Signing Your Economic Stimulus to the Saudis, Part II

President Bush's surprise over the prospect of $4-per-gallon gasoline shows he may be overrating those rebates.

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President Bush yesterday voiced faith that the nation will not slide into a recession, in part because of the economic stimulus package he and Congress worked out. However, he appeared flummoxed and perturbed at the notion that gasoline might reach $4 per gallon.

As I noted when the stimulus idea was first floated, it might be good to keep tabs on what's happening at the pump when considering how effective that stimulus plan will be.

The average price of regular gasoline was $3.03 for the first eight weeks of this year—that's up 73 cents over last year. So already, the average U.S. household, which uses 95.25 gallons of gasoline per month, has paid $139 more for gasoline in 2008 over 2007. If the gasoline price stays where it has been in January and February, then by the time rebate checks arrive in May, the average household will already have spent $200 more for gasoline than it did last year. (Remember, last spring there was a price run-up that seemed painful at the time, but prices in March and April 2007 still were less than motorists are paying now.)

But how likely is it that the price of gasoline will hold steady, when it already shot up 8.8 cents in just the past week to $3.13 per gallon? Should prices rise to $4 per gallon in the next two months, bringing the average price for the first four months of the year closer to, say, $3.50 per gallon, then consumers will be paying about $1 more per gallon than in 2007. For the average U.S. household, that would be $381 more out the door in 2008 before the stimulus check even arrives. So, if you are a two-paycheck family with two kids, the $300 rebate you're expecting for one of your children will already have been sent to the Saudis (and other oil producers).

And that calculation considers only the increase from 2007 to 2008. Look at that same family's entire gasoline bill for the first four months of the year, and if gas goes up to $4 per gallon over the next eight weeks, the family will have spent $1,300 for gasoline—nearly three quarters of the rebate it's due—before its much-reduced spending spree can begin.

Economists know that if we truly enter a recession (with unemployment high enough to curb commuting), people will drive less. But if we don't find a way to drive less now, we'll be on an even surer road to recession.