I was researching some Now vs. Then costs for a story I did recently on car prices when I stumbled onto something interesting – and revealing. 
And so, worth sharing.
Find an inflation calculator; for example the federal government’s Bureau of Labor statistics CPI (Consumer Price Index) calculator (click here) . Select 1980 as your starting year. Enter $1.25 – about what a gallon of gas cost in 1980. Select 2011 – the most recent year the calculator allows. Click “calculate” and prepare for a surprise – one that will also provide a heretical insight into the nature of our economy as well as debunk a politically correct piece of conventional wisdom.
Wait, I’ll save you the trouble. The amount that comes up is $3.43 – which is what the BLS calculator says is the buying power of $1.25 in 1980 money today.
What does it mean?
First, it means that gas prices today, in real terms, are about the same as they were in 1980. You may be paying more in terms of the number of dollars, but you’re really paying the same in terms of the value of your money. 
The only thing that’s really happened is you need more paper dollars to buy the same thing. The value is the same, but the money is worth less. The increase in gas prices is a mirage, a fiction. The commodity itself has not increased much in actual cost despite the passage of 32 years, despite the much-ballyhooed uptick in global demand and in spite of the alleged and endlessly imminent bogeyman of “peak oil.”
And so we come to the awakening.
If the world was really running out of oil – or within sight of running out – the actual cost of the end product, gasoline, would be going up in real terms. Dramatically so. It’s an economic axiom that limited supply (scarcity) plus rising demand equals ever-rising costs. So how come the real price of gas is about the same now as it was 32 years ago? The reason should be obvious:
We have plenty of oil. 
Enough oil not merely to meet current demand, but foreseeable future demand.
Which means, we’ve been scammed.
Scammed by scare-mongering about “peak oil” – and robbed (and deceived) by inflation into accepting that it’s so. The price of oil goes up because the amount of money being printed has increased.
Nothing more.
If this weren’t true, if we really are on the cusp of “peak oil,” not only would the real price of oil be much higher than it is (and rising precipitously, consistently) we’d be seeing cheap-oil-dependent industries adjusting their business models accordingly.
And, rapidly.
Consider just one example: The airline industry. It depends on affordable oil. Without it, air travel becomes a means of travel open only to the rich – who don’t fly coach or even commercial. Yet Airbus has invested a king’s ransom in fleets of A380s – double-decker wide-body jets designed to haul 525 people, more than a Boeing 747. These huge airplanes burn oceans of fuel – oceans of fuel that must be available at an economically reasonable cost for the forseeable future in order to fill the seats with passengers, most of whom are just ordinary folks who do fly coach and who cannot afford a first-class ticket, let alone a private jet. 
Consider the people making the decisions at Airbus. Do you suppose they are imbeciles? That they don’t know about “peak oil” – or are just ignoring “the truth” about the imminence of The End of Oil? Or do you suppose it’s more plausible that they know there is plenty of oil now and for the foreseeable future – and are making business decisions accordingly?
Which makes more sense? Which comports more with the fact that oil prices have been stable for decades (a few short-term blips notwithstanding)?
Meanwhile, the false-flag “peak oil” story – and worries about imminent scarcity that seems to never actually arrive – are used to justify ever-more-onerous government regulations in the name of conserving that which we’ve got plenty of.
Everything from fuel economy standards for cars that make them more expensive to laws pushing us to buy CFL lights that are (you guessed it) more expensive than “wasteful” (but much more affordable) incandescent bulbs.
And, of course, because there are people who are wise to the scam – who understand what inflation is and have figured out that market price signals indicate, if anything, more oil on tap than less (i.e., increasing worldwide demand has obviously been met with increased supply – and then some) there’s got to be a back-up excuse:
Global Warming.
It’s the trump card tossed on the table when the real facts about oil and inflation – and not just the price of oil, but the fact that burning oil (as in cars) has become innocuous – begin to spread too far beyond the “fringe.”
Here’s the devastating fact with regard to the latter: More than 97 percent of a 2012 model year car’s exhaust stream is water vapor and carbon dioxide – compounds that have no negative effect on air quality but which – according to the global warming crowd – constitute “greenhouse gasses” that are dangerously warming the planet.
So, even though there is plenty of oil, and likely will be plenty of oil for years to come, we mustn’t use it (or must use less of it) in order to limit “greenhouse gasses.”
From one con (“peak oil”) to the next (“Anthropogenic global warming”).
Pull back the curtain on the first one and the second curtain’s ready to take its place.
And that, folks, is how the circus runs… .
Throw it in the Woods?
I’m struck by the difference between this thread from 18 months ago and the recent ones. Things change.
I have no doubt about the calculation. I realize this is an old post but a quick comment if I may.
In 1980 my income was about $12,500.
Currently I am on SSD/SSI and receive $10,850.
While my 1980 income was pretty good for a high school graduate at that time it was still only a couple of bucks over minimum wage.
I do receive about $80 in food stamps which puts me to about where I was back then. None of those extra dollars here though for the nearly 3 fold increase or more in the cost of everything. 🙂
Gettin’ by here in Iowa.
One interesting observance on global warming can be gleaned from the polar ice (CO2) caps on Mars. It seems this planet has been undergoing the same global warming as Earth. I do not expect this has something to do with solar cycles. It must be our emmissions are more far reaching than previously immagined.
LOL…..The stock market is a consensual delusion. Hard metals are better.
Rooney, the stock market is no delusion at all to the people that run it. To them it’s a casino where all the games are rigged. They let just a enough of the sucker class win to make sure they keep coming back. The stock market kind of reminds me of Lucy, Charlie Brown and the Football; you’d thing we’d learn. Now if a man had bought physical silver back around 2002…..
I’ve seen a lot of comments on scarcity and silver. All economic goods are scarce, that’s why they have to be allocated and not just picked up off the ground for free.
Money is nothing more than something one person is willing to accept in exchange for trade. That’s it. Precious metals like gold and silver have been used throughout history for this because they are shiny and pretty and therefore are in demand for decorative reasons, and in modern times can be used for a number of different technological purposes as well. They’ve also come to represent a sign of wealth and social stature. Also, they are durable and can be used in discrete amounts so they can also serve as a unit of account: multiples of 1 oz.
The market value of gold and silver will fluctuate but it will never be zero like fiat money, stocks, bonds etc… It’s a safe store of value compared to those things. Just ask all the people planning on retiring in 2008 but who are now back in the workforce cursing the stock market.
Well maybe we do have enough oil today. It is not an unlimited resource. We have pumped most of Texas dry, for instance. That oil will never come back. It is gone. With population and thier cars increasing exponentaily (we added one billion people in just the last 15 years), it would make sense not only to try to to big efforts to conserve more fuel, but also make serious real attempts to limit population growth. One day we will hit the wall suddenly, and a golbal disaster will result.
Hi Kevin,
Well, who will decide what makes “sense” in re conservation? You and I and other individuals, using our own judgment – or the somehow superior judgment of our Betters in government? What form will “real attempts” at curbing population take?
Just asking…
When times get harsher, life get cheaper. If food is so expensive that many people are starving then defending yoursslf with deadly force will be viewed favourably and since Conservatives/Libertarians are hard-working, family-orientated and armed to the teeth, they’ll have little trouble thinning the herd of the starving Liberal/Socialist zombies.
I’m surprised no one has ever mentioned a little add on that will
give an extra 6 or 7 miles per gal. It’s been around for about 12
or 15 years. This gadget has a container of water(quart). A metal
plate(stainless steel)hooked up to the cars elec. Hydrogen is
produced and flows into the air intake. Burns with the gas and
gives more mileage. Kits can be bought on line. (I’m not selling
them) As I remember they sell for about $250.00. They can be moved
from one car to the next without much trouble.
Sounds about right, stop the commodities brokers from driving the price of crude way above the $48 a barrel it actually costs..
and then there is the $1.00 in taxes we pay at the pump… about 53 cents Federal and 48 cents Michigan…. bty MI wants to raise it by another 9 cents..
Natural gas is becoming more and more available in the US and is very cheap now. Big trucking firms are starting to switch to natural gas. It burns cleaner and puts out fewer “green house gasses”. What is the left, who cried for natural gas, doing now? Fighting against natural gas. They want NO hydrocarbon use for fuel. But look at what they are foolishly doing everywhere else in society. Control, control, control. Tyranny dressed as “intellect” but really is “stupid” in disguise. When total control takes power the lefties will be the first to bite the dust to clear out the competition.
HYDRO-CARBONS…Hydrogen and Carbon… 2 of the most plentiful elements on the planet. We will never run out of these two elements. They may have to be processed diffently than the way they are today, but they will be always available… ABSOLUTELY nothing to worry about!
Nazi Germany and South Africa both turned coal into (superior/high quality) fuels using the FT process. All living matter is carbon and 2/3’s of all water is hydrogen… so what’s the big deal???
OBVIOUSLY… the main premise of the article IS correct… TPTB like to “scare and manipulate” the sheeple into a constant panic in order to “steal-away their freedoms, productivity, wealth and most of all their dignity!”
Good stuff, Robert!
Hey, you must be like me and in the pay of the Koch Brothers…. now, where’s our check?
What most don’t realize, oil company’s don’t refine for fuels, i.e. gasoline or diesel. Those historically have been waste products of the refining process. They refine for petro-chemicals.
