walkitout (walkitout) wrote,
walkitout
walkitout

demand destruction calculation

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).
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