How High Gas Prices Could Help the Economy

$4 gasoline and 9 percent unemployment may lead to increased fuel efficiency of commercial vehicles and help businesses grow

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The two biggest numbers in American politics are gas prices, which remain over $3.79 for a gallon of regular in 19 states, and unemployment, which stands over 9 percent nationwide. Those numbers are obviously related. If we changed the politics of how we respond, we could actually begin to use one to solve the other.  Last month saw a mutually-assured-destruction pact as Senate Dems and Republicans floating equally beside-the-point oil bills. Both flopped. A bipartisan approach to solving some of our energy costs--though we can't do much about gas prices in the short-term--could boost the economy and our long-term competitiveness.

Gas prices play both a real and psychological role in causing employment.  A recent poll of small business owners found that a quarter said that high fuel costs had caused them to lay off workers or reduce their hours, and 47 percent said they'd avoided hiring because of gas prices. The cost of fuel may literally displace some workers, but it has an even bigger psychological effect, creating an air of uncertainty that discourages job creation.

To get a better sense of the whole problem, I interviewed last weekend a small business owner named Brent who runs an air conditioning repair business in Albuquerque, New Mexico. Since 2006, he's laid off 12 employees, and is now down to just himself and one employee. Together, they're spending $1200 a month on gasoline to get to jobs in a relatively new cargo van, and a truck that average about 10 mpg. Behind payroll and insurances, gas has become his third largest expense.

In addition to spending more getting to jobs, gas prices send ripple effects through his other costs---increasing the prices of the products Brent installs, while triggering fuel surcharges on equipment he rents. Meanwhile, Brent has to underbid contracts to stay in business. Rising costs and falling bids have reduced the profit margin on his bids from 10-15 percent during the boom years to 3- 5 percent today. He's changed the way he operates, too: A few years ago, he always replaced broken equipment with new. Now he fixes it or makes do without. All of these decisions have effects beyond Brent's business alone. 

As Brent explains, gas prices are major contributors to uncertainty--and that uncertainty keeps him from hiring more workers. "If gas rises to $5 a gallon, I just have to bow down to the pump"  Brent says. "They've got us by the gonads. This is how we get around--and that's the bottom line."

One strategy to increase employment, then, would be to decrease spending on gasoline and reduce the uncertainty of gas costs for small business owners. What Brent would really like are service vehicles offering better mileage. Both of his current GMC vehicles have 6 cylinder engines that designed for speed that he doesn't need. Brent would prefer something capable of lots of stops and starts, powerful enough to pull a trailer, but fairly pokey on the highway. " I'd like something with lower torque, not necessarily where we're going zip-a-dee-doo-dah."

As an energy strategy, encouraging Detroit to triple the fuel efficiency of business trucks and vans seems to make a lot of sense. While automakers have focused on increasing fuel efficiency of household cars--from the Prius to the Volt to the Tesla--service vehicles actually drive nearly 3 times as many miles per year as household vehicles. As a consequence, increasing the fuel economy of a cargo van from 10 mpg to 25 mpg would reduce yearly gasoline consumption from 2500 gallons to 1000 gallons per vehicle, saving Brent, for example, $5940 per year at today's gas price in New Mexico. In 2008, the last year for which numbers are available, business and government fleets purchased 780,000 light and medium trucks--so this has the potential to scale up to considerable gas savings quickly. What's more, these vehicles generally stay in service for five years or less, so the turnover is far faster than household vehicles that stay on the road for 15 years or more.

Presented by

Lisa Margonelli is a writer on energy and environment. She spent four years and traveled 100,000 miles to write her book, "Oil On the Brain: Petroleum's Long Strange Trip to Your Tank." More

Lisa Margonelli directs the New America Foundation's Energy Productivity Initiative, which works to promote energy efficiency as a way of ensuring energy security, greenhouse gas emissions reductions, and economic security for American families. She spent roughly four years and traveled 100,000 miles to report her book about the oil supply chain, Oil On the Brain: Petroleum's Long Strange Trip to Your Tank, which the American Library Association named one of the 25 Notable Books of 2007. She spent her childhood in Maine where, during the energy crisis of the 1970s, her family heated the house with wood hauled by a horse. Later, fortunately, they got a tractor. The experience instilled a strong appreciation for the convenience of fossil fuels.

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