What's Your Price

Kauai_gas_prices_2 Today's Washington Post reported on a joint Post/ABC poll that asked people how current high gas prices are affecting or will affect their driving habits. Only 11 percent said that current prices would curtail their driving in the coming weeks. In fact, gasoline consumption is up 2.6% over the same week as last year.

I find it interesting that the price at which people say they will start to make changes is always about $0.50 - $1 higher than whatever the price is now. However, I believe that most people can only make changes on the margins in the short term (moving, buying a new car, etc. are long-term changes that are also freighted with many other factors). Jackson Landers blogs today about his situation, which is not that atypical for much of America. In the DC area, more people have more choices than he does, but it's not all that much better.

Trying to change our "addiction to oil" cannot be done by raising fuel prices alone. $5 or $6 gas will not change the driving habits of most people very much. It will probably start to change their buying habits; however, even that has only a limited effect. Lexusrx400hWith the advent of leasing over the last decade or two, the people who are most likely to be affected by higher gas prices are actually buying used cars--not new ones. Rich people buy new cars, and they are less influenced by gas prices than by gadgets like navigation systems, safety features, style, etc. Manufacturers don't manufacture cars for the used-car buyers; they manufacture them for the new car buyers.

As much as I like the idea of using economics (I have an MBA after all) to move markets, the only good solution to our oil addiction in the transportation arena is to drastically and rapidly increase fuel efficiency standards. Unfortunately, that has proven to be politically impossible for more than two decades. Good luck, and drive safely this weekend.

Airport Story (A HOT Allegory)

Recently I was flying back to DC and had this conversation with my seatmate:
Me: Hi; I'm Steve.
Him: Pleased to meet you; I'm James.
Me: This looks bad. I see about eight planes ahead of us for takeoff. It'll probably take 20 minutes just to get off the ground.
Him: No kidding. I've noticed this is common on Thursdays.
I see that this airport has two parallel takeoff runways to handle more traffic. That seems like a good idea.
(We observe a plane taxi onto the parallel runway and take off without waiting)
Me: Hey! Why didn't that plane have to get in line? Some congressman on board I presume.
Him: (chuckling) Possibly! Actually, I'm from here, and they have some interesting restrictions they've put in place for that runway.
Me: Really? Like what?
Him: Well, the other runway is reserved just for planes with certain fuel efficiency and load factors. There's never a wait on that runway like we have on this one.
Me: That's not a bad idea. I presume it would encourage airlines to improve their fleets and their operational efficiency if they know they can improve their on-time performance by not having to wait in line.
(A plane in our line takes off.)
Him: True. But it seems sort of silly right now with us waiting behind seven more planes while that runway is just waiting to be used.
Me: Well, how much does it get used?
Him: Some of the time it gets good use, but there's also some unused waiting time like now, too.
(Five minutes go by; two more planes ahead of us take off.)
Him: I often wonder why don't they let some of the planes in our queue use that runway when there are gaps like now?
Me: Yeah, like us! Wouldn't it be great if our pilot just cut out of line and took off. I'm getting a little tired of waiting.
(Another plane in our line takes off.)
Him: In fairness, maybe they could come up with a system. Airlines that paid an extra fee could get first priority to use the empty takeoff slots. Airlines that want to improve their on-time performance could pay the extra; those that don't care so much could use this one.
Me: That doesn't seem fair somehow. People with more money get some special treatment or something?
Him: I don't know. If I want to pay an extra $10 for my ticket to have a better chance of getting where I'm going on time, I might do that--particularly if I'm trying to get to an important meeting. Can you think of another way?
Me: How about planes with passengers who have names that start with "S?" I'd like that!
(Another plane ahead of us takes off. Line is down to four.)
Him: "S" or "J!"
Me: Wouldn't every airline just start paying the fee, and then that runway would be just as crowded as this one and there would be no incentive for the airlines to improve performance?
Him: Air traffic control could make sure that the taxiway for that runway has no line, so any of the preferred planes would be able to take off without delay, just like now. And obviously they still get to use that one for free. It wouldn't take long to figure out the prices to charge to control the traffic flow on that runway.
(Another plane in our queue takes off.)
Him: And, you know, our line would be shorter now, too, if a couple of planes ahead of us had been able to use that runway over there. Whatever the system, though, what we're doing right now--making everybody wait while that runway is not being used--is stupid.
Me: No kidding. Everyone would get where they're going faster. Hey! I just remembered; I'm an environmentalist. It would sure save some jet fuel if these planes weren't just sitting in this queue waiting to take off.
Him: Another good point.
(Another plane taxis onto the parallel runway and takes off without delay.)
Me: Good thing I've got my book with me. I guess I'll get an extra chapter or two read today.

Him: Enjoy.
(this is a fictional story intended to make an analogy about the value of HOT lanes)