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The amazing aspect of escalating gasoline prices — they reached the lamentable landmark of $4 a gallon over the weekend — is that they haven’t done more damage to the U.S. economy.
The oil-price shocks of the ’70s and ’80s did much worse damage, but today’s economy seems much more resilient with interest rates low, exports surging and the dollar showing signs of stabilizing.
Not that the news is good. It’s just not as bad as it could be. Unemployment rose half a point to 5.5 percent on Friday. The airlines are cutting flights, capacity and workers. Car sales have taken a real hit. And that $168 billion in economic stimulus rebates may have gone from the Treasury straight into the gas tank.
But matters can’t go on like this. Well, they can, actually, but nothing good will come of it. Two-thirds of the American economy is driven by consumer spending and that, in turn, depends on the relatively cheap movement of Americans and their goods.
Gas prices have gone up almost 30 percent in the past year. Long-term, the increase is even more dramatic. Oil that sold for $30 a barrel in 2003 at the outset of the Iraq war is now nudging the $140 mark.
Fuel costs now take over 6 percent of income, up from 4 percent only recently, and every extra dollar that goes to gasoline takes away from purchases — cars, vacations, dining out, appliances, new clothes — that make the economy hum.
If consumer spending sags badly, it could push us into a recession — or if, as some pessimists believe, we’re already in one, drive us deeper into recession.
It’s perhaps unfortunate that this is happening in an election year because the politicians will come up with solutions from never-never land. There aren’t any. Another stimulus bill would only drive us deeper in debt. Alternative fuels are a nice idea and may make a little bit of difference at the margins, but they’re not a practical substitute for gasoline. Nor are we all going to start taking trolleys to work.
The only credible solution to oil supplies is throwing open the coasts and the West to large-scale exploration, but that would take decades to come online and, in any case, is politically unacceptable to the American people.
We’re stuck gutting it out until the brute forces of supply and demand bring prices back to an acceptable level. Until then, there’s the reassuring thought that, all things considered, we’re weathering this reasonably well — so far.