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More seriously, it is a bad news for our economy...
In the short run, absolutely. You're right in that as income is diverted to gasoline sales, it hurts other businesses. Oil companies would beg to differ in that they say that increased activity in their sector offsets the pain in others, but I feel that is false. Another side effect of higher gas prices is the burden on low income families, as it essentially works as a regressive tax.
Long term, higher prices might work to out benefit. We might increase the spending on the search for alternative energy sources. Clean, renewable energy would be a boon to economic activity in the long term. A friend of mine is an engineer that works in the wind energy business, and he is enjoying a great deal of success in the last few years, and there seems no end in sight. Some interesting insights though, in that wind energy is severely limited by the lack of grid infrastructure, thanks to the lack on investment in the last 20 years. So much emphasis has been on privatization that there has been no reason to build large capacity transmission to places that are windy. On a coal seam? Sure. We can't rely on the private sector to change directions.
Another possible long term benefit to high gasoline costs is increased demand for effective mass transit. I can't speak to other cities, but in Edmonton, getting anywhere other than down three main corridors is virtually impossible, or at best takes hours of travel instead of a 20-30min drive. Our transit system is poor thanks to the continued supply of cheap gasoline.
