Monday, September 20, 2010

Gas prices

July 21, 2008
Don’t get me wrong, $4 gasoline blows. (I filled up yesterday with regular, at $3.99.9)  Taken in context though, we are not as bad off as it seems.
People have short memories.  1998 prices ($1.03) were NOT normal; they were the result of a huge surplus on the international market. So how bad-off, oppressed, etc are we today?
Let’s look at 1955, a year most of us associate with big cars, big engines, and cheap gas – automotive glory days. Regular gas sold for 29 cents. But one dollar in 1955 was worth much more than one dollar today. If we were using today’s little dollarettes, gasoline would have cost $2.76 in 1955.  So we are worse off than in 1955, right? No. Because we were poorer in 1955 than we are today, $2.76 then had a bigger impact on the pocketbook (that is, it represented a larger fraction of income) than $2.76 today. If we adjust gasoline prices not only for inflation but also changes in disposable per capita income (defined as income minus taxes), gasoline today would have to cost $5.17 to have the same impact as 29 cents in 1955.
The highest price per income I can remember was 1981, following the Carter Inflation Spiral and the associated loss in value of the Dollar. Again, gasoline costs would have to be over $5 to equal those days.
Also, remember that our cars are cheaper and much more efficient these days. I have mentioned before that in the early 1970s I was rolling in a 1965 Rambler Classic 660 sedan, which retailed new for $2767, required a tune-up every 10,000 miles, and got 16mpg overall, about 18 on the highway at 60mph..  Today, for about the same money, inflation and disposable income adjusted , you can get a Toyota Camry, which has about the same interior room, is far safer, better built, better appointed, faster, requires less maintenance, and gets nearly twice the miles per gallon.
So keep things in perspective. 

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