Q&A on gas prices with Southeast economist David Yaskewich

David Yaskewich, Ph.D., is an associate professor at Southeast Missouri State University, where the educator is completing his 10th year on the faculty. He also serves as chairman of SEMO's Accounting, Economics and Finance Department. The Southeast Missourian put five questions to the economist as gas prices continue to rise in the United States.

• Is it true these are the highest prices at the pump in American history?

They are, yes, but only if you don't adjust for inflation. In nominal, meaning unadjusted terms, it is accurate to say they are the highest. We can find more expensive prices historically. For example, according to AAA, average U.S. gas prices reached $4.25 on Wednesday, surpassing the previous nominal record of $4.11 in July 2008. If you use the Consumer Price Index to adjust for inflation, however, 2008's $4.11 is equivalent to approximately $5.29 in today's dollars. After adjustment, gas was actually more expensive in real terms in 2008. Keep in mind vehicle fuel efficiency is far better today than what we had during the so-called "oil shock" of the 1970s. I don't want to diminish the pain at the pump now, but things might have been worse in the past.

• Locally, at the time of publication, gas was being priced at or just below $4 per gallon. With President Joe Biden's admission prices will continue to rise due to his executive order last week banning Russian oil into the U.S., how might this impact motorists in their decision making?

With elevated gas prices, people's behavior would seem to be impacted. For example, someone might choose to attend meetings virtually going forward rather than show up in person. What is sacrificed, of course, is the opportunity for personal interaction by being present. I would also suggest people might choose to start living closer to where they work. During the pandemic, people had the opportunity to work remotely and via Zoom but many jobs you must get to an actual physical location to be employed.

• The Cape Girardeau-based Southeast Metropolitan Planning Organization is preparing an electric vehicle readiness plan. General Motors has announced it sees an all-electric future with zero emission EVs being the norm. Does an energy crisis bring such a future closer?

I would suspect consumers would look for substitutes, for cheaper alternatives. Consumers could begin to look for motor scooters or other more fuel-efficient vehicles in the coming years such as EVs. On the public policy side, public transportation could become a more attractive option. On the producer side, if higher prices are here to stay, which right now are tied to the Russia-Ukraine situation, oil fields that are normally quite expensive to drill become more attractive.

• President Richard Nixon imposed wage and price controls in 1971 to fight inflation. As an economist, is this a tactic you could support?

I'd say those are a mistake. Prices are a good thing, and that statement requires some elaboration. Prices serve as a rationing mechanism. If we see higher prices, that's a signal that whatever product, commodity or service we're talking about is becoming more limited in supply. If we see higher prices, markets work efficiently and higher prices would encourage consumers to limit usage. Viewing an event via Zoom that you might otherwise attend in-person could be explained as the market working, the market in action. Prices provide signals to the user of any product, and price controls, which economists hate, hide or mask the signals markets provide.

• What would be, in your opinion, a likely outcome of government-mandated price controls?

The prediction would be if we had an approach to impose wage and price controls, we would just see shortages. Here's an example. You could see a scenario where if you had an even final digit in your license plate, you go to the filling station on a particular day of the week to gas up. If we had price controls, that's what we would expect — long lines at the pump and shortages. You might get to the pumps on your designated day and there would be no gas available. The crux of the issue is simply this. If prices are kept artificially low by some official mandate or law, consumers don't get the signal that gasoline or oil is becoming more scarce — and there would be nothing encouraging us to limit our usage, e.g., how much we drive, where we live compared to where we work, whether we carpool or not, where we set our thermostats or air conditioning units. As a society, we should ask: "What is the more efficient rationing mechanism? Paying a higher price when something becomes more scarce or keeping it artificially cheap and face long lines and shortages?"

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