The other interesting thing that happened around the same time, unleaded gas was introduced with a higher retail price than regular, leaded gasoline. This always was bothersome. Lead was an additive. Gasoline is/was naturally unleaded at refining.
During the 70’s, when gas lines were created, refineries in northern CA., laid off, in some places, 40% of thier labor force…not becasue of crude shortage, but because there was no place to store refined products.
To suggest there’s plenty of oil still to harvest because they’re still making planes or that oil isn’t a finite resource is irresponsible. Look at how many home were left unbuilt because they kept building right up until the bottom fell out.
And where did you mention the nitrogen for growing food it’s made from petroleum products? Or that there’s only enough naturally occurring nitrogen to feed about 2/3’s of the world population? So a full 1/3 of the world’s population is being fed by crude oil.
So you really have a straight face Eric when you claim there’s plenty of gas to go around when China adds more new drivers every day with their industrialization or the 1,000’s of new mouths to feed every day?
Are you sponsored by the Koch Brothers and oil companies?
Nothing in your post in re oil is factual – just your feelings.
Am I sponsored by the Koch Brothers? You should see my tax return! Yup, I’m rolling in Koch Cash…
Interesting analysis. I believe it is based on false assumptions however, and therefore arrives at false conclusions. 1) Because oil prices have not risen significantly means we are not approaching or even past ‘peak oil.’ FALSE. Here’s the analogy: If one is running in a foggy area near a cliff, one does not slow down just before running off the cliff, and this is even more true if one is surrounded by others running towards the same cliff, as one is reassured that if everyone else is doing it, it must be safe. Then one runs off the cliff and realized he should have slowed down or stopped, only To Late!
As to your discussion of Airbus size, that has nothing to do with the price of either oil, or the price of tea in China! Why? Because the Airbus manufacturers want to earn a profit NOW, they don’t care if 3 or 4 years from now the owners of their airbuses cannot afford to fly them, because they will have already made their profit and will not give refunds because jet fuel costs too much! And perhaps the way the real estate markets acted would be a better indicator. Everyone kept buying overly expensive houses and sometimes even several of them because they were convinced that real estate prices would ‘just keep going up.’ Many people tried to warn that since there were not more people and there was not more wealth to back up the increased prices it just didn’t make sense that prices could go so high without it being a bubble, but almost no one listened, so we had a stock market bubble crash (and Banking Industry induced) credit crash that nearly caused a major depression! In other words, people do stupid things, and the same is true to buying gigantic jets they won’t be able to fuel in 10 years or less.
As to Global Warming, which due to the changing climate causes warming some places and times, and extra cold and snow at other places and times, and thus is more correctly called Climate Change, there’s no plot behind it, only reality that some people, apparently including you, don’t want to admit is happening. Funny thing about reality, it will get it’s way no matter what you believe. Perhaps one of the most obvious Proofs of Climate Change is the fact that the North Pole is only about 1/3rd the size it used to be and glaciers are seen to be rapidly shrinking all over the world. (Not to mention some South Pacific Islanders are having to abandon the islands they have lived on for thousands of years due to the rising sea levels, but it sounds like many are unaware of that or don’t want to see reality because it’s too scary.) How about the fact that Texas in 2011 had more acres burning than ever before in their history?
Or, More Importantly, as the significantly conservative Republican, John Huntsman said: “90% or more of scientists agree that mankind is having is significant effect on global climate. If 90% of scientists agreed that something was causing cancer, we’d listen to them!” So, I ask what he implied, why don’t you believe the scientists in this case? This is very similar to when the tobacco industry argued for decades that there was no science to prove tobacco caused cancer. The way they tried to refute it was by buying off a few scientists to put up a ‘smoke screen’ and argue that there were other studies that contradicted the main ones, or that there were flaws in the evidence, etc., etc., all a load of BS, which is what the “scientists” who argue against global warming or climate change are doing now, giving us BS so we can hold onto our oil addiction at the expense of our health and the health of our planet.
And, of course, there is NO long term downside to converting over nearly 100% to solar and wind and tide powered systems, and in fact there are MANY UPSIDES TO Stopping wasting our oil resources, including: more oil available for thousands of years for making all the plastic things we like to own, less pollution, less global warming, less destruction of the ozone layer, less smog, the list of benefits to seeing we should drastically cut back our oil use is practically endless, with no downside except for getting over being stuck in our mental ruts unwilling to change into a healthier direction.
“If one is running in a foggy area near a cliff, one does not slow down just before running off the cliff.”
Really? You run in fog so dense you can’t see what’s coming?
On “climate change” – uh, yeah… the climate does change. The notion that it’s static, that things such as average temperature, rainfall in a given area, etc. should be the same tomorrow as yesterday and the same last year as 10,000 years ago and the same 10,000 (or a million) years hence is only evidence that one never took 9th grade earth science (or slept through it).
The issue is whether man is changing the climate by his actions. And that, my friend, is far from having been proved.
I don’t understand our goverment, they said we have a mass riserve of oil and some untab resouses of oil in Alaska, i know mostly political issues that we buy oil from other countrie, my point is we are the number one country in consumption of oil and any thing else as of now just about any other country hate our guts so I said. Screw them and lets consume our produts and naturel resourses and then what the world is going to do with their own products.
Referring to shadowstats.com’s inflation page (http://www.shadowstats.com/alternate_data/inflation-charts), I roughly estimate (because I don’t subscribe to get the numbers) from its Annual Consumer Inflation charts that during the 2000s (1990-based chart) the SGS (actual) rate is about 3 points higher than the CPI-U reported. Looking at the 1980-based chart, by 2012, the rate is about 6 points higher.
Eric wrote that the 1980 price was $1.25 and took the current price as $3.43, which suggests that the 1980-2011 BLS-reported inflation ratio is 2.744. Thus, adding ~3 points to that means that the $1.25/gallon of 1980 would today be ~$7.18/gallon, and adding ~6 points suggests today’s price would be ~$10.93/gallon.
This further suggests that at the assumed current price of $3.430, the inverse ratio shows that at ~3 points difference of inflation rate, the 1980 price should have been ~$0.597/gallon, and at ~6 points difference, the 1980 price should have been ~$0.392/gallon.
In other words, when adjusted with the government’s former inflation rate calculation as used on shadowstats, gasoline has not merely held its price, it’s cheaper than it was in 1980.
I’m unsure what to attribute that to, not being even remotely an expert in this field. Eric and some of the others here have more informed ideas about that than I do. But, taking a speculative stab at it, technological advances over the last 31 years could very well have decreased costs and increased efficiencies of search and production, which could be passed on to consumers still leaving room for profits.
Certainly, this idea alone may not be sufficient to explain the difference, but it seems to me there is a lot to the idea that the price of gasoline can be much worse in today’s dollars.
Count me as another person who acknowledges that AGW is a very poorly constructed myth as are fuels that result from decaying life. As far as I’m concerned, the Soviets theorized correctly that petroleum is abiotic back in the 50s and they confirmed it by finding vast resources with deep-drilling. Those who still parrot the “fossil fuel” myth were finally proven wrong when we discovered vast amounts of hydrocarbons on Titan, but no one noticed, apparently.
http://www.universetoday.com/12800/titan-has-hundreds-of-times-more-liquid-hydrocarbons-than-earth/
surf the net…… doug pelmear…. 110 mpg … gas over electic..do not believe innovation does not work….
Alright s.j., Doug Pelmear’s company is at http://www.hp2g.com/ Now I’m not saying this is a scam, but it sure looks suspicious to me. Don’t forget Solyndra, Evergreen Solar, Spectrawatt and other politically connected corporate toilets our “stimulus money” got flushed down. Of course it was to develop “green technology”, to “create green jobs” and…as always they were doing it “for the children”. Maybe hp2g is a straight up company looking to save the planet or maybe they’re just looking for a slice of the taxpayer handout pie. I’ll believe Mr. Pelmear’s 110 MPG, 400HP, 500 Ft./Lb. engine when I read Eric’s review of the test drive.
One more thing: A major red flag for me was Pelmear’s engine ONLY runs on E-85 “clean” ethanol fuel and doesn’t need a catalytic converter either! It just doesn’t get much more politically correct than that.
I didn’t look at your link but I started doubting the official narrative of oil when I started reading of discoveries so far under the surface it would be silly to believe it was ancient biological matter.
I’m beginning to question the belief that oil is a fossil fuel. Decayed animals and plants that far down in the earth? I’m leaning towards believing oil is abiotic, meaning it is produced in the earth’s mantel.
Lots of info on the web. Here is a link to a short Sept’11 article in US News and World Report:
http://www.usnews.com/opinion/blogs/energy-intelligence/2011/09/14/abiotic-oil-a-theory-worth-exploring
I didn’t look at your link but I started doubting the official narrative of oil when I started reading of discoveries so far under the surface it would be silly to believe it was ancient biological matter.
With discoveries of hydrocarbons throughout the solar system it is likely they have always been part of the planet. They could also be created by processes much deeper in the earth.
Is some oil dino juice? certainly. All of it? I doubt it.
There could be other processes involved – and my understanding is that oil is not really the result of dead dinosaurs but rather the decay of huge algae blooms and other small lifeforms, maybe even bacterias. And, while oil hasn’t been found off the Earth, huge amounts of hydrocarbon fuels have been detected on (IIRC) at least one of the outer planet’s moons.
