Here's an exellent example of how high gasoline prices have caused people to adapt their habits and living patterns -- either by conserving (as is the case here), finding substitutes, or paying the higher price because they subjectively value it more than their present alternatives...
Quotable Quote from the article (titled, "Fuel Spike Puts Bite on Anglers" in the Virginian-Pilot):
"I lay awake at nights because I'm so aggravated about gas prices," said Rajnys, a retired Navy chief who lives in Norfolk and now works at Newport News Shipbuilding. "My fishing habits have been cut back, for sure.
I've had to become a lot more conservative about when I go and what I do."
This guy has a boat that has a 150 gallon tank -- at $3 per gallon, that's $450 to fill 'er up. Ouch. The article goes on to point out the spillover effects on downstream (no pun intended) products and services. The entire economy's patterns of production and consumption are changing automagically without any legislation required -- just from the signal provided by the price on gasoline.
Too bad you have to read the sports page to get a good article on economic principles. (Hat tip to Dennis Gartman for pointing out the article in TGL.)
My head is spinning with all the talk (that's a nice way of putting it) of price gouging and excessive profits. It is very unfortunate that articles like this are buried in the sports section!
I just read the monthly alumni e-newsletter from my college alma mater. It contained the following:
NEW RIDE SHARE SERVICE OFFERED
With the high price of gas causing travel problems for many students, the Memorial Union is now offering a new ride sharing service. This entirely on-line, free service provides people an opportunity to find rides or riders and help share in the high cost of traveling by car. It's great for car-pooling to FHSU, and also for events such as concerts, festivals, sporting events, trips to the airport, weekend getaways, Thanksgiving, and winter or spring breaks! For complete details on Ride Share, visit the Union's website....
Another simple, yet great example of "high" prices sending a signal and people responding. Just think what the "solution" of a price ceiling would do -- more people driving more places more often, no incentive for producers to increase production/supply, and no entrepreneurs in the marketplace looking for alternatives.
Posted by: Kara | 12 October 2005 at 10:53 AM
The Dog that Didn't Bark
It is simply astonishing that no giant gasoline crisis followed so much refinery capacity being knocked out by the hurricanes. The fishing story is great. If we had blog comments from all stories there would be millions of entries. So many shifted behavior so slightly. When I fly around for economics workshops I rent cars. I see the rental lots full of un-rented minivans and SUVs now.
At home in Seattle I still spend $15 at the gas station. I just buy 5 gallons instead of filling the tank (I have a VW that gets pretty good mileage). Millions of others are buying less gas at the station, thereby leaving more gas for others to use and having less sloshing about in their tanks. With credit card purchases, it is so quick and easy to fill up now compared to a decade ago.
But the overall story wasn't news because higher prices changed behavior just as much as was necessary to avoid shortages. Gas spiked, I heard, in Atlanta. But just long enough to alter behavior enough to handle the hurricane-caused shortages.
Americans are so used to markets working so well they were not even amazed at the lack of a huge gasoline crisis after the hurricane. With so little extra refining capacity, and with not one but two hurricanes knocking out capacity, there was no nationwide or even regional crisis. And no one seems to be much surprised.
When prices move, people adjust. Prices jumped and that's unpleasant, but most everyone expected something to happen. Probably most expected worse: shortages. And they were relieved that gas was still available.
Many congressmen expected gas crises and confusion, thinking they would be needed to quickly mandate, investigate, and legislate. But there was no crisis even with so much refining capacity gone. Silence was importance evidence in the Sherlock Homes story. The dogs didn't bark because there was no crisis: they knew the visitor. Similarly, when prices are free to move, people know best how to adjust their own behavior. No one knew beforehand who could cut back on gasoline use and by how much. No one knew what price increases would leave enough gas to go around. But for a few weeks a few tens of millions of people gave the subject some thought, and made changes small and large to their own driving behavior. Some don't go fishing as much. Others go sailing more and use powerboats less. I drive a bit less and have on average less gas in my tank.
The media mostly missed this story of tiny shifts in behavior. No crisis, no story for most reporters. But the silence of a smoothly running economy should be a story too.
Posted by: Greg Rehmke | 12 October 2005 at 07:05 PM
Bill O'Reilly from Fox News has passionately and consistently made his displeasure known about the price of gasoline in the U.S. He has been searching for "the one person at each of the major oil companies who has the responsibility for setting the price of gasoline". Mr. O has also demanded that "big oil companies give back 20% of their obscene profits to help the folks". He admitted a couple weeks ago on his radio program that his behavior has changed due to the price at the pump.....he's driving less and doing his best to conserve. It's amazing how beautifully prices change behavior and efficiently allocate resources.
Listening to Bill (to the extent I can stand it!) has been a reminder to me that even intelligent people with multiple degrees do not understand basic economic and market principles.
Posted by: Dick Anderson | 13 October 2005 at 10:17 AM