Gas Is A Bargain

Hartford Courant ^ | June 18, 2006 | David Ridenour

[newgeezer]

Today's gas prices are a bargain, compared to what they were nearly 25 years ago. And they're a bargain compared to other necessities, too.

According to the Bureau of Labor Statistics, the average cost of a gallon of regular unleaded gasoline in U.S. cities was $1.41 in April 1981. Excluding federal and state gas taxes, this meant the price was $1.26.

In today's dollars, that would be about $2.83 per gallon. But last month, the before-tax cost of a gallon of unleaded gasoline was just $2.29 - about 19 percent lower than that.

Given that we're living under much stricter air quality standards today than we were 25 years ago, that figure probably understates the real price reduction in gasoline prices.

In some areas of the country, motorists must use specialty fuels - the "boutique" fuels - to meet pollution standards. This adds to refining costs. As the Federal Trade Commission has noted, "Boutique fuels and differentiated access to gasoline supplies ... contribute to variability of gas prices."

And 1981 isn't the only year gasoline prices have been comparable to, or higher than, the prices today. Between July 1979 and October 1983, gasoline was fairly consistently over $2 a gallon. During much of the 1920s and 1930s, gasoline prices were higher than $2, too. In 1922, for example, the pre-tax cost per gallon was just shy of 25 cents - equal to about $3 today.

One part of our fuel bill has increased dramatically in real terms over the years: taxes. Adjusted for inflation, state and federal taxes on gasoline have increased by 868 percent since 1922 - they were only 4 cents per gallon back then - and by 50 percent since 1981, when they were just 14.5 cents.

But even with the recent rise in gas prices, gasoline prices are rising at a slower rate than many other necessities.

A half gallon of milk, for example, has increased in price from an average of $1.12 in 1981 to $2.09 last month. Milk prices have increased at a slower pace than inflation, but they've increased at a faster rate than gasoline prices. Milk prices declined in real terms by around 18.6 percent, perhaps aided by federal government subsidies that the Progressive Policy Institute says amounts to $3.32 for each of America's 9 million dairy cows, while gasoline declined by a slightly more robust 18.9 percent. Where are the critics of Big Dairy?

Bread prices also have increased relative to gasoline since 1981. The price for a pound of white bread has increased by 103 percent - about 8 percent less than the inflation rate over the period. Where are the calls for a windfall profits tax on the makers of Wonder Bread?

Moreover, the price of a first-class postage stamp has risen from 18 cents to 39 cents today - almost precisely keeping pace with the inflation rate.

Say what one will about gasoline: Whatever price you pay, it gets you where you're going. A postage stamp, on the other hand, won't necessarily get your letter delivered.

One needn't consult consumer price indexes to understand that gasoline isn't significantly overpriced. Consider, for example, how many Americans willingly pay $1 or even $1.50 for a 20-ounce bottle of drinking water. At $1, the price of that water is $6.40 per gallon - nearly 2.8 times the amount Americans paid for a gallon of gasoline last month.

If I'm not mistaken, water is the most abundant resource on the planet, it is not controlled by a cartel, its known reserves are not limited primarily to volatile areas of the world, and it requires substantially less refinement than gasoline to bring to market.

So my advice: Stop complaining about the price of your gas. Be thankful your car doesn't run on bottled water.

David Ridenour is vice president of The National Center for Public Policy Research (www.nationalcenter.org), a conservative, free-market think tank. This article was distributed by Knight Ridder/Tribune Information Services.

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[Emphasis added.]

[rightinthemiddle]

What would expect from a Cubs fan, anyway?

(Go, Cards!)

[Moonman62]

The price of gas is higher than it should be, therefore it is not a bargain.

[newgeezer]

It is not alleged, but certainly smaller than I expected ... 23.1 in 1980 and 25.2 in 2005.

24.6 in 1981 (the year cited in the article), and 24.6 in 2004. The peak of 26.2 occurred in 1987.

I'm fine with "alleged," thanks just the same. ;o)

[Ditto]

This whole argument is stupid. Yeah, sure the price of staple goods is more expensive/inflates faster than gas, but I ask, Who needs to buy 10-15 gallons of milk in a week? Or 10-15 loaves of bread?

Somebody with 6 kids?

I'd also add, there are also lots of people who do not need to buy gas. I recall growing up that we did not always own a car and either walked or took a street car where we were going. There are still a lot of people like that today.

For what it's worth, there was a guy I work with that was bitching about gas prices. Talking to him, I figured out that at $3.00/gal, he was spending about $3/per day commuting back and forth to work and coming in the door each morning with a $5 cup of Starbucks coffee while the Maxwell House here is free. ;~))

Perceptions rule.

[loreldan]

For some reason, he quoted the price for a half-gallon of milk.

Aha! Good catch! I didn't notice that.

