I think it matters a lot if the public perception is that the prices are temporary or if they are permanent. If the changes are perceived to be temporary, then folks will just figure that they need to suck it up for a few months, and then life goes back to normal. That was the thinking after Katrina, for example...

The runup in prices this summer seems to have caught the general public by surprise however.

Americans respond with whining and conspiracy theories whenever the price of gas goes up. People act like it is their constitutional right as an American to have cheap gas. Then they wonder how we end up in an hellhole like Iraq.

As usual Raph, nicely put!

Rafael- You are correct on all points.

BlackSun- Whereas I agree that higher fuel prices may alter "some" driving habits, at $14.00 a gallon, inflation would soar, our economy would collapse, and all that "tax" money would be used on social walefare programs.

Joe Rocker- It would scare the hell out of me to know that our government would have all that tax money at their disposal. Like Social security, the money would be thrown into the general fund and spent on "earmarks," which is actually pork by another name.

What I'm trying to say is, why is it acceptable for our politicians to raise taxes on fuel to the excess, but a legitimate business is crucified when they raise prices. Besides, once a tax always a tax.

There must be a middle ground to allow commerce to flourish, while at the same time, allowing alternate energy and more fuel effecient vehicles to be developed.

Meanwhile, my wife and I, while keeping the same vehicles, have reduced our miles traveled per year by 40%--the equivalent of my paying $1.50 per gallon, all things considered. It ain't easy, but doable.

If advertising is any indication, consumers are finally paying more attention to questions of fuel economy -- they are regarding high fuel prices as a long term situation, and auto marketers, at least, think that they will begin to act on that in their purchasing decisions. I think the authors made a mistake of logic when they asserted that car-purchasing choices should show up in the short-term elasticity data. The other posters are right, I think -- if you regard a fuel price spike as temporary, you'll buy the car you always wanted anyway, even if making the purchase in the middle of the spike, and buy gas out of savings until things return to normal. Only when people realize (explicitly or implicitly) that things are long term to the begin to act that way.

When thinking about purchasing decisions, though, one must realize that a dollar is fungible. If gas prices go up long term, fuel economy does not have to go up in equal proportion in order for a person's transportation budget to balance. A consumer could forego some options, choose a cheaper model, or retain a car for a slightly longer period before trading-in, all in an effort to lower the monthly payment. The extra money then goes to pay for the more expensive gas, and life goes on as before.

Some of those cost cutting choices (foregoing the larger engine option, choosing a smaller / cheaper car) can lead to increased fuel economy; some won't. The that higher gas prices become, the more the pressure to cut costs (if all things -- namely miles driven -- remain the same), and the more useful an mileage-maximizing choice becomes as well.

From the "green" point of view, we must ask as to the value of all these various choices, and not just the fuel economy factor. Holding onto cars longer means that for a given fleet size, fewer replacement cars must be brought into service every year. That saves resources on the manufacturing side, even if it doesn't save gas on the fuel economy side. Similar considerations apply to buying smaller cars and smaller engines, even before you start measuring the fuel economy gains thereby achieved.

To me, direct regulation should be something of a last resort. We mandate catalytic converters because there is no other way to prevent the release of noxious pollutants. Regarding greenhouse gases, we have yet to show that externalities-taxation and price signalling would not be reasonably effective at reducing their emission at *some* point along the line (at the manufacturing stage if not the fuel economy stage, etc.), or at least providing resources to subsidize enough mitigation measures. I say try a broad carbon tax first, before mandating this that and the other specific thing.

This study of the short term price elasticities of one particular carbon product tells us virtually nothing about the big question -- though it is useful to the oil companies, who now know that they can spike the public at will from time to time, as long as they reduce prices in time for us to remain under the impression that spikes are temporary. I say this not as a conspiracy theorist, but as someone who has read the newspapers -- the concentration of refinery assets in the hands of a few major oil companies, after the last wave of mergers, is suspected of creating monopolist power in the industry, even if no actual collusion can be demonstrated. There is a reason we broke up Standard Oil a long time ago, and it is faintly ironic that we have allowed the pieces to re-assemble themselves over the years into such large conglomerates.

It does make you wonder what the price of gas would have to get to before there's a real effect.

Would it have to go to $5/gal or $7/gal before we really saw some changes in peoples driving habits and buying habits?

Being old enough to remember the last time gas hit its peak (adjusted for inflation), I was expecting a bigger impact from the price runup of this summer - but it mostly seems like people have shrugged it off.

I don't know enough of the study to judge its analytic soundness, but as others have noted, it shouldn't be too surprising we're at a relatively inelastic point on the curve given wage growth.

Philosophically, I have something wrong with CAFE standards. I'm not sure why a company has to achieve any sort of fleet average--it surpresses specialization and benefits anyone who happens to cater to more efficient cars. The best large SUV manufacturer in the world may be in the wings ready to start up, but they would need to find a way to bring their average down, thus preventing their entrance. Production mandates reduce choices to the consumers, with little to no public safety benefit.

