 Good morning. Thank you very much for coming. I'd like to welcome you to the New America Foundation this is the launch of a year-long project called the energy trap which has been looking at how middle-class families pay for gasoline and We're very grateful to for the support of the New America Foundation. This project was funded by the Rockefeller Foundation and We have kind of a very exciting Discussion today about the role of gas prices in energy policy and I'm going to kick off by sort of talking about some of the things that we found through the energy trap I want to remind you of what's happening today C-span is in the room and we're also videoing this for New America's website. So There's a couple of things to remember about that. First of all everything you say is on the record Everything you every sneeze is on the record too And when you have a question, please wait for the microphone. We'll hand you the microphone in that way You'll be clear on all of the audio The speakers that we have today are John Skip Latner from the American Council for an energy efficient economy he has done a an economic survey for the energy trap on the Consumers response to gasoline prices since 1970. It's a very interesting very detailed report He'll be going second and then our respondent today is Jared Bernstein who's with the Center for Budget and Policy Priorities He also was the chief economist for the middle-class task force done by the White House And we're just very delighted to have him here People who talk about energy and environmental issues They tend to sort of stay in that silo and we're very excited to sort of cross cross pollinate with people working on Income issues and we're looking forward to to working more with People on assets or credit issues in the future because energy is such a cross-cutting issue, so thank you very much for coming and I'm gonna Start the show now So, you know the energy trap grew out of a lot of anecdotes I ran across I've been studying gasoline for years and I ran across people Who kept talking about how much they were spending and particularly in rural areas and at first? The quantities of money that they were spending on their commute when you added the gasoline to the cost of their car Or listen to the story of how far they had to go for two jobs They were kind of jaw-dropping and in fact oftentimes I do the math a couple of times What we tried to do with the energy trap was to understand who those people are and where they fit in to the big sort of tapestry of American fuel use and and we tried to move from the anecdote towards towards real data to understand how deep this was how pervasive this is and and to understand what it means to be sort of trapped into paying Increasing amounts for gasoline and what that feels like particularly at the lower end of the middle class so We have the study by skip and we also had another study done Which looked at the? Behavior of two thousand households it was a very elaborate survey and we're actually not finished with tabulating all the data So what we have in here is some preliminary results which offer some food for thought so I'm just going to play you one of these anecdotes So that you understand kind of what we're talking about. This is a guy named Darren Flannoy. He is a He's a security guard in in California. He has a very long commute. I'm going to play it for you now My name is Darren Flannoy. I do security work Working seven days a week My commute time is a five hundred sixty miles. I spent about five hundred dollars a month on gas My car payment I spent five hundred fifteen dollars a month car insurance, I spent eighty dollars a month Car tolls I spent eighty dollars a month Total expenses One thousand two hundred seventy five dollars a month. Oh, we can squeeze out gas prices It's just no class is going through tough times right now. If gasoline goes up five dollars I have to pay it Okay, I wanted to show you that video so that you can sort of see this What the energy trap looks like in action? One of the things that's really interesting about Darren's case is that he didn't do anything Exceptional he had a very well-paying security job in 2004 He had a lot. He made a lot on overtime. His salary was over $50,000 a year for years for 20 years. He's been working. He really wanted to buy a house He bought a condo that was much further from his job And then he began to commute to there in 2006 in 2007 He traded in his car that had 200,000 miles on it because there was a rebate on An suv and the rebate was a $6,000 rebate now gas prices were going up at the time the rebates were designed to offset the increasing price of gasoline And and allow consumers to to sort of consider the rebate in the context of the car And assume that they weren't going to be hit that badly by gas prices So he bought it actually two days after he got it. He tried to take it back But they'd already sold his old car and so he was kind of locked into this But that is not particularly exceptional in 2008. He lost that security job because of the recession And he was rehired in two separate part-time jobs So that's why he now works seven days a week And that's actually a very common story in in terms of replacing full-time jobs with part-time jobs Sometimes one part-time job sometimes multiples We have people commuting Really extraordinary Amounts of time for very limited jobs Another person who we interviewed in here in montana was commuting 60 So she's commuting six hours a week for 12 hours worth of job That gives you a sense of the in in montana That gives you a sense of the sacrifices that people are willing to put up with to keep these jobs Sorry What I want to show you is what this the change in gas prices looks like across the country. So this is on a This map shows on a household by household basis what The range that people were paying for gas in 2010 when gas prices went up in 2011 This is where the household the average household cost of gas went to we have a lot of of states over 400 dollars For household monthly cost of gasoline in texas that meant an increase of 90 dollars a month In new mexico that meant an increase of 100 dollars a month This is coming straight out of family budgets to go towards gas There's really no way to to plan for this and on a macro level This is 100 billion dollars more than last year. So it's equivalent almost exactly to the middle class tax break It is really regressive and moving across the country Vermont surprisingly enough was an extra 148 dollars between 2010 and 2011 You can play with this website later. It's there's much to play with on here The the the conventional thinking about high gas prices is that when gas prices rise consumers respond by using less So skip is going to talk later about this analysis that he did Showing that in fact since 1970 consumer response to high gas prices has been incredibly flat really strikingly flat and in fact the Amount of gas that we use seems to rise with income So we have this tension between on the one hand the rising use of gas with income and this kind of static response of consumers to price This is really striking because so much of our energy policy on the left the right the center is all based on price We believe in putting a carbon tax into change behavior We believe that rising prices will change the way that people spend on cars. There's a lot of belief in price And what it looks like when you look at consumers inability to respond is that our energy policy is in some ways some kind of bankruptcy policy On the household level and it's something that we really need to deal with the other thing to remember is that The the rise in in in energy use with income is a very complex relationship And skip will get into this a little bit more this woman laura who's pictured here In an anecdote Commutes 120 miles a day because she wants to maintain her salary. She moved to a rural part of georgia She was used to a salary of around 60 thousand dollars. She could have gotten A job closer that paid less But she wanted to maintain that salary And so she's driving 120 miles a day her total commute costs are about 17 thousand dollars So it absorbs the increase in potential income, but that wasn't actually something she thought much about until we talked And I think that the we really need to to think about other interventions and price and changing behavior The average annual cost of transportation is quite a large and complex number, but The the government estimate is that the cost of a car and fuel together is 7900 for families of four Making about 50 thousand dollars by our estimates It looks like they're probably spending about more like 10 000 and some of them are probably spending closer to 12 or 13 000 It's a significant chunk of money The good news the bad news about that is like this is a massive amount of money That's basically your ticket to participate in the economy a lot of people don't have a choice of riding mass transit or switching out The good news is is that that cost has a lot of components So you can change the car you can change the financing on the car and you can increase the mileage of the car You can there are a lot of different ways to To change this number and reduce it's the total overall hit that transit takes on a household And obviously one of the things that would be great and most Families will say they need two cars to have a ticket to work in the economy is if you could get rid of one of those cars You'd free up perhaps five or six thousand dollars that the family could spend on something else And that really resonates with people when we talk to them The other thing that's happened over the past couple of years is that the Amount of family income that goes towards gas has really risen. This is a The graphics in this Excuse me The graphics in this presentation were all done in-house by new america's crew Troy is sitting in the back and andy sitting in the