What’s So Special About Gasoline? By Jane Galt
Today I’m writing about oil and gasoline (er . . . petrol) prices. Just in time, Daniel Drezner asks a great question:
So, here’s my question to readers… why is a spike in gas prices considered such a political crisis?
[You’re the political scientist… why don’t you have an explanation?–ed.] I have one, but it’s a bit loopy: gasoline is a unique commodity in three ways. First, it’s tied into the politics of the Middle East, which allows media coverage to always give it that extra political twist… though during the Cold War, the only sources for platinum were the Soviet Union and South Africa, but no one fretted about the political implications.
Second, oil is one of the few commodities that’s subjected to a supplier cartel… though I don’t hear anyone besides myself complain about, say, the diamond cartel.
Third (and by far the loopiest), gasoline is the one commodity in which Americans of both genders possess close to full information. It’s therefore the one commodity that might mobilize the mass public into seeking a political solution.
I place very little confidence in my explanation, however: readers are welcomed to chime in.
1) Most Americans buy gas at least once a week
2) They buy a lot of it
3) They buy it by itself–if the price of milk or orange juice rises, it gets lost in the overall grocery bill, which is still falling in real terms.
4) The price is visible and because demand is almost completely inelastic, little effort is made at price discrimination–there are no coupons for cut price gas.
5) There is relatively little variation in gas prices compared to, say, generic food/drugs vs. name brands.
6) Gas is heavily implicated in other consumption. When the price of milk rises, you stop drinking milk and start drinking calcium-fortified OJ (or vice versa). When the price of gas rises, you stop going to the movies and start watching the science channel.
7) There are very few good substitutes for gasoline consumption.
8) It is relatively difficult to cut back on gasoline consumption, because commutes and things like grocery shopping make up so much of the total, and people only purchase new cars once every few years, if that.
In short, people have to buy it; they have to buy large amounts of it frequently; it’s very difficult and painful to economize on; and the cost is highly visible. That’s what makes it different from groceries or furniture. Or anyway, that’s my guess.
This content was used with the permission of Asymmetrical Information