Guest Post by Willis Eschenbach
Inspired (as I often am) by either the insights or the foolishness of a guest post at Judith Curry’s always-provocative blog, I decided to take a look at the relationship between fuel price and miles driven. My inspiration came from my amusement at the guest author’s use of the following graph to establish a relationship between fuel cost and how much people use their cars. I think a relationship exists, but the graph used by the author doesn’t show it. Figure 1 shows that graph:
Figure 1. Per capita fuel use, compared to the fuel price, for the OECD countries. SOURCE
Now, it certainly looks like there’s a clear relationship there, but that’s an illusion. My objection to the graph was, the countries divide into two groups. On the bottom right you have the European OECD countries, plus Japan. Plus one fish.
On the top left, you have the US, Australia, Canada, and New Zealand. What’s not to like?
Well, ignoring fuel price for the moment, who would you think would drive more miles—a citizen of the US, or a citizen of Japan? An Aussie, or a Belgian? A Canadian, or an Italian? So all the guest author has shown in that graph is that the folks in large countries, with miles and miles between cities, drive more than Europeans and Japanese.
But of course, I couldn’t leave it there, so I linked to the following lovely graph of automobile use in the US that I ran across during my research. It shows, year by year since 1956, how many miles Americans have driven, and what the gas price was during that year.
Figure 2. Miles driven compared to the fuel price. Click to embiggen. SOURCE
Now that shows some very interesting patterns. The main oddity I noticed is that there is what might be termed a price shock effect—in the year of a big jump in prices, for example 1974, the mileage driven drops compared to the previous year. But then look what happens from 1974 to 1978 … the price stays stable, but the number of miles driven each year goes up steadily, without reversal.
But of course, I couldn’t leave it there. I digitized the data, to see what kind of relationships I could understand and reveal through further analysis. And as usual, I was surprised by what I found.
First, taking the data as it is given, there is no statistically significant relationship between the two variables, pump price and miles driven. The R2 is only 0.03. (“R2” is a measure of the relationship between two datasets, where an R2 of 1.0 indicates a perfectly linear relationship between the two, and an R2 of 0.00 indicates no relationship. So an R2 of 0.03 is … well … pathetic. So as far as a direct relationship between prices and miles driven, not happening.
Once I saw that, I wondered, well, what if I include a temporal trend in the linear regression? The way that I usually do that is simply to include the date as a variable. And to my surprise, the R2 went from 0.03 up to 0.98 … Figure 3 shows an emulation (multiple linear regression result) of the number of miles that Americans drive, versus the value estimated based on year and pump price.
Figure 3. The emulation is a multiple linear regression, using the year and the pump price as independent variables, and the actual average miles driven by Americans as the dependent variable. R2 = 0.98
Dang, sez I … that’s pretty impressive.
But of course, I couldn’t leave it there. A fixed annual increment, a simple trend like I used, is just a way to understand the data. It’s not an explanation involving some plausible mechanism. And more to the point, I also didn’t like those two years up at the top right of Figure 3, which are 2009 and 2010. In those years, Americans drove about a thousand miles less than expected. So I though about why that might be, and even a bear of little brain would go “global financial meltdown, duh”. And that made sense overall as well, because how far I drive doesn’t just depend on the pump price. It also depends in part on how much money I have in my jeans. When I’m flush I drive more, and when times get hard, I drive less regardless of the price of gas.
So I thought that instead of using the year, I’d try using the per-capita GDP as the second independent variable. Figure 4 shows those results.
Figure 4. The emulation is a multiple linear regression, using the real per capita GDP and the pump price as independent variables, and the actual average miles driven by Americans as the dependent variable. R^2 = 0.98 GDP SOURCE
Yowzah! Now that’s what I call shaving with Occam’s razor. It turns out that pump price and per capita GDP do an excellent job of estimating the number of miles driven, with very little error.
So, what does the magic equation that gives us the excellent results shown in Figure 4 say about the relationship between miles driven on the one hand, and gas price and per capita GDP on the other?
Well, it says that for every twenty-five-cent increase in the pump price of gas, Americans drive about a hundred miles less. Gas price goes up, miles driven go down. Makes sense.
And it says that for every $430 increase in per capita GDP, Americans drive about a hundred miles more. Wealth goes up, miles driven goes up. Also makes sense.
Now, the “carbon taxes” I’ve seen discussed are on the order of $20-$30 per tonne of CO2. And by coincidence, $28 per tonne of CO2 emitted is equal to twenty-five cents per gallon of gasoline. So if a $28/tonne carbon tax is imposed on gasoline, how much less might Americans drive?
Well … a hundred miles less … wow, such a stupendous gain, be still, my beating heart …
And how much actual change in our driving habits is a hundred miles less per year?
Well … since Americans drive about 10,000 miles per year, it’s a gigantic, massive reduction in miles driven of one percent.
And that, dear friends, is all the bang you get for your twenty-five-cent per gallon carbon based energy tax. A one percent reduction in miles driven. One freaking percent, and they want to impoverish the poor for that? Grrrr ….
So … what does this mean for the debate on carbon-based energy taxes?
