January 31, 2015

Long Term Memory Loss?

Once again, we seem to be losing our long term memory. 

Gas prices have fallen to a level that many of us never expected to see again. As I write this, the station a few blocks from my house has regular listed at $1.79.9 (can't we just start called this $1.80 and forget the silly 9 tenths?). Many experts predict prices will at something around this level for most of this year.

Common sense tells us that such a prediction is probably not going to be completely accurate: too many events can cause all sorts of problems that will affect gas pricing. Believing our world will be stable and free of serious discord for another 11 months is a fantasy.

But, for now, the low prices are a tremendous boon to most of us. In its own view of reality Wall Street doesn't seem to like the fact we are saving billions of dollars. Some industries are adversely affected. The state of North Dakota is not happy. But, for the typical American (and world-wide consumer) we have extra money to spend or save.

Now, to the point of the post. While not a stampede, car buyers are beginning to exhibit the same behavior that has happened before when there was a temporary drop in prices at the pump: bigger cars and SUVs are selling while hybrids and sub compacts are lingering longer on the lot. 


It is as if people have collectively lost their long term memory. It is as if we have this strange mental fog that forgets that prices that go down always go back up again. The Giant SUV that seems so cool today with gas at $1.80 a gallon becomes a boat anchor that sucks away big chunks of the family budget when the prices rises back to $3.00 or more a gallon.

Gas is made from a finite resource that is also a potent force when those outside our control decide to use it as a political hammer. The result: gas is used as a weapon of control or coercion. 

With the Super Bowl happening this weekend here is an analogy we can relate to: The team that wins celebrates for a few days, they are in a parade, and everyone in their hometown is proud and happy. But, one week later that team is right back where it was before the start of the season: at 0-0 with absolutely no guarantee this year's wins will translate into success next season. Many of the same players will not even be back next year. No sports fan believes that because of the win in Glendale on Sunday there will be no changes in next year's standings or outcomes. Today's situation doesn't guarantee tomorrow's outcome. 

So why do we seem to believe that low gas prices today mean low gas prices forever? That somehow the drop of the last 6 months is permanent and the future will hold no unpleasant surprises? That buying a large car with poor gas mileage is a smart choice? That saving money by continuing to drive small cars or hybrids is not an appropriate choice?

Collective amnesia? I have no explanation.


43 comments:

  1. Two words: human nature. Our behavior is a real mystery. There must be something in our DNA--some type of innate resilience that helps us regain hope after times have been bad. It's perplexing, yet there's something marvelous about it, too. When it comes to these fabulous gas prices, I think we should embrace opportunities to get out and travel more. Although I want to be optimistic, the realist in me figures the prices will climb again. As for cars, we plan to purchase a new one in the next few years, and good mileage will definitely be a consideration. My memory of the prices I've paid at the pump last year is intact.

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    1. Since I wrote this post the prices near me fell as low as $1.67 and then bounced up to $1.85 in three days. Like the large Dow Jones Average swings of the past few weeks, I expect prices at the pump to bounce around quite a bit.

      I read somewhere that human beings are wired to be short term thinkers and planners, maybe a vestige of our days hunting or escaping from big animals.All we worried about was day-to-day survival. Thinking about the future and acting accordingly is a learned skill, not one that comes naturally.

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  2. It is so nice to see those gas prices under the $2.00 mark!! Up here in Pine, gas has been about 40-50 cents HIGHER than in the valley (have to get it here??) but right now we are at 1.99 vs. your 1.80 so at least the spread is getting smaller.. and we are finally below $2.00 also!!! This is certainly a boon for those happy RV-ers like yourself who will soon be hitting the open road..

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    1. I am trying to convince Betty we should be taking lots of short RV trips while prices are low. With a beast that gets 8 miles per gallon, it sits unused a lot of the year. But, trips within a 100-150 miles of home become quite doable and don't break the bank when gas is more affordable.

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    2. We enjoyed camping a last summer at a beautiful campground about 15 miles past Jerome, up a long winding road as you passed through town.. and Dead Horse State park,Usery Park, and I know you have probably researched a lot of places nearby--enjoy!!!!!

