Eating Gasoline in America

Deep in the consensus-reality shared by post-war economists is the belief that the US economy transformed itself over the past thirty years, and now operates with much less sensitivity to energy costs. Indeed, in the cheap oil era and as the US developed its FIRE economy (finance, insurance, real estate), the energy inputs needed to create GDP certainly declined. But this also served to lull economists into yet another false rulemaking as they converted temporary conditions into permanent ones. For, beginning in the year 2000, the US economy–which had admittedly made great advances in power sector efficiency–became quite sensitive again to energy as the price of oil discovered America’s Achilles heel: our leverage to gasoline.

The research now establishing economic sensitivity to high oil prices, especially for commuters from America’s suburbs, is myriad. Indeed, depending on how high gasoline prices go, housing affordability itself is now more likely to fall with distance. This was only exacerbated in the past ten years as home buyers, looking to escape housing inflation, migrated further and further from city cores, to the peripheries. More broadly, we now understand that poverty is now a phenomenon of the suburbs, according to a study released this year by The Brookings Institute. And given that trend, I have taken another look at one of my favored indicators: food stamp usage. Below is a chart of food stamp users (the SNAP program) in one of America’s quintessential post-war, car commuting regions: San Bernardino County.

The chart begins in 2004. In late Spring of that year, oil prices would lift above 40 dollars a barrel for the first time and they would rise above 55 dollars later that year, before dropping back by December. Food stamp usage had been roughly flat in 2003 and also took off in 2004. It’s possible that some will conclude that the rates of change in oil prices had the greatest correlation with pressured household budgets. Along with 2004, 2007 also saw a large percentage change in oil prices. Readers can draw their own conclusions of course. One of mine is that the continued advance in food stamp usage in the post 2008 crisis period, to its current 276 thousand users, would combine the can’t-get-no-relief pressure from gasoline prices along with the broader effects of the burst credit bubble and collapsed economy.

San Bernardino County began the post-war period with roughly 200,000 residents in 1945. It would hit a 2.1 million residents 65 years later, in 2010. A ten-bagger. We thus are handed a grim comparison: the county now has more persons on food stamps than its total population when it began its classical post-war buildout: the vast housing divisions and towns, all served by large freeways running west to Los Angeles.

Food stamp data is an excellent portal through which to gauge economic sensitivity to gasoline prices, because to be in need of food stamps and to qualify for them helps us locate a threshold of economic pain, in the American household budget. Why? Because the average food stamp benefit per month is roughly 340.00 dollars per household. If your family needs an extra 85 dollars a week to put enough food on the table, you can be confident that a change in petrol prices from two dollars to three dollars, or especially to four or five dollars a gallon, matters. And not a little. Especially if one is commuting 60-90 miles per day.

The Department of Agriculture released this week the latest figures on national food stamp usage. The SNAP program nationally now serves 40.8 million people as of May. A new all time high. Without introducing more recent issues into the discussion, such as the second wave of food inflation now underway from the grains complex, it seems we can now assert a few things about the data. First, it’s fairly shocking that an agricultural supergiant such as the US should now have to provide a second, printed currency to 14% of its population, to buy food. Second, this is clearly informing to the ongoing debate over inflation and deflation, as the totality of US wages, energy costs, and living expenses has resulted in a lurch downward in purchasing power. The notion that food is “cheap” is now proven to be wrong. Very wrong, at least, for Americans. And finally, as the food stamp subsidy is distributed each month to 40 million Americans, there is little doubt that this merely offsets other basic running costs for utilities and petrol. Every household that takes them is surely struggling also with their electric, natural gas, and gasoline bills. In other words, food stamps are really Food and Energy stamps.

-Gregor

Food Stamp/SNAP Program Data for San Bernardino County through April 2010: State of California Department of Social Services.

Photo: Freeway Interchange, Los Angeles, 1967, by Ansel Adams.

  • esmith

    As of 2004, only 29% of all food stamp recipients in this country had any earnings, and even fewer had anybody employed full-time in the household. The majority were unemployed single parents with children, elderly, or disabled. For a household of two, a single person employed full-time making $10/hr (just above the minimum wage in CA) would make enough money to exceed the food stamp eligibility limit.

    Obviously, if 70% of people in the program don't work at all, and some of the others only work part-time, as a group they are very insensitive to the cost of gasoline.

  • Barnaby33

    “all served by large freeways running east to Los Angeles.” Ahem, I think you mean west to LA.

  • chriscook

    Interesting, but I'm not sure about the correlation – @ esmith makes a good point.

