Personal Family Budget
The price of gasoline rises and falls depending on global supply and demand, and prices can snap back just as quickly as they plunge. As reasonably priced oil gets harder to find and extract, and as developing nations feel the pressure of consumer demand for transportation, inevitably there will be price spikes. And families will feel the impact.
Volatility in the oil and gasoline markets isn’t good for consumers. When prices spike, it’s like a regressive tax on the middle class and the poor, who spend a greater portion of their income on gas:
- When gasoline prices rise unexpectedly, it forces consumers to delay large purchases like upgrading household appliances and maybe even buying a new car.
- Price spikes also drive up the cost of other goods as well — food, clothing, electronics, anything that’s transported by vehicles that run on gas or diesel.
- Housing values can even be affected. A May 2008 report authored by economist Joe Cortright showed that home values in far-flung suburban areas fell more steeply than in metropolitan areas, because high gas prices made long commutes from the suburbs less desirable. “The gas price spike popped the housing bubble,” Cortright wrote.
In Southern California in July, prices shot up by as much as a dollar in only a couple days, without sufficient explanation. Driver after driver complained that they had no control, and just had to pay whatever the price was. Some do have control: They drive vehicles powered by electricity, compressed natural gas or hydrogen. There also are more than 17 million flex-fuel vehicles on the road, capable of running on cheaper, cleaner E85. But for the rest of Americans, their cars, pickups or SUVs can only take gasoline. Wild price fluctuations highlight our biggest problem in transportation: Oil is essentially our only option, and it’s been this way for a century.
FUEL FREEDOM AS ONE OF THE SOLUTIONS
As John Hofmeister, the former Shell Oil president and Fuel Freedom board member, says: “We will never get past the volatility of oil until we get to alternatives to oil.” Consumers need a stable price for fuel, without unpredictable price changes. Adding more alcohol fuels like ethanol and methanol, as competition to gasoline, will help reduce the cost structure of fuel over the long term.
Fuel Freedom Foundation is working to create the market conditions necessary to put alternative fuels on an even footing with gasoline. One day, drivers will pull up to their neighborhood station and be able to choose from a menu of fuels — whichever one is best for their vehicle and their budget.
Our dependence on oil drains billions of dollars from the U.S. economy, inhibiting growth and sending money overseas that could otherwise bolster economic activity at home.
The United States racks up enormous costs related to its addiction:
- The U.S. spends billions a year on subsidies and tax breaks for oil and gas companies. A report by Taxpayers for Common Sense in August 2014 showed that the 20 largest American oil and gas companies paid 11.7 percent in taxes from 2009 to 2013; the top corporate tax rate is 35 percent.
- The Stockholm International Peace Research Institute estimated that in 2014, the world’s total military expenditure was $1.8 trillion. The U.S. accounted for 34 percent of that, more than the next seven top-spending nations combined. Protecting oil-supply routes in the Persian Gulf requires a great deal of personnel and firepower.
- In an April 2015 analysis, The New York Times reported: “Industry analysts and Middle East experts say that the region’s turmoil, and the determination of the wealthy Sunni nations to battle Shiite Iran for regional supremacy, will lead to a surge in new orders for the defense industry’s latest, most high-tech hardware.”
- A report by CNBC in December 2014 indicated that the U.S. military pays about 100 times the price that ordinary consumers pay, because of the extraordinary effort it takes to move that fuel around the globe to soldiers, marines and sailors who need it. The Department of Defense uses about 300,000 barrels of oil a day, 1.5 percent of the nation’s entire consumption.
FUEL FREEDOM AS ONE OF THE SOLUTIONS
Adding replacement fuels like ethanol and methanol will soften our crippling addiction to oil, imported and otherwise. This will have a profound effect on our budget problems: A competitive market will create a whole new industry as consumers increasingly demand these cheaper, cleaner-burning fuels. The millions of new jobs created as a result will lead to increased federal tax revenue.
Less dependence on foreign oil will reduce the pressure on our military to answer the call to defend oil supply routes around the world. With less need for weapons, assault vehicles, planes and ships, the military’s astronomical fuel expenditures will drop as well.
The U.S. economy is entirely dependent on oil. Without a steady supply of affordable oil to create the fuels that power our vehicles and bring products to market, economic growth is severely curtailed. When oil prices rise suddenly, shockwaves ripple through the nation’s entire economic structure, all the way down to the consumer level.
It shouldn’t come as a surprise, then, that when these spikes occur, American jobs are placed in peril. When gasoline, diesel and jet fuel become more expensive, it hits the bottom lines of every business that moves people or products around. Consumers, squeezed by high gas prices, have less cash available for other goods and services. This puts pressure on corporate profits. Companies then must cut operating costs, and labor is often a company’s largest expense.
This cycle of employment boom and bust has happened time and again:
- Ten of the last 11 recessions were preceded by a steep increase in the price of oil (with the exception coming in 1960-61), according to an analysis by UC San Diego economist James Hamilton.
- On July 11, 2008, the price of crude oil hit $147 a barrel, the highest price. Compare that to the oil market from a few years earlier, when the price ranged from about $11 to the $20 range.
- Two months later, the housing bubble burst, devastating Wall Street. The Dow Jones Industrial Average plunged 777 points in a single day.
“We have hit an endgame for the era of crude oil, and that was July 2008, at $147 a barrel,” Jeremy Rifkin, author of the book “The Third Industrial Revolution,” said in Fuel Freedom’s 2014 documentary PUMP.
“And that was the economic earthquake,” Rifkin added. “The collapse of the financial market 60 days later, that was the aftershock.”
FUEL FREEDOM AS ONE OF THE SOLUTIONS
Diversifying our nation’s fuel supply by making it easier for consumers to fill up with replacement fuels — like ethanol, methanol, natural gas, and electricity for vehicle batteries — will help insulate the U.S. economy from repeated oil shocks that come from restricted supply or surging demand.
The U.S. spends billions of dollars a year on imported oil. That money could be kept here at home to consume American-made fuels instead, with money left over for investment, savings or buying goods and services that would increase economic activity and create jobs.
What’s more, as consumers demand greater access to cleaner, cheaper, American-made fuels, the necessary build-out of the distribution system to bring those products to market will create millions more new jobs right here in America.