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  3. The more things change, the more they stay the same! :-)

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  4. NJ has always had the lowest prices in the tri-state area, (PA, DE, NJ), and they pump it for you! When I lived in Philly I would plan my trips across the bridge for when I needed gas. Why not? But the truth is, infrastructure is crumbling and a slight bump in the gas tax could cure a lot of ills. But, for whatever reason, Christie refuses to raise it. Be careful because he's coming for a bigger job that could affect all of you! Scary!
    b

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    1. The gas tax hasn't increased since 1993..22 years ago. Long term thinking says raise it and keep our roads and bridges from falling apart. Short term thinking says "No" to an increase, thereby increasing everyone's costs to operate a motor vehicle.

      Politicians believe we are too dense to understand the link because cause and effect and continue to pander to the lowest common denominator.

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    2. I would support raising the gas tax if 100% of the money raised was used for the HIGHWAY trust fund as it was originally intended. However, 25% of the funds are now diverted to mass transit projects. As long as politicians continue this practice I won't support an increase. I think this is part of the reason local and state gas tax increases fail. Politicians need to start funding projects on their own merits and stop siphoning money from other places.

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    3. Money raised for highways should not be diverted. That is unethical.

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    4. It is about highways and bridges, primarily, but mass transit is what will keep more cars off the highways and bridges. So, for that reason I think 25% is fair.
      b

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  5. Bob, give up trying to understand other people - you'll never win. Here in Canada where I live gasoline prices have dropped to the equivalent of US$3.00/gallon (CA$0.90/litre) down from about US$5.25/gallon (CA$1.45/litre using the $CA-$US exchange rate at the time) and the same move to larger vehicles is under way here too, though the fleet is composed of somewhat smaller more economical vehicles but it's not a huge difference. Perhaps people want to take advantage of "bargain prices" while they can but it's also about the relative price rather than the absolute price too. Isn't spending less on fuel almost always a good idea no matter what the price? You'd think so but millions appear to disagree. (reposted as my initial exchange rate calculations were way off)

    - David

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    1. Thanks for the view from up north, David. Taking advantage of a bargain price is smart, but not when the purchase saddles you for years into the future when those bargain prices will only be a distant memory.

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  6. A negative impact of falling fuel prices - job loss that has a trickle effect. Oil patch workers lose their jobs, the services that they rely on lose their revenue. There's an old saying about work in the patch - chicken today, feathers tomorrow.

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    1. The folks on the front line are the one's most directly affected by swings up or down of energy costs.

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  7. Honestly, I would be curious to see the exact correlation between SUV purchases and gas prices. In my area, increased SUV purchases are driven by the better economy, not gas prices. I own an suv and will never own anything else (I refuse to strain my knee by climbing up and out of any car, per my orthopod). I think SUV drivers generally choose SUVs for other reasons and cost of gas comes in to little consideration. That said, SUVs can also have low gas mileage. I personally would not oppose the gas tax. However, I think everyone should aknowledge that oil exploration and digging in this country has had an effect on oil prices, and I say that as about as huge a greenie as one can get to be.

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    1. Certainly SUV's are often purchased for reasons of safety or comfort. But, there were studies during the last major price dip and ones I have seen that show trends over the past 6 months of falling prices, and they indicate an increase in big car sales and a decrease in smaller autos and hybrids.

      My RV gets a whopping 8 mpg so I welcome lower prices. But, I will not claim the moral high ground over whatever anyone's choice is. The point of the post is that to buy something because gas is low now but ignore that is it going up at some point in the future shows a certain disregard for history.

      Some SUV owners do not react to gas prices. But, I vividly remember a large uptick in SUVs for sale by owner when gas first went to over $3,.00 a gallon a few years ago.

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  8. The selfish side of me is hoping prices of alternative energy cars goes down. I would like to purchase one. When the shiny big cars are flying off the market I hope to be purchasing a sleek new Prius! End of the summer is my target time :)
    As far as the oil goes- we need to take this time to do everything we can to continue on the energy indepence stretch. Put a huge tax on imported oil. Let chips fall where they may. weneed to unattach ourselves from the Middle East.

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    1. A Prius or similar car would be my preference, but the premium that these cars demand makes them not a good choice for us. A good friend has a totally electric car that he loves. The number of charging stations keep him close to home, but as a commuting vehicle they are great (but, again, overpriced for many).

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  9. All the major oil exploration companies (Exxon, BP, Conoco Phillips, and so on) have announced huge reductions in the their oil exploration budgets for the next year at a minimum. This will ultimately translate into h,igher prices at the pump; it is inevitable. That being said, I am enjoying the low prices courtesy of the market, and our discounts from Krogers. Due to the latter I filled the whole month of January, traveled extensively, and have 50 gals stored in the garage, all for about 0.69/gal on average. The F150 and I are loving it.

