OMG, it cost me almost $40 to fill up my tiny Honda Fit the other day. I was appalled. I couldn’t believe it cost so much. Why I remember back in the 70′s when my brother threatened to build a still when gas got up over $1.00 per gallon. Remember the AMC Gremlin commercial where the cute girl asked for a dollar’s worth? The attendant wanted to know if she needed “all that.” She snatched the dollar back and said, “Just give me a gallon!” We used to laugh and make jokes that he would retort, “Honey, that IS a gallon!”
HOW HIGH ARE GAS PRICES?
The good news is that my Fit can get up to 40 mpg if I take it easy. The bad news is, it cost me $40 to fill up! Gas prices are at near historic highs, crushing the economic engine of America and the livelihood of Americans. Or are they?
Jim Geraghty of National Review Online thinks so:
While the peak in the summer of 2008 was $4.27, the March 12 average of $3.83 surpasses everything else before it – from the beginning of the chart in 1920 (when only a small fraction of Americans owned cars!) and through the Great Depression and through the 1973 oil crisis and through the late 1970s and 1980s, the Persian Gulf War, and after 9/11. Note that every other spike in prices tends to coincide with economic hard times.
In other words, adjusted for inflation, today’s gas prices – in March! — are worse than during every preceding gas price spike, except the peak of summer in 2008. So what will the peak price be this summer?
Let’s take a closer look at the chart he uses to make his claims, though. Let’s look away from merely the price at the pump and find out the true cost of gasoline.
WHAT ABOUT INFLATION?
While we can say with some certainty that yes, prices have been lower in every sense of the word, and yes, they are “historically high” now, what does that really mean? Adjusted to 2012 dollars, gasoline prices are lower than they were in 1920, when autos and gasoline were both scarce luxuries. They look to have been their lowest in history in the early 70′s (adjusted for inflation) and then moved back up to a historic level during the first year of Ronald Reagan’s presidency.
WHAT ELSE AFFECTS THE TRUE COST OF GASOLINE?
So again we see that gas prices are historically high right now, even adjusted for inflation. Are there any other factors that might affect the “real” price of gasoline? Of course! If we also consider the purchasing power we have as Americans, and despite the recent economic downturn, the portion of our income that we spend for gasoline has plummeted since the 1950s. Our wages have outstripped prices and so adjusted for purchasing power as well as inflation, the numbers begin to look more benign.
In 2006, admittedly prior to the housing balloon’s burst and the ensuing crashes, the Cato Institute pointed out this very thing. Admittedly I am no expert in these issues and I’d love to get a look at the same chart up to 2012, but their point is that the actual hit on the pocketbook is lower today than the price at the pump would indicate.
by Jerry Taylor and Peter Van Doren orig. published Investor's Business Daily
One other factor that, like it or not, Rush, has lowered the hit that a tank of gas puts on our wallet, is the Corporate Average Fuel Economy requirements and threats that have raised our fuel economy higher and higher over the last 30 years. Since 1975, fuel economies for both cars and trucks have doubled, halving the need to fill up. Unfortunately, it looks like it’s not enough. Pewenvironment.org has a great pdf on the history of fuel economy. Their chart is telling: all the progress was made early on.
History of Fuel Economy: Pewenvironment.org
Nevertheless, the fact is that the average vehicle gets twice the mpg its counterpart did in 1975 and this has a very positive effect on the portion of our incomes we pay for gasoline.
WHAT TO DO?
But that may be all beside the point. Is there anything that the President can or should do about oil prices? The Strategic Petroleum Reserve is always mentioned in this context at one time or another, but why would we release oil from it? It’s there for one purpose: to protect our economy in the case of a major interruption in the availability of petroleum, based on the oil embargo from OPEC in the late 70s. Supplies are still available. Releasing oil that was put in the reserves more cheaply is a mistake. The impact is temporary. Leave it there.
What power does the President actually have to affect oil prices? For that matter, what power do “speculators” actually have on oil prices? None, apparently. The cost of gasoline is generally about $1.00 more per gallon than the cost of the oil it is manufactured from. Steven Stoft lays this out very graphicly on zfacts.com showing the relationship between the cost of oil worldwide and the cost of gasoline.
The answer seems to be that there is nothing that the President or any group of people can do to lower the price of gasoline. When world oil prices come down, so will gasoline. And quit worrying, it’s not worth the panic.