back This is this incredible View of the the little circles Stand for states and they when they're blue They indicate the percentage a low percentage of family income Or median household income from that state that's going into gas What's striking is how much this has changed the set point in people's minds is The gas is taking up a small amount of family income and what happens is After 2003 2004 this starts to rise really extraordinarily States like mississippi and montana With very very high transit burdens where people have to drive many more miles a year Are striking you see it goes up to red. That's about 19 percent of median income is going towards Gasoline in that state. That's just an incredibly high burden And you have to wonder what it's doing to those economies In those areas and I think one of the things to think about for the energy trap is really focusing geographically on places that are in particularly squeezed by this I really want to bring to your attention this tiny tiny blue ball That's washington dc That is in washington dc the amount of transit and also probably the fact that a lot of people buy gas Outside the city means that in these numbers The washington dc Is at about two percent of household median income That's really kind of extraordinary The other thing about the energy trap is that it particularly affects a certain segment of the middle class And this is information from our survey. It's basically raw data It's income segregated from 15 to 20,000 up to 75 to 80,000 The segmentations are a little eccentric. It's part of how the surveying firm actually broke them up But what I want you to look at is the percentage of household income that's being spent on gas according to people's self reporting But these people in the red area In particular are spending a very high percentage. They have a certain other barriers that make Their spending More complex and and that make them more locked into a spending pattern and unable to change it One is the miles per gallon of their cars. This is an average and this is actually not self reported data We actually got there all their cars in the years and we filled in the data from the epa on what their actual mileage was You can see that this crowd has a significantly higher burden the difference between Here and here which is admittedly somewhat magnified by the way we're displaying it, but it's actually More than it's more than 350 dollars a year this year So it's a significant spread in what that means for family gasoline spending The people at the low end of the middle class also drive further to their jobs. This is jobs work Um and significantly they also have very high repair bills So they have much older cars which puts them really at a lot of economic risk The other thing here is insurance, which is all over the map The thing about insurance someone who I'd interviewed wrote to me yesterday and I had never actually I've always been a fan of increasing the price of insurance for how much you drive and she was saying look they're squeezing us again because obviously if you have to drive further you're going to be squeezed by By the pricing of insurance And I think that that kind of reveals how a lot of policies that we Designed to try to ration a lot and make people behave more rationally around income. I mean around gas prices may in fact Be punishing some parts of the of the community The other thing to to recognize is that we have a lot of policies around fuel efficiency and we have incentives and We have also mass transit policies Some of these policies tend to benefit the people at the upper end of the scale for example Tax credits for hybrids and more efficient vehicles cash for clunkers in some ways really Reach the people who had credit And were able to purchase a new car mass transit a recent brookings study found that more mass transit ended at high skilled jobs than ended at low skilled jobs These are this is we really need to sort of focus clearly on the middle class and in particular the lower middle class And think about ways to give them choices in their spending One of the big questions is Why doesn't everybody drive a more fuel efficient car because 10 or 15 years ago the cheapest cars in the You know the cheapest cars in the market were the most efficient I at one point had a thousand dollar Toyota Corolla that got you know 35 miles to the gallon Well, the the issue is is that Used car markets now fluctuate with gas prices and you have this wonderful and bizarre situation in which the Compact cars during high times of high prices the prices of compact cars are now Eclipsing this is used cars are now eclipsing the cost of the mid-size and you also have SUVs falling in price when prices are high what this means is is that if you're strapped for cash And you're buying a car From a used car dealer. You may find that a very old This is actually for relatively good condition cars the early stages of the used car market You may find that the cheapest car for you is the least efficient And so the the market incentives are not aligned the other thing that really blocks people In this market is access to credit that keeps people from in the lower Tears of the middle class from choosing Exactly which car they want and which car would be most appropriate This woman Tammy Terhan is from New Hampshire Her story is really interesting. She had to buy a she had gone through a divorce that had basically ruined her credit She lived 55 miles from a pretty good job And she couldn't move her kids out of school. She couldn't move because she couldn't Rent a new place because of this credit situation So she bought this SUV which seemed appropriate for the New Hampshire winters. It was $9,000 by the time she was done paying for it Seven years later. She'd paid $25,000 for a $9,000 car So this is a very The interest rates at the lower end of the credit market are just punishing And she by the time she was done paying for this used car that she'd been paying for for seven years It needed tremendous numbers of repairs. It also was using $500 worth of gas a week And when it finally broke down well before it broke down She was transferring all sorts of funds within the family budget to keep getting to work The kids dropped out of sports, which has long-term implications In terms of health. She stopped buying Her asthma medication which landed her in the emergency room twice. She changed the way she was buying food They would oftentimes just eat peanut butter or mac and cheese Boxes to sort of get through the week so that she got her paycheck and then they had more money All of this sounds very extreme. She also had three other jobs. This sounds very extreme And it it's actually not that extreme and the wonderful thing about tammi's story is she had this horrible final breakdown with the car and She was steered towards a new hampshire program called more than wheels Which got her into a toyota yaris with very good fuel mileage and And a good five percent loan on that car And you know her her whole family has sort of returned to stability And the kids do not worry that she's not going to be able to come and pick them up because the car is too broken to go Um, I think one of the things about when we talk about gas prices when we just talk about gas prices We tend to lose leave out a lot of the existential effects that this has on families this is very very demoralizing and You know the sort of revolution in tammi's life and in her control of her finances when she just A yaris for heaven's sakes a yaris with a decent rate of interest It really shows how you could target programs at people who are really in distress I think one of the things we tend to believe And take as a given that americans are very very attached to their cars and they don't want anyone messing up that relationship We asked people in our survey how they felt about their cars What was striking is when they talked about what they disliked about their cars It really wasn't about the cars. It was about all the costs that they were tied to and In this this graph they Also, they took every opportunity To vent about how frustrated they were with the state of the economy the state of jobs They're the their dependence upon gasoline their inability to choose this combination of sort of helplessness and anger and frustration Was something that they really wanted to get out Which is you know when you're looking through 2000 written responses and sort of scanning them It's striking to see necessary evil so many more times than freedom When people are talking about cars and I think what this indicates And and our interviews also indicate is that people are ready for a bit of a change And they want to be able to spend the income their income the way they want to spend it And they're starting to see cars as something that a sort of a sponge that absorbs an enormous amount of their income That doesn't mean they're going to give up their cars So we should stop thinking that way What it does mean is that people might be willing to make some lifestyle choices If they were really convenient for them and there's a really interesting project in california. There's an office park Uh in san ramon that is uh quite far from public transit So they started a very aggressive transit program. So this is would be an employer centered transit program They have a woman who's kind of evangelical her name is marcie And she's very concerned with getting people to leave their cars at home and take transit So they've arranged of course all the transit schedules and the bus stops so that they land at the job They give people rides in taxis home if they need it after they if a carpool situation doesn't work out They've gotten 30 of their workers to leave their cars at home, which is 10 000 people It's a tremendous number of cars off the road And the reason that people do it is that they enjoy the lifestyle change After the first couple weeks of