Daren Bakst & Rachael Wolpert for
High gas and diesel prices like those we are experiencing now have sweeping negative economic effects on Americans. Beyond the financial hit at the pump, the economic harm is inflicted in many ways that may not be evident to most.
For example, prices for goods such as food, clothing, and household goods are higher than they otherwise would be since gas and diesel play an important role in supply chains. And there could be higher costs and reduced services for critical functions like police and emergency medical services because of their heavy reliance on fuel to carry out their duties.
Americans have recently experienced this firsthand as prices have skyrocketed. As of the week of September 12, retail prices for regular gasoline averaged $3.69 per gallon, 54% higher than when President Joe Biden took office in January 2021. Diesel prices are 84% higher, averaging just above $5 per gallon. And these are below the record highs we saw this past summer.
The following explains the importance of motor gasoline and diesel in general and highlights just some of the harms caused by these significantly higher prices.
Importance of Motor Gasoline and Diesel
Energy affects almost every facet of American life, and data show just how critical gasoline and diesel are for Americans.
One of the most important energy sources is petroleum, which, as the Energy Information Administration explains, has historically been the largest major energy source for total annual U.S. energy consumption. Petroleum is used to create many products, including motor gasoline and diesel, and in 2021, petroleum met around 90% of America’s transportation needs.
Motor gasoline (the most consumed petroleum product) accounted for about 44% of total U.S. petroleum consumption.
Distillate fuel oil, which includes diesel fuel and heating oil, was the second most consumed petroleum product in 2021 at about 29% of total U.S. petroleum consumption. Diesel fuel is used for transportation such as buses, boats, trains, and some cars, but it’s also used for heavy construction equipment, tractors, and electricity generation.
Harm of Higher Prices on American Families
Cars play a central role in the lives of most Americans, enabling them to engage in their daily lives, from going to work and taking their children to school to shopping and visiting relatives. Census Bureau data show that 92% of American households have access to at least one vehicle. Higher gas prices make it more difficult to engage in these ordinary life activities.
Some on the far left have arrogantly dismissed the harm caused by high gas prices. For example, last year, Transportation Secretary Pete Buttigieg captured the left’s electric vehicle elitism when he touted electric vehicles as a solution to high gas prices.
This ignores the high costs and practical problems of electric vehicles. And despite decades of subsidies, according to Department of Energy data, electric vehicles constituted only 0.5% of all vehicles registered in 2021. For example, EV sales in 2021 were very low, accounting for less than 5% of overall vehicle sales.
Regardless of this extreme wish to see the demise of gas-powered vehicles, the reality is that most Americans rely upon motor gasoline to power their cars. High gas prices not only hurt Americans regardless of income level, but they also disproportionately hurt the lowest income households the most because those households spend a greater share of their after-tax income on meeting basic needs, including purchasing gas.
For these lower-income households, the sacrifices they are required to make due to high gas prices may not simply mean giving up luxuries, but also giving up necessities, such as whether to visit the doctor or run the heat in the colder weather.
There’s also evidence indicating that rural households are disproportionately affected by high gas prices. This is due in part because rural Americans have to travel further distances and tend to drive older, less fuel-efficient vehicles. Based on an Iowa State University study, rural households spent 20% more than urban households on gasoline and diesel.
Harm to the Economy
The harm to Americans when filling up their gas tanks is only part of the picture. High gas and diesel prices drive up costs for industries across the economy, and this can lead to consumers incurring some of these costs through higher prices of many goods and services.
One useful example is to look at the trucking industry because of the clear impact diesel prices can have on the industry and the industry’s far-reaching effect on the entire supply chain and economy.
Of the 15 million registered commercial trucks in the United States, 76% are diesel powered. The trucking industry is responsible for transporting approximately 72% of U.S. goods (based on value) or, according to the latest data from the U.S. Census Bureau, “$10.4 trillion of the $14.5 trillion of the value of all goods shipped in the United States in 2017.”
The trucking industry transports goods ranging from pharmaceutical products, plastics and rubber, and vehicle components to meat and poultry.
High diesel costs can hit truckers especially hard since the trucking industry is predominantly comprised of small businesses, with about 92% of motor carriers operating a fleet of six or fewer trucks, and approximately 97% operating a fleet of 20 or fewer trucks.
As truckers have indicated, high diesel prices could significantly reduce their mileage or hours, and in some circumstances, potentially lead them to stop driving altogether. As it is, the American Trucking Associations argued that in 2021, the trucking industry was already short around 80,000 drivers.
Fewer truckers or less driving would increase costs for businesses that utilize truckers to transport their goods (due to basic supply and demand laws). Further, to the extent that truckers can pass on their costs, that would mean higher costs for their business customers who could then pass on the costs to their customers.
Harm to First Responders
The effect on first responders provides a good illustration that the harm of high fuel prices may not always be obvious. Significant fuel price surges could lead police forces to adjust budgets and make cutbacks or reduce the driving of marked cruisers, lessening the police presence in communities. It could also lead police officers to avoid idling their cars in order to conserve on gasoline, which could limit the ability of officers to utilize equipment in their patrol cars like video and audio systems.
Based on interviews with first responders, we know that the fiscal effects can be significant for EMS providers in rural areas. In these regions, first responders travel greater distances and therefore utilize more gasoline. And for some areas where fuel budgets have recently been exhausted, first responders are attempting to handle as many calls as possible over the phone before deploying emergency services.
It cannot be overlooked then that higher prices impact strategy and methodology for first responders.
From the gas used for cars to the diesel used to operate farm equipment and transport goods across the country, the lives of Americans benefit tremendously through these fuels. And when prices surge to especially high levels, this inevitably causes significant harm, especially to the poorest Americans.
For policymakers, any response to high prices should be to remove the many government barriers that drive up fuel prices. At least then, prices would be a reflection of market forces and not government meddling that is causing unnecessary harm.