Angolan Oil Minister Jose Maria Botelho de Vasconcelos, during a visit by U.S. Secretary of State Hillary Clinton, called the price of oil at $70 per barrel "not bad." Oil traded up 17 cents to $71.10 on Monday at mid-day. Which begs the question: What's a fair price for a gallon of gasoline? Currently, the U.S. average price for unleaded regular gasoline is $2.62 per gallon, according to data compiled by gasbuddy.com.

It's hardly an inconsequential question for the United States. Absent a breakthrough energy technology, most Americans will continue to use gasoline to propel their vehicles for at least the next 10 years and probably for longer. Increased fuel efficiency, conservation and likely changed living/commuting patterns all hold the promise of decreasing per capita gasoline consumption in the United States, but the undeniable reality remains: For at least the next decade, American citizens will largely remain dependent on gasoline, with the nation's economy vulnerable to future oil shocks.

What's the most you think that you should have to pay for regular gas?

Here's the economic reality: Every $1 per barrel rise in oil decreases U.S. GDP by $100 billion per year and every one cent increase in gasoline decreases U.S. consumer disposable income by $600 million per year.

One school of thought argues that a fair price for a gallon of gasoline is the maximum the market will bear, or whatever price sellers can charge and still attract customers.

A gasoline-dependent economy

But that school, leaves the U.S. vulnerable to yet another oil shock, like the ones in 1973-74, 1979-80, and 2008, and relegates the largest economy on the face of the earth to the oil-dependent bin. In other words, if one says 'let the free market determine gasoline's price,' you're essentially guaranteeing that the nation will experience another oil shock-triggered recession in the future.

An alternate school argues that the U.S. should offer some type of gasoline price shock absorber -- perhaps in the form of a federal tax credit -- that would cushion a portion of a gasoline price increase above a certain level, to stabilize the economy in the way the automatic stabilizers of unemployment insurance maintain at least some income after an employee suffers a job loss. (The shock absorber could also be reversed -- used to encourage conservation -- via a special, short-term federal gasoline tax, if the price of gasoline drops too low.) The goal would be to reduce the impact of gasoline's boom-and-bust cycle on the U.S. economy.

Still, any potential policy presupposes what the American people think is a fair price for gasoline. Perhaps Americans think the price should be under $2 per gallon for regular unleaded? Or perhaps they think $3 per gallon for regular unleaded is fair and paying over $4 per gallon when consumption is high is o.k., too?

What's a fair price for a gallon of gasoline? Let us know what you think.


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