Is gas really cheaper than in 1960?
Weeks ago, I heard someone on the radio claim that by one measure, gasoline prices are as low as they were in 1960. He didn't get the chance to elaborate, so I remained in ignorance — until this week. Now that I've seen the claims, I can safely say they're flawed, if not completely irrelevant.
In a Los Angeles Times column that sorely needed the intervention of a capable editor (memo to owner Sam Zell: Your budget cuts have hit bone. But don't say I didn't warn you about what you were taking on), author Indur Golkany and Cato Institute senior fellow Jerry Taylor flail about trying to explain. After three or four warm-up paragraphs, the crux of the argument is buried at the end of this passage:
But it's difficult to square that worry with what we call the "affordability index" — the ratio of the average person's disposable income to the price of gasoline.
After studying the average yearly price of gasoline from 1949 to 2007, and assigning the number "1" to the ratio in 1960, we found today's prices comparable to what they were in 1960 (1.35 today to 1.00 in 1960, with a high of 3.32 in 1998). The higher the gasoline affordability index figure, the lower the price of gasoline relative to disposable income.
Disposable income is the income you have after you take out taxes but before you take out food, clothing, shelter, entertainment or any other expense, discretionary or otherwise.
You want hard numbers? Here's what the authors furnish:
…[P]erception is not reality where gas prices are concerned. By June of this year, disposable income had risen by an average of $1,627 per person over last year's figures, according to the Department of Commerce, while the average person's real expenditures on gasoline increased by about $490. Our incomes are still outpacing gasoline price increases. The problem is that our incomes aren't outpacing the increase in gas prices lumped together with increases in everything else — air conditioning, food, etc. Our homes, meanwhile, are losing value.
That's true as far as it goes. But comparing the present day to 1960 in this regard seems like apples and oranges. "Disposable income" then is a completely different animal from "disposable income" now: Thanks to the schemes of the Fed and the finance sector it enables, Americans' disposable income is being eaten up by debt service to a degree unheard of — indeed unimaginable — in 1960. Americans have far less equity in their homes now. They have student loan debt. They have credit card debt. Those weren't line items on most household budgets in 1960.
So no wonder it seems as if gasoline is taking a bigger bite. And don't expect it to get any better.
Sphere: Related Content
And cell phone bills, and cable, and internet. . . I’m sure that they decided to over-complicate this so that it would make the masses feel better about how they’re taking it in the behind. Just do a simple adjusted-for-inflation number and see what you some up with. And if you are looking at “1″ as a baseline number, I’d say 1.35 is further off than they lead on. It’s just a bunch of flawed math.
Comment on August 13, 2008 @ 11:33 am
Hmm, how did Mark Twain put it “there are lies, damn lies and statistics”.
Comment on August 13, 2008 @ 1:53 pm
If you compare gas in 1960 to today, based on the value of silver, its about the same.
In 1960 you could buy a gallon of gas for the value of one silver quarter. Today, you can still buy a gallon of gas for the value of one silver quarter.
Some things just don’t change.
Comment on August 13, 2008 @ 4:56 pm
Ahem!! In response to Mr. Bullock. I have approximately 60 pounds of %90 silver quarters I’ll gladly sell you for the national average price of a gallon of gas per quarter. Current melt value per %90 silver quarter = $2.67 US dollars. Contact me if you wish to purchase these.
Comment on August 13, 2008 @ 11:06 pm
Not wrong and not irrelevent. Use different metrics if you like, the picture stays the same: http://www.cato-at-liberty.org/2008/08/13/gasoline-affordability-reconsidered/.
If you have a different set of numbers of offer (say, per capita income, not disposable per capita income) that you think refutes the point, let’s see them.
Comment on August 14, 2008 @ 9:19 am
The price of gas may be headed higher?
“Thursday August 14, 2008 06:28
We regret to inform you.
Train headed east near Belen, NM Wednesday noon August 13, 2008.
Army ambulances, support containers, and loaders.
Something up?”
http://www.prosefights.org/nmlegal/hearing/hearing.htm#ambulances
Comment on August 14, 2008 @ 9:37 am
1960 price of gold: $37 per oz
1960 price of gas: $.31 per gallon
1960 1 oz of gold bought 119 gallons of gas.
Today’s price of gold: $825 per oz
Today’s price of gas: $3.81
Today 1 oz of gold buys 216 gallons of gas.
Technology should be bringing prices down. The Federal Reserve inflates the money supply, devaluing the dollar, raising prices.
