About that pain at the pump

Warren Meyer, a small business owner in Phoenix, Arizona took a look at the Economic Impact of Gas Prices. There has been much discussion about the recent bump in the cost of energy, especially for the fuel we put in our RV’s. Some are limiting their excursions to avoid the pain at the pump. The Coyote Blog post took a time out to consider the big picture. How has the fuel cost changed over time as a part of our per-capita disposable income?

What prompted the Coyote Blog post was Economist Mark Perry, at his blog Carpe Diem.

For gas to reach a record high as a percent of per-capita disposable income, it would have to sell today for about $5.50 per gallon to reach 14.90% of per-capita disposable income, like it did in March of 1981, when gas sold for $1.42 per gallon, and per-capita disposable income was only $9,500.

It looks like the cost of gas ran about 6% of disposable income from 1985 until recently. Starting about 2003 it has increased from there to near 10%.

Meyer realized that the price of fuel was only a part of the picture. He factored in the average MPG rating for passenger vehicles to determine the fuel cost for a typical 15,000 miles per year. That graph accounts for the improvements in efficiency and starts its rise from about 3% in 1998 to a current 7%.

You might think that RV fuel efficiency hasn’t changed as much as it has for passenger cars but consider: A typical Suburban tow vehicle used in the late 70’s through the 80’s got about 8 miles per gallon. A modern diesel with the same trailer can get up to 14 and the big block gasoline tow vehicles will get 10 to 12 mpg. That’s an efficiency improvement of 20% or more in fuel efficiency. So Meyer’s adjustment makes sense for RV’s, too.

The pain at the pump has put some people in a panic. There is talk of re-doing the seventies with price controls and the double nickel speed limit. They didn’t work then and took a long time to get settled. It may be why there is a sharp drop to a fairly steady level starting about 1985 in the graphs. A proper perspective and learning from what has been done before will help to avoid repeating the same mistakes.

So, while I too think paying $4 for gas is not my favorite way to dispose of my income, in terms of average household pain created, gas prices are quite far from their historic highs.

It will take some time to settle things out. There are many experts trying to figure out why dropping demand has not had an impact on prices. There is also some wondering about why the pipeline isn’t getting clogged as supply keeps up and demand drops. There is also quite a bit of ‘blame game’ going on looking for scapegoats and conspiracies.

The increased pain at the pump has dampened demand. It is also stimulated a re-examination of ideas about energy and where we get it and how we manage it. That should lead to good things.

But, for now, perhaps the best bet is to put more emphasis on enjoying the places you visit rather than the journey and travel for its own sake. If history is any guide, this will work itself in due course. All you have to do is to be patient and avoid succumbing to the fear mongering that is being peddled in the news.

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