No finagling at the top alone will restore the American economy. 75 percent of the economy is driven by the spending of ordinary consumers and they are frightened. Call it PTS and it will not be cured easily. The distribution of free booze and Prozac will jerk start spending again. That is the only quick fix that is possible.
We Ask: When Will the Pain Go Away?
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Spending more to fill gas tanks and buy a loaf of bread means there is less to spend on other things. Vehicle sales are plunging, and the airlines are slashing flights to survive. Businesses are increasingly focused on energy savings and less on how to make us more productive workers. This is a painful weight on our collective standard of living. Yet the higher energy and food prices make it difficult for the Federal Reserve to lower interest rates for fear of broader inflation. Businesses have so far eaten their higher energy costs and not passed much of them along to consumers. This is a serious risk, though, as it would force the Federal Reserve to raise interest rates. There is nothing more painful than higher energy prices and higher rates; every recession since World War II has been caused by that noxious mix.
Why high oil prices make it hurt so bad
Bob Lutz, General Motors' vice chairman, global product development
Historically, any time there was a slowdown in the United States, there would be a slowdown globally. That's because the United States used such a high percentage of the world's resources—oil, steel, rubber products and so on. Whenever we slowed down, the suppliers of those raw materials would have to slow down. That would result in a drop in the prices of those commodities, which when they entered the United States would restart our economy from a lower cost base. Usually petroleum prices were the first to react to a severe U.S. slowdown.
Now the European economy is being driven largely by the boom in Eastern Europe, particularly Russia and some of the former Soviet republics; those countries are growing almost as fast as China. They're creating a high demand for European products, and the resulting prosperity has little or nothing to do with the United States.
Then you have the huge global growth engine that is China, whose economy is rapidly expanding and industrializing, and is absorbing more and more of the world's energy and resources—resources that used to come to the United States. As a result, the world is seeing something it has rarely, if ever, seen—a U.S. slowdown with little effect on the rest of the world.
As for the price of oil, when it goes up and stays up, it has a negative effect on the entire economy because oil goes into making virtually everything, including steel, aluminum, plastics, rubber, fabrics, transportation … and food. People don't generally associate food and petroleum, but petroleum is used to make fertilizers and run the vehicles used for planting and harvesting, storage and processing, and the trip to market and for the final sale from the freezer in the store to the freezer in a home. And food prices affect everyone around the world.
General Motors and the U.S. economy in general are seeing a short-term disruption in growth caused by rising oil prices. Fortunately for General Motors, we are a global producer, and we're well positioned in the rapidly growing economies of China, Russia, India and Latin America. And while we experience growth in those markets and position ourselves for a resurgent U.S. economy, we're going to increase our R&D spending to expand alternative fuel solutions and advanced technology solutions to lessen and ultimately eliminate everyone's dependence on petroleum.
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