Monday, March 26, 2012

Adjusted for Inflation and Increased Vehicle Efficiency, Cost Per Mile is 28% Less Than in 1980


Energy Fact of the Day:

Adjusted for inflation, gasoline today is about the same price as in 1980 ($3.58 per gallon in February, see top chart). However, adjusted for both inflation and increased fuel efficiency over time, the costs per mile driven were about 23 cents in 1980 compared to 16-17 cents per mile in February 2012, according to the EIA (see bottom above), or about 28% less today than in 1980.  

HT: Robert Kuehl

20 Comments:

At 3/26/2012 4:52 PM, Blogger Benjamin said...

Excellent commentary by Mark Perry.

The CPI probably overstates inflation, for reasons of the kind just cited by Perry.

Though a curious thing it be, that some fixate on a nominal index, necessarily constructed in a subjective manner, and becoming less accurate from the moment it is created or updated.

Really, we die if inflation is three percent and not two percent?

And we should asphyxiate the economy to make this subjective index come in at zero?

 
At 3/26/2012 5:20 PM, Blogger VangelV said...

Nonsense. The USD has lost far more purchasing power than has been reflected by the CPI reports coming from the BLS. And while vehicles are better much of the reported mileage today is overstated because the numbers come from ideal situations that are not replicable by normal drivers. Of course, once you add the cost of maintenance and repairs the cost per mile is probably even much higher than it used to be. In 1980 a small collision would do no damage to the chrome plated steel bumpers. Today they cost you $1,500 as the lightweight plastic bumpers are toast and in need of replacement. And let us not even mention the much higher insurance prices, licence renewal prices, etc.

 
At 3/26/2012 6:19 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 3/26/2012 6:23 PM, Blogger PeakTrader said...

The difference between U.S. real income, quality changes, and international trade from 1980 to 2012 is the difference between a 1980 Ford Pinto and a 2012 Honda Accord.

 
At 3/26/2012 6:26 PM, Blogger Benjamin said...

Dan Boudreaux is past chairman of the econ dept at George Mason. If you get more right-wing that that, your wear jackboots and jodhpurs and listen to martial music.

He says,

"Calculating real wages

By Donald J. Boudreaux
Sunday, February 19, 2006

Like many pundits today, New York Times columnist Paul Krugman often asserts that middle-class Americans have suffered stagnant income growth since the mid-1970s. In one of his columns last June, Krugman summarized his gloomy assessment of economic performance in America over the past three decades: "The middle-class society I grew up in no longer exists."
He's right. The society that he (and I) grew up in indeed is history. But this fact deserves applause because ordinary Americans' standard of living today is so much higher than it was 30 years ago.

I admit that standard-issue data mask the truth of my claim. Most notably, after adjusting for inflation, wages of the average worker haven't risen since the mid-'70s -- while during the previous 30 years these wages escalated impressively.

But data can be tricky. For a variety of reasons, the data relied upon by Krugman and others to paint a picture of an economy that's failing the middle-class are incomplete or misleading.

One of the trickiest maneuvers for statisticians is to adjust wages for inflation. This adjustment is typically done by (as economists say) deflating actual wage numbers by the Consumer Price Index (CPI). In theory, as the average of all consumer-goods prices rise, so does the CPI. And the higher the CPI, the higher the reported rate of inflation and, hence, the greater the amount by which actual wages must be discounted to translate them into "inflation-adjusted" (or "real") wages.

Average hourly wages of private-sector workers in 1975 were $4.73; today this figure is $16.34. But when deflated by the CPI, we find that today's average wage is worth only $4.62 in 1975 dollars. Looks bad for the average wage earner.

But can we trust the CPI? I think not. For a variety of reasons, it significantly overstates the amount of inflation we've suffered -- and, thus, it misleads us in estimating changes in real wages over time."

--30--


So Dan B. says the CPI way overstates inflation. That is his stance on this issue. It is the opposite of Vange's stance.

Through such relatively new spaces at 99 cent stores and Craigslist, I find many items cheaper than ever. I won't even talk computers and cameras.

The only thing that truly seems to get more expensive is military hardware/services and health services. Those are the two truly parasitic industries upon us----and religion, but that is volitional, so let it be.

 
At 3/26/2012 6:36 PM, Blogger rjs said...

so why arent people driving more?

 
At 3/26/2012 7:12 PM, Blogger Mark J. Perry said...

People ARE driving more, see recent post showing increased traffic volume in December and January compared to a year earlier.

 
At 3/26/2012 7:17 PM, Blogger PeakTrader said...

rjs says: "so why arent people driving more?"

