Look, you guys know that I am very optimistic about recovery generally. You also know that I worry about oil prices. I don’t really know how else to say this, but oil prices are about to kill our chances at recovery dead. That’s all there is to it.
In the past month, the price of a barrel of oil has risen $15; it now stands at $72 per barrel. Prices have moved upward more or less steadily since hitting a bottom in February. Average gasoline prices have already risen $1 per gallon off lows hit in December. The average retail price is back above $2.60 and rising; it’s gone up about 20 cents per gallon in the past two weeks. And gas prices are on a lag; even if oil prices froze this very minute, the national average would probably get close to $3 per gallon.
This isn’t difficult to understand. If prices behave as they have for the past four months for the next month, then that’s it; recovery is cooked. If oil crosses $100 per barrel, then we’ll be lucky to see a positive growth rate in 2010.
What should the government do? I’ll tell you what they shouldn’t do — pass some bullshit cash for clunkers bill that isn’t going to make any difference, at all, in how these prices affect American households. No reason to start drilling, either; that will have approximately zero effect on current prices. Here’s what I’d do:
– Beg OPEC for more production.
– Authorize the release of substantial amounts of oil from the strategic petroleum reserve.
– Provide immediate funding to transit systems nationwide to increase service wherever possible.
– Announce an initiative to expand bus service nationwide, particularly along congested highway corridors used by commuters. Also add circulators in non-walkable business districts. Provide dedicated lanes for the service where possible.
– Announce an immediate program of substantial increases in the gas tax, to begin in 2011.
– Request economic analyses of other proposals, like salary subsidies to workers at firms which encourage telecommuting, or a temporary four-day work week.
There’s just only so much you can do in a short amount of time to minimize the impact of rising oil prices. We should have been preparing for this for some time now. Oh well.