Ups and downs of gas prices; C-17 future

KPCC's business analyst Mark Lacter says gas is a lot cheaper than last year, but prices have gone down for the wrong reason. Mark also looks at the future of the C-17 program in Long Beach.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. And Mark, gas is around, what, $2.34 a gallon for regular unleaded. And even though prices have gone up nearly 20 cents in the past three weeks, are we back into gas guzzling mode?

Mark Lacter: Not really, but certainly compared with a year ago around this time gasoline is a lot cheaper – thanks largely to oil prices falling to around $50 a barrel from $147. That was the peak. This would seem to be good news, Steve, but it's actually one of those economic mixed bags.

First, the good stuff: the average gallon of regular gas in the L.A. area is about $2.25 lower than it was at its peak last year, and that's great if you have a long commute or you own a cab and have to fill up each week, or each day rather.

It's also great for the economy because that $2.25 per gallon savings can be used for something other than filling your tank – as in buying stuff at the mall or paring down debts that have been piling up.

Julian: So, lower gasoline prices are somewhat like its own stimulus plan?

Lacter: Yeah, that's right, and we're talking hundreds of billions of dollars. The not-so-great part of lower gas prices is that they're happening for the wrong reason – lower demand, which is what happens during a recession. I mean, you have to buy gas when you don't have a job.

The other negative is that it provides commuters with another reason not to take mass transit. The latest MTA numbers show that overall ridership in February was down 1.7 million passengers from a year earlier.

Julian: So what about the push to be energy efficient?

Lacter: Well, it's still there. Folks are working more at home, they're in office buildings that are cheaper to maintain, the government has all kinds of tax incentives to use alternative sources of energy.

Here's a wild projection from Exxon: U.S. fuel demand is projected to drop 22 percent between now and 2030. And if that number is anywhere close to being accurate, it really changes the whole energy picture.

Julian: We don't talk much about jet fuel – or jets, for that matter – but is the C-17–

Lacter: Speak for yourself.

Julian: (laughs) Is the C-17 dead?

Lacter: Defense Secretary Robert Gates certainly wants to see it go away, but he's not gonna have the last word. The C-17 Globemaster is a military cargo plane made by Boeing in Long Beach. Gates says it's become outdated for the kind of warfare that the U.S. is likely to run into.

But here's the problem: the C-17 employs 5,000 people at the local Boeing plant, thousands more working for subcontractors locally and around the country, and we're in the middle of a terrible recession with high unemployment. So if you're in Congress representing these districts, the temptation is to fight for the program, even if the Defense secretary is strongly against it.

Julian: Well, this is not a new war.

Lacter: No, it's not. The Pentagon has been proposing that the plane be dropped for several years, and Congress has come along to save the day. Last time this came up, the Air Force coughed up around, or I should say, Congress coughed up around $3 billion to build 15 more planes, and that's gonna keep the plant going for a little over a year.

Julian: Mark, are you saying that the Defense secretary could make a decision based on the number of jobs involved and not military tactics?

Lacter: Yeah, I know it's shocking – politics coming ahead of necessity. By the way, it's not just the C-17 that the Pentagon is going after – Gates wants to phase out the F-22 jet fighter and reduce funding for the F/A-18 Super Hornet.

These two planes also have a large local presence. But it's not all bad. Southern California has aerospace companies that make surveillance and reconnaissance equipment, and that's what the Pentagon really is looking for these days.

Julian: Mark, thanks so much.

Lacter: Thanks Steve.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes a business blog at LAObserved.com.