Energy Prices Are a Burden but Not Shared Equally

Even in a resilient economy, fuel costs are beginning to bite.


One great mystery of the energy price run-up is why the U.S. economy has continued to chug along unperturbed, when three decades ago it was brought to a near standstill by oil shocks. Many commentators, including my colleague James Pethokoukis, point out that we are more efficient than we were in the 1970s, and perhaps stagflation wasn't about the Arab embargo after all.

But I've begun to hear others wonder whether high energy prices are actually drilling into the economy, causing damage from the bottom up. Robin West, chairman of the energy consulting firm PFC Energy, gave a recent chilling talk at the Nixon Center about the "massive wreck on the freeway" ahead due to the oil supply and demand imbalance. A summary is here. When asked about why the economy has shown no signs of stress, he wondered aloud whether we were discounting the impact that high gas prices have had on the people who are subprime mortgage borrowers, or Home Depot and Wal-Mart shoppers.

Along those same lines, the American Gas Association, the organization representing the nation's natural gas utilities, recently completed a study on the energy burden on low-income families. The utilities are worried because they are seeing their delinquency rates rise. One reason became obvious when they looked at the households that receive federal aid through the Low Income Home Energy Assistance Program. LIHEAP families are spending about 20 percent of their annual income on home energy bills. The average American family spends only 6 or 7 percent of its income on energy.

So if it seems there's little sign of an energy burden on the economy, maybe that's because it doesn't fall heavily on most of us. Only on those who can least afford it.