It seems like everyone is wondering when, or if, the U.S. economy is going to shake off the doldrums. Believe it or not, a headline from the Los Angeles Times, “What recession? It’s boom time again in Silicon Valley,” made it clear that a recovery is well under way in northern California.

The article describes the current real estate boom in the San Francisco Bay area. That’s right, real estate boom. Most of us look at national headlines and national data, but these don’t reflect trends in every locality. Granted, recessions usually are broad, affecting most industries. The oil embargo of 1973-1974 led to gasoline shortages and substantially higher fuel prices; it’s hard to find anyone who isn’t affected by the price of fuel. Likewise, the stagflation of the late 1970s ended when the Federal Reserve Board nearly doubled the federal funds rate in less than two years. The rate, which averaged 11.2 percent in 1979, jumped to 20 percent in 1981. This sort of thing affects the entire economy. (more...)

The unthinkable has happened: Gasoline prices have crossed the $5.00-per-gallon threshold. Forget the official data. The Energy Information Administration says that the average retail price for a gallon of regular unleaded gasoline is $3.96, but that’s not accurate for two reasons. First, it excludes taxes, and second, that was last week. This might sound silly, but prices have been rising quickly, so we need fresh data, data from this week. The most up-to-date information is at the pump. In my area (90 miles west of Chicago) it’s a bit more than $4 per gallon, but I heard from a friend recently that it’s $5.00 per gallon at some stations in Chicago. I hesitate to ask how much stations in California are charging.

Two questions come to mind. First, how are higher gasoline prices likely to affect the rest of the economy? My colleague Vicki Bell wrote about this in a recent blog. Let’s move on to the next question: How much should a gallon of gasoline cost? There is no easy answer, but we can piece together some trends and draw a conclusion. (more...)