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The Inevitable Impact of Rising Gas Prices

 Copyright © March 10, 2022 by Robert Wayne Atkins, P.E.
All Rights Reserved.

Introduction

Tanker Truck On January 3, 2022 the price of gasoline was $3.02 per gallon, and the price of diesel fuel was $3.24 per gallon.

Today on March 10, 2022 the price of gasoline is $4.19 per gallon, and the price of diesel fuel is $4.99 per gallon.

If you have your own car and if your car has an 18 gallon gas tank, then the price to fill your car with gas has increased from $54.16 per tank to $75.42 per tank. This means you are now paying an additional $21.26 for each tank of gas you buy. But your income has probably not increased. This means you now have less money available to pay your bills and to buy the things your family needs.

During the first 10 weeks of the year 2022 the price of gasoline increased 39% and the price of diesel fuel increased 54%.

The price of fuel may stabilize at these levels and if prices do stabilize then the worldwide economy may be able to adjust in a reasonable way and most of us may be able to continue to survive by making some reasonable adjustments in the things we buy and the foods we eat. It is also possible that the current fuel prices may even begin to go down. I don't know what will happen to the price of fuel in the future and I don't pretend to know.

However, if the above trend continues then by December 31, 2022 the price of gasoline could reach $15.64 per gallon and diesel fuel could reach $18.63 per gallon. If you have an 18-gallon gas tank on your car then it will cost you $281.52 to fill your gas tank. If you are a long-distance truck driver and if you drive an 18-wheeler that gets an average of 7 miles per gallon and if your truck has a 200-gallon diesel fuel tank then it will cost you $3,726.00 to refill your truck each time you stop to purchase more diesel fuel.

If fuel prices continue to increase at the above rate then the economies of every nation on the earth will "meltdown" before the end of this year. The "meltdown" will happen regardless of whether or not we are at war.

The purpose of this article is to take a look at what may change worldwide if fuel prices continue to significantly increase every month.

Discussion

Historically some products have jumped significantly in price due to a serious problem with the worldwide supply of that product.

For example, if bad weather significantly reduces the production of coffee then the price of coffee will increase worldwide. But most people will be able to adjust to the increase in the price of coffee by purchasing less of it, or by purchasing less of something else. People may complain loudly about the price of coffee but they will continue to live their lives in almost the same manner as they always have.

Another example would be a significant decrease in the worldwide production of cotton. Cotton products would increase in price but most of us would be able to adjust to the increase even though we may be unhappy about the higher prices.

Fuel is not in the same category as coffee or cotton. An increase in fuel prices impacts the price of everything in the world for the following reasons:
  1. Delivery Expenses: Moving products from where they are grown or made to where they will be consumed requires fuel. A small increase in the price of fuel will only cause a small increase in the total cost of these products. But a large increase in the price of fuel will have a more significant impact on the total delivered cost of these products. (Note: It may not be too long before "free delivery" will sound like a fairy tale to your children.)

  2. Labor: Most people do not live within walking distance of where they work. Most people have to travel a reasonable distance in a short period of time to arrive at their place of employment. A significant increase in the price of fuel will reduce the amount of money that people have available to pay their bills and to buy the things they need. If fuel prices continue to increase to the point where it costs a person more money to commute back and forth to work than they earn at work, then that person will simply quit going to work. (Note: The cost of public transportation will also increase but not by the same amount as it costs a person who drives his or her own vehicle to work. However, an increase in crime may cause people to avoid public transportation. A different option would be car pooling because the increase in fuel costs could be shared by two or more people.)

  3. Production Costs: Most foods and most manufactured products depend on fuel in one way or the other, such as petroleum by-products that are used to make fertilizer and plastics. If the price of the raw materials increase, then the price of the finished products will also increase. There are other options than petroleum by-products but these other options will increase the cost of production and that is why these other options are not being widely used today.
If the price of aircraft fuel increases significantly then most people and many businesses will not be able to afford the price of a plane ticket. This could bankrupt the airline companies, and it could also bankrupt the companies that build civilian aircraft because there would be no civilian market for new planes. Vacation resorts would also become ghost towns because most people could not afford to travel by car or by air to the vacation resort. This includes major theme parks.

Government price controls will not work. If governments pass laws to freeze prices and/or wages then this will only make matters worse. If a person could not afford to pay their bills before prices were frozen, and if governments freeze the wages that companies can pay their employees, then people will not return to work. If the actual total cost of production exceeds the price that a company can legally sell it products for, then companies will stop making the products. Government intervention in the free market system has always accelerated the collapse of that system.

For example, assume that a farmer has to spend $1.00 per pound to grow tomatoes this month, and the farmer needs to charge $1.10 per pound for those tomatoes in order to earn enough money to pay his other bills and to feed his family. And suppose that a grocery store buys the tomatoes at $1.10 per pound and then sells the tomatoes at $1.20 per pound in order to earn enough money to pay all the bills of the grocery store. Then the government freezes the final selling price of tomatoes at $1.20 per pound because that is the current selling price of tomatoes. What do you think will happen to the number of tomatoes that are available for sale at the grocery store if the price of fertilizer remains the same but bad weather reduces the number of pounds of tomatoes that the farmer is able to actually grow? In other words, the farmer now has to sell his tomatoes at a loss. If you were the farmer, how long could you survive in an economy that did not allow you to adjust your selling prices to match your actual total costs? What if you had to submit a lot of paperwork to get permission to increase your prices and it took weeks or months before your request was approved or denied? If governments freeze prices and/or wages then the "meltdown" will happen more quickly and it will be more severe.

Are there any logical solutions that could help minimize the negative impact of rising fuel prices? The answer is yes.
  1. Railroads can move products over long distances at affordable prices. This would require an increase in the number of delivery trucks in each community that is serviced by the railroad.
  2. Small businesses could begin making products for sale in their respective geographical areas. This would increase the number of jobs in the area where the business is located. This would also reduce our dependence on products made on the opposite side of the globe.
Most people are very intelligent. You can probably think of other ways to help minimize the negative impact of increasing fuel prices on your local economy.

Conclusion

As I mentioned at the beginning of this article, fuel prices may stabilize at their current levels, or fuel prices may even go down.

However if the price of fuel continues to increase then this will probably result in an increase in the selling price of almost all products and services. And rising fuel prices may eventually result in more and more people who intentionally decide to not work if it costs more to commute to work than the amount of money that a person brings home from work. And without adequate manpower and with increasing prices for raw materials, more and more businesses may gradually be forced into bankruptcy. Fewer people working and fewer businesses earning a profit may seriously decrease a government's tax revenues. And the increase in the number of people not working may increase the amount of money the government has to pay to its unemployed people. The combined impact of all of these different problems may eventually result in the bankruptcy of the government and the nation.

Therefore the increase in fuel prices is not simply a topic for casual conversations.

Instead, the increase in fuel prices may eventually precipitate a "worldwide meltdown" that will be a life-changing event for almost everyone on the face of the earth.

I pray that you take the time to immediately make and execute some reasonable plans that could help your family survive if there is a "meltdown" of the worldwide economic system. Even if a "meltdown" does not occur, your common sense preparations could help your family enjoy the future regardless of how the future unfolds.

Respectfully,
Grandpappy.

Grandpappy's e-mail address is: RobertWayneAtkins@hotmail.com

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