Soaring gas prices shock the economy

What happened

Oil prices last week neared the unprecedented $140-a-barrel mark, after jumping a record $10.75 in a single day of trading, while the average price of a gallon of regular gas in the U.S. topped $4 for the first time in history. The sharp rise in gas prices threatens to slow economic activity, raising concerns that the country faces a double whammy of surging inflation and slow growth. The hike set off panic selling on global stock markets, as the Dow Jones Industrial Average plunged nearly 400 points late last week amid other downbeat economic news.

The sudden spike in energy prices is fraying tempers and forcing wholesale changes in Americans’ habits. With consumers shunning large, gas-guzzling vehicles, General Motors last week announced it would close four light-truck and SUV plants and add a third shift at a plant making small, fuel-efficient cars. Mississippian Josephine Cage, who pays $200 a week to commute 30 miles to her job in a fish-processing plant, is cutting back on meat to pay her fuel bills. “Insane” gas prices convinced Clevelander Debbie Gloyd to garage her late-model Chrysler Concorde and start riding the bus to work. And in a scene reminiscent of the late-1970s energy crisis, police in Cypress, Calif., were called in to break up a brawl between two motorists jockeying for position in a line for relatively cheap gas.

The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.

Join more than 350,000 subscribers and keep yourself informed with a selection of The Week’s most interesting, enlightening and entertaining stories - plus daily puzzles.

Sign up

What the editorials said

With oil going through the roof, the usual suspects are demanding that we open our national parks and other scenic areas to exploration and development, said the Detroit Free Press. But “that’s short-term thinking with long-term environmental consequences.” A more realistic solution is “driving less, driving smaller, and driving smarter.” Washington can help by offering consumers incentives to try new technologies and give mass transit a shot.

But that would take political courage, said The Miami Herald. Politicians would rather berate oil company executives “for their greed, shortsightedness, lack of patriotism, and so forth,” than ask Americans to sacrifice. During the OPEC oil embargo nearly 30 years ago, Jimmy Carter urged Americans to conserve energy by driving less and watching their thermostats; for his efforts, he was sent packing. Now policymakers have another “teachable moment,” in which they could advance policies to break America’s oil addiction. Unfortunately, they all remember what happened to Carter.

What the columnists said

Consumers aren’t waiting for Washington to act, said Charles Krauthammer in The Washington Post. It turns out that when gas hits $4 a gallon, “Americans become rational creatures.” They start using mass transit, cut down on their driving, and trade in their SUVs for hybrids. We could build on this momentum by taxing gas so that it never again slips below $4 a gallon. At that price, there’s no need for “infinitely complex” government schemes. Simple self-interest does the trick.

But it won’t do it fast enough, said Nicholas von Hoffman in The Nation. “The better part of a decade will pass before the current generation of gas guzzlers” is replaced by more fuel efficient cars. Public transportation won’t pick up the slack, for the simple reason that in most of the U.S., “we have no public transportation.” For now, the best option for most people is “carpooling on a heretofore unknown scale.” But let’s not pretend this is a long-term solution.

That makes it all the more imperative to step up domestic production, said Ben Lieberman in the New York Post. Alaska’s National Wildlife Refuge is only a start. The U.S. has huge reserves of oil and natural gas in the Western states and off our coasts, but wrongheaded federal rules block oil companies from developing these resources. We can place “reasonable limits” on drilling in national parks and “other areas of scenic, environmental, or historical significance” and still make a sizable dent in our energy needs. Do we really have a choice?

What next?

Federal forecasters predict that gas prices will top out at $4.15 a gallon in August, but most consumers aren’t as optimistic. They may have a point. Experts estimate that if current oil prices were fully reflected in the price of gas, it would cost $4.50 a gallon. And investment analyst Stephen Leeb predicts that continued strong demand from China and India will push the price of oil above $200 a barrel and gas above $5 a gallon. “This is going to be reshaping our way of life,” Leeb said.