Economics 101: The Price of Gas (Gasoline .30 1950 adjusted for taxes and Inflation 3.23)

Mises.Org ^ | 21 April 2008 | Sterling T. Terrell

[shrinkermd]

First, we need to take into account inflation. The result of the Federal Reserve printing too much money is a loss of purchasing power of the dollar: something that cost $1.00 in 1950 would cost about $8.78 today. As for gas prices, in 1950 the price of gas was approximately 30 cents per gallon. Adjusted for inflation, a gallon of gas today should cost right at $2.64, assuming taxes are the same.

But taxes have not stayed the same. The tax per gallon of gas in 1950 was roughly 1.5% of the price. Today, federal, state, and local taxes account for approximately 20% of gas's posted price. Taking inflation and the increase in taxes into account (assuming no change in supply or demand) the same gallon of gas that cost 30 cents in 1950 should today cost about $3.13.

Neither have supply or demand remained constant. The world economy is growing. China and India are obvious examples. At the same time, Americans continue to love driving SUVs and trucks. As for supply, we are prohibited (whatever the reasons may be) from using many of the known oil reserves in our own country.

Furthermore, due to government regulation, the last oil refinery built in the United States was completed in 1976.

The average price of gas in the United States today is approximately $3.25. The question is, why are gas prices not higher than they are?

Blaming greedy oil companies on the rising price of gas is simply irresponsible. The profit margins of a few selected industries are as follows Periodical Publishing 24.9% Shipping 18.8% Application Software 22.5% Tobacco 19% Water Utilities 10.2% Major Integrated Oil and Gas 9.5% Hospitals 1.4% Drugstores 2.8%

[shrinkermd]

Great Article. Hope Rush saw it.

[stockpirate]

In 1972 I purchased a VW Super Bettle for $1,950.00, gas was $0.299 per gallon.

Today a new VW is about $20,000.00 and gas is $3.50.

And you can pay $4,500.00 FOR A RIDING MOWER :-)

[arderkrag]

Periodical Publishing 24.9%

Interesting. I wonder how high this margin was during the 50's in the mainstream media heyday.

[rednesss]

"Furthermore, due to government regulation, the last oil refinery built in the United States was completed in 1976."

That sentence is a tad bit disingenuous. What was the capacity in 1976 versus what it is now???? The existing plants have expanded and expanded and capacity has kept pace with demand otherwise we would have rationing and there would be 5 mile long lines to fill up. I filled up this weekend, no line, no rationing.

[Mrs.Z]

I am old enough to completely agree with this.

I remember our first color TV cost over $400 in the early 60’s. That would be the equivalent of a huge plasma these days (in price and technology leap).

BUT, there are some BIG DIFFERENCES in the way we live now.

To save herself a trip, my mom thought nothing of sending my sister or me on our bikes to the grocery when we were elementary age.

No way anyone would do that now.

We do jump in our cars quicker and more often than in the 50’s.

[Publius6961]

Inflation (government deficit spending), the hidden tax.

How much longer do you think before the rubes catch on?

What's in your paycheck?

Whatever you do, don't check on the salaries of government executives and "public" employees...

[Wil H]

Water companies are the only true comparison in the list since they provide an essential commodity to a captive market.

BTW the Brits are paying $8.18 per gallon for gas...

[live+let_live]

“How much longer do you think before the rubes catch on?”

Reading several threads on FR yesterday regarding oil prices, I’d say never.

[norraad]

..inflation + the fact that in the next 10 years more cars will be built than were in the last 100 years.

Very few will have High Pressure Fuel Injection (developed in the previous century) or any other high mileage design, so get ready to pay more for gasoline everytime you fill up, . . forever & ever.

"..come play with us Danny, forever & ever & ever............"

[rlmorel]

I think the issue is that our refineries have no EXCESS capacity and are running at very high rates of production nearly all the time.

To bring a refinery offline or reduce the output for maintenance and other things along those lines, a company is loathe to do do.

However, a fire or explosion in a refinery can wreak havoc on production and prices, but the reflection in what we pay at the pump is always somewhat delayed...

[gundog]

Value of a 1953 quarter in 1953: 25 cents

Value of a 1953 quarter today: about $3.50

[rednesss]

"I think the issue is that our refineries have no EXCESS capacity and are running at very high rates of production nearly all the time."

But why would a company want to build and not operate spare capacity???? They're in this for the money.

[dalereed]

Where does this clown get $.30 in 1950, in 1952 I was only paying $.139/gallon.

[norraad]

Those silver quarters were so cool, I loved the “ting” sound they made when flicked in the air.

[cvq3842]

Yes, a 1953 quarter would buy you about a gallon of gas back then . . . and that same 1953 quarter would buy you the same today.

[rlmorel]

Absolutely. They ARE in it for the money. If you have a system that makes money for you and is dependent on output, the more output, the more money you make, then there are a couple of things that are almost certainly going to happen:

First, you are going to use your capacity to the fullest. No matter what. I don’t work in the industry, but I am willing to bet the people who work there are under pressure to squeeze every last drop of refined product out. More refined product=More money.

Second, If someone goes to management and says “We have a problem. If we don’t shut this line down and fix (insert problem here) we are going to have an unscheduled interruption due to an equipment failure...” you can be sure he is going to be viewed with a very hairy eyeball. I can just hear the response now: “How much longer can we go with it?” and they are going to probably take it as close to failure as they can go.

Secondly, from what I understand, there is a constant flux in the type of refining that is done, depending on the needs of the market. The refineries have to retool depending on the needs of the market. Retooling involves a decrease in production. The market drives it. When politicians start getting involved in mandating how much diesel fuel versus how much gasoline, kerosene or naval distillate is produced, you can bet that there is going to be a glut of diesel fuel somewhere, and a shortage of kerosene somewhere else. The market is the best way to control those things. Money talks. In this case, the government getting involved in pushing ethanol on the refineries AND us has to have an effect beyond the cost of beef going up because it costs more to feed the cattle because corn is being sold to make fuel.

[stevio]

Consider that cars got much worse gas mileage back then, and didn’t last as long. Technology is a godsend.

[chrisser]

But why would a company want to build and not operate spare capacity?

Because it costs $Billions and many years to build a refinery and even though the price of gasoline may be high, the margins per gallon are not.

You have to be certain to be able to refine a helluva lot of gallons for a helluva lot of years or that multi-billion dollar investment sits idle and you lose $millions.

Although complex, there's really no magic in building a refinery. Any huge corporation or investment firm that could ammass the huge capital expense could initiate one - doesn't have to be an evil, selfish oil company. That this isn't happening is a pretty good indication that no one believes building a refinery is going to be profitable, within the oil industry or outside it.

[ex-Texan]

Hate to say this but . . . Gas price are moving higher still. Wait and see. OPEC will eventually demand Euros over dollars.

Gasoline Pump Prices Moved Higher in San Francisco

With Gas Hitting Record Highs, Drivers Feeling Squeezed

[goldstategop]

Adjusted for inflation, gas is still the same in 2008 as what it cost back in 1950. People complain about higher prices but don't realize that things are still cheaper in America than in the rest of the world. We have a lot to be grateful for in this country.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus