Vapors at the pump

• Article
• Comments ()
• Click-2-Listen
• Videos

By

This week John Kerry released his plan to reduce gasoline prices at the pump. Of course, the Massachusetts Democrat is new to the issue of reducing driving costs, because he spent his entire Senate career voting for higher gas taxes and more automobile regulations, like fuel efficiency standards, that drive up the cost of owning a car.

Moreover, Mr. Kerry has voted consistently against domestic oil production, which would lower the world price of oil and reduce American dependence on Middle East oil.

But clearly Mr. Kerry has hit on a jackpot political issue, especially as we enter the spring and summer, when travel rises across the country. On the West Coast, higher gas prices have particularly annoyed motorists. In California, where the "Left Coasters" spend seemingly half their lives in traffic jams on the San Diego Freeway and cars are like exoskeletons, gasoline prices have risen to $2.29 per gallon.

Nationwide, premium gas now sells at $1.89 a gallon, and this summer prices could easily shoot up well above $2 a gallon.

Are we running out of oil? Is the Club of Rome's famous dire prediction of severe energy shortages finally coming true? The media seem to think so. One major publication recently complained our energy sources are "running on empty."

But the doomsayers are all wrong. First, gasoline prices are still historically cheap. Gas at $2 a gallon seems expensive, but we need to adjust for inflation to determine whether today's price is out of line with past pump prices.

When energy and gas prices are measured correctly, we find that, although the price has risen than 20 percent in recent weeks, gasoline remains affordable in historical terms. The current "record high" price is quite moderate by historical standards. And in real terms, we had higher retail gasoline prices as recently as 1985, and significantly higher prices from 1979 to the mid-1980s.

Winston Churchill once said that to see the future, you have to understand the past. Let's look at the long-term trend on gas prices. Gasoline pump prices have been steadily declining since the 1920s, with the obvious exception of the 1970s, when we faced an OPEC embargo and gasoline lines.

In 1920, the real price of gas (excluding taxes) was twice today's. If today's price of gasoline relative to wages were comparable to 1920, we would pay nearly $10 a gallon.

The same is true, by the way, for the cost of oil -- slightly cheaper today, adjusted for wage growth, than 50 years ago and 5 times cheaper than 100 years ago: Human innovation always finds new oil sources and technology cuts drilling costs.