    Your point about food stamps being a second, printed, currency to 14% of the population points to a solution I have been suggesting for some time, which is to:

    (a) gradually ramp up a carbon levy on all carbon fuel use;

    (b) invest the resulting pool of funds in renewable megawatts, and non-renewable 'negawatts' of energy savings;

    (c) issue a carbon dividend, to the US population generally, of 'Units' redeemable in payment for energy.

    Energy stamps if you like.

    Recipients of energy stamps have a choice – they can maintain profligate energy consumption, and use them to pay for energy, or they can save energy and exchange their Units for something else of value, or to repay loans denominated in energy and so on.

    The outcome would be an energy-based currency, and a transitional mechanism to renewables etc which actually might work in practice, instead of the complete nonsense of emissions trading brought to us by the usual suspects.

    http://www.slideshare.net/ChrisJCook/energy-poo

  • July41944

    2004 figures are supposed to be relevant to the present? I think current economic conditions have greaty changed today's food stamp demographic. Millions who were formerly middle class now participate out of necessity because of the disappearance of 7.5 million jobs.

  • http://twitter.com/frymaster Frymaster

    I think you have being unemployed confused with being dead. If anything, extreme poverty makes human beings more sensitive to price increases. Instead of indexing against employment, try indexing against auto registrations, which may tell a different story. I don't recall San Bernadino being particularly walkable or well-supported by public transit. The peoples has to get to the grocery store! If you don't know this, being poor is very, very expensive.

    Also, the author's case study focuses on oil for transit, which is a big thing, and on a geography known for its felicitous weather. However, given the author's usual location in the northeast of the USA, it's statistically likely (although, I think completely impossible) that his home is heated with oil. There's quite a lot of that up here, mostly in the unimproved older stock which is mostly owned in abstentia and largely rented and largely under subsidy. So, for the poor, oil price spikes have a particularly nasty effect in this neck of the woods. I wrote up my thoughts in a cheery little piece called Your Granny in Taunton, Frozen Like a Popsicle.

    My state, RI, passed a law mandating that non-profit groups have a legal right to enter and execute energy-efficiency retrofits in any non-owner-occupied building that is Section 8 supported or receiving energy assistance.

    Weird.

  • Bigelow

    American dependency on gasoline and automobile culture was assured by a group of auto, tire and petrol manufactures in the 30s, 40s and 50s who conspired to destroy major US metropolitan mass transit streetcar systems. Sell more fuel, tires and buses! GM was convicted of it in court. See Edwin Black's book. (http://internalcombustionbook.com/). And now years later we all continue to pay the price. GRRRRR!

  • esmith

    These millions are now unemployed and they have no need for gasoline because they don't commute to work. It is much much cheaper to drive 2 miles one way to the nearest mall once a week, than to drive 60 miles one way 5 days a week to Orange County.

  • http://realadvertising.cc Frymaster

    I'm gonna guess that you're replying to me, so I'll just barge this thread. Sorry, 070444.

    e, I used the store as an example, but I'll spell out the real dynamics of how expenses work when you lose your job.

    The costs of that ridiculous 600 mile commute don't really amount to much when the pay for that job is good. So gas goes up or down. Big whoop. It goes way up? One less dinner out.

    Now you lose your job. UI is a joke and gets you nowhere. Maybe it pays the mortgage. If you're lucky, you can pick up some side work here and there for cash and not report it to UI.

    All the cash flow equations are out the window. You start hemorrhaging cash. Bills are going unpaid. It's just the basics: house, food, clothes, utilities if you can. CC balances? They're only going up until they top out. Pay the minimum.

    At this point, COBRA is a particular nightmare. Outrageous as it seemed when you started to pay, now that it's running out, the cost of micro-group coverage is even worse. Many folks choose to let this go, although I never did.

    Life doesn't stop. You have to keep going. In SoCal, that means driving. That next job isn't in the development and it isn't at the mall. It's probably close to where your previous job was.

    This is where a price rise just kills. As a percentage of income, auto fuel costs are probably quadruple what they were when you were working. At $3/gal, $180 a month = 60 gallons x 20 mpg = 1200 miles / month. At $4.5/gal, $180 a month = 40 gals = 800 miles. That other 400 miles will cost you an additional $90. On a budget of $2000 / month it goes from 9% to about 13.5%.

    You'll just have to trust me that having to find 4.5% in your budget – already stretched way past the limit – is something to which you would be sensitive.

    Your comments give the impression that losing one's job means an end of activity or the need to be mobile in our highly mobile world. Take my word for it, and spare yourself the pleasure of finding out for yourself. Reality is a lot more complicated.