stressfully taking transit It starts to become something that they do some time that they have to reflect They combine it with exercise so that they spend less time on the treadmill It's a very different way of thinking about transit than thinking we need more lines This is more of figuring out how it really fits into people's sense of who they are The last thing I want to show you is people's feelings about what makes for a reasonable gas price I love this chart. It's actually very wacky We asked people what was a reasonable gas price and what was an unreasonable gas price now Obviously an economist is going to choose the one They're going to try to choose something that hurts enough to get people to stop using it But a politician is absolutely going to freak out with how many people don't like this price So you know as we try to use the political system to set prices to influence people's behavior We're really caught in this tension between what what might work And what works politically and I think one of the things that we really need to do is try to change the conversation away from Specifically price and specifically freaking out about high prices I think we're going to see a lot of high prices in the future We need to sort of switch away from that to talking about that total cost of transit And how we can bring that down a lot of the promises that people are making about high price political leaders are falling on deaf ears We found that uh over 95 percent of people said that their elected representatives were doing nothing to deal with their costs of transportation So very very high numbers You know pretty close to unanimous Um The things that we need to think about going forward I think are How do we figure out ways for people to not be helpless? How do we find ways for people to respond to high gas prices to feel like they're actors in this economy? And I think there's a couple things to think about is one is focusing on geographic areas and areas within metropolitan Areas that have very high transit costs and figure out things that work for that community I think the other thing is is really to focus programs at the middle class And see what they need and see what can be done to change behavior and and reduce the burden on them And finally, I think we're really just beginning this study and that's part of what this event is about is kicking this off But what we want to do Is is really start thinking about this because we're really looking At very high prices in the future or a lot of volatility in the prices And we need to be prepared because this is really hurting people's Families, it's hurting their ability to respond. Um, it's hurting our economy as a whole With that I'd like to introduce skip latiner Who is um going to present his Work that he's done on how consumers respond to prices Thanks Lisa. Good morning everyone. I have the unfortunate Pleasure of moving from compelling stories about humanity to the data Data sometimes can be a four letter word and I'm hoping that maybe if nothing else we can make this converge with Insights that really do support a better way of looking at the problems we face and the opportunities that may be yet ahead So I'm going to talk about what we refer to as the price induced energy policy trap Or more critically new observations based on some data that's emerging or some analysis that we've been pulling together These are views of my own. They don't represent either The new america foundation or ec triple e but rather a study that I've pulled together for this and hopefully the insights Will become a little bit more compelling over time I thought maybe what the heck uh I'd draw my favorite american philosopher gary larson from the far side cartoon. He's no longer publishing But there we have a picture of a father lecturing his son who's apparently broken the window with his baseball And the caption reads eventually billy came to dread his father's lectures over all other forms of punishment So as an economist, I hope this isn't a form of punishment for you in the audience there And we can avoid that particular problem yet today But let me get the context uh established to see the numbers in a better way The u.s economy is clearly lagging with an anemic growth over the next two years about 1.7 percent a year We're used to about a three percent growth. Uh, that's what we feel is a good robust level of annual activity in the economy But the world is moving ahead at over three percent of years So even while we're lagging the world is moving a little bit bigger than we are and as a result We're going to see worldwide demand for oil up And that's going to drive up as lisa has already suggested prices of gasoline prices of oil decidedly up Despite our decline in the use of gasoline just uh under two percent a year We're going to find overall expenditures for gasoline increasing 25 as lisa's already alluded to from 390 billion dollars in 2010 To about 490 billion i'm using constant dollars here Now with consumers incomes already shrinking in the after effects of the recession Gasoline and their related expenditures not just gasoline everything associated with transportation will become a huge drag on the economy And slumping gains in energy efficiency Will weaken a previously robust economy we're suggesting and that in turn also weakens consumer income So on the one hand we have expenses that are rising pulling down the well-being of families But we have an economy because of huge costs associated with use of gasoline inefficiencies at all levels Pulling down the income at the same time rising expenses diminishing incomes Key drivers in quick summary that impact the us economy Rising high and rising and highly volatile gasoline prices to be sure that's a an emerging future for us No question But also a form of lock in a lock in of infrastructure lock in of technology a lock in of consumer behavior That actually may freeze us into a more costly and less productive pattern of economic activity and overall well-being And related to the second item above a lagging improvement energy efficiency that imposes a huge array of costs That further constrained that more robust economy and therefore constrained consumer incomes So again rising expenses diminished incomes With this context we might imagine how policy makers may help us navigate this future For decades as alise has already suggested we've had what we call a policy by price signal That's been the focus of most attention That is to say policy makers have tried to keep prices low by subsidies And then let the market that is to say those prices suggest how consumers Might change their habits or change their buying patterns or automobiles Or when you have a yes added cafe standards cafe standards to drive up the fuel economy of our vehicle fleet Increasing that fuel economy while still allowing the prices to steer us towards the more efficient cars I have to acknowledge that yes cafe is a critical a very important Start in our overall policy so driving if you will from 27 half miles a gallon to over 54 miles a gallon by 2025 Is a very big deal. It's important. It must be done But it's a long run strategy and together with the time that takes for that to kick in It's insufficient. We need a short run strategy that addresses total consumer costs total ownership cost of vehicles and Covers the overall price of transportation transportation as a family income To ensure that gasoline prices reflect their full external costs Policy makers will advocate that we yes impose new taxes that we might impose carbon fees and highway user fees All this is a price driven perspective But this caveat all strains of the policy assume that consumers can and that they actually do Respond to those higher prices in very significant ways and that they reduce the demand in an economically rational fashion But what Lisa suggested what the data shows Yes, the evidence doesn't indicate that consumers can respond to rising prices only in a very limited way So we're stuck it becomes a trap if you will higher prices, but no ability to respond to those prices means that you're stuck So the big conclusion Relying on the price signal to rationally allocate resources to drive us towards a more robust economy is in fact a flawed economic and social policy Indeed it is possible that a largely price based policy Paradoxically may be increasing or at least freezing energy consumption patterns into high levels of inefficiency This in turn enables the gas pump to capture more of the workers disposable income Even as the continuing inefficiency Weakens the size of that income over time So let's look at some of the indications here Some of the evidence suggests that we actually had a fairly robust family income in the 50s up through the mid 70s And the economy per capita continued to grow But median family household income flattened quite a bit And some of the reasons for that can be talked about a little bit later But it's clearly evidence that we are slumping as an economy not providing the well-being that delta here is significant Had we grown at the rate of per capita gdp Families would be earning more like about 97 000 as a median household income set about 60 000 And you impose on top of that rising prices you can begin to see the bite that's taking out of their lives What's interesting about this chart? We've taken a look at the consumer expenditure allocation for a number of Types of purchases that consumers face whether you're talking about the average consumer The working poor the the low poverty level and the highest income What's really significant is that housing and transportation together on all levels consume over 50% of the household income And obviously much more for the for the working poor. So we have excuse me oops We have a problem here with the um, there we go Oops the um My apologies Yeah, I'm trying to go back. I jumped a slide inadvertently. Okay, we'll move