Mark KennedyI was standing in a line of shoppers outside the Target store on Highway 153 at 5:45 p.m. on Thanksgiving evening, waiting for the doors to open when two thoughts crossed my mind.
One: This is insane.
Two: I don't understand the American economy.
We were in line because my 13-year-old son wanted to buy a pair of headphones that cost more than some big-screen TVs. Prices are upside down these days. It's crazy.
We drove to the shopping center in an automobile that, when new, cost several times as much as the house I grew up in.
Earlier in the day I had called my sister long-distance, for pennies, on an iPhone that was financed with a two-year installment loan masquerading as an AT&T contract. I remember when new rotary-dial phones cost $20 and long-distance calls cost 30 cents a minute.
But the most remarkable upside-down price I've encountered recently is gasoline selling for $2.38 a gallon. I distinctly remember headlines three years ago that predicted gas prices would by now have reached $5 a gallon on the way to $10 a gallon.
What happened?
Here's what happened: You can banish $10-a-gallon gas to the Island of Unrealized Horrors along with such castaways as Y2K, SARs and bed bugs.
And gas prices still have not bottomed out. A report this week by the website 24/7 Wall St. predicts that Tennessee and Alabama are among eight states which might see gas prices soon dip below -- gasp! -- $2 a gallon.
What's more, today's low gas prices are more than just a blip. Sure, they'll inch up again (probably next spring), but gains in domestic oil production due to modern drilling techniques and rising government fuel economy standards are two powerful forces that will tamp down costs for the foreseeable future. By 2025, fleet averages for vehicles sold in the U.S. will top 50 miles per gallon, almost twice what they are today.
This is good news on many fronts and will have profound effects on families still trying to get their footing after the Great Recession.
Here are some points to consider.
• Lower gas prices might improve our national mood.
Here in 2014, we Americans have a problem with "irrational ambivalence," which is a byproduct of our fear-focused culture in which good news is often ignored and bad news is used as the screenplay for political theater.
"Irrational ambivalence" (my term) is the opposite of the "irrational exuberance," the famous phrase coined by former Federal Reserve Board Chairman Alan Greenspan to describe the bubble economy of the 1990s. You'll remember that the dot.com bubble eventually popped.
But before that, people were clearly too optimistic. Today, perhaps we're overly pessimistic, ignoring declining unemployment, modest inflation, historically low interest rates and equity markets fully recovered from their Great Recession lows.
Low gas prices can change that malaise. No other economic indicator is so public, so in-your-face as the price of a gallon of regular gasoline. You can't drive to work without being reminded a half-dozen times whether gas this week is up a nickel or down a dime.
• Lower gas prices create a virtuous cycle.
Economists with IHS Global Insight have noticed that, for every 10 percent increase in the cost of gasoline, consumer confidence falls 1.5 percent. On the other hand, when gas prices go down, consumer confidence shoots up.
Rising consumer confidence leads to more spending, which leads to stronger economic growth, which leads to more prosperity.
• The savings are real, not just psychological.
At the peak of the last up-cycle in gas prices in 2011-2012, when gas topped $4 a gallon in many places around the United States, the average American family was spending about 4 percent of its gross income (before taxes) on gasoline, according to the U.S. Energy Information Administration. That translated to about $3,000 per household in 2012.
In some places where household income was lower, the percentage was even higher. In Mississippi, for example, it was estimated that some households spent 15 percent of their income on gas. Imagine the relief there if gas prices are cut in half.
More broadly, even dropping what we spend on gas from 4 percent of household income to 2 percent would be the equivalent of a 2-percent reduction in the payroll (Social Security) tax for many workers, which was one of the most potent parts of the stimulus package that helped us emerge from the darkest days of the Great Recession.
Such an unplanned windfall can only be good for still-struggling U.S. families.
• There's also an anti-inflationary effect.
Almost every good and service you purchase has fuel prices baked in. Lower gas prices help keep inflation in check across the retail and service sectors.
During good times, Americans become convinced that things can only get better. During hard times we think they can only get worst.
Lower gas prices will help to get the country moving in the right direction. And that's something worth being thankful for this holiday season.
Contact Mark Kennedy at mkennedy@timesfreepress.com or 423-757-6645. Follow him on Twitter @TFPCOLUMNIST. Subscribe to his Facebook updates at www.facebook.com/mkennedycolumnist.