You Can Afford Gas

1. You Can Afford Gas
   
   
   
   The recent spikes in the price of gasoline have many Americans bemoaning the ills of 'unfettered capitalism' and free markets. Economists ponder with much consternation what malicious effects might befall the economy under the weight of higher energy prices. Many Americans lament aloud "I just can't afford these gas prices!" Well my friend you won't find a solace in me. You can afford those gas prices and I'll tell you exactly why.
   
   First, a brief lesson in the history of economic thought is in order. Early economists theorized that value was determined by factors of input. That is to say that they believed the factors that went into producing a certain object or, to be more precise, the cost of those factors necessarily determined the ultimate price of said object. Most early economists took into account land (or rent), materials, labor and profit or some combination thereof. These were said to be input factors and price would be determined by adding up the combination of factors that were 'worked up' in a particular product. Therefore value was, by nature, objective. Just as a foot of length is a definite standard or fact of science, so they believed that value was a constant quantity. Any yard of uniform cloth, for example, (at least any one produced under the same conditions of labor, rent, etc.) would have the same value because a certain amount of the factors of production had been worked up in them. This, however, was shown in later economic thought, to be a flawed theory.
   
   In the late 1800's Carl Menger and others began to formulate theories of value based on subjectivity. They said that the same object would have different value to every different person at any given time depending on the circumstance of their need or desire at the very moment of exchange. Therefore an infinite number of different values might be ascribed to the very same product. They rightly pointed out that if an ordinary housewife went to the market to buy bread, when she reached the bread aisle and made the determination of whether or not to buy, the bread would have the same value to her whether it had miraculously been dropped from the sky or had been produced by the day's labor of a thousand men. She would not take any of the 'factors of production' into account. She need not know the cost of the maintenance of the grain mill, nor the lease of the land upon which it sits, nor the wages paid to the miller, nor any other of the factors of production to formulate her sense of value for that bread. She only need to make a determination of whether or not she would value the bread more than what she would give in exchange for it. At the very point, the very fraction of a cent, that she values the bread more than the amount she will be asked to give for it, she will make the exchange. It is not important to consider by how much more she values the bread. The slightest tip of the scales in her favor is enough to make the purchase.
   
   So value being subjective rather than objective, we know that the same product will be valued more or less by different persons depending upon their particular circumstance at the moment of exchange. This leads us to what is known as marginal utility. Every one of us is a marginal user or consumer of every product we buy. In fact, we are marginal consumers of products we don't buy.
   
   Marginal utility is exactly what it sounds like. It is the point at which the utility of the product in question becomes marginalized in the eyes of the consumer in light of what is being asked in exchange for it. Let's give an example. Big screen, HD television sets currently seem to be all the rage. Everyone seems to want one. So why doesn't everyone have one? It's marginal utility. The one man may say "I'll buy that TV for $1,000 but I won't pay any more than that." At one thousand dollars and one cent, he values his money (or the other uses of it) more than he values the television. At any point over $1,000 he will keep his money rather than purchase the television. At $1,000 or any point below, he will exchange his money and take the television. Another man may see the same exact TV set and be willing to pay $5,000 for it. To him, his desire being stronger for it, the TV is worth more than what he could do with the money he will give for it. Others, less interested in the benefits of such a product, might not be willing to part with even $250 in exchange for it.
   
   Decisions just like this are made every day concerning products of much less enormity. Most of us would gladly pay 5 cents for a loaf of regular bread. Few would pay $5 for that same loaf, although some might depending on circumstance. However, at the market I frequent, most of my fellow consumers seem to drop out of the 'regular loaf of bread' market at about $1.50.
   
   A pair of tennis shoes is no different. Most of us would consider that same $1.50 we gave for the bread to be a bargain when shopping for a pair of shoes in which to strut our stuff on the local park hoops court. However, I know very few people who would give $500 for a new set of kicks, however fashionable they (or the shoes) might be. The point of marginal utility, or the drop-out point, is somewhere in the middle. I tend to drop out of the market for a new pair of tennis shoes at about $85. My wife has made it perfectly clear the she would have me drop out of the 'new pair of tennis shoes market' at about $50. Thus, it could be said, we have different points of marginal utility.
   
