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February 27, 2009

Increased spending versus tax cuts

There's a major battle that's erupted over the federal stimulus program between those who favor more direct government spending and those who want more tax cuts. There are many political facets to this debate, but let's focus on the economic elements. Can economics say which approach is better?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well first, let me say that both increased government spending and tax cuts are stimulants. Some people focus on simply the spending and say that's a stimulus. Actually, tax cuts are a stimulus too. So when we look at comparing these, we can compare them economically on many elements. We can look, number one, at how quickly the money gets into the spending stream. Many studies give the nod here actually to increased government spending. Secondly, we can look at the overall positive impact on the economy. Now there's lots of disagreement here, but many of the more recent detailed studies actually put tax cuts ahead of government spending here. And then thirdly, we can look at how easy it will be for the government to change these programs. That is to say if this stimulus bill that is being discussed is for temporary relief during the recession presumably we want to turn it off later when the recession's over. Probably it's easier to turn off that additional government spending than it is to turn off tax cuts. But I should say that on this, much, much is unknown by economists."

Posted by Dave at 08:36 AM

February 26, 2009

Farming during the recession

The recession is focused on industries like banking, housing, the stock market and autos. But what about one of our oldest and most basic of industries: farming. How are things down on the farm during the recession?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Fortunately, we haven't had the kind of financial problems in farming that we've seen in other industries. Farming does rely on credit. Most farmers have to go out and borrow money during the planting season. They pay it back after the harvest, but we haven't really seen any problems with farms being foreclosed on, etc. like we've seen in the housing markets, so that's been a plus. Also, farming benefits during a recession by the fact that people still have to eat. They may eat different kinds of foods, but they still have to eat because food is what we call a basic commodity. Lower fuel prices recently have helped farmers, but all is not perfect. The prices that farmers receive have come way down. We had very, very high prices for a lot of farm commodities a year ago, two years ago, but those have fallen so that may be squeezing some farmers even though their fuel costs are lower. Financing is tighter for many farmers just because of the position of banks. And land values are down for many farmers. So it's a mixed bag, but I'd say overall farming has held up fairly well and is expected to hold up well during this recession."

Posted by Dave at 08:15 AM

February 25, 2009

Some good news

We need some upbeat economic news. With so much gloom out there, can you find any news about the economy that will put a smile on our faces?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, depending upon how you look on it, one piece of good news could be that we no longer have a shortage of oil. Right now, the world is swimming - no pun intended - in excess oil. We have about 1.5 million barrels of excess oil every day in the world. That's been the major reason why prices - gas prices - on trend have gone down from the highs of over $4 a gallon back last year to now roughly a little bit under $2 a gallon. And of course the big reason is the drop off in world oil use with the worldwide recession. If unemployment is higher, you don't have as many people driving to work, for example, that means people aren't using their cars as much; same thing with shopping. So you can argue that this is one piece of good news. In fact, you can extend it and say that really for most commodities, basic food commodities - wheat, corn, etc., metals - we've seen all of those fall dramatically in price. This is a result of the recession, and you can look on it as good news. It's kind of like a tax cut. When we don't pay as much for gas at the pump. It's kind of like getting a tax break."

Posted by Dave at 08:00 AM

February 24, 2009

The layaway is back

People used to buy things on a layaway plan, several decades ago. Now, the layaway is back. Why is that?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the layaway used to be called the poor man's credit. What would happen is you go buy something in a store; you didn't have enough money to pay for it out right, but the store would say, 'Ok, we'll put in back in the warehouse. You pay a little bit each month, and then when you've paid the total cost, you get the product.' There wouldn't be a credit charge per se. There would be a relatively small service fee. What we're seeing now is that layaway plans have come back. They almost disappeared because people simply put everything on their credit card. Now people are more cognizant of what their credit balance is. They're trying to cut back on credit. And so layaways have made a come back. So I think it is directly related to the severity of the recession and the economy, and probably for many people, this actually is a pretty good idea. You don't get the product right away - you don't get the couch or the TV right away - you get it on a delayed basis, but on the other hand, you don't put things on your credit card. You don't run up an interest rate bill. So you do have to delay getting the product, but probably it's better for many people's finances."

