July 14th, 2007 by Dylan
Articles that blame poor consumer spending on high gas prices have always been a bit confusing to me, because they seem to ignore basic math. Assuming that an average American drives 12,000 miles per year, and gas costs $2/gallon more than it did a few years ago, and that an average car gets 20 miles per gallon in that driving, then we are looking at an increase of only $1200, or $100 per month.
I think a strong argument could be made that the higher cost of gas has led to higher prices for everything from airline tickets to consumer products. That said, the government reports low inflation currently, which I find a bit difficult to believe given the rising cost of consumer goods.
My feeling is that consumers are perhaps spending less because their mortgages are getting more expensive if they are stuck in an ARM, the value of the dollar has dropped significantly against foreign currencies this decade, and prices are rising for everything non-tech due to increased demand as the economy has recovered from the tech bust. Tech products continue to decrease in price due to cutthroat pricing of Asian manufacturers, and China’s persistence in keeping the Yuan exchange rate based on the price of the dollar.
As a result of the fallout from Enron and the tech bust, we are seeing many public companies acquired by private equity funds, and substantially fewer companies having an IPO. As a result, small investors have less risk, but also substantially less to gain. If you cannot easily invest in companies with potential to grow, you are locked out in much the same way you were prior to the popularity of discount and online brokers.