Silly consumer, higher gas prices are good for you

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Silly consumer, higher gas prices are good for you

March 23, 2010 by Ryan McMaken

This piece at CNN Money falls into what is an entire sub-genre of business writing in which economists and business writers get together to explain why the latest development in government-induced market failure is not a problem at all.

The piece explains why $3 gasoline is absolutely no problem whatsoever and is actually good for the economy. Now, move along and get back to spending your money on shiny trinkets.

The claims in the piece are perched upon the assumption that needless spending on gasoline is fine because it is still spending, and that expensive gasoline has only a minimal psychological effect because people will just shrug their shoulders and keep spending on consumer goods. Spending on consumer goods, of course, is the most important thing in this line of thinking since it is seen as the most important source of economic growth.

What is ignored is the fact that gasoline is only as expensive as it is because of artificial limits imposed on supply by government regulations, and because of the devaluation of the dollar. Every dollar buys less gasoline as the money supply continues to expand. And let’s not forget the 40 cents or so per gallon in taxes paid at the pump. And we’re just talking taxes paid by the end user. The taxes paid at various steps of the production process are hardly negligible.

Also ignored is the possibility that households that don’t have to spend an extra $100 on gasoline every month due to these effects might actually save that money or invest it.

The talk about psychological effects is simply rubbish. People may indeed shrug their shoulders and continue to buy the same amount of gasoline as they might have bought at $2 per gallon, but there will be a real world effect on the household budget that has nothing to do with how the consumer feels about it. The consumer now has less money to save for retirement or education or investment or anything else.

But none of this matters to the economists whose full time jobs consist in patting the heads of the masses and assuring them that all is well no matter what.