to there We're plotting here from 1992 using the energy information administration short-term energy outlook since 1992 a number of variables We're looking at things like growth in population as well as per capita income Here this blue line is the expenditures of gasoline as a society And we've seen almost two doublings since the early 2000 of gasoline expenditures That households pay and the businesses pay as well and the price is significantly jumping compared to the income here We have seen a dramatic increase in the cost of transportation at all levels And this is imposing serious constraints and overall economic economic activity even as population even as uh, Vehicle miles traveled stays relatively flattened that increases a significant problem for the economy to move ahead and How that looks in terms of what we call elasticities elasticities to an economist has nothing more than responsiveness Given a particular variable like price increase How does the economy as a whole respond as a percent change? So we have a 10 percent change in price. What's the percent change in Driving or percent change in gasoline or energy use? Similarly, if you have a percent change in income, how does that affect overall energy use? So we can see that interestingly prices as a short run within the year that the prices are issued Very little change. So less than 10 percent change for say a a 10 percent increase in income we see or price rather we see a 1 percent change in Gasoline consumption or energy consumption over time it stays flat On the other hand income is driving up the consumption of energy Over time as we have more we're becoming more locked into the transportation pattern that Lisa talked about Where we have little choice, but we continue that drive towards greater consumption because of having to move further away from the work that we That we're able to enjoy or in terms of the household pattern of living sports and things like that that were Used to consuming or participating in Looking at transportation We see a different pattern because we're looking at all expenditures of transportation Not only the gasoline consumption, but also things like insurance car repairs All kinds of parking tolls fees that we have to pay Interestingly a much wider gap here so that we see the income elasticity rising a little bit over time But the price elasticity leaving us relatively unchanged. This suggests a serious lock in We have very few choices so that when prices jump then we're forced to pay Those expenditures add to the detriment of the family income and the larger economy Here's how we might look at it if we assume for example a an income elasticity based on the numbers of about 0.5 That is to say a 10 percent increase in income increases consumption of energy by about 5 percent Compared to say a price elasticity where a 10 percent increase in price Reduces demand by about 1 percent. What does it have to do to keep us even with overall gas link consumption? So on a yearly basis we might Oops, there we go again All right, so yeah, I think we can actually Looking at the transportation price Elasticities by income level we would expect to see a fairly ordered Way of people responding that is to say the higher income you have you'd have one level of response The lower income you have in a very ordered fashion here We have a surprising result here where the working poor the fourth quintile Has a much different pattern higher a similar pattern but much higher Elasticity than the first quintile now the first quintile earns probably in the order about 150 000 a year the working poor Maybe 25 35 000 a year but a very similar pattern and it's not all following a sequence here We'd expect to see maybe one two three four five down like this But we instead we see four one the average consumer third fifth and second What's going on here? We can we can imagine that the working poor respond because they might lose a job They may lose hours of work to have to affect their commute. So their energy consumption comes down Whereas the fairly well off family have many more choices So they can make choices and still maintain the quality of life and therefore reduce their consumption to gasoline But for entirely different reasons this tells us that if we want to inform an informed policy We have to actually match what's going on in people's lives not assuming that one price meets all expectations or gets the job done Some very dramatic changes if we look at the breakdown by income But here's what's interesting from my standpoint as a macroeconomist How this lock-in continues the inefficiency and constrains overall economic activity in a fairly significant fashion So i'm looking at this notion we call used energy Used energy means not the total energy we consume when we drive a car But the amount of energy in that gallon of gasoline that actually moves the car forward That actually moves the family from the house to the school and that amount of energy is hugely wasted So we have very little actual Energy being consumed while a lot of energy being wasted And this particular chart is showing us from the period 1950 to 1980 Where we had a fairly robust economy in the u.s. And we began increasing efficiency over time in such a way as that allowed the economy to expand by about two and a quarter percent A year as we're improving our efficiency by about one and a half percent a year That was in the 50 to 1980 range But look what happened in the 1980 to 2010 range as we got locked into inefficiency The lagging efficiency here we dropped from a full percent Of efficiency improvements on an annual basis of the economy-wide productivity the per capita income if you will Slumped you can see that very flat signal over time this greatly diminished overall economic activity So as expenditures rose incomes came down and we felt this particular energy trap World oil prices really can be the story of the future in many ways And it's an unfortunate future unless we address it in a fairly aggressive sort of manner So looking at the cost of oil since 1900 taking a step back in history does sometimes inform In constant dollars for barrel of oil we can see two lines here This is the actual data is published by bp in their statistical report And we might think that these particular spikes in prices are an anomaly But when we look at the trend of the future we see that in fact The trend is clearly up moving over two time to the year 2030 suggesting it's going to do nothing but rise The interesting part for me is that indeed that is what the economist what the energy information Administration is now forecasting to happen that world oil prices therefore gasoline prices are going to rise over time We're going to be stuck in a rut unless we take steps to address that particular set of problems Thinking uh, uh, physicist john wheeler. He's probably the physicist you never heard of he died recently He may be more familiar to you by the question or the phrase he coined black hole He asked very big questions. I first came across him in the 70s Responding to questions by reporters. How are the heck are you thinking about these new ideas? And his comment was we shaped the world by the questions we ask So I want to ask a different question about how the opportunity might look if we really got serious and really began to promote Efficiency and help people break out of that energy trap by giving the means to respond to these prices So my friends the economist and typically uh, fashion typical fashion in 1980 Looked at how the us was using energy And we were looking at about 80 quads of energy the amount doesn't matter But here's where we were and they were saying we're going to maintain an aggressive economy And we're going to grow the energy requirements up to about 150 quads by the year 2000 in order to maintain a robust economy But we had a number of people saying well, we could look at it differently A 1980 report by do we looked at two dozen studies said we could imagine the economy that used a lot less energy Still maintained a level of robustness At the same time look what really happened it turns out that the historic use of energy followed not the economist look at the future But because we did respond to things like prices with different legislative policies different standards different kinds of Programs and policies in a wide array our overall use actually followed what we then in 1980 thought was a low energy future But now we're beginning to return to a future that says we have to begin increasing energy use again As if energy consumption is an inevitable way of life Instead of realizing that we could reduce demand by new smart infrastructure Providing better transportation facilities new materials more innovative behaviors all catalyzed by smart policies and investments So our ultimate efficiency resource I'm going to go back to lisa a blog that she posted not too long ago I think this nails it exactly right usually when we talk about addressing big problems like oil dependence Climate change and stagnant wages. We talk about the big fix High-speed rail electric cars climate change bills We don't talk about the little personal things like auto loans and the total cost of automobile ownership We should the autos all consuming role in our lives given an extraordinary leverage Either to weaken or to strengthen both the economy and the environment. That's a critical perspective We need to address the total deal not just simply the price of energy And if for those of you interested you can go to her website and check out that particular blog But the need therefore becomes simple for policies that do more than merely signal the need to act In other words economists say provide the right signals consumers will act We also need policies that enable people households families and even businesses to be able to act policies that reflect their specific income needs and that give them both the