I’ll continue the gasoline story soon, I promise!

First, I want to share a video from the talent show at GSPP (my graduate program.) It’s a tongue-in-cheek commentary on efficiency and equity in economics, described by its creator, my colleague Jay, as

…  superficially an allocation problem.  But the subtext is really about contrasts in ideology.  This is expressed through the antediluvian hero and the modern heroine and then punctuated, somewhat heavy-handedly, through the Oreos.

Without further ado:

Tuesday, April 13, 2010 | 13:18
Filed under: Media/Internet/Tech by Dries
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[See preceding posts for more information.]

After writing yesterday’s post, I decided to update my data to include the last quarter of 2009. This definitely changes things, as you can see from this graph:



What makes these record-low consumption rates interesting is that they are not completely explained by high fuel prices. The same observations are again highlighted in orange in the graph below:

What is different about these observations and 2009 in general? What could be lowering gasoline demand, even if prices are lower?

The answer, of course, is the recession. One good way proxy for the recession and its effect on people’s economic behavior is the unemployment rate. When we do this, the demand equation becomes:

where δ equals the monthly variation (remember that gas consumption fluctuates month by month) and U equals the unemployment rate (for example, 9.7% in March of 2010.)

Adding the unemployment rate greatly improves the accuracy of our model. That’s not to say that a simpler model, using only unemployment, would do a better job than a model only using price — the unemployment-only model explains just 25% of the variation in gas demand. When combining unemployment with gas price and time of year, however, we’re able to explain about 83% of the variation in gas consumption [click here for more details]. This is really good.

***

How does this change the elasticity discussion from before? It actually makes demand slightly more elastic than I had previously estimated. However, it is still within the range estimated in the paper I referenced yesterday. Here is a graph depicting ε from 1/2002 through 12/2009:

***

Why go through all this trouble? Why care about demand equations and elasticities? Tomorrow I will show a way to reduce carbon dioxide emissions from US vehicles by 45 megatons while raising over $210 billion in revenue. Stay tuned!

Tuesday, April 6, 2010 | 0:16
Filed under: Energy/Environment, Politics/Society by Dries
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Using the equation I estimated yesterday, I decided to calculate the price elasticity of demand for gasoline.

Price elasticity of demand is basically the responsiveness in a good’s consumption to a change in price. This number is (nearly) always negative, because the more expensive a good becomes, the less of it people buy. As the the elasticity, ε, approaches negative infinity, the good is elastic: people consume much less than before when price increases. When ε approaches 0, the good is inelastic: people buy about the same amount, no matter what the price increase. Inelastic goods include things like insulin, water in the desert, or heroin. And, as it turns out, gasoline.

Here is my estimation of ε for gasoline in Oakland, CA this April:

This value of -.033 is very similar to an elasticity calculated by some folks at UC Davis. Apparently, this is a fairly recent phenomenon. This elasticity is extraordinarily low (in absolute value terms), indicating that America’s addiction to gasoline is at dangerously high levels. There is very little flexibility in gasoline demand, even when prices rise to unsustainable levels.

Gasoline demand and vehicle miles driven actually did decrease for the first time ever when prices spiked back in 2008. However, it is astonishing that prices had to spike above $4.00/gallon to induce this decline.

One good implication of this elasticity value: it should be fairly easy to raise a lot of revenue from imposing extra taxes on gasoline. More on that later.

Sunday, April 4, 2010 | 19:04
Filed under: Energy/Environment, Politics/Society by Dries
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[Updated: I re-estimated this with daily consumption instead of monthly consumption for the simple reason that some months have more days than others. The F-score took a hit, but the model is more accurate, overall, I think.]

I decided to play around with some of the stuff I’ve been learning in my econometrics class to estimate a demand equation for gasoline.

Here is the actual demand equation:

(Click to enlarge.) The main idea is this: for every one cent increase in the price of gas, daily gasoline consumption drops by .0001378 gallons per person.

There are issues here with simultaneous equations bias (more than one equation sets price — we also have to worry about supply), so interpret this with several grains of salt.

Eventually, I’d like to use this model to calculate the elasticity of demand for gasoline. It might also be interesting to calculate the potential revenue of additional excise taxes on gas.

Now, time for some technical mumbo jumbo. Data used includes monthly gasoline consumption and monthly average gas prices (from the Department of Transportation) and monthly population estimates (from the Federal Reserve). Gas consumption is per person per day (by dividing total gas consumption by population by # of days in the month); gas prices are adjusted by the CPI to compensate for inflation. Data ranges from January 2002 to October 2009.

