Reductio Ad Absurdum Weblog

Thank goodness for context

Some people might read a report like this one and immediately think that gas prices are out of control:

NYMEX gasoline futures hit an all-time high on Monday as pump prices continued to soar on strong demand well ahead of the summer driving season that begins in late May.

NYMEX gasoline for May delivery hit $1.1790 a gallon, gaining 2.82 cents from its settlement on Thursday. The new high eclipsed the prior record of $1.1775 hit on March 31.

The national average for self-serve regular unleaded gas was nearly $1.80 a gallon in the two weeks ended April 9, up 2-1/2 cents, according to the nationwide Lundberg survey of about 8,000 gas stations which was released on Sunday.

However, the reality is a bit different:

Gasoline prices are relatively normal by historic terms. Sure, people are paying more for gasoline today than ever before. They're also paying more for houses, cars, lettuce, baseball cards and almost everything else than ever before. Historical comparisons of prices over the years mean absolutely nothing unless we adjust for inflation, say the Cato Institute's Jerry Taylor and Peter Van Doren..

If we adjust gasoline prices for inflation and use 2003 dollars, we find:

- During the most celebrated days of cheap fuel and gas guzzling cars -- 1955 -- gasoline actually cost $1.66 a gallon on average across the nation.

- In 1972, the year before OPEC began to flex its muscles, prices were $1.28 a gallon.

- In 1981, the real record was set -- $2.36 cents a gallon; prices are only a nickel higher now than at this time last year.

A better measure of the affordability of gasoline over time is not its inflation-adjusted price alone, but its inflation-adjusted price in comparison with our economic resources (in this case, inflation-adjusted gross domestic product (GDP) per capita). According to Taylor and Van Doren:

Even though the real price of gasoline was lower in 1972 ($1.28) than today ($1.73), per capita GDP is now $39,919 whereas it was only $20,667 (measured in 2003 dollars) in 1972.

By those measures, then, gasoline prices today are only 37 percent of what they were in 1955, 70 percent of what they were in 1972, and 45 percent of what they were relative to income in 1981, explain Taylor and Van Doren.

There you go. Can we please end the hysteria now? There's no cabal of oil companies fixing prices. If there were, they'd be doing a terrible job. Gas prices are high, but they're far from being historically high when considering all the facts.

[Posted by Owen Courrèges] [04/12/04 12:04 PM]

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Comments

Hmmmm. While I don't disagree with you, I seem to recall you insisting there was no cabal of Texas energy companies fixing electricity prices in CA, either . . .

or am I remembering incorrectly?
[04/12/04 05:39 PM] [Posted by TP]

TP,

I don't recall claiming exactly that, although I do believe that I criticized Californians for looking to blame all their energy woes on corporations rather than their own flawed energy policy (I still stand by that -- although they were overcharged, especially by Reliant, they would have still faced the same problems). I also admit that I didn't expect the scandal to break the way it did.

In this case, however, there have been numerous Congressional investigations, and all of them have turned up squat, while in California, the first invesigation uncovered the price fixing. Moreover, gas prices closely track the crude market, and even if that weren't the case, the degree of collusion needed to fix prices in the oil industry would simply be staggering. It's very far-fetched, and there's no evidence whatsoever.
[04/12/04 08:23 PM] [Posted by Owen]

Fair enough. I agree with you in this case.
[04/13/04 09:45 AM] [Posted by TP]

Agreed.
[04/20/04 08:00 AM] [Posted by scrabble]

Fuel prices
I don’t know how you feel about the current gasoline prices, but it seems to me that as consumers we get price-gouged in the run up to summer every year.
We need to take some intelligent, united action to get gasoline prices down. Instead of boycotting gasoline for a day, why not boycott one oil company for a month. This makes much more sense than the "don't buy gas on a certain day" campaigns. The oil companies know we need gasoline as a commodity, but by boycotting one company they will see how many people are upset by the abuse at the pump. I propose boycotting ExxonMobile – they’re one of the “seven sisters” in the oil industry, and if enough people take action they’ll feel it in their pocketbook.
By targeting a company in this way, we can show that buyers control the marketplace....not sellers. And, by targeting just one company for a month we can do that WITHOUT hurting ourselves. How? Since we all rely on our cars, we can't just stop buying gas. But we can have an impact on gas prices if we all act together to show the companies there’s concerted political action in response to their economic action.
Remember similar actions have been taken by Greenpeace in the past in Europe demonstrating the environmental destruction the oil companies cause. The economic boycott in Europe against Shell has a lasting impact on the way they treated the environment.
I am sending this note to about thirty people by email. If this makes sense to you, you should do the same and pass this message on to your friends.
[05/19/04 09:39 PM] [Posted by Derrick Lefcoe]