Inflating tires and tune ups: Why we can’t conserve our way out of high gas prices
In response to the Republican tune (click here to hear the real tune, by Aaron Tippin) of “Drill Here, Drill Now,” Senator and Democratic Presidential Candidate, Burack Obama dismissed the idea of more drilling leading to lower gasoline prices, insisting that we cannot drill ourselves out of high gas prices. Instead, Obama suggests that we can lower gasoline prices by conserving more, by taking mass transit and by inflating our tires more and by making sure that our vehicles are properly tuned. This call to individual conservation measures will do little that people are not already doing, as people everywhere are driving less, taking mass transit more, riding bikes more, riding their motor cycles more, all out of a sense of individual conservation.
Why are people conserving? Because of the high gas prices. We conserve because of the high prices and we take conserving actions for what we might think of as rather selfish motivation–because gasoline costs too “damned” much, we do it because we cannot afford the high gas prices. And we are also inflating our tires more and getting our cars tuned up more, and we are driving a little slower and a lot less, too. So, what’s the point?
The point is this. To the extent that people cut consumption of gasoline because of the high gas prices, those conservation actions cannot reduce the price of gasoline. Such conservation actions, as a result of the higher prices, are really the sliding along the downward sloping demand curve that we all know and love. Sliding along the demand curve does not push that demand curve down. It does nothing to shift the demand curve. And unless the demand curve is shifted, the conservation efforts, done because of the high prices will do nothing to reduce those prices. Those conservation efforts, an economist and a mathematician would note, are endogenous.
Now, if tire inflating and tune ups were made mandatory, forced upon everyone, with drivers being pulled over for their engines misfiring or for underinflated tires, there will be little shifting of demand as a result of someone in Washington telling us how to take care of our autos.
So unless the folks in Washington have a plan to force us to take these conservation measures, there will be little effect of this tire inflation campaign, or about as much as Gerald Ford’s WIN buttons (WIN stood for his campaign to “Whip Inflation Now”). Even if we all get our tire gauges out and pump up the tires instead of the volume, we won’t see any kind of price reduction, unless the same amount of pumping up tires occurs at both low and at high gas prices.
By the same token, if we only allow drilling in the OCS or in ANWR because of high oil prices, but we would not do the same thing at lower prices, there will be little effect on prices of such drilling. Neither would there be an effect on oil prices from increased use of alternative fuels (substitutes) if the turn to alternative energy sources is due to the high price of petroleum.
Think of the reasoning a bit more closely. At high gas prices, people inflate their tires to save money, but they don’t do this much at low gas prices because the savings are not as much. Suppose by inflating your tires because of the high gas prices, the demand for gasoline would actually be lower (this, however, is NOT the case). If demand would actually come down, then prices of gasoline would fall, and with the lower gas prices, people would not inflate their tires as much, they would buy more gasoline and the demand for gasoline and the price of gasoline would both go up. And pushing this illogical thought process a bit further, the high price of gasoline would, in turn, pull demand down, with people inflating their tires more, pulling prices down. Around and around she goes, where she stops….
This is exactly how demand and supply analysis is not done. Consumption that changes as a result of the price cannot lead to changes in prices. Production that changes in response to price changes also cannot affect prices. It is only the conservation and production efforts that occur independently of price of the good that can affect that good’s price.
-MC