First, it means that in the American situation, there is no way that the benefits of energy taxes are worth the cost. Why? Because the effect of a typical CO2-based energy tax on miles driven is minuscule, only a 1% reduction for a $28 per tonne of CO2 energy tax.
Next, a very slight increase in per capita GDP will nullify the energy tax entirely. Also by coincidence, it turns out that if the current per capita GDP goes up by about 1% (~$430), that will increase the mileage driven by 100 miles … so a 1% increase in per capita GDP will completely nullify a $28 per tonne of CO2 energy tax. And the GDP goes up by one percent all the time …
Next, it means that in order to have more than a one-year effect, the tax will have to continually rise.
The problem with a carbon based energy tax can be seen by thinking back to Figure 2, where I noted the “shock effect”, and how after the slight reduction in miles driven as a result of the 1974 big jump in pump price, after that one-year reduction the miles driven went right back to increasing year after year, with no change in the gas price.
So a one-time jump in the price will make little difference, just a one-year reduction in the miles driven. But by the next year or two, assuming that the per-capita GDP continues to rise as it has in the past, the miles driven will be rising again.
Next, it means that a carbon-based gasoline tax is wildly regressive. To see why, let me start with a slight digression, by bringing in a concept from accounting, that of “fixed”, “variable”, and “semi-variable” costs.
Fixed costs are those costs you can’t do anything about. The amounts are fixed, you can’t reduce them, you just have to pay them.. Maybe rent. Taxes.
Variable costs are costs that are entirely optional. Think maybe eating at restaurants. You don’t have to spend a penny on that if you don’t want to.
Semi-variable costs are costs that you can change, but you can’t eliminate entirely. These would be things like food costs. You can run them up or down, but you can’t eliminate them.
Now, think about the corresponding concepts as applied to the subject at hand—fixed, variable, and semi-variable miles driven.
Fixed miles are things like a commute to work. Short of changing your job or your residence, you can’t change that. You just rack up those miles every year.
Variable miles are things on the order of visiting Grandma in Arizona. You love to do it, but you don’t have to go.
Semi-variable miles are things like going to the post office to get your mail. You can cut the trips down, but not to zero.
What this graph shows me is that any energy tax on gasoline will hit the hardest on the poorest, the people who mostly use their car to get to work. The problem is not just that more of the wages of the poor go to energy, although that is also a problem.
But in addition to the higher percentage of their wages going to energy, the majority of their miles are fixed miles, so they can’t cut back on them. They have to drive them, so they have to pay the tax.
For the wealthy, on the other hand, lots of their miles driven are variable or semi-variable, so they can just scale down a bit. The energy tax means nothing to them. But for the poor, it can be a budget-buster.
This is one of the many reason why energy taxes are so regressive—because for the poor, fixed costs for everything squeeze them all the time, not just fixed fuel costs but also the other bills they have to pay every month. So when energy prices go up, Al Gore and James Hansen just cut back on visiting the grandchildren they love to talk about, no problem for them.
But the single mom whose gas budget barely covers getting to work, she can’t cut back on her gas use, it’s already cut to the bone. So when she pays the energy tax, she is forced to cut back on something for either the kids or herself.
And all of that for a pathetic 1% reduction in miles driven. That’s criminal.
Now please, folks, don’t insult my intelligence by claiming that it’s OK to harm the poor because of that well-worn fantasy, the fabulous claim that wealth redistribution will make it all OK. It won’t. Anyone who believes it will make it all OK has not spent enough time around government programs.
To start with, even the best-intentioned programs only reach a percentage of those most affected. Next, the poorer that people are, the less likely they are to hear about such programs. Think people living in apartments versus people living in their cars. Next, the paperwork required is all too often complex, confusing, and intrusive. Next, many of the poorest people are mistrustful of government. Also, immigrants are often equally fearful of government, and many don’t speak the language. Next, the people who end up getting the most benefits are often not those who suffered the most losses. Next, administering such a program requires a large expensive workforce of bureaucrats and paper pushers to make it function. And of course, they’re all Union, can’t be fired, plus we’ll be stuck paying these pluted bloatocrats their megabucks in retirement money ’til they shuffle off to a warmer place … and I’m not thinking Florida. Next, as with any government program, waste will consume more than you imagine. Think IRS conferences in Las Vegas and thousand dollar hammers. Next, parasitic rent-seekers like lawyers and consultants will be circling the honey-pot and making off with some of that good honey. And finally, there’s never been a government program that people didn’t scam, game, and cheat, so somewhere between a little and a lot of money will simply be stolen.
So no, wealth distribution will only make things worse, or on the best day with a following wind it might “break even” by taking from one bunch of the poor and giving to another bunch … and meanwhile the people at the bottom of the economic pile are hit the hardest. And whether you are a conservative or a liberal, that should appall you.
And finally … we’re going to create all that pain and create a giant bureaucracy and waste piles of money for a crappy 1% reduction in miles driven, a temporary reduction that will be wiped out by the next 1% increase in per capita GDP?
Really? That’s the brilliant plan? Screw the poor and the economy for a 1% reduction in miles driven?
