# 541  

July 2006



Claim of Record High Gas Prices Tanks Under Scrutiny


by David A. Ridenour

 

Don't believe the media hype: Prices at the pump aren't as bad as you've been lead to believe.

Compared to what they were nearly 25 years ago, today's gas prices are a bargain.  And they're a bargain compared to other necessities, too.

According to Bureau of Labor Statistics, the average cost of a gallon of regular unleaded gasoline in U.S. cities was $1.41 in April 1981.  Excluding federal and state gas taxes, this meant the price was around $1.26.

In today's dollars, that would be about $2.83 per gallon.  But in May, the before-tax cost of a gallon of unleaded gasoline was just $2.29 - about 19 percent lower than that. 

Given that we're living under much stricter air quality standards today than we were 25 years ago, that figure probably understates the real price reduction in gasoline prices.  In some areas of the country, motorists must use specialty fuels - the so-called "boutique" fuels - to meet pollution standards.  This adds to refining costs.  As the Federal Trade Commission has noted, "boutique fuels and differentiated access to gasoline supplies... contributes to variability of gas prices."

1981 isn't the only year gasoline prices have been comparable to, or higher than, the prices today.  Between July 1979 and October 1983, gasoline was fairly consistently over $2 a gallon.  During much of the 1920s and 1930s, gasoline prices were higher than $2, too.  In 1922, for example, the pre-tax cost per gallon was just shy of 25 cents - equal to about $3 today.

One part of our fuel bill has increased dramatically in real terms over the years: Taxes.  Adjusted for inflation, state and federal taxes on gasoline have increased by 868 percent since 1922 (they were only 0.4 cents per gallon back then) and by 50 percent since 1981 (when they were just 14.5 cents).

But even with the recent rise in gas prices, gasoline prices are rising at a slower rate than many other necessities.

A half gallon of milk, for example, has increased in price from an average of $1.12 in 1981 to $2.09 in May.  While milk prices have increased at a slower pace than inflation, they've increased at a faster rate than gasoline prices.  Milk prices declined in real terms by around 18.6 percent, perhaps aided by federal government subsidies that the Progressive Policy Institute says amounts to $3.32 for each of America's 9 million dairy cows, while gasoline declined by a slightly more robust 18.9 percent.

(Where are the critics of Big Dairy?)

Bread prices also have increased relative to gasoline since 1981.  The price for a pound of white bread has increased by 103 percent - about eight percent less than the inflation rate over the period.

(Where are the calls for a windfall profits tax on the makers of Wonder Bread?)

Moreover, the price of a first-class postage stamp has risen from 18 cents to 39 cents today - almost precisely keeping pace with the inflation rate.

Say what one will about gasoline:  Whatever price you pay, it gets you where you're going.  A postage stamp, on the other hand, won't necessarily get your letter delivered.

One needn't consult consumer price indexes to understand that gasoline isn't significantly overpriced.

Consider, for example, how many Americans willingly pay $1 or even $1.50 for a 20-ounce bottle of Dasani drinking water. 

At $1, the price of that water is $6.40 per gallon - nearly 2.8 times the amount Americans paid for a gallon of gasoline last month.

If I'm not mistaken, water is the most abundant resource on the planet, it is not controlled by a cartel, its known reserves are not limited primarily to volatile areas of the world and it requires substantially less refinement than gasoline to bring to market.

So my advice: Stop complaining about the price of your gasoline.  Be thankful your car doesn't run on bottled water.

 

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David A. Ridenour is vice president of The National Center for Public Policy Research

 


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