Aside from the economy being a central issue, airlines and airports have done everything humanly possible to ensure that you simply don’t want to fly unless unavoidable. Overbooked flights, bag fees, no food, dirty airplanes, and surly employees all add up to “hey let’s drive, gas is $1.94 a gallon!”.
Bay Area airports were eerily empty for much of what traditionally has been among the busiest travel days of the year.
[From Airports almost empty day before Thanksgiving]
Case in point, we are talking about taking a family vacation to San Diego early next year (look out Kedrosky!) and decided that renting a minivan and driving down would be cheaper than flying and less hassle to boot. It’s a lot of time behind the wheel but no worse than trudging through an airport pissed off about having to pay $150 to check bags.
Anyone who thinks that the government should be using tax policy and legislative mandates to change consumer behaviors would be wise to consider the example of ethanol. Over a year and a half ago the Heritage Foundation urged Congress to not expand the mandate for corn based ethanol imposed by the 2005 Energy Plan, suggesting that aside from doing little to decrease dependence on foreign oil, the reality is that it was artificially inflating food prices.
The new ethanol mandate is perhaps the most disappointing program in the Energy Policy Act of 2005. Since taking effect in 2006, this measure has increased energy and food prices while doing little to reduce oil imports or improve the environment.
[From The Ethanol Mandate Should Not Be Expanded]
Not only has this happened but the law of unintended consequences kicked in with disastrous results, and now that oil is relatively cheap there is a wholesale collapse in the ethanol market as new investment dried up and expansion with it, and companies like Verasun, who were essentially living off the teet provided by the government, collapsed under the weight of existing debt maintenance, inability to access credit markets to roll over their debt, and the economic reality that ethanol is uncompetitive with cheap oil.
As we sit here in November of 2008 amid a shattered global financial market, it is increasingly evident that a sharp rise in CPI for food and energy represented a tipping point for U.S. consumers who pulled back to accommodate price increases in two core product categories. Business investment decisions were also distorted by energy inflation, no doubt contributing to the economic shock that precipitated the financial markets collapse.
It was precisely the segment of the market most vulnerable to food and energy price spikes that triggered the mortgage meltdown, subprime borrowers. In the future it would be wise for Congress to recognize the catastrophic consequences of distorting markets through legislative mandates.