Adjusted for Income & Fuel Efficiency Increases, Gas Today is Almost 50% Below Record High

Yesterday's CD post of a graph of 1,000 gallons of gas as a percent of per-capita disposable income (top graph above) shows that we're still nowhere near record highs for gasoline, when measured as a share of income.

Warren Meyer at Coyote Blog thoughtfully suggested adjusting the analysis to account for the significant increases in fuel efficiency over time, see middle chart above, which shows the 64% increase in fuel efficiency from the early 1980s to 2005.

The bottom graph above shows the results of Warren's analysis (see his chart here), which calculates the percent of per-capita disposable income required to buy enough gasoline to drive 15,000 miles, at the average fuel efficiency in each month from 1980 to 2008. This adjustment for increased fuel efficiency makes the initial results even more dramatic.

After adjusting for: a) higher incomes and b) greater fuel efficiency since 1980, we are nowhere near record highs for gas. In fact, to match the 13.75% level in 1980 when average fuel efficiency was only 16 mpg (and gas was $1.26 per gallong and per-capita disposable income was $8,575), gasoline today would have to reach $7.53 per gallon, almost twice today's prices!

Bottom Line: Gas prices today are almost 50% below the record highs of 1980, after adjusting for higher incomes today and much greater fuel efficiency.

Comments

[CalMar]

Gee, who would have thought it was acceptable to "adjust" for prices and inflation, by interjecting income increases and "efficiency"... I bet we could get the CPI down to zero, just by having the Commerce Department use this article's strategy!

I think I'll try the same tactic, and conclude that "effective' fuel efficiency of passenger cars in the U.S., is actually about 14 mpg, after "adjusting" for the technological capabilities we have (but are not using)for increasing the nominal fuel efficiency!

[mangolfer]

I wonder where this guy has his money invested.....

[mangolfer]

Reason for a drop in prices: Congressional hearing on oil speculation. Bernanke’s comments on the dollar. Airlines and autos getting crushed. Nonstop media coverage of energy crisis. Gasoline subsidies being lifted or limited in Asia and India. US Strategic Petroleum Reserve additions being halted. Wall Street analysts’ aggressive upside oil price targets, (sure sign of covering). Record decline in vehicle miles driven while SUV sales implode. US consumption of oil and oil products down nearly 4% in the 1st quarter alone. Iranian tankers with 28 million barrels of oil sitting in the Persian Gulf betting on higher prices (and/or because of no buyers?)

[UncleFred]

Despite other disparaging remarks, this is an interesting way to look at these high oil prices. Another aspect to add to the analysis cannot be bad, unless the data used is bad, and that doesn't seem to be the case here, providing a proper definition of "per capita disposable income" is being used.

[LiquidSoapDispenser]

Am I missing something? I'm not sure why you guys are bashing this article -- the author's point makes sense to me, however your points don't really seem to be saying much. If anyone actually has a meaningful reason to dispute the author's point, that would be appreciated.

[pockyclips 2020]

I was just about to write that you were preaching to the choir, but your writing about gasoline, not gas. More Vasoline for the masses!
Come out to the heartland and see how "wealthy" Joe Six Pack feels.
He didn't benefit in the housing bubble, but he gets to pay the price.

[Dr Jim]

The reality is that the demand is going down and the supply is fine, However people have good amount of money to make if they bet on the price going up, the same people who pushed up the tech stocks and the housing bubble have now moved their money to oil, it funny how someone could make millions of dollars just trading product without adding anything of real value to world these people are just parasites sucking the money away from the average Joe who don't know better and don't realize they are getting robbed. These people who do this never see how their greed makes some poor old person on a fixed income choose between eating and heat. These greedy people will get paid back in the end.

[truthbetold]

Key point both with oil and the economy is that we are NO WHERE NEAR as bad as things were in the 70s. Under Carter things were absolutely AWFUL. Anyone on this board old enough to remeber that? Apparently the media today preys on the fact that folks are either too young to have been alive or have poor memories so they don't remeber how bad things get when government tries to control everything. Carter almost destroyed this great country and Reagan released it from the Government prision Carter created. We need to reinact Reagan philophies. Also We need to become energy independent as a nation like Brazil did through offshore drilling (80% of energy). Nuke power plants, oil shale and offshore with a moratorium on enviromental lawsuits that are used to hold each up would make USA energy independent in 10 years - not to mention creating huge numbers of high paying US jobs! Kick those idiots out of congress!