information and the opportunity To positively make a difference in their lives and that by doing so enable our economy to move forward Or again gary larson a couple of spiders on a playground In the back of the school there woven a web across the bottom of the slide If we pull this off we'll eat like kings Or more formerly as maynard canes said in the forward to his book the general theory the difficulty lies Not with the new ideas but in escaping the old ones and with that Happy to turn the podium back over Lisa Thank you skip. Um, what we'd like to do now is uh, have Jared Bernstein come up and respond to that and then we'll take questions and and what we'd really like is for you all to um You know see this as a chance for a discussion. Um, but first we're going to have our chief discussant Jared Bernstein I'll stand here. Yeah, sure. Thank you, Lisa. Uh and skip. Um Oh, that's that. Okay Uh, let me start out by saying how much I really like this project. Uh, I don't know if for those of you who are at all familiar with my work. I I am very much Try to get out of the kind of traditional boxes that Economic analysis usually starts from and I think Lisa and skip have done precisely that Uh, with the project. In fact, my comments are kind of Uncharacteristically going to go back the other way get us kind of a little bit back inside inside that box Um, and I want to pose just a couple of basic questions about about the research Uh, but um, I do want to begin by saying, um, I very much Agree with and endorse The themes that that you've heard so far Um, I think the energy trap is real I think it is taxing the middle class and I think it's posing obvious challenges for our Not just our economy, but the environment that we're going to leave to our kids Um the First issue I want to raise and talk most about in my in my uh comments Is a fundamental question that I had reading all this material and listening to uh, Lisa and skips excellent presentation with all those amazing graphics I particularly like the little bubbles that went up and down that was that reminded me of, you know, drinking champagne or something um Yeah, it's not As clear to me as it should be so so these are some kind of critical comments Basically asking a a big question that I'd love you to deal more with in your work going forward It's not I'm not it's not clear enough to me where the market isn't working here I'm not convinced and I see market failures around every corner I'm not convinced uh enough that the market and consumer preferences that kind of intersection Is as uh dysfunctional as you think Um, I see in much of what you're describing and writing about Um consumer sovereignty Consumers doing what they want to do and sometimes spending a lot of of their hard earned money to do so Perhaps too much as a share of their income based on what's left over But and again, I'm being a very square regular economist here, which is not a hat I usually put on but but I think it's a useful one. Um the There's a an interesting finding that somebody once came up with uh Comparing The way people think about Their relationship to each other in you in the us versus europe First of all the u.s. Has a lot more physical space of course than europe and Some of their uh while our cities can be very crowded. Obviously, uh, uh there They tend to be more so over there And someone went and looked at me walked around museums and found that in europe People are just more comfortable being close physically closer to each other than they are in the us in the us We like more distance between each other We if you put a meter on someone and you just have them get close to another person The meter goes a little bit more into the red here in the us than it does in europe and uh And and there's an amazing, you know, there's a really interesting thing that happens here It doesn't you don't see it as much in other advanced economies where we get into our cars by ourselves Not everybody but a lot of we get into our car if we can afford to we get into our cars by ourselves And we commute to work. I mean, I do it myself And sit there in the car Stuck in traffic while on the other side of the road You know, there's just nothing happening and you're taking a very long time to get into work sometimes clenching one's teeth with all the traffic And the uh Disfunction of then getting in the car and doing it again the next day It if if it's if it's true that We are reveal if it's true that we're essentially revealing our preferences by putting ourselves through this expensive time Wasting a process Then the lift here for lisa and skip and the energy trap trap project is really heavy. You're not just pushing against Price fundamentals. You're pushing pushing against the revealed preferences of people who view Driving in their car, you know by themselves even long distances as If not part of the american dream kind of a reward for getting where they're going getting where they want to go now that flies in the face of some of the things that lisa found in the survey So I I want to be fair in my presentation People if people truly say well, you know driving is a necessary evil that that's different that that suggests that you know You'd rather not but it's necessary. So if I had choices to do otherwise, I would I would undertake those choices Lisa also said people are ready for change and I think that may be true There does get to be a point where uh, the ridiculousness and and and the waste is is just uh, and the cost is too high But a lot of what I saw in the presentation particularly in some of skip's data You know, I think does support this hypothesis that people are doing what they want to do Um, the fact that the price elasticity is so flat uh The fact that people don't you know, I I I still again I'm probably enough of an economist to think that generally people kind of respond to prices in fairly Predictable ways Generally and the fact that the the price elasticity is is is flat has always been taken to suggest that Again, people are are responding to price increases By by just buying more gas not changing their behavior that much because They they want to drive around in their cars and I thought the quintile results sort of suggested that that finding as well Um, so that that to me is a conventional economist's kind of interpretation of of what we've seen in a fundamental challenge to the project Which is it despite the fact that some people call this a necessary evil I don't see enough evidence to lead me to believe that people want to get out of the trap because I don't know that they feel Like they're in a trap. So now let me say a bunch of reasons why I think what all I just said is maybe wrong Um Uh, first of all and skip made this point. He's a hundred percent right You know, the price doesn't reflect the cost It doesn't reflect the social cost Uh, certainly in an environmental sense So it's you know, you mentioned the subsidy in gas one of the things we talk about around here in dc is the Something like 50 billion over 10 year subsidies that we give to our oil and gas producers So, you know right there that uh, the the cost is uh, is is low And subsidized certainly the price of gas is a lot more is a lot lower here than it is in europe That has a lot to do with taxation So if the price isn't reflecting the social cost then my theory that people are kind of Responding to prices rationally kind of is a a little bit tweaked because they're not facing the true cost of their behavior Um housing is just not close enough affordable housing is just not close enough to work this I know to be a fact I've done this research myself But it's kind of obvious if you think about it that affordable housing not being near work Makes this idea that people are revealing their preferences a little bit suspect if you simply can't afford to live near where you work That's uh, that that's an area where the market's not working Oh, let me be very clear that you know, my first set of comments are gee It looks to me like a market is working here and we're looking at revealed preferences My second set of comments are where is the market not working? So it's not working and the prices don't reflect the social cost housing isn't near near work inadequate mass transit Um, I live in alexandria. We happen to be one of the richest cities in the country and the world and I can't get home using mass transit after about 7 20 at night Which is an amazing thing and and you know because I have this job that sometimes requires long and odd hours I often can't avail myself of mass transit. So that's pretty amazing when you think of it. This is this is the capital of the Largest economy in in in the world and we have inadequate mass transit Um So that's another way. I think in which we can't really just say well people are revealing their preferences I think I think that's a really key find I mean to me if I were going to kind of just wave my wand and get one solution out of the energy trap It would be adequate mass transit and I'll say a little bit more about that in my concluding comments credit constraints And I wanted a combination of credit constraints and information problems Around auto purchases. I thought Lisa's data on this was quite compelling People don't necessarily have the information they need to know about Fuel the fuel efficiency and how much it will cost them over the course of the year I thought some of those numbers were quite dramatic in terms of low-income people spending a lot more on transportation And one of the things you see is a very elastic I thought we saw this in some of the data a very elastic response to Prices of gas in in in car ownership People when gas prices go down all the sudden people are out there buying suvs And I would consider that to be pretty much an information problem I think if you were able to explain to someone that it's very likely that this is a tick down And it's going to tick back up