Ask the Expert: Christian E. Weller on Gas Prices

How are rising gas prices affecting household budgets?

The rising gasoline prices are adding to the economic stresses that families in the United States face right now. Families have very low income growth, the labor market is shedding jobs, wages are flat; at the same time, prices for food, for healthcare, for other important items are going up. On top of that now, gasoline prices are going up very sharply, and there is very little escaping from higher gas prices because people have to drive to work, to the doctor, to school, so I think in the end what we're seeing is people are making sacrifices by cutting back on necessary items. They're spending less on food, delaying the purchase of a new car; the're ultimately delaying payments on their debt.

Is there an end in sight to the middle-class squeeze?

For the time being, things will get worse for families, and particularly the labor market is poised to go further down, shedding more jobs; wages will remain flat. At the same time, it looks like gasoline prices will continue to rise. At this point, gasoline prices haven't risen anywhere near what oil prices have gone up by, and that means that there's a lot more room for gasoline prices to go up, and that means more economic problems for AmericaÕs families, ultimately more foreclosures, more defaults and consumer debt, and more bankruptcies, at least for the rest of this year, possibly into 2009.

How can we ease the strain on America's families?

The most promising venue to help American families is to give them higher incomes. Government policy can do this, for instance, through an improvement to the earned income tax credit, or by improving the unemployment insurance system, which many more Americans have to rely on now that the labor market is declining. Other ways are to help people join a union, thereby giving them a boost in their income and in their benefits. That ultimately will allow them to pay the bills that are increasing because of higher gasoline costs at this point.