[Pain_Man]

Bravo, truthbetold! Yes I DO remember the insanity of the Carter Administration. My parents lost their business and we lost our home due to absurd economic policies of that idiot peanut farmer. In any NORMAL market where the price spikes as it has done with oil, producers (i.e. the EVIL oil companies) would be drilling like crazy, putting as much oil on the market as possible as fast as possible in order to reap the benefit of the high prices. The market price would then normalize (i.e. rationalize) thru the natural laws of supply and demand. However, the oil market is NOT rational. ENVIRONMENTALIST WHACKO Democrats are obstructing the market's normal mechanism by blocking the US from drilling its own oil; all because of their religious fanaticism and there is NO ARGUMENT WHATSOEVER that "environmentalism... is just the latest variation of the religion of Marxism-Leninism! Instead of ludicrous talk about "windfall" profits taxes (how about windfall tax revenues! The oil companies make 8 cents/gal profit, the Federal gas tax is EIGHTEEN cents/gal!), Congress should be piling on the tax credits encouraging oil companies to drill, DRILL, DRILL!!! Only lunatics voluntarily put control of their energy supply into the hands of its enemies--or ANY foreign government, even an ally like Great Britain (and there is NO replacement for oil in even the long term--even defined by East Asian standards, i.e. 50-100 years, let alone the US definition, i.e. 5-10 yrs!). In 50 or a 100 years, historians will have a hard time believing that a Great Power could have ever VOLUNTARILY put its primary energy source (and, by extension, economy) outside its own control. We've achieved massive savings thru energy efficiency. Any gains there are long, long, long term only and tiny at best. So-called "alternative fuels" are DECADES away from viability. Short/medium/long term there is only ONE solution (one last time for the cheap seats) for $4.25/gal gas: DRILL!!!!

[chinooking]

well said truth

[john s. gordon]

dr. jim - right on.
> jack

[john s. gordon]

carter bashing seems to be the trendy activity these days. pls remember that under carter (who burdened himself with ineffectual political appointees) we still had project independence and we had fossil demonstration plants for coal conversion to liquid & gaseous fuels. all of these projects were killed by reagan, who was ordered to do so by his millionaire Greedy Oil Party friends who were determined to not have any competition from synthetics. today after 28 yrs of ronald reagan neglect we still have no demonstration plants much less a commercially viable industry to keep a lid on what the speculators/hedge funds can charge the consumer.
> jack

[tuj]

Someone forgot to include light trucks in their numbers. The US fleet peak fuel economy occurred in 1988. You can thank increasing SUV and truck sales for that.

[paulk8756]

Gee, Golfer, and I thought oil hit a new high today. Guess I must be mistaken.

[paulk8756]

That's right, Truth, if we thought Cater was bad, I can hardly wait for Obama.

[paulk8756]

Dow 7,000, anyone...?

[tuj]

Pain_man: your drilling solutions are also decades away from bringing refined product to market. Believe it or not, there actually is NOT this magic pre-packaged oil just waiting for the gov't to say 'ok, take it'. There are plenty of places open for drilling like the Bakken play; and its expensive. Same with deep water.

You instead could blame some of the oil companies for not exploring more during 90's because prices were so low. That's market signals for you; they can't respond to the signals fast enough to find and bring new product to market.

BTW, if you look at what we did in West TX in the 70's as the oil fields depleted, we drilled more and more holes for less and less oil. That's the same take in Bakken; you have to drill lots of expensive holes for returns that are much less than say what you get in KSA.

Yes, we'll have to drill at some point, but it won't reduce prices at all because we've simply used up almost all the easy-to-get-to oil. That's human nature. Now we have to go after oil that's in 9,000 feet of water and 20,000 feet under the sea bed and is 275mi off-shore. Sure, we've got ANWR to tap at some point, and the OCS (which really only has oil in a tiny part of the west, and a good chunk in the gulf, plus Alaska, virtually none on the Atlantic side).

