Gas at $5

[Bubblesitter]

Oil price does ripple thru the economy. I was reading on BUT that every $10 rise in oil price reduces GDP by 1/2 %, I suppose enough to put us back in recession

Any good personal hedging strategies?

I was watching the news last night and a scooter dealer was saying he was getting a lot of big SUV owners looking to downsize.

I got a basket of diversified oil and oil services companies that I’m hoping to realize a decent capital gain later this year. Investing in producers that are far from Mideast. May help a bit as everything else rises in price

[Anonymous]

[quote=Rich Toscano]
[quote=briansd1]I just read that $5 gas can help the economy by spurring purchases of new full efficient cars.[/quote]

I’m sorry, that’s a horrible theory… perhaps one area of the economy will be spurred in the way the article suggests, but that is offset many times over by the overall reduction in discretionary income that is caused by an increase in gas prices. (It would be different if the oil were produced domestically, but it ain’t).[/quote]

(I don’t see any article referenced in this thread, btw – am I missing something?)

The net effect on the economy depends upon why the price goes up.

For example, if the increase were because of a tax that was used to fund some other purpose, it could be good, bad, or a wash for the overall economy, depending upon what that purpose is. (I know today’s current situation is not due to a tax.)

If price goes up due to diminishing supply (e.g. an oilfield dries up, or we start blowing up oil rigs in Iran) then this event, in isolation, is a net loss for the economy.

And it doesn’t really matter if the production is domestic or not. Regardless of whether all or none of the oil we use is produced domestically, prices are set by supply in the global oil market.

(Trivia: the US actually doesn’t import much oil from the Middle East, but we very much care about the production of oil in that region because it has a huge influence on global prices.)

Brian’s theory isn’t altogether “horrible.” It does sound like an argument for the “Broken Window Fallacy,” but there are other aspects to consider.

If the rising price of gas leads to increased investment that spurs a new breakthrough in energy efficiency, then a short-term increase in gas prices could lead to a huge long-term payoff.

But I wouldn’t recommend raising gas prices just to encourage this sort of investment. There are better ways to do it, ways that aren’t so much based on hope.

[briansd1]

[quote=Rich Toscano]
[quote=briansd1]
I just read that $5 gas can help the economy by spurring purchases of new full efficient cars.
[/quote]

I’m sorry, that’s a horrible theory… perhaps one area of the economy will be spurred in the way the article suggests, but that is offset many times over by the overall reduction in discretionary income that is caused by an increase in gas prices. (It would be different if the oil were produced domestically, but it ain’t).[/quote]

I saw this on TV last night about shale oil.

“Just five years ago, we were importing 60 percent of our oil. Today we are importing only 42 percent.
http://www.cbsnews.com/8301-18563_162-57384161/boom-times-are-back-in-okla-oil-production/

Maybe TG is right, and that with production, conservation, and new technology, we can become energy independent.

Replacing the fleet of old gas guzzlers would be a step in the right direction.

I guess the effect on the economy depends on if gas price hikes are temporary or permanent.

I think the prices increases are temporary because of speculation and saber rattling in Iran and Syria.

Temporary gas price increases combined with nice growth in sales of fuel efficient autos could be good for the economy. It would be like an investment in a better fleet that pays off year after year.

And, if we just implement drill-baby-drill, and build the Keystone pipeline, then gas prices will drop to $2 in no time, haha 😉

[Rich Toscano]

Brian said he heard or read it somewhere, that’s the “article” I was referring to. (Since I described it as “horrible” I wanted to give a nod to the fact that Brian was repeating someone else’s theory, not offering it up as his own).

Anyway the historical record is pretty clear that rising oil prices (and thus gas prices) are bad for the near-term economic growth. There may well be longer term benefits from a move to more efficiendy as pri_dk describes, but that’s not what Brian was talking about.

[blahblahblah]

Oil prices rose 10% this week in reaction to me selling all of my oil positions at the end of last week for what I thought was a nice little profit.

D’oh!

[paramount]

Reading through this thread confirms my long standing belief that many if not the majority of Piggington contributors live in a world apart from most Americans.

With so many people out of work, 50 million on food stamps, and many many more living hand to mouth I’m sure these gas priceincreases have real impacts far beyond trite blog entries.

But in general I have little sympathy: most people want BIG SUV’s and TRUCKS: number #1 and #2 sellers last year: F-150 and the Silverado.

Mark my words: a good majority of people would literally go hungry before giving up their full size trucks and SUV’s.

Remember we are a country with an average IQ of around 98.

[scaredyclassic]

Smaller gas tanks would be an easy start toward making fillups cheaper.

[scaredyclassic]

I thought 100 is the avg iq. Are we getting dumber?

[scaredyclassic]

Holy cow. Average iq varies widely globally. I thought every nation was scaled so 100 is average. Many nations are in the 70s, Asian countries mostly over 100.

[protorio]

I pretty much ride my bike most places. Errands are easy, as most car trips in the US are under 2 miles. My 10 mile commute from La Mesa is wonderful. I get to work energized, and get home having outpaced the worries from toils at the office. I don’t have to go in everyday, so its a nice break to walk into the Village a couple of times a week and work at a cafe.

I’m pretty out-of-touch with gas prices. In 2008, I drove to OB and was really low on gas, and I went to an Arco to fill up, and without really thinking I asked for “$5 on #8,” which is how I always used to pay cash for gas. THe fueling lasted about 25 seconds. I couldn’t believe it – about 1.3 gallons.

That being said, food prices will go up, since we have a petroleum-based agricultural system. Same with commodities, and a lot of people will be feeling it. But they’ll still get their $4 latte every morning from Starbucks (idling in the drive-thru).

[barnaby33]

Paramount, I’m curious are you the average American, or merely the representative of their disdain for our discussion?

[ocrenter]

[quote=walterwhite]Holy cow. Average iq varies widely globally. I thought every nation was scaled so 100 is average. Many nations are in the 70s, Asian countries mostly over 100.[/quote]

http://sq.4mg.com/NationIQ.htm

The US is 98, not that bad, at least within the top 20.

[CAwireman]

I actually didn’t believe the statistic of ~ 10 year. But, Polk data seems to confirm it.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
“The average age of a light vehicle in 2011 was 10.8 years, according to Polk, a research firm, up from 9.7 years in 2006.”

http://online.wsj.com/article/SB10001424052970204778604577243471504542512.html

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I know people driving their motorcycles to work
when weather permits. They often own large trucks or sports cars and the montly gas costs are killing them.

[Hobie]

Actually, I am surprise we don’t see even more motorcycles and scooters on the road these days.

Must be the safety issue, ..’cause they sure are fun!

[briansd1]

[quote=paramount]
But in general I have little sympathy: most people want BIG SUV’s and TRUCKS: number #1 and #2 sellers last year: F-150 and the Silverado.

Mark my words: a good majority of people would literally go hungry before giving up their full size trucks and SUV’s.

[/quote]

Yes, I agree.

There’s strong car culture in America. People identify with the cars they drive.

Big people need big SUVs to carry their big things. Big strollers for fat babies, huge packages of huge stuff from Costco, and knick-knacks of all kinds in the trunk.

In Europe, you see families of 4 go on month long vacations in their small Opels and Fiats. Here, people will rent Cadillac Escalades to drive to Vegas for the weekend.

[Author]

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