Spare me. That’s more than foolish, that’s a crime against the indigent and everyone else in the country. Almost any other conceivable response to the imagined horrors of CO2 would be preferable. Taxes on energy are destructive and damaging to individuals, to businesses, to the environment, to the economy, and more than anything to the poor, and to turn it from mindless idiocy to criminal tragedy, there is nothing to show for it at the end of the day but a temporary 1% reduction in miles driven—from an energy tax, there’s no lasting gain, only lasting pain.
w.
DATA: The spreadsheet with the data and graphs is here.
[UPDATE] I just wondered, how much will the $28 per tonne of CO2 gasoline tax cost per year? Average fuel economy of the US fleet, cars and trucks, is about twenty mpg. Average person drives ten thousand miles, at twenty mpg that’s five hundred gallons. The tax at twenty-five cents per gallon on five hundred gallons is $125 per year.
In response to that tax, we can expect people to cut fuel use by 1%, or 5 gallons per year. Gas is around four bucks a gallon, so that’s $20 worth.
So the plan is to charge the average driver $125 per year in gas tax, and in response to that he’ll use $20 less gas, reducing his bill at the pump from $2,000 per year to $1,980 per year and cutting his CO2 emissions by a whacking great 1% … who thinks these plans up, and how can we catch them and stop them?
[UPDATE 2] I also got to wondering, just how much CO2 would a $28 per tonne of CO2 applied to gasoline consumption actually save? There’s 8.9 kg (19.6 pounds) of CO2 in a gallon of gasoline. Crazy but true, it’s the extra weight of the oxygen. So we’d be saving one whole percent of that, or .089 kg per gallon. Multiply that by the number of gallons of gasoline burned in the US, about 134E+9 gallons, and we end up with 0.01 gigatonnes (billion metric tonnes, E+9 tonnes) of CO2 saved.
And compared to a hundredth of a gigatonne, how large are the global CO2 emissions? Well, it’s about 9 gigatonnes of carbon C emitted per year, so as CO2 the mass is (16 + 16 + 12) / 12 of that to allow for the extra weight of the oxygen, or 33 gigatonnes of CO2 per year.
And the $28 carbon based energy tax would reduce that by 0.01 gigatonnes of CO2, which is a reduction of three hundredths of one percent (0.03%) … folks, have we truly gone so mad that such a trivial gain, three hundredth of one percent reduction in CO2 emissions, so small as to be absolutely unmeasurable, is used to justify this crazy tax?
I’m a little surprised no one brought up CAFE standards. They’re going to magically move us along the curve because our vehicles will now be made with fresh unicorn which will reduce fuel consumption. This will be Good(tm) and will Save(tm) money. Just like Tesla made a “profit” last quarter once you include all of the government credits.
I still don’t know why Congress hasn’t passed a law mandating higher annual incomes by 2025 as well. I mean, laws fix problems, don’t they?
John says:
July 10, 2013 at 6:05 am
Oh, You could easily cycle to work. I cycle by average 25 km a day and I’m perfectly fine and actually I save time compared to car. If I would have a need I could cycle up to 20 km or about 12 miles each way. The time is not wasted compared to time driving.
—-
I live in Canada where about 8 months of the year, the ground is covered with snow or ice. I’d kill myself getting to work on any kind of bike. And even if I lived in an area that was warmer, biking is not the solution. It’s just too far. If you have kids or have other responsibilities, it’s awfully wasteful to be spending your time on a bike when you could be at your kid’s hockey game or dance recital.
Progress is made by spending less time on wasteful things. We don’t need to wait hours for a boat with a steam engine. We have things like Fed-ex that will ship things for us, or we can travel by plane. Sure, biking is great exercise, but it’s not the only form of exercise.
And that seems to be your biggest flaw (of the countless other flaws). It’s that you don’t seem to understand progress. In none of your comments do you deny that the people affected are indeed affected. If they are, then some/many will already be doing the things you say and will reach a breaking point where they cannot cope. We need to move in the other direction. The direction of success.
If I am understanding your analysis- the trend of miles driven is increasing over time. The effect of gas price is minimal. The first graph has some (minor) outliers, so use GDP instead of time. GDP is increasing over time with some minor setbacks. So second graph does not have the outliers, but has a little more variance around the trend. Both have the same R^2.
It is probably true that there is very little discretionary spending for gasoline. My daily commute is 100 miles round trip. There are no public transportation alternatives. Upside is lots of time to listen to music.
w- I downloaded your spreadsheet. As before, Open Office Calc has issues. Excel is more tolerant of referencing cells in numeric calculations that don’t contain numbers or formulas (i.e. text) and setting them to zero.
One of the common factors when there is a high incidence of ultra long distance commutes like what you are talking about (David Moon), is that property prices have been severely inflated by urban planning. This effect was first noted by Peter Hall et al in 1973 in their report “The Containment of Urban England”.
“DRIVE TO QUALIFY” IS REAL.
This term is commonly used by the real estate and mortgage industries to refer to the phenomenon that housing tends to get progressively cheaper and hence within the mortgage servicing capability of buyers, the further away from the established centers of cities one gets.
