[Vision2020] oil supply/demand

[Ron Force]

Yes Dick, but you forget that when you were paying .299/gal, you were making
$5K/yr. In inflation adjusted dollars, gasoline prices are actually lower
today than they were in the 50' and 80's. That's why conservation doesn't
have an economic incentive yet. Here's a summary from Gregg Easterbrook's
blog, with a chart from Oregon State:

http://www.tnr.com/easterbrook.mhtml

RECORD NUMBER OF MISTAKES ABOUT "RECORD" GAS PRICES: "'The administration is
extremely concerned' about the near-record gasoline prices, Energy Secretary
Spencer Abraham said." So read the lead story of USA Today on Friday. Over
on CBS News, Dan Rather intoned that gasoline prices "could hit a record."
Many other news organizations said about the same. In fact, gas prices are
nowhere near a record level.

Last week the national average for regular unleaded was $1.71, while "the
record," USA Today declared, was $1.74 in August 2003. But all that matters
to consumers is inflation-adjusted cost, and in this real-dollar
calculation, gasoline prices remain about where they have been for most of
the postwar era. This chart
http://oregonstate.edu/Dept/pol_sci/fac/sahr/gasol.htm shows that the actual
U.S. record price for gasoline occurred in 1981, when regular unleaded cost
$2.80 in today's money. (The chart is in 2002 dollars; add 2 percent for
current dollars.) The current gas-price level that Spencer Abraham, Dan
Rather, and others are hyping as close to "the record" is actually 39
percent lower than the true price peak.

Another comparison: The average price of gasoline during the 1950s was about
$1.80 in today's money--meaning that during the period enshrined in our
collective political nostalgia as Energy Heaven, gasoline cost slightly more
in real dollars than the amount now being theatrically bemoaned as a
"record" price. But wait; in the 1950s, per-capita real income was less than
half what it is today. That means that for the typical American in the
1950s, gasoline cost twice as much, in terms of buying power, as today's
gasoline. Adjusted for inflation and for buying power, the purported
"record"-priced gasoline at your pumps now is substantially cheaper than the
gasoline your parents bought.

Today's gasoline is also substantially higher in quality, containing engine
detergents and having had most of its pollutant content removed at the
refinery--"reformulation" of gasoline to remove pollutants, begun on a
national basis in 1991, being a leading reason that air pollution is
declining. But even if you don't care that gasoline today is substantially
better in chemical quality than gasoline of the 1950s, it's still much
cheaper.

Why does Abraham, the energy secretary, seem ignorant of the basic economics
of gasoline? Either because he is in fact ill-informed--in speeches, Abraham
consistently gives the impression of having little idea what he is talking
about--or because the administration wants the public to feel panicky about
petroleum. Why do CBS News, USA Today, and other media organizations play
along? Perhaps to hype a non-story.

Financial numbers of all kinds annually reach "record" levels until
inflation and buying power are taken into account. At the end of Bill
Clinton's second term, the defense budget was at a "record" level, but
adjusted for inflation was nearly 50 percent lower than the peak Ronald
Reagan budget. If Social Security payments were not indexed for inflation,
they would still set a "record" every year while annually declining in real
value. Etc. It's an embarrassment to journalism when big news organizations
act as if they don't know about real-dollar valuation.

posted 11:38 a.m.

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Ron Force          Moscow ID USA
rforce@mscow.com
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I'm an old guy and can remember when gas was $0.299 a gallon so it really
makes me set up and take notice when last spring break we paid over $2.00
for gas in California and it is headed that way here.