent graduate, I understand what it means to have to pay off student loans. but that's the beauty of America: I can better myself with education so that I can earn enough to not only pay off the loans, but be financially secure. that way, I don't have to worry about the country "paying me back" when I get older, like you big-government FDR types think I should.

Republican... HA! Indeed!

[Dan]

Hey, smart guy, who is also a republican (is that an oxymoron, or is there an oxy in it). Just so happens that I am an RRT and before I retired (at age 46, gee, I must be a dummy) I actually ran the department. Sure heart disease is cause for much more death than lung cancers(there are a few types), even COPD causes more death than lung cancer. Here is something that messes up your theory, Cardiac disease is caused by many factors, the main one being genetics. But gee, you can't argue gentetics, I bet your dad was a republican, too.

[Dan]

Gee, oops, I see that your a doctor, guess that explains a lot.

[Cliff@Ihop]

sic 'em gully......

[RandyPark]

As many people above have said, they grit their teeth and pay the price.
As a specialist in how people make decisions and a commentator on energy issues I'm often asked by the media about gas prices, and I was curious myself about the economics.
The Gas Price Calculator, on the basis of numbers people choose for themselves, calculates how much they will pay for gas for the convenience, time savings, and comfort of their own vehicle. Try it at www.EnergyPredicament.com and see how much you will pay.
People who have tried the Calculator are surprised at how much it indicates they will pay for gas, with many results in the range of tens of dollars per gallon or more. And since many people will pay a lot, gas prices will continue to rise if supplies get tighter.

[Minimum Wage]

The rich pay 96% of the taxes? All those billions and billions the working poor and middle class pay in regressive payroll taxes amount to only 4%?

[Pankaj]

Things have changed quite a bit in just two years as gas prices are now around $4. Who still thinks that a 50 cent increase is a mere inconvenience? It's this type of thinking that has led in part to the mess that we're in now.

Considering how many SUVs and gas guzzling cars have congested the roads and how expensive gas is today (over $4/gallon as of today) and the trend towards even higher prices, it's critical that Americans shift their thinking from SUVs and other gas guzzlers to alternative methods of transportation. Cheap mopeds, gas scooters and electric scooters must become a part of our lives considering you can get up to 90 mpg, they're easy to park and navigate.