   The problem comes when we assign an elevated level of importance to a particular product. Life without this particular product seems unbearable. Somehow, we think, we should not be forced to make these decisions regarding this product, for it is much too necessary to even be subjected to these types of considerations. It is, as it were, a necessity of life.
   
   Such is the case with gas.
   
   It is conceded that responsible individuals must work to maintain a living and provide for themselves and their family so as to not become a burden upon the resources of society. It is further conceded that, in our society, this usually means owning or renting a car and filling it up with gas every day in order to drive back and forth to a job which provides us that living that it is our duty to make for ourselves. But this is an important caveat. This is the usual way of things in our society. Let us not fool ourselves into thinking that we have no choice in the matter or that no other options are available to us. Did mankind not work before the invention of the automobile?
   
   What we really mean when we say we must have gas is that we must have transportation. Few of us would have any other use for the thousands of gallons of gasoline that we consume each year than as fuel for an automobile.
   
   So let us, then, consider modes of transportation. It is possible to live close enough to one's work so as to be in walking distance of one's place of employment. I work at a factory in a small town and I actually know people who, in fact, do this. It is also possible to own a limousine and pay a driver to come and pick you up and deliver you curbside to your place of employment. In reality, thousands of options exist in between these extremes (with prices proportionate to their appeal and comfort) and some outside the bounds of even these. A range from least expensive to most might look like this:
   
   1. Living close to work and walking the distance each day.
   2. Living close to work and riding a bike each day.
   3. Living close to work and carpooling with fellow employees.
   4. Living close to work and driving one's self.
   5. Living in the suburbs and carpooling.
   6. Living in the suburbs and driving one's self.
   7. Living in the suburbs and paying someone to drive you.
   8. Living in the suburbs and owning a helicopter in which you could fly to work each day.
   9. Living across state and flying by jet to work every day.
   
   Of course, all of these options in fact do exist in our society with thousands of variations within each one, from the padding in the seat of the bicycle in Option #2 to the difference in first class or business accommodations in Option #9, each of which will affect the cost of transportation for the person using them.
   
   So the question, then, is: Where does your marginal utility lie? At what point do you drop out of the transportation market?
   
   The fact of the matter is that most Americans have become accustomed to, and now take for granted, conveniences and luxury that would have been un-thought of, much less unheard of, in times past. We like driving in our big, comfortable, climate-controlled vehicles, with radios that bring us all types of information and diversion, navigation systems that tell us where to go if we get lost, and virtual assistants at the ready by the push of a blue button. Most cars can easily accommodate four adults in reasonable comfort without a significant increase in fuel consumption. Yet we like to drive in spacious compartments by ourselves. It's inefficient. And guess what? IT'S EXPENSIVE!!
   
   Still in the face of all this, most Americans prove every day that their marginal utility is quite high when it comes to transportation. This can only mean one thing. We value that particular mode of transportation more than we value what we give in exchange for it - that is our money.
   
   Remember, in a free society, you make a choice in every action you take. This includes actions of exchange. When we value the thing to be obtained (in this case our mode of transportation) less than we value what we would have to give in exchange for it (usually money) something very conspicuous happens. We change our actions. We drop out of that market or change our action within it. In short, we put our money to a different, more efficient use.
   
   For now, though, I don't see that happening. I don't see that the price of gas has risen above the point of marginal utility for most people. I don't see people living closer to work. I don't see people driving smaller cars. I don't see people carpooling, and I sure don't see people walking or riding their bikes. I still see a lot of people driving to and fro in gas-guzzling SUV's, trucks and other assorted vehicles with every type of convenience imaginable within an arms reach, and they're all telling me the same thing. "We can afford it!!"