gas prices

Do gas prices affect behavior or not?

Despite record-setting gas prices, U.S. drivers haven't changed their gas-guzzling habits, says AP. Not only are we consuming as much as we always have, new vehicle sales seem to be tilting even more in favor of trucks than cars.

But wait, USA Today disagrees. They say that drivers are, in fact, starting to cut back on how much they drive -- a clear sign that higher gas prices are starting to bite.

Who's right? Who cares! Either way, the consumer response to massive increases in gas prices over the last five years has been teensy-tiny.

Fuel tax magic, part one

The following is part one of a guest essay from Charles Komanoff, an economist and environmental activist in New York City. For more on taxing carbon fuels, go to http://www.komanoff.net/fossil/.

For part two of this essay, go here.

-----

"Pam and Matt Keith spent Memorial Day weekend on a houseboat on Lake Oroville in Northern California. But because of high gasoline prices, the Keiths never even untied the boat from its mooring slightly offshore. When they ventured away from the shore, they supplied their own power -- in kayaks."

So began The New York Times take on the start of the summer driving season in an age of $3 gas: "Holiday Travelers Hit the Road, but Scrimped a Bit."

The Times' page-one piece was guaranteed to bring smiles to both economists and despisers of motorized recreation. As a member of both camps, I ate it up. I loved that the Keiths were kayaking instead of houseboating around the lake, and that another California couple, Celia and Michael Shane, had shelved their annual jet-skiing trip in Lake Mead National Recreation Area in Nevada. "To save the $70 per tank it now costs to fill up their minivan," the Times reported, "the Shanes were barbecuing instead." For guys like me who can let a single roaring jet ski ruin an entire beach day, fewer decibels mean more happiness. And after a year's drumbeat of articles insisting that higher gas prices hadn't dented Americans' "love affair with their cars," it was heartening to see the paper of record start acknowledging the No. 1 tenet of economics -- higher prices mean lower demand.

The world's thirst for petroleum breeds war, props up dictators, and imperils the climate. Known oil deposits are shrinking by the day. So no question in economics is more pressing than whether, and by how much, changes in the price of gas reduce the demand for it. I've been examining this question since May 2004, when the price first edged past two bucks. Every month I faithfully enter the latest price and consumption data into a spreadsheet. This has to be done just right. For one thing, because gas use follows seasonal patterns, monthly data must be compared over intervals of 12 months (or 24, etc.). For another, changes in price must be adjusted for general inflation. Most important is netting out the upswing in gasoline use that ordinarily accompanies expanding economic activity when the price of gas is stable. Only after taking these steps can one isolate the effect of higher pump prices on gasoline demand.

Driving less is great, but producing more oil is a less-desirable reaction

In this post, David echoes what seems to be conventional eco-wisdom on high gas prices:

It's good that gas prices are rising. We want people to buy more fuel-efficient cars and drive less.

I'm not so certain.

Should enviros view high gas prices as good news?

Like many environmentalists, I tend to think that gasoline prices -- even at today's wallet-rending heights -- are too low.

In fact, no matter how high the market price for petroleum goes, it ought to be higher, since it won't include the so-called "external costs" of using oil. For example, whenever I burn a gallon of gas in my car, I'm creating pollution and climate-warming emissions; fostering overseas military entanglements; increasing the risk of oil spills and pipeline leaks; siphoning money from the local economy into the bank accounts of unsavory oil magnates; yada yada. Each of those factors carries a cost -- sometimes intangible, often hard to quantify, but real nonetheless. And because I don't pay those costs when I fill up -- I just let the rest of the globe pick up the tab -- I tend to buy more gas than I otherwise would.

Gas price rant

One of the many problems with policy discussions these days is that they tend to be narrow and literal-minded. Take the "problem" of high gas prices. Response? Tax oil companies! Cap prices! Investigate price gouging! Ease environmental restrictions on clean-burning gas!

Stupid. We should take a step back. Here are two relevant facts:

• It's good that gas prices are rising. We want people to buy more fuel-efficient cars and drive less. In the long-term, oil prices are headed up whether we like it or not.
• The hardest hit by high gas prices are the poor, who have the least disposable income and in many cases are stuck in living and work situations that simply don't allow them to drive less in the short-term.

Given that, here are a few policy responses, some local, some federal, just off the top of my head, that make a hell of a lot more sense than whinging about oil companies. In no particular order:

Gas prices

It's an open question how much gasoline prices affect gasoline consumption. But apparently gas prices are pretty tightly correlated with something else. Click to find out what.

(Via Tapped)

Are gas prices and gas consumption connected?

It may come as a bit of a surprise: Despite rising gas prices over the past few years, total consumption of highway fuels in the U.S. has actually increased rather than fallen. Some have seized on this phenomenon -- prices and consumption rising in tandem -- to suggest that changes in gas prices have no discernible effect on how much gas we actually use.

The idea that gas prices have no effect on consumption doesn't square with economic theory, to put it mildly. And this Excel spreadsheet (courtesy of Charles Komanoff and the ever-informative Todd Litman) sheds some light on what's really going on. Apparently, even as U.S. gas prices have risen, so have population and GDP. And GDP growth tends to push consumption levels up -- in fact, over the short term, gas consumption seems to be far more responsive to changes in GDP than to changes in prices.

Higher prices at the pumps are a good thing — really

That whining sound you hear is American consumers (formerly known as American citizens) fretting over the rising cost of gasoline. Pump and circumstance. The current national average price of gas — $1.41 per gallon — is a full 25 cents higher than it was merely four months ago, and analysts predict that the price could […]