Americans Driving Less Already

According to this report from the Department of Transportation, Americans have cut down their driving by 4.3% (11 billion miles) in March 2008 compared to March 2007. I assume the cutback is largely a response to record high gas prices. Many economists assume the demand for gas to be price-inelastic since gas is a necessity and there are few immediate alternatives to the usage of gas. However, in a country like the US where people drive excessively and consume gas with little guilt or cost, there was room for people's consumption of gas to respond to its price.

Since the price of gas has gone up by some 70 cents for a gallon from March until June 2008, I assume there is a sustained reduction in the consumption of gas which will continue so long as gas prices keep their upward swing.

The fact that gas prices have gone up so much despite a cutback in consumption in the US is a clear indication that the price hikes are independent of supply-demand in the US. It probably has more to do with the much-discussed demand in emerging markets.

I wanted to figure out how much people in the US saved through their cutbacks. Assuming an average car gives 20 MPG and that the national average cost of gas in March 2008 was about $3.20/gallon, people would have saved $1.8 billion.

What about the price elasticity of gasoline on the basis of this data?

%Change in the consumption of gas in March 2007 compared to March 2008 = 4.3
%Change in the price of gas from March 2007 to March 2008 = (3.30-2.60)/2.60*100 = 26.9

The price elasticity of demand is thus 4.3/26.9 = 0.16, which is considered fairly inelastic. Anyway, it is a more significant response than I expected.

Comments

Obama, McCain and Campaign Financing

Obama and McCain had at one point both agreed to take public financing in September 2007 if they were their respective party's nominee. At the time, they were both long shots to get their party's nomination, but oddly enough they have both made it to the general election. As for their promise to take public financing, McCain decided to keep his promise while Obama opted to finance his campaign through his own fundraising. In doing so, he became the first ever presidential candidate to forego public financing during the general election. In February 2008, McCain started criticizing Obama for not keeping his promise to take public financing. How legitimate are McCain's accusations? That's what I wanted to discuss. According to The New York Times campaign finance page , Obama and McCain raised $401m and ~$150m, respectively, prior to earning their party's nomination. The public financing package is $84m over two months (Sept-Nov). For McCain, whose averaged $7....

Correlation Between Taxes and Social/Economic Programs

I have always wondered if the taxes people pay correlate with the availability of social and economic programs and safety nets, not to mention the military programs that protect them. This idea comes in light of the notion that Europeans are highly taxed compared to their American counterparts, but they seem to have access to free (or almost free) education and health care while the US provides neither. The Europeans live and work at a more leisurely pace than Americans and they have the comfort of knowing that their government has put safety nets in case a disaster. The Europeans do a lot to ensure that all their citizens have comparable opportunities, and thus you are less likely to see a huge gap between the poor and the rich. Perhaps the lack of incentive to excel has stifled entrepreneurship and innovation in Europe to some extent. In fact, Europe has historically high unemployment rates than the US and the size of government there is significantly larger than that of the US....

2001 Recession Deferred for 2008?

Most people remember the Dot-Com bubble of the 1990s that peaked in 2000 before bursting in 2001-2003. Considering how the NASDAQ composite lost more than 60% of its value by 2001 alone, the country was about to go into a recession. The 9/11 attacks made things worse too. As the impact of 9/11 and Dot-Com bust were about to pull the country into a recession, another bubble came to the rescue. It was the housing bubble that deferred a sure recession and kept the US in an era of faux prosperity. It gave Bush a reason to soldier on with flawed economic policies as the housing bubble gave the impression that the good economic progress of the Clinton years were being sustained through Bush's years. This time though, there does not appear to be another bubble ready to bail the US out of the recession it is in. After suffering through the I.T. and housing bubbles in just a decade, I don't think investors and people in general will be adventurous enough to create another bubbl...

Random Thoughts

Search This Blog