From Slate:
Why don't we ratchet down more when fuel prices go up? The rule of thumb in economics is that people react to price increases only when they can turn to substitutes. Raise the price of Ford trucks and sales go way down because you can buy your truck from Chrysler or GM or Toyota instead. Raise the price of gasoline and what are the alternatives? As a New York Times article pointed out on Sunday, people can't change the type of fuel they put in their cars, and they can't stop going to work. They might take one less driving vacation or check their tire pressure more often when they fill up. But that hardly makes a dent in the total numbers.
Practically speaking, the only hope of changing America's driving habits is a hefty price increase that lasts. For, oh, five years. The data show that after that long, even the response of American drivers to higher prices can be pretty sizable. Five years gives people the time to come up with substitutes. Higher commuting costs over that many years could induce you to buy a smaller car, move closer to work, find a car pool for your kids. Of course, that's why Hurricane Katrina is not likely to have a lasting impact on gasoline use. It's a big blip, but only a transitory one. Which means it's exactly what consumers don't change their behavior for.
Think about the choice between the hybrid and gasoline versions of the Toyota Highlander SUV. At the moment, the hybrid costs about $9,000 more. Optimistically it could double your gas mileage from 17 to 34 miles per gallon (if you only drove in the city, say). A family driving the average of 12,000 miles per year would use about 29 fewer gallons per month with the hybrid. Even if the hurricane drove the price of gas to $5 a gallon for three months, the hybrid would only save them about $441 total over that time. The savings just don't add up in the short or medium run. For the average family to justify the hybrid at its current price based on fuel savings, gas prices would have to stay at $5 per gallon for several years. Or, if prices stay where they are, the savings would eventually add up if you kept driving your hybrid for a few decades.
With time horizons like this, it's no wonder that few people change their behavior when gas prices spike temporarily. Even the oil crisis of 1979, the biggest ever, did not have much lasting impact on America's intensive use of energy. Within five years, prices had fallen dramatically and people took off their Jimmy Carter cardigans and went back to their energy-happy ways. One of the oldest lessons economists have for thinking about what changes consumer demand is that moral exhortation doesn't change people's behavior. Prices do. Except that for a commodity like gasoline, even prices don't do an impressive job.
I basically agree with this thesis. My wife and I were talking about this the other day. All the dingleberries who are rushing out to trade their Suburbans on Priuses miss the point. It doesn't make any sense to take a huge depreciation hit by prematurely trading in your current car just to save a couple of gallons in gas every month. I personally think that some people who are doing this just want a shiny new car, and are using gas prices to justify getting one.
Now, if your current car has reached the natural end of its service life with you, then getting something more fuel efficient the next time around make a lot of sense, and I expect that many people will be doing just that.
S.
