Arnold Kling  

The Energy Outlook

FDA: Public, Economists, and S... Blue Laws...

I presume that Alan Greenspan is a relatively well-informed observer.

Clearly, limited substitution possibilities across fuels have resulted in persistent cost differentials, but those very differentials inspire the technologies that, over time, reduce such limitations. A clear example is gas-to-liquids (GTL) technology, which converts natural gas to high-quality naphtha and to diesel fuel. Given the large-scale production facilities that are currently being contemplated (and some that have already begun construction), GTL is poised to become an increasingly important component of the world's energy supply.

Greenspan gave a broad speech, so it is difficult to do it justice with a short excerpt.

Thanks to David Altig for the pointer.

For Discussion. What evidence suggests that Americans are reducing their demand for gasoline in response to higher prices?

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COMMENTS (12 to date)
John Brothers writes:

Hmm, the skyrocketing demand for Priuses?

And possibly these things (with which the data is probably inconclusive at this point)

* Any increase in the use of public transportation?
* Any increase in the use of carpooling?
* Increases in purchases of other more fuel-efficient cars and/or motorcycles?
* Increased purchase of lower octane gasoline?

Jim Erlandson writes:

This paper (Energy Efficiency in Transport) from the World Energy Council looks at gasoline consumption "per equivalent car" for various countries, energy intensity of transport over time (a 35% drop in the US from 1973 to 1993) and the relation of gasoline price to consumption. There are no surprises, but the methodology is interesting and its important to compare the US to the rest of the world.

Or you could count the gasoline price stories on the six o'clock news.

As John Brothers says above, its too soon to tell.

Gaurav Agarwal writes:

If you look at increasing rates of consumtion by developing countries like India, it is very alarming. Indian government has set aside Rs 5,500 crore to cover the 7 mega cities and some other towns(You can refer to the Budget of the Indian Government). Certainly as the standards of living evolve in these countries, so will energy consumption rates.

Perhaps a research like increasing prices vs consumption rates mapped to a third dimension of innovation with alternative energy resources, will be more relevant to understand where does the world stand on the issue of energy crises today.

Wilson writes:

The glut of new SUVs, the sale of used SUVs, and the waiting list for cars like the Toyota Prius suggest a move toward cars with greater fuel efficiency.

Randy writes:

The only thing I can do about higher gas prices is reduce my savings. I have no choice but to pay. I'm guessing that most of the middle class is in pretty much the same position.

spencer writes:

Wilson is seeing the evidence of the first reaction, but Randy is also right for most people.

The point made in the Greenspan speech but overlooked in the comments is the issue of time.
Over time people can adjust to higher gas prices in many ways. But they can not do much in the short run but pay the higher prices and cut savings or purchases of other things.

That is why historically an oil price hike of this magnitude has always preceeded a recession.

nmg writes:

I recently purchased a new Civic. My savings in gas costs is about half my monthly payment .... I doubt I'm the only one who made that calculation. I expect my civic to hold its resale value well compared to an Expedition...

Speaking of, I have a friend who drives an Expedition and is considering leasing an economy car and just parking the SUV. He spends $400/mo on gas and that is more than he would spend on the new lease + gas.

Yeah, demand is going down.


Duane Gran writes:

If real estate wasn't appreciating so quickly, I would expect some trend to appear favoring homes closer to centers of employment. I think there are too many variables and speculation on real estate to make a reasonable prediction in this area though.

Hearing stories of people spending ~$400 per month on gasoline is shocking to me. I spend less than 1/10 of that by living close to my workplace. Before people move closer to work I would expect them to transition to a more efficient vehicle.

dr writes:

If you're not in the market for a new car, house, or job, you can still:
1. Inflate your tires to their maximum.
2. Use the more efficient car in your garage more heavily.
3. Drive with the slowest 50% of traffic, instead of the fastest 10%.
4. Substitute alternative transportation (car vs. plane, bike/bus vs. car) where convenient.

I'd look for increased sales/production of tire pressure gauges and those 1980's style efficient driving pamphlets.

Lawrance George Lux writes:

I had a Blog Post titled: 'The RVs will not Roll'. It functionally says it all. Vacation milage has been estimated by myself to be cut by an average of 560 miles. Waterskiing and Boating will likely be cut by some percentage between of 20-30%. Walmart has already put out some data showing higher Per-Checkout Sales coupled with fewer Store visits. It is already showing up, but no one pays attention. lgl

Edge writes:

Why does Greenspan raise this issue?

Presumably he can calculate, as Arnold did, that the cost savings for increasing effiency doesn't warrant the investment.

But I suspect he's looking at it from a different angle. For one, energy cost is set on the margin, and when demand exceeds supply, cost can rise way out of proportion to the change of demand. So, it might turn out to be worth the aggregate investment, even though it seems not to make sense for individuals to spend the extra money.

Second, I suspect Greenspan sees that continuing the trend of globalization will require that the developing world continue growing at a pace faster than the established economies. This, in turn, means rising demand. Greenspan seems to believe there are possible alterative supplies, but they may be more costly and may take a long time to develop.

So, perhaps, Greenspan believes it is important for all energy consumers to become more efficient in order to keep the global economy expanding.

jaimito writes:

No evidence that Americans are saving gasoline, but Greenspan's speech is superb. Thanks.

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