Gas Price Self-Deception

Here we are in the middle of the Independence Day weekend. AAA expects a record number to spend time away from home, an estimated 49 million people traveling in total. “That’s up 4.1 percent – 1.9 million people – compared to last year. This will mark the sixth consecutive year of travel growth for the holiday.” This source says “you’re better off staying home,” but that’s unlikely to change anyone’s mind.

Of all those travelers, more than 41 million will be driving, “likely thanks in part to lower gas prices,” which AAA expected to be 19 cents lower than last year.

The estimate of 19 cents was posted on June 27. A week later the new number was lower. “U.S. gas prices are creeping higher this week, owing to an extended rally in global oil markets and a weaker dollar, but drivers are still set to pay some 15 cents less per gallon over the July Fourth holiday and the weekend that follows, adding more than $100 million in extra spending power to the consumer economy.”

This is something I can never make sense of. A few pennies per gallon and people are ready to adjust vacation plans. Consider first the estimate cited above of $100 million available for other spending. That’s a lot of money. But wait! That amount divided by the 41 million people filling up their cars (or riding in them) is $2.44 per person. That is not a lot of money. Even if the difference had stayed at 19 cents and the savings jumped to $3.10 per person, that is still not a lot of money. Yet people make these kinds of decisions all the time without doing the math.

(Also, if an AAA estimate can be off by over 20% in less than a week, consider how little faith to put in other, similar estimates, even when they are made by people who study the subject all the time.)

But back to the subject of gas prices and on a related note, we find that Illinois residents who live near the border are going out of state to refill their gas tanks after the state doubled the gas tax, raising it (coincidentally) by 19 cents per gallon.

The July 1 issue of the Chicago Sun-Times leads with: “Illinois Drivers Head Over The Border To Find Cheaper Gas On First Day Of New State Gas Tax.” Gas stations just across the border are seeing a surge in business as “some Illinois drivers are frustrated, fed up and willing to make the trip to save some money.” They are almost in the same boat as the vacationers except the decisions they are making are long-term, so calculations are even more important.

The newspaper interviewed various residents traveling to Hammond, IN for gas. In one example a man said, “Takes me 20 minutes to come over here” to fill the tank. That could easily burn half a tank of gas. Burn half a gallon of gas each way at $2.75 per gallon to save on 19 cents for 12 or 15 gallons? (19 x 15 = $2.85) After the round trip the savings comes to about one dime!

Another case looks more favorable. “He makes the trek from Pilsen,” near Chicago, which is also about 20 miles away, but he buys more than gas. “We go to the big box store” and “are able to get more groceries for the family.” Now it becomes a destination for other shopping, not just a round trip, and the Indiana sales tax is 3% lower than the tax in Chicago. This makes a little more sense.

One other consideration, though, is the value of your time. Some insist it should be worth a minimum of $15 per hour to any employer. Should it be worth less to you? Is spending an extra 20 minutes an investment of another $5 or do people consider it free time? 

Critical thinking leads to some interesting questions and often some different conclusions.