    Cheers.

  • Gavin Longmuir

    The graph shows that the price of oil today is about where it was in 2006, yet the number of people on food stamps has doubled. Not much of a correlation there!

    The big issue is excessive regulation, which has driven industry out of the US and thereby killed the economy. Enviros claim that we have become more energy efficient; in reality, we have just exported energy-using industry (and the jobs it creates) to China.

    A secondary issue in Southern California is illegal immigration — although that is not to be discussed in Politically Correct circles. For a poor Mexican, US food stamps are way more generous than the support the Mexican government offers.

    Bottom line — the price of gasoline may be kicking people while they are down, but it is not the reason they are down in the first place. The reason they are down is unsustainable dysfunctional government.

  • gregor.us

    By Sarah O’Connor in Washington

    Published: September 4 2009 20:10 | Last updated: September 4 2009 20:47

    The number of working Americans turning to free government food stamps has surged as their hours and wages erode, in a stark sign that the recession is inflicting pain on the employed as well as the newly jobless.

    While the increase in take-up is often attributed to the sharp rise in unemployment – which on Friday hit 9.7 per cent – the Financial Times has learnt that some 40 per cent of the families now on food stamps have “earned income”, up from 25 per cent two years ago.

    The agriculture department, which runs the programme, attributes this rise to workers having their hours cut back.

    “I’m sort of stunned, it seems like a dire warning . . . that even the jobs people are retaining in this recession aren’t at the wage level and hours level that they need to provide for their families,” said Heidi Shierholz, economist at the Economic Policy Institute.

    http://www.ft.com/cms/s/0/c1e698a2-9984-11de-ab

  • Oct

    Never read anything more pointless than this post in about 2 weeks. Thanks for the careful analysis. I would look at the last 30 years for the policies that shape today. What regulations are you referring to? Can you plot the rate of immigration to support your claims. Of course the stat you fail to address is why the energy/oil dependent workers in the outersuburbs are worse off than those in the inner cities. Are you saying that new regulations forced people to live in the outer-burbs?

  • Oct

    “These millions are now unemployed” ??

    Huh? You have that data, or are you simply making it up? I suggest the latter is true in this case. I imagine many are working but oil is eating up their budgets, and they need food stamps to make ends meet. Welcome to the oil addicted America that is headed over a cliff.

  • Oct

    Another oil subsidy to big oil = Food stamps, since they are starving for money ;-) Time to reduce our consumption if Washington would have the courage to act and act soon.

  • http://www.jeffreymclarty.com/jm McLarty

    …And just like the banks, they held a gun to heads of the customers, who handed over dollars, practically against their will, to consume the evil products, these corporations made them want.

    Mortgages. Tabacco. Insurance. Cars. Big Oil. Everybody always blames the irresponsible supply side for the consequences.

    When prices are cheap, everybody is happy to consume, but when prices go up, its the evil capatalists who ought to be ashamed for the destruction THEY bring.

  • http://www.web2carz.com/bad-credit-car-loan Bad Credit Car Loans

    We waste more gas than most countries use.

  • http://twitter.com/1Copenut Trevor Pierce

    I can attest to the point that as energy prices rose, housing prices in the suburbs (or exurbs as it may) fell to more affordable levels. We purchased our home in March 2008 even though it was 28 miles from our places of employment because it was a home we could afford. Anything closer was far into the $200K+ range, and didn't make for a realistic mortgage. The steady march to $4/gal. gasoline nearly crippled our budget, and has taught us real lessons about hedging our propane purchases and driving only as much as necessary.

  • Bigelow

    The metro area I live in had an extensive electric streetcar system. Hard to beat not needing an automobile for getting around on the cheap. When you buy your competition and scrap it it makes your industry's product a necessity.

  • http://www.jeffreymclarty.com/jm McLarty

    Not true. While case by case situations may vary, if the competition offered an alternative solution which was in demand, and it was purchased just to be sabotaged, after the sabotage was complete a new market participant would/should emerge to fill the gap. If a new market participant didn't emerge, the solution had a flaw to begin with. At the time, the cost of energy + inconvenience of riding were higher than the costs associated with operating a vehicle. It's sad, but the temporal myopia of the population, didn't completely see the entire costs – projected out 50, or 100 years.

  • 1Eco_Indigo_1

    Stop spending money that doesnt exist on maintaining a client state that will ultimately explode once it finds out its bankrupt beyond eternity, allocate some land, led the people grow hemp, feed themselves, generate welath, and make them do it off their own back to teach them the lesson not to forget nature.

    Government participation is recommended to mitigate explosive reactions