The Nudnik File

Nudnik - n. U.S. colloq. Esp. in Jewish usage: a pestering, nagging, or irritating person

Tuesday, May 18, 2004

There has been much recent talk about the high price of gasoline, often described in dramatic terms as "record high". And while prices have risen significantly, calling them "record high" is simply wrong and displays a lack of economic knowledge. Yes, in absolute terms, the price for a gallon of gasoline is higher than it has ever been. However, this is misleading and simply irrelevant. To compare the absolute prices for gas now with prices for gas in the mid 70s or early eighties, ignores the fact that the dollar has changed significantly since then, as have wages. The only real way to compare prices over time is using constant dollars (i.e. adjusting for inflation). By that measure, prices are still significantly lower than they have been in the past. Additionally, average income has grown, and so the percentage of income that one spends on gasoline is lower than it has been. If we take these factors into account, for gasoline to be at "record highs" in real terms, a gallon would have to be approximately $3.50, and crude oil would have to be in the $75-80 per barrel range.

There is also another factor in gasoline prices that is rarely talked about by politicians - taxes. A large component of gasoline cost is the various taxes that are imposed on it. In Massachusetts, taxes on gasoline are $.40 per gallon; in many other states taxes are significantly higher. So instead of talking about releasing oil from the Strategic Petroleum Reserve, something that most economists think would have minimal impact on prices, why not reduce the taxes on gas if the politicians really want to affect prices?
|| Nudnik 11:12 AM
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