Here is what Thomas Jefferson had to say about the monetary system we have today:
“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered. ”
A group of us are coming together to put an end to this fraudulent system.
http://www.campaignforliberty.com
Comment on August 14, 2008 @ 1:56 pm
One very important detail the LA Times article ignores is the fact that the use of *average* income skews the picture. Income disparities are a lot greater than they were then. Most people today are likely paying more for gasoline that the typical 1960’s denizen; it’s just that Bill Gates makes up for it by having to put a whole lot less of his income into his gas tank.
Comment on August 17, 2008 @ 10:58 pm
When family disposable income includes the wages of the wife, then the perception of most people is that they are less well off compared to 1960 when one income usually sufficed. Home is no longer the place one charges his or her batteries at the end of the day. Home is now just another job, with cooking, cleaning, childcare, yard work, etc. squeezed into a few hours each evening and all weekend. Everyone becomes rushed, stressed, overworked. People perceive life is not better, and they are right. Gas may cost the same in dollars, but we seem to be working harder and longer for those dollars.
Comment on August 18, 2008 @ 3:41 pm
Many great comments. But, almost everybody that read the article will believe it is true and relevant because: 1) they can’t think for themselves, 2) It would not be in the paper and internet if it was not true, and 3) they don’t read sites like this that challenges the herd.
Comment on August 19, 2008 @ 12:07 am
Regarding the 1960 price of gasoline quoted by Jeremy: I remember paying 25 cents a gallon in 1968, and as little as 21 cents a gallon when there were gas wars. I don’t think the average price of gasoline reached the 30 cent level until the ’70s. Also, the official gold price in 1960 was $35 per ounce.
Comment on August 19, 2008 @ 3:39 am
If this is the best argument a Senior Fellow at CATO Institute, I am disappointed. They pay these guys? These arguments matter exactly diddly squat to me now that I make what a hospital administrator made 20 years ago and am struggling to make ends meet without the burden of a family. I was born poor, reared by grandparents who mistakenly believed in the promise of Social Security. I think I must have enjoyed what was probably a green flash of feeling like I had made it when this current crisis began to creep in.
Inflation is a tax and Americans keep right on ***-holin’ along with their heads up said bodily orifice just like there is no explanation for the trouble we find ourselves in.
The Board of Governor’s all go, “Hmmmmm” and rub their manicured beards just like they have no clue as to what caused our financial ills. The politicians follow suit and pretend to be sympathetic when selling votes for entitlements is the root cause.
Ticks me off.
I hope to god some Obama supporter does call me. I doubt they will stay on the line long enough for me to give my full opinion. McCain, too.
Thomas Jefferson also had a few other choice words about the situation we find ourselves in today, but I no longer know if even discussing the option or remedies are legal under this government.
Did I mention that I am so righteously ticked off that I actually HOPE a pollster calls me?
-Tim
Comment on August 19, 2008 @ 1:56 pm
Gee, Dave why attack the affordability index straw man, when you recognize it is apples and oranges? (or fiat apples and fiat oranges in this case)
Is real money so hard to understand that you simply ignore it?
An ounce of silver is always an ounce of silver, just as a gallon of gas is still a gallon of gas. These two THINGS have maintained a relatively constant price relationship over time, diverging mainly due to the stress placed upon the market having to deal with a continually shrinking currency unit, the dollar.
Central banks have destroyed money, yet you choose to play along with their monetary games merely in order to debunk their Cato tools?
Looks to me like found a new tool.
Comment on August 19, 2008 @ 5:26 pm
Compare the price of a well constructed house in a low crime, low tax, good schools neighborhood, then, with an equivalent house today. If you can find one.
My dad made three bucks an hour in the packing sheds in 1945. This was before the mass emigration of the seventies and afterwards. He said it took a Harvard degree and ten years work experience befor he made as much money as he did when he was fourteen, in terms of how much house he could buy.
Comment on August 19, 2008 @ 5:51 pm
“If you compare gas in 1960 to today, based on the value of silver, its about the same.
In 1960 you could buy a gallon of gas for the value of one silver quarter. Today, you can still buy a gallon of gas for the value of one silver quarter.
Some things just don’t change.”
In 1960 the average annual US per capita income bought 2,900 oz of silver. By 2001 the average annual US per captia income bought 6,950 oz of silver. In 2007 the average annual US per capita income bought only 2,890 oz of silver. Still higher than 1960 and given the silver prices are going now I expect this will improve by end of 2008. Why does everyone always omit what happens do income? Not good science!
Comment on August 20, 2008 @ 8:34 am