The visible hand in economics

Permanent and Temporary Shocks: Buy No Petrol Day

Posted on: February 22, 2008

I saw an interesting piece on Breakfast this morning (now that I have a “real” job I’m actually up that early) about how today is buy no petrol day.

Apparently the idea is if we all buy no petrol today this will “hit the petrol company’s bottom lines” and make them clean up their act or something like that. This just reminded me of my honours macro course when we talked about the different effect permanent and non permanent shocks have on the economy. To cut a long story short, temporary shocks have no real effect while permanent ones d0 (if tax cut today will be followed by a tax rise next year you save now to pay for the tax rise later (i.e no change in consumption), if the tax cut is going to be permanent then you will probably spend more (i.e consumption increases, the economy is stimulated and everybody is happy).

Applying this logic to our current situation, everybody not buying petrol for one day, while a great way to raise awareness (it made breakfast!), is not going to have any effect on the oil companies behaviour if the people who didn’t buy petrol today are simply delaying filling up until tomorrow. 

In summary if people want to change petrol companies behavior by hurting them financially,  it needs to be done by a permanent decrease in petrol consumption as this will have a non transitory effect on profit, not just be a blip on the radar that is gone the next day.

I haven’t had a coffee yet so I don’t have the energy for sarcasm

Agnitio 

1 Response to "Permanent and Temporary Shocks: Buy No Petrol Day"

Hi there Agnito,

I wonder if the TV news weren’t taken in: a by no petrol day email has been doing the rounds for quite some time. It is, as I understand it, a hoax

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