Not a day goes by when people I deal with (mostly at the office) complain about the latest record price-per-barrel of crude or the pain at the gas pump. And yes, prices are a bit higher, in inflation-adjusted dollars, than they were the last time we had serious gas-price problems. But there is one crucial difference between 1980 and today: Supply.
Whenever I hear the woe-is-me complaints from my co-workers, I steer the conversation this way:
ME: Were you able to buy gas, at that price, today?
THEM: Well…yes…but…
ME: Is the gas always available?
THEM: What do you mean?
ME: I mean, is the station always open?
THEM: Well, yeah, but…
ME: Isn’t it true there are a lot of gas stations in our area that are actually open 24/7, gas is always available and plentiful on demand?
THEM: That’s true, but…
ME: So there is no gas supply shortage, it’s just that they’re selling the gas at a price you think is too high?
THEM: Exactly!
ME: So…what do you think the government needs to do about it? Price controls?
THEM: I dunno…that might help…
ME: Do you have any idea what happens when governments all over the world have tried to fix the price of some commodity or another, throughout history?
THEM: What?
ME: The demand for that commodity increases at that artificially low price, and you end up with…supply shortages.
THEM: …….
At which point, I return to my office and close the door.
With all the complaints by consumers, pols and pundits alike about gas prices, wanting to blame the war, OPEC, corrupt leaders of OPEC countries, or the horrendous lack of constant government oversight, no one mentions the actual supply of gas available. While financial reporters are always citing "supply concerns" when reporting another rise in the per-barrel crude price, I have never, except in rare circumstances, seen any evidence of actual supplies being unavailable or rationed to consumers.
I’m old enough to have survived the last gas crunch, which went off-again-on-again during the 70’s and peaked in the 1980 election cycle. These periods were marked by such gas-saving measures as mandatory Federal CAFÉ standards, and a Federally imposed 55mph speed limit. Closer to home, such things as "even-odd" days were imposed, where, if your license plate was an even number, you could only fill up on even-numbered days, the same went for odd numbers. "Topping off" your tank on those days was also prohibited. This was to make the available supply distributed as "fairly" as possible. The efficacy of that policy was dubious, at best, but there it was.
In 1980, in Portland, Oregon, I typically filled up, under these draconian conditions, for an average of $1.24 per gallon. Adjusted for inflation, this comes out to $3.18 today. (I filled up in Lodi, NJ, last weekend for $2.92, and that was the highest I’d seen it in quite awhile.) A short year later, however, 9 months after Reagan finished deregulating oil and gas, the price fell to $0.80/gallon.
In 2001 (pre-9/11, pre-war), I could fill up near my home for $1.54/gal. Adjusted backward for inflation to 1981, that price was — you may have guessed it — $0.80. So for twenty straight years, the price (and supply) of gas was actually disgustingly stable, only subject to the effects of currency inflation.
Inflation fools a lot of people. Like the proverbial frog in the pot set to boil, they don’t pay attention to the slow, inexorable erosion of their buying power over time. If you earn $100,000 per year today, you may feel OK about your middle-class lifestyle, but that pre-tax money only had the buying power of $39,037 in 1980, and $16,486 in 1968, roughly my father’s gross earnings that year. Plus, you probably pay a lot more in taxes on that $100k than your father or grandfather did on his $16,486. To avoid those taxes, you put as much as you can into a 401k or IRA, 529’s for your kids college tuition, and pay up for a bigger house than you really need to get the home mortgage deduction. Net effect is that you actually have less spending power. On every real measure, are we, today, truly better off than our parents/grandparents were, just a generation or so ago?
The other side of the "money coin" is the hammering the dollar itself is getting in the global market. As of this morning, the dollar is trading at almost $1.54 against the Euro, when, only a few short years ago, both currencies were virtually at par.
The other day, I saw crude prices hit a peak of $104 a barrel. But that’s about u20AC68. So, if by some miracle, the dollar could restrengthen itself back to par with the Euro (seems like a forlorn hope, I know), the crude price would lower itself accordingly to $68 per barrel, which would mean a savings of about $1.30 at the pump.
But then demand would probably increase, and…here we go again.
The fact that, while there is political pressure to increase CAFÉ standards, after nearly a generation of inactivity, but no pressure to reinstate the hated "double-nickel," even-odd days, or anything else, says to me that there is really no problem with the supply of gas itself, but rather the issue of energy independence we’re trying to grapple with. Then again, no one talks about how the destruction of our currency plays just as important a role in consumer’s perceptions regarding gas prices.
