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.

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