Friday, January 07, 2011

Time Cost of Gas Is Less Than Half the Cost in 1940

A comment by Gale Pooley on this CD post suggested adjusting the cost of gas to account for increases in worker productivity over time, and the chart above does just that.  It shows the time cost of a gallon of gas, measured by the number of minutes of work at the average hourly manufacturing wage (BLS data here) required to purchase a gallon of gas at the nominal, retail price in each year between 1939 and 2010 (EIA data here).  

It took just slightly less than 9 minutes of work at the average hourly wage of $18.56 last year to purchase a gallon of gas at the average price of $2.77 per gallon in 2010.  That's a lower time cost than in all of the years between 1939 and 1958, and less than half the time cost of gas in the 1939-1941 period. 

13 Comments:

At 1/08/2011 3:43 AM, Blogger PeakTrader said...

It seems, the cost of energy as a factor of U.S. production has become smaller, because the U.S. economy has become lighter (goods in the Information and Biotech revolutions weigh almost nothing), while heavier goods were offshored (and imported).

Most, if not all, of the energy savings in U.S. production were shifted into U.S. consumer goods (e.g. larger houses, bigger autos, more imports, etc.), which raised U.S. living standards.

 
At 1/08/2011 4:27 AM, Blogger rjs said...

energy cost of gas was just over 1% in the 30s; now it takes 1 unit of energy to extract & refine 3

 
At 1/08/2011 8:57 AM, Blogger sykes.1 said...

You need one more correction: average mileage.

Cars in the 60s got only 2/3 the mileage of modern vehicles, so if the ordinate were minutes worked per mile traveled, the downward trend would be even more pronounced.

I believe that mileage prior to the 60s was even worse, but my personal experience only goes back 50 years.

 
At 1/08/2011 10:05 AM, Blogger morganovich said...

mark-

a bit of a quibble, but aren't the two comparison periods you cite pretty heavily influenced by WW2?

the war effort has a huge impact on gas prices.

 
At 1/08/2011 12:03 PM, Blogger juandos said...

I agree with the substance of this posting Professor Mark but the actual amounts for a gallon of gasoline is harder to determine...

The actual time needed to purchase a gallon of gaoline should be measured in 'take home dollars', not actual earnings...

I mean pay has changed, tax structure has changed, and of course there's inflation to take into account...

So what is the real 'new & improved' cost of gasoline time wise?

 
At 1/08/2011 1:19 PM, Blogger morganovich said...

juandos-

you do not have to take inflation into account. that's the whole point of using this ratio.

it should affect both $/hour worked and $/gallon of gasoline and therefore cancel out in the division.

further, hauser's law shows us that federal tax revenues have been remarkably constant around 19.5% of GDP since at least ww2, so i don't think take home % is going to make much real aggregate difference either.

 
At 1/08/2011 1:54 PM, Blogger Gale L. Pooley said...

skykes said...
You need one more correction: average mileage.


Excellent point.

Perhaps the the best index is the time price of the energy to move the average car one mile.

Build a model that considers the following:

1. Price of a gallon of gas (net of taxes) as reported by the U.S. Energy Information Administration.

2. The average wage as reported by the Bureau of Labor Statistics

3. Fuel economy of the most popular passenger car sold as reported by Automotive News. (Use the average between city and highway mileage)

The current values would be:

1. $2.64
2. $20.99
3. 27 (Toyota Camry)

This would indicate around 16.7 seconds in time price.

In 1960 The values were:
1. $0.27
2. $2.00
3. 10

This would indicate around 48 seconds.

In the past 50 years the time price has declined by 65 percent.

 
At 1/08/2011 2:17 PM, Blogger Mark J. Perry said...

I've written some posts before that take into account the 50% increase in fuel efficiency for passenger cars, from 15 mpg in 1949 to 22.6 mpg in 2008, here are the EIA data, and here's one of the posts.

 
At 1/08/2011 2:51 PM, OpenID Sprewell said...

Morganovich, Fed spending as a percentage of GDP may have "only" gone up 33% since 1950, but state and local govt spending more than doubled in that period, raising the govt take to 40%. Of course, you're right about inflation canceling out though, not to mention wage indexing probably being a better measure for most people.

 
At 1/08/2011 5:09 PM, Blogger PeakTrader said...

So, 10 years after the U.S. economy peaked in 2007, it'll be interesting to see if Peak Oil, or the higher cost of alternative energy, has reduced the average square footage of a house, created smaller autos, or caused a decline in imports (as a percentage of GDP).

 
At 1/08/2011 6:22 PM, OpenID Sprewell said...

A related reason that oil demand is going to go way down in the next decade or so is that telecommuting is about to take off. Non-commercial transportation is around 40-50% of US oil demand, I estimate that will drop by half in the coming decades, particularly as video conferencing takes off, bringing oil demand down by 20-25%. This slackening of demand will lead to further oil price drops.

 
At 1/08/2011 7:34 PM, Blogger Craig said...

"aren't the two comparison periods you cite pretty heavily influenced by WW2?"

The first period cited is 1939-1941; the war hadn't started yet.

 
At 1/09/2011 5:34 PM, Blogger juandos said...

"further, hauser's law shows us that federal tax revenues have been remarkably constant around 19.5% of GDP since at least ww2, so i don't think take home % is going to make much real aggregate difference either"...

Well morganovich you as usual put forth a very good explanation but its obvious that for all what Hauser's law is telling us it still misses quite bit around the edges...

Consider what Hauser's Law doesn't cover but the individual still has pay for out the remaining 'net dollars' such as higher fees and excise taxes...

I can only give anecdotal info on this, my paychecks in '86 vs my paychecks in '10...

The long and the short of it is that my take home today is approximately $1.00 more per hour than it was in '86 even though my hourly pay rate is $11 more...

So it seems to me I've lost $10 somewhere and I can't quite account for it all...:-)

Hence the reason I asked the question...

Thanks for your explanation...

 

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