RALEIGH – I heard someone make a rather odd statement on a radio show Wednesday morning. Noting that gasoline prices in North Carolina and elsewhere had begun to decline this week after shooting up in the aftermath of Katrina, the radio commentator listed the ways that travelers had adjusted to the initial shock. Some cut back on trips altogether. Others took public transportation or walked rather than driving their own automobiles. Still others, while choosing to drive, conserved in ways such as using their family’s most fuel-efficient vehicle or driving a slower speed to improve gas mileage.
The commentator then added something to the effect that she hoped “everyone would keep doing all this conservation” if gas prices dropped to their previous level.
That would be an improbable and irrational result. Of course, North Carolinians and others are changing their travel habits precisely because gasoline costs more. If it didn’t, their preference would be to travel differently. With gas at $3.29 a gallon, they value money in their pockets more than the freedom to drive their own cars – or at least to drive at 65 mph instead of 55 mph. But at $2.49 a gallon, most value the freedom. Finger-wagging isn’t going to change that.
Policymakers could. Environmental extremists used to understand this, and I suspect that the smart ones still do. These activists advocated stiff taxes on motor fuels to discourage personal driving. Or they advocated higher fuel-efficiency requirements from the federal government to force people to drive lighter, less gas-guzzling vehicles – which is also a form of taxation, paid not in dollars but in foregone convenience, less personal choice, and lives lost (because lighter vehicles are deadlier in accidents).
Conservation is a predictable response to cost. My family was quite frugal growing up – a household of seven or eight subsisting on two public-school-educator incomes. Clothes, shoes, and other personal items were recycled and handed down. Food was rarely wasted. We did fine, and the sacrifices actually yielded money used to provide my siblings and me with rich educational experiences in dance, music, drama, swimming, sports, and other fields. But if the household income had been higher, or prices for basic goods and services lower, I am reasonably confident that even my tight-fisted parents would have loosened the financial reins a bit.
If gas prices fall back into the mid-$2 range within a few weeks, most people who have scurried out to try commuter buses or adjusted their late-summer vacation plans will probably revert to their previous preference. There is nothing wrong with that. Prices are indispensable bundles of information that are forward-looking and fast-moving.
If smart people with lots of money on the line – in drilling, refining, retailing, and investing in futures – believe that gasoline stocks will remain tight for a long while, prices will stay relatively high. People will continue to engage in heightened conservation efforts. But if these smart people bet differently, that worldwide exploration and refining capacity will expand in the coming months and years, as happened after previous oil shocks, then prices will sink and conservation efforts will subside.
There is a reason why market economies are productive and solve people’s everyday problems more successfully than alternatives do: prices are a better way to communicate than hand-wringing sound bites on the radio.
Hood is president of the John Locke Foundation.