What Happens When Gas Hits $5? $7? $10?
Think back to the Mad Max films of the 1980s. Mel Gibson speeding through post-apocalypse Australia in one of the world's last V-8s, fighting off marauding hordes hell-bent on hijacking oil tankers. Everything you ever knew and loved? Up in smoke, just like most of the world's precious fuel supply.
OK, that's probably not going to happen. But the toll of $10-per-gallon gas is certainly a scary thought.At this price, increases would be very much driven by supply constraints, rather than just speculators or boosted taxes. The Federal Reserve has estimated that every $20 jump in the cost of a barrel of oil can add at least two-tenths of a percent to the unemployment rate. That impact could be even greater; truck drivers, carmakers, farmers and construction workers would be just some of the workers in severe danger of being downsized. A recent analysis by Deutsche Bank estimated that every penny increase in average gas prices squeezes $1.4 billion from the U.S. economy. If those calculations hold true, expect the national coffers to be drained by $840 billion beyond the current impact at $4 a gallon. An argument, and perhaps cause for some optimism we can survive this cringe-worthy scenario, is that many other countries are close to that mark and still manage to maintain "business as usual." Associates for International Research recently compiled what cities throughout the world pay for a gallon of gas. Among the most expensive -- seen in U.S. dollars, as of March -- were: Istanbul, Turkey ($9.63); Oslo, Norway ($9.27); Athens, Greece ($8.50) and the United Kingdom ($8.17). On the flip side, residents of Caracas, Venezuela, pay only 0.06 cents per gallon, and it's 45 cents in Riyadh, Saudi Arabia. "If you look at other countries, the European Union, they have gas prices of $7, $8, $9 dollars, so why couldn't we have the same thing here?," asks Casey Weade, vice president of Howard Bailey Financial in Fort Wayne, Ind. "The reason they can afford to have those $8 to $9 gas prices is because they have the infrastructure for it. People are taking the bus over there, they are taking public transportation. It has been built into their system. Over here, we don't have that." Because he doubts gas would reach the $10 mark quickly, the run-up would give the U.S. ample time to improve infrastructure and consumers a chance to modify their behavior. "We are going to have a struggle with gas prices going up, and it is going to severely hurt our economy if we don't have the infrastructure to get people to work and to the store," he says. "They are already building those things in the major cities. Now we need to bring it [out beyond them] into more rural areas as well." --Written by Joe Mont in Boston.
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