One issue that invariably arises whenever the idea of monetary stimulus is under discussion is that someone will say “X won’t work, it just raises the price of gasoline.” It’s important to see that under present circumstances, anything that succeeds in promoting robust economic recovery would raise the price of gasoline.
After all, unemployment’s 9.1 percent. If it fell to 7 percent, that would mean a large increase in the share of Americans who are commuting to work on a daily basis. And the United States of America is both a large country, and one in which commuters consume an unusually large quantity of gasoline as they go about their business. Consequently, 2.1 percent of the American workforce shifting from unemployed to employed means a meaningful increase in the consumption of gasoline. Sometimes a small rise in the price of a commodity will spur a large increase in production. But the present state of world oil production doesn’t work like that. So the rise in demand for gasoline will create a pretty big spike in the price of oil. What’s more, there’s clearly nothing you could do to immediately put 2.1 percent of the population to work. By contrast, oil futures markets can move very quickly. So if someone says or does something that you would rationally expect to produce robust recovery over the next 9 months the immediately visible consequence would be a spike in the price of oil. In other words, if some initiative raises the price of gas that’s more likely a sign the initiative is promising than a sign that it’s failing.