I decided to control for time of year because there is enormous variation in gas consumption by season. Demand peaks in the summer and bottoms out in January:

The bottom range of dots occurred when prices spiked in 2008 — the lowest consumption ever occurred in September of 2008. Prices peaked in July of 2008, at $4.07/gallon nationwide. That huge outlier does skew the model quite a bit, because the coefficient on the dummy variable for September is very low, and the p-score for September tells us the estimate isn’t particularly reliable.

Finally, for those who want to know a bit more about the model I used, here is the Stata output:

As you can see, both the F-score and R-squared value indicate that this is a well-specified model that explains a large proportion of the variation in gas consumption.

Saturday, April 3, 2010 | 13:52
Filed under: Energy/Environment, Politics/Society by Dries
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My undergrad piano professor, David Renner, introduced me to Nikolai Roslavets a few years ago. I finally followed his suggestion and bought Marc-Andre Hamelin’s excellent CD of a few of his piano pieces. Roslavets was dubbed “the Russian Schoenberg” — he dabbled in his own type of serialism. He himself  This was (predictably) not to the liking of Soviet authorities. Roslavets’ name became a derogatory term of sorts, used to describe “formalist” music not accessible to the masses. The whole story is lamentably familiar, having been repeated over and over again with many other composers and artists (most famously Shostakovich and Prokofiev.)

Here is my favorite (thusfar) of his works: the first Etude, played by Hamelin.

Wednesday, March 31, 2010 | 15:40
Filed under: Music by Dries
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[View with PicLens]

Jenny and I went up to Oregon’s Crater Lake this week. We decided to camp at a state park 40 miles south of Crater Lake, since there is no camping at Crater Lake this time of year.

That should have been our clue.

When we got there, the weather was beautiful: high 60s, a light breeze, sunny. Perfect camping weather. By nightfall, however, clouds started blowing in, and soon it was raining. It never really stopped. My hand-me-down tent was slightly leaky, so that didn’t help matters.

The next morning, we drove up to the lake. On the way there, things got snowier and snowier — at the visitor center, snow was piled nearly ten feet high next to the road. At the rim of the caldera, there was a bona fide blizzard. You could barely see the lake (see picture above.)

We did, however, get to see the Rogue River gorge, which was absolutely awesome. In the course of a few miles, it goes from being a small mountain stream to twenty-foot-tall waterfall to underground river. Wouldn’t want to go for a swim there.

The forecast for the next night was even worse, with freezing temperatures and snow showers at the campground — so we called it quits and decided to get a motel at Mount Shasta. As we were leaving Oregon on I-5, however, we were hit with yet another blizzard.  It feels like Oregon chewed us up and spit us out.

We’ll give it another shot come July.

Saturday, March 27, 2010 | 16:36
Filed under: Out and about, Pictures by Dries
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Kyle Gann has been on a microtonal kick lately. Today he posted a MIDI rendering of a microtonal quartet of his teacher, Ben Johnston. It makes for some very interesting listening.

What strikes me about this piece is that even though there are three or four times as many possible pitches per octave than we’re accustomed to, the harmonies are still very quartal and quintal. It still has a very American harmonic language, despite being out in sonic free space.

Which begs the question: what’s the point? Am I just not getting something? Gann says it took a really long time to put together this rendering (i.e., hundreds and hundreds of hours), but to me it sounds like someone sliding around the pitch bend on their keyboard. Not to say it doesn’t sound cool — cool doesn’t cut it, actually; gorgeous and serene is more like it — but it does sound like an awful lot of time and effort to create a 150 second rendering of someone else’s work. To me, MIDI was always just a tool — how do my harmonies sound? what might that rhythm feel like? Human performance was always the goal. But in this world of microtonality, MIDI is often the next best thing.

Maybe we’re back at that familiar pendulum: no one can really tell the difference between Boulez or chance music.

Wednesday, March 17, 2010 | 22:56
Filed under: Music by Dries
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… found this great little diatribe on a friend-of-a-friend’s Facebook profile.

[...]