I hear you, Eric, and agree with your general drift, but you are missing a fact on inflation/gas prices and are dead wrong about the Airbus 380 economics.
Gas prices may have tracked inflation, but in the last twenty years the average Joe’s salary has not kept track with inflation. Minimum wage is not the indicator to use; it’s the average middle class junior/middle manager, or teacher, or technologist – the guys who buy an average house, a mass-market auto, raise a family and shop at the supermarket – the guys who turn over the billions of dollars of the consumer economy every week. Their salary has been under pressure for at least twenty years and they have fallen behind in living standards. $3.25 gas is proportionately a higher percentage of their weekly overhead.
As for Airbus, the whole point of the 380 is that it does NOT use “oceans of gas”. It’s Rolls Royce high-bypass turbines are the cutting edge of kerosene-sipping technology and with around 500 passengers the gallons per passenger mile fuel economy is the lowest in the passenger jet world.
As for AGW, don’t get me started! This will, eventually, come out as the biggest and most cynical scientific hoax ever perpetrated on people all over the world. There will be some red faces when these pigeons come home to roost!! And no, there AIN’T no consensus. Scientists pro-AGW are mainly computer programmers, physicists and desk-bound bureaucrats. Scientists anti-AGW are mainly meteorologists and climatologists – but who listens to them?
Wages are the last thing to rise in an inflationary environment. That is part of why inflation exists. Over time the wages become less and less in real terms.
I’ve run the numbers for my profession relative to the CPI and gold from 1900. Roughly wages are down 30% in CPI and 75% in gold (gold coins circulated and money represented gold back then). Now my profession probably had a better demand/supply curve back then, but the numbers are still shocking. The greater supply and lesser demand today is also the result of economic and political policies so I think it’s a wash wrt to the negative effect of federal government meddling. I would even go as far to suggest that inflation is just one component of making labor cheaper in real terms.
“Their salary has been under pressure for at least twenty years and they have fallen behind in living standards.”
This is fairly standard populist boilerplate and it’s simply not true, the living standards part, not the salaries. Even though I don’t know if I’d say “under pressure” because that suggests a decline, and the reality since 1970 has been wage stagnation overall.
You cannot look around your home and tell me that standards of living have stagnated in the past 20 years. Your home is likely full of electronics which are more affordable and more effective than they were 20 years ago, if they existed at all.
Many “poor” people have about 100 times more television channels than were available to all but the richest few 20 years ago.
There are more multiple vehicle households now than there were 20 years ago.
In areas of the market that remain relatively free, quality has increased with an inverse decrease in price, just as the Austrians say would happen. Remember that the prices of flat-screen TVs and computers are falling even in an inflationary environment.
People might feel like they have less money but they don’t take into consideration that they have a lot more crap.
Yes–the gewgaws have reduced in price and proliferated in number.
But REAL standard of living HAS declined.
In the 1960’s, a man working a manufacturing job could have a stay-at-home wife and two kids, in a decent little house, and make ends meet fairly easily.
Not so today.
This is by design. We are cattle, and we are being milked and sheered simultaneously to the benefit of an extremely small class whose names never appear in the “Richest 100” lists.
Meth, my wife and I are doing it today. How else do you think I’m free to post on this site all day like diarrhea of the mouth?
I’m a stay at home dad that works here and there basically just to help pay for the massive student debt my wife and I incurred, which was practically unheard of in the 1960s. My wife is better compensated than the 1960s factory worker but 80k in student debt negates that at least partially. We have a mortgage, a 14-month-old son, live in one of the highest COL areas of the country, and still manage to put a little away.
The key is to live like it’s the 1960s. One car. No debt. Vacation locally. I could have been a prideful man and kept working just to pay daycare but what’s the point of that? I wouldn’t have any more money than I do now and someone else would be raising my kid.
I think my point still stands; people are spending money on things today that they did not in the 1960s and when you budget and add it all up it’s really quite impressive. I have a lot of friends and family and a theme that recurs over and over is check-to-check living with an Audi and a Tahoe in the garage, trips to Vegas, Cabo, and Maui every year and the house damned near in foreclosure.
The problem with most people is priorities. Government is stupid; the myth of the Orwellian super state was written by a socialist with the highest faith in the omnipotence of government. The reality is non-Clovers will always remain one step too far ahead to be sheared.
@That One Guy:
I think we have a lot of common ground. For one thing, the concept of frugality escapes most Amoricons today.
Another point: not only has the average income adjusted for inflation decreased, but taxes of all kinds have increased.
So yes–it’s still possible to live that 60’s stay-at-home mom/dad ideal, but it’s much more difficult.
“Feminism” was not about empowering women; it was about destroying the family by getting the mother out of the house and the children into state indoctrination centers. To help accomplish this, the economy was intentionally distorted to shove mommy into the workforce.
And I agree–non-clovers usually stay enough steps ahead to avoid the terminal shearing. But that doesn’t absolve us from doing everything possible to bring back liberty and freedom, so that EVERYONE can enjoy prosperity and peace.
Common ground indeed. Hard to argue with anything here.
Guess my problem is with the concept of “standard of living” in the first place. It’s just another subjective government metric to me.
For example, being a SAHD I had a lot of free time to garden during the summer to supplement our diet with good-tasting, quality food. It got me out and I had the most active summer I’ve had in years. Some would say turning to gardening to save money reflects a standard of living decrease, but it’s our opinion the quality of our lives has increased because of it.
But I’m different than most I think. To me, leaving this cuckoo city for a log cabin in the woods with no power would be a standard of living increase.
If I could give you a one-way time machine I would and chances you’d discover the trappings of the 1960’s weren’t as cool as they are nowadays.
Chances you can afford such trappings nowadays anyway – live in a small home, give your children only the necessities, have only one small car, forego TV, computers, internet connectivity, mobile phonnes, etc. You be surprised how much you’d save.
My house was built in the 1950s. Instead of being built of tooth picks and plastic sheet it’s built of brick and lumber. My ‘small’ house according to my insurance company would cost a considerable sum to build today. That’s just build on land already owned.
The ‘big’ modern houses are just thinned out so to speak. They are less substantial.
While I agree with you on AGW and many of the other scare tactics used by environmentalists. I also agree that many are using Peak Oil and other boogeymen to advance more state control/involvement in our lives. However, I disagree with your assessment on Peak Oil being strictly “scare-mongering”. The issue is real but the method of dealing with it seems to be “ignore and ridicule” or “hype and scare mongering”. Both lead down dangerous paths…
Let take your “1980 -> 2011” inflation calculation: If you look at the trend line for oil prices, you can clearly see that time from about 1980-1985 was clearly not normal, and the value you selected in 1980 was at the peak of the anomaly:
http://en.wikipedia.org/wiki/File:Nominalrealoilprices1968-2006.png
If you take a trend line from the 70’s to the 90’s you find that a more realistic price was about $25.00/bbl. Using your calculator you referenced, you find that that about $68.64 in today’s prices, where oil is currently trading above $100. So, yes, oil has become more expensive – is this a trend or simply another blip in the data like the early 80’s remains to be seen.
The reason I believe Peak Oil is an issue is not based on price, since oil is priced at the margins, small changes in supply or demand can have large effects on the price of oil. Instead what I believe is a better indicator is the production rates of wells and countries. If you look at the the production curves you can clearly see a declining output among the older producers. The US peaked in the 1970’s, and the world is just now hitting or approaching peak. Evidence to support this is the crazy new and expensive drilling just to keep production stable (deep water, shale, etc). We would not be drilling or going after such high cost oil if oil was plentiful.
If you have not watch the Crash Course by Chris Martenson, I highly recommend it. While it might not change your position, it at least gives some data for you to consider. I suspect you will definitely agree on his data related to debt, money, and the fiscal and monetary policies of the US and Fed (as many of us Ron Paul, Lew Rockwell liberty lovers do). If you watch it, the first couple of chapters may come across as environmental advocacy, but the theme is not – so I encourage you to keep watching.
You can find it here: http://www.chrismartenson.com/crashcourse
If you want to you can skip to the chapter on Peak Oil (17a). However, his primary thesis covers the relationship between the Economy and Energy. Chris Martenson is also a contributor to the Lew Rockwell site, and I suspect most of your readers would find the analysis of debt, monetary policy, and the distortions we see in government reporting right up their alley.
Plentiful and difficult to get at are two different things. The amount of more difficult to get oil in the americas alone makes the middle east oil, espcially the remaining middle east oil, appear small by comparision. Middle east oil is cheap to extract but it wouldn’t be so cheap to obtain without an interventionist foreign policy. The good thing for the oil companies is that they don’t have to pay for the foreign policy, the taxpayers do. They just pay a very small percentage to buy influence.
It is simply an economic equation. Buying senators and congressmen and presidents is cheaper than drilling for oil where the political climate is more favorable but the oil more difficult to reach. If middle east oil becomes more technically expensive we can expect more and more oil booms in the americas provided there’s a need for the oil.
There is another odd thing. Some oil companies are paying the federal government for oil leases of relatively easy to extract oil but not developing the fields. I am unsure if it is environmental regulation or a business plan. From the articles I have read it appears to be a business plan. Some were calling for the leases to be terminated and put up for auction to smaller companies so that the fields would be developed.
Today’s oil price supports the extraction of a lot of oil. When there is no longer fear of the price falling that will bring about investment to extract the more expensive to get at oil. The problem is, oil prices seem to fall like a rock every so often just to kill off these plans (and alternative technologies) and reset the clock.
