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Meh. I remember as a kid when gas went up relentlessly from less than 1FF/litre (pretty much 1$/gal) to 5FF/litre in the late 70s early 80s. When it breached 3FF/l, people said that at 5FF/l, there would be a revolution.

Well, 5FF/l came, and nthere was no revolution. You had lots of ads for cars able to get to 5l/100km, an important fuel efficiency standard then (equaivent to just under 50MPG), and then that slowly disappeared as prices stabilised and people got used to them (the government smartly increasing taxes when oil itself went down, so that at least the nominal price of gas never went down, even if the real one did)

People will pay 8$/gal, and after a few months they won't even mind anymore. People need their cars.

Which brings me, as usual, to how high the oil price can go - and the answer is - high enough to cause so much pain that people will actually spend 2 hours waiting for a crappy bus rather than pay for gas - and that's a LOT higher than today's prices.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Nov 7th, 2007 at 04:39:49 AM EST
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Indeed. For a measure of what would be beyond a West European car driver pain limit, the Fundis among the German Greens once wanted 5DM/l gas. That would be €2.56 and around $14/US gallon today, for which, assuming constant refinery margin and tax content (which I know aint' true), you'd need c. $450/barrel oil at 1€=1.45$ -- and $550/barrel oil in the US.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Nov 7th, 2007 at 05:03:49 AM EST
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Of course, the early 80's were a time of strong inflation too in France, so that the 400% increase wasn't that big in real terms... (And wages were still indexed to inflation at the time, weren't they ?)

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Wed Nov 7th, 2007 at 05:58:09 AM EST
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Was more refering to his 3:1 USD:EUR exchange rate than to the price of oil. Of course, if there's that kind of exchange rate, a lot more than gasloine will cost more money; for one thing, the PRC will have had to force a devaluation of the USD viz. CNY (and probably JPY as well, which is just as undervalued and for a much longer time horizon against USD) in order for USD:EUR to approach that level of exchange.

And I was laughing with Chris, not at his assertion, in case I expressed myself unclearly on that score as well (which my wife will tell I do all the time).

All this being said, and agreeing on the fundamental demand inelasticity , or at the very least, extreme stickiness, that you describe, one could take the role of devil's advocate as regards the impact, on US public opinion, of severe shocks of energy inflation. First, unlike France, where 60% of household energy use is electricity, overwhelmingly produced by nuclear energy, in the US, household energy use is heavily weighted to gas and oil (roughly half of household energy use in the US being for home heating, virtually all of which is gas and oil, in addition to which roughly a quarter of electricity generation is from gas and oil). So, when oil prices go up, it's not just the price at the pump which goes up. People get cold and the poor go hungry in order to pay their heating bill as well.

Further, and this is far from a myth, the automobile plays a different role in the citizen psyche in the US than in the EU. This is of course a generalization, but it's not for nothing that as soon as people get scared of being attacked by a terr'ist, they started driving around tanks which get 16l/100. Tax incentives also play a part, but it isn't just tax policy, the automobile is much more an extension of one's personal space in the US than in the EU, where it is more seen primarily for its utility. I know this sounds crazy, but it is what it is, and people don't like it when their private space is being screwed around with, or they can't afford their private space anymore.

Finally, there's virtually no public transport to speak of in the majority of the US outside the eastern seaboard, so that's simply not an option. Further accentuates the inelasticity by removing a potential substitute good, further increasing the likelihood of pain on the individual consumer.

So while I agree with you on the inelasticity/stickiness aspect of what you are saying, it's far from obvious that on this subject Americans will be as stoic as Europeans were when the '70's oil shocks hit and EU governments began to responsibly price externalities into the consumer price for petrol. In fact, there's a real good negative correlation between gaz prices and approval of Dubya. Americans are just fine with torture, an illegal war killing thousands of innocents, a whole city lost to global warming, and the median income stagating while the rich get immensely richer. But fuck with their gasoline, and be prepared to pay the price.

Of course, that price would be simply an expression of disapproval, which is about as active as the average American gets these days in registering protest.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Wed Nov 7th, 2007 at 12:37:25 PM EST
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... high enough to cause so much pain that people will actually spend 2 hours waiting for a crappy bus rather than pay for gas...

Whatever price level oil might have to reach to produce that effect, maybe the bus won't be so crappy after all. The bus company should then (finally!) be able to make a profit by pricing their service below the cost of private driving, yet above their actual operating costs. That means acquiring energy-efficient buses, running reliably and on time, hiring good drivers, and so forth. It sounds pretty good to me!

Buses, specifically, should have a bright future in the U.S., where large numbers of people live in far-flung places with no rail service. There is really no other way to transport those people.

Some entrepreneur will probably come up with a fancier, more impressive vehicle which is no longer called a bus -- maybe an Air Pavilion or something -- but which amounts to the same thing without such a steep fall in status.

by Ralph on Wed Nov 7th, 2007 at 03:41:59 PM EST
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