There may not seem to be much good economic news, but there is something working well in the Free Market™. Gasoline consumption has dropped dramatically over the last 6 years, declining about 1/3 from its peak in 2004.
This is extremely important for many reasons. The roughly 45 million gallons of gasoline we consume per day adds up to over $50B a year, or about $450 per household. The great drop in consumption saves an average household about $230 every year – not a ton of money, but it helps in tough times.
Consuming less fuel is also a little easier on the environment, of course, but the amount we plow through is still mind-bogglingly large. It’s about 75 Olympic size pools of gasoline every single day. Most of this is imported, making our balance of trade problem worse than it reasonably should be.
I wanted to revisit this topic because nearly 3 years ago I wondered if higher fuel prices would lower our demand over time. This post was imported from another platform that did not allow graphs and charts, so it wasn’t much of a post. I found that there was a small correlation between rising prices and falling demand for gasoline, showing that market forces still work.
Today’s average price of $3.07 would predict about 52M gallons of gasoline consumed every day, and we are running even less than that. The good news just keeps coming!
The problem with gasoline consumption is that it’s very inflexible. People do not run out and buy a new car or move closer to work with every change in price. It takes time for price changes to work their way through the system. Apparently we have started to get used to higher prices and have made much larger adjustments in our habits and the kind of cars that we buy.
Three years on from the big spike in gasoline prices of 2008 we are looking at another potential increase to $4.00 that has been predicted by many. This time, however, we are much better prepared for it. Consuming far less of the stuff helps many things, but mostly it helps our own wallets.