Anthony Downs discusses this phenomenon in his 2004 book, “Still Stuck in Traffic”. Also, Downs was one of the contributors to the famous “Costs of Sprawl 2000” paper. There is a chapter entitled:
“The Effect of Lower-Cost, Outlying Land on Housing Costs”:
Page 448 onwards of the following PDF is highly relevant:
http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_74-c.pdf
Dr Kara Kockelman of the University of Texas, some of whose research is referenced in the “Costs of Sprawl” study, has done further research since with the same outcomes.
Downs makes a lot of the point that the more expensive houses are relative to incomes, the more incentive there is for households, especially first home buyers, to locate further away from CBD’s, because the savings on housing costs are greater than the additional cost of travel (assuming employment is in the CBD).
For example; Anthony Downs; “Can Transit Tame Sprawl?” Jan 2002:
“…..In “The Costs of Sprawl 2000″, a recent study conducted by Rutgers University, the Brookings Institution and several other organizations, part of the research examined how housing prices vary with distance from the regional downtown of each metropolitan area. Although only a few areas were analyzed, the study showed consistently that prices of similar homes tended to decline about 1.2 to 1.5 percent per additional mile from the regional downtown, except where
proximity to the ocean had more influence on prices—as in Southern California.
Meanwhile, longer-distance commutes added to fuel and travel-time costs by about the same amount per mile in every region. The study also found that per-mile housing-cost savings from added commuting distance were much larger in regions with absolutely very high housing costs than in those with absolutely low housing costs. Therefore, it was more likely to be economically worthwhile for households to move further out to gain cheaper housing in high-housing-cost regions such as the San Francisco Bay and Boston areas, than in low-housing-cost areas…….”
There are studies which purport to prove otherwise. These studies all suffer from the fatal flaw that they compare the actual current “housing” cost of incumbent households – including people whose mortgages are already paid off, or nearly so, and whose “housing” costs are next to nothing. This misses the point that a new buyer of the same often quite high-value homes would certainly achieve much lower “housing plus transport” costs by buying further away. In fact, even the incumbents with mortgages paid off, would improve their financial position by cashing up their high value property and moving further away.
A basic understanding of the underlying logic of urban economics would immediately make us suspicious of the flawed claims referred to above. If a situation ever does exist in an urban economy, where real-life comparable “housing plus transport costs” got lower the closer one gets to the city’s most significant concentration of jobs and amenities, the workings of free markets would ensure that enough people would very soon relocate more efficiently, that this situation would reverse. Markets do not find their equilibrium at a price where supply is in excess of demand.
Advocates who insist that this disequilibrium exists, are blinded by a mythology that people really do have an irrational “love affair with their car” and actually enjoy their daily traffic congestion so much that they will not even rationally act to improve both this situation (which nobody actually regards as anything other than frustrating and a waste of time) and their financial situation.
Of course there might be lower “housing plus transport costs” in the case of a very much smaller “home” near a city’s CBD, but urban real estate markets will find their own level, and the simple reason that households are not flocking to smaller and smaller homes in more and more efficient locations, is that these homes simply do not meet their requirements for other attributes in a home, particularly space.
Far superior outcomes result from allowing relatively free markets to decentralise employment and urban amenities, and keep economic land rent low and highly dispersed in cities, rather than concentrated. This is why the low density, “sprawled”, affordable-housing US cities actually have highly competitive average commute-to-work times, AND far higher housing quality enjoyed by medium and lower income earners.
I have also pointed out occasionally that the same policies that are designed to increase commuter rail travel mode share (as if this is an end in itself) actually undermine the potential for “walk to work” mode share. Ironically, the “dispersed” urban form with low land costs and as little concentration as possible of location-advantage housing cost “premiums”, works not just to keep car commutes short in time, but allows maximum scope for people who might want to buy a home close enough to work to walk there. Heavily centralised urban form results in “amenity”, such as walking to work, to be captured by the highest income earners who can afford the prices where the amenity is concentrated. The same applies to proximity to green space and to other urban amenities.
Radial public transport routes tend to “converge” closer to a city centre and hence services at these locations are extremely frequent; these locations too, tend to be “priced” so that only higher income CBD workers enjoy them. The very large subsidies involved in commuter rail services are overwhelmingly captured by higher income earners and the owners of property rendered more valuable by the “planning” that is designed to maximise the ridership. Lower income earners are forced into expensive long distance, highly congested car commutes; OR they might be able to afford to locate on a commuter rail route 60 miles or more out. Ironically, the subsidy involved in getting them the 60 miles to work every day by train, is far more than the “subsidy” to the automobile based development and roads that would have enabled them to have a short car commute – let alone a walk or a bicycle ride.
Here’s something else to disappoint the people who think Europeans forswear cars in favour of public transport, cycling, etc:
Vehicle Ownership and Income Growth, Worldwide: 1960-2030
Joyce Dargay, Dermot Gately and Martin Sommer
January 2007
http://www.xesc.cat/pashmina/attachments/Imp_Vehicles_per_capita_2030.pdf
There is a consistent “S-curve” relationship between income growth and vehicle ownership growth. What varies, is where a nation is on the curve. France and Italy are converging on the USA.
