Bane of the Middle Class: Rising Gas Prices

A person of modest means is more likely to buy a used car than a new, fuel-efficient car, much less an even more costly new all electric vehicle, despite the $7,500 federal credit. In fact, when fuel prices rise, the used car market is flooded with cheap SUVs while compact cars are grow pricier and fewer. Yet subsidies and regulations predominantly aim to reduce fuel consumption from wealthier motorists, according to New American Foundation's newly released working paper, The Price-Induced Energy Trap (PDF).

The benefit of higher fuel prices in reducing fuel consumption

pales in comparison to the much larger expenditures in transportation resulting from the price increase notwithstanding some modal switch to transit, cycling, or commuting from home.

"In 2011, as gas prices have risen, Americans have cut back on fuel consumption by about 1.8 percent." However, "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."

New American Foundation's Director of Energy Policy Initiative "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."

From The Price-Induced Energy Trap: "Despite an anticipated 1.8 percent decline this year in gasoline consumption, for example, the overall expenditures for gasoline will increase 25 percent...Better understanding why very high gasoline prices do not lead to dramatic reductions in gasoline consumption could lead to policies that more quickly, and less painfully, reduce gasoline demand and consumer spending."

Thanks to John Hartz