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Aug 26, 2005 8:42 am

Record Gas Prices?

"It may seem a strange principle to enunciate as the very first requirement in a Hospital that it should do the sick no harm." [So said] Florence Nightingale, "Notes on Hospitals," 1863. And regarding news media, begin here: They should not subtract from the public's understanding. Yet subtract they nowadays do with endless headlines and talk about "record" oil and gasoline prices. For example, a recent headline in the Financial Times proclaimed: "New York investors take flight after price of oil hits record high." But the story's fifth paragraph read: "West Texas Intermediate for September delivery settled $1.83 higher at $64.90 a barrel—a new nominal record ..." The real meaning of the word "nominal" is: "The headline you just read is rubbish." As was the next day's page-one headline—"Oil price hits $66 for a fourth record of the week"—which was nullified by the story's first words: "Oil prices yesterday broke their fourth consecutive nominal record for the week ..."

For the price of oil—not in nominal dollars but real, inflation-adjusted dollars—to surpass the record set in January 1981, it would have to be $86.72 per barrel. Last Friday it was $65.35. For headlines about "record" gasoline prices to be accurate, a gallon would have to cost $3.12. Last week the national average reached $2.55—less, in real terms, than in March 1981, when the price in today's dollars was $3.11. Or, for that matter, in 1935, when the price was $2.67. Which explains one of the least mysterious "mysteries" of the moment—why, in spite of "sky-high oil prices" (Fox News) and "skyrocketing" gas prices (CNN), people are, according to AAA, driving more.

Fuming drivers should remember that the cost of a gallon of gasoline also contains a cost of government—18.4 cents federal tax and an average of 25.6 cents state taxes. So the cost of the gallon is what the pump tells you—minus about 44 cents.

Since the oil shocks of the 1970s, when the price of oil went from $1.80 a barrel in January 1970 ($9.80 in today's dollars) to $28.91 in December 1979 ($71.88 in today's dollars), the economy has become much more energy-efficient. Total energy consumption per dollar of gross domestic product has been cut almost in half since 1973.

But in America, every pleasure quickly becomes an entitlement, so Americans regard as a civil-rights outrage the fact that today's relatively low price of a gallon of gasoline—relative to prices in other years—is 67.5 cents higher than last year's very low price....

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