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Call it reality. Call it a hidden tax. Call it whatever you’d like, but with such a sharp increase in the price lately, many low and middle income families are really being hit hard.

More gas blues from USA Today.

The average price for all three grades rose nearly 20 cents to $2.53 in the three weeks ending Aug. 12, said Trilby Lundberg, who publishes the semimonthly Lundberg Survey of 7,000 gas stations around the country. The figures were not adjusted for inflation.

In the same three-week period, crude oil price futures rose about $8.21. A barrel of oil produces about 42 gallons of gasoline, resulting in a price increase of 19.6 cents per gallon � nearly identical to the 19.8 cent rise in the price of gas at the pumps, Lundberg said.

Now, many poo-poo comments like mine by pointing to the price of gas when adjusted for inflation. That’s true, but you also have to look at the average American workers wage when adjusted for inflation. The fact of the matter is, the average wage has actually gone down. That means more people are having to pay, on average, more of their take home income for gas.

Gas prices in March 1981 would be $3.03 per gallon expressed in today’s dollars, Lundberg said, while a barrel of oil would be about $90.

“I’m feeling it,” said driver Adolfo Fernandez, a Los Angeles resident who was filling his BMW Sunday with premium unleaded at a cost of $2.97 per gallon. “I feel sorry for the people who really feel it and can’t afford it.”

According to the survey, self-serve regular averaged $2.50 a gallon nationwide. Midgrade was pegged at $2.59, with premium-grade was at $2.69.

So what’s the solution? How can we fix this? I don’t see many solutions except hybrid car technology. I wish the fuel-cell technology were more viable, but the infrastructure for delivering hydrogen isn’t even close to being there.

Would more spending on viable public transportation be a workable solution? That’s probably a non-starter for many since they’d oppose raising taxes to fund them.

And what about opening up the strategic oil reserves? Personally, I’ve never seen any evidence that this would actually help. It always felt more like political pandering than anything.

In any event, how can we solve this problem? Educate me because I am certainly no expert on this issue.

24 COMMENTS

  1. >How can we fix this?

    What needs fixing? The higher the price the faster energy alternatives will come online. You mentioned hybrid tech as a possible solution. Yes, that would fix a lot of things. If you double the MPG of your mode of transportation your will cut in half the total cost of gas. It really is that simple. And if the cost of the hybrid is the issue then the high price of gas will quicken the pace to bring a low cost hybrid to market.

    Bottom line: any short term subsidy-like fixes will only prolong the pain of the inevitable rise in gas prices.

  2. Concur with Marteen. The price of gasoline must reflect the truth of our (and the world’s, really) dependence upon oil, and on imported oil at that. The price must also reflect truly what the replacement technology will cost.

    Sales taxes can be quite regressive – perhaps it would be better for states not to add them to gasoline, but rather simply tax the (prorated) value of vehicles, or miles driven, instead.

  3. Even hybrid technology only postpones the inevitable. Postpones it by many years or even decades, yes, but only postpones it. Even if hybrid automobiles were to become the norm, eventually the combination of population growth (and thus growth in the sheer number of drivers) worldwide, still-dwindling (albeit more slowly) oil supplies, and what I call the “diet soda effect” (i.e. the reasoning that if hybrid cars give, say, five times the mileage as regular cars, we can go ahead and drive five times as many miles as we used to) will eventually, inevitably bring us back to square one.

    What we really need is to find a way for our cars to run on solar power, or some other inexhaustible energy resource.

  4. Concur with Marteen and Dan. Price is the ultimate determinant of value.

    Joshua – if we postpone the end of oil for years/decades by increasing efficiency, that gives us that much more time for alternatives.

  5. i agree with joshua, we’ve had years to fix the problem, in the 50s during the baby boom, we took notice. the world really started to take notice in the 70s, and its 2005 and we are just now seeing an economically affordable hybrid. i doubt another decade or two is going to change much. it is not going to give us the “much more time” for alternatives. sure, a house today is more than 7x as efficient that house built in 1970. Yet still we use more energy, and we will continue to do so.

    i hope i’m wrong.

  6. Joshua – if we postpone the end of oil for years/decades by increasing efficiency, that gives us that much more time for alternatives.

    Good point, BSing. Trouble is, it seems to me that hybrids are being hyped too much as a be-all/end-all solution to high gas prices, as opposed to a temporary stopgap measure. Just as we’re all “riding with bin Laden” whether we’re riding alone or not, so we’re all contributing to high gas prices whether we drive an ordinary car or a hybrid. That won’t change until alternatives enable us to abandon petroleum-based fuel altogether.

  7. Hybrids will lessen the punch since you can buy less and get by but their use won’t drop prices much… IMO

    PS
    Got any backup for the claim that wages are lower now than the 80s? Just a heads up in advance, quoting Paul Krugman can be dangerous to your credibility. :)

    Cheers

  8. Biodiesel: http://en.wikipedia.org/wiki/Biodiesel

    In the 80s and early 90s the Renewable Energy Laboratory conducted experiments with certain species of algae that are 50% or more of oil by mass. These grow fast, and can grow in salty and waste water streams. Unlike soybeans, which would only produce 50 gallons of biodiesel per acre per year, these algae have the potential for 20,000 gallons.

    Biodisel can be mixed in any degree with normal diesel, and can run in modern engines. There is also a net decrease in the amount of greenhouse gases produced, and we can make this stuff on US soil, without needing farmland.

    We already have the capacity to make over 200 million gallons per year of this stuff. There are new plants opening all over the country, with many more planned.

