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What Rising Gasoline Prices Do To The Economy

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

What Rising Gasoline Prices Do to the Economy

Charting gasoline prices against income and GDP provides some interesting results.

Since rapidly rising gasoline prices are in the news, let's look at some charts of gasoline and the economy, courtesy of frequent contributor B.C. These depict income and GDP in a ratio with the price of gasoline, and so they reveal information that is not contained in charts showing only the price of gasoline or GDP.

Here is disposable personal income and the price of gasoline:

 

 

When real (inflation-adjusted) wages are stagnant and the price of gasoline is high, as was the case in the late 1970s and the recessionary early 1980s, the ratio is low. If income is stagnant and the cost of gasoline is high, then people have less money to spend on other items and the economy is also stagnant--exactly what occurred after the 1979 Iran Crisis pushed gasoline prices up. (Sound familiar?)

When gasoline is relatively cheap and incomes are rising, then the ratio is high. Thus when oil prices hit bottom and incomes were rising in the late 1990s, then the ratio was peaking.

Look at it now. The ratio spiked in 2009 as oil prices plummeted from $140 per barrel in 2008 to less than $40 by the end of 2009.

Since incomes are stagnant (actually down since the 2007 top) and gasoline is once again on the rise, the ratio is returning to recessionary levels.

 

 

Here is GDP and the price of gasoline:

 

 

As B.C. noted: "These charts show that wages, incomes, and GDP have fallen dramatically in relation to the increase in the price of gasoline (and energy in general) since the secular peak in the late '90s to early '00s." The ratio is back to the recessionary levels of 1990 and 2008 and not far above the "oil shock" stagflation of the 1970s.

If the government portion of GDP is removed, what's left is private GDP to gasoline prices:

 

 

This chart shows the secular decline in the private economy from the late 60s into the late 1980s, and the expansion of the 1990s. The ratio once again began a secular decline from its peak in the Internet boom years of 1999-2000, and then fell off a cliff in the 2008-9 recession.

Though it has recovered a bit, the ratio suggests that in terms of private (non-government) GDP and the price of gasoline, the private-sector economy is plumbing depths that are unprecedented in last 45 years. (The "oil shock" stagflationary 1970s look resilient by comparison, and the nation wasn't borrowing 10% of its GDP every year, either.)

Yes, the Federal government can cover up the damage by borrowing 10% of GDP each and every year ($1.5 trillion, and don't forget to add in the off-budget "supplementary appropriations"), and the Federal Reserve can add trillions in quantitative easing stimulus, but even adding $8 trillion of borrowed/printed money to the economy over the past four years has had remarkably little effect on the private-sector economy. That does not bode well for the "recovery."

 


And for those stapped for time, here is what we posted exactly a year ago:

The Impact Of Surging Oil Prices On The US Consumer: A Primer

A quick talking point: assuming a pure crowding out, the effective $700 tax on consumers reduces GDP by 0.5% (disclosure, the sensitivity is higher than some on the street who use 2.5-2.75 cents for every $1 in oil).

 

 

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Fri, 02/24/2012 - 12:40 | 2192969 redytogo
redytogo's picture

But they keep telling me there is no inflation....

Fri, 02/24/2012 - 12:50 | 2193014 bdc63
bdc63's picture

yikes ... I think I'm gonna need another cup of coffee and go back and read that one more time ... my Evelyn Wood speed reading did not serve me well with that article ...

Fri, 02/24/2012 - 13:02 | 2193086 rcintc
rcintc's picture

It's just Transitory.....remember?

Fri, 02/24/2012 - 13:38 | 2193241 trav7777
trav7777's picture

let me just synopsize..."high gas prices fuck up the economy's shit"

Fri, 02/24/2012 - 13:47 | 2193277 pods
pods's picture

High gas prices weren't enough to temper the crowd in Orlando last night.

