Carpe Diem (Mark Perry): Record High Gas Prices? We're Still Not Even Close
…For gas to reach a record high as a percent of per-capita disposable income, it would have to sell today for $5.47 per gallon to reach 14.90% of per-capita disposable income, like it did in March of 1981, when gas sold for $1.42 per gallon, and per-capita disposable income was only $9,500.
I knew such data had to exist. Thank you, Michael. Almost exactly what I expected to see.
I started driving in 1980 (a 1969 Chrysler with a 440 and a 4 barrel) so I cut my teeth on real gas prices. I was paying over $1.50 to get 8 mpg when minimum wage was $3.35. Driving for an hour around town, I could EASILY burn money faster than I could make it. These days it’s no sacrifice to own a car getting 25+ mpg, so I just don’t see it as the kind of issue it was in ’81 or ’74, but you’d think the illuminati had broken the third seal.
Thanks for finding and publishing this.
I think this may be a case where statistics clouds the issue.
Gas at $5 is still gas at $5, and it’s not uncommon to see someone spend $100 for a fillup (20 G for a behemoth) that might last a week.
And we see the repercussions: airline fares go up (and the former countless amenities go down), anything that moves by truck goes up (and we put Food in that category). Little luxuries like Starbucks take a hit (do we really need another $3 cuppa java?).
I really think the current market decline is another result.
Of course, the enviro-nuts would rather see us in the position of an upside-down turtle than actually do anything about it. Like take oil from the mosquito-infested northern wastelands, or from offshore areas.
Of course, saying that things are better than they were in 1980 is not saying much.
Everything is relative. I liked this post because it adds another lens through which to evaluate things.
Rob
LOL. My analysis of social indicators for the past several decades shows 1981 (give or take a couple of years depending on the vairable) to be the low point in American society since WWII. I graduated from college in Dec 1980. I tend to get jaded to cries of how terrible things are.
Still in the immortal words of Bob Dylan:
“I feel pretty good, but I could feel a whole lot better.”
Michael,
Statistics may be true but they are not as powerful as stories and feeling in shaping how we think about economics.
I got my driver’s license at 16 in 1974 right after the 1st rise in gas prices. I can remember when you could fill up a car for $3 but I never got to buy gas that cheap myself. Now I “KNOW” that when adjusted for inflation the gas I was buying in 1999 was cheaper than what my parents bought in 1972. But it didn’t “FEEL” like cheap gas.
Exactly! And there is the never ending challenge on such issues. First, there is the reality (as best we can discern it). Second, there is the public perception of reality. What to do about public policy when the two do not match?
Michael,
Here’s another one related to economy that implies average folks are worse off today than 50 years ago.
I remember reading several years ago autoworkers around 1955 who were careful could afford to own a vacation home somehwere on the lake as well as their home in the city.
Any idea if that is accurate? Do you have statistics on what an 1955 autoworker’s salary would be in 2008 dollars.
Now I am aware that if you added up the sq ft. of both of the autoworkers homes the total probably came to less than 2000 sq ft. But apparently they still were able to own a typical middle class home for the era and an extra. And on one income.
How many middle class American could afford to do that today? (Or maybe the autoworker in 1955 had middle class sensibilites but was actually close to upper class in his earning)
I know one factor would be in the 1950’s a typical mortgage was for about 5 yrs not 30 like today. So they were not carrying two mortgages. A newly wed who bought a house in their early twenties could have it paid off long before they were thirty.
Those kinds of comparisons are hard over a couple of decades, much less five. Quality of goods (like homes) often improve by magnitudes even as costs of production decline. But on the other hand, the “normal” variety and quality of goods one would be expect to own tends increase over time.
Another complicating factor is household size. A lot of income data is calculated by household. Number of people in a household has been changing over the past generation or two. Household size used to be pretty much similar across income levels a couple of generations ago. Now, as I recall, the average household size for the top quintile is about 3.2 persons and 1.9 for the bottom quintile. Over the past 20 years, when income is measured by household, there appears to be little change in middle class income. However, when viewed on a per capita basis, income has increased by upwards of 20%. Then we get into the whole issue of whether consumption patterns are a better measure of economic status than income. (I’m inclined to think we learn much more by consumption.)
I have no personal knowledge of factory workers with summer homes. I have seen some of the homes on the shores in NJ, NY and MA that would pass as “summer homes” that would I would call glorified beach cabins. Probably the best thing to do would be to look at percentage of income spent on rent/housing. I may see if I can post on that some day. But for all the reasons I mentioned above, comparisons over lengthy time frames become problematic.
The next thing to expect is food prices to jump up, and when that happens the media will collapse into conspiratorial hysteria. But really, as a percentage of total income, food is drastically cheaper than it was 20 years ago. If a man were to invest in food right now, he could hardly go wrong.
As for putting $100 in the tank, so what? And trickle-down effects of high gas prices, yep, happens. I get about 21 mpg, and I stick $60 in the tank pretty regularly. It hurts, but it seems fair to me. Gasoline is a pretty complex product that comes across an ocean to get to my tank via a complex and expensive infrastructure. It should be a little pricey.
If there were a straight line from 1977 to 2007, we’d not even be talking about this. Instead, there was a steady and inexplicable descending line until 2004 and a spike up from there, so we assume someone is sticking it to us.
I hardly believe it. How many refineries put off critical, expensive maintenance while prices fell for no reason? How many refineries did companies not build because they were flying too close to their margins? Companies must make profits to invest capital into their own businesses. If they’re in a profitable business, then all the better.
Fortunately, this is the Internet, where I can say what I really think and nobody will drag me into the street to pour tar and feathers on me. I just think it’s natural and normal for companies to make money, and that it’s wrong to take it from them by making their product a virtual part of the public domain.
The law of supply and demand is strongly at work here. Cities have reduced the supply of housing. Limits on what can be built are frequent, as well as things like school fees, this adds costs. Housing has responded like you would expect. The price has gone up. So what was affordable in 1950 no longer is possible for a similar place in the food chain.
Other things have sharply dropped in price, also due to supply & demand. Computers, electronic stuff, food. It makes it hard to cross reference prices in different eras.
Codepoke
Oil companies are making about 7.5% profit. That is about the average for large corporations. Detractors frequently point to the billions earned with out placing those earnings in the context of billions invested.
I keep coming back to this. Right now, stocks stink, bonds stink, real estate stinks and the dollar is very weak. If you’re a large institutional investor where will you put your investments? Commodities. That is part of what is driving the commodity prices wild.
Also, the petro market is not a free market environment. The supply is controlled by a cartel. The price of fuel is kept artificially low by subsidies in places in major markets China and India. Supply is greatly restricted by environmental regulation in the US. Who knows what the price of oil actually tells us about supply and demand.
Robert
Your comment reminds me of the urban economics class I took twenty years ago. I remember looking at the high correlation between rent controls and homelessness. Thomas Sowell goes on at some length in his recent book about just the issues you mention. Where zoning and planning are tight, housing costs are far higher on a relative basis than they were a generation ago. However, where zoning and planning are modest or absent, housing costs are similar or even less.
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