Brent, I was doing some alternative energy work in the panhandle of Oklahoma several years ago. As I travelled along I noticed a lot of oil well pump jacks standing idle. When I got to the job site I asked the superintendent if the oil fields had played out to the point that they had to shut down that many wells. He laughed and told me no, there was still oil in those wells. Just as soon as the price of gas goes up, he said we’d see them running again. Hmmmm.
And? That sounds like he’s saying “it’s expensive to extract the oil therefore the price of oil has to be high to justify pumping it out of the ground”. That’s pretty much Peak Oil – there’s still oil in the ground but it’s no longer eocnomical to extract it anymore.
It’s only uneconomical if people aren’t willing to pay for it. Obviously they are.
Solar panels however are very uneconomical. Why is there no terror being pushed by TPTB about the limitations of solar panels?
Because limited is what TPTB want you to be, that’s why.
“That’s pretty much Peak Oil – there’s still oil in the ground but it’s no longer eocnomical to extract it anymore.”
Except it clearly is economical. Both to invest in development, to actually develop (drill) the oil and to sell the products thereof. At prices that are about what they have historically been, in real terms.
If they really believed in “peak oil,” why would they invest enormous sums of money in new development (oil rigs, etc.)? That would be fantastically stupid, if we were anywhere near running out, in view of the massive price spikes that would occur prior to that – which would make their enterprise economically untenable. Their investments assume a pretty long-range return. This is not a short-term business.
You also seem to assume that people could just pay for, say, $10 a gallon gas. In fact, that would shut down the economy in a week. The people in charge are well aware of this. Which is probably why the price of oil never rises too much – and also never gets too cheap, either.
You fail to mention you compared high prices of 1980 and today – yes oil prices are very high in real terms compared to the 1970’s and 1990’s. The real price of oil isn’t a flat line – there’s a peak in 1980 and another one today.
On the other hand, if/when fuel becomes more expensive people will start rationing their consumption – trading in large cars for small cars, holiday road trips become rarer, etc. Conversely, a drop in the price of fuel will cause people to be more wasteful thus negating the price drop. It’s called the Rebound Effect.
Then again so what if people go back to family farm not through Socialsim but plain economics? Namely when oil is wholly uneconomical the horse and buggy is the most economical form of transportation. There’s no law that says the human standard must go forever up or that one energy source will be automatically be replaced by a higher order one.
Eric said “If they really believed in “peak oil,” why would they invest enormous sums of money in new development (oil rigs, etc.)? That would be fantastically stupid, if we were anywhere near running out,”
It’s not running out, Peak oil only means 1/2 way through. It means that from here on out Oil will get more expensive and harder to extract, not unavailable or unneeded. We have such a large infrastructure we will pay much much more for oil in the future because we rely on it. It just means we will not have as much to spend on other stuff.
Unfortunately we have two things working against us, we have increasing demand even with higher prices due to reducing supply. Developing countries place a much higher value on a small amount of oil than developed countries because a small increase in utility is much more valuable to them than it is to us – so they will pay a lot more than we will for oil. Developing countries will continue to use more oil while western countries will learn to live with less.
Eric also said “You also seem to assume that people could just pay for, say, $10 a gallon gas. In fact, that would shut down the economy in a week. ”
No I don’t assume that. We in the US will not be able to afford it, and yes it will kill the economy, but it’s not a question of able to afford it, when supply dips, the price will go up whether we can afford it or not.
My father was a coin collector. One day he looked at his collection, which included some old American gold and silver coinage and commented.
“You know,” he said. “When I was a kid, my dad bought a Colt pistol from a gun dealer for a $20 gold piece.”
After checking out the current value of a $20 gold piece, his only comment was that he could probably still do that today.
I have to doubt the wisdom of this post? No tap in the world has unlimited water in it and because we live in a world surrounded by water not oil we must consider this topic a bit more clearly. Oil floats on water so there is quite a lot less of it potentially around, whether we are fed useful stats or not on it by anybody out there.
Oil has been endlessly used by the cubic mile for the last century and we still don’t value it as a limited diminishing resource underpinning all we can continue having and doing now.
Pressure to grab it all fastest needs pricing competition to stay in the game longest too. This means international companies must by their nature endlessly undercut to keep their piece of the pie.
And, to not do so will guarantee war wherever the product is witheld next. Any Iraqui citizen who survived having their heart and mind won over by the great and good President Bush knows this.
Of course, regardless of your beliefs here the oil crunch WILL come and it will come in the usual lifespan of most of us alive now.
So, what are YOU going to do to survive it…?
the political class seems to have plans for water too. The poison is when something becomes a political good instead of private property. Political goods are squandered, mis-allocated, mismanaged, and so forth on a large scale. Ever notice how whatever is left to the political system to manage ends up high priced and in shortage or worse becomes a pestilence? Meanwhile whatever is in the free market ends up cheap and plentiful?
The oil will never run out because people already have figured out how to manufacture it. ( http://www.changingworldtech.com/ ) There are few saudi arabias of harder to extract oil in the americas alone. However investment in these remains rather rare and it will be until those who can make the investment know it can’t be wiped away by cheaper to extract oil. That the floor price of oil is more than their cost. However technology may eventually bring it to the market anyway by lowering cost. If the political system allows for it.
Explain to me why the Army, Navy and Air force are scrambling to come up with scalable alternative energies to power their vehicles, equipment, ships if this isn’t a serious issue. You’re unbelievably naive if you believe that Annual Reports represent accurate data is absurd, have you heard of Enron,Worldcom, Lehman, AIG, and just about any of the major banks today, their annual reports are total fiction, what world have you been living in for the past 20 years? …Oh, and just last week Shell lowered their stated reserves by 20% last week, look for more of that to come: http://www.chron.com/business/energy/article/Shell-cuts-reserves-estimate-shares-dive-1589946.php And waiting for Al Gore to change his lifestyle habits will convince you? The changes coming aren’t going to be voluntary, so if your lifestyle is dependent on cheap gas, you might want to start thinking a little more critically. Oil companies or other mega corps have no incentive whatsoever to tell the public the truth, I’m sure they are doing things behind the scenes to prepare, but there is no incentive to stock price, bonuses or any other company finances to suddenly start acknowledging that their entire business model doesn’t have much of a future. The idea that they are scared of being convicted of fraud is the funniest thing I’ve read all day…obviously you’ve been ignoring the wall street debacle for the past thee years. Of course, this is a car website, so I don’t really expect anyone to be thinking rationally about this issue that really is more comfortable to ignore. That is your choice, but you should probably find some better logic/facts to support your case, if only to make you sleep better at night.
“Explain to me why the Army, Navy and Air force are scrambling to come up with scalable alternative energies to power their vehicles, equipment, ships ”
Ok, can you provide some specific examples of that?
Just asking…
The opposite seems to be the case (e.g., more jet aircraft, turbine-powered tanks and fast attack ships, etc.)
And why would, just for the sake of discussion, Airbus invest in double-decker commercial jets whose economic existence depends on inexpensive oil?
Again, just asking…
The Air Force did experiment with synthetic fuels in the B-1 a few years ago, all the way up to supersonic flight.
But you’re right the new off-the-shelf designs seem to be designed for reg’lar ol’ fossil fuel, which you’d think wouldn’t be the case if they had to utilize these new systems for decades in a future world without oil.
I will allow that the government isn’t exactly noted for wisdom and foresight, though.
Come on do your own research, here’s a few to get you started
Alternative fuels and the military:
Air force: http://www.scientificamerican.com/article.cfm?id=fatted-eagle-biofuel-flight-air-force-fighter
Navy: http://www.azcentral.com/arizonarepublic/business/articles/2010/09/30/20100930biz-navyalgae0930.html
http://www.usatoday.com/USCP/PNI/MONEY/2011-12-11-PNI1211biz-insider-randazzoART_ST_U.htm
http://www.marinelog.com/index.php?option=com_content&view=article&id=1662:navsealcac9109december2011s04&catid=1:latest-news&Itemid=107
You’re not understanding the basic premise here, companies like Airbus will continue designing bigger airplanes because it enables them to pack more people on and pay less per person in fuel costs. They will keep doing this because there isn’t anyway yet to provide the scale of alternative fuels they would need to fly fleets of jets….we’ll just keep doing that until we can’t. Airbus and Boeing aren’t suddenly going to tell their shareholders that they shutting down shop because of the impending oil crisis…they’ll just continue plodding along until price actually catches up with supply. We’re not their yet, but denying it’s coming is good for business…at least in the short term, and show me a company that does more than plan a year or two in advance. that’s the nature of our quarterly earning stock driven economic model, doesn’t want to think that far ahead. I’m really amazed at the naivete displayed by all these comments. I’m an avid investor, have an MBA, and 30 years in the business world and everywhere I look I see thinking based on wishes and not facts.
“show me a company that does more than plan a year or two in advance”
How about a major automaker? They plan at least five years in advance and anticipate ten years in advance.
How many are designing micro-cars? Or designing mass-market cars that don’t run on gas at all?
Oh, they are designing a handful of hybrids – but that’s a political construct more than one based on market economics. (GM and Nissan, for example, benefit from government payola by producing their Volt and Leaf hybrid/electric cars.)
The above’s not just my opinion – it’s all fact.
