Limiting Personal and Regional Vulnerability to Energy Price Shocks

St. Louis Gas Prices and Metro pass Price{Nominal St. Louis gas price with Metro monthly pass price –}

The recent price spike in propane reminded me of the near riots over gas prices in 2008. Gas topped $4/gal in St. Louis in July of 2008 and quickly collapsed along with the economy later that year. Since then it has crept up, briefly hitting the 2008 highs in 2011. Is there anything individuals and the community can due to combat these price shocks? Absolutely.

When demand is inelastic buyers will pay nearly anything for a given product. Think insulin. When demand is elastic demand changes a lot in response to price. Unfortunately due to individual choices and government policies we have made our demand for gasoline very inelastic. This leaves us vulnerable to price shocks. For many they just have to put up with it.

In other areas of life we have choices that help us avoid price shocks. If beef prices spike, we buy pork. Businesses hedge against price shocks. Airlines buy fuel futures not so much to get a lower price, but to get a certain price. They can plan around a certain price. Metro does this too for its buses.

Volatility of energy prices affects consumer budgets and undermines consumer confidence. This is also bad for a local and state economy that marginally participates in the industry, rather it sends its wealth away to distant places.

What can an individual do? Shorten your commute. By cutting your commute, a lower percentage of your budget goes to gas and thus you are less vulnerable to price shocks. Even better if you can use an alternative like Metro, bicycling, or walking for some of your trips. Of course there are many variables that go into one’s housing decision of which gas is one factor. For the region and state this is yet another reason not to encourage long commutes via unwise infrastructure spending.