Gas Prices Aren’t What You Think

Anyone who has even walked by a classroom where Economics 101 is being taught knows that a dollar today isn’t worth as much as a dollar yesterday. That’s inflation for you — things cost more but people earn more.

That’s why people refer to today’s dollars. “Gone with the Wind” cost about $4.25 million to make in 1939. In 2004, that’s cheap. But when you adjust for inflation, that’s about $55 million In today’s dollars.

You can’t compare prices yesterday with prices today without adjusting for inflation. But people do when they want to scare you.

The American Automobile Association (AAA) put out a press release Monday that started:

Gas prices have jumped three cents in the past week, and are within a few pennies of breaking records, according to AAA Mid-Atlantic’s latest survey of area gas prices. Today, the price of a gallon of self-serve regular in metropolitan Washington is $1.69, up three cents since last Monday.

Yeah, $1.69 sounds high. In California, according to the Department of Energy, the average is $2.11 in 2004 dollars. That sounds really high.

Why, I can remember (vaguely) when gas was about 28 cents a gallon, back in the early ’70s. The good old days.

WRONG.

Do the math. (Or better yet, find a Web site to do it for you.)

That 28 cents a gallon in 1972 is about $1.25 today. Gas wasn’t so cheap. And when it jumped to 60 cents a gallon a couple of years later? That’s about $2.28 today.

In other words, gasoline at $1.69 today is a lot less expensive than gasoline at 60 cents a gallon in 1974. In fact, $1.69 today was only worth 44 cents back in ‘74.

So the next time someone tries to tell you how expensive gasoline is compared to the good ol’ days, hand him a calculator.