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High gas prices can be blamed on the high price of crude oil, declining value of the American dollar, and international conflict, and little of this will change in later months. (Photo Illustration by Bryce Peake | The Daily Eastern News)

Hard foot on the gas

By: Michael Schwader/Staff reporter

Posted: 3/31/08

Oil prices are reaching new heights, and local residents are outraged.

Michael Suerth, a 23-year-old truck driver from Charleston, is one of these residents, and he believes that the ones being hurt the most by the price surges are the ones in the trucking business.

"I think that truck drivers should strike because we're the ones being screwed over the most, especially independent truck drivers, who have to pay for their own gas," he said.

Suerth said he believes that a strike would have a major effect on the oil industry and would likely bring down the price of gas.

"How do you think your doughnuts got to the shop this morning, and how do your everyday groceries get to the store?" Suerth said. "And who do you think delivers the gas that you put in your tank? A trucker."

Mukti Upadhyay, a professor in the economics department, said the reasons for the increase of gas prices can be attributed to several factors, including the declining value of the dollar.

"(The Organization of Petroleum Exporting Countries) sets the oil price in dollars and invests a huge amount of oil revenue it receives in the dollar-denominated assets, such as the U.S. treasury bills and private U.S. bonds," he said.

Upadhyay believes TOPEC is getting nervous with the U.S. and the way the government has been running its budget in terms of a sustained deficit, even when the economy was going strong. He also said he believes that the consumers of gas are also to blame for the price increase.

"Another reason for the high price of oil has to do with the fact that people do not change their behavior toward gas consumption instantly but with a significant lag," he said. "Their demand is rather inelastic in the short run."

The higher gas prices today are much like the gas price situation during the middle and late 1970s and early '90s.

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"The oil inflation made significant contributions to a recessionary growth or an absolute decline in (gross domestic product) in the middle and late '70s and in the early '90s, whereas the oil price declines in the mid-80s and mid-90s partly supported the growth spurts of the late '80s and late 90s," Upadhyay said.

Other goods are also suffering as a result of higher oil prices.

"Goods that intensively use energy including oil will become more expensive, such as the price of corn, since an increasing proportion of corn is now used to produce ethanol," he said. "More importantly, a sustained rise in oil prices can cause a substantial slowdown in economic growth."

But Upadhyay also believes there is a way to fix the problem. He said the solution to high oil price or dependence on oil could come through both a demand reduction and a supply increase. "I think the factors that either increase supply of oil or alternative fuels have remained weak, leaving the heavy dependence on oil even worse," he said. "On the demand side, an increase in import or excise tax on oil would raise its price and depress demand as people switch to greater fuel efficiency of say the hybrid cars. On the supply front, I would support the development of solar and hydro power."

Upadhyay said it might not be the best solution politically, but it should give a much-needed consumption shock in the U.S. along with a modest subsidy on hybrid cars and would complement the tax measure.

Michael Schwader can be reached at 581-7942 or at mwschwader@eiu.edu.