Why $110 Crude Oil Doesn’t Matter

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As the price of crude oil hovers near $108 per barrel, economists wonder how the economy will respond.

There's talk of a complete economic shutdown; talk of gouging by oil companies; and talk of the need for government intervention.

This is all old hat by now.

With every crude oil milestone of the last 7 years, fears of recession renewed and these ongoing, high-oil-price worries persisted even as the U.S. economy was heading through its biggest growth spurt ever.

• 2003: Oil at $30 per barrel.  Recession is feared.
• 2004: Oil at $40 per barrel.  Fault the war.
• 2005: Oil at $60 per barrel.  More recession fears.
• 2006: Oil at $70 per barrel.  Household budget worries.
• 2007: Oil at $80 per barrel.  Housing is the big worry.
• 2007: Oil at $90 per barrel.  Recession is likely.
• 2008: Oil at $100 per barrel.  Economy on the highway to the "Danger Zone".

For all of the hyperbole, though, concerns about high crude prices are not displaced; crude accounts for 59 percent of the cost of gasoline at your favorite gas stations.

Economists worry about high gas prices because for every dollar Americans spend on fuel, it's one less dollar to spend on discretionary items like the best chocolates in Cincinnati.

Some people say every penny increase pulls $4 million from the economy.

If that's true, the 27-cent increase since mid-February has robbed businesses of $108 million.  That's a lot of money, and then we go and put it in perspective: $108 million is the same amount that Sir Paul McCartney is paying ex-wife Heather Mills as the terms of their divorce.

So today, oil prices forge higher and gas prices reach an all-time, inflation-adjusted high.  Americans have dealt with it before, and we'll deal with it now.  We're no more fazed by $3.00/gallon than we were by $2.00/gallon than we will be by the inevitable $4.00/gallon coming soon to a pump near you.

Consumer spending may take a short-term hit but Americans have shown an amazing resiliency in the face of strong inflation headwinds.  If recession comes, it won't be from high gas prices -- it will be from something else.

The steady rise in gas prices is a constant with which we've all learned to live.

Just like the Foo Fighters and the Phillies.