Heineken wrote:People with better-mileage vehicles will tend to drive more miles.
Either they will use much of the "saved" gasoline, or someone else will.
Jevon's paradox.
I have a guzzling F-150 4 x 4 but I drive it only 4500 miles per year. My "mileage" is fabulous.
I do not doubt the 'theoretical' underpinnings of Jevon's Paradox, which is ironically just supply and demand analysis for non-economists, engineers in particular, but to be honest I think the theory has quite a few holes in it as commonly interpreted (or misinterpreted).
I do not drive more just because gas is more or less expensive. I have a limited budget. Gasoline is an expense. Therefore, I minimize my expense, no matter what the cost. You do it by driving only 4500 miles per year. Someone else might reduce that expense by downsizing to a smaller, more efficient car. Unless you're talking about driving for recreation or entertainment value then miles traveled does not really enter in the picture.
As a cost of production energy costs or transport costs in particular are a cost of doing business. They need to be optimized, not minimalized, in order to achieve maximum financial profitability. But optimalization is still a limitation to demand. Businesses do not drive farther than they have to just because energy is cheap.
Whether you are an individual or a business transport fuel is a cost. If you consume it you either have less discretionary spending for other purposes or lower profits to distribute to shareholders or re-invest. Either way it makes sense to reduce non-core energy consumption. High energy prices just encourage that behavior.
What we are really talking about is non-core demand. Recreational driving, driving a larger vehicle for reasons of status or safety, living farther from work in order to buy a better home, etc. They are a trade-off between the cost of transport fuel and 'utility'. Utility is simply convenience and/or prestige. The enjoyment the consumption of a product brings us.
As economic reality bites the perceived value of spending more on fuel versus on food and other good and services decreases. We try to reduce fuel expenditures to buy other things. Or we reduce consumption other things, so that we can keep driving. Both result in demand destruction.
Jevon's Paradox states that whatever energy you are not using someone else is using. Well, that applies to every good and service in the economy. As the price of any good decreases then potential demand increases. If something is free then we can use it without any thought to having to pay for it. Visit an all you can eat buffet sometime and look at what people take on their plates versus what they consume. Shocking and somewhat gross.
However, potential demand and the ability to pay are not the same. There may be more supply than demand, but if the price is too high then potential demand is not satisfied. There may be a great demand for single-dwelling homes close to schools, parks and hospitals in quiet residential areas near workplaces, but there is a shortage of those homes. And a family's ability to pay for such a home is limited by their disposable income.
Potential demand is quite a bit higher than actual supply. Prices can decrease up to a point, but they reflect the cost of land and the replacement cost of the house itself. That is the floor. It is not an absolute floor price, but for the sake of immediate demand and prompt supply it as good as one. Extra supply in the form of new homes will only be brought to market as it becomes profitable for the builder or developer. If you have ever seen an empty lot in a city that is supply waiting for demand to catch-up to price.
So as an individual, company or nation it certainly makes economic sense to conserve energy and reduce that cost. Those savings can then be applied against other consumption and/or investment in productive assets in the future. But before you cut me off not all investments in productive assets use the same energy as saved. Although one can use those savings to buy a larger vehicle and live farther away from work again they can also be used to live closer to work and to walk. Although those savings can be used for building more freeways they can also be used to electrify railways.
The energy will get used someplace at sometime, but using 31 billion barrels of oil a year is not the same as using 31 billion over ten years. Using it to drive to Disneyland is not the same as using it to improve your infrastructure, so that it is more energy efficient or even (Holy Grail) energy self-sufficient. Reality, of course, is always different than theory! ; - )
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
