The Real Price at the Pump
April 6, 2004
Gasoline prices are relatively normal by historic terms. Sure, people are paying more for gasoline today than ever before. They're also paying more for houses, cars, lettuce, baseball cards and almost everything else than ever before. Historical comparisons of prices over the years mean absolutely nothing unless we adjust for inflation, say the Cato Institute's Jerry Taylor and Peter Van Doren.
If we adjust gasoline prices for inflation and use 2003 dollars, we find:
- During the most celebrated days of cheap fuel and gas guzzling cars -- 1955 -- gasoline actually cost $1.66 a gallon on average across the nation.
- In 1972, the year before OPEC began to flex its muscles, prices were $1.28 a gallon.
- In 1981, the real record was set -- $2.36 cents a gallon; prices are only a nickel higher now than at this time last year.
A better measure of the affordability of gasoline over time is not its inflation-adjusted price alone, but its inflation-adjusted price in comparison with our economic resources (in this case, inflation-adjusted gross domestic product (GDP) per capita). According to Taylor and Van Doren:
Even though the real price of gasoline was lower in 1972 ($1.28) than today ($1.73), per capita GDP is now $39,919 whereas it was only $20,667 (measured in 2003 dollars) in 1972.
By those measures, then, gasoline prices today are only 37 percent of what they were in 1955, 70 percent of what they were in 1972, and 45 percent of what they were relative to income in 1981, explain Taylor and Van Doren.
Source: Jerry Taylor and Peter Van Doren, "Gas Panic," Wall Street Journal, April 6, 2004.
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