American Enterprise Online | 5.22.06
By Alan W. Dowd

Crude oil is zigzagging its way toward $80 a barrel. The average price of a gallon of gas is hovering around $3.00—70 cents more per gallon than this time last year. And Americans are growing restless. According to an ABC News-Washington Post poll, 70 percent of Americans say that high gas prices have caused financial hardship for their households. As Energy Secretary Sam Bodman recently concluded, “American families are hurting.”

So maybe it’s finally time to step on the gas when it comes to alternative sources of energy (like ethanol), to pump more oil here in the U.S. (in Alaska and off the coasts of California and Florida), and to build and buy more hybrids and fewer gas-guzzling SUVs.

But it’s also time for some perspective.

When inflation is taken into account, today’s gas prices are about the same as they were in 1981, a time when most Americans had far less in their wallets. “When adjusted for inflation,” as Kevin McIntyre, a professor of macroeconomics, recently told the Baltimore Sun, “average gas prices were higher in the early 20th century than they were during the 1970s and 1980s, periods that most of us associate with expensive gas. Gas prices in the roaring 1920s, for example, averaged more than $2.50 in current dollars and averaged more than $2 a gallon even during the deflationary years of the Great Depression. Indeed, it was not until the 1960s that gas prices were consistently observed below $2 a gallon in current terms.”

Gas also consumes less in the way of average household income than it did in decades past, as a mid-2005 analysis conducted by economist Mark Perry of the MackinacCenter for Public Policy revealed. “In 1935, when gas prices were 17 cents per gallon and annual disposable income was $466, the cost of 1,000 gallons of gas was 36 percent of average disposable income,” according to Perry. Few Americans spend anywhere near that percentage of their earnings on gasoline today. In fact, the percentage we spend on gas is well under ten percent of disposable income. “The ‘cheap’ gas of the ‘60s and ‘70s,” according to the Perry, “cost about 12 percent as a share of income.”

Plus, it pays to recall that we Americans spend lots more (by the gallon) on lots of things. Consider just a few examples:

  • At $4.07 for the basic, 24-ounce “Venti Latte,” Starbucks coffee is $21.71 per gallon. And remember, many Starbucks customers make it part of their daily routine. In other words, five or six trips to Starbucks can add up.
  • If your caffeine fix comes in the form Coke or Pepsi, it’s not much cheaper. At $2 per 12-ounce glass, a casual restaurant is charging the equivalent of $21.33 per gallon for what amounts to sugar-water. (At least we can get refills at some restaurants.) At movie-theater prices—let’s say a modest $5 for 24 ounces—soda is a whopping $26 per gallon.
  • A 16-ounce beer at the ballpark starts at $6. That equals $48 per gallon. (And few fans stop at one.) 
  • If the wholesome stuff is more your taste, milk runs $2.99 per gallon in my neighborhood. Orange juice is $4.60 per gallon. The ubiquitous bottled water runs as much as $10 per gallon. And these are plentiful, even bountiful resources in America.

Some will point out that we depend more on gasoline than on boutique water, syrupy sodas and fancy coffees. True. But given how these drinks have morphed into extra appendages for many Americans, we don’t act that way.