Data on Household Vehicles and Characteristics:

http://cta.ornl.gov/data/tedb30/Edition30_Chapter08.pdf

Table 8.2 shows vehicle miles per capita peaked in the mid-2000s with peak oil.

 
At 3/26/2012 7:40 PM, Blogger PeakTrader said...

I'm sure, there's diminishing returns on vehicle miles per capita, because the world's circumference is fixed, for example, and there's a time constraint, e.g. speed limits.

However, that doesn't explain the decline in recent years.

 
At 3/26/2012 8:55 PM, Blogger jorod said...

Obviously they don't have kids in college.

 
At 3/27/2012 5:54 AM, Blogger geoih said...

The CPI is a fantasy number that tells us nothing.

That said, how is 28% less over more than 30 years (i.e., less than 1% a year) significant. Considering the fudge factors within the fantasy, I'd say it's a wash.

 
At 3/27/2012 8:40 AM, Blogger bart said...

V said: Of course, once you add the cost of maintenance and repairs the cost per mile is probably even much higher than it used to be. In 1980 a small collision would do no damage to the chrome plated steel bumpers. Today they cost you $1,500 as the lightweight plastic bumpers are toast and in need of replacement. And let us not even mention the much higher insurance prices, licence renewal prices, etc.

Bingo!

And I'd be very willing to bet that the cost per mile doesn't include those factors.

 
At 3/27/2012 8:42 AM, Blogger bart said...

PT said: The difference between U.S. real income, quality changes, and international trade from 1980 to 2012 is the difference between a 1980 Ford Pinto and a 2012 Honda Accord.


The difference between U.S. real income, quality changes, and international trade from 1980 to 2012 is the difference between a 1980 real wood dining table and a 2012 plastic veneer on particle board dining table - that costs way more than the 1980 one.


Corrected that for you.

 
At 3/27/2012 8:44 AM, Blogger bart said...

MJP said: People ARE driving more, see recent post showing increased traffic volume in December and January compared to a year earlier.

Au contraire, as my chart posted yesterday proves. Traffic volume peaked in 2007.


http://www.nowandfutures.com/images/traffic_volume.png

 
At 3/27/2012 3:20 PM, Blogger Hydra said...

Nonsense.

Calculate the full cost per mile, which includes the amortized cost and scrap value of the vehicle, insurance, maintenance, and the risk cost of expenses not covered by maintenance.


The end result might be the same, but it is not shown by this evidence. Or, change the title so it reads accurately: Fuel cost per mile is 28% less.


Taking the full costs (not just fuel) into account, Vange is right in saying that inflation is not fully counted inthe gas only analysis.

Vange is at least partly wrong about the actual mileage obtained. My Prius routinely matches or exceeds its rated mileage, in acutal daily use.

Anyway, it matters not so much that the amounts are wrong as it does that they are consistent.

Peak Traders comment strikes me as particularly astute, though I am not sure I would have picked the Honda. Consider the Kia GT which is half the size and wight of the Corvette and with an engine half the size which puts out nearly the same HP. Or the High end Hyundais, despite their former laughable quality.

 
At 3/27/2012 3:22 PM, Blogger Hydra said...

Traffic volume peaked in 2007.

================================

Probably a local peak. When the population is up,and the economy is up, driving will be up.

Airports are already reporting record travel numbers.

 
At 3/27/2012 8:35 PM, Blogger VangelV said...

Vange is at least partly wrong about the actual mileage obtained. My Prius routinely matches or exceeds its rated mileage, in acutal daily use.

Your Prius has a cost component that is not being properly accounted for. Those batteries take a lot of energy to create and that energy has to be counted properly. Of course, if Americans wanted much better mileage they would use more diesel engines and would beat your Prius.

http://www.youtube.com/watch?v=SSK-lM4eKCM

 
At 3/28/2012 9:03 AM, Blogger bart said...

bart said...

Traffic volume peaked in 2007.

================================
Hydra said...
Probably a local peak. When the population is up,and the economy is up, driving will be up.



Population is up, the economy isn't, cost of living is up - and driving is down.

Traffic volume peaked *nationally* in 2007 per the EIA and my chart. Check the raw data yourself... or not.

 
At 3/28/2012 11:34 AM, Blogger Hans said...

The Professor's gas inflator works different than mine...

In 1969 and for several years, the retail cost of gasoline, in Minnesota, was 35 cents per gallon..

Now, multiply that times six (CPI-all urban consumer index) and I get $2.10...

Is my calculation wrong?

 
At 3/28/2012 11:36 AM, Blogger Hans said...

Hydra, excellent points!

 

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