Slate's Dismal Science: Gas at Any Price?
ALEX CHADWICK, host:
The disruption to the nation's supply of gasoline caused by Hurricanes Katrina and Rita caused President Bush to make an unusual call earlier this week.
President GEORGE W. BUSH: People just need to recognize that these storms have caused disruption and that if they're able to maybe not drive when they--on a trip that's not essential, that would be helpful.
CHADWICK: There are good reasons for Americans to use less gasoline, from reducing pollution to lessening our dependence on Middle East oil. But there's a problem. In the short term at least, Americans will almost certainly not curb gas consumption. That's according to economist Austan Goolsbee. He's writing in the online magazine Slate and joining us now.
Austan, you note that Americans are not only the biggest energy consumers in the world, we're also the least sensitive to gasoline price swings. Now why is that?
AUSTAN GOOLSBEE reporting:
It's because we've already made choices in our life, such as where to live, where to work, what kind of car to drive. And so in the short run, until such time as you need to replace your car, it's very difficult to reduce your energy consumption by a large amount.
CHADWICK: But everybody else in the world has also made choices about their lives. Why is it that they would be more sensitive to higher gas prices than we would be?
GOOLSBEE: Well, the basic rule of economics is that you're more sensitive to price changes when you have more choices and more substitutes that you can turn to.
GOOLSBEE: So take the case of Europe. You've got about 20 percent of people in Europe either walk to work or ride their bike. That's about five times the level in the US. So if the price of gas goes way up in Europe, and it was already very high in Europe, they just put on their loafers and head to work.
CHADWICK: So even if people wanted to drive less, it's going to be hard here in this country. What about alternatives like hybrid cars--the Toyota Prius, for example, and others?
GOOLSBEE: Well, once you start thinking about replacing your vehicle or moving where you live or changing where you work, you run into all sorts of complications. It's very expensive to do that. If you want to buy a hybrid, for example, you're going to pay a many-thousand-dollar premium over the gasoline version of the car. And frankly, you can buy a whole lot of gas with several thousand dollars. And particularly for something like a hurricane where the impact on gas prices is just going to be for a matter of months, it really doesn't make sense to upgrade your car to something more expensive by thousands of dollars in order to save yourself a few hundred bucks on gasoline.
CHADWICK: You're an economist. You look at all this data. You know how price-sensitive Americans are. What are the solutions? What can the country do to help with gas consumption and try to be more sensible?
GOOLSBEE: We know that begging or moral exhortation--those things don't work. The only thing that does work is if the price goes up, and what we've learned is that the price has to go up and it has to stay up for a long time because if the price stays up for something like five years, then people start actually changing fundamental behaviors that affect their energy consumption. In the short run, I really don't think there's much we can do.
CHADWICK: You're saying the answer to this problem is $5-a-gallon gasoline for a period of five years or more.
GOOLSBEE: Let me make clear, I'm not advocating $5-a-gallon gasoline for five years...
CHADWICK: You know, Austan...
GOOLSBEE: I'm describing what would happen--how would we get our gas consumption to go way down, and that is one thing that would do it.
CHADWICK: You know, Austan, this is why they call economics the dismal science.
GOOLSBEE: Yeah, exactly.
CHADWICK: Opinion and analysis from Austan Goolsbee, an economist at the University of Chicago Graduate School of Business. You'll find his article on gas prices at slate.com.
Austan, thank you.
GOOLSBEE: My pleasure.
CHADWICK: Stay with us on DAY TO DAY from NPR News.