The price of gas
Like almost everyone in the US who drives a gasoline-fueled car, I’ve been suffering from sticker shock when I buy gas lately. The last time I filled up, I paid $2.49 a gallon, after driving past two stations at $2.69 and $2.83.
Unlike almost everyone in the US who drives a gasoline-fueled car, I don’t think the government should be doing something about it. If anything, I think gas should probably be more expensive. I don’t think people are ever going to take conservation seriously until it hits them in the wallet, and for both environmental and geopolitical reasons (e.g. not wanting to be dependent on oil-producing nations), I think it’s important that we consume less fossil fuels.
There’s very little evidence that people have started to change their driving patterns in response to the increased cost of gas. At least in the short-run, fuel consumption is not very sensitive to price (e.g. it’s what economists call inelastic). At the margin, people may do less leisure driving, but the cost of gas is still a pretty small fraction of the cost of a trip. And driving is still cheap compared to train and plane tickets, at least for a family. It’s going to cost us about $100 in gas to drive the minivan to NYC this weekend, but train tickets for the boys and me would be around $250, and that’s with N. riding for free. And while I love taking the metro to work (I can read!), for most people, public transit is inconvenient if available at all; as Brett at DadTalk wrote: "despite a frugal streak that runs miles deep, Iām going to continue driving to work just to steal a few extra minutes each day with my family.
The big changes that people can make in response to higher fuel costs — buying more efficient cars, choosing houses closer to work or on public transit routes — all only happen over time, and if people think that gas prices are going to stay high. And I don’t think people have gotten there yet.
I also worry a lot about the impact of higher gas costs on low-income families, for whom an extra $10 or so is a big hit on their budget, and means that they’ll have to cut back somewhere else. I think any proposal to increase the price of gas needs to address this issue, and cushion the blow. One intriguing possibility is Pay at the Pump car insurance, where the price of no-fault car insurance is built into the cost of gasoline. It simultaneously ensures that everyone is covered and changes one of the major costs of car use from a fixed cost to one that varies with the distance you drive. It would simultaneously promote conservation and make car ownership a lot more accessible to poor families.
And yes, in spite of my environmental leanings, I think making car ownership a possibility for poor families is generally a good thing. Many jobs are inaccessible without a car. Groceries are more expensive at the stores you can reach without a car. And commutes by public transit often stretch to 2 or more hours a day, especially when you need to take a child to day care or school en route. A bunch of welfare to work programs have tried to create specialized van routes to bring workers to remote jobs, but my sense in most cases is that it’s cheaper and more helpful to just buy people reliable used cars.
August 18th, 2005 at 6:25 pm
telecommuting is another likely social response. Longer-term, we might even see a slowdown in urban sprawl and a rethinking of residence-only subdevelopment planning. I hope so, as I think we could all use more neighborhood life and shorter commutes. But there are a lot of cost and safety tradeoffs, so look for troubled times ahead.
August 18th, 2005 at 7:17 pm
I live in Korea where the price of gasoline is much higher than in the U.S., and Koreans in general are less affluent. People still drive and the roads are packed with cars. We do have excellent public transportation here and the buses and subways are crowded, but I don’t think people limit their driving because of gas prices. Sorry, I don’t know the price of gas here, but filling a typical sedan costs about $80 or $90.
August 19th, 2005 at 7:15 am
I think Americans are used to cheap gas and if it does go to something like $4-$5/gallon, we might start to see some changes. It hasn’t even reached the record set in 1981 during the oil embargo. I remember the lines during that period. I saw gas at $2.75 around here. The lowest I saw was $2.64. Some things have started to happen. Sales of hybrids are skyrocketing. I think as people prepare to buy new cars, they’re thinking in terms of fuel efficiency. I know we are planning to buy a hybrid next time around, probably in a year or two. I could easily telecommute 2 or 3 days a week. Of course, Mr. Geeky and I often carpool so that helps some. I’m wondering what will happen during winter heating season. How much is that going to drive gas prices up?
