Prof. Goose said
"I mean, there was that story from a few weeks ago that said $4.50/gal was the inflection point of behavior--which STILL seems amazing to me."

It's absolutely fascinating isn't it? The problem is that "macroeconomics" cannot easily grasp the complexity of facts on the ground.

I will use myself as an example. I drive 44 miles per day round trip to work at a decent paying job (by central Kentucky standards). What am I, an idiot?

I live in a paid for house. To have an equal house where I work would cost me at least $130,000 dollars in new debt, plus interest, plus higher taxes, higher living expenses in general, a far less desirable living environment, all to save about $30 dollars in Diesel fuel every week and a half, or about $700 per year. (!!) How long would it take me to justify what would be over $300,000 dollars in liability at current mortgage rates, even if I could get a mortgage? What if fuel prices doubled? Or tripled? Or quadripled? At some point down the road, with fuel 4 times the price it is now, the balance still works out to me being in debt for the rest of may natural life (unless I live to be 120 years old) to try to save $700 dollars a year in Diesel fuel at current price, or some $2800 per year if Diesel were 4 times the price. But it gets better....

I have some debt. One left over car loan until recently. When I paid it off, it saved me some $3600 dollars a year. Three credit card and consumer loan payments. I figured up the interest on all three, and (blush) I was paying out nearly $6000 per year in interest payments (!!!) I know, stupid me, the mistakes of earlier years....so I began a dedicated debt reduction plan. Paid off one card, still the other two loans to go, but interest expense between the paid off car and the paid down debt has already reduced my yearly cash outlay by over two thousand dollars or nearly a third. By mid next year, I intend to be paid out, clean.

And take note: I am now saving, due to reduced interest payments, 3 TIMES the amount I spend yearly for Diesel fuel! And if I make my goal, by mid next year, will be saving 9 times the amount I currently spend in Diesel fuel! :-O

So as fuel went up in price, which was I better off to do? (a) Move closer to work and incur a quarter million dollars in new liability, or (b) Simply pay down debt and pay the money for the increased Diesel fuel? Mind you, all this is calculated on a car that gets just over 30 miles per gallon on Diesel, not bad, but since I am used to Diesel, finding a car that could get some 25 to 30 percent better would not be impossible. And I don't live in suburbia, I live in the freakin' country!

For me, the problem is NOT economic, and it is not for most people in America. The problem is political and philosophical....greenhouse gas, pouring money into the hands of our enemies, depleting a valuable and irreplacable resource. It bothers me. But from an economic viewpoint, even at my low station in life, Diesel could go to $10 or $12 per gallon, and I would be better off paying down debt than trying to reduce my daily work commute.

There is one more little issue hanging out there: Security of supply. As long as the issue is price, I can cringe, curse and bear it. But if the Diesel stopped flowing, I would be FORCED to change fast. But, would I rather have to change with money in the bank than with nothing? Of course, and that is why for now, again, the best game is "pay and play", that is, pay at the pump and pay down debt, and play the commuter game....soon, I will be able to have enough money in bonds and interest bearing notes to let the interest pay for my fuel....but if that happens, how will I ever be able to justify the end of the daily commute financially? Now replay all the above, with an electric car that gets 60 mile range (not at all undoable with todays technology) or a plug hybrid getting some 125 per gallon (doable on the range I drive). It is demonstrable that transportation creates wealth, pure and simple. By giving me greater range and choice in housing and jobs, I can save more than I spend in almost any real world example I can conjure up, by being able to move about.
The macroeconomists have problems quantifying this simple fact, as do the "back to the bicycle" gang. They are happy that they are not spending money on oil and gasoline. But they are spending money, MUCH MORE money, on increased housing costs, taxes, lack of personal security, and worst of all, interest on debt, which dwarfs the cost of oil, even if it were to go to European style prices (this helps explain why despite high fuel prices, Europe is still relatively prosperous by world standards.

This is why I find myself rolling on the floor in laughter every time I read one of James Howard Kunstler's screeching fits about how suburbia will soon be an abandoned shell, empty of residents, abondoned quarter million dollar homes due to......no gas??? No matter how you stack the numbers, until the last of the last of the last oil is dribbled out, economically, it just does not make sense.

My bet: The big banks, with their 28% credit cards, bleeding the U.S. to death far faster than the oil price, will be gone before suburbia will.

RC