By Richard the Engineer - in response to the continually increasing fuel costs in 2014
Desperation sells: automobile gasoline, so much a part of modern life centered on driving, that increases in gas prices directly result in lowered consumption in other areas. A favorite topic for TV news, let's take a closer look at why, in today's economy, with most consumers tapped out, increases in transportation costs can lead to a recession - or worse.
And, yes, I am frightened which is not good. Onward →
Economics is like fractions: we all try to understand them via pieces of a pie. Unlike fraction pies (remember elementary school) the economic's pie is not unlimited. How an economic's pie shrinks or expands results, in many ways, from the fractions assigned to various societal groups, such "the middle-class".
Increases in gas prices in 2014, for whatever reason, takes wealth from the middle-class by increasing commuting and other transportation costs, and gives it to some wealthy entity, which just like many other things I will be discussing throughout this website, slowing economic activity in the consumer area. Without demand many current successful businesses, even Wal*Mart, are going to lose customers and, whoops, there go more jobs to unemployment lines.
Where the increases of gasoline prices puts money - in the oil companies pocket or someplace else - is not important, consumer demand is the key issue.
Taking wealth out of the hands of the consumer will kill capitalism in the U.S. Concentrating wealth produces feudalism. Of the three choices (estate owners, government, guilds/individuals) feudalism continually produces the lowest increase in the size of the economic pie. Government spending, if not corrupted by political power, should be directing spending to infrastructure as investment. I'm not making excuses for everyone gaming the government (wonderfully, manufacturing takes government away from being the only game in town) I just need public money to be invested in building and MAINTAINING infrastructure.
- Currently the middle-class is borrowing to spend money which is not sustainable.
- The height of bringing wealth into the present (see "The Theory of Time and Wealth" by me in the economics section) was about 1996 and will end miserably as consumption dries up, figure another 3 or 4 years at most, maybe less. That's why I worry about increased fuel (don't forget home heating) costs.
- When only the government has money everyone has learned how to be on the receiving end. Worse, people who used to blush if they had to admit to government aid are full time live-off-the-government members. If people cannot get more money from the government to pay for higher fuel costs, then consumption will decline.
- The government is far too small to protect the population - like water safety in West Virginia - from ways left over from the 1900's. The middle-class can not afford to protect itself without government cooperation.
- Alternative commuting is not available - especially at a reasonable ticket cost. We have neither built mass transportation nor have made it affordable. Expect many years of construction projects which will, fortunately pump cash into the economy.
- We cannot be international competitive without much reduced commuting costs. China and other countries, just like we did around 1900, provide dorms or inexpensive transportation to work. Or as was popular here before the car, people lived fairly close to where they worked, not 40 miles in each direction. Did you ever stop to think how much pre-tax dollars are paid for people to drive to work? Think pre-tax! $5,000..$10,000...$15,000?
- We are about to enter a period of deflation due to wealth being taken from the consummer. Inflation would mean dollars chasing goods.These dollars would have to come from the wealthy - the only place left - who seem to have no interest in helping consummers unless through loans which end up taking even more money from the consummer. Many products, seemingly affordable in better days, will suffer greatly as products begin to chase money. Inflation is good for people owning wealth and deflation is good for people still working.
Can anyone come up with graphs about the % increase in commuting and how it affects spending? I would appreciate your help. We need both short-term solutions and long-term goals. Should government help keep fuel cost down until we can build mass transportation? If the government doesn't add fuel to the fire will everything burn down?
Just adding cash to the economy, like the bank stimulus, doesn't do anything for the economy except flow into wealthy, happy-to-be feudalists, pockets. To be effective stimulus wealth must be in the consumers pocket or valuable resources just disappear.
What should be done with fuel prices to ease the renormalization of America?