When gasoline prices rise, economy is in danger of falling

Here’s a scary thought: Gasoline at the pump in Ohio is now averaging more than $3 per gallon, the highest it’s been in 21/2 years, and it’s going to go up before it goes down. The question is how high and for how long.

AAA, the Ohio Auto Club, keeps track of gas prices, and an AAA spokesman says gas could reach $3.75 per gallon by spring because of the combined market pressures of high foreign demand and growing domestic seasonal demand.

And those projections were made before the Alaskan pipeline was shutdown for repairs. And before a presidential panel investigating the Gulf oil spill said the oil industry and the government need to do more to reduce the chances of another large-scale disaster.

The Obama administration is faced with what could be a combination of factors that send fuel prices toward the record highs of the summer of 2008 — and we all know what happened to the economy that year.

As of today, gasoline prices in Ohio are 34 cents per gallon higher than a year ago — an increase of more than 12 percent. That would be a worrisome figure by itself, given the generally low rate of inflation for almost everything else. But coupled with the fact that more than half the increase has come in just a month and that there could be another 20 percent increase before summer, the White House should be getting ready to take action.

Art and science of pricing

Gasoline and diesel fuel prices tend to be volatile and difficult to control. And even some of the forces that consumers would generally consider their enemies — like the Organization of Petroleum Exporting Countries — can help when it’s in their long-term interest. OPEC, for instance, doesn’t want to see oil prices go too high for too long, because that encourages oil exploration in other countries.

But Washington can’t stand idly by waiting for world prices to begin dropping while American manufacturers, transporters and families suffer through double-digit inflation in their energy costs.

It is little consolation that gasoline prices that topped $4 in 2008 bottomed out at half that within a year. The damage to the economy was done. Every dollar that companies have to spend for energy is cut from other costs of business, including wages, or added to the price of their products. Meanwhile consumers are paying more at the pump and have less disposable income for other purchases. It doesn’t take long for the cycle to become a drag on the economy.

The U.S. has about 725 million barrels of oil in its Strategic Petroleum Reserves. The Bush administration resisted tapping those reserves to keep prices low, though it did use the reserves in the wake of Hurricane Katrina.

President Barack Obama should make it clear to his energy and economic advisers that he is ready to tap those reserves to keep the cost of gasoline from skyrocketing and the economy from tanking.

In the long range, the nation still needs a cogent energy policy that reduces our dependence on fossil fuels — foreign or domestic.