Bacon's Rebellion

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Americans Drive Less for First Time in 25 Years

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by

James A. Bacon
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One of the ongoing debates on this blog is the extent to which American drivers are willing and able to modify their driving habits in response to higher gasoline prices. Well, here’s the latest data. Reuters reports:

HOUSTON (Reuters) — High gasoline prices not only slowed fuel demand growth and cut sales of gas-guzzling vehicles in 2005, they also prompted Americans to drive less for the first time in 25 years, a consulting group said in a report Thursday.

The drop in driving was small – the average American drove 13,657 miles (21,978.8 km) per year in 2005, down from 13,711 miles in 2004 – but it is more evidence that the market works and prices help control consumption, Boston-based Cambridge Energy Research Associates said.

“Price matters,” CERA Chairman Daniel Yergin said.

Notable was the fact that driving declined even though the general economy remained strong. The decline was not induced by recession and a contraction of economic activity.

Miles driven per motorist was down partly because there are more elderly people driving, and they tend to drive less, the report said. Between 1980 and 2004, drivers under age 21 dropped from 18.8 million to 15.8 million and those over 65 almost doubled, from 15.4 million to nearly 29 million, CERA said.

I find the impact of changing demographics to be particularly interesting. I’ve argued in the past that the the aging of the population (old people don’t commute to work) and the leveling off of women in the workforce will slow the rate of increase in Vehicle Miles Driven compared to historical rates over the past 20 to 30 years. That’s why I placed little faith in long-range forecasts that Virginia faces a $108 billion shortfall in transportation revenues over the next 20 years.

Demographics may explain a slowing in the rate of increase but it doesn’t explain the outright decline in Vehicle Miles Driven. The big story is that people do respond to price incentives. Higher gasoline prices do reduce driving. The lesson to learn: Time-of-day pricing for tolls will reduce congestion. Likewise, time-of-day pricing for parking, as I will argue next Monday, will reduce driving.

The moral: Any transportation policy that attempts to match every increase in Vehicle Miles Driven with an increase in road capacity is doomed to failure. As with every other sector of a functioning capitalist economy, we need to incorporate pricing into the transportation marketplace that sends appropriate signals to consumers (motorists) and vendors (those who supply transportation services).

(Hat tip to Ed Risse for pointing me to the article.)

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12 responses to “Americans Drive Less for First Time in 25 Years”

  1. James Atticus Bowden Avatar
    James Atticus Bowden

    Supply and demand. The laws of economics are really laws.

  2. Ray Hyde Avatar
    Ray Hyde

    Four tenths of one percent is something, at least.

    I’m not sure a number that small isn’t a statistical aberration, but I agree that demographics will play an increasing role. I also agree the call for billions in transportation funds is overstated. I also think the claims that cars are the cause of all our ills are overstated.

    Last year we wiped out an inordinate number of cars, due to flooding. Maybe that had something to do with it.

    Also, I’m not sure that we can correlate or dis-correlate such a small change with any changes in the economy. However, there are a lot less construction workers driving all ove the place these days.

  3. Larry Gross Avatar
    Larry Gross

    this correlates exactly with the news from VDOT these days (excerpts):

    “Va. road revenues less than expected” … came in well below official revenue estimates.”
    …
    “Virginia’s motor-fuels tax collections for July through October were down 4.7 percent compared with last year.”

    “Higher gas prices account for the downturn ….”

  4. Ray Hyde Avatar
    Ray Hyde

    I’ve already posted the results from Ohio, which has increased revenues, by increasing the gas tax periodically over the years.

    Also, if the gas tax was per dollar instead of per gallon, then revenues would have increased naturally.

  5. Ray Hyde Avatar
    Ray Hyde

    “In July 2006, crude oil for August delivery traded over $79/bbl,[11] an all-time record. The early and mid-summer 2006 runup is attributable to increasing gasoline consumption, up 1.9% year over year in the U.S.,….”

    Wikipedia

  6. Ray Hyde Avatar
    Ray Hyde

    “U.S. Petroleum Products Consumption in 2006 is not expected to vary much from levels seen in 2005. Strong transportation demand growth (gasoline, diesel fuel, and jet fuel) in the second half of 2006 is expected to compensate for less-than-typical demand growth for these fuels in the first half of 2006. “

    http://www.eia.doe.gov/emeu/steo/pub/gifs/Slide14.gif

    ENERGY INFORMATION AGENCY.

  7. Larry Gross Avatar
    Larry Gross

    re: “if the gas tax was per dollar instead of per gallon, then revenues would have increased naturally.”

    you know we already do this in Virginia in many localities that have VRE or a Transportation District. State law allows a 2% levy.

    but your other stuff .. is projections… predictions whereas what I posted was reality – on the ground – in Virginia. Lower gasoline sales and lower gas tax revenues.

