The ‘nut’ in a family budget is the bare minimal amount of money that has to go out the door every period to minimize negative consequences. It is the short term mostly fixed costs. This concept of the nut is very important in thinking about presidential popularity and gas prices as I don’t think it is gas prices per se that can drive presidential popularity but the gap between the nut and total family income which has a strong influence on presidential popularity. The post-nut gap is a more restrictive definition of income than disposable personal income.
In my family, the nut is the sum of the mortgage, gas, electric, student loans, car insurance, life insurance payment, food, gas for the cars, daycare, car loan, and bus passes. If my family was only meeting the nut, life would be tough, and it would only work as long as nothing goes wrong. It is a stressful life to have very little space between the current nut and total income.
I am fortunate. Right now, my family makes significantly more than our current nut. That means I can trade convenience for cash, it means that if my almost three year old needs a nap and won’t shut his eyes, I can take him for a drive so I can get a cup of coffee and burn $1.50 in gas without concern. It means that when my six year old brings home the flier from her dance school about a summer ballet camp, the only constraint on her participation is if we have already committed to having her spend that week with Grandma and Grandpa.
Creating space between the nut and income makes life much more enjoyable and easier. It makes economic growth and success feel real and tangible.
Creating space can occur by bringing in new income, although we are in an economy where wages are moving roughly at the rate of inflation and there is still slack in the labor market so big overtime hour are not available, or cutting back on the quasi-fixed costs. Loan payments rolling off or taxes being cut is a way to decrease the nut while holding income constant. Finally, the actual costs of the nut items could be reduced. The two common reductions are lower interest rates on debt, especially variable rate index debt (although lower interest rates tends to be correlated with worse economic times) or through the reduction of gasoline prices as gas consumption is very inelastic in the short term.
So when gas prices go down and everything else is held roughly equal, gas consumption stays roughly constant for most people, but all of a sudden, they are seeing an extra $20 or $30 per paycheck that is now unclaimed by the nut…. and that money can be spent on the nice little extras of life or a good pizza on Saturday night.