Creating A $200 Billion US Credit For High Oil Prices

South Korea has decided that the oil crisis is doing so much to undermine its economy that it has put together a $10 billion package to aid consumers and small businesses whose financial prospects are being ruined by rising energy prices. According to Bloomberg, "Prime Minister Han Seung Soo yesterday announced income-tax rebates for three-quarters of South Korea’s 13 million workers, and subsidies for truckers, farmers and fishermen struggling with soaring fuel costs".

The problems in the US are as bad, if not worse, than they are in Korea and clearly operate on a much larger scale. Because most of the world relies on US agricultural output, the fact that some farms cannot operate due to high gas and fertilizer prices has ripple effects well beyond local economies. Entire industries from automotive to airlines to newspapers could be nearly destroyed by the rising prices of jet fuel, oil, ground transportation, and ink.

With oil spiking by almost $8 in one day and the economy besieged by inflation and a recession, the federal government already knows that the tax rebates approved earlier this year and recently distributed were not nearly adequate to solve the slowdown in consumer spending.

Figures from the IMF, World Bank, and CIA World Factbook indicate that the US GDP is about fifteen times greater than that of South Korea. That means an aid package similar to the one being adopted by the Asian country would have to be on an order of magnitude of over $150 billion here.  An American program might cost the government closer to $200 billion since the US has a much greater percentage of its land used for farming, a higher percentage of workers who commute by car, and a comparatively greater number of cities served by air.

If the US is to avoid what now appears to be a period of terrible fuel price inflation, the government has a limited number of options. Cutting fuel taxes may be among these, but each state has a tax of its own on top of the federal burden. And, cutting the federal tax does more for the consumer than business.

Now that it is clear that the elements which would bring crude prices down, especially help from OPEC or sharply falling demand in the emerging nations,  are not likely to improve, the only viable way to protect the US economy may be a massive aid package for consumers and businesses which can no longer live with oil and gas prices which could cripple America’s ability to operate financially.

Douglas A. McIntyre