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This Weekend, Don't Forget: Cheap Gas Prices Aren't Always a Good Thing

There are a lot of people in this country that consider cheap gas to be a form of benevolence. Here are some reasons why they should curb their enthusiasm.
November 20, 2015, 2pm PST | James Brasuell | @CasualBrasuell
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"At least on the surface, the big declines in gas prices we’ve seen over the past year seem like an unalloyed good. We save money at the pump, and we have more to spend on other things," begins a post by Joe Cortright that soon takes a turn. "But the cheap gas has serious hidden costs—more pollution, more energy consumption, more crashes and greater traffic congestion."

Cortright notes that we tend to focus on macreconomic considerations while neglecting the microeconomic. So while cheaper gas can have the effect of a tax cut, it can also quickly increase VMT, and with it, pollution and congestion.

Another, larger lesson emerges from Cortright's interpretation: "gas price fluctuations represent a terrific natural experiment in the efficacy of using pricing to manage traffic and its negative effects."

Eric Jaffe followed Cortright's work by expanding on one of the points in microeconomic column: car crashes increase as gas prices decrease.

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Published on Tuesday, November 17, 2015 in City Observatory
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