Posted by Dave at 08:00 AM

February 23, 2009

Facts about the Great Depression

There are many references being made today to the Great Depression, so it might be useful to review some facts about that era and how it compares to today. Give us a little history lesson.

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, technically the Great Depression lasted 4 years, from 1929 to 1933. Economic output plunged 38 percent, and unemployment reached an all-time high of 25 percent. In comparison to today, we're looking at a drop in output of 4 percent, and our unemployment rate at the national level is still under 10 percent. The economy actually grew in the '30s after 1933, so technically the Great Depression was over in 1933. But it grew at a very, very slow pace, and so actually lots of the research that's been done on the Great Depression not so much focuses on the actual years of the Great Depression but on why the economy grew so slowly in the aftermath. In fact, output at the end of the '30s was still lower than at the beginning of the '30s, and there's been a lot of focus, for example, on tax increases. The federal government actually increased taxes in the middle and late '30s. Also, they did some things in the labor market that made labor more expensive potentially, which caused businesses not to hire as many workers as they might have. So this is a fascinating era to discuss and study, and there are some lessons for today."

Posted by Dave at 08:00 AM

February 20, 2009

Help for housing?

Most economists say the current recession began in the housing market. Therefore, it can be argued that the recession won't end until the housing market is back on its feet. What are some of the proposals for doing this?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Two ideas are being floated and discussed. One is to have the government - federal government - back a mortgage that homeowners can use with a very, very low interest rate and a fixed rate, maybe 4 percent, the idea being that if it's cheaper to get a mortgage, your payments are going to be lower. That's going to stimulate more people to go out and buy homes. The second idea is to have a very, very large tax credit for homebuyers. Now, a tax credit is much better than a tax deduction. A tax credit reduces your taxes dollar for dollar. A tax deduction does not. The tax credit that's been discussed may be in the range of $7,000 to $10,000, so that means if you bought a house, you would see your taxes drop immediately for that year by $7,000 to $10,000. Now if you don't have enough tax liability - that is, if your tax bill isn't that high - one idea is to take what's left over and use it to apply to the down payment. Both of these ideas obviously are designed to stimulate home buying. Many economists say that we have to get the housing market back on track - sales up - in order for this recession ultimately to be over. These are a couple of ideas."

Posted by Dave at 08:00 AM

February 19, 2009

Globalization versus productivity

There's no question that globalization has changed our economy. Many argue the movement to a world economy is responsible for a great deal of job loss in our country and state, especially in manufacturing. But is there a competing explanation?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There's no question - absolutely no question - globalization has increased the ability of some businesses to access lower-cost foreign labor. We've seen that, for example, with our textile apparel industry. And you can certainly attribute a large number of job losses, particularly here in North Carolina, to globalization. Now quickly, the other side of the coin is that if those products made in foreign countries are cheaper, then consumers benefit, but that's another issue. However, there is a competing view on what is the cause of job losses, particularly in manufacturing, and that is that many manufacturing jobs have been lost - and, in fact, many manufacturing jobs were being lost even before globalization - due to improvement in productivity. Manufacturing workers, because they are now trained better, they're working with better machinery, better technology, and simply produce more per hour, they're more productive. And therefore, you have a factory that's producing 1,000 widgets, and 10 years ago they needed 100 people, maybe today they only need 10 people to produce those 1,000 widgets. In fact, studies that have tried to sort out how many jobs have been lost to globalization, how many jobs - particularly manufacturing - have been lost to improvements in productivity say it's about 50-50. Half the job losses have been due to globalization; half the job losses have been due to improved productivity."

Posted by Dave at 08:00 AM

February 18, 2009

How bad can it get?

