Why Makes Gas Prices So Special?
Dan Drezner asks “What is so special about gas prices?” That is, why do people get so exercised over increases in gas prices but not that of other items. His own guesses boil down to the Middle East connection, OPEC and cartels, and the fact that “gasoline is the one commodity in which Americans of both genders possess close to full information.”
Megan McArdle weighs in with much longer a longer list that she summarizes, “people have to buy it; they have to buy large amounts of it frequently; it’s very difficult and painful to economize on; and the cost is highly visible.”
The “visibility” issue strikes me as the most important one. As Megan observes, people “buy it by itself–if the price of milk or orange juice rises, it gets lost in the overall grocery bill.” Otherwise price insensitive people know exactly what they pay for a gallon of gas because it is posted in giant numbers — down to the 1/10th of a cent! — right there on signs visible from the road.
The relative inelasticity of demand for gas — the fact that most of us “have” to drive and that buying a more fuel efficient car, moving closer to work, etc. are not legitimate short term options — is not sufficient explanation for the emotional response that a rise of 10-15 cents a gallon has on people. People who don’t hesitate to shell out $5 for their daily 16 ounce cup of half fat soy mochachino get positively irate over spending an extra $3 a tank once a week for gasoline.
While I understand that there are plenty of working stiffs out there who are living on tight budgets, people are actually paying much less for gas than they did several years ago. Nick Shultz points out that,
American consumer spending on energy as a fraction of total personal consumption has declined considerably since 1980. Whereas 25 years ago, one in every ten consumer dollars was spent on energy, today it’s one in every 16. In other words, what it takes to heat and cool our homes and drive to and from our jobs and vacation destinations is relatively less costly than it was then.
This goes a long way toward explaining why even when gas prices rise this summer–higher than they were throughout the 1990s–people will still be driving more; it’s much more of a value than it was a generation ago
Yet, people will still bitch about the price of gas while they are paying for it along with their $1.10 bottle of water.