Turmoil in the Middle East and elsewhere has pushed oil prices up more than $20 per barrel in recent weeks, and average gasoline prices from less than $3 a gallon to about $3.60. All the additional cash spent on imported oil that does not return to buy exports translates into lost demand for U.S. goods and services, lost growth and fewer jobs.
Higher gas prices simply means fewer cell phones, restaurant meals and other goods purchased that create jobs.
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Most economists built some increase into 2011 GDP forecasts, but the recent surge, if it sticks through the spring, will reduce U.S. growth from 3.5- 4%to 3-3.5%, perhaps less. Overall, that translates into at least 600,000 fewer jobs, or nearly 50,000 a month.
Moreover, lost taxes exacerbate federal and state budget problems.
U.S. policy arbitrarily limits the development of domestic oil and gas, and the more rapid deployment of abundant domestic natural gas. Premised on false assumptions about the immediate viability of electric cars and alternative energy sources, such as solar panels and windmills, these make the U.S. economy more vulnerable, Americans poorer, raise unemployment and do little to raise environmental standards. Instead of drilling in places the U.S. government can regulate, development goes abroad to places where U.S. enforcement has no teeth.
In combination, limits on conventional energy development and excessive optimism about alternative energy technologies are making the United States even more dependent on imported oil and more indebted to China and other overseas creditors to pay for it.
Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.