We know a lot of you are worried about the skyrocketing price of gasoline. It's so high, we know some of you are having to make tough decisions: do you buy extra food at the grocery store or do you fill up?
According to AAA, a gallon of regular unleaded now costs $3.84 in South Dakota. It's $3.82 in Iowa and $3.88 in Minnesota.
Those prices are awfully close to $4 a gallon. That idea scares a lot of people. But what would the impact really be if gas prices hit...and then stayed...at $4 a gallon? We sought out one of the most influential economists in the Midwest to find out.
It's the financial equivalent of the bogey man. The idea of $4 for one gallon of gas. When you look at what prices have been doing this spring, the idea isn't far fetched. Already this year, Alaska, California and Illinois have seen prices surge past $4.
"It was to the point where it was put gas in your car or feed your family." Cathi Abraham lives near downtown Sioux Falls and she is beyond fed up with gas prices. She stopped buying gas when it hit $3.50 a gallon because it was chewing up too much of her family budget. She won't start driving again until something changes. "If I can't walk there I'll walk down to the bus station then I'll catch a bus and go wherever I need to go."
$4 a gallon gas is also the monster in the closet for Sioux Falls businessman Pat Gustaf. "I think that if we get into $4 gas and everything has to go up that next notch...in a very fragile economy..we're gonna be in trouble." For nearly 40 years, Pat Gustaf has operated his floral shop in Sioux Falls. He tells me if the price of doing business goes up again because of gas prices, it's not going to be pretty. "Can we survive? Yes. Will it be a comfortable survival? Can we survive in our present form? No."
The fear is that $4 gas would throw a lot of budgets out of whack, for both small businesses and families. We wanted to get some real answers on what the real impact would be on our economy if the price at the pump explodes higher.
One of the foremost experts on the Midwest economy works not too far from the Old Market district in Omaha, Nebraska. His name is Ernie Goss and he says if gas prices hit $4 a gallon, it will mean very bad things for all of our pocketbooks.
"The daily ups and downs of the oil prices, you don't need an economist you need a psychologist." Doctor Ernie Goss is an economist at Creighton University. Every month, he reviews business conditions in the Midwest and his economic crystal ball shows bad things where $4 gas is concerned. "That would be calamitous. It would be very, very difficult for this part of the country." Goss envisions a scenario where $4 gas would immediately bring an end to traveling for pleasure. Hotels, resorts and tourist attractions would see a dramatic drop in customers. As people spend more on gas, they'll cut spending elsewhere, such as the grocery store, the mall and shops like Pat Gustaf's. "Anything that depends on consumer spending...we would see a cutback." If businesses see a large reduction in consumer spending, those businesses would have to cut their costs. One of the quickest ways to do that is to fire people: Goss envisions a sharp increase in the Midwest unemployment rate if gas prices here hit 4 bucks. "Overall the economy would slow." And a slowing economy in the midst of an economic recovery could be a very dangerous thing. Although you might disagree, economists say the recession ended in June of 2009. Goss says, that's not enough distance for him to feel comfortable about any sharp spike in gas prices, let along $4 gas. "This is a fragile, fragile recovery Brian and it could...we could slip easily back into what would be called a double dip recession and oil prices would be one of those factors that could push us there."
But how likely is it that we will hit $4 a gallon, Ernie Goss says....very likely. Demand is increasing every day overseas in countries like China, India and Pakistan. And Goss cautions, any supply issues in Libya, Yemen, Bahrain or Saudi Arabia would lead to a price spike. "Will we see $4 a gallon? Yes we will. Now the real key is when?" Goss believes the answer is.... by the end of this year. It's sobering news for Cathi Abraham. "Something has got to be done, this is just ridiculous the way they keep going up and up." And horrible news for businessman Pat Gustaf...who tells me if gas prices lead to a double dip recession, he will have to raise prices, fire employees and perhaps eventually, close the doors. "The general public is not in the mood nor do they have the money to afford a higher price." And then the normally affable Gustaf surprises me by showing a little bit of anger. For decades, politicians have been saying the united states needs to take swift action to ease it's dependence on foreign oil. Gustaf says he's tired of the talk....and disgusted that 40 years after the 1970's oil crisis....we're still in the same boat. "The money must be so incredible on that side that good people are willing to do bad things to our country to achieve our dependence on foreign oil."
Ernie Goss calls oil prices a ticking time bomb for the Midwest economy. He says rural areas will also be hard hit once gas prices hit $4 a gallon because people who live there typically have to travel farther to buy food and other goods. Goss also worries about higher fuel prices cutting into farmer's profitability...and hurting the ag economy.
2011 KSFY Action News. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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