KPCC's business analyst Mark Lacter describes the factors that go into the cost of gasoline. He also explains why there are plenty of start-up businesses in the Southland, despite high unemployment.
Susanne Whatley: Mark, we’ve been watching gas prices going up – when will they start to go down?
Mark Lacter: Well, here’s a news flash Susanne – they’re already falling, sort of. Actually, prices began to level off a couple of weeks ago, and as of this morning an average gallon of regular in the L.A. area was down a couple of pennies from last week, according to the Auto Club. Now obviously, you won’t see much difference – you’re still looking at $4.36 a gallon, which is 33 cents higher than it was at this time a year ago.
Whatley: And of course with those higher prices come the understandable concerns about the recovery slowing down –
Lacter: Right, the more consumers spend on gas the less they likely they’ll want to splurge on restaurant meals or an extra trip to the shopping mall. But a lot will depend on how high prices get. Don’t forget that four years ago this June they were topping four dollars and sixty cents a gallon in the L.A. area, and Hillary Clinton, who was then a candidate for president, to blame then-president George W. Bush for irresponsible energy policies (my, how times don’t change). Then last year, when the politicians weren’t paying any attention, pump prices were nearly four dollars and 30 cents, just a bit below what they are now. And that’s not even adjusting for inflation. Point is it’s certainly possible that prices will be going back up in the weeks approaching Memorial Day – that’s when they normally increase. But it’s also possible that we’ll see a decline. I don’t know. Nobody knows. But whatever happens, prices are not going to be determined by anything the president does or doesn’t do.
Whatley: What will affect them?
Lacter: They’ll be determined by only two things: the price that oil is being traded at and the production activity at U.S. refineries – both of which tend to move in unpredictable ways and don't receive nearly as much attention as they should. What should receive a lot less attention are these day-to-day price fluctuations. This isn’t like reading off the NBA scores, but I’m afraid that’s how the coverage often seems like.
Whatley: LA’s jobless rate is pretty high, yet we’re seeing a lot of new business start-ups.
Lacter: Actually, L.A. and Orange County had the highest rate for start-up businesses in the nation last year – 58 out of every 10,000 people were involved in a new venture, according to a study by the Kauffman Foundation, which keeps pretty close tabs on this stuff. And that’s not surprising because over the years Southern California has been a hotbed for entrepreneurs. The tech firms are a good example, marketing firms are another example – but you really see it in all areas.
Whatley: Who’s most likely to start a business?
Lacter: Really, most every type of demographic group, but especially immigrants. And maybe that explains why the three top states for start-up activity are Arizona, California, and Texas, all with large immigrant populations. The big question is whether these ventures have staying power – one big problem is that banks are still reluctant to lend money to most any small business start-up (even businesses that have solid track records are running into trouble.
Whatley: That sounds like a big deal.
Lacter: Well yes, it means that entrepreneurs have to find alternative means of financing, whether it’s friends and family or some other lending resource. But the point is that people are still trying to make a go of it – and that says a lot about how dynamic the local economy can be.
Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.