For shoes.

pods

Fri, 02/24/2012 - 14:54 | 2193571 kralizec
kralizec's picture

Obama voters, don't they just kill ya?!  LOL!

Fri, 02/24/2012 - 15:35 | 2193769 Cathartes Aura
Cathartes Aura's picture

perhaps the shoe-buyers are hoarding for black market resale - shoes will be in demand when no one can afford to drive.

Fri, 02/24/2012 - 23:22 | 2194920 fourchan
fourchan's picture

ooga booga it what i say to that.

Fri, 02/24/2012 - 13:05 | 2193097 whatsinaname
whatsinaname's picture

Has the SPR been filling up after the recent pre-holiday release ? If yes, have they been filling up crude at 80-100 price range and will they now release at 109 ? Might be some easy gains for the SPR there...

Fri, 02/24/2012 - 13:35 | 2193232 The Big Ching-aso
The Big Ching-aso's picture

 

 

Ya, this sort of rising price is like adding gasoline to the fire.

Fri, 02/24/2012 - 13:23 | 2193181 Al Huxley
Al Huxley's picture

The important thing when calculating inflation numbers is that you have to remember to exclude things that are rising in price - oil, food, etc. The other important thing to remember is that you START with the number you WANT and work backwards to find out what items are relevant in calculating the numbers.

Fri, 02/24/2012 - 14:44 | 2193533 General Decline
General Decline's picture

Well, that implies deception by the money changers. I refuse to believe it. I am just going to remain willfully ignorant so as to not be labeled a terrorist.

Fri, 02/24/2012 - 22:51 | 2194835 engineertheeconomy
engineertheeconomy's picture

You hippie terrist I just reported you to the Department of Home and land foreclosure and job inSecurity and also i called the National banker Security Administration. they said youz some kinda extremist and a threat to to the cuntry

Sat, 02/25/2012 - 13:15 | 2195691 Problem Is
Problem Is's picture

+1...

An important executive position awaits you, Sir Huxley, at either:

  1. The B(L)S...
  2. CREEP-Commitee to RE-Elect the President...
Fri, 02/24/2012 - 14:53 | 2193569 mr. mirbach
mr. mirbach's picture

Considering you could but a gallon of gasoline in 1960 for a shiney silver quarter (in the US) and now a shiney silver quarter is worth more than a gallon of gasoline today, then the conclusion is that gasoline's value has depreciated relative to the value of a shiney silver quarter, right? 

 

There really isn't any "inflation," only a devaluation of the value of a dollar thanks to the FED's unlimited release of Federal Reserve Notes thanks to the profligate spending habits of Government idiots (not to mention the continuous bailouts of the world's banking cabal).

Fri, 02/24/2012 - 15:04 | 2193617 dontgoforit
dontgoforit's picture

valid pt

Fri, 02/24/2012 - 15:17 | 2193688 Quinvarius
Quinvarius's picture

Except printing money is the definition of inflation. 

Fri, 02/24/2012 - 15:54 | 2193848 mr. mirbach
mr. mirbach's picture

IMHO, the term inflation is a bankster/economist mindfuck term to convince sheeple that the value of commodities, goods and services are increasing, which circumvents the discernment that the purchasing power of the currency is being destroyed, devalued, deflated, thusly deflecting consumer amamosity to the producers and suppliers of commodities, goods and services and away from TPTB that implement destructive economic policies.

Too bad that sheeple don't get the difference between value/worth and cost/price vis a vis the purchasing power of their money. 

Fri, 02/24/2012 - 16:48 | 2194060 noses
noses's picture

I thoought it was called "counterfeiting". You're confusing me.

Fri, 02/24/2012 - 15:58 | 2193873 non_anon
non_anon's picture

we live in the made up world of bankers/gov propaganda, deceptions and lies

Fri, 02/24/2012 - 12:41 | 2192972 maxmad
maxmad's picture

what economy?