    The problems come in how to transition from gasoline in your average car to this stuff.

  9. Fascinating Jon! I notice they missed one very obvious source of biolipids, however.

    We could probably heat all of California through the winter with the waste material generated by the liposuctions performed in Beverly Hills alone.

    All that good fat just going to waste!

  10. Krugman isn’t all wrong, just like others like him on the right aren’t all wrong.

    However, I wasn’t quoting him. I was paraphrasing from several sources, here and here. There’s also a book I read a few years ago, but forgot the title, which has a more historic look at inflation and how the middle class hasn’t lost, but the rich DO keep getting richer.

    Also, since the minimum wage hasn’t been increased very much since 1979, the purchasing power is 26% less than it was back then. That hurts John and Jane Q Public and it isn’t going away, even if we get more hybrid cars. The market isn’t always the end all, beat all. Sometimes we need to be smarter that that.

  11. The major problem is not the supply of crude oil, but refining capacity and the EPA mandated fuel recepies to reduce emissions. The USA has not built an oil refinerery in over 20 years, but our demand for refined oil products keeps growing. Refinerries are expensive and no one wants them in their back yard.

    Hybrid cars do offer some relief, but the people most hit by the increase in gas prices generally cannot afford between 15 and 20K for a new hybrid car.

    As gasoline becomes more expensive, people will do more to make their gas dollar stretch – such as carpool or use public transportation or drive less.

    Additionally, the increase in price will spur others to offer alternative fuels and, perhaps, develop some form of distribution infrastrature.

  12. justin gardner is correct. in the 1970s. the earning power of a household in the 1970s is very close today, and the amount of households with dual incomes has increased greatly, so what you have is 2 people affording the same things that 1 person could afford in the 70s. If gas keeps rising as it is, another period of stagflation is sure to arise. in fact, it is already starting to happen with the rise in transportation costs with the airlines.

  13. Bio Diesel. I have been burning bio diesel in my car for months and it is just as good, if not better, then the petroleum equivalent. If an auto manufacturer were to build diesel cars at the same time as producing bio diesel they would have a huge market.
    FYI. Biodiesel is made from soy beans grown in the USA.

  14. And *here’s* a depressing thought. Business Week points out that, to the degree that conservation efforts in the US succeed, they may make us *more* dependent on imported oil–since US producers tend to be higher cost than foreign producers, the sourcing from them would be reduced first–which in turn would tend to discourage further development of US oil resources…..

  15. Oil prices going up should be a cause for rejoicing not costernation. Oil is way too cheap across the world (especially in the states) because a good chunk of the true cost of oil isn’t currently priced – that little externality called carbon dioxide which will be paid for by future generations.

    Also be careful with trumping the wonders of biofuel. Some of them, especially corn, actually cost more energy to make than they do to burn. The manufacturing process on them is very energy intensive.

  16. Cleaner buring diesel fuels will be avaiable in 2007 and should spur more diesel cars sold. This will help especially if the cost of gas remains high as bio diesel will become more economical. Still, a growing world economy will always demand what we save.

    Alternatives must be found and I feel that clean burning coal and nuclear energy plants can eventually provide so much energy that hybrid cars can be recharged at night (when AC is cheap) to truly minimize gas consumption in our everyday cars used for comuting.

  17. >Got any backup for the claim that wages are lower now than the 80s?

    Total compensation (salaries and benefits) have been outpacing inflation of late (last couple of years). But if you strip out the benefits component, salaries have not kept pace with inflation (as measured by CPI). This can be found in the latest employment cost index data.

    Also, it is wrong for anyone to look at one action (like hybrid production) as a solution to this problem. But the problem has been that we have been not paying the true cost associated with our driving. And as a result of this indirect subsidy (external cost in econ terms) the domestic auto industry has been shielded from these cost pressures. They have not utilized the technology at hand to make better use of the petrol. This is a waste. This waste is a result of the price distortion and it will continue as long as it exists. But this is all short run talk. The long run options have to be addressed and will stand a better evaluation if the true costs and benefits are on the table (so to speak).

  18. Jeremy:

    I’m pretty certain you’re referring to that recent Cornell study by Pimentel?

    That study has some very serious flaws. Numerous studies conducted over the years have consistently shown that biodiesel has a postive energy balance, 3.2:1 in the case of soybeans. A similar lifecycle analysis with ethanol shows that it has a 1.34:1 energy balance. Please see this response:

    http://biodiesel.org/members/membersonly/files/pdf/071305_Pimentel_Study_NBB_Detailed_Response.pdf

    And that’s just soybeans, which have a relatively low yield per acre of oil.

  19. I’m agreeing wirth the general tendency I see here that the rise in prices will force the market to adjust. It’s not going to be pretty for the next generation, though.

    But perhaps Americans will adjust in other ways, such as returning to their old fondness for city living, biking and walking more. Meanwhile, I highly recommend the Prius, stopgap or not. So far, the spike in gas prices hasn’t hurt me any more than a spike in light bulb prices would. I just got 60 miles on my last tank of gas.

    Also, many of you probably live, as I do, in a farming community and know how energy-intensive that is. If we’re going to think in terms of energy solutions, we have to think in broader terms than cars and trucks.

  20. This is an interesting web site to look at…

    http://www.theaircar.com/models.html#

    any thoughts? Do you think it would be a viable solution here? Can you imagine pulling into a gas station and filling up for $.25???? tee hee hee….

    Maybe they could change the styling a bit, they look a little goofy and you would have to fill up about every 125 to 175 miles but it would sure save on gas and the environment. I wonder how much they will cost, that will be the kicker.

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