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$4 Gasoline Good for U.S. -- But Not in Short Term

Wednesday, 16 May 2007 | 12:07 PM ET

Don't be angry if gasoline hits $4 per gallon -- high prices at the pump might be just what America needs, say two "Morning Call" guests. The question, though, is what the short-term impact will be to the U.S. economy. Chris Varvares, president of Macroeconomic Advisers, and David Lazarus, business columnist at the San Francisco Chronicle, joined CNBC's Michelle Caruso-Cabrera to share their insights.

Lazarus said higher prices must be taken in the "context" of "supply and demand." He noted that the U.S. imports over 60% of its oil, with the majority of it going to make gasoline.

Good for America?
Rising gasoline prices have some analysts speculating that $4 per gallon is in the near future, with David Lazarus, San Francisco Chronicle business columnist; Chris Varvares, Macroeconomic Advisers president and CNBC's Michelle Caruso-Cabrera

"If our goal is to truly wean ourselves off of foreign oil", he said, $4 gas would actually help because it would spur demand for "fuel-efficient vehicles from Detroit."

Varvares agreed that higher gasoline prices would reduce fuel consumption and carbon emissions, and "help meet many worthy environmental and geopolitical goals." And he said that "anything should be brought to the table" to meet those goals, including gasoline and carbon taxes, and fuel-efficiency standards.

But, the analyst warned, "we shouldn't rely on unplanned refinery outages" to reduce our gasoline consumption. He said the U.S. needs "a rational plan," and not merely temporary "market vagaries."

Varvares pointed out that in the short-term, consumers don't have realistic alternatives to gasoline use. He predicted that if pump prices do reach $4 this summer, the GDP might only grow 2% to 2.5%, instead of the previously forecast 2.5% to 3% over the second half of the year.