The unemployment rate in North Carolina hit 8.7 percent in December, rising almost a full percentage point above November's rate. This is the highest rate in 25 years. Is this the top of unemployment in our state, or will it go higher?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, this is not good news, and unfortunately most economists think the unemployment rate both nationally and here in North Carolina will go higher. I think it's virtually assured that here in North Carolina we will see a 10 percent unemployment rate by the end of the year. Now we hope to see some recovery in the economy at the end of the year, as we hope to see spending come back somewhat. But that probably won't be soon enough to arrest the rise in unemployment. In fact, oftentimes what we see is the general economy recovers before the job market because employers, once they do see, perhaps, their sales coming back, they want to wait. They want to make sure that that's for real. And so they will delay hiring additional people. Or factories will delay bringing shifts back until they are absolutely sure the economy is back on track. So we likely won't see the job market improve measurably until sometime in 2010."

Posted by Dave at 08:13 AM

February 17, 2009

Clashing approaches to recessions

The country is facing a serious recession, and government is being called on to help contain and end the recession. But before you have a government policy, you have to have an approach, or philosophy, about the role of the government and the economy. What are the major alternative approaches?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, there are really three. One, economists call the classical approach, which simply says that government should not try to end the recession. Government should keep its hands off. The economy will self correct. The economy will eliminate the excesses that cause a recession. Crises will adjust, and when all that happens, the economy will come roaring back. The second approach would be called the Keynesian approach. This was actually developed as an alternative to the classical view. It was developed during the 1930s, during the Great Depression. It says, look, the economy won't self correct, or if it does, it's going to take a very long time, and lots of people will be put out of work, so you need to have the government come in and intervene. You need to have government stimulus programs. You need have the Federal Reserve printing money, etc. And then the third approach would be what I would call the monetarist approach, which says that to keep the economy running smoothly, you have to have a stable monetary policy. This is a broader approach in a sense that it argues that perhaps one of the reasons we get into recessions is that the Federal Reserve tries to stimulate the economy with a lot of money. That stimulates the economy. Then it tries to pull the economy back. That causes the economy to go into recession, and so the monetarists say, focus on the money supply, keep it growing at a constant, even level."

Posted by Dave at 08:00 AM

February 16, 2009

Will the stimulus work?

The Obama administration is working with Congress to develop a large government spending plan to stimulate the economy. The scale of this plan may approach $1 trillion. The $1 trillion question then is: Will it work? What do economists say?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, they disagree. And I don't say that lightly, because this is probably one area of economics where economists most disagree. We actually agree on a lot, but this is one big area of disagreement. And this disagreement goes back well over 70 or 80 years. The argument in favor of the stimulus plan is, look, the private sector - people and businesses - aren't spending money. There are vital resources out there. People are unemployed. Factories are not being used. So let's have the federal government step in, spend money, stimulate the economy, so-called prime the pump, jump start the economy, whatever cliché you want to use. That will create confidence in the economy. That will create confidence among consumers and businesses. They will be able to spend more on their own and that will bring the economy back. The argument against this occurs on a couple of levels. One, it says that, look, government has to get its money from somewhere, and a large amount of the additional money government will spend will simply be borrowed from the private sector. So you're transferring money that would have been spent by the private sector to the government sector and you're just saying, Peter won't spend as much, but Paul will. So the net effect to the overall economy will be zero or close to zero. Also, another line of attack says that it takes time for these projects to gear up, so you have to worry about the timing of the new spending. How much of the new spending will occur while the recession is still here? How much will occur when the economy is in recovery? You'll have to choose your side here because economists simply don't agree on whether the stimulus plan will work."

