Gas Price History
Looking back at history often teaches us a lot. However, we are slow to learn the lessons of history as a quick look at gas prices shows. If we look back at the history of gasoline prices, we can see that the recent sharp rise in gas prices has to do with the increase in the demand of gas over the last few decades, as well as the energy policies that we put in place.
Gasoline Prices in the United States: The Fifties
In the 1950s, gas was cheap, very cheap. That's because in 1950 the U.S. was energy self-sufficient. We had no need to import oil since we used as much as produced. On average, gas was about $0.26 per gallon. Just to give you an idea, a hamburger back then cost $0.15 (the very first McDonalds Hamburger) and a movie cost 0.60. So a single gallon of gas cost twice as much as a hamburger but half as much as a movie. While the movie ticket comparison is consistent, the price of burgers seems to have skyrocketed.
Gas Prices: The Seventies
Throughout the Seventies, gas remained under $1 per gallon. Yet already, the world had begun to change. The Vietnam War and the Watergate scandal contributed to rising uncertainty which fueled the late Seventies' inflation crisis. By the time Jimmy Carter was in office, an energy crisis gripped the country and at one time, gas was hard to find. This had less to do with the average price - which remained under $1 and more to do with government price controls. As always happens, when the government tries to circumvent the laws of supply and demand to artificially set a gas price, the supply dries up. No one will continue selling a product after the profit has been taken out. It's too bad Jimmy Carter never studied Economics 101.
Gasoline Prices: The Eighties
The Reagan Revolution changed the economy for the better. Price controls were removed on many items and gas prices increased, but just slightly. You could still by gas for just over one dollar per gallon. The difference was that in the eighties, you could fill up anywhere. There were no long lines and cars following around tanker trucks. There was a big spike in prices when the Iran-Iraq War broke out, but gradually the prices returned to normal levels. In fact, all the way until 2005, when adjusted for inflation, gas prices were relatively constant. Hamburgers and movies, however, continued to rise. In the late eighties, it was better to drive a date around town than actually take her out for dinner and a movie.
Recent Rises in Gas Prices
In the last three years, gasoline prices around the country have more than doubled. This is happening not just in the United States but around the world. People in countries from Israel to China are paying about $8 per gallon. Now while some predict that prices will fall again, they will never go below where they were in 2005 and before. We have broken the boundaries and cannot return. Gasoline prices even reached about $4.50 in some parts of California a few weeks ago. What is interesting is that not all of this is due to a lack of global supply. Some of the price spikes are unintended consequences of government taxation and energy policy practices. If ever we needed a new, comprehensive energy policy, the time is now.