Again, just saying.
You’d expect a MBA-holder with 30 years experience to know these things…..
The biofuels still produce the same fuel (hydrocarbons), don’t they? So, not alternative fuel. Alternative source of fuel. And of course who prevents that industry from developing?
In any case, there are new discoveries popping up all over, all the time. Wyoming, South Dakota, Kern County, etc, etc. And old leases are being upgraded with magically replenished crude!
Fritz, it’s obvious that most of the alternative fuels naysayers have not heard of Fischer – Tropsch Synthesis or choose to ignore it. It is true that Fischer – Tropsch is energy intensive. However clean safe Thorium reactors could be built and not only used to produce abundant and safe electricity, but that same electricity could be put to use converting gaseous and solid fuels into liquid hydrocarbon fuels with Fischer – Tropsch. The Germans did it, the South Africans did and we could too. But there is this little issue with the existing corporate infrastructure, not to mention the oil lobby, uranium lobby and a declining electricity market….
@IndependentTexan
“everywhere I look I see thinking based on wishes and not facts.”
Then it’s clear you aren’t looking very many places.
Didn’t Ebbers and Kozlowski get 25 years in prison? Didn’t Lay get convicted before he died?
The Army, Navy, and Air Force are a part of the government and reflect the posture of that entity. Do you think they seriously believe that “diversity is strength” or are they lowering standards at the service academies to generate more minorities in the officer corps because the hand that feeds considers itself bitten if the military isn’t on board with this program?
In light of this is it so illogical to posit that the Air Force is playing around with synthetic fuels in the B-1 to please the people that control its budgets?
Is it more logical that the government has invented a crisis, of which there is also a very long history, or the entire world economy has been duped by Big Oil and doesn’t realize it’s sitting on a cascade of about-to-fail business models?
Wow, there is some really quality thinking going on here. Oil industry execs can claim the same ignorance of their data with no “intent to deceive” that Wall Street execs are now claiming….there’s zero threat of fraud charges against that industry. Not one person has produced anything approaching a fact or piece of data that disproves that the global demand is vastly outstripping the supply of cheap, easy to drill oil. Noisy price signals are normal in markets where real data is hard to come by. Sure, oil prices will probably plummet again once the Euro sh$ts the bed, but that is just more short term volatility. The trend is clear. Explain to me why someone as large as Shell got their reserves “wrong” by 20%?
Oil is hardly the only problem facing the world right now, but opinions about it are a pretty good symptom of how deluded everyone has become about what the free market is capable of doing under our world’s constraints.
Your entire theory is predicated on unprovable accusations of malfeasance and you deign to criticize my thinking?
You didn’t address one single point I made but you are very adept at personal attacks and making sure we all know this is just a “car site” and all about your MBA and business experience, which is a classic debate fallacy known as appeal-to-authority.
You referenced Enron and Worldcom, I pointed out to you that their CEOs were convicted and threw in the CEO of Tyco for good measure, but you don’t have much to say about that.
You’re an MBA, not an economist. There is a big difference.
“how deluded everyone has become about what the free market is capable of doing under our world’s constraints.”
Ah, here it is. I’ve been looking but missed it the first time around. We need government to do for us what the free market cannot.
Tell me, what’s your opinion of speed limits and Mothers Against Drunk Driving?
We may have a new Clover!
By the way your article is eight years old, not one week.
Woops, looking at too many articles if you guys aren’t willing to provide anything beyond opinion.
This quote from that article eight years ago, still hold true today, none of the oil field discoveries since then (including Brazil) have any hope of producing at the volume needed just to keep up with demand.
“Most top western oil companies are struggling to find new viable fields on a scale to replace maturing assets — seen as crucial to assure future growth in earnings.”
It’s been fun folks, but I’ve had better debates with my 4 year old nephew about Elmo.
It’s difficult to treat you seriously when you can’t spell “independent”.
Elmo is gay, BTW.
I didn’t tell you what I believed other than I look at actions not the justifications the political class uses to demand control of our lives. I also didn’t discuss my life style, which for your information could largely operate by bicycle.
As far as critical thinking goes, I am not the one swallowing the scaremongering of the media. That would be you. I am thinking critically by looking at the -actions- of the people telling us the sky is falling and they have to have control over us to stop it. They aren’t acting in ways that meet their words. What they are doing however is a classic scam of rulers going back thousands of years. That we have obey them, to sacrifice for them, such that they may save us. The spring floods, the spring rains, an eclipse, the changing of the seasons and countless other things have been used by the ruling classes over thousands of years to scare people into submission.
Peak oil and its brother of climate change are just this ancient scam repackaged for modern times.
As to their fear.. I didn’t argue they were afraid. Nor did I state I believed them. It’s not about what I believe, it’s about what you believe. You believe them to be lies. I challenged you to go after them. Why don’t you? You seem to be rock solid sure they’ve been lying through their teeth. Why don’t you do it? Why doesn’t Al Gore do it? Why don’t any of the environmental groups do it? Fraud can be sued for in civil court. It doesn’t have to be the government doing a criminal investigation but given the government is the greatest beneficiary of peak oil and climate change it would be in its interest to do so, yet nothing. If you’re so sure you are looking at a class action likely worth billions of dollars. You could be a very rich man if you act on this knowledge of yours… oh but you don’t really know, and not so sure after all, yes?
As to your link. It’s from 2004 as I figured since I don’t recall one since then. The key aspects are in your link. First Shell reclassified reserves from proven to lesser categories and second the article states Shell had not been adding reserves as its competition had been. So it’s not much of anything and it’s 7 years old.
As to the US military. First and foremost the US military being part of the US government is political. Thus what they purchase is largely driven by politics. The fact there may be some alternative energy companies making big bucks from military projects is not even surprising. On the tactical side refueling is a big pain in the ass. There’s a reason the navy went nuke decades ago and the cost and availability of fuel had little to nothing to do with it. The act of refueling itself was the target of elimination.
That aside, if the fuel is really running out why is the US military waging wars consuming so much fuel I wonder if it is more than they are capturing? Not particularly rational. Especially since the federal reserve could just print dollars and buy the oil on the open market (since the price isn’t going up like it should if it were running out) without all the death, destruction, and consumption of resources. That is if this were about resources. If this were about oil, I’d just buy it and put it in the empty wells and other underground areas where it could be stored here in the USA. Hell it might be worth just building huge tanks to hold it all. Much easier than fighting a war. Just create money out of thin air and buy it cheap then when the suckers find their wells dry laugh at ’em for being so stupid.
Brent is the man. He practically vomits what I struggle to put into words.
He is – !
You are all so kind.
One Guy, it just takes practice. I still have to learn how to do it verbally. But written ‘debate’ is much like what Casper Gutman said about talking:
http://www.youtube.com/watch?v=Yiq5Fkr3yX8
Why is Peak Oil a scam? When oil becomes harder to come by then fuel prices will rise in real terms and keep rising. This will have knock on effects and cause prices to rise in real terms. What has happened in the past few years is the conventional oil sources are drying up and now oil is coming from unconventional oil sources.
It’s a scam because it’s used as the pretext for scaring people into believing in a nonexistent crisis – with scumbag politicians conveniently offering “solutions” to “save” them. Translation: Give up your freedom; we’ll tell you what to do. Sacrifice for the greater (that is, our) good. Etc.
The fact is gas prices miraculously hover at the sweet spot between “not too high” and “not too low,” as Boothe and Brent have pointed out. Just enough to bleed us, but not enough to bankrupt us. Just high enough to discourage real competition; not so low that there’s not enough profit in it.
Also: Much of the continental US has been effectively placed off limits to oil exploration/drilling. Who really knows how much oil we have? Or for that matter, the Saudis? Do you take anything they tell you at face value? Really? Meanwhile, the indicators (real price, not face value price) tell us something – or should. If we were on the cusp of “peak oil,” and the Kahunas in government and industry really believed it, there would be obvious, dramatic shifts in policy and action. Of course, there’s not.
Just calls for Mundanes – that’s you and me, Gil – to “sacrifice” and “change our lifestyle.”
PS: This post of yours was allowed through because it was civil and coherent.
Libertarians are the first to say that there’s no higher substitute for oil. Coal and nuclear aren’t substitutes because both are already used to generate electricity. Hence if oil is slowly becoming uneconomical and will be seen in higher prices for fuel, plastics, food, electricity, etc. Therefore humanity will probably lose a few billion since many poorest parts of the world are already struggling with high food prices.
Actually, look at a graph of oil with inflation taken into account shows that 1980 was a time of very high oil prices and it’s currently at that price now. Hence there’s a good case that oil isn’t as cheap as it’s alway been. It’s same with gold – in 1980 it hit an all time high and it’s very expensive nowadays too yet gold has also been lower in real terms.
So basic you took a period where the real price of oil has been the same as today and suppose the real price of oil has been a flat line when in fact it was much cheaper in the 1990’s. In reality there is cause for keeping a watchful eye on oil prices.
Pretty sloppy statistical analysis here, You could just as easily take the cost of gas in 1990 (pre Iraq war) at $1.19 a gallon and use the BLS calculator for 1990 to today and see that would be $1.98 in today’s dollars, and then your whole analysis here on price movement is wrong.
