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.