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Friday, May 9, 2008

Gas Prices Matter (Little)

Brad DeLong thinks gas prices have a significant effect on vehicle miles travelled.
I beg to differ. According to, retail regular gas prices have risen by 35% from January 2007 to January 2008.

According to Brad's pretty chart, vehicle miles travelled has fallen anywhere from about 0 to 3% during that roughly same timeframe.

I would hardly call a 35% increase in prices resulting in a roughly 2% decrease in vehicle miles travelled anything substantial (esp. since the decrease in VMT may not just be associated with rising prices of gas but could also be, and likely is negatively effected by the general recession that we are in!).

I do think there is a point where gas prices matter a lot, but I don't think it's now, and I don't think it's at any price point the Pigou club is proposing. Generally I think gas prices have little effect on driving habits / consumption (I've talked about gas price elasticity in the past), but they do have an effect in the long-run on buying habits if the price is high enough. IE, if we paid Europe gas prices, I think we'd all be driving Smart cars. IE, there is likely some price level that acts like a psychological switch that makes your brain go, "Man, I need to sell this POS SUV and buy me a Civic." But, such price point is not going to be reached here in the US anytime soon (some evidence suggests people are already moving toward smaller cars but it's not in my opinion a substantial shift yet, and I think a large bit of the shift is due to the intense focus on "green" over the last couple years more than gas price increases).

In any case, focusing energy on promoting alternatives directly and further increasing CAFE would likely serve people better than playing around with gas price points (like the Pigou club wants to do for example).


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