Demand destruction is driving prices down, but is that a good thing?
As Joe says, Americans are driving less: "Americans drove 53.2 billion fewer miles November through June than they did over the same eight-month period a year ago…" Consequently, demand for oil is down to a five-year low, according to the American Petroleum Institute.
Not hard to figure out what’s going on here — as Matt says, prices change behavior.
Let’s ponder a few things:
First, most of the changes people are making are short-term hacks like carpooling more, consolidating trips, skipping weekend outings, and so forth. Gas prices haven’t been high enough, long enough, for people to have time to do the big things like buy a more efficient car or move to a more location-efficient home.
Second, the drop in demand has caused a drop in price, both of oil and gasoline. While I think Joe’s right that this drop is only temporary, it does send a signal to consumers that prices fluctuate all the time and there’s no reason to think they’ll stay high.
Third, people won’t make the long-term investments unless they know prices will be high for an extended period of time.
To me, this all adds up to a pretty good case for putting a floor on oil and gasoline prices. This is Tom Friedman’s big idea, and though it’s faintly gimmicky, I can’t find the flaw in it. Just proclaim that gas will never go under $4/gallon and oil will never go under $130/barrel in the U.S. — if they do, the difference will go into the U.S. treasury to be spent accelerating the transition away from fossil fuels.
Then everybody knows it’s time to make those long-term investments. Other than its utter political impossibility, what’s wrong with this idea?