    To be honest, I really don't have a lot of sympathy for the oil companies or the workers in that industry when times get tough. Ask yourself - did either care about the consumer when times were good for them? We know the answer. Cycles work in some peoples favor, and not so much in others, but the oil patch will be on top again in the fairly near future. Enjoy the prices while you can.

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    1. Airlines have announce they will continue to set fares as if oil is still over $100 a barrel. There will be no price reductions even with the huge tumble in their fuel costs. In fact, some international airlines still charge a fuel surcharge.

      Airlines lost billions over the past 10 years so I don't begrudge them making a profit now. But, a fuel surcharge? Give me a break.

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  10. I, too, suspect that it is the economy rather than gas prices that drives SUV purchases, but anyway.. not my problem and I don't worry about it.

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    1. The evidence is anecdotal, so no one knows for sure.

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  11. It IS amazing how people forget instantly what happened a few weeks or months ago. I think what you said about gas prices is equally true for the housing crisis. I read where some banks are trying to get rid of the new regulations that prevent them from approving mortgages for people who can't meet the income guidelines! Ridiculous! If these banks succeed, we'll have yet another housing crisis in a few years. And some states are trying to roll back the clean energy guidelines they put in place a few years ago, no that gasoline, natural gas, and coal are so plentiful. Do people think that all of a sudden, the pollution that fossil fuels cause has disappeared just because the price has declined? Like you,I don't get it.

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    1. I am afraid someone's (or a company or corporation's) short term economic interests often trump common sense and any understanding of long term consequences. I read the same thing you did, that some banks want to be able to issue mortgages to people who can't pay them back...this while still carrying tens of thousands of foreclosed homes from the last time.

      If we have another housing bubble or our air becomes as spoiled as China's we will no one to blame but ourselves. And then, you will hear the refrain, "why didn't THEY do something about it?"

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  12. There were many reasons for the housing crash. Government regulations and institutions, banks and consumers were all to blame. If you can't figure out whether or not you can afford to buy a house, you probably should not be buying one. Home ownership is not always the American dream, it is often the American nightmare. How did we come to the conclusion that low income people are good candidates for home ownership? There is something to be said for renting. Do you remember when you had to have twenty percent down to buy a house? You were certainly not as likely to find yourself underwater if the market changed. We rented for years while we saved the down payment. The government was not in the business of subsidizing us and the bank had no quota of loans to make to low income people and they probably did not expect a bailout if they messed up. . Now everyone contributes to the problem.

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    1. No argument from me. I'd only add that banks have no business loaning to someone who can't afford the loan, though the person who applies for such a loan must take the consequences if things go south. Both sides of the matchup are to blame.

      I have always paid 20% down until our current home which we bought for cash. I am considering a move now but only if I can buy the house free and clear. Not having any mortgage is amazingly liberating.

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  13. Steve in Los AngelesSun Feb 01, 03:44:00 AM MST

    Bob - Now that I am fully retired, I drive even less than I used to drive. I still do a LOT of walking (sometimes 20 miles or even more on a single day) as it is excellent exercise, which is very important as I get chronologically older. (I will be age 59 later this month.) I drive my car perhaps once a week now. Since I live in the Los Angeles area, gasoline is somewhat more expensive than it is in the rest of the United States. However, there is a Costco gasoline station moderately close to where I live. The price for regular gasoline (87 octane) currently is $2.219 per gallon. I also continue to drive Toyota automobiles each with a manual transmission, stick shift, and clutch. I have been driving Toyota automobiles since 1987. If other people want to increase their driving and/or drive SUVs and other types of gas-guzzlers, that is their business. However, I now am fully retired whereas the overwhelming majority of people who are my age and younger still MUST work. I still remember the oil embargo and the odd-and-even license plate days in the 1970's when I first started to drive. I did not purchase a car when I first started to drive, but I remember my Mom and Dad complain about how expensive gasoline was back then.

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    1. History is nothing but cycles that we, as human beings, repeat with alarming frequency. I certainly expect to see oil used as a weapon again in my lifetime, and I can guarantee you that prices at the pump with reach the lofty levels of last year again.

      My wife's car gets driven about 5,000 miles a year...just enough for her to run errands and get to and from church so lower prices aren't a big deal for that car, but they certainly affect our RV planning.