As for how environmentalism is Marxist?... well you've baffled me.

[tuj]

Now Carter did indeed suck, but the Iranian revolution was not really in his control. Lets not forget that in 1973 gas prices jumped almost as much as they did in 1979, and that in response it was Nixon who imposed the 55mph speed limit. He also imposed wage and price controls, took the dollar off the gold standard, signed an arms reductions treaty, and get this: called for comprehensive health care.

[john s. gordon]

care for the environment being marxist - the thugs in the kremlin were the worst offenders in despoiling the environment. think of chernobyl - no containment vessel, costs too much, rubles have to be spent on weapons instead. reactors in czech built on russian designs still have no containment. think of what they did to lake baikal with their pulp mill effluent - in 1920 was one of the largest reserves of clean fresh water in the world.
> jack

[john s. gordon]

dr. jim - 'just trading product without adding anything of value' reminds one of the enron caper where they kept product (electrons) from reaching the market in order to drive up prices & force long term abusive contracts to be signed.
> jack

[john s. gordon]

truthbetold - don't blame carter for what paul volker did. by law executive cannot give orders to the federal reserve.
> jack

[tuj]

And don't forget that Volcker, who ended stagflation thru painfully high rates, was appointed by Carter. Reagan kept him on.

[kebu77]

Per capita disposible income mixes Buffet and Gates with Joe Six-pack. Use median disposible income instead and you tell the truth about the impact on "working stiffs" Then add back in all the pick-ups, vans, and SUVs. Your data will likely tell a different tale.

Then think about how new cars and "light trucks" get recycled into used ones - - the re-sale price of light trucks has collapsed in the past year. So a working family looking for an affordable vehicle will more often than in the past (basically a one-time shift in the mix) opt for the "truck" over the car, drive less, and bear the higher fuel cost. At least until the excess of trucks not used for work makes it into scrappage - - several years from now. (In the long run the workers are dead...)

[pockyclips 2020]

I'd like to know where are all these drilling rigs for offshore exploration and ANWR. Last I looked, rig usage was > 96%. Hell, they got 20% of the WORLD'S rigs working on the 1% of the oil reserves in the San Juan and Permian Basin.

Before you start screaming "drill' , shouldn't you have the equipment to do the job? Sounds like another WMD scam to me.

[GH]

This article should be linked into Wikipedia as an example of "lying with statistics":
1) Why does the "Average MPG" chart cut off at 2005? Hint: SUV sales peaked in 2006.
2) Why consider improvements in Average MPG, unless you also consider increases in average miles driven per year?

[Pain_Man]

tuj==

<Pain_man: your drilling solutions are also decades away from bringing refined product to market.>

No, in fact, this is not true.

Tho' I did not mention it (my bad), concurrent with drilling our own oil, would have to be building more refineries.

No refinery has been built in the US (thanks to environmentalist whackism) in over thirty years.

So concomitant with drilling in Anwar--and increasing coastal drilling off of Florida and California--would be the construction of new refineries. (Which would doubtless be both much more efficient and much less polluting.)

Oil is primarily used for gasoline. Most of our electricity comes from coal, natural gas and nuclear. A person like you, tuj, probably knows this, but you'd be surprised at how many people don't (or maybe you wouldn't, ;o). Nay-the-less, it needs to be mentioned.

And I never said, as you imply I did, that increasing domestic drilling was either a panacea or an instant cure for four buck a gallon gas. (putting 13 gallons of 87 octane into my Explorer cost $55; I'm totally disabled so I only drive it 2-3 times a month; just needed to preempt the "Hah! You're an evil SUV driver!!!!").

But we have to start somewhere to move toward energy independence. And "alternative"... fuels are, to reiterate, decades, at best, away from viability. The simple, irrefutable fact is that oil is the life blood of the US and the world economy and will remain so until my 8 year old daughter is a grandmother. (E.g. barring ever unpredictable technological breakthrus such as practical fusion reactors.) It's just that simple.

That doesn't mean that there shouldn't be any research on power sources other than oil. No one's advocating this. The best way to do that is to giving tax credits to the energy companies. If the people want a diversified energy arsenal, then we're going to have to subsidize it with tax dollars. We can't expect energy company shareholders to do it for free. Especially when the Federal government makes almost 300% more per gallon of gas sold than do the energy firms (and this doesn't even count rapacious, confiscatory states like California).

