Who Wins and Loses When Gas Prices Skyrocket?

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The President visited the service station to discuss a number of largely ineffectual remedies for pulling down prices, some of which Rove had previously discussed in the staff chiefs' meeting. Bush suspended additional deliveries to the Strategic Petroleum Reserve to divert that crude to the market. He called for more tax incentives for hybrid cars, fewer environmental hurdles for refinery builders, drilling wells in the Arctic and congressional authority to raise mileage requirements on cars. Senate majority leader Bill Frist, who earlier in the week had advised voters to drive slower and get a tune-up, was fronting a Republican proposal to send a $100 rebate to most taxpayers--which they could return to the oil companies next time they filled up.

Handed the issue that could win back the House, congressional Democrats steered en masse to service stations, like NASCAR drivers pitting for gas. Following a carefully strategized plan of photo ops organized by the Democratic Congressional Campaign Committee, they staged press conferences in filling stations around the U.S. to denounce the Republicans and promote their equally ineffectual solutions. Said John Cranley, who posed near a price sign at a service station in Cincinnati, Ohio: "These gas prices represent the failure of my opponent, Steve Chabot, and George Bush to fight for the middle class. The Republicans and Steve Chabot are giving [Big Oil] $14 billion in your money." The Democratic handout proposal was even more generous. The Dems want to rescind the gasoline tax for a while--which would stimulate demand.

The fallout from gasoline prices was doubly painful for the G.O.P. because it obliterated the good news that the economy is absolutely cranking. Federal Reserve chief Ben Bernanke estimated that the economy grew nearly 5% in the first quarter, while unemployment has fallen to 4.7%, the lowest since 2001. But the price of gas isn't a mere macroeconomic figure. It's a pocketbook item that consumers feel every week. The economy required about 27% less energy to produce a dollar of GDP last year than it did in 1986, according to the Department of Energy. But gas prices are hurting consumers because real wage growth has declined over the past four years. The American Automobile Association estimated that the average driver's fuel costs will increase to 9.2¢ a mile, from 8.2¢. Not academic, since the average commuter covers more than 8,000 miles a year just getting to work and back.

If high energy prices are hurting workers, they are devastating a number of industries, most notably the airlines. Already buffeted by bankruptcies and labor disputes, the major carriers had made steady progress in shedding excess capacity and lowering labor costs. As a result, jets are fuller. But the till is still empty. Every dollar increase in the price of a barrel of oil translates into a $365 million immediate increase in fuel costs for the 11 major airlines. Even hyperefficient JetBlue has gone into the red. "High oil prices and continued losses will probably be a slow grind to liquidation for some airlines," says Vaughn Cordle, the founder of the analytical firm AirlineForecasts. While some airlines thought they might break even this year, now the biggest carriers may lose as much as $3.5 billion in 2006, Cordle predicts. If the current jet-fuel prices hold, something else will have to give. Result? Look for more mergers and higher fares.