Gas Prices and Increased Risk of A Recession

Question: Why do high gas prices raise the risk of a recession?

Psychology. People tend to make financial adjustments on the basis of future expectations. If people expect great things in their future, they will be more than likely to buy homes, spend money, and act easy with money. If people expect things to grow worse (such as high oil prices), they make the opposite adjustments - they adjust their expectations downward and begin holding on to their money. In a nutshell, the past recession (and the current one coming) occurred because economic circumstances overwhelmed the average American. High gas prices, for instance, forced people to re-evaluate their life, and housing got cut.

A humorous observation here is that nothing has fundamentally changed regarding energy consumption, so as gas prices continue to rise, Americans will be financially hurt. Another humorous observation is that transportation alternatives to oil are so behind the traditional transportation that businesses are missing out on one of the greatest and easiest "get-rich-quick" opportunities of our lifetime. $4 or $5 a gallon for gasoline would change the car market, if alternative cars (outside of oil changed).

I don't think that many Americans will car if an electric car has a driving range of 100 - 200 miles when gasoline is near $5 a gallon. Simply put: using gasoline is becoming financially unsustainable and many Americans will have to learn to adjust their expectations with it. That being written, since businesses have failed to come out with alternatives in an effective timeframe (this stage has been set for a while), they are missing out on an easy chance to sell cars. The result is an extensive time period of an on and off recession.