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Gavin Newsom's solution to inflation.

As sanctions are imposed on the Russian economy, Russia responds by jacking up the oil prices—ultimately causing domestic prices to increase and the problem of inflation to proliferate. Russia makes up 8% of the U.S. oil imports; though this is a small number, rapid globalization means that oil prices in European countries heavily reliant on Russian oil will affect prices in the U.S. The collateral of this damage is left to leaders at home to deal with.

Illustrated by Nadia Widjaja


By Daniel Gong, Katelyn Shen, and Shu Han Jin

 

Introduction

Inflation has been an issue as old as time– as long as there is money, there is bound to be inflation. And unfortunately, that’s not going to change anytime soon. The cyclical nature depends on international stability, and with the war between Ukraine and Russia, inflation is rising rapidly. However, government leaders have learned from history and are working to fight back against this. In California, Governor Newsom recently announced a new plan to combat the skyrocketing gas prices. By giving all Californians a $400 debit card, Newsom hopes to help the public combat the volatile gas prices.


Background

Throughout history, inflation has been directly linked to war. One well known example is the Great Depression, which was caused by lingering economic problems after World War I. In general, war influences inflation because there is usually an increasing shortage of resources which lead to inflation as the war continues. Currently, Russia’s invasion of Ukraine has caused gas prices in the United States to rise dramatically. In California alone, gas prices are now $6.105 per gallon. For Fremont, this could result in many changes. For instance, since Fremont is home to Tesla and a majority of the population is above-median income, it could result in many citizens buying electric cars.

The Plan Itself

Governor Newsom’s proposed bill would send all vehicle owners a $400 debit card to offset the increasing gas prices. This debit card would be given to owners of gas, hybrid, and electric vehicles. Each individual can get cards for up to two vehicles, meaning owners of two vehicles could claim up to $800 from this proposal. If the California legislature agrees with Newsom’s plan, the debit cards could be sent out to Californians as early as this July. In addition to the card, Newsom also plans to freeze the gas tax increase that would have been instituted this summer. Furthermore, Newsom also wants to bolster other forms of transportation. In addition to the debit cards, Newsom is also seeking $500 million to promote walking and biking, as well as $750 million to fund three months of free public transport. In total, this proposal would cost the state $11 billion. This money would come from the state’s $31 million dollar budget surplus from 2021. Newsom’s goal with this proposal is to mainly help low income adults, who are the most impacted by this gas price surge. This proposal also hopes to help Californians in the future by protecting citizens from volatile gas prices and increasing incentives for active transportation.


Gas Prices

Due to the current Ukraine-Russia conflict, gas prices nationwide are reaching an all time high. Since Russia is one of the world’s biggest oil producers, the West has seen huge gas price increases after the recent sanctions on Russia and ban of Russian oil. While President Biden has announced plans to empty barrels from the U.S’s oil reserves, experts say this is unlikely to change much. So, just how much are gas prices increasing? Well, compared to the first week of February 2022, California average prices have risen from $4.507 per gallon to $5.764 a gallon, a 28% increase. While prices have been rising steadily since the lows of the pandemic, a rise of this proportion in this short amount of time has been unprecedented.


Gas and Costco

Currently, many Californians are flocking to Costco for gas, as their gas is some of the cheapest in the state at $5.49 per gallon. As a result, Costco lines for gas have exploded, with many having to wait over thirty minutes just for gas. The reason Costco is able to keep their prices so low is because Costco is able to near wholesale their gas, as it is not their main form of profit. However, their business model is definitely working right now. Costco gas is for members only, and with the huge influx of members going to Costco just for gas, many are bound to take the time to shop inside the store as well, increasing Costco’s profits. Furthermore, with no one knowing how long gas is going to be an issue, many are also signing up for memberships for gas, increasing profits for the store as well.


Uber, Doordash, and other delivery services

With the rising gas prices, uber prices and doordash prices are rising as well. This makes sense, as their business model requires drivers to use gas, and with the price increase, drivers would need to increase the cost of their services to make the same amount of money. As a result, these apps are adding a surcharge to customers to offset the gas price increase. While some might be curious why these companies can’t simply subsidize customers until gas prices fall again, it is simply not possible, as delivery services are extremely unprofitable. For instance, Doordash has never been profitable, and even lost $468 million in 2021 even in the height of delivery services. As such, while it would be nice for the responsibility of subsidizing drivers to fall on these companies, it is simply not possible and must fall on consumers.


How this affects the different economic classes

The new gas prices are hitting lower-income adults the hardest, with many having to cut ends to get gas. According to a new report from February, lower-income adults cut the most discretionary spending because of gas and are struggling the hardest with gas prices. However, with the passing of the recent omicron wave, wealthier individuals are traveling more than ever, even through the gas price increase. Thus, while it may not be fair to give a $400 debit card to everyone, since some need gas money more than others, there will definitely be outrage from those excluded, as gas is still expensive for them. However, we personally believe that it is unnecessary to give the $400 card to electric vehicle owners, as they are barely impacted by the gas price increase, and the fund could be better spent elsewhere. Furthermore, even though some say that this is a good time to get electric cars, this is not a viable solution across California. Electric vehicles are extremely expensive, with even the cheapest running over $30,000. As mentioned above, those struggling the most with the gas prices are lower income individuals, and they would definitely not be able to fork out $30,000 for an electric vehicle.


Conclusion

To combat the growing gas price inflation, California Governor Newsom has provided a solution. But how effective will this truly be? Many parts of his plan remain controversial under the eyes of the general public. His proposed solution gives $400 for every car for everyone, regardless of their income and regardless if the car even runs on gasoline. In a city like Fremont where the average family income is way above the average state income, most families are easily able to accommodate the rise in gas prices. Additionally, due to generally high income, a great amount of the population here owns electric cars. These factors show that the $400 is highly unnecessary for many families and would likely just become extra spending money thrown into the economy. This money could easily be used for programs to improve public transportation services and provide aid for families currently struggling from the COVID crisis and the supply shortage from the Ukraine-Russia conflict. Yes, the program overall is a step in the right direction into aiding citizens during these times of crisis, but it could possibly have an economic backlash that squashes the benefits.


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