Posted by Dave at 08:00 AM

February 13, 2009

Costs of rescuing the economy

The federal government is actively trying to rescue the economy from the recession. Large amounts of money are being created and spent, but will there be some costs we will eventually have to pay for these efforts down the road?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Just to review what's going on, we have a two-pronged attack, if you will, from the federal government. One is from the Federal Reserve. They have pushed interest rates down to historic lows. They're also creating - simply printing - a lot of money. Secondly, is from the president and the Congress together. They are planning a large new, so-called stimulus spending plan where they will be spending almost $1 trillion at the federal level. Now, there will be some costs to both of these efforts. The cost to the Federal Reserve in terms of printing money is it may spark - down the road, not immediately but down the road - higher inflation. The cost from the federal government spending so much additional money is they will have to borrow that money; therefore they will have a higher national debt, higher interest payments on that national debt. That will mean in the future, we'll either have to cut back on other federal spending or raise taxes. Now the reason the federal government is doing this is simply because they think this recession is so dire, so deep, that they're willing to incur these costs - indeed, the economy is willing to incur these costs in the future - in order to prop up the economy now."

Posted by Dave at 08:08 AM

February 12, 2009

The unexpected

The beginning of a new year is a time to look ahead and try to make forecasts about what might occur. But rather than talk about the expected, let's discuss the wild cards in today's economy, what might happen that isn't easily predictable.

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, I've been a professional economists for over 30 years, and I have been surprised many times in my professional life and looking at forecasts and finding they didn't really turn out the way we thought. So if we look ahead into 2009, I think in terms of the overall economic growth rate, we could be surprised. There are actually some economists out there who think that we're going to get a faster economic recovery than many think, that low interest rates and all of the additional spending the federal government's doing will actually cause the housing market to pick up faster, and it will bring up the entire economy. So we may be pleasantly surprised. Come spring, the economy may be looking much better. On the other hand, as economists famously say, there are economists who at the other end of the spectrum see this recession lasting well into 2010, really dragging on. Again, the consensus is that it will end sometime in the latter part of this year. International events always lend themselves to the unexpected. We unfortunately now have a shooting war going on in the Middle East, so the Middle East always bears watching. We hope that that doesn't broaden out and have an adverse effect on oil prices. The potential for animosity between India and Pakistan also bears watching. That could have an effect on the international economy, or, on the other hand, peace could break out, which would be welcome news for everyone. That we can only hope for."

Posted by Dave at 08:00 AM

February 11, 2009

Transportation options

A statewide committee recently issued a report on transportation in our state. Since virtually resident is either directly or indirectly affected by roads and other means of movement, this report is important to us all. What were the major conclusions of the committee?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, several; one is that the state has large transportation needs, both in the construction of news roads as well as the maintenance of existing roads in order to meet our growing population and vehicle use. Vehicle use is increasing faster than population, and yet the commission found that we don't have the funds to meet those needs. For example, one issue is that we now have a cap on the state gas tax, and that is actually inhibiting the ability of the state to keep up in terms of road revenues with inflation, and therefore to continue building roads and maintaining roads. So what the committee did is look at many options of where additional revenues could be gotten. One of them they talked about was the very controversial mileage fee. This is actually being investigated in other states as well as in North Carolina. You would be charged a fee or a tax based on how many miles you drive rather than how many gallons of gas you use. The committee also recommended looking at more toll roads, perhaps tolling our interstates and tolling other roads in order to raise revenue. These are obviously going to be very hotly debated issues, but I think one place of agreement among everyone is that roads and transportation are absolutely vital to our state's economy."