If you try and remove the spikes in gas prices due to OPEC embargo and Iraq War I and II, you might have a better chance of estimating what % of price is due to inflation vs. supply. As it stands your analysis doesn’t mean a thing. I’m no Peak Oiler, and think we’ll have a slow decline in living standards, etc…but your notion that companies are telling the truth about the “reserves” is absurd. History has proved this time and time again with both companies and major oil producing countries being caught at or revising their reserves lower. See the last wikileaks release from US diplomats to Saudi Arabia saying that it is common knowledge that their production is declining. Regardless of trying to verify any of this with oil company financial statements, at least try and base your conclusions on good statistical analysis. Sticking a pin in the chart at 1980 and making a calculation from there is not that.
You’re right that prices were very low (relative to today and in real terms) in the 1990s. But am I wrong in making the argument I did based on the overall picture? That is, not focusing on the blips – the short-term lows and highs (as for example during the early-mid ’70s for the highs and the ’90s for the lows) but rather, the overall trend?
The point I was trying to make is that we’re paying about the same today, in real terms, as we were in the early ’80s – which indicates that scarcity (real scarcity, not contrived scarcity) is likely a bogy.
The other thing is, WikiLeaks and so on notwithstanding, we Mundanes (that is, ordinary people like you and I) have no way of knowing how much oil is in the ground, how much is economically accessible, what future technologies might make accessible, etc.
I infer that no crisis is imminent because of the actual behavior of multi-billion-dollar business interests, who appear to base their behavior (their decisions) on the assumption of affordably priced oil into the forseeable future.
Eric No I don’t think your overall analysis stands because you have done exactly what you are stating you aren’t by selecting a blip in time when gas prices were high in the past due to the second OPEC oil embargo of 1979….The price signals that the market is sending are completely broken because the main oil producers have no incentive to state their reserves accurately. Do you really believe Saudi’s oil reserve estimates? The demand/supply price curve only works when accurate information is publicaly available. Gas prices will continue to lurch around for a while, and this has nothing to do with the actual issue around oil supplies. There’s still a lot of oil in the ground, it’s just getting very dangerous and expensive to extract. Do you really think BP wants to be drilling two miles below the surface at Deepwater Horizon if things weren’t getting a little scarce. Technology might squeeze a few more barrels out but not enough to meet the growing world demand. I don’t see how so many people are comfortable with the market price signals and demand destruction will sort this problem out? That might be fine if you lived in a country that wasn’t totally dependent on cars.
Ok, plug in 1970 – a “cheap” year. I come up with just under $3 in today’s money… granted, not quite what prices are today, but not very far off, either.
As for the rest – honestly, who knows what the truth is? Ordinary people such as you and I have to go by what they tell us – and what they tell us has historically often proved to be BS, as you yourself pointed out. I certainly don’t trust or believe anything OPEC (or “big oil” here) tells us – either way.
Again, just saying.
My standing challenge to anyone who believes that the oil is soon to run out and reserve reports are lies is to have oil company executives charged and convicted of fraud. It should be an easy case. It’s never done. Annual reports are very serious documents.
furthermore oil isn’t being priced as if it is running out soon. What we are seeing however is different ways to impoverish and limit resources to the population at large in arbitrary feel good ways under the assumption it is running out. This is on top of the monetary issues. If it was running out we would see refusal to bring product to market because it would get more tommorrow. Instead what we see is a largely successful attempt to control supply to keep prices from falling while remaining low enough to discourage more expensive alternatives. It is very telling that oil prices seem to live in that little span where they aren’t too low to hurt profits but aren’t too high to hurt profits or the long term future of the business. If the business had no long term and they knew it what they should do is start throttling supply and letting the price skyrocket. Cash in now and demand top dollar for the dwindling supplies and use those profits to diversify. It’s just not happening.
I will believe in peak oil the day Al Gore, Oil man and global warming preacher starts making decisions for himself, personally, that match up with peak oil and climate change. So far the man consumes more energy in a year than I probably will in decades if not a life time. He has bought an expensive house on the beach. And he’s still in the oil business. Al Gore is on the inside and what he -does- simply does not jive with the narrative. Same with the rest of them. Look at what they do, not what they say.
This article was decent until I got to the claim that inflation is because more money is being printed. This is false though it is what Ron Paul and all his followers claim – as well as many so-called “experts” when interviewed on TV. This is untrue. If you want to know the real cause of inflation, stand in front of your nearest mirror and point your finger straight out.
Would you care to elaborate on this?
The debt-credit money system (99.99% of people use it and live beyond their means and on credit) and it allows banks to lend money on lent money on lent money, etc. etc.. Nearly all money is merely electronic digits as a result. The “paper is being printed recklessly!” cry is a myth – perpetuated on ignorance.
Fiat currency – inflation – is a myth? Really?
Yeah, banks leverage every dollar 100’s of times over, sometimes 1000’s of times.
Yes and did I enact this system or did the government do it with a closed door session of Congress in 1913? Was I at Jekyll Island in 1910? I really don’t think so. But the folks who were are the ones who laid the ground work for the system you describe.
Does electronic fiat money have a different effect in the economy than paper fiat money?
Or more specifically, if I have more electronic dollars circulating in the economy chasing a fixed amount of goods, it’s better than the artificial demand created by fiat paper dollars somehow?
You’re splitting hairs here a little bit.
Two objections:
1) when it’s said the Fed is “printing money” it’s archaic; the fact is, with the stroke of a keyboard the increase the M1. They don’t actually print money.
2)
*Price* inflation may not be seen immediately. But *monetary* inflation is true inflation by the economic definition–and will with time produce price inflation.
I agree that what we have–fractional reserve banking–creates money multipliers on an insane scale. In addition, we have the further evil of fiat debt-money–money backed by nothing. Thus: all money is in fact debt and subject to counterparty risk. Which is why central banks are so deadly afraid of deflation, a phenomenon that (when slow) is actually GOOD for the common man.
That said: increases in M1 by the Fed DO matter, and DO cause monetary inflation (by definition) and eventually price inflation.
Do you like being ripped off? Because every new dollar devalues the dollars you’re holding today.
I pointed at me! I don’t own a printing press? Nor stock in the Federal Reserve Bank… But I do pay 53% more for groceries over the last year!
And: If I don’t immediately spend the dollars I earn (i.e., convert them into something with fixed value) or invest them in a way that earns more dollars – those dollars become worth less over time. Right?
What is that if it’s not inflation?
Why are gold and silver coins worth more – much more – today than their face value? Why do coins not made of silver or gold ever increase in value?
Come on eric, you know the answer to that. Libertarians and the KKK put out propaganda against the USD and Glenn Beck promotes gold on his radio show.
Why was gold and silver not considered valuable during the 1990’s. If you bought gold in the late ’70’s/early ’80’s and no choice but to sell your gold in the ’90’s then you lost out big time.
Despite the little issue of incoherence in that comment, I was, and know others who were, into gold in the 90s. Because they thought it was valuable. As to the “point”…Umm.. buying high and selling low always produces loss. For anything. I apologize for physics. Those, too, have been popularized by the KKK and libertarians…
Dr. Dan most of us here appear to at least be nominally Austrian school. I think I can safely speak for Eric when I say that he (and many of the rest of us) speak euphemistically when we refer to the fiat currency system that allows fractional reserve banking and its unbridled credit expansion to exist as “printing money”. I would agree with you, at least literally, that if everyone quit borrowing any credit whatsoever, including but not limited to business loans, credit cards, mortgages, car loans, et cetera, the system would fail overnight and inflation would certainly end; so would the world as we know it. It ain’t gonna’ happen!
As others have pointed out, no one here was at Jekyll Island, voted for the Fed or its collection agency the IRS, asked to have the people’s gold stolen in ’33 or our silver stolen in ’65. The road to monetary / credit inflation along with restriction of our Liberty and the modern warfare / welfare state started long before any of us here were born (1860 or so as I recall was when the groundwork was laid or perhaps with Hamilton, but I digress).
Do I think we as individuals should be in debt? Certainly not! Staying out of debt is an excellent approach to business and life, but you probably won’t see many people do that unless we return to constitutional money (i.e. gold and silver) first. Then there won’t be too many people willing to lend to begin with, unless you’ve got excellent credit, a good job, a down payment…..just like it used to be.
Indeed.
The system practically forces most people into debt – or at least, forces them to “play the game.”
Example: Even if you have no debt and “money in the bank,” your money will lose value if you merely hold onto it. Thus, you’re compelled to “invest” it in order to try to maintain the real value of the face value by increasing the face value – which really amounts (in most cases) to just treading water.
If you merely save the money, you will lose value.
And in a sad story–even investing has not maintained its value over the last 12 years. The Dow is below its 14000 peak–and the dollar equivalent of the Dow buys only 60% of what it did in 2000.
So you’re running to go backwards.
Where does the money go, though? To the globalist offshore banksters.
This is why I drum on against central banking more than any other cause–because it is the heart of the problem. For three hundred years–actually much longer, but for this incarnation of the Great Game–bankers have sought to steal the world with fiat money.
As Eric pointed out, with investing we’re treading water or even sinking in some instances between inflation, low returns, capital gains tax, income tax, excise taxes, sales tax and on and on. To fully understand how much value is being stolen from us, we have to allow for that same tax burden being imposed on each product we buy every step of the way, from procuring the raw materials to the point of purchase. I’ve seen credible estimates that 80% of the cost of many products is in compounded taxes and regulatory compliance costs.