Last summer, in my first excursion here into politics, I wrote about the experience of hearing reason shouted down at a town hall meeting. I had gone there with my teenage daughter to speak for my hearing-disabled wife, who is unable to work and can only hear at all because of the medical benefits I bring home with the proverbial bacon: as a cancer survivor, she is permanently uninsurable on her own. This time I will mention only my cousin in Tennessee whose monthly premium for himself and his two diabetic daughters was just raised to over $3000 a month, with a $2500 per person deductible, and my friend whose father is dying of brain cancer while struggling to keep up his Cobra payments, and will be rewarded for his efforts by leaving his wife uninsured until she is old enough to qualify for socialized medi–…uh, for Medicare. I’m sure everyone reading this knows people in the same boat, or worse.

I know all the arguments against the current health insurance bill, and I share some of the reservations myself. But be honest. You may have strong moral objections to the way your town obtains its water supply. You may be disgusted by the cumbersome, outdated fire engines it owns. But if you see your neighbors’ house burning down with the family asleep inside and you use those reasons as an excuse not to call the fire department, you are not only a poor neighbor but a moral coward.

I’ve heard that we can’t afford it, but that’s nonsense. We’ve been perfectly capable of paying for all sorts of knee-jerk responses to 9/11 that, frankly, do not have half the moral force or justification of even the weakest argument for health care reform. Which is more noble and more compelling: to strike out in anger, or to heal? It’s the priorities, stupid, and they’re wrong, oh so wrong (when you just have to pass it along!). Anybody out there old enough to remember Leonard Bernstein’s Candide? Thought so.

The reason I’m writing this is that it’s time for us children of the 60s to make our voices heard. It’s time to let our congresspersons and senatepersonae, and the entire leadership in Washington, know that if health care reform is allowed to die because of the events of this week, they’re going to be drowned by a wave of populist rage that will make the one that supposedly erupted on Tuesday look like a tsunami in a soup bowl. It’s going to come from people our age, and if I know anything at all, it’s that for those of us who grew up to believe that this country could rise collectively to its moral responsibilities, letting this dream die now would be as bitter as death—and about as satisfying.

DON’T LET IT HAPPEN! It’s that simple. Let them know that if this thing doesn’t go through, there will be a day of reckoning the likes of which they have probably never imagined. And please, pass this on. And on, and on, until all of us who care about this have had a chance to speak our justifiably outraged minds.

Saturday, January 23, 2010 | 12:20
Filed under: Politics/Society by Dries
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So it’s been five weeks since school started. One midterm and one policy memo later, it feels like I’m really getting into the swing of things.

When I compare my experience as an undergrad at UT at the same point, I think I can point to many more things and say, “I didn’t know this before.” It took a few years of being an undergrad before I could say that. Maybe that’s because liberal arts and music are much more squishy subjects and you spend most of your time learning how to learn, but it definitely makes me feel a little better about going into debt up to my eyeballs for this particular degree. The ultimate emphasis is on getting a job, which I appreciate.

Here’s an example to give you a better idea of the kind of thing we learn about: do food stamps work? Should the government allow trading of food stamps? Would it be better to give cash, instead? The general economic argument we discussed today was that people tend to buy more food than they need to because food stamps can’t be traded. Recipients would be just as happy receiving a cash sum of less value, and taxpayers would be spending less money. Win-win.

My response: why even bother calling the program “food stamps”? Why not just give them a tax break? The point of the program is to encourage good nutrition.

Recipients are receiving a benefit. It seems only logical that there should be some strings attached to that benefit.

Wednesday, September 30, 2009 | 12:03
Filed under: Politics/Society by Dries
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It’s been a while! Jenny and I got to California just over two weeks ago. The trip went fairly smoothly; we had a few minor hiccups along the way, but nothing major. At least we didn’t break down in the New Mexico desert like we did driving to Los Angeles two years ago.

School started last Wednesday. It hasn’t been too bad, so far–I have a pretty good mix of classes (economics, statistics, politics/agency management, and a class called “Energy and Society”) to keep me interested. My professors are all great lecturers and the subject matter looks promising. I’ve bought my books and am, for now, caught up on reading.

In other news: I bought a piano! I found a nice Kawai upright on Craigslist. It’s in great condition; I think it was built in the 1980s, but it feels brand new and very solid. I had a guy come tune it yesterday and it really sounds great. I’ve been annoying the neighbors by finishing up learning the first Chopin ballade.

Along the same lines: I’ve been meaning to put up another podcast. I’ve had the idea for a while and have been putting together a good playlist. It’ll be up soon, I promise!

Anyhoo. Off to bed for me.  More updates on California to follow.

Monday, August 31, 2009 | 1:02
Filed under: Personal by Dries
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