Tuesday, September 06, 2005


MSNBC First Read:

"Gasoline was last this expensive in March 1981, after Iran's revolution. The price then was $1.417 a gallon, which would equal $3.05 today after adjusting for inflation, according to the Bureau of Labor Statistics." - Los Angeles Times

Last Friday, Merrill Lynch's research department wrote to clients, "You Will Never Hear These Words Again: 'Don’t worry, gas prices are still below 1980 levels in real terms' (as if that ever mattered except to economists - oh yes, Mr. Service Station Man, may I pay you in 1980 dollars?). As if comparing things to 1980 was supposed to make anyone feel better in any event - it was one of the worst recessionary phases the economy endured in modern times."
The Big Picture also had a post on the fact that gasoline, in real dollars, is nearing a new high. And indeed, the pain of gasoline prices "feels" like the 70's and 80's. But then, it's felt that way all year.

How many people go to the pump, open their wallets, and pay for gasoline thinking, "gee, I'm paying for this gas in 2o06 dollars and boy, isn't gas relatively cheap!"

It's a fact of life that people live within their means. If inflation adjusted gasoline has been low/stable/falling, so be it. But I think people budget their money, and expend, based on real prices TODAY and on the amount of cash they have to spend. Ever gotten a big raise and six months later wondered where it went? Same phenomena.

So these economists that make this point are pointing out the esoteric. The real impact of the recent spike in gasoline prices will have an affect on people's spending habits, their daily lives, and thus the economy. Hopefully that effect is to move toward a real shift away from a petroleum based society.


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