Clearing out some old piles of reading material, I ran across an old CBO report from a year ago on gasoline prices. It seems so long ago, my obsession with elasticities (short term and long) and the effect of rising energy prices on behavior large and small.
Many drivers have responded to higher gasoline prices in the way that they drive, but overall the response has been very small.
Let’s check in, shall we, just for old times’ sake, on US petroleum consumption. I never tire of this graph, as our consumption falls off a cliff. You can seem consumption leveling off there in that cloud of dots during 2007, and beginning to drop in the first half of 2008. That’s the result of the price increase. Modest, as the CBO study notes. Then – yikes! Off a cliff. That discontinuity is on the demand side, unrelated to prices, because we are (or feel) broke.
Here, I’ll show you what I mean: