demand destruction calculation

[walkitout]

This guy:

http://www.jeffvail.net/2008/03/gas-prices-demand-destruction.html

argues the following:

He can take the light rail to work. It takes him an hour longer (I think this is round trip). The cost of the light rail ticket and parking is a wash, so for him, the calculation is, what is an hour of my time worth? He tosses out $50/hr, which implies he's a 6 figure a year guy in terms of income.

Let's try turning that into a calculation for people in the middle of the pack.

According to this:

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

2006 median household income was about $48K. Let's use that for now, and assume that represents 2 people working full time, which implies a gross wage of $12/hr, unless I screwed up horribly. Deduct, say, 30% to represent their total tax burden (fed/state/local, including payroll, etc.) gives us between $8 and $9/hr as a take-home pay for one hour.

While this guy is treating this calculation as an argument against demand destruction (his hour is worth $50), I see this as a strong argument _for_ demand destruction. The federal minimum wage is $5.85, which is I think a strong indicator why we're _already_ seeing demand destruction (don't need to deduct quite as much taxes, but it's still going to be on the order of 20%, because payroll taxes are pretty regressive, and most places have sales taxes, ditto). Mileage isn't calculated purely by gas consumption; there's also a wear-and-tear factor, which we could represent by the IRS allowance. This year, it is $.505. Let's assume 20/gallon (he says his round trip takes 1 gallon). That's 20 miles, or a little over $10. And that, my friends, is bang on the _gross_ for our hypothetical half of a median household.

Wow.

I know he didn't mean to do this, but this is the best argument yet for why we are seeing people use public transportation at record rates -- and why it's going to head that way as fast as people can possibly change over, whether through carpooling, trip reduction, swapping to a higher mileage vehicle, riding public transportation and/or moving closer to their most common destination(s).

Comments

things to complain about

[walkitout]

$12/hour

I'm assuming that with an average household size > 2, there are at least two people in the house who are making decisions (or having decisions made for them) about how they will get from point A to point B, and that household income is somehow distributed throughout the family, regardless of who earns it. So that might be $24/hr for one person and 0/hour for the other, or straight across, or whatever.

Tax burden

I'm assuming that renters pay some amount of their rent towards their landlord's property tax. Everyone pays payroll tax (which is going to be about 14% from the worker, between unemployment tax, SS and medicare). Most people pay one or more of sales tax, property tax, excise taxes, income tax (state, local, federal), etc. I _may_ have overestimated the tax burden on the median household (but I bet I didn't -- I'd love to see some numbers on this).

gas in Europe

[walkitout]

That guy also argues that people in Europe are paying $8+/gallon and driving anyway.

This seems exceptionally bogus to me, since in Amsterdam, for example, 30% of trips are by bicycle, IIRC. Which just goes to show how demand destruction works in practice.

turns out he telecommutes 4 days a week

[walkitout]

Which means he's already cut 80% of his fuel use for commuting, assuming a 5 day a week = normal.

Odd analysis to come out of someone who clearly has the right priorities and is remarkably bright.