Fri, 02/24/2012 - 13:07 | 2193106 reload
reload's picture

"even adding $8 trillion of borrowed/printed money to the economy over the past four years has had remarkably little effect on the private-sector economy".

perhaps because none was targeted at the private sector - except maybee fraudulent soft loans for political insiders,  they do not count in my book.

Fri, 02/24/2012 - 14:09 | 2193364 gloogle
gloogle's picture

cough * Solyndra * cough...

Fri, 02/24/2012 - 17:12 | 2194147 unununium
unununium's picture

At $545 million, Solyndra accounts for .00006 or .006% of the $8T.  But thanks.

Fri, 02/24/2012 - 12:43 | 2192977 bob_dabolina
bob_dabolina's picture

buh buh buh Obama said he will provide us with algae.

Eat your peas

Fri, 02/24/2012 - 12:46 | 2192982 SheepDog-One
SheepDog-One's picture

Throw trillions in free money to worthless criminal banksters, and it really does nothing to help the underlying bankrupt economy? Gee, who'd have guessed that? Oh right....all us kooks who were yelling 'DONT BAIL OUT THE CRIMINAL BANKS' back in 2008. But then Paulson the devil himself told our fine 'representatives' to hand over the free checkbook or else there would be martial law and tanks in the streets, which they bought hook line and sinker.

Well I would have preferred the tanks in the streets myself. We'd be better off by now.

Fri, 02/24/2012 - 13:02 | 2193079 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

I would caal the banks a Criminal Syndicate. Paulson engaged in a world record shakedown of our congresscritters and the country.

I can't understand why a Federal Grand Jury hasn't indicted the lot of them by now (maybe they don't know that they can)?

Fri, 02/24/2012 - 13:48 | 2193282 Red Raspberry
Red Raspberry's picture

The fix is in.

Fri, 02/24/2012 - 13:50 | 2193294 pods
pods's picture

Well there is a rumor that a whistleblower told Holder all the dirt.

Now the whistleblower is getting beaten by some dude is Kyrgyzstan.

Smell the freedom?

pods

(joking about the rumor for those asking for links)

Fri, 02/24/2012 - 13:23 | 2193179 nachtliche
nachtliche's picture

no, it wasn't just the kooks. If you remember, all americans were flooding congress telling them NO to the bailouts initially, and it got voted down. Then the banksters just made a backroom deal. 

Fri, 02/24/2012 - 12:46 | 2192983 TruthInSunshine
TruthInSunshine's picture

The San Francisco Fed, in conjuction with Paul Krugman & Brian Wesbury (of First Trust Advisors), has urded that the Federal Government to adopt their 'white sheet proposal' and distribute a new subsidy card, akin to SNAP, that would allow any American with one motor vehicle or more to obtain 50 'free' gallons of gasoline per month.

The program will be administered by JP Morgan (which will charge 25 cents per each gallon consumed under the program), and will be BULLISH (for Obama's re-election chances).

The Bernank & Geithner have endorsed the wisdom of the proposal, and have opined that they can produce plenty of liquidity to "make it so."

Fri, 02/24/2012 - 12:48 | 2193006 SheepDog-One
SheepDog-One's picture

Welfare'merica! 

We got this shit! Everyone just receives everything for free, and well....something happens... then we're all saved! Yea this could WORK! Im sure.

Fri, 02/24/2012 - 12:50 | 2193018 taniquetil
taniquetil's picture

I can't tell if you're joking or this is something that Paul Krugman has actually advocated.

Fri, 02/24/2012 - 12:52 | 2193029 SheepDog-One
SheepDog-One's picture

Just cant tell anymore. I could hear that the FED just endorsed free size 24 clown shoes and rainbow wigs for all americans, and I'd have to assume its a real story.

Fri, 02/24/2012 - 15:06 | 2193629 dontgoforit
dontgoforit's picture

luv it, man; made me lol!  Thanks

Fri, 02/24/2012 - 12:53 | 2193031 Moneyswirth
Moneyswirth's picture

Probably both

Fri, 02/24/2012 - 14:08 | 2193355 Kali
Kali's picture

YOU DONT HAVE TO WHISPER! : )

Fri, 02/24/2012 - 18:59 | 2193913 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

This would be "fair" and for once all of the public will be bribed instead of just a select group!

