Businessweek article: Not Enough Pain from $3 Gas

well $4.00 gas is not far off now, as I understand it, it has already arrived in some places in California from the gas station signs I have seen on the evening newscasts... and it is now up to $3.60 in ohio (wasn't gas around $2.80 just 3 or 4 weeks ago???)

Well I drive a prius so oh well, bring it on so mare people can buy priuses... Even in the Prius I have cut back on my driving and travel... I now walk to my destination more (the warmer weather helps) and I dont go on many road trips... I cannot imagine if I had some behemouth SUV that was getting 12-14 MPG... I would be stuck at home!

 

<div class='quotetop'>QUOTE(cwerdna @ May 23 2007, 03:24 AM) [snapback]447962[/snapback]</div>

That was a pretty reasonable article, and I'd agree with it. I just looked up the 2005 consumer expenditure shares (most recent year available from the Bureau of Labor Statistics). For the average US consumer, vehicle purchase costs (including interest and lease) accounted for over 8% of spending, gas was only about 4%. Most people don't much have to care much about gas prices. Car purchase price is a bigger share of spending. That seems to match what I see here in the wealthy DC 'burbs -- the few times I've been out during rush hour I haven't noticed any change.

Now here's what's really screwy (or maybe realistic) about the CES data: cars and gasoline are both luxury goods. That is, the higher the income bracket, the higher the fraction of total spending devoted to these items, on average. So, divide the population by household income, the share of household spending that goes to all transportation, to car purchase, and to gasoline purchase, all rise fairly steadily with income. (The table only classifies household income through $70K so this doesn't apply to the upper income brackets.)

I'd always figured gasoline was more like a staple, like food consumed at home. Not true -- whereas percent of spending on (e.g.) food in the home falls as income rises, percent of spending on gasoline rises as income rises. Not much, but enough so that you can say gasoline is not like (e.g.) food consumed at home -- it's a luxury good, not a staple.

Anyway, my reading of the BLS data is that, on average, people choose to spend a lot on gas, when they have the income to allow that. That might be largely a consequence of what cars they choose to buy, when they have the income. Don't know if that's significant in the overall picture, but it makes me even less sympathetic to middle-class consumers who complain about the price of gas. Puts it more in the league of complaining about the cost of a good restaurant meal, and less in the league of complaining about the price of bread. Not for every person, but on average.

 

I've noticed that speeds on the Interstate Highways have not gone down at all. Maybe it's my imagination, but drivers of expensive cars have speeded up and do more weaving in and out of traffic. Driving with $3.60 gas has become a form of conspicuous comsumption...