Vehicle ownership and VMT both approach saturation eventually. All the poor, women, elderly, and young, are mobile and there is little more uptake. People don’t just drive more and more and more as they get wealthier. There is a “Zahavi Travel Time Budget” that humans tend to “sort” into.
Another fascinating factor that emerges in the work on land and transport economics, of academics like Charles Lave and Peter Gordon and Alex Anas, is that when planning does not interfere unduly, residences and businesses and amenities tend to “sort” into more and more efficient co-location to each other. Ironically, forced centralisation of urban activities – like UK “City Centre First” planning policies – always worsens traffic congestion, and “prices out” the bottom quartiles of the population from access to everything. Data for average trip to work times show that the USA’s very low density cities have shorter trip to work times as well as housing around 1/3 the price, of the UK’s heavily planned cities.
In my opinion, popular fads for growth containment urban planning are just as much part of an absolutist, political-ideological movement that denies objective reality and the scientific method, as the CAGW fraud. They both stem from the same source. All the fraudulent distortions run in the same direction – towards ordering the population around and restricting their freedom and undermining western civilisation. Growth containment urban planning is like an economic WMD deliberately devised and sown as an ideology, by an enemy power’s program of subversion.
Anthony Downs points out in “Still Stuck in Traffic” (2004) that the real potential low-end cost of automobility has steadily fallen, which is what has allowed poorer people to achieve it. A small Asian made car, ten years old, will cost a buyer a lot less per mile over the next few years, in real terms compared to the cheapest option from 1960. The very much higher reliability is very significant.
Willis, I’m wondering where China would fall on Figure 1. I’ve heard that their gas is relatively cheap, yet I’m guessing they don’t log a lot of miles per capita.
TimTheToolMan says:
July 10, 2013 at 8:27 pm
Didn’t realize your an outsider looking in. Last figure I saw was we still have about 9 million people out of work that were working before the downturn. That’s 9 million people who are no longer driving to work on a daily basis and can’t afford to drive to grandma’s on the weekend. Otherwise that’s a lot of gas saved.
Wouldn’t be surprised if our increased natural gas supplies due to fracking have also helped to decrease fuel consumption in industry.
Steve Reynolds says: ..”subvert for the benefit of political cronies than subsidies or the designed for graft cap and trade bill.”
Well will you look at that, there goes one of those cap and trade graft designers now – from hiding in Maryland all the way to the US Senate, commie Ed Markey. Let me guess, Henry Waxman is angry that Dianne Feinstein and Barbara Boxer were passed over for Sec of State? He could of been a contender, on the senate environment committee holding down arctic tundra at the north pole.
“A good example is the country of Norway, which is a petroleum producer, has one of the world’s highest incomes and GDPs, has a cold climate and low population density, yet maintains one of the world’s highest fuel taxes and maintains a multi-modal transportation system which encourages walking, cycling and public transit where possible. ”
———————————————–
Have you ever been to Norway?
Walking and cycling are off the menu for practical purposes for at least 6 months of the year. In winter, it gets so cold that china in unheated rooms can shatter.
To suggest that it is a good thing that Norwegians have at least half of what they earn taken from them and redistributed by a caring State is … let’s just say, a matter of opinion. What is clear is that Norwegians are greatly constrained from exercising their own choices about transport – first, because a lot of their income is expropriated and diverted to politically correct transport; and second, because fuel taxes are massive and designed to penalise car owners even if they can afford to buy one with what is left after tax.
Using an example such as this reveals the real agenda – take people’s money and punish them until they do what “we” think is right.
Thanks to commenters above who mentioned the organic growth of cities vs the urban planners’ wet dreams. Once again, reality trumps the models. A good example is the omnipresent mantra of closing of roads in city centres and turning them into pedestrian malls. The “artist’s impressions” always show a sort of Parisian scene with affluent young shoppers and cyclists, shaded by cute trees. The reality is boarded up shops, empty, windswept plazas, and a mugger’s paradise.
Steve Reynolds says:
July 10, 2013 at 8:17 pm
Thanks, Steve. Sorry I missed it, but I see I didn’t miss much. You’ve returned to say that if people are working they get benefitted, which may or may not be true, and the guy sleeping in his car “would probably be better off” … sorry, non-responsive. The guy in his car doesn’t get a dime from your whiz-bang payroll tax break, no matter how much you wave your hands and claim he’s doing wonderfully.
Sure, glad to. You said:
In other words, you are arguing that if the tax is “revenue neutral” it’s OK … which is the same as arguing that “when the government takes money from one man and gives it to another, it’s OK as long as the government doesn’t keep any of the money”, as I said.
“Less bad”? I don’t listen to any justification that begins “It is less bad”. All that means is that you’ve found something worse than whatever you are justifying … and that’s supposed to impress me? Fail.
w.
