Gas Bubble

This post (“We’re Screwed”) complained about the tough times Americans are in for, if the price of gasoline continues to rise as rapidly as it recently has. As Liz correctly points out, public transportation has given Europeans low-cost (and lower-pollution) alternatives to cars requiring expensive gas (“petrol”). Reduced dependence on automobiles also seems to improve social ties. Most places in America lack such a transportation system.

One reason Americans avoid public transportation, even in cities that have good systems, is that it requires considerably more walking (and pushing strollers and pulling luggage) than they are accustomed to. (Walking is good for you. Perhaps the rising price of gasoline will have the beneficial side effect of reducing epidemic levels of obesity in America?) However, this difficulty arises from the newness of these systems more than anything else. In cities like New York and Washington DC, shops and services have had time to cluster naturally around stops and hubs, thereby reducing walking distances.

In Portland, urban planners have created incentives for such clustering, with controversial results.

Unfortunately, this means most Americans are in for tough times in the near term: either they pay for gas or they drastically alter their lifestyles and activity levels to adopt public transportation.

I have learned to explain drastic changes as the popping of economic bubbles.  The recent drastic change in the price of gas suggests that the price of gas has been held artificially low in the US. That may not be true, but I have yet to find a definitive answer for why gasoline is considerably more expensive, per unit volume, outside the US (e.g. $5/gallon in India this past December). A friend suggested that other countries simply tax gasoline at higher levels than the US does. If you have a solid reference validating or invalidating this, then please let me know.

Tags: Economics

Updated at: 16 March 2008 12:03 AM