But the problem isn't a lack of oil. There's huge amounts; the Russians have so much it's amazing (which is why one of China's primary strategic goals is the conquest of Siberia; for an excellent fictional idea of what such a confrontation would be like, read Tom Clancy's "The Bear & the Dragon"). The problem is a,) getting to it; b.) the Russians constructing port infrastructure that can handle the supertankers which they currently cannot; c.) there's a problem with the Siberian oil itself, something oil companies, particularly Chevron, are working on to resolve. Furthermore, a massive strike has been found off the cost of Newfoundland. And it looks like another one has been found off the coast of Brazil. Good. But it's still foreign oil. It still means massive transfers of wealth from the US to other countries.

I do not recall the name, but a current active drilling area in Alaska has proven to have vastly more oil than was anticipated. And there's every reason to think that the situation is the same with Anwar.

One of the greatest drivers of the price of oil are the expanding economies of, above all, China, but also India and others. The Chinese alone now use more oil, and emit more air pollution, than the US. It's no longer a matter of the US/Europe/Japan being the dominant users.

Thus, while drilling is not an instant fix, it is the only practical one at this point in time. It's utterly absurd to pay $145/barrel for oil to Mexico, Nigeria and Venezuela (our primary suppliers, the US gets only a tiny fraction of our oil from the Middle East).

If the Democratic Party, and the extremist Left-wingers who've dominated it since McGovern, hadn't obstructed both drilling and refinery construction for 30 years, then the pain, if the situation existed at all, we current feel would be mild, at worst.

[Pain_Man]

==john s gordon==

You are, of course, absolutely right about the massive environmental damage perpetrated by thugs in the Kremlin. Huge areas of Russia, the former Soviet Republics and Eastern Europe are utterly devastated. Chernobyl is only the most dramatic example of the disregard for the health of their human subjects as well as the environment. The late Gen. Dmitri Volkogonov recalls, in "Autopsy for an Empire", that the first news he got of the disaster in the Ukraine aroused little attention because catastrophic industrial accidents were so common in the USSR. And as a Lt. Gen and a favorite of the Politburo (until his bio of Stalin!) he had access to information that few did.

But the present home of communism is, inarguably, environmentalism. Changing the name of the leopard does not remove its spots or de-claw it.

The driving principle is that we "Joe Six-Packs"*, we average Americans, aren't smart enough to run our own lives. That bureaucrats in window-less offices in DC know more about how to run our lives than we do. That we are so "unenlightened&qu... that we need their guidance. That is NOT American. That is not consonant with liberty. That dismisses American exceptionalism which has made this the greatest country in history; an exceptionalism that has spread prosperity to the largest number of people ever.

One of the most telling examples of this truth was said by the concocter of the "global warming" hoax, Dr. Steven Schneider, who has said his ultimate goal is world communist government run by the UN (as reported by story in Insight Magazine in 1990).

In the same interview, Schneider also stated that it is perfectly permissible for scientists to falsify data and lie in order to achieve political goals. In other words, "Joe Six-Pack" is so stupid that mendacity and fraud has to be used to "save" the people from themselves.

Schneider was also one of the people, in the 70s and early 80s, proclaiming that the next Ice Age is just around the corner (which it is; the current interglacial period we live in is coming to end as we are still in the Ice Age that began 2,000,000 years). Time Magazine did a cover story on it 1976 (an image of which Rush posted on his website). I also saw Schneider on a 1982 episode of Leonard Nimoy's "In Search Of" proclaiming the Coming of the Ice in no uncertain terms.

*(see how the derision drips from the very terms used by the Liberal/Socialist leadership to describe the people who make this country work, the very people who live in what is obnoxiously labeled as "fly-over" country. You know: the ones so busy clinging to their Bibles and guns whilst quaking in fear of people "different" from them.)

[jjason]

So What...Did any of you who thought Mr. Perry wrote a good article check out his data?

So what...the economy is a mess and we need some good ideas TO FIX THE PROBLEMS SO WE DO NOT HAVE THESE PROBLEMS AGAIN!