NCPA - National Center for Policy Analysis

The Real Price of Gas

May 3, 2004

In spite of the political rhetoric over high gas prices, gas is actually cheap relative to other products, say economists. Adjusting for inflation and considering the share of consumers' income spent on gasoline, it is cheaper than it has been over the past 60 years.

Indeed, compare the price of gas (per gallon) to other consumer products if purchased by the gallon.

  • Orange juice would sell for $6.64 per gallon.
  • Olive oil would sell for $51.04 per gallon.
  • Eye drops would sell for $995.84 per gallon.
  • Nasal spray would sell for a staggering $2,615.28 per gallon.

Economist Lynn Kiesling of Northwestern University notes three main factors for rising gas prices: high world crude prices overall, environmental regulations requiring methanol additives, and new clean air regulations in 2004.

As part of his presidential campaign, Sen. John Kerry (D-Mass.) is proposing pressuring the Organization of Petroleum Exporting Countries (OPEC) to lower prices and streamlining the complex environmental regulations that deny refineries the flexibility needed to keep prices low. However, OPEC is likely to do nothing without enforcement, and Kerry's environmental base would probably keep him from fooling with environmental mandates.

Kerry has also proposed withholding oil from the Strategic Oil Reserve until gas prices return to normal, but Ben Lieberman of the Competitive Enterprise Institute argues that such a diversion would have little effect on prices, since the reserve is just "a drop in the bucket."

Source: Nick Shulz, "Gaseous Emissions," National Review, March 31, 2004, Ben Lieberman, "The New Reason for Pain at the Pump," Competitive Enterprise Institute, March 19, 2004.


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