Rising Gas Prices Don’t Actually Affect Americans’ Behavior
Like a lot of carless New Yorkers, I am generally confused by bursts of populist outrage over high gas prices. But I have always assumed that the anger is genuine — that hard-working Americans, who already spend a lot on gas, are thrown into turmoil when they have to spend even more. After all, 63 percent of Americans insist that these price increases have caused them some financial hardship.
But amid the recent mania over prices hitting $4 a gallon, I decided to figure out whether this fury is economically rational. So I took a look at data from the Census Bureau, which conducts a quarterly survey of American spending habits. During these last few years of historically high oil prices, Americans spent about $40 a week, or $2,000 a year, on gas. That’s around 5 percent of our overall spending. It’s less than half of what we spend on restaurants and entertainment.
High gas prices must be forcing Americans to cut back in other ways, right? That’s what the economists Lutz Kilian at the University of Michigan and Paul Edelstein of the consulting firm IHS Global Insight wondered. They looked at personal spending habits during periods of high energy prices and discovered that “somewhat surprisingly, there is no significant decline in total expenditures on recreation,” which was one place they expected to find frugality. More specifically, rising gas prices had “no significant effect on the consumption of movies, bowling and billiard[s], casino gambling and only insignificant declines for recreational camps, sightseeing, spectator sports and spectator amusements.” Some people bought fewer lottery tickets, they told me.
In other words, Americans may protest loudly, but their economic behavior indicates a remarkable indifference to the price of oil. In Europe, where taxes keep gas prices well above $5 a gallon, citizens are more likely to take public transportation and live near the center of town. The streets are filled with mopeds and tiny cars. The United States, on the other hand, barely exerts the minimum effort expected of a gas-phobic society: its enthusiasm for car pooling, enhanced public transportation and fuel-efficient vehicles remains relatively low. The average American even spends more gas money on social and recreational trips (about $13 a week, on average) than on their commutes to and from work (around $8). If gas prices truly damage the quality of our lives, we have done a remarkable job of hiding it.
Yet they attract so much attention for other very rational reasons. First, we’re still adjusting to a world of volatile gas prices. From World War II to the mid-1970s, the overall U.S. economy was largely insulated from the rest of the world. Our exports and imports were a small part of most businesses, and gas prices, which were carefully managed by complex government controls, barely budged. (In inflation-adjusted terms, they actually fell.) As the massive cars of the time attest, Americans didn’t need to think about the global supply or demand of oil. Even after the oil shocks in the 1970s, prices went up by what now seems like a trivial amount.
While sustained high gas prices would certainly produce some turmoil, so would potential spikes in countless other globally traded commodities. But there’s a reason populist outcries don’t start around soybean prices or magnesium spikes. Oil is the only volatile commodity that most Americans deal with directly: we are buffered from most other price swings by our relative wealth. Unlike people in poor countries, consumers here don’t generally buy raw commodity foods; we buy our meals processed or prepared. There’s about a nickel’s worth of corn in each box of Corn Flakes, but Kellogg’s doesn’t adjust the price of its cereal every hour to follow global supply and demand. (Though it has raised the price slowly over time to reflect the rising price of corn.) With most goods, the commodity price has even less impact on cost. “When people buy a phone,” Kilian says, “they don’t buy the copper that makes the wiring.”