“wodehouselee says:
July 10, 2013 at 6:50 pm”
Urban planning has involved very little planning since the late 19th century IMO. I would love to afford a house here in Sydney, and the Sydney region is massive by far one of the largest urbanised areas in the world, but with a median price of ~AU$700,000 it simply is out of my price range. So, like many, I rent an apartment in a 2, 3 storey block, with 18 apartments, on blocks of land that once had 3 detached houses. The noise level is astounding to the point I have to wear ear plugs to sleep, even though we actually have by-laws that protect people from noise (Apparently they don’t work because people seem to ignore them)! I am not in a position to move to an alternative home.
Across the play area near my block, is a new development just completed. Its 2 block and 2 storey complex with no less than 56 dwellings where only 2 houses once stood!
It is interesting that in the UK, where high density buildings were the “solution” to increasing populations in the 1950’s and 1960’s I see now these hi-rises are being pulled down. In Australia, we’re bulldozing beautiful houses in favour of 2 to 3 storey blocks. A backwards step.
Yes, it is disgraceful, and Australians need to wake up to the reasons why, and insist on change. There is a finance and economics blog in Australia called “Macrobusiness”, and a member of the writing team, named Leith Van Onselen, using the I.D. “The Unconventional Economist”, is an outstanding writer on urban planning and housing affordability issues. One of the world’s best.
Australia has several of the world’s best advocates of reform; it is odd that there has been so little traction gained by them. Alan Moran, Bob Day, Ross Elliott, Patrick Troy, Joe Flood, Ray Brindle, Tony Recsei, John Muscat, Michael Warby.
But this recent revelation helps to explain why there is no political will to tackle housing affordability:
http://www.news.com.au/realestate/news/rudd8217s-luxury-property-portfolio-miles-from-struggle-street/story-fncq3gat-1226673021164#ixzz2Y4US1YSx
Rudd’s luxury property portfolio miles from Struggle Street
“…..Mr Rudd owns luxury homes in Canberra, Brisbane and on the Sunshine Coast. In total, they’re estimated to be worth more than $10 million. It includes a $1.4 million block in Brisbane’s well-heeled Norman Park that he bought two years ago with a plan to build a million-dollar-plus home for visitors……”
TimTheToolMan says:
July 10, 2013 at 7:46 pm
I have no doubt you’re right about continuing unemployment, Darrin, but that’s not what I’m driving at. There must be an underlying cause….
>>>>>>>>>>>>>>>>>>>>>>>>
Yes there is an underlying cause the US government screwed the American people so their buddies could get richer.
You can start with Reagan and the leverage buyout/corporate raider thefts where banks printed fairy dust money (created out of nothing) they then lent to corporate raiders who used it to buy controlling shares in US companies. Companies like Gillette who HAD NO DEBT! The companies were then suddenly saddled with a lot of debt transferred to them from these raiders and often were dismantled and shipped overseas. The bankers and raiders made big bucks from the transactions and Americans had there livelihoods stolen.
For a more in-depth analysis see:
http://www.econlib.org/library/Enc1/TakeoversandLeveragedBuyouts.html
The second betrayal of the American people was the signing of NAFTA and then the World Trade Organization treaty (1995) banning inport tariffs, followed by Clinton’s efforts and success in getting China admitted into the WTO in September of 2001
That is very evident in this chart of US trade balance Take a good look at the years 1995 and 2001 and what happened afterwards.
Statistics (courtesy of Bridgewater) showed in 1990, before WTO was ratified, Foreign ownership of U.S. assets amounted to 33% of U.S. GDP. By 2002 this had increased to over 70% of U.S. GDP.This is the most recent ramification of Clintons policies.
This guy is not talking through his hat either. The USA has only 10% of her labor engaged in producing wealth (tradeable goods) (Manufacturing – 7%, Mining – >1%, Farming -2% ) China and Russia want to see the downfall of the USA and Clinton gave them the means. SEE:
Clinton’s China Policy
Clinton Approves Technology Transfer to China
How China Conquered America
US-China Business Council USCBC 2012 China Business Environment Survey, Focus: Technology Transfer
And now China and Russia are making the move to give the USA the final death blow.
With that as a background our Ruling Class wants to impose MORE tax and MORE regulations to strangle our
economyability to generate tradeable goods even further? Who in Hades are they loyal to the BRICS countries???Gail Combs: “Willis is right [that gas prices affect the poor the most].”
My point was not that they don’t. My point simply was that “it hurts those most who can afford it the least” is rarely a good reason for not raising a price, since in most cases it is little more than a tautology; almost any time you raise a price it affects the poor more than the wealthy. But distorting the price mechanism to avoid price increases creates more poor by causing resources to be misallocated.
Again, the “carbon” tax is a horrible idea. But if it actually did improve the price mechanism’s performance at reflecting actual costs, the fact that the poor would have to pay more for their goods would not a good reason for not implementing it.
wodehouselee:
You appear to be better-read on the subject than I, but, just in case you missed it, I’ll commend to your attention Robert Bruegmann’s “Sprawl: a Compact History.”
Willis,
I was thinking about the same types of things Todd Litman said in his reply – demographics, fuel economy, and recent changes in price sensitivity. What struck me is that using GDP per capita should capture many of these effects. For instance, if a large portion of the population suddenly retired and there wasn’t a change in productivity then per capita GDP would decrease significantly. Additionally the demographics would change, and the price sensitivity of retirees will be different than workers. So in this case price sensitivity, demographics, and per Capita GDP are not independent variables.
