Is it possible for the economy to become more stabalized with gas prices still remaining high?

Question

I'm no expert, of course, so some may say that the economy is not in that bad of shape. However, it doesn't seem to be in great shape, either. But whichever way you see it, do you believe it can get better with fuel prices staying up? How would this work? Would it be with alternate forms of energy? Just curious as to what some people think. Thanks.

Answer 1

Energy prices have little to do with stability of the economy. That is related more to the deleveraging that is going on and what parts of the financial infrastructure may not survive that deleveraging. The economy can handle quite a number of casualties, but massive casualties would be a problem. It is not clear yet that the latter couldn't happen.  

Answer 2

Yes, it is entirely possible. Stability means reaching an equilibrium - a point at which the economy could reach a steady level of growth provided there aren't any major shocks. Such an economy would have lower fuel consumption (or lower consumption of other goods) through a combination of driving less, using greater fuel efficiency, decentralization of production (ie, working from home) and recentralization of population centers.

Where fuel prices contribute to economic instability is their volatility. A 40% rise in the cost of fuel forces a restructuring of the transportation sector and the reconfiguration of many household budgets. Consider that shipping by truck increased dramatically following the cheap oil of the late 1990s, with an upsurge of independent owner-operators who drove down shipping costs via competition and specialized routes. Now, many of these independent owner-operators are either out of business or sub-contract, meaning that prices of shipping become less competitive, and disrupts the free exchange of goods.

Like I noted above, this is a temporary situation. The economy will always tend towards equilibrium, although that equilibrium may be different in terms of inflation rate, unemployment rate, and rates of economic growth and efficiency than the equilibrium we were tending towards in 2007.

Answer 3

Gas prices are a big problem with the economy, not only does it effect the people that purchase the gas, it also effects food prices as well. When food prices are up people can't afford to do other things, so they aren't spending their money on things that helped keep the economy up.