As U.S. retail gasoline prices once again near $4.00 a gallon, does this pose a threat to the economy and President Obama’s prospects for re-election? My answer is no.
He looks at a variety of data to come to this conclusion: Fuel economy of cars sold in since October 2007; longer term vehicle miles travelled; monthly car and light truck sales since 2006; and consumer sentiment by month.
I don’t agree with Hamilton’s analysis. As I see it, increasingly high oil prices weaken an economy because they reduce discretionary spending and indirectly cause people to be laid-off from work. They have many other adverse effects as well–they tend to raise food prices, with similar effect. The laid-off workers require unemployment compensation payments, and the same time they are contributing less tax revenue. All of this creates a huge imbalance between revenue collected by governments and expenditures paid out. If oil prices rise again, it will tend to make the imbalance worse.
An economy such as the United States can cover up the problems caused by high oil prices with variety of financial techniques. In my view, high consumer confidence measures the success of those cover-ups, more than it measures the actual underlying situation. One way the US government has managed to cover up how badly the economy is being hurt by high oil prices is by spending far more than the government takes in as revenue. This has happened continuously since late 2008, with outgoings exceeding income by more than 50% each year, even though the country is supposedly not in recession.
Read more: http://oilprice.com/Energy/Oil-Prices/The-Devastating-Economic-Impact-of-Constantly-High-Oil-Prices.html
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