Posted by Dave at 08:00 AM

February 10, 2009

Education and unemployment

Although we all live in the national economy and, therefore, see the impacts of the recession, everyone is not equally affected. And considering one measure of the recession - unemployment - what characteristic would most importantly affect whether a person loses his or her job during a recession?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"That one most important characteristic is education. Let me share with you the unemployment rates right now for people with different levels of education. The unemployment rate for high school dropouts right now is over 10 percent - 10.5 percent. The unemployment rate for high school graduates is 6 percent. The unemployment rate, however, for college graduates is 3 percent. Now, all these rates are up over the last year, but obviously the big difference here is that we're talking about an unemployment rate for high school dropouts that's over three times greater than it is for college graduates. I think what this is signifying is that obviously in today's economy, a worker with more education is considered more valuable. In fact, there is a term in the workforce called worker hoarding, and what that means is that during economic downturns what you will often find is that businesses will actually try to keep their better workers - those with more training and education - even though the current economic situation may say to them, you should get rid of them, you should cut their hours back. But they keep them on the payroll because they don't want to lose them. They know that they will need them when the economy comes back and, of course, it takes time and effort to hire more folks. So, again if there's another reason that people need to hear about why education is important, it is that during a recession, those with training do tend to keep their jobs."

Posted by Dave at 08:19 AM

February 09, 2009

Is it time to refinance?

Mortgage interest rates are at their lowest level in years. This is great news for people trying to buy a house, but it may also be important for people who already own a home and have a mortgage. How can existing homeowners benefit from these low rates?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, they can do what's called a refinance of their mortgage, where they go and get a new mortgage loan and use that loan to pay off their existing loan. And the benefit will be that if the interest rate is substantially lower on the new mortgage, their monthly payments will be lower. Now, everyone doesn't want to do this because there are sometimes up front costs called closing costs to get a new mortgage. The rule of thumb that many professionals use is that you should consider refinancing if the difference between your existing mortgage and the new mortgage rate is 2 percentage points or more. That is, for example, going from a 6 percent mortgage rate to a 4 percent mortgage rate, and that you plan to stay in your home at least 5 years. Why that's important is that gives you enough time to recover in terms of your lower mortgage payments those up front closing costs. Now, also if you have an adjustable rate mortgage, where the rate may be relatively low now, you may want to hop over to a fixed rate so you can lock in that interest rate and don't open yourself up to potential increases in the future in that interest rate."

Posted by Dave at 08:19 AM

February 06, 2009

Is there a recession-proof industry?

If you were an unemployed person today, what industry would you most closely look at for a job? In other words, in today's challenging economy, is there any industry that can beat the odds and keep on hiring?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"The nature of a national recession is that it's pervasive. It affects all industries and all states, but if there is anything that's close to a recession-proof industry, I would say that it's health care. In fact, here in North Carolina during this first year of the recession, health care has actually added jobs in our state. And I think the reason is really fairly simple. One, of course, is people get sick or injured. Even if we have strong constitutions, we still have to go and get treated. So it's a necessity if you get sick or injured. But from a financial point of view, health care is different because a large part of the revenue going to health care providers comes from third parties - insurance companies and, importantly, the government. So that revenue source is unaffected by the economic problems that many households are facing. Now if I had to add a second industry, I'd say it would be education. It's still a requirement in our state and most states that children go to school: K through 12. Even more students are now finding it almost mandatory that they go to college. So that means that we're always going to need to staff those teaching positions, those assistant positions. At the college level, for example, where I am, what we're finding is that many of the baby boom professors who came in 30 or 35 years ago, they are now retiring. So that's opening up positions at the college level. Now the problem, of course, with many of these jobs in education and even some in health care is that they require long periods of time for training."

Posted by Dave at 08:00 AM

February 05, 2009

Have home prices bottomed out?

A major cause of the recession has been the contraction in the housing market. Key to this slump has been the drop in home prices in many parts of the country. In lots of areas, home prices have been falling for two years. Is there any evidence the end is near?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, if you believe the results of a major national research firm, the answer would be yes. What they did is they went in and they looked in many markets across the country at current home prices. Then based on their analysis of supply and demand factors, they compared those home prices to what they think the home is actually worth. And then they decided whether current prices are overvaluing the real price or undervaluing. And what they found, what they decided, is that across the nation overwhelmingly, current home prices are actually under the true value of the home. Now there is only one city in North Carolina that's in this survey, and it was Charlotte. And they found, for example, based on their analysis, that current home prices in Charlotte are under the true value by 9 percent. So if you believe all this, it means that, yes, the drop in home prices should be over, and, indeed, perhaps the drop has overshot. However, there's one problem with this analysis, and that is that people do tend to overreact. For example, when home prices were going up, we now know that in many cases home prices overshot the actual true value of the home. And now it probably stands to reason that home prices are actually going down further than the true value. So although the economics of the situation indicate that homes may be at the bottom in terms of price, the reality may be that they're not."

