The Cost of Gasoline

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Is gasoline now more expensive for consumers than it was in the 1970s (as claimed by, among others, the author(s) of this article in the most recent issue of The Economist)? Adjusting for inflation seems to yield an answer of “yes.” The average retail price of a gallon of 87-octane gasoline in 1979, in the U.S., was 90 cents. Adjusted for inflation, a gallon of regular gasoline retailed in 1979 at $2.67 reckoned in 2008 dollars — more than a dollar less than gasoline is retailing for today.

But let’s not be too quick to affirm the conclusion that gasoline costs consumers more today than it cost way back then.

While the inflation-adjusted dollar price at the pump for gasoline is indeed higher today than it was during the disco decade, consumers’ expense of acquiring gasoline is arguably now lower. The 1970s were notorious for long queues at filling stations. These queues meant that consumers back then paid not only with dollars at the pump, but also with hours spent waiting in line (not to mention suffering anxiety over the prospect of being unable to get gasoline at all).

The average price of a gallon of gasoline in 1979 was (in 1979 dollars) 90 cents. So if a worker in 1979, earning that year’s average hourly wage of $6.19, spent one hour waiting in line to buy five gallons of gasoline – a standard maximum amount that filling stations would sell to customers during periods of shortage – he would have spent, waiting in queues, $1.24 worth of his time for every gallon he bought. The total cost per gallon to him would have been $2.14 ($0.90 in cash expense plus $1.24 in time expense). $2.14 in 1979 was worth about $6.36 of today’s dollars — a cost per gallon much higher than the roughly $4 that we Americans now pay (without having to queue up for the privilege of filling our tanks).

Of course, the results of any calculation of the sort that I perform above are sensitive to the assumptions used (such as my assumptions of one-hour queuing time per gasoline purchase, and a five-gallon per purchase limit; by the way, you can find here a brief account of the 12 hours that my father and I shared in waiting in a queue to buy five gallons of gasoline during the summer of 1979).

The important pont is that, no matter how you slice it, the full price that Americans paid for gasoline during the many shortages of the 1970s was higher than the simple money prices they paid at the pump.

(HT to Hans Eicholz for drawing my attention to the article in The Economist.)

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