and you're going to be stuck with this as you've got that was interesting With the guy who wanted to sell it two days later So I think there's information problems and credit problems So, you know, there are obvious ways I think in which the market isn't working So on one hand, I feel like the project needs to deal a lot more with this fundamental Point that I do fear that people are revealing their preferences in a way that skip me and Lisa might not love But in a way that which is real on the other hand Some of those preferences are distorted by bad price signals housing and inconvenient locations inadequate mass transit Let me just finish with Kind of combining some of these comments, particularly in the area of mass transit I actually believe that if people had That I actually believe that that both of what I said is true The market is working better than probably Lisa and skip think it is And it's also broken in ways exactly like Lisa and skip think it is and ergo The solution should combine the two just fantasize for a second here that you could walk outside of your house And get into a compartment and that that compartment would be yours alone And you could smoke your cigarettes or sing songs to yourself or do whatever you like to do in your car Because we americans like to drive to work by ourselves too much And that compartment could take you right to work And you get out of that compartment and you be aware you wouldn't have to worry about parking You'd certainly be paying something. I mean, this is not there's no free lunch. You may be maybe maybe You'd certainly societies Certainly you'd have taxes and user fees, whatever, but you wouldn't have a car and you wouldn't have gas and you wouldn't have Parking expenses and you wouldn't spend all that time in traffic Well, you know, that's a fantasy But it is conceivable That one could craft a mass transit system Or perhaps as Lisa suggested employers could Engage more an employer center transit That began to get you closer to that role. Maybe it's vans as Lisa mentioned that Of course, you're sitting in a van with a bunch of other people and you know, According to her research actually folks after a couple of weeks got more used to that But the idea is to build is to take both of these factors and revealed preferences and market failure Put them together and think about a mass transit system that provides a kind of a more personalized service And Connects people with work more Effectively And gets them at the same time gets them out of their cars and diminishes their dependence on on gas I'll stop there, but thanks very much Should we sit up there? Interesting. It's always great to hear that you're both right and wrong Straddle the middle of the road I think at this point we should Do you wish to discuss anything? Yeah, I want to pick up one point Jared made and I think he's right on with regard to whether price reveals preferences or not If we look at it as the data we might conclude that but increasing number of studies suggesting that As americans, we actually don't like to commute all that much And i'm wondering if the response doesn't actually reveal our constraints or our lack of opportunity And if we begin looking at it from the human perspective very much in the way that at least you presented some of those early stories The energy trap stories Looking at as the problems consumers actually face our households or families actually are confronted with It really is a revealing of their lack of choice and their lack of alternatives Tammy, I remember you said she spent 25 000 for a car that cost her $9 000. She spent like $3 000 a year on gasoline $3 000 a year in repairs all that siphon money out of her wallet So she had no other choice until she had a helping hand, which is getting to Jared's point How was the market broken? It took a helping hand Somebody not to really address Their gasoline problem But their total lifestyle so she had counseling to help Work through the credit problems to learn how to manage to learn how to make different choices And then be able to borrow money for a new car where the repair costs are lower Where the transportation costs are much lower and she's able to afford it with maybe a I think it was a three and a half or four percent interest loan in that particular example So it's a need to address the Complete problem not just a piece of the problem. I think what's interesting about um, Tammy is that she actually When she was purchasing the new car was not given the option of buying the standard car in New Hampshire Which is not a Yaris. It's a it's something big that's not going to slide so much on the ice um I actually should check in with her in january to see how she feels about this but But what I think is is significant is that actually her choices were limited in what she could buy They the terms of the loan said we're not going to lend you money Unless we know that your total cost of transit is going to be within your means And that's actually not the way the traditional auto loan works. The traditional auto loan is we're going to get You know the maximum from you that we can given your ability to negotiate in the credit market It doesn't actually combine the total cost of the gasoline into the into the um future I really um, I I'm very intrigued by Jared's comment about sort of taking these the two notions of the um consumer preference and um And consumer constraints and trying to combine them as we think about mass transit Or as we think about other solutions for getting people out of their cars if they if they want to get out of their cars um One thing I I spent some time in new york riding around with the dollar vans Um, they these are about 850 vans that drive around brooklyn and queens and give people rides for a dollar or two a piece It turns out to be the nation's 20th largest bus service It moves 120 000 people a day and it's entirely for profit and and presumably profitable although Uh, I didn't get into the finances of the individual vans What's interesting about it is that they provide services for people that they can't get from a bus So for example the um, their cars will I mean their vans will take a pick up a parent and take the parent and the child to daycare Let the parent walk up to the door and bring the child in which obviously in new york You want to bring your kid right into that door turn them over and then go back get back in the car? Uh, which is pretty incredible Um, and you could imagine that working in other other locations You could imagine people in smaller rural communities Who have a large network of friends or a large network of relatives? I come from main where there are towns that where everyone is a cooks and or everyone is a A pink um And uh, and and there are certain people who have massive Numbers of connections who could actually figure out how to get those people back and forth And and make a job on the side what I think is kind of cool about the um van program in new york One one barrier to it is it's somewhat illegal But one of the positive things about it is that it's counter cyclical with the economy because it's like avon It's like those sort of entrepreneurial things where people with connections Get bumped out of the the regular economy and they go into working their connections And and driving a van so the worst the economy is the more vans there are in the road Which means the more transit options there are for people and that's um, actually Runs counter to the way that we behave around mass transit. So I think thinking in really wild ways that sort of underscores My point I think right like people The economy gets better They get out of the vans, you know, I'm not sometimes the saying it's a good thing But it does kind of point in that direction. That's true Or the van driver stopped driving Anyway, uh, I would like to did you have a response to it? No, I I uh, I think both of uh, I think what you both said Is exactly right and I really do believe that the answer lies in the intersection of of the two sides that I tried to present Um, and I think we'd like to open the floor up to questions now Be sure to get the microphone first. Thank you. Um, I wanted to Take issue with a concern about pay as you drive insurance and more Generally the whole strategy about taking fixed driving costs and making them variable, which is different than Rising gas prices, which is increasing overall the cost people are paying for transportation Brookings did a fairly major study um couple of years ago and the average household The average vehicle insurance costs would go down with pay as you drive insurance Like $270 You're already showing and you're with your working poor, which is the group You indicated some of the most concern about and some of your examples were from in fact that group They they were shown to be the most price elastic in skips Chart so they are very responsive. What they're doing is they're getting rid of discretionary trips They're taking absolutely the most important trips But they're not saving an insurance And they could You're not having a case where rural drivers are Would automatically be paying more quite the contrary The zip code ratings that insurance companies do Now they're not losing money anywhere. They're not losing money in the rural areas There's a lower per mile cost because a lot of that travel is freeway travel Which is relatively safe front of per mile basis and other travel but the idea of Offering that kind of savings is tremendous And I would I would post you the following if the if we had paid you drive insurance would have universally adopted here And somebody came to you and said I have a better idea. Let's get rid of that And the consequences of that would be that we were going to raise on average the insurance costs for people by $270 for vehicle. We would be rightly screaming as it's a terrible policy And so I think the goal should be to try to