Add to that an annual inflation rate of 11%, http://www.shadowstats.com/alternate_data/inflation-charts pre-1980 CPI-U method, and it’s plain that our bank-ocracy is screwing us royally. I’m just glad I live in Amerika, where at least I know I’m free…..from honest money and limited government that is.
So, the cost of gas at the pump has “gone up” 274% and the avg household income has gone, in real terms where? Let me know, when you find out. To base comments on one indicator of inflation or fiat monetary value, is to equate the governments measure of unemployment with the unemployment of North Dakota as the national unemployment level.
Well, to some inflation is simply the increase of money supply. All the indicators are simply effects OF that. The people who define inflation as such were the one’s right about this depression thing and the whole housing bubble and whatnot.
When money is printed, it is said that it takes 4 years to reach main street. So, you won’t see that money for 4 years. Unfortunately, the markets don’t move that slowly. Ergo, 10-20% inflation for 10 years each, when the reported statistic was only 2-4%, means bad things for the common man.
From 1833 to 1913, the price of gold stayed remarkably stable at about $18.94/oz. The Federal Reserve was established that year. By 1941, pre-war, the price had risen to nearly $34. That year, with gas prices averaging $.19/gal., an ounce of gold would buy about 178 gallons of gas. Today, with real money selling for $1695/oz. (btw it’s up $30 today), you can buy 484 gallons of gas at $3.50/gal. Still think gas is expensive compared to years ago?
It’s all about control. The Bill of Rights was repealed under Lil Bush. The ethanol costs a lot more than the gas, but the Iowa corn farmers have to be subsidized. (If people knew how little labor there is to raising a 100 acres of corn, they’d be protesting everywhere.) If you factor in the cost of the ethanol, gas is cheaper than it was in 1980.
The bottom line is that big government is owned by the big money interests who care not a fig about the rest of us, and they are together systematically destroying this country (and the world) through their own greed. Add to that the fact that our impotentates have created serious problems that the rest of us are going to suffer for, and you have a recipe for another French Revolution. We just have to wait a few more years for a lot more sheeple to realize that they are being had and become really angry just as the French peasants did when they saw the excesses of the Court.
If you want to see where all this is headed read chapter 3 of The Climax of Rome by Michael Grant. The solidus went from 100% gold to .5% before the whole ruse collapsed. For Rome it was excessive spending on pointless wars. For us add to it the bailout of the banksters and their continuing huge bonuses for nothing. For example Angelo Mozilo received a $150 million dollar bonus for destroying his bank.
“If you want to see where all this is headed… before the whole ruse collapsed. For Rome it was excessive spending on pointless wars. For us add to it the bailout of the banksters and their continuing huge bonuses for nothing.”
Right on Ken – well said! America’s (engineered by the globalists) downfall is based on a number of core factors – ALL of them being our government not restricting themselves only to their enumerated powers as itemized in our Constitution.
And just like Rome, our continued massive spending on all of our unconstitutional foreign wars of globalism and imperialism, which of course are ALL of our foreign wars, declared and undecalared, will certainly contribute to our downfall.
As Major General Smedley Butler said, “War is a racket.”
“As Major General Smedley Butler said, “War is a racket.”
Indeed.
War of Northern Aggression – all about federal tariffs (not ending slavery, let alone “equal rights for blacks”).
WWI – Bailout of Wall Street Bankers, who stood to lose a fortune if England lost or had to negotiate a reasonable peace with Germany.
WWII – Deny the Japanese resources (oil), impose worldwide hegemony.
Vietnam – Rare metals; massive “defense” contracts.
Iraq – Enough said.
Accurate war observations Eric. And I’m a Vietnam-era veteran, but if I knew then what I know now I would have avoided the draft by going to Canada.
And for the rest of US Marine Major General Smedley Butler’s quote, it reads, “War is a racket. It always has been. It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives. A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small ‘inside’ group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes.” Smedley also said, “Like all the members of the military profession, I never had a thought of my own until I left the service. My mental faculties remained in suspended animation while I obeyed the orders of higher-ups. This is typical with everyone in the military service.” And Smedley is one of only 19 veterans to twice be awarded the Medal of Honor.
For any American who is pro-war, I recommend that they read Major General Butler’s short booklet essay entitled “War Is A Racket”. It is available in its entirety for free at http://lexrex.com/enlightened/articles/warisaracket.htm .
And yet Smedley had a chance to oust FDR but he kept to obeying orders instead of fighting for freedom and the spirit of the Revolution.
Smedley Butler left the Marine Corps before the ’32 election. So no he didn’t “keep to obeying orders.”
And a military coup is hardly in line with the spirit of liberty. Usually they turn out to be worse than what existed before.
Gil, you probably know this and are just trolling to waste my time, but the coup Butler was approached about was by those who didn’t think FDR was fascist enough fast enough. Of that crew, one was grandpa Bush.
Thats all ok but step back a second. Global oil production has now plateaued at just over 80m barrels per day for the last 2-3 years. World population is now 7bn and headed towards 9bn. Most oil from the middle east comes from a limited number of very large oil fields which are now well past their peak production. So lets now guess the cost of gasoline in ten years time…..
Why should oil production not be plateaued or going down since 2008?
The business has very high barriers to entry both technically and especially politically. This means limited competition. Demand is not going to be growing signficantly due to the prevailing economic conditions. Technology is still improving requring less oil. The consequences of war and intervention and regulation continue to keep oil offline from where it use to be. I don’t see any reason for production to increase.
The oil companies and governments simply find the place they need to be to keep their profits near/at maximum and maintain production at that level. The only thing that can drive that down is competition. Where’s the competition? Who from outside the club is there to put more oil on the market and drive down the price? Maybe Iran with China’s help, but it appears the club is moving to stop that.
So I ask, even if there is an infinite supply available to all the players, who is there to put more of it on the market? I don’t see anyone that would do so. It’s not in any player’s self interest given the market conditions. It is new players that would add oil to the market and new players are in short supply, not the oil itself.
Hi Dave,
Well, first, we – that is, you, me and other Mundanes – really have no idea how much actual oil is in the ground; how much there is not yet tapped. We can go by what we’re told – or we can come to our own conclusions based on evidence available to us that’s doesn’t have to be taken on faith. For example, business investment patterns – as mentioned in the article.
You may be right, of course. But I am very skeptical of “official” pronouncements, am well-aware that much of what we’re told is BS, understand the facts about inflation and so on.
I don’t like the inconvenient truth of the Peak Oil theory if only it is something that environmentalists can hang around our necks and oil companies can rob us with. On the other hand, you are correct that production has likely peaked. As someone peripherially in the industry, I can say that some mid-East countries are now buying the products I help build to extract extra oil and gas from the ground. That is an ominous sign.
As a result of enhanced extraction technologies, we will likely buy ourselves some time at the peak before the ugly reality sets in, but it will.
As a country, we have to do a lot better not to squander the time and resources we have been given. Letting the “market work” will not benefit us at all. Have you ever noticed that at the stores, the market lets the shelves run out before restocking. That may work for the supermarket, but not for oil. That is a small illustration that the “market” doesn’t necessarily work all of the time. If we run out of oil, even for a short time, the whole crap stops.
The twin oil shocks of the 1970’s showed us how supply disruptions behave and how we manage them. Of course, those disruptions were due to excessive interference in the market, but the next one likely won’t. It may be caused by a dollar collapse or by a real fall off in supply.
Regardless, individual states need to work on a plan to wean us off of oil. The feds won’t.
One thing that’s fallen by the wayside is CNG – of which we have an enormous quantity right here in the US.
Back in the ’90s, I test-drove several CNG cars, including converted Crown Vics. They operate no differently than a gasoline-burner and IIRC the conversion cost was only about $2,000.
Much preferable to a Prius!
The gas industry is literally booming right now despite a drop in natural gas prices. Maybe they have something figured out that we can’t quite see.
Yep. Another reason why my BS meter tilts on “Peak oil.”
CNG is an obvious – and easy – alternative to gasoline, at least as regards motor vehicles. Not only do we have enormous quantities, we also have the delivery infrastructure in place (natural gas is used for home heating in most areas of the country, etc.). If “peak oil” were imminent, why no rush to CNG? Could it be due to the fact that CNG is cheap and abundant and produces almost no harmful emissions?
Eric, a few years back I saw an 8N Ford tractor down in the Ozarks with a propane tank mounted in front of the radiator. I had a friend who was big into steam traction engines, antique farm equipment and the like so I asked him about it. He said they did this conversion during WWII around those parts because gasoline was rationed but they could still get propane. He said he knew a number of people that had converted their gasoline tractors over. Schwan’s (at least in our area) runs their delivery trucks on propane (or LPG if you prefer).
The main difference is propane is more energy dense than natural gas, as well as easier to compress and store. The diffuser for an IC engine would need a larger orifice than it would for LPG since more LNG is required for the same output power.
There are some outfits that offer conversions for small engines (particularly for generators) as well. I’ve looked into it for my farm truck too, since LPG will store indefinitely where diesel fuel or gasoline won’t. I think it’s a subject well worth exploring.
Although I couldn’t get through all the comments, I was surprised that no one brought up the fact that 15% of the cost is due to taxes on gas. That’s the highest cost after the price of crude oil and much higher than the profit the oil companies make. When the gov’t claims the oil companies are gauging the public, what about how the gov’t gauges the public. According the top picture showing a pump and the percentages of cost, $.53 cents per gallon are attributed to sales and excise tax. I would love to know what the percentage of taxes was in 1980. Can anyone help with that?
