Back to previous page


How gas prices are killing the middle class

By ,

Basic economics suggests that when the price of something goes up, people use less of it or switch to alternatives. But when it comes to driving, that’s not easy. In 2011, as gas prices have risen, Americans have cut back on fuel consumption by about 1.8 percent. But that’s not nearly enough to offset the price increase: overall gas expenditures still rose 25 percent over the past year, or $102 billion. That essentially wiped out all of the benefits from President Obama’s middle-class tax cut.

Jonathan Alcorn/Bloomberg

That scary stat — and more like it — comes from the New America Foundation’s Energy Trap project, which unveiled a new report today. They surveyed more than 2,000 households and looked in detail at how Americans respond to higher gas prices. Bottom line: It’s very, very difficult for most people to cut back on driving. As a result, we’re locked into a situation where even modest bumps in gas prices end up torching the middle class. What’s more, the report suggests, most of our current policy thinking about how to escape this trap is misguided.

At a New America event this morning, Lisa Margonelli laid out the basic situation. Right now, the average family of four spends more on transportation than on health care and taxes combined: Estimates range from $7,900 to $13,000 per year. And the amount that families are spending on gasoline has leapt dramatically since 2004, as fast-growing countries like China and India nudge up oil prices. In states such as Montana and Mississippi, where even routine trips are long and transit alternatives rare, a whopping 19 percent of median income now goes toward gas. (Here in Washington, by contrast, it’s only about 2 percent of median income.) Energy costs are chewing through America’s wallets at a stunning pace.

Based on the interviews New America did, Margonelli argued that many Americans increasingly see cars as a necessary evil rather than a symbol of freedom. “They want to be able to spend their income as they see fit,” she says. “And they’re open to alternatives.” A family that could get rid of one of its cars could free up $5,000 or $6,000 per year. But that’s rarely easy. For instance, in theory, higher gas prices should push people into more efficient cars. But Margonelli notes that when gas gets pricier, it actually becomes more difficult to find compact vehicles on the used-car market, while SUVs get cheaper as drivers try to unload them. “Often the cheapest cars on the market for middle-income families are the least efficient,” she said.

Most of our current policies to alleviate the situation, meanwhile, largely end up helping people on the wealthier end of the spectrum. Tax credits for hybrids and electric vehicles mainly benefit high-income consumers (although I’d note that the logic behind these policies is to foster a mass market for these new technologies). A great deal of new mass-transit ends up geared toward high-skilled jobs. And higher fuel-economy standards take time to trickle down (especially to the used car market), since not everyone will go out and buy a new car right away. Nothing wrong with these policies, but they’re of limited use in helping lower-income people who are getting squeezed right now.

So are there better ideas? That’s the hard question. You can find isolated instances of employers who are trying to think creatively about taming our auto dependency. An exurban office park in San Ramon, Calif., for instance, bought up its own fleet of buses and subsidized bus passes and managed to persuade 33 percent of its 30,000 workers to leave their cars at home. Margonelli has also written about the need to revamp auto loans so that higher-quality, fuel-efficient cars that needed fewer repairs can be more accessible to a greater number of middle-class buyers.

The basic takeaway, though, is that a lot of these smaller ideas are worth keeping in mind. Big, sweeping transportation policies like high-speed rail can fire up economic growth and reduce pollution and lower our overall oil use and all that jazz. But they can’t reach everyone getting squeezed by high gas prices.

© The Washington Post Company