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The Honolulu Advertiser
Posted on: Sunday, June 18, 2006

Gas prices can't keep pace with milk, bread, water

By David Ridenour

Prices at the pump aren't as bad as you've been led to believe.

Compared to 25 years ago, today's gas prices are a bargain. And they're a bargain compared to other necessities, too.

According to the Bureau of Labor Statistics, the average cost of a gallon of regular gasoline in U.S. cities was $1.41 in April 1981. Excluding federal and state gas taxes, this meant the price was around $1.26.

In today's dollars, that would be about $2.83 per gallon. But last month, the before-tax cost of a gallon of unleaded gasoline was just $2.29 about 19 percent lower.

Given that we're living under much stricter air-quality standards today than 25 years ago, that figure probably understates the real reduction in gasoline prices.

In some areas of the country, motorists must use specialty fuels the "boutique" fuels to meet pollution standards. This adds to refining costs. As the Federal Trade Commission has noted: "Boutique fuels and differentiated access to gasoline supplies ... contribute to variability of gas prices."

And 1981 isn't the only year gasoline prices have been comparable to, or higher than, the prices today. From July 1979 to October 1983, gasoline was fairly consistently over the equivalent of $2 a gallon. During much of the 1920s and 1930s, gasoline prices were higher than the equivalent of $2, also. In 1922, for example, the pre-tax cost per gallon was just shy of 25 cents equal to about $3 today.

One part of our fuel bill has increased dramatically in real terms over the years: Taxes. Adjusted for inflation, state and federal taxes on gasoline have increased by 868 percent since 1922 they were only 4 cents per gallon back then and by 50 percent since 1981, when they were just 14.5 cents.

But even with the recent rise in gas prices, gasoline prices are rising at a slower rate than many other necessities.

A half-gallon of milk, for example, has increased from an average of $1.12 in 1981 to $2.09 last month. While milk prices have increased at a slower pace than inflation, they've increased at a faster rate than gasoline prices. Milk prices declined in real terms by around 18.6 percent, perhaps aided by federal government subsidies that the Progressive Policy Institute says amounts to $3.32 for each of America's 9 million dairy cows, while gasoline declined by a slightly more robust 18.9 percent. Where are the critics of Big Dairy?

Bread prices also have increased relative to gasoline since 1981. The price for a pound of white bread has increased by 103 percent about 8 percent less than the inflation rate over the period. Where are the calls for a windfall profits tax on the makers of Wonder Bread?

Moreover, the price of a first-class postage stamp has risen from 18 cents in 1981 to 39 cents today almost precisely keeping pace with the inflation rate.

Say what one will about gasoline: Whatever price you pay, it gets you where you're going. A postage stamp, on the other hand, won't necessarily get your letter delivered.

One needn't consult consumer price indexes to understand that gasoline isn't significantly overpriced. Consider, for example, how many Americans willingly pay $1 or even $1.50 for a 20-ounce bottle of drinking water. At $1, the price of that water is $6.40 per gallon nearly 2.8 times the amount Americans paid for a gallon of gasoline last month.

If I'm not mistaken, water is the most abundant resource on the planet, it is not controlled by a cartel, it's reserves are not limited primarily to volatile areas of the world, and it requires substantially less refinement than gasoline to bring to market.

So my advice: Stop complaining about the price of your gasoline. Be thankful your car doesn't run on bottled water.

David Ridenour is vice president of The National Center for Public Policy Research (www.nationalcenter.org), a conservative think tank.