There has been a meme growing that US drivers did not respond to gasoline prices until recently, when prices went above $4.00/gal. This meme is enabled by the innumeracy of the press and the dishonesty of the PR flaks and advocates. The backup evidence for the meme is the Total Vehicle Mile Traveled statistics, shown nicely here. The chart does not agree with the claim of no response. It clearly shows something changed in 2005, and that change may have started in mid-2004. The slope is half that of the prior years. Then 2006 and 2007 are almost flat, with a dramatic drop starting in late 2007.
Gasoline prices didn't reach $4.00/gal until spring of 2008. Were the news reporters from the NY Times so disconnected from reality that they think prices reached $4.00/gal in 2005 (or 2006 when the curve went flat)? No. They are innumerate.
What happened is an editor gave them the press releases, the chart, and said "write this story". They looked at the chart, saw that it was clear and readable, then wrote the story based on the press releases. If the chart had been a picture of a butterfly they might have called the editor to ask what was going on. But numbers and charts are hard. So they never noticed that the chart disagreed completely with the story that they wrote. I did, but then figured, it's the NY Times. They hire innumerates.
Had they even checked with some real economists (instead of the advocates) they would have found that economists agree that 1) drivers respond to price changes and 2) the short term response is smaller than the long term response. They do not agree on the shape of this response curve. The reasoning is fairly simple. There are some changes that can be made rapidly while others, like relocating closer to work or changing jobs, take time.
Lets looks at what really happened with prices. The following is a chart of the EIA price data. I've redrawn it from the raw data, showing the pricing in constant 2006 dollars.
It's clear that in mid-2004 prices broke above the oscillation around $1.75/gal, and held above $2.00/gal. That's why the slope changed in late 2004. Then 2005 to 2007 oscillated between $2.50 and $3.25. That gave the couple years of nearly unchanged travel miles. Late 2007 is when there was no fall dropoff in price, unlike prior years. TVMT started to drop. So the evidence is that public driving responds within months to price changes and price expectations.
But further, those TVMT numbers are not corrected for population growth. Population growth is a fairly steady 1% per year. So the per capita response was a steady gradual increase before 2004, then during 2005 the rate of increase dropped to a quarter of its previous rate but was still increasing. In 2006 and 2007 per capita miles travelled was dropping. So in fact, a gasoline price of $2.50/gal was enough to drive a slow 1% decrease in per capita miles driven.
If you look at automobile purchases, you see the same pattern. 2004 was the peak year for percentage truck sales. 2005 saw this decrease with the ratio changing radically in 2008. Again, the $2.50/gal was enough to trigger change.
Will the meme that it took $4.00/gal to change things go away? No. The public innumeracy is widespread. The big lie is widespread. The PR flaks and advocates are pushing the lie for all they are worth.
