Nobody wants to admit there is a permanent structural shift that will affect the automobile industry and demand for oil, attributable to a permanent generational paradigm shift. Even with cheap oil, many Millennials see car commuting as a chore that keeps them away from being connected electronically.
It’s an issue of elasticity of demand and substitution. The Millennials have technological replacements we did not have to automobile travel a generation ago. There is a very strong trend among young people away from automobiles.
Every time a texting-dependent Millennial gets ticketed for texting while driving, his incentive for using transit increases. Every time insurance rates increase, the Millennial will increase his incentive for using transit. Every time a Millennial is stuck in traffic wasting time and fuel he will increase his incentive for transit.
The Millennial generation is more interested in being connected and time-management than their parents’ fascination with the inefficient car culture. So the next time you see a peace officer ticket a texting driver, keep in mind the economic concept of elasticity of demand and the substitution effect towards electronic communication.
This trend of a substitution effect is even seen and encouraged in China. The Chinese government realized that unconstrained growth in car ownership will affect productivity, as congested road facilities impact growth and on-time delivery for trucking. Moreover, the Millennial generation in China is no different than in North America or the rest of developed world, preferring higher density, transit-rich compact communities and not rushing out in masses to purchase automobiles, as was earlier erroneously predicted. There is only moderate demand for automobiles, as the cost of maintaining, parking and using vehicles are seen as an unnecessary expenditure by many fiscally prudent Millennials in China.
There is much empirical evidence that baby boomers and the Millennial generation, the two largest demographic groups in North America, are converging in a time-of-life moment where what they want is walkable, compact, higher-density, service-rich, transit-oriented communities and destinations.
This is the reason that they are very unlikely to save the suburban-based, auto-dependent model of urban development.
These fundamental shifts need to be incorporated into the macroeconomic (econometric) models forecasting GDP growth, inflation and tax revenues of Canada and the U.S. There is a permanent decrease in demand.