The SeattlePI has a story about how some models are saying that lower gas prices are a sign of bad news in the economy.
Experts say sinking prices may be predictive of a nasty recession, the theory being that as the economy worsens and people drive less, demand for gasoline will decrease, not only here, but also in developing economies such as China and India. That could send prices even lower in the near term, though it won’t jump-start the economy because the credit market is still weakening and unemployment is rising.
An interesting take. I’m no economics PhD, but that just seems crazy to me. While I’m on the subject of gas prices, the whole idea of high gas prices “hurting” everyday Americans is just ludicrous. Let me put this in perspective and I’ll use my vehicle as a test case. It is a 2005 Chevy Malibu. Not exactly a model of fuel efficiently. In the city it averages about 19-20 mpg, which is fairly common.
Now, the Department of Transportation says that 78% of Americans drive fewer than 40 miles a day[1], so let us use that 40 miles as our base. It would also be fair to say that the average gas tank is about 16 gallons. So the average American uses 2.5 gallons a day max, thus filling up every 6.4 days. With me so far? Good.
In a 28 day period (two paychecks) the average user paid roughly $307.30 based on $4.39 a gallon. Sounds pretty high right? That same person now pays an average of $192.50 based on $2.75 a gallon, which is a difference of $57.40 per paycheck.
If I get this right, paying an extra $57.40 a paycheck was hurting the average American, right? Hmm… 60 bucks is a night out at the movies. Or a nice dinner. Or a roughly 12 lunches at your favorite fast food joint. Or a video game. The point being that if an extra 60 bucks a paycheck was killing you, you have other problems.
Having said all of that, let’s remember that $57.40 is based on driving that max of 40 miles a day, which most people don’t do. It also takes into account completely filling an empty tank of gas. Again, which most people don’t do, unless you are used to running your car out of gas and pushing it to the gas station. So the real cost is more like $40-$45 a paycheck.
How is that for some perspective?
Sources:
1. Popular Science Nov. 2008 pg. 52
