AboutWarren D. Miller, CFA, ASA, CPA Expertise My in-depth knowledge of economics is confined to three sub-disciplines: Austrian economics, industrial organization, and evolutionary economics. Other questions dealing with macroeconomics, the traditional neoclassical paradigm, labor economics, environmental economics, agricultural economics, health economics, and so on should go to those who have the appropriate expertise.
N.B.: I DO NOT ANSWER QUESTIONS MARKED 'PRIVATE' because I believe that knowledge should be shared, not hoarded. I also believe that such questions are likely to come those trying to cheat. Similarly, as one who was a full-time academic for half a decade, I can recognize test and homework questions several time zones away. Therefore, please do not demean yourself by submitting such questions to me. Those who do so are cheating, pure and simple, and I WILL call you out publicly if I believe you are doing so. I have a zero-tolerance policy where cheating and dishonesty are concerned.
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Experience I work with Austrian economics (which is different in major respects from the traditional neoclassical model), industrial organization (which is about industry structure, conduct, and performance), and evolutionary economics (almost, but not quite, the economic analog of its biological counterpart) everyday in my work. I appraise closely-held businesses, provide exit-planning services, and offer high-level strategic analysis, advice, and clients to CEOs and owners of mid-sized businesses. Understanding, applying, and writing about these disciplines is an essential part of how I have made my living since 1993.
Organizations CFA Institute, Strategic Management Society, American Society of Appraisers, Institute of Management Accountants, Academy of Management, Culver Legion
Publications CFA Magazine, Strategic Finance, Valuation Strategies, Value Examiner, Journal of Advanced Property Economics, Harvard Business Review, American Fly Fisher, CFA Digest, CPA Expert, and Business Valuation Review, among others
Education/Credentials MBA - Oklahoma State (1991)
BBA - U. of Oklahoma (1975)
Chartered Financial Analyst designation (2006)
Accredited Senior Appraiser (2006)
Certified Management Accountant (1992)
Certified Public Accountant (1992)
Question Hi!
Do you think the current gas prices in the U.S. are here to stay? Is there no going back to what the prices were a year ago? I own an 8 cylinder "gas hog" which I have parked and not driven for weeks due to the gas prices. I'm curious as to what gas prices will be like during the next 6 to 12 months because if there's no going back, I'm going to sell it. No point in keeping a truck I can't afford to drive.
Answer Hi, John--
Thank you for a timely question, and thank you for using AllExperts.com.
I don't know if the "current gas prices in the U.S. are here to stay" or not, John. I guess if I took your question literally, my answer would be a unequivocal "No". . .because commodity prices go up, and commodity prices go down. Now if you had asked if I think that "higher gas prices similar to the ones we've seen over the last year in the U.S. are here to stay," I would have answered, "Probably, at least for the next few years." That would be what the economists call "the short-to-intermediate" run.
Only two events can force gasoline prices down: (1) a decrease in demand or (2) an increase in supply. That's it.
In the short run, demand can decrease only if (a) the price gets TOO high and a lot more people do what you've done and parked their cars, and/or (b) there is a general economic downturn in which demand falls for almost everything. Longer term, new technologies (e.g., widespread use of hybrids) could make our consumption of gasoline more efficient and thus at least moderate demand. But those new technologies, at least at the present time, are viable only if energy prices stay pretty high.
Supply can increase four ways: (a) new drilling (on our mainland, off-shore, in ANWR, and in the tar sands in the western U.S.); (b) a willingness by oil-exporting nations to increase their exports to the point where it's in better balance w/demand; (c) new refineries being built (that hasn't happened since 1978); and/or (d) the repeal of the use of "boutique fuels" in the U.S. Let me elaborate briefly on the last one.
Boutique fuels are Congressionally-mandated customized gasoline blends for nine U.S. cities: Baltimore, Chicago, Hartford, Houston, Los Angeles, Milwaukee, New York, Philadelphia, and San Diego. Each of these cities has its own "brand" of gasoline in the sense that the gasoline sold in each one is sold nowhere else. It takes a LOT of time and money to shut-down a refinery making one blend of gasoline and bring it back up again to blend something different. That cost gets passed along to all of us, unfortunately. Economics teaches us that those who bear the benefits of something should also bear its costs. That's not happening w/boutique fuels, though, so you and I are paying for the high-class gas burned by motorists in these 9 cities. Congress mandated boutique fuels as a way to combat air pollution.
There is one other economic lesson from boutique fuels: complexity increases costs, which usually (but not always) increases prices. You can be very sure that boutique fuels are forcing ALL of us to pay higher prices at the pump.
Before I close, let me offer a counter-intuitive thought to those reading this: If you DON'T drive very many miles each year AND you expect to keep your car for a long time, there will never be a better time than right now to buy a new gas-guzzler. In fact, we have a client company whose employees do outside work and drive company trucks. The owner asked me whether he should switch his people to vehicles that are more fuel-efficient. I said, "It depends," as, indeed, everything in economics does. If the company doesn't drive the cars much and intends to keep them for a long time, buy more gas-guzzling trucks because the higher price one pays for a highly fuel-efficient car probably exceeds the high cost of gasoline one will bear for a less-efficient vehicle.
In closing, I offer one last thought: in this environment you won't get much for your current "gas hog." So, besides a very high price (right now, at least) for a high-efficiency vehicle, trade-ins or outright sales to individuals add to the cost of changing. Economists call these--are you ready?--"switching costs." We often think of them in terms of software: the cost (including the learning curve) of switching from, say, Windows to Mac or Linux, or switching from Word to WordPerfect or WordPro.
I hope this is helpful, John. There are no certain answers about the future. But I expect that $2.50-$3/gal. gas is here to stay for a few years. But, as always, my advice is worth exactly what you're paying for it. :-)
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Thanks again for an interesting and timely question--
