2 Cents a Gallon : High Gas Prices are Your Fault

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There are several forces involved. The unrest in the Middle East, the falling value of the dollar, Europe's financial problems, and sharply increased demand from China and India all tend to play a role. That's because oil is now more than a commodity; it's an investment vehicle. That in turn creates speculation, which is not necessarily related to oil's short-term supply or demand. And some of this affects the way gas and oil is priced internationally and the condition of the global economy.

Gas prices tend to respond to international oil prices. And those prices, in turn, tend to reflect the health of the global economy and speculation around the world about future supplies of gasoline and oil and how willing Americans may be to tolerate higher prices.

Houston gas prices climb above $2 a gallon

GMJ: Is that a sign that the global economy is getting stronger? Jacobe: Normally, that's what you would think, and it's one of the major issues we face: Do gas prices automatically go higher when the global economy strengthens? And does that effectively create an automatic brake on the ability of the international economy -- and particularly, the U. It's a possibility, and it's a big concern. We know that there's a point at which prices at the pump cause a shock effect. Jacobe: There's a point where gas prices cause such hardship throughout the U. When we reach that point, the consumer pulls back, the economy slows, people travel less, and people spend less.

And mixed in with the shock effect are expectations. All of that -- the expectations as well as the reality -- has an impact on how the consumer behaves. And when the U. I think the volatility of gas prices continues to create a problem for the U. GMJ: Because we can't all rush out and buy more efficient cars when gas gets more expensive? Jacobe: Yes, though we start thinking about it.

A recent Gallup Poll asked people what they will do if gas prices stay where they are or go higher. Middle-income people talk about getting a car with better gas mileage, and lower income people are talking about taking more mass transit. But those are about the only options they have. There aren't many things they can do in the short term. Far fewer people, maybe 1 in 10, might buy an electric car or change their jobs. But even if gas prices go much higher, those aren't things most people can readily do. GMJ: Do we just get used to the idea that gas prices will fluctuate?

And does that cause any lasting change in behavior? Also, in our latest measurement, about half of Americans said that gas prices had permanently changed, and 4 in 10 said the change was temporary. So I do think that people have adjusted psychologically to the volatility in gas prices and accepted higher absolute levels.

But what makes it hard to adjust is that the high prices are not predictable. Jacobe: Right now, people have to make general lifestyle adjustments because of the volatility of gas prices, not necessarily because of where gas prices are at any point in time. People do adjust psychologically, at least to some degree. But adjusting financially is a lot harder; their real income goes down, their ability to buy goes down, their fear about being able to make ends meet increases.

All this has an impact on the U. Volatility scares people, and what they're reacting to is their fear of even higher future prices. Back in , you and I talked about stabilizing gas prices, and I suggested using the tax code as a way to do it -- which is not a very popular position. But the idea is that we don't need price controls; we need to stabilize the price of gas so people can adjust over time.

Rapid changes in gas prices make it very difficult for people to adjust in a real sense. Jacobe: True, but gas prices affect Americans differently, no matter what they drive.

For someone who drives a lot, higher gas prices can create incredible financial hardship, and they might not have a way to mitigate that. Still, I think Americans are trying to adjust over time, but it's not the way they want to live. They want a return to what made our economy a growth engine -- relatively inexpensive energy. As a carbon-based economy, cheap gas has been very good to us; that's the way people are used to living, and they want to continue to live that way. They are grudgingly making adjustments to higher prices. But that brings up the topic of how these prices are set and what their effect is on the global economy.

As I mentioned before, I think high gas prices have something to do with the idea of oil as an investment tool. GMJ: That not only affects what we pay at the pump, but the rest of the economy, right? Jacobe: Yes. When gas prices are high, demand falls back, the economy slows, and we're in for another soft patch, or worse, stagflation. When the economy slows, gas prices start to come down, oil becomes less attractive as an investment, and the dollar strengthens, which also makes oil less attractive as an investment.

As the global economy picks up, energy commodities suddenly become more appealing as investments. So I think one of the keys to future economic well-being is energy policy. Unless we get some kind of energy policy that allows the U.

U.S. Energy Information Administration - EIA - Independent Statistics and Analysis

Jacobe: That's a good question. There are complicated politics involved in energy prices, and there's always an energy-versus-environment tradeoff. The less we're willing to produce domestically for environmental reasons, the higher the price of energy becomes. That's because we're basically paying for a cleaner domestic environment by importing foreign oil.

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I think the economy is in much too poor a condition to be restricting energy-sector growth in the U. Many countries around the world are taking advantage of their natural resources and doing very well as the global economy expands.

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In much of the U. As a result, the parts of the world that are willing to take advantage of their natural resources have been doing well as our economy struggles. The U. What we shouldn't do is go from an economy built on cheap, dirty energy to one that depends on extremely expensive clean energy and assume that change won't have a major economic impact.

It should be pointed out too that high levels of taxation and regulation and a lack of competition in the state's fuel sector are not mutually exclusive explanations. Government fees and red tape often have the effect of squeezing out marginal producers and retailers, giving remaining firms greater ability to raise prices. And regardless of any "mystery surcharge" on California gas, the fact remains that state government polices are a huge component of the final price everyone is paying at the pump.

Indeed, in the case of the state's cap-and-trade scheme—where the state caps the amount of allowable carbon emissions, and then auctions off emission credits—the explicit purpose is to raise the cost of emitting carbon, and thus burning gasoline. Clearly, for many of California's politicians, the benefits of state policies aimed at producing cleaner air quality, mitigating climate change, and generating more revenue for road maintenance and light rail expansions surpass the costs of higher gas prices.

If that's the case, however, Newsom and others should make that case to voters directly and explicitly instead of trying to appease motorists' anger by pointing their fingers at industry. Jacob Sullum 9. Jesse Walker 9. Billy Binion 9.

Circle K gas prices drop to pennies per gallon during computer glitch, reports say

Eric Boehm 9. Ciaramella 9. Beto O'Rourke. Someone should tell Beto who did the killing at Kent State. It's a historic moment in Congress, but Senate support remains uncertain. Cancel Culture. Carson King is the latest victim of a cancel culture that's out of control. Christian Britschgi 9. Robby Soave 9.

The average price of a gallon of gas rises 2 cents in Rhode Island | WJAR

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