make that happen I Really appreciate your comments. I've always been a huge fan of pay as you drive insurance And I think what struck me was the optics for the middle class people who feel that they are forced to drive a really long way And I think there's an interesting issue here which Jared's comments bring up and which skips data brings up is To what extent are people not seeing their choices and to what extent are people not able to choose choices And I think that the the issue of pay as you drive insurance is very important because It's actually it's a way of giving people a very explicit signal about the costs of extra driving And it's a way of kind of quantifying that The the issue is is that if people perceive it to be punishing them for things that they already can't change It needs to be articulated to people perhaps in a different way and I I have to say I was Quite shocked when I received the email. I think it was yesterday about pay as you drive insurance being punishment for this middle class person who couldn't change her her driving and It struck me as just odd and something that I hadn't really thought about from that perspective because I'd always seen it as You know if you can drive less then you'll be you'll benefit tremendously because we're all sort of paying for the high level drivers So part of this I think is figuring out a better Education package and one of the the you know, there's a little lump in skips data on elasticity after The iranian oil crisis that people did reduce driving dramatically. We reduced gasoline consumption by 12 percent We also Integrated cafe standards and prices were quite high for a while, but what's interesting is The the political establishment really reacted to that and said we have high prices. They might be here to stay We have the moral equivalent of war. We're going to put on cardigans president nixon back in 1973 unplugged the white house christmas tree which is a really a major bummer of a move And and probably didn't do him any good But it really sent a powerful signal and this time when we have high prices What we have is the political system is saying. Oh, they'll be back down soon. This is the result of conspiracy This is the result of this and I think that As as we move there There's really no question that we have to make the price of fuel and the price of highway driving more accurately reflect its cost But the problem is is if we move in that direction without giving people the sense of options and actual options I think we end up punishing certain people and I really fear for these people the tamis The people the the darrens the people at this who who really cannot move economically I should look at my one quick comment on this very quick is uh You sound like you know, uh, more about this drive by the mile than I do. Um, I I what what I find very unsettling because 20 years ago my colleague dean baker. I was working at the economic policy institute. Um was pushing this idea and we had a A conference here in dc on it and Every, you know, a lot of people thought it was just made sense. I can't is there any insurance company that offers that I mean if there is so okay, so it seems like that would be worth looking at its impact both in the Positive attributes that you mentioned and I did and and also this punishing point that lisa makes that I think is is relevant. Um, I I really would like it's kind of a head scratch to me Why it's not much more widely available I don't know. I know the answer On that just for background Companies are using data and pricing based on it. Progressive is the leader with a product called snapshot. Unfortunately the They're not sort of communicating to you What the details are in terms of how you're saying is a shopper for insurance I'd like to be able to go out and say here is an option for you They'll put something in your car. They'll they'll calculate a rate. They won't tell you about the the real key From a behavioral economics standpoint and trying to get people to reduce their driving Is to make sure the the relationship is salient You know what you're doing the incentive is continuous and so on and so forth The other thing I like about some of progressive's Experiments was that there was one to have a device in the car that would measure how fast you went So if you were driving in the most fuel efficient zone of 55 or so you were Rewarded for that as well because you were Theoretically safe and if you're texting while you're driving Should make your rate go hand comes from the ceiling. Yeah, but I might just summarize because I think lisa captured eloquently There's three elements quite apart from the page you drive which I also endorse as a concept The one is consumers not seeing their full array of their choices or seeing the full impact in their lives by the choices They make that's one thing needs to be done so the optics matter The second is not being able to make the choices you may be able to see opportunities But if you have high interest rates or you're locked in and many other ways you might not be able to make those choices So having the market really in a number of dimensions make those choices easier to pursue and then finally It's got to be a complete package It can't be just pay as you drive But it's got to be a malgum of things that bring the cost down and that promote the large efficiencies to the Well-being of both the household and and the economy Let's take more questions Yes over here. Thank you Thanks. Um, so the pay as you drive I think is part of a bigger Cross subsidy issue as well. And so I'm curious of what your opinions are on how much Can or should energy policy Correct inequalities that are already existing. So for example with a pay as you drive I mean, I guess I'm willing to pay a little more to cross subsidize people who really need You know that I said that subsidy but not people who you know are just driving for fun and have you know disposable income But I would also be willing to pay more taxes for the same purpose. So How how do you square some other 1%? So just how do you square what energy policy can do to correct inequalities and how much should it do I might just comment that given the huge array of costs already imposed in the economy if we can move in a direction that reduces This cost substantially we have much more wiggle room to correct some of these Inequities at different levels and that's part of the happy solution to the extent that we have More efficient cars in one hand to the extent we have pay as you drive that spreads the insurance out Over a number of in fact the entire driving population To the extent that we have low interest loans made available to consumers We then are able to address a lot of these inequities in a much smarter fashion But that also improves the robustness of the economy. So to that extent, I think we have Nowhere to go but up in that regard. So I think we can have the best of the both worlds We can improve the overall costs and correct some of the inequities that are confronted by consumers who are otherwise stuck I don't have a great answer into that very good question And it's one that I struggle with I recently did an entry on I have a blog I recently did an entry on my blog and I was talking about how in fact if you look at gas prices over the last Six months or so they've come down by around 30 cents And if you kind of take the economist rule of thumb that every every scent of gas prices is is Up or down about a billion dollars multiplied across the economy In thinking in terms of the current economy and and are all the slack they're in You know, I was talking about this as a stimulus In the sense that people now have, you know, 30 billion dollars more disposable income And in the same and then and then I set a paragraph of much more in the context of what we're talking about today about You know, is this a good thing? It's a you know, essentially means that Folks are back to back to driving more and if you kind of follow that through you get right to what I think It's a pretty conservative ideology. I'm not saying it's right or wrong But it's it's one that's quite dominant to in this town that You know, our goal should be to diminish the cost for a fossil fuels so that people have, you know, more disposable income drill drill drill And And so one of the things that happens when you start getting into Measures that I think are very important A price on carbon, for example Is you have cbo studies that say here are the distributional impact is getting to your question here the distributional impacts And they really take a whack out of those who are at the bottom of of the income scale And less have less ability to escape the incidence of the of the tax and so you start And so the the liberals the progressives in the carbon tax debate talk about taking some of the income from the carbon tax And rebating it to lower income people to to offset that now now you're into pretty a pretty complex thing I mean in some ways you're dampening the very price signal you're trying to create by giving people a rebate to offset the higher prices So I I think I think it's it's it's a it's a very tricky thing and I think the way around it again is is is Very robust investments in adequate mass transit I and that that that are paid for by in part by A taxation on on fossil fuels I to me that that kind of squares the circle and solves The problem that I that I just raised I think this is maybe one of the places where we disagree to a certain extent I I think that one of the issues as we put more prices into More costs into the price of fuel is that we really need to address the financial impediments to change And that means very robust financing program to that steers people pretty clearly Towards more efficient vehicles I also think that As we see a large number of electric and hybrid vehicles coming into the market We're sort of moving towards a a two-tier System in