When the prices started dropping a few months ago, I got really excited. We do quite a bit of traveling to South Georgia so I had several opportunities to see the new, lower prices that were headed our way - like a sneak preview. With prices here starting around $3.75 before the fall began, I don't remember ever having a doubt that we would see the $2.00 mark. It's strange - I have no idea why I was so sure we would see a drop of nearly $1.75 per gallon (almost 50%!) in what has turned out to be only eight months.
Breaking through the $2.00/gallon mark was like breaking 100 for a new bowler, or for a small child turning 10. I watched and waited anxiously for no real reason than just wanting to see that beautiful $1 on the marquis. I had a number of previews: Friends in Texas sharing their glorious achievement before us, driving to South Georgia on New Year's Eve, witnessing their accomplishment, and even watching our numbers tip the mark at the stations offering a lower price for cash purchases - but it wasn't real until it was $1.99 for credit/debit cards, too.
Then it happened...
... and nothing happened.
I knew we would get there, and for me it had become some sort of goal. The goal was reached, so now what?
Everyone is enjoying the break from being held back by the high cost of fuel. We've noticed that more folks are starting to dust off their Hummers and SUV's, putting them back on the road. I seem to be hearing about more travel plans and there's just a more relaxed sense of well-being as commutes become less of a burden. Naturally, everyone has just a little more cash in their pocket and it has relieved some underlying tension.
I wonder: How low will it go? I never thought past the $2.00 mark. Surely it's going to level out at some point, but where will that be? No wait, I should rephrase that: I hope it levels out at some point. The truth is, it could hit a low and then start to rise again. Obviously, if you've read this far you've picked up on the fact that I've not been following barrel pricing and how it relates to unrest in the middle east. Without starting some sort of debate, I will just say that I'm merely enjoying the ride and I don't believe a word of that bunk. Unrest was supposedly the reason the prices went up. Now we have ISIS and the prices are going down ... blahblahblah .... I think it's all political and I'm not looking to be educated on the matter nor to debate it. In so many ways we're all just subject to it anyway. All we really have is our vote, so I will use that and move on to the point at hand ... What happens next?
Okay, so I found this awesome online chart for the Atlanta, GA area showing historical gas prices.
source: http://www.atlantagasprices.com
I wanted to see just how far back I had to go to see gas prices like the ones we have today. Turns out I had to go back six years. However, that was a brief dip after hitting an all-time high of nearly $4.00/gallon (Now this is not specifically a political post -- it is whatever it is -- I'm just working through this myself and utilizing the tool of my blog to think it through.)
This is what the fluctuation has looked like since January of 2004:
source: http://www.atlantagasprices.com
Here's what I've been thinking about:
As we all know, gas prices eventually affect the cost of everything. Commerce runs on fuel, so if it costs more to get goods from Point A to Point B, the transportation companies have to pass that along to the businesses which buy their goods. Those businesses soon begin to feel the weight of the additional cost and pass that along to the consumer. At that point, the consumer is not only paying higher gas prices, but is also feeling it in every daily purchase. This is not intended to be an Econ lesson (which I am clearly unqualified to teach) but rather a simple illustration of cause and effect. It's true that the cause goes back farther than the price of a gallon of gas, but for me, everything that happens prior to that is hearsay. My reality begins at the gas pump.
As gas prices rise, we all adjust our spending, businesses tighten their belts and we hope for the best. If the crunch continues, we make more permanent changes. Families change jobs if possible, sell their vehicles in favor of more fuel-efficient models, and cut out unnecessary travel. Businesses cut spending, lay off employees, freeze wages, and raise prices of their final product. Simple cause and effect scenario, although each individual person and business will adjust in its own way and I realize I have grossly oversimplified things to give a big-picture scenario. I have done so mainly because I'm thinking less about the past and more about the future these days and I just wanted to illustrate a basic starting point for this thought process.
Where do we go from here?
As I mentioned, thanks to this rapid drop in the cost of gas, we all have a little extra cash in our pockets since it costs about half as much to drive to and from work each week. Literally, by comparison, if your weekly commute cost you $45 six months ago, it is costing you $24 now. That's an extra $20+ every single week that is simply not being sucked out of your pocket -- and this is true for every person that has a commute of any kind. If your household is supporting multiple vehicles, then there is even more cash floating around. Have you felt it? If your budget is tightly managed then you have, no doubt, seen the difference and found a new line item to absorb the overage. If your numbers are less defined, you may have just noticed that things are a little less strained. Regardless of how you manage your money, the difference is there and if it hasn't already been reabsorbed by your budget, it soon will be. We adjust in both directions.
... and there it is ...
Businesses adjust in both directions, too. They will begin hiring again and adding new products. Employees will finally get the raises they've been denied for the past few years. These are all good things which positively affect our economic system, but one thing is still missing and it makes me nervous. It's the cost of the final product.
Is it possible that manufacturers will begin to lower their prices for things we already have? For example, it will not cost as much to manufacture, transport and deliver the newest top-of-the-line television, laptop, or new car. Prices for everyday goods, groceries and services should be falling. The cost of plane tickets and public transportation should be dropping. If it went up in the name of "higher gas prices" it should be falling fast now. Businesses are feeling the same extra change in their wallets consumers are enjoying, but if they don't pass that along by way of lower prices, we could be in for a real mess down the road. Look with me into my crystal ball.
Let's say, for example, gas prices settle down soon and just bounce around a little. If this is, indeed, a political move, then I'm guessing we'll see comfortable gas prices for the better part of the next two years until the next election is over, at which time the newly elected president may discover that we're living with an unrealistic "low" and in order to function it needs to be raised to a more appropriate level. This seems very plausible -- if prices can be falsely inflated, I would guess they can just as easily be falsely "deflated" for a different purpose. Regardless of how or why it happens, prices will eventually go back up to some extent at some point. My guess is that it will be a deliberate correction, but what do I know?
Once prices have been raised to reflect whatever magic happens before the gas pump reality, our daily lives will once again begin to adjust. Families will cut back, businesses will tighten their belts again and prices will eventually -- but wait! Why should prices increase again? They're still up from last time! We're just going to pile price increases on top of the price increases from last time? Shouldn't there be an adjustment period during which the price of a loaf of bread and a gallon of milk see the benefit of the lower prices we are enjoying right now? Back when prices were high we, as consumers, double paid. We paid at the pump as well as through the cost of every good and service we purchased. Now that the prices are down, we're so busy staring at that $20 that magically appeared in our pocket AGAIN this week, that we haven't noticed there should be more. Airline fares should be dropping and we should be finding another chunk of change left in our grocery budget. If these things fail to adjust to the new low, then their starting point, or basis, will remain at the inflated levels they achieved during a financial crisis. Once the fuel costs begin to rise again, all of these costs will begin to rise again, without ever having dropped during our happy time. This is going to run everything through the roof.
I like to live as an optimist usually, so I sincerely hope that what I'm envisioning is a future of falling prices and economic growth. I hope that we are about to see a boom like none we've ever experienced in our lifetime, as goods and services become more affordable and people begin pouring their new-found funds back into our economy. This is a time of hope, change and a potential for real growth ... if it happens this way.
If not ...
... The optimist in me won't allow me to even complete that thought.






