Is The U.S. Economy Sustainable At $4+ Gasoline Prices?

[Reub]

I seem to recall that the last time gas prices in the U.S. exceeded $4/gallon was in 2008. We all know what happened later in that year. What are the odds of history repeating itself?

[MediumTex]

High.

$4 a gallon against a backdrop of static wages simply doesn't leave enough extra money in the average paycheck to support a consumer economy.

Consumers are also unlikely to lever up with the gusto they have in the past, which will make high gas prices hit even harder.

It's a big problem. 

In many ways, Obama's willingness to get involved in Libya (which was a terrible idea) suggests that there is more angst over high gas prices in the Administration (and in Europe) than was previously known.

[MediumTex]

We're paying over 8 USD per US gallon over here in England !!!

Yeah, but your economy isn't built around $3.00 or less gas.

People in the U.S. buy these 14 mpg beasts and live 40 miles from work.  It's ridiculous, but it's what cheap gas has done over time.

What would you say the average commute is over there?

Also, what kind of mileage does a typical car get over there?

[Reub]

MT, I'm afraid that you're right. Especially about the Libya debacle. 

[MediumTex]

In more recent years though mums have trended towards the Chelsea Tractors - large gas guzzler MPV's to do the daily school runs in.

As in Mazda MPV?

That's funny, because over here Mazda MPVs are like economy cars within the mini-van market.

Are there Cadillac Escalades and that sort of thing over there?

People in Texas are still driving pretty large vehicles, but it's not like it used to be.  There are lots of these little mini-trucks like the one below.  They are very popular right now.

[Lone Wolf]

People in Texas are still driving pretty large vehicles, but it's not like it used to be.  There are lots of these little mini-trucks like the one below.  They are very popular right now.

LOL.  I live in Texas but I've never seen a behemoth like that red thing (certainly not jacked up into the clouds like that.)  I don't even know where you could park that kind of battleship.

My biggest concern with high gas prices is the effect on transportation.  Having spent some time in the trucking industry, I'm sure that has crossed your mind as well...

[MediumTex]

My biggest concern with high gas prices is the effect on transportation.  Having spent some time in the trucking industry, I'm sure that has crossed your mind as well...

My fear is that we will have a housing crisis-like event in the vehicle market where people suddenly realize that there are millions of gas guzzling vehicles that are basically worthless when gas prices rise above a certain level.

This will lead to large scale defaults on these 6 and 7 year car notes that are popular today and it will basically be like a mini-housing crisis all over again.

LOL.  I live in Texas but I've never seen a behemoth like that red thing (certainly not jacked up into the clouds like that.)  I don't even know where you could park that kind of battleship.

Clive, it appears as if LoneWolf is pulling your leg.  I'll bet LoneWolf has two of the SUVs pictured above in his driveway right now.

As I said, people in Texas have been downsizing lately.  The picture below is what a typical Texas truck looked like a few years ago.

[Lone Wolf]

Clive, it appears as if LoneWolf is pulling your leg.  I'll bet LoneWolf has two of the SUVs pictured above in his driveway right now.

As I said, people in Texas have been downsizing lately.  The picture below is what a typical Texas truck looked like a few years ago.

That's a bit more like it, but still kind of small.  It seems like once you add a second child car seat into it, you've barely got room left for the volley ball team.  Maybe the "Medium" Tex family can get around in this kind of miniature little Euro-car, but some of us need a little elbow room.  We are the ones who will suffer most as gas prices rise.

It's funny.  I still remember paying around 74 cents per gallon in the late 90s at the local grocery store.  $4 per leads to a whole different set of economic calculations.

[MediumTex]

$4 per leads to a whole different set of economic calculations.

I think the cheapest gas I have bought since becoming a driver was over a few day period around 1987 when gas was briefly in the 77-79 cents a gallon range.

I remember thinking at the time that I should note what that looked like because I might not see it again.

[Lone Wolf]

That sounds about right.  The 74 cent price was undoubtedly some kind of odd promotional for the local Randalls because I never saw anything like it again.  My wife and I still talk about it.  It's going to be awesome "well back in my day!!" material for us to bore the grandkids with one day (along with stories of gold at $250 an ounce, I'll wager.)

[KevinW]

$4 a gallon against a backdrop of static wages simply doesn't leave enough extra money in the average paycheck to support a consumer economy.

Echoing what I said in the energy thread -- there's very little wiggle room if you suppose that lifestyles and spending patterns are completely set in stone.  However there's no one holding a gun to anyone's head, saying they have to commute 60 miles in a lifted 4x4 SUV to a McMansion with the thermostat set to 72 in the summer and 80 in the winter.  All of those are choices that can be reversed.

Last time we had a brief spike in gas prices which caused people to conserve in a temporary "fad diet" way.  But if we have a sustained price increase people will start rearranging their lives around the new price of energy, and the US economy will soldier on.  Maybe people will pull back on big houses, big cars, and airplane trips, but I'm confident that corporate America will come up with some new crap that people can afford.

[Coffee]

Is it at all possible that the people who couldn't afford to live in McMansions have already been "shaken out" of them, like dead leaves from a tree?

[KevinW]

I bet there are plenty marginal households that can afford the McMansion etc. with gas << $4 and can't at $4+.  Whether they fully appreciate it or not, the price of petroleum energy is a major factor in the overall cost of that lifestyle.

[TBV]

There have been several 30% increases in retail gas prices over the last 10 years, so another one shouldn't have earth shattering consequences.  Increases become a problem only when they persist.  From 1973-80, retail gas went up steadily until it was 80% higher in 1980.  That made a difference!  

In years past, leaders generally looked on high gas prices as a bad thing.  However, the current administration seems unconcerned, and recognizes that most alternative energy schemes cannot pay their own way unless oil stays high more or less forever.  So the question might better be put as "Is the U.S. Economy Sustainable with Alternative Energy?"

[Gumby]

M. King Hubbert — the guy who coined "peak oil" — probably underestimated the rate our world's oil supply will decline. In his calculations, Hubbert believed that nuclear energy would be more prevalent before oil reached its peak. He also expected alternative energies to play a larger roll as well (wind, solar etc). Additionally, he didn't see the rise of China and India in terms of consumption.

http://theoildrum.com/node/7786

So, the drop in the world's oil supply may be faster than originally anticipated.

[Coffee]

This is an interesting blog:

http://peakoildebunked.blogspot.com/

[Pkg Man]

Ha! Nunmobile's!

http://www.topgear.com/uk/videos/monster-nun

Look and weep



That's Jeremy Clarkson also from Top Gear (car programme that's repeatedly repeated on Dave)

I believe I would feel safer on a motorcycle...