which the people who have money can move away as gas prices rise They can move away to a radically different Consumption level and the people who don't are are pretty much stuck behind and we have this kind of you know segmenting of reaction um I also want to pose kind of a question which is that um over the last year which The the obama administration has tried to deal with high gas prices in a couple of different ways One of the most striking I think was the use of the strategic petroleum reserve and trying to use that with international Petroleum reserves to try to give a signal back to the market One of the unexcompletely unexplored areas For policy is what if you got consumers to respond more? What if you were saving the money? And at the same time that you were sending the signal to the market One question we didn't really ask in this in these in Skips data is how much is consumers sort of numbness to prices? Actually involved in the upward trend of prices You know if we could sort of build in reaction from consumers Would we be able to moderate these world oil prices a little bit? I don't know it's But I think it's worth exploring. I think it's also worth exploring for different metropolitan areas to think about kind of Teaching people to be more elastic teaching people to reduce their spending when prices are high because it will preserve those families ability to spend locally And it also gives people It gives people a feeling of efficacy basically it feels it makes them this whole Thing that people say again and again if gas prices go up. I've got to pay it the first the first guy in the um The the first guy in this presentation or the second guy is a guy named Brent who says something to the effect of they've got us by the gonads and You know that is really there is a strong people have a strong personalized feeling towards the gas prices I think that on a local level and and at a broader financial level We can actually give people the tools to respond and we might actually see very dramatic changes in In prices as well Are there other questions? Yes Sort of changing subject a little i'm I'm very interested in this chart about world oil prices because it Where we have this huge spike in the 70s and then we have this huge spike in the in the last decade And then we had steadily declining prices in between for close to 20 years And it was a time of rapid economic growth relatively speaking and in fact the last decade was an area slow growth So and I and I you know I'm old enough to go back to the early 1980s in the wake of the oil shocks of the 1970s And I suspect if you looked at eia reports back in the era they would have projected as you are doing now This continued because of global demand Increase in prices into the future and of course that proved to be absolutely wrong It's not that I believe in drill drill drill the question I want to ask is Industrial structure has something to do with all this the structure of the oil industry the amount of oil that's out there and Recoverable at near term You know forget about the long trend in the short and medium term the oil industry in my lifetime's experience is a manipulated market In which you have cartels that control price behavior and can exercise their cartel power In order to lower prices in order to achieve political and other Need uh things and so i'm Question about the might be as I listen to all of this We have these goals that we have whether it be You know efficiency getting more income into people's hands, you know getting people out of their hour-long commutes Putting less carbon in the air you take all of that becoming a more efficient economy And you have this other thing out there Which is is that all of those policies trying to manipulate them can be undermined by this industrial structure that we have an energy market So i'm curious about what policies you think need to be taken there in order to achieve any of the other goals that you'd like to achieve Well, I might open up that thought by Recalling that I took a look all the way back to 1900 for the long-term pattern for precisely reasons you raised That is to say in 73 74 with the embargo at that time or the irradiance shut off 1979 Or more recently we saw you're exactly right a lot of political manipulation a lot of Market play that drove up the prices some of it had to do with constraints A lot of uncertainty that drove up the prices But overall the trend is pretty clear when we look at that 1900 To the current day view and we're seeing increasingly harder resources to tap into Colleagues at boston university Cutler cleavan and others are suggesting that in 1900 for example when we used a barrel of oil to produce more oil We got about 100 barrels of oil out of the ground in other words the energy return and energy About 1950 to 1970 that began diminishing so that we were looking maybe more like 45 barrels 50 barrels of oil Returned for a barrel of oil invested in the production of of that petroleum And then more recently we're not starting to see returns of maybe Marginal units uh eight to ten barrels of oil per barrel invested so it's getting harder and harder to produce Even as the demand is going up and as the refiner's capacity is flat lined or the ability to Explore and produce more oil is flat lined compared to the demand There's nowhere to go but up it may not be as dramatic Depending but it could be and that's why I think you're seeing our colleagues at the EIA Energy Information Administration suggesting we will see in real dollars an increase in oil prices Obviously the way to deal with that Relates to exactly to your question, which is the industrial structure That is twofold one is the composition the economy and how it uses energy and the second is What is the efficiency with which we pull that energy into our economic process? And both those need to be addressed and that's the way forward The third might be then alternatives to the petroleum Both all three of those then can begin to push down and moderate the price over the long haul to the benefit Not only of families, but the larger economy as well um, that's maryl is it? I uh I have only a small point to add I think that the premise of your question is is is correct and that there are Large competitive inefficiencies associated with the political power of this industry And there are a couple of ideas that I think are on the table that can help the one I like the most is clean energy standards. This is where states require that by x year 20 percent of Of the energy produced by our utilities has to come from clean energy California has been a leader in this and has and and it's turned out that At least as I understand it you may others may have different information that it's actually been pretty effective in in Generating more activity in clean energy and aligning of the prices Basically rising the prices of fossil fuel relative to those of cleaner energy of renewables And I think there's pretty much a parity now in in california in terms of energy production of of fossil and renewable and various States have been talking about imposing these these energy standards I think they make a lot of sense in the same way. I like the the cafe requirements I agree with skip's point in his foot note where he says, you know, this is this is a longer term solution But I think that those kinds of things put competitive pressures on the fossil fuel industry that are currently lacking Okay, yeah, we have we have to end in about a minute because of c-span I need to ask if there are any other questions Yes I'll make it very quick I'd like to suggest that it isn't the differential cost of living in the suburbs versus the cities Causes people to move to the suburbs It seems to me that especially when you add in the commuting costs of living in the suburbs The differential perhaps is in favor of living in the cities And most people I think move to the suburbs when they start to raise a family and have to think about the Educational systems in the suburbs compared to the city schools So it seems to me that quite apart from this fast really very Excellent discussion of prices of gas versus Types of cars and the amount of commuting it seems to me and this is beyond what your data has talked about That increasing the educational cities opportunities and levels Would keep many more families in the cities and cutting out all these long costs and have them More time to be together also without the long commuting right? I think that's actually a wonderful point to end on in the What starts off as a discussion of gasoline when you really broaden it out becomes very deeply existential This is partly about the kids and And part of the reason that people move is for the education system And it's also Part of why they will live quite far from their job because they're looking for something for their kids The same thing happens But basically I think the underlying thing is that we use gasoline to overcome other sorts of barriers in our system And those overcome the lack of credit we drive further to overcome lack of credit We drive further to deal with different sorts of school systems We also end up with a home health care workers driving further to take care of people And and gasoline has always been as you mentioned it, you know for 20 years It was relatively cheap It has been the elasticity in the system that allowed us to get things done Even as as as things were getting kind of out of control and what we really need to start doing is figuring out How to put the elasticity back in the elasticity? I suppose Which is a good enough way to end this whole conversation Thank you very much. If you have thoughts about where this research should go Please come and talk to me or or contact me by email I really see this as an ongoing conversation and ongoing project to to look at this issue Thank you. Thank you very much to Jared and to skip This was a really interesting