Does $100-a-Barrel Oil Threaten the Recovery?

On October 28, Transportation Secretary Ray LaHood announced that $2.4 billion in stimulus funds for high speed rail would soon be disbursed. Immediately, a hullabaloo went up from the governor-elect of Florida and some in California that the money would build a series of white elephants around the country. Republicans in Congress are threatening to withdraw the unpaid stimulus money for all projects, including $6 billion in unspent transportation upgrades. I'm not going to talk about the politics of this. I'm going to talk about the $2.4 billion.

Sounds like a lot. But during the month of November US drivers lost $2.7 billion to the 24 cent rise in the price of gasoline over November 2009. Overall, in November we spent $32.5 billion on gasoline--more than the yearly income of the proposed $30 billion "millionaire's tax."

When it comes to gasoline, business as usual has a shockingly high cost for the US economy. Back in 2009, McKinsey Global Institute wrote about how a worldwide economic recovery could send oil prices higher, stopping a recovery in its tracks. We may be about to find out.

Today, Venezuela reportedly said $100 would be a fair price for crude oil. They're not the only ones anticipating such a rise. That will convert, roughly, to $4 per gallon gasoline and will mean that American drivers will be spending $1.5 billion a day on gas. This is a big hemorrhage of money that could be put to other uses that would boost our economy. And these rising costs are largely out of US control: Cold weather in Paris, the value of the dollar as a result of the EU bailout of Ireland, Chinese electricity rationing that has lead to increases in diesel demand, Nigerian militants attacking pipelines in a far-off dispute in the Niger Delta...

A jump in the price of gas will fall disproportionately on the shoulders of the middle class. Families making $50,000 a year already spend an average of $7,900 annually on their cars, maintenance and fuel, according to the GAO. (Download pdf) That's more than they spend on taxes or health care--two costs the Republicans and Democrats have made their respective signature issues. This is a group that has already been hit hard by declining income throughout this recession. Can they adjust to absorb even higher costs for gasoline?

High speed rail may not be the way to help median-income families get to work, but it's necessary that the new Congress come up with a creative and comprehensive energy and transportation plan. Let me put it this way: Would any self-respecting politician DREAM of levying a 24 cent tax on gasoline in the electoral month of November? Of course not! But having a heavily gasoline dependent economy with so few other ways for middle class workers to get to work has the same effect of sucking money directly out of voters' pocketbooks and putting the whole country's economic health in jeopardy. The real cost of such passive politicians is enormous.

For an unconventionally bi-partisan and pragmatic slate of suggestions to increase mobility options while decreasing oil dependence see this report just out from the Mobility Choice Coalition.