High Gas Prices Do NOT Make Effective Energy Policy
Posted by Sonja Ebron
Economists define market “demand” as the desire for goods or services by those who can pay for them. Demand for goods and services does not include the needs of those who can’t afford them. Gasoline at $4 a gallon has resulted in less driving, what economists call “demand destruction.” The polite explanation is that high oil prices send the economy into recession, and an economy in recession needs less oil. In private, though, most analysts assume people are foregoing summer road trips and other types of discretionary driving.
But some of that destroyed demand is from people who must drive to work or to the day care center or to the grocery store to make their lives work. The biggest reason people drive instead of using mass transit, which has always been far less costly than driving, is that it generally takes less time to get from Point A to Point B in your car, and you’re on your own schedule. (You leave when you need to, and you break traffic laws when necessary.) If you work three jobs, or are self-employed and meet customers at their locations, or are a single parent with just too much to do each day, you simply cannot use mass transit. So when your demand is destroyed, you take a big hit.