/sarc on

Why stop at just gasoline? How about "free" electricity say, 3,000 - 4,000 KWH per month?

And while they are at it, paid vacations for all as long as the bribe money is spent in this country!

Is this a great country or what?

/sarc off

Fri, 02/24/2012 - 12:44 | 2192984 digitlman
digitlman's picture

Once Obama opens the SPR we are all saved!

 

LOL

Fri, 02/24/2012 - 13:35 | 2193231 Cpl Hicks
Cpl Hicks's picture

I don't remember the exact numbers but the SPR has something like a day and a half's worth of US consumption in it.

lol, for sure.

Fri, 02/24/2012 - 12:45 | 2192993 Joe Sixpack
Joe Sixpack's picture

I came up with 0.68+00276*(Cost per Barrel) in 208

 

http://www.derivativescollapse.com/Articles.htm

Fri, 02/24/2012 - 13:21 | 2193168 FOC 1183
FOC 1183's picture

technically should be done using natural logs, but doesn't make much of a difference.  the intercept is irrelevant since we're only worried about the delta. 2.75 to 3.0 cents per gallon per $1 per barrel is close enough.  Most sell-side economists estimate 2.25 to 2.5, but then, they do have an agenda

Fri, 02/24/2012 - 12:47 | 2193003 hp12c
hp12c's picture

If $5 gas is the price to pay to get Obummer booted, I'll pay it....

Fri, 02/24/2012 - 13:28 | 2193198 Flakmeister
Flakmeister's picture

Do you honestly think that whoever will realistically replace BO is going to be able to do anything about the price of gas???

Actaully, I take that back, the Repubs. are quite capable of doing something extraordinarily stupid that will lead to a deflationary collapse... ergo, gas will $2.50 a gallon and UE rate will be about 30%....

It is is truly print or die.....

Fri, 02/24/2012 - 14:12 | 2193383 gloogle
gloogle's picture

WE could try somehing like, oh, building the Keystone XL?  Maybe drill some of our own offshore?  Aaaah, that's just crazy talk....

Fri, 02/24/2012 - 14:46 | 2193509 Flakmeister
Flakmeister's picture

Ok...

Please explain to me how a pipeline from Canada to the Gulf coast lowers the price of oil?

Oil on the gulf coast is priced off of Brent, not WTI. Last time I looked Brent was $15 more a barrel...

I am all ears....

Fri, 02/24/2012 - 15:06 | 2193628 VisualCSharp
VisualCSharp's picture

Yep, these stupid people that just parrot talking points have no idea about the bigger picture. The fact is, high-quality oil is becoming scarce and harder to find (that is, it is requiring MORE ENERGY to find and extract). In addition, third-world demand is rising quickly. There is a finite amount of energy on this planet, folks. There is a point when it will take more than 1 unit of energy to yield 1 unit of new energy. When we reach that point, we're screwed. Now, if we could just build some thorium reactors, we'd be set for a long, long time.

Fri, 02/24/2012 - 15:10 | 2193643 dontgoforit
dontgoforit's picture

bernanke beams baby

Fri, 02/24/2012 - 15:11 | 2193649 Flakmeister
Flakmeister's picture

Not that I disagree with you... the problem is not addressed by Thorium reactors, it a liquid fuel problem, the world moves on oil....

Hell, if our freight rail was electrified, you would be on to something...

Fri, 02/24/2012 - 15:23 | 2193722 BooMushroom
BooMushroom's picture

When supply increases, the price falls.  More importantly, when the Presentdent of the United States of America sends a clear signal to the world that says "We're going to supply more oil," then the price falls due to the change in future expectations.  That's what the futures market does.

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