OIL IS A PICKPOCKET

I am sometimes asked why I talk about the economy and the current financial situation in the same breath as Peak Oil. There is a perception that the economy and Peak Oil are not inter-related when they are actually in a lovely co-dependent relationship that would make Jerry Springer producers drool if the economy and Peak Oil were people. (I'll let you decide which one is cross-dressing and which one is from the trailer park*.)

The cost of gas became an issue for me personally a few years ago. At the time, I was driving to Brunswick for a second job, which is about 50 miles round trip. When gas hit $1.75 a gallon, I found that the price of gas didn't make the second job as profitable as I needed it to be. So I quit. Everyone was agog. It just did not compute that gas was too expensive to make it worth the drive.

Fast forward to the current economic crisis and tell me which came first; high gas prices or default on home mortgages? It was the high gas prices that hit our wallets first. In 2008, our SUVs became too expensive to drive.

The American Way for the last several decades has been to live paycheck-to-paycheck and use credit to fill the gap leaving very little breathing room in the budget. Compound this with houses built in areas dependent on cheap gas for access, plus the fact that many people probably couldn't really afford their suburban estates (but which lenders were only too happy to give them money for) and overnight--with just a switch of numbers on gas station marquees-- millions of people literally could not eke out an additional $200 or $300 or however many dollars it took to fill their tanks, heat their homes, and buy food.

Next thing everyone knew, people couldn't meet their bloated financial obligations and oh, hey, look at that, the stock market crashed. Whoops! While the financial crisis has its roots in poor management and while there are certainly other factors at play, I believe the tipping point was high gas prices. Putting gas in the tank ultimately cost people their homes.

Anecdotally, in the past year I have noticed lots of message board chatter from minimum wage families who can no longer afford to work. Gas priced them out of the labor market. They live far from their jobs and were counting on reliably cheap gas to enable their lifestyle.

Well, folks, cheap gas is gone. Probably never to return.

Even more alarming to realize is that gas is only going to become more expensive from here on out. I watched the Today Show this morning while a financial pundit advised we will see higher gas prices when the economy begins to recover. This is because an economic downturn also takes oil demand down with it. Meaning not as much oil will be pumped until demand goes up. Demand, of course, will go up before supply which will drive another price spike until the bottleneck is eased...or rather if the bottleneck can be eased as we may have very well reached world peak oil production in 2008.

The thing that is interesting to me about the Today Show segment is the acceptance of $1.75 or $1.99 per gallon gas like it is not already higher than the $1.29 or $1.19 we used to pay. There seems to be a gag order on the fact that gas prices have remained elevated, as if they are hoping we won't notice. Or that maybe consumers' wallets are made of elastic and we can absorb cost increase after cost increase without any impact on our other finances.

It makes me wonder if they noticed the reports their network did on how salaries, when adjusted for inflation, have gone down, not up. Or the reports on employees taking pay cuts in order to keep their jobs. Or the reports on employees forced into unpaid work furloughs or reduced working hours. Or the reports of price increases in foods and other basic necessities. Our elastic doesn't have far to go before it snaps.

How will we sustain an economic recovery if high gas prices wipe out our wallets faster than we can fill them with money? High oil prices started the economic ball rolling and seem intent on keeping it from going any other direction but down. This is why I talk about Peak Oil and the economic crisis in the same breath, because they are one and the same.


*No offense to cross-dressers or people living in trailer parks, those just seem to be the demographic riffs that Jerry Springer likes to play on.