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  14. There must be some sort of consumer amnesia involved. People here buy monster SUV's and plywood palaces as though gasoline, oil, natural gas, and electricity prices will be the same forever, despite all evidence to the contrary. It is though history never happened and fossil fuels were in infinite supply. I can't believe that most people would choose the brief pleasure of owning a huge house or giant SUV while fuel prices were low over the ongoing pain of living with them when prices went back up again, so I've concluded that they just don't think ahead. What to do about that, I wish I knew.

    That Other Jean

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    1. What I am learning is that it is counterproductive and what we, as individuals, can't do is judge. We must make the decisions that fit our personal world view, help educate others about the costs of a choice from our perspective, and then let it be. Railing against another's seemingly senseless decision only stresses us out and infuriates that person.

      We all have blind spots: for the folks who think low gas prices are their opening to respond in a particular way, that is theirs. Eventually reality will get through to them (or not). But, that will be their issue; I can't let that choice take my focus off the long term goal of my life.

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    2. This response sums it all up beautifully. I make my share of mistakes, so who am I to judge another.

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  15. Steve in Los AngelesSun Feb 01, 02:23:00 PM MST

    As the great Spanish-born American philosopher of the late 19th Century and the early 20th Century, George Santayana said, "Those who cannot remember the past are condemned to repeat it." Apparently too many people these days have extremely short memories. I have an extremely long memory. By having an extremely long memory, I stay out of trouble.

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    1. History is just the tracking of humans going around the same circle until a breakout occurs with a new circle being formed.

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  16. "That buying a large car with poor gas mileage is a smart choice? That saving money by continuing to drive small cars or hybrids is not an appropriate choice?"
    What do you call a person who knows that gas is $4 a gallon and despite the current gas drop, knows that gas will resume back up to $4 a gallon and yet buys an RV that only gets 8 miles to the gallon? Is there a term for that choice? Surely that person must also know that due to the newer advances in technologies, there are many motorhomes on the market that get 20mph? As in smaller models? Or diesel?
    Just sayin'

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    1. What you might say is that person was only willing to proceed if he could buy a used motorhome for cash for less than $30,000 and without a loan. Newer and more efficient models were much more money then he was willing, or able, to spend.

      You might say that he went into the deal with his eyes open, knowing that gas would consume a good percentage of his vacation budget. You could definitely say that he felt fulfilling a dream was worth the expense.

      What you could say is any RV is an extravagance, whether it gets 8 mpg or 20 mpg.

      Just sayin' C.M.

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    2. If there is a RV show in your area, stop by and give a new look. Because gas is low right now, it is a good time to sell your gas guzzler and trade it in for a new, smaller, lightweight model, most of which are under $25K. You may have to sacrifice a bit in creature comforts but it will be good for the environment and your wallet. The industry has made much strides in using lightweight components, solar power and other advanced technologies. The RV industry has answered their call when gas shot up to $4+ or otherwise they would have faded away.
      You're a with-it, hip guy. Check it out soon, before gas prices rise again and RV prices follow. I am certain you will be pleasantly surprised. RV's are not an extravagance. Many people call RV's their home.

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    3. There is a huge Good Sam-sponsored show at the end of the month in Phoenix, and there are RV shows all the time at this time of year. You, of course, are right: there are newer and lighter-weight RVs available. I haven't seen a Class C or B for $25K, but certainly trailers are available for that price. That would require we buy a larger vehicle to tow it so our expenses would actually be double that figure.

      We like the self contained nature of a Class C motorhome and are happy we never have to worry about a trailer swaying around behind us. With generally one long trip and a handful of short trips each year, economically investing in another RV wouldn't make sense for us. The gas is a factor in where we go, but more so is the fact that we don't want to spend too long away from family so we aren't racking up too many miles.

      Your point, about the RV industry shift to lighter, smaller options is dead on. Many Class A owners are downsizing to Class C or even B's. But, the price tag of a well made and well equipped B can easily approach $100,000. Only in the area of trailers and 5th wheels are prices more in line with the average person's budget.

      Our RV satisfies a dream of ours and I am glad we bought it, but it will be our first and last.

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  17. Good point ... not to mentioned the fact that those SUVs also spew out more toxins and other exhaust fumes that end up in our atmosphere and (most experts agree) cause global warming. Cough ... cough.

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    1. 13 of the past 15 years have been the warmest ever recorded. How is it possible that 7 billion people had nothing to do with that?

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  18. Why are gas prices likely to keep falling? You can thank a variety of market forces that are working together to push prices lower.

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    1. Oil prices went back up over the last several days but most experts don't think the prices won't tumble again due to basic oversupply.

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