Yesterday in the online magazine 3 Quarks Daily, I wrote about my love-hate (minus the love) relationship with cars. The short version is this.
I didn’t own a car until I was 31. I’ve liked some of my cars, hated others, and never had any real affection for any of them because I’ve never acclimated to American car culture. Maybe it’s because I grew up in New York City, maybe it’s because my father had work cars and treated them like mules, maybe it’s because I’m just not a real American.
But whatever the reason, to me a car is really nothing more than a tool. A big, heavy, dangerous, expensive tool that I’d just as soon not own, but alas, I’ve been seduced by the convenience of car ownership and I use working in the suburbs as an excuse to justify it.
So this week I’m going to talk about cars. Today it will be the good and bad of rising gas prices. Thursday it will be the good and bad of alternative fuel sources.
The cheapest gas right now is about $3.60/gallon in parts of the South and West. Here in Maryland it’s about $4.00. In parts of California, New York, Illinois, and Connecticut it’s over $4.30.
The good news is that there’s some good news. The bad news is, it’s worse than you thought. Let’s start with the good.
More expensive gas does mean Americans will drive less and that has several benefits. Less pollution from exhaust is a good start. So are the benefits of more exercise from walking and maybe even some biking. Cities that have mass transit systems should see a boost in people going trough their turnstiles, which of course means more revenue to many systems that are facing deep cuts in funding from local and state governments. And traffic accidents will decrease, ranging from embarrassing fender benders that jack insurance rates to tragic fatalities.
You don’t hear much about it, but despite vast improvements in safety technology, we’re still losing over 30,000 people a year on the roads. Think about that for a second. The total deaths of all soldiers in Iraq and Afghanistan combined thus far? About ten times more Americans than that die in cars every year.
In short, less driving means fresher air, and you taking a brisk, invigorating walk in it instead of wrapping your car around a lamppost. Good stuff. Now for the bad news.
It comes back to those dollar signs. First, there’s the immediate pain you feel every time you fill up. Ouch. I don’t have to explain that to you. But potentially much more devastating is the ripple effect it 
can have on the economy, because oil’s tendrils reach deep.
Just about everything you buy has spent time in a truck. It doesn’t matter if you buy it at a store or online. It came from somewhere and had to get to you, and that most likely means it spent time in a big diesel-burning rig. In fact, by 2006, trucks were carrying about 70% of all freight in this country, and those trucks logged 432.9 billion miles.
The trucks cost money, the diesel costs money, and those truckers have to get paid. All of that factors into the price of the stuff you buy. So when the costs of trucking go up, the price of consumer products go up. Inflation.
Inflation? But we’re not currently in an inflationary economy. We’re in a recessed economy, so we shouldn’t have to worry about inflation. After all, inflation is generally caused by too much money circulating through an economy. If there’s too much money, it loses value, and prices rise. But that’s not our general economic problem right now. The official unemployment rate is hovering around 9% and the actual rate is a fair bit higher. That’s why there’s an old maxim in economics that says you shouldn’t have to worry about inflation when there’s a high rate of unemployment. Unemployed people don’t have money to spend, and so there shouldn’t be too much money in the economy.
What’s more, all those banks we bailed out are being tight-fisted and slow to lend money. The result of all this is not 
enough money in the economy. Too much money is hardly the problem, and so inflation shouldn’t be a threat.
Now here’s the catch.
Prices will rise independently, regardless of money supply, if costs rise. And shipping is a cost that is going up because of rising oil prices. So you can in fact have a stagnant economy that nonetheless suffers from inflation. There’s a name for this. Stagflation. No jobs and high prices all at once. It’s a real nightmare.
But let’s close on a happy note. All you people who are feeling nostalgic for the 1970s? You just might get your chance to relive part of it.