August 19th, 2005 at 7:19 am
I totally agree on the price of gas. We’re at $1/L here right now–around $4/gallon–and still not seeing much impact on people’s driving behaviour, for all of the reasons you mentioned, I suspect. It’s going to have to stay this high for a while before anything happens.
and of course the obligatory right-wing politicians are haranguing the obligatory left-wing government about reducing gas taxes, and the gov’t is refusing (probably because this is going to be the biggest windfall for them in a generation) and on it goes…
August 19th, 2005 at 9:25 am
Most of my major driving for work is not commuting to an office (I telecommute most days) but going out into the field. Unfortunately, I can’t reduce it (but I do get reimbursed for mileage). I’ve personally decided that my next car will be a Prius or some other hybrid, but it’s more the enviro & geopolitical stuff that’s moving me in that direction, rather than the cost of gas.
On another front, our natural gas company just announced a 10% rate hike. Yippee! So instead of paying $150-200 per month to heat our house this winter, we’ll be paying $165 to $220. Can’t wait. And the downside is, as a telecommuter, I don’t usually turn the heat down too much during the day, because I’m home, and can only wear so many sweaters at a time.
August 19th, 2005 at 9:30 am
Your comments are true and important. It is extremely difficult, politically, to get policy-makers to consider raising the price of gas through government inverventions purely for environmental reasons. In some ways, it is simply good luck that global supply and demand conditions happened to give our gas prices a boost to $2.50 at a time when our economy seems capable of aborbing that increase without either recession or inflation. Changes in automobile tastes and habits come slowly. I don’t so much hope for further increases as just hope the government resists the temptation to push the price back down artificially.
Meanwhile, on your final comments about commuting, by complete coincidence I was writing just this morning to describe my morning commute here (in the link).
August 19th, 2005 at 9:39 am
You know, I think the major qualm I have about the “let them raise prices” line of thought isn’t about poor people per se, but particularly about poor people living in rural areas. In my life, I’ve lived in two urban areas–San Diego and DC–and in two extraordinarily rural areas in Iowa and Colorado. And it’s interesting to me how often policy people (who tend to live in urban areas) just assume that poor people all over the U.S. are equally situated, with equivalent options, as poor people in urban areas.
I don’t think it’s intentional; I think it’s just a major blind spot that almost nobody brings up when talking about national policy. Many of the things that we hope will happen if prices go up–buying more efficient cars, choosing houses closer to work or on public transit routes–don’t necessarily work in rural areas. In the Colorado mountains, living without a four-wheel-drive vehicle is near impossible if you need to reliably get out every morning. And 4WDs don’t tend to be terribly fuel efficient. Also, the ways that you use a car in a rural area are very different–you need something that can haul a bunch of stuff around, because you might only make the hour-long trek to the city for groceries and whatnot every 3 weeks. A Mini Cooper ain’t gonna cut it.
That’s why I think that the ultimate solution to the problem is going to need to be more fuel-efficient cars (hybrids, etc). Giving up cars, or even using them less, isn’t something that I see as a realistic option for vast swaths of the country. Maybe something more along the lines of higher yearly registration fees for cars that aren’t “appropriate” for the area? (Higher fees for SUVs in urban areas, and very low fees for little commuter cars?)
August 19th, 2005 at 9:54 am
Would it be possible to remove my email address from my last comment? I hate to have that floating the internet, to be put on every spam list known to man… thank you.
August 19th, 2005 at 10:48 am
I agree that time is the only thing that will change our habits. I love my car but something really has to be done. Part of the problem is simply the vast geography of this country; we continue to build out instead of up, and it’s so hard to construct a viable public transportation system that can accomodate suburban sprawl. But the world is changing; China is on the move and we simply can’t continue to live the life we’ve grown accustomed to. It will be interesting, politically, to see how this change affects our lives.
August 19th, 2005 at 11:12 am
What a timely post. My husband was on GasBuddy all night last night looking for the best options around here. (FYI…it’s the Hess on Route 1 south of Old Town).
One thing about being ‘socially responsible’ when it comes to making driving choices is that you can’t telecommute to service/construction/manufacturing jobs. Ie, if you are my daughter’s day care provider or the woman cleaning our office at night or the guy spreading asphalt down the street, you have to show up at your place of work *every single day*. Whether or not gas prices are through the roof.