    How do you reconcile the realities with the predictions? I, for one.. would tend to believe the realities.. the facts

    I know this is a crazy idea… but that’s just me… 🙂

  8. Larry Gross Avatar
    Larry Gross

    Here’s an interesting bill .. just put in the hopper for the 2007 GA session:

    HB 1648 Motor fuels sales tax. Mark L. Cole
    Summary as introduced:
    Motor fuels sales tax.� Makes the imposition of the 2% sales tax on motor vehicle fuels optional for the localities in certain Northern Virginia transportation districts. Under current law, the tax is imposed automatically in those districts.

    Full text:
    11/30/06 House: Prefiled and ordered printed; offered 01/10/07 072165272

    http://leg1.state.va.us/cgi-bin/legp504.exe?071+sum+HB1648

    anyone have any idea of what this is about?

  9. Ray Hyde Avatar
    Ray Hyde

    OK, so we had a downturn.

    Let’s put this on file and review it next year.

    What the localities can do is chump change compared to what needs to be done, and it has nothing to do with the sate gas tax.

  10. Larry Gross Avatar
    Larry Gross

    two issues –

    the first is whether the gas tax will bring in higher revenues if the tax is increased.

    the second is what the above legislation is about – which is curious – because a local percentage tax right now is Mandatory – and the legislation seeks to enable localities to remove it if they wish…. Cole, by the way is from the no tax side of the HD.

    I don’t have any definitive data for #1 in terms of showing clearly that there is a connection between how much revenue is brought is verses how how the gas tax is – but I bet it exists.

    I don’t remember you posting any either… correct?

    The evidence I’ve supplied to date consists of the fact that the US DOT and most states are essentially writing off the gas tax as a dependable source of INCREASED revenue (over existing levels) for the future.

    It may well continue to provide some level of revenue for a long time – but as cars become more and more efficient and gasoline ultimately trends UP in price despite intermediate dips… the longer term outlook is for NOT increased consumption of gasoline especially if places like China and India start bidding up the price of it.

    Raising the gas tax is not likely to produce a one for one increase in revenues and in fact there is a tipping point – that we have already seen – $3.00 a gallon – which resulted in LESS revenues for Virginia in the first quarter of 2006.

    Can anyone state with certainty that gasoline will never again reach $3.00 a gallon?

    WHEN gasoline goes to $3 a gallon again – it is VERY LIKELY that there will again be a NET decrease in revenues.

    so my basis thesis is that the Va GA believes that increasing the gas tax is not only not promising – but possibly an ill-fated gamble that may backfire – not only in terms of DECREASED revenues but in political backlash.

    No one knows for sure what the future holds but I think we’re fools if we think the gas tax will continue as a reliable source of revenues and that the challenge that we have … is to be proactive with respect to finding an alternative method BEFORE revenues actually fall BELOW our maintenance costs…

    and basically you’ve got 2 choices – increase OTHER taxes … on cars, insurance, bad drivers, income, local property, etc … OR TOLLs … or more likely some combination of the two…

  11. Ray Hyde Avatar
    Ray Hyde

    …basically you’ve got 2 choices – increase OTHER taxes … on cars, insurance, bad drivers, income, local property, etc … OR TOLLs … or more likely some combination of the two…”

    And that is what I have been saying all along. We are going to need more money, and it is going to have to come from taxes.

    But if those taxes are needed to support the increased transportation needs, those cars and other vehicles are going to run on some kind of fuel, and there is no reason that fuel should not be taxed as well. It will no more pay all the costs than tolls will, maybe. But we won’t know until we try. Raise the fuel tax until revenues really go down, and then you will have a tax that achieves the goal of having people drive less. So far, we are nowhere near that point. The equivalent price of gasoline in England is over $6.50, and people there are still driving, and they still have congestion, despite congestion fees.

    We may have reached the point of political backlash, but we are nowhee near the point of causing diminished revenue, as my post on Ohio’s tax history shows.

    Regardless of the price of fuel, the amount of conservation gained, or alternatives implemented, we are still going to either pay to build and maintain infrastructure or do without.

  12. Larry Gross Avatar
    Larry Gross

    “but we are nowhee near the point of causing diminished revenue, as my post on Ohio’s tax history shows.”

    Being a Virginian .. I’d hope that decision-makers in Va including the GA guys would be reading stuff like this:

    “The Fuel Tax and Alternatives for Transportation Funding
    Committee for the Long Term Viability of Fuel Taxes for Transportation Funding”
    Transportation Research Board of the National Academies

    ….
    TRB Special Report 285: The Fuel Tax and Alternatives for Transportation Funding examines the viability of existing revenue sources, the merits of present transportation finance arrangements, and potential directions for reform of transportation finance. According to the report, fuel taxes can remain the primary funding source for the nation’s highways for at least another decade, but eventually replacing them with a system for metering road use and charging accordingly could benefit travelers and the public.

    http://www.nap.edu/catalog/11568.html#toc

    it would seem.. .looking at the above.. and then taking into account Virginia’s current shortfall in fuel tax revenues that … planning ahead in the GA should recognize that in Virginia’s case (vice Ohios) that relying on the gas tax as a future sustainable sources of funding is not a viable path.

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