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Reason Foundation

As Gas Prices Rise-We'll Adapt

Government shouldn't meddle in oil and gas market

Samuel Staley
May 22, 2008

Americans may shake their fists at $4 per gallon gas on Memorial Day, but these frustrated gestures will mean little in the long run if experience is any guide. We won't sell off the car and hoof it to work. We won't move to apartments and townhouses in the big city. Instead, we'll do what Americans do-innovate to make our lives even better off instead of accepting a lower standard of living.

Conventional wisdom, of course, says otherwise. Some environmental activists and other anti-car ideologues are practically beside themselves with joy as gas prices climb higher. Public transit use is up, and some early evidence suggests that home prices are falling faster in far-flung places with long commutes. Perhaps, they hope, Americans are finally breaking from their "addiction" to gas guzzling automobiles and making the "right" choices by living in smaller homes in dense neighborhoods in congested cities closer to their jobs.

Many politicians, including, presidential candidate Sen. Barack Obama are on the bandwagon. Obama recently criticized the "Big 3" automakers during a stop in Warren, Michigan for making cars people wanted to buy - trucks, minivans, and SUVs - rather than the money-losing smaller cars produced by their Asian competitors.

"Now, a big part of the reason autoworkers are struggling on the factory floor is because of decisions that were made in the boardroom. Rather than invest in the fuel-efficient cars of the future," the senator-turned-economic soothsayer said, "auto executives invested in the SUVs and large trucks that may have helped meet a rising demand, but that essentially guaranteed that they would be outpaced by foreign competitors and that the industry's long-term problems would be harder to solve."

Republican candidate Sen. John McCain has also called for increased fuel efficiency standards on cars sold in the U.S., but the real world shows the backseat driving by politicians and others is wrong. While gas prices are likely to increase over the long-term, technology and innovation are likely to keep the car and automobility at the top of our livability agenda.

First, take the experience of Europe. Gas prices now exceed $8 per gallon in Belgium, France, Germany, Italy, and the United Kingdom according to the U.S. Department of Energy. Yet automobile travel is booming. "Despite efforts to promote the popularity of other transport modes," the European Commission writes, "the car remains the personal means of transport par excellence." The number of passenger cars per capita has increased five times faster in Europe than in the U.S. since 1990.

Second, let's take a look at U.S. public transit. Undoubtedly, higher gas prices are pushing more people out of their cars and onto buses and trains. In some cases, transit ridership is up 10 or 15 percent over last year.

But, how significant is this jump? Only public transportation in New York and San Francisco can claim a metropolitan wide market share of more than 5 percent. Regional transit accounts for less than 4 percent of all travel in Boston, Chicago, and Washington, DC, despite hosting some of the most extensive systems in the nation. Transit's share of travel in growing cities such as Los Angeles, Phoenix, Houston, and Atlanta barely even registers on the travel radar screen.

A far more important indicator is how Americans will adapt to maintain their standard of living and quality of life.

Higher gas prices will not just spur more oil exploration. They will drive the search for new ways to provide the mobility American consumers want by reducing the need for oil. Twenty-two hybrid car models were already sold in the U.S. market when Toyota sold its one-millionth Prius in 2008. JD Power and Associates estimates that 65 hybrid models of cars, trucks, and SUVs will be available by 2010. As Obama pointed out in Michigan, "GM is releasing an average of one new hybrid model every three months for the next two years. So we're certainly taking steps in the right direction." As gas prices climb even higher, automobile companies will inevitably ratchet up their efforts to compete on energy efficiency just to survive.

Even if automobile technology lags consumer demand, we shouldn't underestimate the ability of Americans to find new ways to preserve their lifestyles. Already, telecommuters outnumber public transit riders in half of the top 50 American cities. Job growth in the suburbs has outstripped traditional cities for decades. High gas prices will likely accelerate these trends.

In the end, elected officials would be far better off letting international oil markets work on their own without interference from Congress or regulatory agencies. In a dynamic, market-based economy, consumers will make the adjustments necessary to maintain their standard of living and provide the proper incentives for car and energy companies to develop new products to meet these shifting desires. Intervention by misguided backseat drivers will do more to prevent these changes than encourage them.


Samuel Staley is Research Fellow


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