[swain_forkbeard]

Yeah, but wherever they live (which is a choice), and whatever mileage they get (which is also a choice), when I drive into the city to go to work, there are thousands and thousands of cars all around me with exactly one occupant per car. That has to say something about the price and economic value of gasoline.

[RinaseaofDs]

Gasoline, as a product, hasn't undergone any improvements, either.

I'm glad we are using the timescale of 30 years, because manufacturing capacity hasn't changed in that time either.

The price has tripled since 1980, they are using fewer labor hours to produce gasoline, and have probably paid off the plant capacity used to manufacture it.

The actual cost of manufacturing gas has declined in any kind of dollar you want to use (1980 or 2006) compared to 1980. The margins that refiners make on gasoline has nearly tripled as well.

Any way you slice it, market forces are being hampered by a combination of things, making the addition of any manufacturing capacity a rather bad investment in the short term despite the increase in demand.

In the long term, they are simply making the exploration of other types of fuel more viable.

[thackney]

Alright I'll redo my numbers for 1981. But 1981 was a particulary high year for gas prices with respect to wages. Gasoline averaged $1.378 while wages were $7.43 taking 11.1 minutes to earn a gallon of gasoline.

[Fawn]

I wonder if the price went up to $5.00 if that would keep people home more? I know I would be traveling alot less.

[thackney]

You are ignoring the price of crude and taxes. Both have increased since then.

[jayef]

A gallon of gas costs 2.29. Now let's consider what you get for that. That gallon of gas in and SUV moves you, your family and your gear about 20 miles down the highway. Now . . . is that worth it. If you had to load your family and your gear on a horse drawn wagon, or if you had to walk 20 miles dragging your family and gear with you . . . would it be worth 2.29 to avoid that?

[newgeezer]

Exactly.

As I've always said, plenty of people are willing to b*tch about the price of gasoline. Few are willing to do anything about it. It's always someone else's fault.

[newgeezer]

In 1972 the national minimum wage was $0.65 per hour, if my old brain remembers rightly.

From my (generally lousy) recollection, that seems rather low. This says it was $1.60.

[RinaseaofDs]

Taxes - government at work - not a cost of production. As a pox on market forces, you bet that adding 50 cents/gal will do its bit.

Crude - definitely a cost of production.

However, if the ones producing the crude are the ones producing the gasoline, then again you are talking about a product that is in ample supply (currently at 8 year highs in inventory), and that is being carried through from extraction to refinement off of the spot market.

If you are a pure refiner (not many out there that are) then you'd be dependent on the cost of a BBL of crude on the market. If you do both, then you aren't buying crude at $69/BBL, but at whatever the cost of extraction and transport number is (plus some margin).

The US currently EXPORTS the crude we extract from Alaska, for example. Why in the name of chocolate holy hood ornaments would we not export it, when we can get $69/BBL on the spot market? They can't get that kind of ching transferring that to the refineries on the mainland via pipeline to their sister refineries.

[LibWhacker]

Today's gas prices are a bargain, compared to what they were nearly 25 years ago.

Considering everything that's happened, it's not hard to understand why gas prices are what they are. So there's no reason to get upset. But you do wonder why the author chose 25 years and not 50 years, say. Because if he had, the comparison wouldn't be so rosy. One of those how-to-lie-with-statistics tricks...

[thackney]

The US currently EXPORTS the crude we extract from Alaska

The US does NOT export Alaskan crude. You should visit the ports in Washington and California some time.

100% of Alaskan North Slope oil is kept in America. This has been the case for all but 4 years of the nearly 3 decades of Alaskan oil production. Between 1996-1999 5.5% of North Slope oil was exported to Asian countries. These exports were overwhelmingly supported by the US Congress and by the Clinton Administration to offset an oil glut in California at the time. In June 2000 Alaskan North Slope oil again ceased to be exported, and 100% of Alaskan production has stayed in America.

You can see this by looking at the export data. The following link for for exports from all of the West Coast including Alaska and Hawaii. Exports are almost non existant for this area.

West Coast (PADD 5) Crude Oil Exports, EIA

[thackney]

If you do both, then you aren't buying crude at $69/BBL, but at whatever the cost of extraction and transport number is (plus some margin).

Of course that cost is still part of the product. If you didn't consider it so, the company would make more money by selling the crude to someone else to refine.

[Red Badger]

Thanks. I worked at places in '72 that were too small for the Fed Min Wage to apply. My first "job" as a teen was in a burger joint, (flippin' hamburgers!) for $0.50 and hour plus tips.........

[Mad Dawgg]

"Nobody HAS to buy Wonder Bread. Or bottled water. Or any of the other FLEXIBLE commodities this author compares (fatuously) to gasoline. People HAVE to buy gasoline."

Sarcasm?

[IronJack]

Dead serious. You couldn't stop buying gasoline if you wanted to. And even if you yourself could, you couldn't avoid paying the high price of it in every other thing you buy.