Not really “record prices”

Not really “record prices”

Here’s some more media mythmaking about gas prices. Has your local or national TV news or newspaper trumpeted “record prices for a barrel of oil”? Well, yes and no.

With some headlines blaring about “record oil prices,” a bit of perspective is in order. It is true that in nominal dollars, the price of crude oil has never been higher. However, in inflation-adjusted terms, the picture looks somewhat different. It turns out that the price for a barrel of oil peaked at about $98 in December 1979.

You have to compare prices over a long period adjusting for inflation. Otherwise, you’re comparing apples to oranges. It’s like saying that a gallon of milk cost 10 cents in 1965 (I don’t know if it did; I’m just using it as an example) and declaring that since today’s is $3.50 the dairy farmers are charging “record prices!” Adjust for inflation and the gigantic jump is less so.

Thus a gallon of gas today, while expensive (Lord knows, I’m feeling it too), doesn’t take as big a chunk out of the average paycheck as a gallon of gas did in 1979. And don’t forget we’re getting a lot more miles to the gallon than we did then.

It’s one thing to complain about gas prices. That’s fine because it’s an important issue. But we can do without the overblown hysteria of the media.

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  • You have violated Blog Commenting Principles Number Two. You have also committed the logical fallacies of Dicto simpliciter and Argumentum ad nauseam.

    Your previous arguments have violated Blog Commenting Principle Number Four, Five, Six, and Seven.

    When you feel like having a logical and respectful discussion, I’ll be ready.

  • Thanks,

    But since it costs $7.56 a gallon, it would be really expensive to drink that much.  Maybe, if gasoline is more expensive, you would drive less.

    p>About 800 years ago the Spanish Scholastics theorized, then observed that quantity demanded is price dependent.  800 years later we still have economic heretics claiming otherwise, despite all evidence to the contrary.  Perhaps we are now in the Dark Ages and the Scholastics were in the Modern Era.


  • “Good news for you this morning.  The Big Three oil companies report RECORD PROFITS for the first quarter!!!  I wonder how *that* happened.”

    It is good news. It shows that their businesses are well run. Americans have made lifestyle choices on what they drive and how much they drive. If pricing increases to a point, people will make different choices.

  • Back 40 years ago, people didn’t commute 20-30 miles on major highways either. I don’t think people have the choice not to work.

  • “Back 40 years ago, people didn’t commute 20-30 miles on major highways either. I don’t think people have the choice not to work.”

    Well they have made some choices on where they live and more importantly what they drive. I commute to work and I see a lot of SUV and large pickup trucks with only the driver.

    I also see several of my neighbors drive their kids to school. Our homes are a seven minute walk from the neighboring elementary school, yet several of my neighbors load up their kids (and one case it is a kid) into the SUV and minivan, drive 0.2 miles and return home.

    Life is tough in our consumer driven world.

  • Minimum wage is a red herring. What matters is actual average wage of everyone. The Consumer Price Index, as far as I understand, takes the buying power of the consumer into account and that’s part of how we define inflation.

    I’m no economist, so if I’m way off I hope somebody will correct me.

  • Okay, here you go. This graph from the USDA web site shows inflation-adjusted wages between 1981 and 2005, both overall averages and minimum wage (plus farm workers specifically, which is irrelevant for this analysis).

    In 1981, the average hourly wage was $7.25. In 2005, it was $16.34, more than twice as much.

    According to this site (which is an anti-Bush site, by the way), the inflation-adjusted cost of a gallon of gas in March 1981 was $2.73, which was the highest price during the old energy crisis of the 70s and 80s. Today, it is $2.94 per gallon.

    Income has more than doubled since 1981, but gas has gone up 7 percent.

    Looks like the facts don’t support your hypothesis, CatholicStudent.

  • “have no choice but to spend $5 a day on gas.”

    Uh…have no choice?  Are people ENTITLED to own cars and drive?

    As a college student, I rode a bike to school.  I rode the bus from Mission Viejo to Laguna Beach, then walked a mile to get to my job.  It didn’t matter what the gas price was.

    People have LOTS of choices.  The fact that we have gotten so spoiled to think that cars, driving and cheap gas is a “right” is pathetic.

    Move closer to your work.  Car pool.  Ride the bus.  Drive a smaller car.  Again, we have lots of choices.

  • Ferde,

    This discussion could go on forever, because you are not just complaining about gas prices, but flogging the dead horse of income distribution and the “unfairness” of their being rich people and poor people.

    Nothing is likely to convince you, but many of the people working and driving to work are working and driving to jobs in the oil/gas industry.  When the gas companies make money, they grow.  More people are employed.  More money is invested in both oil companies (by investors like me and you) and alternative energy sources, because the high prices create a DEMAND for alternatives.  This is how the market works.

    The market gave you cheap gas for decades and now the market thinks gas is a valuable commodity.  The market goes up and down.

    Check out what your socialist buddies are paying for gas these days:


    Belgium – 6.10
    France – 5.80
    Germany – 5.96
    Italy – 5.91
    Netherlands – 6.73
    U.K. – 6.13
    U.S. – 2.88