As far as fuel efficiency goes, what is an increase in GDP per capita other than an increase in output per input? That is each barrel of oil used produces more goods and services. In other words, as the efficiency of the economy increases (output per worker goes up) we should expect a similar increase in the efficiency of vehicles (output per gallon). Again, GDP (although in this case GDP per worker, not GDP per capita) is not independent of fuel efficiency.
Obviously this is hand waving, but I think this might answer objections like Todd has.
Chad B; it is surprising that there is such a good fit between the basic variables that Eschenbach uses, and that the other demographics that people like Litman regard as important, barely count.
But I think Litman and others like him are constantly grasping at straws in the hope that the automobile era is coming to an end and humanity will flock back to mass transit. (The Russians flocked away from it as soon as they had the freedom – I wonder why?)
Actually, VMT per capita have to reach a kind of saturation eventually, because most of the increase for the last few decades is due to more and more people driving. Once all the women, the poor, the elderly, and the young, are driving, there is a limit to how much further and longer people want to drive every day. In fact people do tend to order their lives to some extent, around locating efficiently relative to jobs and schools and other amenities. The underlying trend in the VMT per capita curve has to be S-shaped.
There is a “Zahavi travel time budget”, which describes how humanity have generally spent about the same time per day travelling, on average, for centuries. Gains in speed result in them going further, not spending less time.
Thank you Mr. Eschenbach for your posting. However, it does not respond to my criticisms.
The problem with your analysis is not simply the statistical method you used to measure the price elasticity of vehicle travel, it is the way you extrapolate past trends to predict the effects a cabon tax would have on fuel consumption without taking into account underlying demographic and economic factors that affect demand. Vehicle travel grew steadily in the U.S. during the last quarter of the twentieth century, it experienced a nearly constant year-to-year growth which dominates your statistical analysis. This was the period of steady increases in incomes, vehicle ownership, growth in female workforce particiaption which both increased household income and travel demand, and develpment of the Interstate highway system and more dispersed land use development – all factors that increased travel demand. Nearly all of these factors have peaked; per capita vehicle ownership is saturated, and the Baby Boom generation has passed its peak driving age. It is inappropriate to use elasticities derived during that period to predict future price impacts; it is comparable to a parent who, by extapolating their children’s 1-16 years growth rate, predicts that by the age of 30 they will be 28.4 feet tall and wear size 40 shoes.
If you read my article you’ll see that many previous studies found a relatively low price elasticities in the U.S. in recent decades, similar to your results. See for example, Small and Van Dender (2005), Hughes, Knittel and Sperling (2006), and CBO 2008. However, more recent studies, some using more disaggregated analysis, show much higher elasticities. See Boilard (2010), Brand (2009), Gillingham (2010), and Li, Linn and Muehlegger (2011). For several years, Komanoff has maintained a spreadsheet (http://www.komanoff.net/oil_9_11/Gasoline_Price_Elasticity.xls), similar to yours which also shows rising price elasticities, particularly incorporating a two-year lag.
The decline in travel demand and rising price elasticity of vehicle travel shows up in various ways. For example, many recent toll roads are failing to achieve their traffic volume and revenue projections, which were calculated by extrapolating past trends. See NCHRP (2006) and Williams-Derry (2011).
You use the SHORT RUN price elasticity of VEHICLE TRAVEL to predict the LONG RUN changes in TOTAL FUEL CONSUMPTION. As I pointed out, this is incorrect and greatly understates the effectiveness of a carbon tax. Also, you fail to acknowledge that a fuel tax is an economic transfer rather than a cost, so the social equity and economic effects depend on how revenues are used. By addressing these issues you could shift the emphasis of your message from simply opposing carbon taxes to discussing how they could be optimized – for example, what complementary policies should be implemented to increase their effectiveness, and which other taxes should be reduced or what additional investments should be made to maximize benefits to low-income households and best support economic development.
I welcome feedback on my research, but please first read my article before criticizing it, and address the issues it raises.
Best wishes,
-Todd Litman
wodehouselee says:
July 10, 2013 at 10:55 pm
One of the common factors when there is a high incidence of ultra long distance commutes like what you are talking about (David Moon), is that property prices….
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Thank you very much for the additional insight. You are correct.
I bought my first home (in the Boston Area) not because I wanted the long commute but because it was the only place I could afford/mortgage company would lend money for.
When I moved to NC I carefully looked at all the areas and picked one where the home prices were much less than closer to the city. With the new four lane connecting to Raleigh making the commuting time less than 1/2 what it was, the home prices have dramatically risen even with the present housing market slump.
Even when choosing an apartment (I have lived in over 40) I always always looked at prices vs commute vs distance to other amenities.
Thanks, Gail; it’s common sense and every ordinary citizen understands it. But try and get any advocate of growth containment urban planning to understand firstly that their policies force up the price of housing, and secondly, that ordinary people are forced into very inefficient location decisions. There is more – their policies increase traffic congestion delay too. It is impossible for the small amount of extra public transport usage that results from the planning, to capture more “benefit” than the losses in efficiency that the planning distortions cause the local economy.
Because the UK economy has been constraining urban growth the longest, there is now plenty of academic research that indicates that the results have been very perverse. It is sickening that cities in the USA, Canada, Australia, etc would be adopting such policies in the face of the evidence from the UK. This includes significant loss of international economic competitiveness and loss of industry. If the UK was not so lucky as to have the City of London with all its global connections in finance and media and so on, which is less affected by grossly inflated land prices, its economy would have collapsed completely before now. But the disparities and tensions in society are becoming unbearable, and housing conditions and choices for the lowest quartile are a major part of the problem.
Joe Born says: @ur momisugly July 11, 2013 at 5:39 am
My point was not that they don’t. My point simply was that “it hurts those most who can afford it the least” is rarely a good reason for not raising a price, since in most cases it is little more than a tautology…..
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You are not talking about a business who raises prices so it can make a profit and stay in business. You are talking about a government INTENTIONALLY HURTING THE POOR THEY CLAIM TO BE HELPING.
That is what Willis and the rest of us are trying to say. If you want to help the poor, if you want to help the economy, if you want to make your country strong you do not strangle business in red tape and the people with taxes. And you certainly do not make ENERGY, the most CRITICAL part of the economy more expensive.
The only one helped by a CO2 tax is CHINA AND RUSSIA not the USA and certainly not the climate or environment.
Todd,
What Willis was saying is that the best way to maximize benefits to low income houses is to lower the costs they must pay to participate in the economy. Raising everyone’s taxes by $200 per year and then transferring $200 to low income houses improves the low income houses none whatsoever. Additionally the society is worse off by removing potentially useful labor from the labor pool and directing capital toward wealth transfer enforcement. You could have the wealthy business owner, a poor janitor, and an assembly line worker making goods, but now you only have a slightly less wealthy business owner, a poor janitor, and someone whose sole job it is to take money from both the business owner and the janitor and then give back to the janitor the same amount of money that was taken from him (and of course be paid for his trouble).
Additionally, if the economic harm induced on “low-income” households by the gasoline tax is offset by direct payments then the miles driven by “low-income” individuals can generally be expected not to change at all (since there is now no additional cost for the extra mileage).
So, the best designed tax system for gasoline is not to introduce one at all (except insomuch as it goes to pay for the roads on which people drive and on which goods are delivered).
Also, he was not critiquing your article. He was merely showing that insomuch as the US is concerned per capita GDP and fuel cost are sufficient to predict miles driven. This does not purport to figure vehicle purchase preferences, and he doesn’t address anywhere fuel consumption, and he doesn’t address other nations. You accuse Willis of predicting long term changes in fuel consumption – he does no such thing. Those would be logical next steps, but the presented analysis doesn’t address that.
The impact carbon taxes have on transportation reminds me of what happens when a tax (or even a royalty) is added to a mineral reserve evaluation–the reserve gets smaller. There’s no way to avoid it.
Add a federal tax to mining, you have less to mine–the marginal material gets wasted (left in the ground), most likely never to be recovered.
SImilarly, add a carbon tax to fuel, lop off the poor, leave them behind. And they’re the ones we should help the most, not the least.
But then, a carbon tax as a solution to “Climate Change” masquerades as beneficial; the real purpose is far more sinister.
Shame on a nation that would do it to their poor.
Now, does a 100mi reduction in driving result in $430 GDP/c?
DirkH says:
July 10, 2013 at 3:09 pm
Please read Julian Simon’s The Ultimate Resource and find out what exactly the ultimate resource is.
Dirk, I appreciate Julian Simon, and thank you for the link! This does however in my mind not change what I said.
John said- “Socially bad activities should be punished…”
And Progressives wonder why so many despise them.
Bang on, as usual. (I suppose it’s possible you’ve written a clinker along the way, but I’ve managed to miss it.)
I’d like to disagree with one line: “nothing to show for it at the end of the day ”
Now it’s true that there’s no progress on solving the problem that was purportedly the point of the exercise. There is, however, something to show: ” a large expensive workforce of bureaucrats…”
And, of course, their votes for whomever looks to keep ’em well fed. It almost looks like that might have been the goal the whole time.
As always, thanks for the insightful and entertaining writing.
A W
Todd Litman says:
July 11, 2013 at 7:25 am
You use the SHORT RUN price elasticity of VEHICLE TRAVEL to predict the LONG RUN changes in TOTAL FUEL CONSUMPTION. As I pointed out, this is incorrect and greatly understates the effectiveness of a carbon tax. Also, you fail to acknowledge that a fuel tax is an economic transfer rather than a cost, so the social equity and economic effects depend on how revenues are used.
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NO, DAMMIT!! The assumption in the bolded section is that there is NO DEADWEIGHT LOSS!! And you neglect to cite any evidence that the money would be well spent but simply speculate that it might be. Australia implemented your Pigovian system. Why don’t you tell us how beneficial that’s been?
I would note also that you have failed to address the criticisms of your Norwegian example, i.e. demonstrate the net economic benefit of increased fuel taxes.