Gasoline Prices Are High

While Lynne and I (in a previous guest post) have been quick to note that, adjusted for inflation, gasoline prices are not at record high levels, it is the case that current gasoline prices are high by historical standards.

In a letter-to-the-editor published in Sunday’s Washington Post, reader Robert Speir said:

The April 4 editorial “Guzzling Gas, Again” noted, “Gasoline prices when adjusted for inflation aren’t all that high by historical standards.” Actually, after adjusting for inflation, gasoline prices are the highest they’ve been in 20 years. Further, they are 26 percent higher than the average of the past 10 years.

A few other considerations should also enter the discussion – for example, gasoline today is different from the gasoline of 20 or 30 years ago, and a careful comparison across time should account for quality changes. It would be interesting to see an explanation of the trend in gasoline prices that accounted for changes in federal and state taxes, costs and benefits of environmental regulation, and other factors.

Before slamming (Pick your villain: OPEC, Oil companies, Congress, the Bush Administration) for the high price of gasoline, let’s get the facts straight.

[Guest posting by Mike Giberson.]

6 thoughts on “Gasoline Prices Are High

  1. Why does it matter? It matters because a long period of very low gas prices encouraged everyone to use more gas. This isn’t just a question of habits (driving more frequently and for longer distances) but of sinking capital in vehicles that offer advantages, like size and performance, dependent on their being able to use large quantities of gasoline.

    Consumer dependence is the problem. It could have been addressed years ago when gas prices were very inexpensive, through taxation. The price for not addressing it then is being paid now.

  2. The Washington Post editorial mentioned in a previous posting highlighted the same point.

    I’m not entirely convinced. Incomes are higher now than they were 20 or 30 years ago, so shouldn’t we be better able to afford this adjustment now? (If it is worth making at all.)

    In addition, we now have many more vehicle alternatives, and a very broad range of trade-offs available in the market in terms of fuel economy, size, safety, and so on.

    There wasn’t ever a time at which, say, a steep rise in gasoline taxes wouldn’t cause some consumers serious problems. We are always in the middle of things, and choices between desired alternatives are always costly.

  3. Consumer dependence is the problem. It could have been addressed years ago when gas prices were very inexpensive, through taxation. The price for not addressing it then is being paid now.

    -Why is “consumer dependence” a problem? By the same logic consumers could also be described as being dependent on food and other goods that most people do not express concern about.

    -Why would we have been better off paying the “price for not addressing” this “problem” earlier rather than later?

  4. Mike,
    I believe a case can be made that, over time, the adjustment becomes progressively more difficult and expensive. However, that does not mean that the adjustment should be made now, or that it should have been made earlier.

    US society has developed, in part, based on the relatively low cost of energy. We live in single family homes in the suburbs, rather than in apartments or condos in the cities, because we can afford the energy to heat and cool these larger dwellings and because we can afford to drive to work. We produce goods in large, centralized factories, rather than in small local facilities, because we can ship the output long distances at relatively low cost. We are willing to relocate long distances from family because we can fly home quickly and cheaply.

    It is also interesting to contemplate the influence of government initiatives on the development of our society. Tax policy encourages home ownership, rather than apartment rental. Shipping costs are a tax deductible business expense, as are energy costs.

    Imagine how differently our society might have developed if tax policy encouraged apartment rental rather than home ownership; or if highway travel was also taxed, while mass transit use was free; or if interstate shipment of goods was explicitly taxed; or, if all shipments over distances longer than 20 miles were required to be moved by trains.

  5. It depends one what period of history you’re looking at. If you go back to 1920, current gasoline prices are still near historic lows. Even if you only go back to 1980 things still look good by comparison. The last 15 to 20 years prices have hovered around $1.50 per gallon with a couple of departures. We’re now about 30 cents a gallon over that, so it costs $4.50 more now to fill a 15 gallon tank than it has in recent history. If you fill up once a week, that’s $234 more per year to buy gasoline. I have a hard time getting real upset about that.

  6. This is way off topic…

    Suburbs and the policies that produced them (subsidized mortgages, the highway system, etc.) were a rational response to the cold war.

    The US was way too urbanized and its population way too concentrated in a few cities right after WWII. We were extremely vulnerable to a nuclear strike. Just one nuke over Manhattan would have done irreperable harm to our nation’s economy (based on the number of Fortune 500 companies headquartered there at the time, for example).

    Don’t be so utopian that you can’t see that there were good reasons for why the US has developed in the way that we did. Yes, we use more energy than, say, the Europeans. But for some reason we still get more immigrants from Europe and emigrants to there.

    Energy efficiency isn’t everything. In fact, investment in energy efficient technology is for suckers, the ROI is poor.

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