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Gas Crisis, version 2008

Aug 19

2008

The U.S. went through a couple of gas crises in the 1970s, and now we are in the midst of another one. High prices at the pump have got politicians debating about drilling for oil in ANWR, off shore, and other places.

Recently, the Antiplanner’s esteemed colleagues and faithful allies, Indur Goklany and Jerry Taylor, pointed out that gas is actually less expensive today, when measured proportionate to personal incomes, than it was in 1960. Jerry (who has also been debating whether or not to drill for oil in the L.A. Times) expands on this point, with charts, on the Cato blog.

The point they were making is that we aren’t really in a serious crisis, and politicians should not rush to adopt ill-considered policies that are “exactly the wrong thing” — policies like ethanol subsidies that end up costing a lot and producing few benefits. I completely agree with this point, and to underscore it I’d like to scrutinize the data a little more.

According to the Highway Use of Motor Fuel tables in Highway Statistics (link goes to 2006 table; for pre-1995 tables, go here), per-capita consumption of gasoline has increased by 85 percent since 1960. So even though gas may cost less, relative to our incomes, we use more so it is even more painful when the price goes up.

Click to see a larger version.

The chart above, which is from tables 2.1 and 2.5.5 of the Department of Commerce’s National Income and Product Account data, shows that, since 1949, Americans have spent between 8 and 10 percent of their personal incomes on autos, including buying, operating, maintaining, and insuring them. Included in that 8 to 10 percent is 2 and 4 percent of incomes spent on gas & oil. The chart also shows total miles of driving from Highway Statistics.

Look carefully at the gas shocks of the 1970s. When gas prices went up, the share of incomes people spent on gasoline jumped — especially in the late 1970s. Miles of driving declined slightly, but quickly recovered and continued to grow at the same rate as before the crises. Curiously, the share of incomes people spent on autos as a whole fell when the share spent on gas went up. A close look at the data reveals that, when gas prices went up, spending on new autos went down.

Interestingly, American’s spent 2.9 percent of their incomes on gasoline in 2007 — exactly the same as they spent in 1960. Increases in consumption were cancelled by the increases in income. What made high gas prices painful in 2007, and makes them more painful today, was that, as recently as 2002, we spent only 1.9 percent of our incomes on gas.

Click to see a larger version.

The chart above, which is based on miles of driving and fuel used for highways tables in Highway Statistics, shows that when Americans started buying autos again after the 1970s oil shocks, they bought more fuel-efficient vehicles (the table shows an average of all motor vehicles, including cars, trucks, and buses). The average age of cars on the road in the mid-80s was about 7.5, which means the complete fleet turned over in about 15 years. Indeed, the figure shows that the growth in miles per gallon took about 15 years, after which it leveled off. (It leveled off because increased efficiencies in ton-miles per gallon were cancelled out by increasingly large cars that people bought in the 1990s.)

Americans adjusted to higher fuel prices in other ways too. In 1970, the average car on the road was only 5.6 years old. Today, it is more than 9 years old, indicating either that consumers are demanding longer-lasting cars or are taking better care of their cars so they don’t have to replace them as frequently. (The average car in the Antiplanner’s garage is 18 years old, suggesting that we can stretch our car budgets even further in this way.)

Transit ridership ticked up during the 1970’s gas crises, but like today, transit didn’t help most people the. In 1974, urban driving declined by about 12 billion vehicle miles (something more than 19 billion passenger miles), while transit passenger miles increased by about 1.4 billion. In 1979, urban driving fell by 14 billion passenger miles, while transit passenger miles grew by 1.7 billion.

Still, people substituted transit for 7 to 12 percent of their reductions in driving in the 1970s, compared with only 3 percent in 2008, suggesting that — despite hundreds of billions in transit capital investments — transit is even less useful and flexible today than it was in the 1970s. But as useful as transit might have been in the 1970s, it didn’t last: by 1995, ridership had fallen almost as low as it was in 1970, before the gas shocks.

Despite transit’s pitiful record, we see transit groups trying to turn high gas prices to their advantage. They aren’t trying to entice people to ride transit; they are trying to persuade lawmakers to devote more subsidies to it.

I suspect Indur and Jerry are worried that politicians will do something really dumb, like instituting price controls or subsidizing oil shale production (remember synfuels?). I am only worried that politicians will do something pretty dumb, like spending billions more on inflexible rail transit systems or mandating land-use regulation that promotes higher-density development.

Yes, high gas prices are painful. But we will adjust, as we did in the 1970s, by slowing our purchases of other things (like new cars), buying more fuel-efficient cars, and making other changes in our lifestyles that are appropriate for each one of us. That’s the way freedom works. Government should not interfere in those choices by trying to second-guess what is best for us or catering to some special interest group (such as the rail construction industry) that claims it has a silver bullet.

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Reprinted from The Antiplanner