WaPo: High gas prices are holding the economy down

Economic growth over the last quarter was once again disappointing. The possible factors out there weighing down on jobs, sales, and incomes range from the global consequences of the earthquake in Japan to concerns over the debt ceiling. Among all the factors that could be holding us back, Washington Post centers in on a culprit we think readers know a little something about:

Earlier this year, economists were optimistic that a Social Security payroll tax cut would accelerate growth and help strengthen the recovery. Instead, most of that money– roughly $1,000 to $2,000 per person – has gone to pay for higher gas prices.

The average price for a gallon of gas peaked in early May at nearly $4. While it has eased since then, motorists paid an average of $3.71 per gallon on Friday – nearly a dollar more than they paid a year ago.

Tactics like the temporary reduction in payroll tax are directly designed to boost the economy by putting more cash in more pockets. The theory goes that if the average person has a little more cash available they'll spend it, creating more demand and eventually more jobs.

However, it all the spare cash ends up in just one small set of pockets – that of oil companies – and if the extra dollars don't actually deliver any extra products to the consumer, the ability of that cash to create economic impact is greatly reduced.

[Source: Washington Post]