The Demand for Gasoline is up, but the threat is gone; a threat many Economists realize did not actually appear. It is not for lack of trying by the Oil-Speculating Hedge Funds, who tried to create Spikes in the Market. The psycho-terrorism of "No Gas" played poorly in the Heartland; the Day when Nebr. led the Nation in Gas Price, an elderly friend still drove 60 miles to a favorite restaurant–as he had not been there for a while. Consumers seem to negate Gas fears with the proper allocation of Household budget; the Market primed Consumers to expect Gas would rise to $4/gallon. Consumers planned for it, Gas rose and dropped in Price, and Soccer Moms grabbed the extra Mad Money.
The Gas situation highlights that Markets are set far more by Expectations, than by the realities of Supply and Demand. Once the fear of high Cost is lost, so is the Propellent for high Price. Even more relevant is the fact that Consumers become jaded, so that future attempts at Scare Pricing have much less effect. This Process is not simply emotional; Household are forced to think through a budget allocation formula of what will be cut first, and Wholesalers and Retailers will develop Inventory strategies to handle Short-term shortages. The Speculator has a hard road to travel, where Users develop immunity systems against Scare tactics.
This Fall is the time to introduce a Gas tax, before the Winter prior to National Elections within the decreasing Energy demands of the Season. The next congenial time will be the Spring of 2009, as political fawning for Voters will rule 2008. A Cap-n-Trade Carbon policy could never be worked out over the next Two years, but an effective Carbon tax policy could be worked out by September; this having the immense benefit of eating up the Deficit, or stabilizing the Social Security/Medicare-Medicaid system. I personally favor stabilizing the Welfare system, because availability of Funding will simply entice Congress to expand their Spending plans; no Tax revenue gain in the face of higher Spending. It does not modify the fact that Now is the time to begin a Carbon retardation program. lgl