Out of Control Policy Blog

Gas prices finally force Americans to ditch their cars! ึor maybe not

With all the hubbub about gas prices it's probably not surprising that some states are using the promise of free gas to lure tourists. The 13th Floor points out that Minnesota won't be offering such relief.

Why not?

    "Frankly, we think there's no need to, because we haven't seen any reduction in travel because of high gas prices," said Joan Hummel, a spokeswoman for Explore Minnesota, the state's travel office.

Minnesota's low-key approach seems to be the right one.

From the May 1 WSJ:

    prices would have to be higher than they are today -- and would have to stay high for a long time -- to meaningfully curb gasoline consumption by the nation's massive fleet of cars and trucks, which accounts for about 10% of global oil use.

That's not to say that higher prices have no effect on behavior:

    At the margins, there are some signs that high gasoline prices may be starting to alter consumer behavior. Traditionally, gasoline use in the U.S. rises about 1.5% each year. But in three of the six months from September -- immediately following the Gulf Coast hurricanes -- through February, gasoline consumption fell compared with a year earlier, according to data from the U.S. Energy Information Administration. In the three months in which it grew, it never rose by more than 0.4%. Yet in March, as gasoline prices soared, demand appeared to return to more-robust levels, growing by 1%, according to preliminary data.

    "There's definitely a noticeable decrease in the growth of demand," says Tancred Lidderdale, senior economist at the Energy Information Administration. "The problem is demand is still growing."

    Though the recent run-up in gasoline prices has been steep, it hasn't been debilitating for most Americans. The price of a gallon of regular gas averaged $2.74 in April, according to the Energy Information Administration. Adjusted for inflation, that was still 14% below the peak in March 1981, when, in today's dollars, gasoline averaged $3.18.

    Moreover, Americans are better-positioned to handle a run-up in fuel prices than they were a quarter-century ago. Gasoline now accounts for only 3% of total personal-consumption spending, down from 5% in 1981, according to the U.S. Bureau of Economic Analysis. That gives many consumers less reason to contemplate cutbacks when prices rise.

Ted Balaker is Producer


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