Gas Pump Guesswork

Forrest Gump's mama may have told him life was like a box of chocolates because you never knew what you were going to get but in today's world, I think she would have said life is like the gas station. You never know anymore what you're going to pay. One of the headlines in the news today was the fact that gas prices were on the rise again despite the fact that oil prices had come down in recent weeks and are nearly half of what they were last year. That being the case I am puzzled as to why the price we pay at the pump keeps doing the upward creep.

Now one could make the arguement that as an economist I should have greater insight into what the gas prices are going to do. Unfortunately that's not the case. I think that the price we pay at the pump is a more serious matter that doesn't require so much understanding of economic theory as it does prognostication of people's habits. I say this because 'experts' (experts in what I still don't know) have predicted that because the economy is showing signs of improvement that perhaps people will be more prone to drive and therefore consumption will rise (as it does every summer when people start travelling) and therefore our supplies (which are at the highest levels for a number of years) will suddenly be stretched thin again. Therefore logic states that we should pay more for a resource that could conceiveably become scarce.

I'm sure I'm not the only one scratching my head at that logic. After all, if anyone has driven on their normal commute in recent months they have probably noticed that the amount of traffic on the roads and highways hasn't really changed so much in the past few years, even when fuel prices were at (or above) $4 a gallon so to tell me that people's driving habits are changing that much due to rising fuel costs is something I don't want to buy. Sure more people may carpool and more may be taking public transportation but honestly, I haven't seen a change.

The next time you're driving to work take a look at the cars around you and count the number of people in them. More likely than not these cars will be devoid of anyone but the driver. Even when fuel prices were rising to new heights last year I didn't hear from many of my co-workers that they were suddenly inspired to start carpooling with their friends. We paid what we had to to keep the car fueled. We went where we needed to in order to get paid. We probably spent less on other goods simply because it didn't make sense to drive someplace to spend money that could be better spent on necessities like food and fuel. Odd how that works.

So in my thinking I would say that demand for fuel remained relatively constant (or perhaps slightly slightly lower) but demand for other goods was down. That being the case in a market where there is no alternative (or very few alternatives to fuel-powered vehicles, is it any wonder that people will pay what they need to keep their cars moving? Cars are the ultimate symbol of freedom for many. It's the power to go where we need to whenever we want to. Not everyone sees things that way but that's more likely the truth than not. I just find it funny that people think that fuel price fluctuations will actually change our basic habits. It won't.