Tuesday, April 12, 2005


Matthew Yglesias is confused about the panic over gas prices:
As this chart from Angry Bear shows, real gas prices, while quite a bit higher than those of the late 80s and 1990s, are not only way lower than during the late 70s-early 80s peak, but basically about the same as during the economic salad days of '48-'73. What's more, the energy intensity of the economy (amount of energy consumed per dollar of real GDP) is way up since then, and overall incomes are higher. A shift toward an era of higher prices strikes me as something we should be eminently capable of coping with. Probably fewer people at the margin will buy SUVs and pickups, more will buy hybrids, light truck engines will get more fuel efficient, etc.
A classic case of taking something out of its context. Let's consider, for a moment, the important differences between the US economy today and the economy of the 1970s:
-A decrease in real wages. (In real dollars, most people haven't had a raise in 30 years.)
-An increase in health care costs. (Most obviously in the US, but also in Canada)
-An increase in "income insecurity". (Jobs are less secure, and sudden unpredictable costs are more common.)

This list is, of course, not exhaustive. But look at that chart from Angry Bear again - and notice the trend from 1940 to 1973. The trend was downwards, not up. So fuel prices were falling, the economy was expanding, so even though people were paying more in real terms for their gas, they were also better able to afford it.

Add to all this that the US economy still isn't doing great (even if it's not technically a recession) and that the average fleet fuel efficiency in the US is now about where it was pre-Oil Shocks, and yeah, people are hurting.

No comments: