Some Gasoline Consumption Algebra

Your tax dollars paid for the 2009 NHTS micro data.  Let's take a look at it and see what we learn about gasoline consumption in the U.S.  I took the micro data and used the household identification number and calculated total miles driven by each household in the data set.   I don't bother to weight the data and here is the empirical distribution.  50% of U.S households who own at least one car drive more than 12,000 miles each year and 10% of U.S households who own at least one car drive more than 34,000.  Don't ask me why 10% of the sample report "0" miles.  





 summ Miles, det


                            Miles
-------------------------------------------------------------
      Percentiles      Smallest
 1%            0              0
 5%            0              0
10%            0              0       Obs              143084
25%         3020              0       Sum of Wgt.      143084


50%        12000                      Mean           15136.67
                        Largest       Std. Dev.      16153.54
75%        22000         312000
90%        34000         321000       Variance       2.61e+08
95%        44000         540000       Skewness       3.121046
99%        70100         562000       Kurtosis       36.58416

So, let's focus on households at the 75th percentile who drive 22,000 miles a year. Let's assume that their average vehicle has a MPG of 25.   This household consumes 880 gallons of gas a year.  If the price of gasoline doubles from $2.5 to $5. then this household must pay an annual increase of $2200 to fund this driving.   If this household earns $70,000 a year and clears $40,000 after taxes then this $2,200 increase is the equivalent of a 5.5% cut in disposable income or a drop by $6.16 in disposable income (so that's one turkey sandwich a day).   I have trouble believing that this is a national crisis but President Obama is having to answer for this.  

Economists would also ask why is this household driving 22,000 miles a year?  Work trips represent less than 1/2 of all driving.  Why does the household own a car that only achieves 25 MPG?   Suppose this same household could reduce its annual driving to 20,000 miles per year and bought a vehicle that achieves 35 MPG.  Its new gasoline consumption would be 20000/35 = 571 and at $5 a gallon its total annual expenditure on gasoline would be $2857  which is not much bigger than the original 880*2.5=$2200  for the old driving amount priced at the original price of gas.  

Are Americans really so "inelastic" in responding to price changes?  What happened to behavioral change in the face of incentives? Or do we believe that we can "jawbone" prices back to where we like them?   Capitalism will work better if we take prices as given and make our best choices facing the new realities rather than rejecting higher prices and demanding political interventions to shield us.