Gas prices seem to be heading for an all-time real high. From the NYTimes:
For millions of Americans, filling up the tank has become an eye-popping experience this summer as prices reached levels that, after adjusting for inflation, have been seen only once on any sustained basis since World War II - in the late 1970's and early 1980's, when the Iranian revolution and the Iran-Iraq war disrupted global oil supplies.
As the graphic shows (click on the thumbnail) we have about $0.50/gallon more to go to get to $3/gallon.
Lot's more good economics in this article.
There are more substitutes for oil but our own personal infrastructure makes demand rigid:
Through last Monday, the average price of a gallon of regular unleaded had risen nearly 26 percent in 12 months, according to the Federal Energy Information Administration, with the sharpest rise - 17 percent in just the last two months.
The price continued to rise this week, reaching $2.41 on Friday, a record, the American Automobile Association's daily survey found.
But as Mr. Colaizzi's adventures in cyberspace illustrate, the United States is in a very different place today from where it was in the late 1970's.
The tools to fight back have changed, for one thing. From the Internet to the alternative fuel choices of ethanol and electricity hybrid technology - and more adventurous forays, like a school district in Georgia that is experimenting with chicken-fat-laced fuel for its bus fleet - options abound.
Countering that development almost completely, energy experts and economists say, is that people drive more than they did a generation ago, with longer commuting trips from sprawling suburbs, and are more likely to be driving big sport utility vehicles or light trucks when they do.
And then some on market forces and more on demand rigidities:
Economists say that prices have been driven up by oldest equation of all - global demand outpacing the supply, compounded by unease in the Middle East and a lack of new refineries for processing oil into gasoline. The contract price of crude oil reached $67.10 a barrel in trading on Friday, a record.
Economists also say the context of the energy surge is crucial to how people are responding. In the 70's, they say, higher gasoline prices were seen by many people as part of a fabric of woes like inflation, high interest rates and cold war tensions with the Soviet Union. In the 40's, with the nation at war, high gasoline prices - not to mention gasoline rationing - were the least of many people's worries.
Today, with low interest rates and easy credit card access, many people can absorb, or at least postpone, the pain without changing their behavior all that much. Surveys by AAA suggest that many summer travelers are doing just that, taking the family vacation no matter what and worrying about the costs later.
And then, finally, we get to the gas tax:
But at least one economist - though there may be others out there hiding under their desks - said he thought that gasoline prices were still not high enough and that Americans in a time of war should be making greater sacrifices for their country through higher gasoline taxes.
"I think it would be a good thing if gasoline prices were twice as high as they are now, though I know that won't make me popular," said George Loewenstein, a professor of economics and psychology at Carnegie Mellon University.
Professor Loewenstein said a gradual increase in the gasoline tax, as opposed to market-driven price increases that he said benefited mainly oil producers, would help the federal budget deficit and decrease dependence on foreign oil by encouraging conservation.
Indeed.