My husband and I are looking to buy a new car this fall, and after some investigation, I don’t think we are going to get a hybrid. We need something with cargo space, and while there are hybrid SUVs coming on the market, I don’t think the increased price is recouped in gas savings for us. We live very close to our offices and carpool most days, usually adding about 5-6 miles per day to our car’s odometer. We’d have to drive a hybrid for 10+ years to recoup the extra cost in gas savings. However, we are looking for a very fuel efficient wagon/crossover and are strongly leaning toward the Ford Freestyle.
August 19th, 2005 at 11:14 am
Adding in the cost of insurance to the cost of gas is an intriguing idea.
As much as I hate paying more when I fill up, I know the cost of our gas is still cheap compared with the rest of the world. On a recent visit to the UK, we were paying $7.00 a gallon. (Took us a while to figure that out, between the fact that they post their rates per liter AND the vagaries of the exchange rate.) And it’s going to get a lot worse. The truth is, our country should have done something about fuel efficiency 30 years ago instead of putting off the hard decisions until now. It’s going to be an interesting couple of decades.
August 19th, 2005 at 11:48 am
I’m hoping that the increase in gas prices will make people really think about how much car they need on a regular basis when they go in to purchase cars. Do you really need to drive the SUV or minivan everyday when you only really need it a few times a year for road trips? A quick check on the AVIS website shows that you can rent an SUV for a week from National Airport for under $450, taxes included. For city living, this seems to make more sense both environmentally and financially.
August 19th, 2005 at 2:00 pm
I think gas was $2.58 when I went the other day. I could only afford to put $20 in and that got me a little bit past the half way mark.
I can’t change my driving habits. I have to work 2 jobs and transport Lillianna to Brownies and Dancing school once school starts. Rich and I both work 30 minutes away from our jobs. The gas prices are killing us.
August 19th, 2005 at 3:30 pm
I live and work in Chicago, and my employer is situated right across from the train station. As we look for people to hire at the office this central location is turning into a really big deal. The “our office is within five minutes of Union Station” line turns a lot of heads, and is opening doors to people who are unwilling to commute out to the distant ‘burbs.
As an aside, we’re also riding our bikes more this summer. Especially in the flatlands of Chicago it works great, even for groceries and errands etc. Too bad it’s not such a great option in January!
August 19th, 2005 at 4:00 pm
What I want out of gas/car insurance/car prices is costs that are imposed per use. Right now, even with the high price of gas, and my gas guzzling minivan, it costs me about 70 cents to drive to my work (in gas costs). But, I pay that when I fill the tank, not when I decide to drive. The same is true for 1) the cost of parking, which I pay monthly (and it’s automatically deducted from my paycheck) 2) insurance, bi-yearly 3) the car itself (every 5 years or so). So, the last 3 are sunk costs, and are very inelastic. Right now, gas (and gas tax) are the only really use based fee, and even they aren’t paid/use. And, I’m not counting the cost of the roads (though I guess that’s supposed to be factored into gas taxes).
On the other hand, it costs $1.50 to get on a city bus.
My perfect solution would be to figure out a way to deal with the privacy issue, and then charge people, by the mile, every time they get on the road, with a bill that arrives monthly (like an electric bill, but a road use bill). I’d pro-rate the cost based on where they drove, and when they drove so that they were charged more when they impose greater costs.
I don’t know how to deal with poor people in all of this, but I’d imagine that there could be some kind of off-setting tax break.
bj
August 19th, 2005 at 4:01 pm
Oh yeah, I’d add a little meter to all of our cars, too, so that we could see the dollars flying by as we drove. Don’t ‘ya think that would have an effect on driving habits?
š
bj
August 23rd, 2005 at 4:06 pm
Obviously, this is a hot topic. Thanks for all the comments.
Interestly, the price of gas is helping push us towards keeping our second car, which is much more fuel-efficient than the van. When we have the boys with us, we pretty much always drive the minivan, but on our own, we’ll take the Escort.
bj, it looks like someone’s doing a test of the plan you proposed out in Washington state. See:
http://tinyurl.com/d836c