Prices Change Behavior

Well, it looks pretty conclusive at this point that gasoline consumption isn’t immune to the laws of supply and demand:

Americans scaled back their driving during June by almost 5 percent in response to soaring fuel costs, the government said on Wednesday — a day after announcing the biggest six-month drop in U.S. petroleum demand in 26 years.

The Transportation Department said U.S. motorists drove 12.2 billion fewer miles in June compared to a year earlier, marking the eight month in a row that travel declined in the face of record gas prices as Americans change their driving habits, buy more fuel-efficient cars and switch to public transport.

One striking thing about this is that it really is difficult to respond to changing gasoline prices in the short-run. Logistically, it’s simple enough to say to yourself “next time I buy a new car, I’ll make sure to get a fuel efficient one” or “next time I change houses or jobs, I’ll consider the cost of transportation as a major factor” but people don’t buy new cars, or switch houses, or change jobs all that frequently. But even in the short-term it seems that people adapt.

But the adaptations we’re looking at have been short-term kludges rather than serious long-term solutions. What’s more, they haven’t been happening in the face of smart policy. On the contrary, many jurisdictions seem to be cutting back on transit offerings in response to pressure on local government budgets. But if the price of gasoline were to rise as a result of smart policy — carbon pricing, or a higher gasoline tax, for example — then a couple of things could be different. One is that the increase in costs could be gradual and certain. The difficulty of short-term adaptation needn’t be quite so painful since the very short-run changes could be small. But since the small changes would be paired with a credible commitment to escalate the level of change over the medium- and long-term, it incentives would still exist to make long-range planning in a more sustainable way. Meanwhile, a healthy chunk of the revenue garnered from the pricing policy or tax could be plowed into building sidewalks and bike lanes, light rail lines and enhanced bus service, etc. — the kind of things that would make it easier for people to live decent lives in a world of reduced driving.