Reason Foundation

http://reason.org
http://reason.org/news/show/still-looking-for-the-crisis-i

Reason Foundation

Still looking for the crisis in the "Gas Crisis"

Samuel Staley
June 15, 2008, 11:27am

Okay, I'm getting a bit tired of the constant headlines on national newstands and on tv about the so-called gas crisis. There isn't a crisis. There is an imbalance between supply and demand, which is contributing to higher gas prices, but there is no way we can credibly claim that an increase of a $1 per gallon constitutes a crisis. I ran a few back of the envelope numbers just to illustrate the point. Our family, like most in the US, has 2 vehicles--a minivan (2003 Dodge Caravan) for hauling lacrosse, soccer, and vollyball players, as well as assorted skiing & snowboarding gear, and a 4 door sedan (2001 Toyota Prius). One gets lousy gas mileage, averaging 18 mpg, and the other does pretty darn good, averaging 47 mpg. (You can figure out which of the vehicles is more fuel efficient, if not family efficient.) So, what has the "crisis" of gas prices going from $3 to $4 meant in real terms? Let's assume that we put 15,000 miles on each vehicle, according to AAA estimates (even though we don't because one of us is a telecommuter and the other works part-time close to home). That means the Caravan burns through 833 gallons each year and the Prius burns through a miserly 319 gallons. At $3 per gallon, we would shell out $2,500 in gas for the van and just $957 for the Prius, for a total gas budget of $3,457 annually. Now, gas goes up to $4 per gallon. Our van is now gobbling up $833 more a year in our hard earned cash. Our Prius is now eating up another $319. That's not really chump change for a family getting by on a nonprofit salary, but it doesn't put us in the poor house either. We might have to rethink a vacation or two to bring spending in line with income. (Guess what? Las Vegas is reporting an economic slow down.) But that's not the really important point. The important and highly relevant point is that if we wouldn't have to give up any of our lifestyle or mobility if we simply switched out the van for the Prius. By getting rid of the van (or SUV or luxury car) and opting for a prius, our gas budget at $4 per gallon is just $2,554 per year (compared to $3,457 at $3 per gallon gas). In fact, even if gas prices are goosed to $5 per gallon, our two Prius family still would be shelling out less money than at $3 per gallon gas with the van and one Prius. So, what's all the fuss? Two reasons: 1) People don't like to change their lifestyles, even when its a minor change, and 2) we're slow to adjust our expectations. For some reason, most of us weren't following oil futures markets and really didn't think $4 per gallon (or $5 per gallon) gas prices were really that close (or inevitable). Of course, people are changing their behavior. Vehicle Miles Traveled (VMT) are down by 2.3 percent over the last year, and the SUV and truck marekts have tanked, threatening the profitability and long term viability of automotive giants like GM and Ford. As US consumers, we have both the technology and wealth necessary to make the adjustments we want to maintain our mobility and our lifestyle. Dashed expectations don't constitute a crisis. They simply require adjustments. And that's the normal stuff of life.

Samuel Staley is Research Fellow


Print This