Over the past year, we have repeatedly given the quantitative answer that has stumped so many: where did all those overhyped US "gas savings" go, because they certainly did not go into the broader economy, or toward discretionary purchases, as countless economists had said they would. The answer: more gas.
Gallup confirmed as much most last week when it reported that Americans' reported changes in spending have remained stable in most categories of goods and services over the past year - except for gasoline, with 35% reporting they spent more on gasoline in the August-September period.
Paradoxically, Gallup found the inverse of what had become erroneous conventional wisdom: "not only were Americans not spending more, they are spending less than they did in the past year on discretionary purchases such as retirement investments, leisure activities, clothing, consumer electronics, dining out and travel."
But while we knew the quantitative answer, namely that Americans bought more gas with their gas savings, we were missing the qualitative one. Courtesy of the NYT we now learn that not only did consumers not redirect their spending to other discretionary items, but engaged in an act that has stunned economists around the globe: they don’t just buy more gasoline; they bought more expensive gasoline!
And this is how a product that was essentially a staple good, suddenly provided the satisfaction of a discretionary splurge, even though it is virtually the same just more expensive.
The NYT explain this observation which is just the latest mockery of macroeconomist models, and once again shows why theory never applies to the real world.