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July 04, 2008

Will we permnaently change our driving habits?

We're driving less, buying less gas, using more mass transit and purchasing more fuel-efficient vehicles. All of this is in response to high gas prices. Will these changes persist if gas prices ever fall? Listen

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

"Well, of course, many people are saying, 'Will gas prices ever fall?' in the first place. But I think if gas prices do fall - and there are some economists that think they will - and people think they'll stay at that lower level, then yes, I think we would go back to some of our older habits. People would drive more. They'd move away from fuel-efficient vehicles. Fewer people would use mass transit. So what this has done is actually sparked some debate about whether the government needs to do something to keep these changes that people have made in their driving habits permanent. And what's been talked about is a floating gas tax. That is, the argument would say we're never, we're never going to allow, say, gas go below - oh, we'll pick a number - say $3.50 a gallon. If it does, we're going to automatically increase the federal gas tax to keep it at that point. And therefore, this is going to motivate people to do all the things that we've talked about, many of which, for example, those who are concerned about the environment applaud. Now, wouldn't this make us all worse off, keeping gas prices at some high level. Obviously yes, but here's the second part of the plan. The extra money the government would collect would be rebated - maybe on a monthly basis - back to drivers in terms of checks. So in terms of your household budget, you wouldn't be worse off. Now, wouldn't people just take that money and buy more gas? No, that's where economic analysis comes in. Yes, they'd take maybe a little bit, but most of it they would spend on other things. And so the notion is that we'd sort of have our cake and eat it too. We would have all these changes that people have made kept permanent, and yet economically we wouldn't be worse off. This is a big idea. I don't see it being implemented anytime soon, but it is being discussed."

Posted by Dave at July 4, 2008 08:00 AM