The Oil Drum

Stuart,

I'm not sure this is the case. When making decisions, consumers take the current situation into account AND expectations of the future state. If prices of gasoline tripled tomorrow and were generally expected to stay at the tripled level indefinitely, consumers would now start taking this into account when considering what kind of car to buy, whether to take a job across town or right down the road, whether to move far out into the 'burbs or whether to stick near to good public transportation, etc. There would be a short term effect as people immediately reduce their discretionary driving, and then a larger longer term effect which would manifest itself over years.

Contrast the above scenario to another situation in which a "crisis" triples gasoline prices but when the crisis abates prices are expected to drift back to current levels. In this situation there would again be some short term demand reduction as people reduced their discretionary driving but the longer-term reduction would be substantially reduced as consumers would base their decisions on the expectation of prices falling back to the current level.