I think it much better to tax petro-gasoline and inefficient cars at the outset to cover their externalities and link those revenues to a cut in income taxes at the bottom of the range (ie so everyone benefits at the same rate). This will require some additional EITC (earned income tax credit) adjustments and other policy tweaks to compensate those unemployed (like students), but this is the best way to switch our tax burden to an undesired behavior and away from a desired one (gainful employment). I'm not for increase gov't revenues--this would be revenue neutral at first and then decline overtime as gasoline consumption declined.

Most posters in this forum make more sense than this article.
It is impossible for the public to respond to gas price hike in the short term.

Therefore, it is very important for the government to have the foresight to:
1) institute a gradually increasing CAFE standard,
2) to guarantee a gradual increase in gas price via compensatory taxation of gasoline, depending on the market price. If the gas price increases by itself, then there is no need to raise gasoline tax. But, if gas price should decrease, then the government should step in to raise the fuel tax enough to maintain the gasoline price at a guaranteed level. This should be well publicized so that everyone will be able to plan for fuel conservation by buying fuel-efficient vehicles and by living closer to work place.

This should cause no undue hardship to the public in the short term, and will save the country and our auto industry from a major catastrophe of fuel shortage in the future.

I'm opposed to any additional taxes on gasoline, because they never go away. Example: In 1889, a 3% excise tax was leveled on the telephone to fund the Spanish-American War. So far, as of July 2005, approximately $300 billion dollars was collected for a war that cost $6 billion and, was won in 6 mos. The IRS lost seven court cases when the tax was challenged and still the persisted.

Example: The alternative minimum tax, introduced as a "tax reform initiative," was originally levied in 1970 to tax those individuals that paid little or no income tax. (the rich or near rich who had lots of deductions) But--it was not indexed to inflation, etc. And now, one in five tax payers are affected. Congress is studying the "situation." Yeah, sure.

One more example then I'll shut up: The New York State Thruway was build as a toll road to pay for the construction. (about ten years) Four decades+ later it's still a toll road.

Sorry for rambling but it really burns my grits to think of another never ending tax. I would much rather see the free market dictate energy prices, even if it means more profits for big oil. After all, millions of stockholders own them, lock stock and barrel, myself included. And I'm sure a few of you have oil stocks somewhere in your portfolio.

Shigley,

Since a gas tax, by design, is not meant to go away any time soon, there should at least be no worries about a bait-and-switch of the sort you complained about before. After all, the government will always need taxes of some sort or another. Collecting them at the pump as opposed to out of our paychecks at least presents us with the opportunity to price some important externalities into a widely consumed commodity. Collecting them at the tollbooth, by the way, is also probably a good idea for the same reasons. The Thruway costs money to maintain. Users of the freeway cause wear and tear, contributing to the maintenance costs, in ways that non-users don't. That road is also, frequently enough, space constrained. After a certain point, every extra car materially contributes to the slowing, through congestion, of the cars around it. Pricing in that externality is presumptively a good thing. (I'd support different tolls for different times of day, or different stretches of road, depending on the prevalence of congestion, by the way, in case someone would propose it.)

And taxes don't always go up. I can point to the tax overhaul of 1986, and the recent Bush tax cuts, as examples of movement in the opposite direction. That, and the fact that the Alternative Minimum Tax has frequently been adjusted by Congress to keep up with inflation, and such fixes will likely continue into the future.

A general distaste for taxes, and some Spanish-American war anecdotes, are not really enough to convince me that a well calibrated gas tax is a bad idea.

Governments at all levels need taxes, and I'm not opposed to that. I am, however, against taxes for the purpose of social engineering. I still believe in free enterprise.

Oh, sure, the government, like someone suggested, can come up with some convoluted tax scheme for the lower income to offset higher fuel taxes, but what about small business', tradesmen, farmers, and many others who must use larger, less fuel efficient vehicles for their livelihood? You can't simply paint everyone with the same brush and expect a level playing field.

Oil company profits are around 10%, and yet they are demonized for excess profits and conspiracy theories, which, by the way, has never been documented in any administration, be it Demorcrat or Republican. On the other hand, the combined federal and state taxes on a gallon of gasoline in NYS is around 22%, figuring a $3.00 price per gallon. Footnote: Pharamacuticals & medicine (another "must have" commodity) profits are around 21%, whereas in the seven major business catagories, oil companies are next to last in profits. Having said that, I firmly believe that any oil company subsidies should be rescinded posthaste and use the monies for alternate energy research.

The monies collected on the NYS Thruway, by and large, goes into a black hole called the "general fund." A la, Social Security, no?

I firmly believe that gasoline taxes should be used exclusively for road construction and maintenance, whatever the cost.

To my knowledge, the Alternative Minimum tax has never been adjusted for inflation, and that's the problem. Congress would like to find a solution but they don't want to give up the billions of revenue dollars.

And finally, I doubt that we will see the demise of gasoline in our lifetime. We can only hope that the consumption will be reduced considerably within the next decade.

By the way, one last point. I wouldn't care at all if all we were talking about were oil company profits. We're not. We're funding both sides of a war, and preventing autocracies from modernizing with the flow of our dollars. Big difference.

And sure, like you, I'm invested in oil companies.