NCPA - National Center for Policy Analysis

Gasoline Rises To Its 1982 Price

March 13, 2000

A year ago, the price for unleaded regular was under $1. Today, it is 50 percent higher, due to escalating oil prices caused by supply cutbacks in the Organization of Petroleum Exporting Countries (OPEC). Last week, a barrel of oil was selling for more than $30, triple its price this time last year.

Should gasoline prices remain at their current level, politicians will demand price controls to "aid consumers." Truck drivers are already demanding the government "do something" about the high price of diesel fuel. And demagogues are sure to blame oil company "profiteering." In the 1970s, this led to a "windfall profits" tax that applied even to newly discovered oil -- discouraging exploration and drilling.

Government intervention now would probably be counterproductive. The long gas lines in 1979 were due to Carter Administration blundering. Subsequent analysis proved there was plenty of gasoline available, but Department of Energy rules required it to be distributed to stations based on consumption in 1972! So areas of rapid growth had severe shortages. DOE regulations also prevented prices from rising to market-clearing levels and allocated supplies to special groups.

In any event, prices are not as high as they appear:

  • Adjusted for inflation, the price of gasoline is well below its 1981 peak of close to $2.50 per gallon (in 2000 dollars).
  • Also, incomes have grown in the last 20 years so that gasoline consumes a smaller portion of the family budget today.
  • And finally, despite the proliferation of sport utility vehicles, overall auto fuel efficiency is up 50 percent since 1979.

The Clinton Administration should consider lowering the gasoline tax, which averages 41 cents per gallon (federal, state and local), and easing the oil embargo against Iraq, which punishes innocent civilians while having no impact on its leaders.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, March 13, 2000.

 

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