Celebrating $4 Gas

In the U.S., our favorite vehicle is the Ford F-150 pickup truck, and our gas currently averages about $3.53 a gallon. So it might be time to start figuring out what lessons Americans can learn from the European experience and where our energy needs might lead us.

If gas prices remain high, for whatever reason — "Peak Oil" or political turmoil in the Middle East or simply rising demand for gasoline in India and China and the rest of the growing LDC economies — then we can expect to see our households adapt along a variety of dimensions. For instance, ike the Italians, some people (especially the young, older households, and those who work in the center cities) will increasingly live an urban life, occupying high density apartment buildings close to public transit and walking to stores. The lifestyle Manhattanites take for granted is "foreign" to many Americans, but some will find it increasingly attractive.

Despite this move toward increased density, many of us are set up to live and work in the suburbs. Even Google’s, Apple’s, and Microsoft’s main campuses are all in the suburbs. These are not public-transit-friendly destinations. If gas prices remain high, how will households who live and work in the suburbs cope? Many suburban households own more than one car. After being burned by the 2008 oil price shocks, households have learned that price spikes are a reality and they have had three years to plan out their vehicle portfolio. Households who have purchased a high MPG vehicle have the luxury of using it more during high gas price times. Such nimbleness lowers annual gasoline expenditure.

To read the full entry on the Harvard Business Review website click here.