$7 a gallon gas

Reported at the New York Post, the current administrations proposal to respond to the oil spill in the Gulf of Mexico would drive gas and diesel prices at the pump to $7/gallon and beyond according to Harvard economists.

What does that mean?

Well, aside from pain for all at the pump, such events would have a number of serious and less obvious implications - and as a state legislative candidate, I tend to look at how it would affect the state budget and Washington citizens.

I'm not a formally educated economist, but some things seem kind of obvious. From a purely environmental and national security point of view ($7/ga means folks will drive a LOT less - fewer pollutants, and reduced dependence on foreign oil) it's a DANDY idea. When you start to factor in economic effects, not nearly so much.

Fuel costs (very obviously) are going to go right through the budget-busting roof for every single state agency - meaning money budgeted for services will suddenly either be getting transferred to motor vehicle operations...or simply sitting unspent, as the service provider cannot get to the
target audience on foot and with fuel prices at that level, it isn't a good bet they'll be willing to run their own gas-burner down the road. This will be no less true for cities and counties.

Now, as a result of higher fuel costs, individuals and businesses will be buying less (as they will be spending a larger portion of their funds on fuel) and most will be seeking to make up their losses by economizing across the board. Discretionary spending will, for many, simply vanish as an option.

Watch sales tax revenue drop.

Next, the cost of goods will also rise dramatically, followed shortly by consumer prices. Cost of goods includes materials production (often requiring energy, often oil), materials transport, assembly, transport from either manufacturer to consumer or to wholesaler (and thence transport to retailer), and then the cost of end-business (the folks who sell the goody du jour to the end user) operations (rent, salary, utilities, taxes, etc). Count the number of times a product is transported. $7.00/gallon will dramatically increase the cost of each transport or production step along the way - and those costs are, in turn, passed forward. Watch prices scream through the ceiling. Yet another price driver that will reduce sales, and thus sales tax revenue - not only do consumers suddenly have less money available, but everything the eye beholds suddenly costs more. Another sales tax revenue killer.

Now, the above isn't precisely *good* for most businesses. When customers don't buy or can't buy, businesses tend to reduce hours and employees - and often just plain close the doors and the owners attempt to go find something more productive to do than throwing cash down a rat hole. Again, whenever a business closes, the B&O tax revenues take a hit. And folks go on unemployment, generating an expense that places an additional pressure on a budget already under siege from diminishing revenues.

While all this may be one heck of a cool thing for folks in the Electric Vehicle business...there's a tiny little hitch. No matter what we want, we are not going to see a 100% or even 10% conversion to electric vehicles in the near term - because the manufacturing plants simply aren't there to support the volume necessary, and it takes TIME to build them.

This is just a preliminary contemplation...but, I suggest, one we should consider in planning our states future. Far too often we've been caught flat-footed and driven into ill-considered reactive "must do something" mode...only to pay again later to fix the panicked "solution" thrown into place mid-crisis. Generally, planning ahead hurts less.