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Gas Prices

Dec 11, 2010 • Environment, Households, Macroeconomic Measurement • 203 Views    No Comments

Have you been paying more for gas? Looking at this map, you can see that gas prices around the country have been rising in most places.

Economist James Hamilton suggests that the price of gas is directly connected to the GDP. Citing the BEA breakdown of consumer spending, he points to 4% as a threshold. If consumer outlays on energy goods and services exceeds that 4% level of total spending, then the economy will “stumble.” The auto sector, he says, is especially vulnerable because SUVs and light trucks are again sales leaders.

This takes us to a fundamental dilemma. Higher prices mean less energy consumption but they tug GDP growth downward. As this analyst states, “…the administration has to decide whether climate change is the most important matter at hand, in which case any energy-induced recession is worth the price; or whether the health of the economy is of paramount importance, and any climate policy must be subordinate to that.”

Agreed? Or a third alternative?

The Economic Lesson

In a reader friendly (but lengthy at 70 pages) paper, “Reflections,” the Bureau of Labor Statistics (BLS), describes the changes in consumer spending during the past century. Looking at NYC and Boston, in 1901, a typical family earned $750 while by 2002-2003, that same family would have taken home $50,302. Adjusted for inflation, the increase was close to a 4.5 multiple. So, from $750 in 1901, a NYC family would have been earning, in real terms, $3023 annually in 2003. The report conveys great facts about consumers then and now.

 

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