Will Oil Crisis Force Lasting Behavior Shift?

When Gas Prices Fall, Some Will Stay Frugal, but Those Who Can Spend Will

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YORK, Pa. (AdAge.com) -- Ah, summer -- time for vacations and fun in the sun. But this year, it seems, many Americans are forgoing plane trips and long-distance car treks thanks to rising oil and gas prices.

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Of course, it wouldn't be the first time the high price of oil ruined a perfectly good summer. It happened in the mid-'70s, the early '80s, the late '80s and the late '90s. Still, no permanent damage was done. Prices eventually receded and consumers went back to their faraway vacations and jet-setting.

Yet something seems different this time. With gas hovering at records of almost $4 a gallon in some areas of the country and oil at an astonishing $120-plus a barrel, prices (adjusted for inflation) are higher than during any previous oil spike since cars hit the road, and there's little sign of real abatement. Moreover, it's not just gas-in-the tank prices that are rising. Grocery prices are up on transportation-cost increases, as are all petroleum-based products including building materials, plastics and pharmaceuticals.

Economists agree that the price of crude oil will go down again, but that leaves open the question of what consumers will do then. Is this price run-up finally the one that will see consumers change their consumption habits for the long term?

Several economists polled by Ad Age said while changes in consumption are likely, that's because gas prices will recede but overall costs will likely remain higher. So those who can't afford the increases will be forced to change their ways to compensate, but those who can afford the hikes likely will return to their gas-guzzling ways. That's not to say, however, that some may have learned eco-friendly habits for life.


ELBA BROWN-COLLIER, ECONOMIST AND OFFICER FOR THE ASSOCIATION OF SOCIAL ECONOMICS:

"It depends on the nature of the change. If it's a capital investment, like an energy-efficient dishwasher or a new hybrid car, then they're probably not going to rush out and change it back -- at least not right away. We saw this in the '70s, right? People all went out and bought foreign cars like Toyotas that got good gas mileage. But then gas got cheap again -- relatively cheaper anyway -- and then they went to SUVs and Hummers. ... With the short-term rationing behaviors, like not going on a vacation because gas is too expensive, the minute the price goes down, people will probably go back to the same behaviors and go on vacations again. ... The idea that the short-term pain will produce a long-term result is probably overly optimistic."


SCOTT HOYT, SENIOR DIRECTOR-CONSUMER ECONOMICS, ECONOMY.COM:

Scott Hoyt
"A lot of it will depend on when oil prices go down and how long they stay there. One of the reasons that consumers didn't respond as strongly to previous oil-price increases is that they weren't sustained all that long. This time it's more sustainable. ... Consumers aren't stupid; they do learn from the past. They probably want to see when prices drop and stabilize, and then they'll alter their behavior. ... If it goes down to $30 a barrel for a year or more, they'll probably pretty much go back to their old ways. If it goes down to $70 or $80 a barrel, clearly it's doubtful they'll go entirely back to their old ways. ... While we don't think $120 is sustainable, we also don't think $30 is either. ... We're looking for it to stabilize around $55. So clearly that's a different eventual adjustment. Consumers will have to adapt to that $55 differently than to the past $20."


JEREMY RIFKIN, ECONOMIST, AUTHOR, WHARTON SCHOOL FELLOW AND PRESIDENT OF THE FOUNDATION ON ECONOMIC TRENDS:

Jeremy Rifkin
"We're in a qualitatively new territory here. In the '70s and '80s, the price increases were business [decisions] politically inspired by big oil companies and OPEC. ... Now we're headed toward peak oil, when half of the world's oil is used up, and that's the end of the oil era. ... The world needs to get used to the idea that the era of cheap oil is over. ... In the U.S. there is a lot of disbelief. It's classic denial -- half the country is running around in SUVs. [But] consumers are beginning to see it, whether they realize it's caused by oil or not. The average family -- not just the poor but the working class and the middle class -- are feeling it. I'm certain at the family table, rising costs are a critical discussion point. ... There are pockets in certain cities, people practicing more-sustainable lifestyles, but the national attitude of lowering the carbon footprint is not yet at critical mass, but it is growing quickly. The younger generation understands it."


JAMES HAMILTON, PROFESSOR OF ECONOMICS, UNIVERSITY OF CALIFORNIA, SAN DIEGO, AND CO-AUTHOR OF THE ECON BROWSER BLOG:

James Hamilton
"One thing that you've got to look at is that it takes quite awhile to change over a fleet of cars and vehicles. We've been gradually moving away from SUVs, but people only buy cars every few years or longer. And even if the price of oil goes down, it's still relatively up from when they bought their old car, so I suspect that trend (away from SUVs) will continue. ... Spending on gas in 2002 was a much smaller fraction of income than it was in 1980. That allowed people to continue doing what they always did. [But now] I think it's become a sheer budgetary issue that's getting their attention rather than a psychological change. ... I don't think it's psychological or a fad. I think ... these changes are permanent [for some people]."
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