Posted by Dave at 08:00 AM

February 04, 2009

Money and interest rates

One good piece of economic news occurring recently is the big drop in interest rates, especially mortgage interest rates. Certainly this is a big plus for homebuyers and those refinancing their mortgages. But what is the source of this good news?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There are two reasons for the significant drop in interest rates, and both those reasons come from our Federal Reserve. First is a decision recently by the Federal Reserve to buy mortgages held in what's called the secondary mortgage market, where companies buy up existing mortgages. These mortgages have been held by the giants Fannie Mae and Freddie Mac. And of course, if you've paid attention to the news, you know those two organizations have had financial trouble, and initially that meant that risks among mortgages were viewed as being high. Now that the Federal Reserve comes in and says, 'We're going to buy up those mortgages,' that means risk viewed by lenders in mortgage market has gone done. Translated, that means the interest rate has gone down. So that's one source. The other source is very simple, the Federal Reserve has dramatically increased the amount of money out there to loan. The Federal Reserve does control the money supply. Recently they've been increasing it at an 8 percent annual rate. That's double the rate of a couple of years ago. So the simple reason is that lenders have more money to loan. More money means that the cost of those loans (the interest rate) can fall."

Posted by Dave at 08:00 AM

February 03, 2009

The happiness gap

Anyone who studies economics knows it's about more than just money. Ultimately, economics is about helping people find ways to achieve happiness. But do we have any measures of happiness, and if so, what trends do they show?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, there is actually an annual happiness survey done each year here in the U.S. And there are several interesting results from the survey. First of all, if you look over the last 30 years, there's actually been very little change in the overall rate of happiness, if you will, among households here in the U.S. But we do find variation among particular households. What we find is that happiness has actually been increasing for college graduates, but it's been going down for households with less education. Now, one big question would be why? Well, one thing that economists can speculate on is this may be correlated with changes in income, and indeed, this decade what we have found is that only college graduates have enjoyed income gains that have exceeded inflation. All other households with different educational levels have seen their wages and their incomes go down, and hence, perhaps their happiness go down. One piece of good news out of all this is that differences in happiness among different racial groups have actually narrowed in recent surveys."

Posted by Dave at 08:00 AM

February 02, 2009

Gas prices and fuel economy

When gas prices hit $4 a gallon last year, there was much speculation about how consumers would be motivated to buy more fuel-efficient cars or even how drivers would make changes to get more miles per gallon from their existing vehicles. But do we now have any hard numbers giving us the degree to which this really occurred?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, we don't have any numbers from last year - it's simply too early to do a good statistical study - but we do have a study that looked at how drivers responded in terms of their fuel efficiency to changes in gas prices. This study spanned the years 1997 to 2005, and actually one of my colleagues here at N.C. State was part of that study. And what the authors did, they looked at two different time periods. They looked at the immediate impact on fuel efficiency from, for example, higher gas prices. And then they looked at the longer run impact. Immediate impact was actually very small. The authors found that for every 10 percent increase in the gas price, fuel efficiency would be improved by less than 1 percent. But over the longer run - that is, over several years - they found that every 10 percent increase in the gas price led to a fuel efficiency gain of 2 percent. That's actually in economics very, very significant. So what we would expect is that if gas prices rose and stayed high, that would lead to even more improvements in fuel efficiency over time. Unfortunately, these gains can be undone if gas prices fall."

Posted by Dave at 08:00 AM