Editorial: Taxing the Economic Recovery

The sharp recent spike in the prices of diesel fuel and gasoline has in the space of just a month reached alarming levels. Just as some commentators were seeing a light at the end of the tunnel for truckers, manufacturers and the slumping U.S. economy, this dangerous price surge threatens prospects for recovery.

This bad news comes, ironically, just as the federal tax-rebate checks that are designed to stimulate a little more demand are reaching consumers.

But as it always has in the past, this sharp move in pump prices acts much like a tax increase on one of the things that are most crucial to getting the nation’s economy rolling again.

Even after rising nearly 11 cents per gallon in just three weeks, diesel prices were still below their levels of one year ago. But if prices keep going up, especially at this pace, it won’t take long to top the old peaks.

It is worth recalling what happened last year. There had been big fuel-price increases during the winter 1999-2000 that generated enormous cost pressures for many truckers, and contributed to many of them parking their rigs. When a new price spiral began that summer, it met with massive trucker protests around the world and led the United States to finally tap its Strategic Petroleum Reserve in an effort to cool prices down.

Much of the damage was already done, however. Fuel prices, along with higher interest rates, had finally weakened demand for factory goods, and the manufacturing sector entered a recession. That cut demand for trucks to haul shipments.

The U.S. economy was hardly growing by this spring, and fuel prices were drifting steadily downward. Before it cut interest rates again on Aug. 21, the Federal Reserve cited ongoing weakness for trucking and factories, but said recent fuel price declines were erasing fuel surcharges.

Now that help for the economy is gone — wiped out in just three weeks, and with no immediate end in sight.

These recent price shocks at the pump have yet to ripple through to other prices or appear in reduced company profits, but that will come soon enough.

As yet, no new energy policy has taken hold, as the respite in fuel prices that lasted nearly two months eased what had been a crisis atmosphere.

ell, the crisis is here again.

This story appears in the Sept. 3 print edition of Transport Topics. Subscribe today.