Hi Bob,
I actually did an article on this a few months ago; let me see whether I can find the link…. ah, here it is!
http://epautos.com/2011/04/28/big-business-or-big-government/
According to the Federal Highway Administration, the federal gas tax was $.04/g in 1980, but was increased to $.09/gal in 1982. Today it’s $.184/gal., but don’t forget that the states have their own gas tax, which brings the average per gallon across the US to about $.45/gal. The first federal gas tax was passed in 1932, at $.01/gal. It was supposed to be temporary but it never went away. It was made permanent in 1941, at $.015/gal. At that time gasoline averaged $.19/gal.
On top of that, how much of the price of a gallon of gas is just taxes?
As far as AGW goes, I find it interesting that it just HAPPENS that the “solutions” to this “problem” are things the “progressives” have been trying to ram down our throats for my entire life.
Right on EES! Whoever does this site, http://www.green-agenda.com/index.html has put all the evidence against the AGW / watermelon eugenicists together in one convenient package. It’s well worth having a look at. The other one I like to point out to the AGW “settled science” zealots is the “Oregon Petition”: http://www.petitionproject.org/index.php If it’s “settled” then why are 31,000 scientists (>9000 doctorates) questioning the “science”?
Chuck – Here’s the rub. The minimum wage in the late 1950’s was about 75 cents or .75×30 or about 22.50 FRN in today’s money per hour, so putting gas in the tank was not that big of a deal. Now, the minimum wage is $7.25 and gas is $3.50, so it is a huge deal.
Excellent point, Swamp.
If average earnings had kept pace with inflation, gas prices would not hurt as much as they do. The real problem we have is that, for mos people, income has been stagnant (or negative) for at least a decade and arguably since the ’70s.
As Eric points out, minimum wage’s failure to keep pace with inflation is another issue. I worked as a gas station attendent in the late 60s for $1.50 an hour, after gas was up to around 35 to 38 cents a gallon. Call it in round numbers, 4 gallons per hour pay. High school workers would need to get 12 to 16 FRNs per hour today as an equivalent pay. Just another way the government’s printing presses have screwed up the economy.
I don’t think it’s the printing presses. It is the lack of available jobs. Its a case of supply and demand. Since 1970, the population has gone from 200 million to 300 million. On the other hand, the number of manufacturing jobs has dropped since that time.
If there were more jobs, the price of labor would be bid up and people could afford gas again.
At the root of our economic problems is an unhealthy combination of unregulated trade and the lack of a fixed currency standard. Both have contributed to our economic shipwreck.
No question, the lack of good jobs is a huge factor.
In my field, there are virtually no salaried jobs anymore. Everything is piecework – and freelance. And you get paid much less than before, too.
When I started out in the early 90s, I was able to land a full-time, salaried position with benefits. Within five years, the paper had fired the entire production department (type-setters, graphics people) and transferred that job onto the backs of the editorial department. Soon, writers were doing layouts – and also copy editing their own stuff. No increase in pay for all this “increased productivity.”
I had the Spider Sense to venture out on my own and was lucky enough to build a solid freelance career. But I know literally scores of people who lost their jobs or who now must work longer/harder for a fraction of what they used to earn.
I doubt I will do another book. It’s just not worth the effort.
“Unregulated trade”
Are you kidding? Nothing in this country is unregulated. Why are so many people unable to add 2 and 2 to get 4? Our economic woes have risen right in tandem with the growth of government and its litany of regulations, not in spite of them.
When they write “free trade agreements” that are made up of hundreds or thousands of pages, what exactly is “free” about it?
There are actually a lot of jobs where I live. There are also a lot of immigrants who are used to a lower standard of living and will work for peanuts. This is why the price of labor is down.
Inflation is the biggest culprit. Your dollar has been robbed from your savings account by the stealth tax to pay for 100 years of war and 50 years of free lunches for the shiftless and unproductive.
@swamprat:
Don’t you see that 300M people demand more goods than 200M people? Therefore, the number of jobs should remain the same all other factors being equal.
What we suffer is not too little regulation; we suffer too much regulation. Manufacturing jobs are exported because of regulation. It is incredibly difficult and expensive to set up manufacturing in Amerika in the era of total government control…the environmental, employment, tax, financial, and product regulations are so onerous most give up and build elsewhere.
If that wasn’t enough: companies are given tax incentives to offshore manufacturing, and in the case of companies like Gibson Guitar, they’re actually prosecuted for manufacturing here–and told to open a factory in Madagascar. Google it.
I agree somewhat with your idea for a “fixed currency standard”–if it means what I think it does. REAL money is money freely agreed upon–no more legal tender laws–and if the last 5,000 years of history are any lesson, then REAL money is gold and silver. They’re the only money that governments can’t print into oblivion.
As BrentP said, the Keynesian 2-3% inflation is designed to STEAL a nation’s productivity; because 2-35, not coincidentally, is the average rate of productivity improvement.
Between 1800 and 1900, America experienced approximately 1-2% deflation; therefore, your savings became worth MORE over time. Kind of encourages saving; and that builds real capital; and that encourages real investment. What did they use for money? Gold and silver–except for the disastrous attempts at fiat money by the North and the South during the War of Northern Aggression.
Guess what? We didn’t have a central bank during most of that century, either.
swamprat, I truly hope you research and see for yourself that the greatest evil in the world at present is central banking. Without it, none of the horrors of Amerika today would be possible.
Inflation running at 2-3% would be practically invisible and wouldn’t harm savers unless you plan on keeping money in shoebox for a century or two for some reason.
“Inflation running at 2-3% would be practically invisible…”
Really?
Most people aren’t receiving an annual 2-3 percent (or whatever) raise to compensate for this. So, they’re losing 2-3 percent (in your example) of the actual value of their savings/assets every year.
Let’s say you earn $50,000 – a modest, middle-class income here. 3 percent of that is $1,500 annually. You’re ok with having that taken from you, just like another tax, only much more subtle?
And over 20 years, my friend, that $1,500 annual “tax” equals $30,000.
That’s “invisible” to you?
Horseshit, Gil. There’s a chart right on this page for Christ’s sake, scroll up and look at it. What it says is that $6 in 1960 is now worth about $2. That’s not a century or two that’s 50 years, so if you were 15 in 1960 and put a dollar away it’s lost more than half of its value today at age 67.
And what does any of this matter anyway? Should I be able to get into your bank account and take 2-3% a year? Would you be OK with that?
If workers’ pay aren’t keeping up with inflation then had they been on a gold standard their bosses would have been them 2-3% pay cuts per year.
On the other hand, since inflation tax is pretty much a flat tax it’s fairer, more open and smaller the other types of taxes.
Gil-
WHAT?
There would not be 2-3% inflation per annum under a gold standard. Isn’t that kinda the whole point of the argument? There would be deflation, not inflation. This is good for everyone except people who make their living off of usury. AKA the people who donate most heavily to political campaigns.
So if there is deflation in prices under the gold standard, you could never get a raise in your life and your purchasing power would still increase.
And I did not get an opportunity to vote for the government’s 2-3% per annum “flat tax” either. It’s frustrating having to explain things to people that should be common effing sense. If you and I did this it would be called theft. So why is it ok for the government, or GUNverment?
Your answer lies in the word before the question mark. Might makes right.
Gil, inflation is not fair. It taxes savers most. It taxes the activity which builds wealth. Which allows us to advance. It encourages spending everything as soon as possible. It encourages debt. Inflation is parasitical upon civilization. It is the action of slowly drawing down the host while encouraging the host to do what is best for the parasite.
As opposed to other forms of taxes? Then again a true Libertarian is against all taxes.
Clover, most Libertarians that I know oppose taxes for redistributionist purposes (e.g., welfare in it various forms) but are ok with indirect taxes to support the infrastructure necessary to maintain the rule of law (courts, etc.) as well as legitimate national defense. What most Libertarians loathe are direct taxes (an affront to liberty) used to rib one citizen for the benefit of another, with government taking its “cut” in the form of control over our lives.
Au contraire. It’s absolutely the fiat printing presses that are leading ultimately to the failure of the economy to produce enough jobs, and it’s over-regulation of markets that support that failure, not under-regulation.
I think we agree – I think you misread my post, or I wasn’t clear enough.
Fiat money is inherently inflationary; money that’s based on fixed value (gold, silver) is inherently stable. There’s less “growth” perhaps in the economy – because it’s harder to artificially “stimulate” growth. But growth in a sound money system is more real, if smaller – and so while you don’t have “booms,” you’re also less likely to suffer devastating “busts.”
Gil, send me 3% of your savings every year. After all, you won’t notice it… oh wait, I get it you don’t have any savings… you want the government to take from other people to provide for your retirement so you can enjoy your entire income today.
Gas is actually even cheaper than that in real terms. The example I use is as a kid back in the late 50s and early 60s, gas was about 4 gallons per dollar. Of course that was a silver dollar. Today that same silver dollar will buy around 8 gallons of gas.
A silver dollar is approximately 87% silver. So at a nominal 30 FRNs today price per ounce, that makes it worth 26 FRNs and change. Here in central Indiana, gas is going for under 3.30 FRNs a gallon. That works out to 7.9 gallons per silver dollar.
Keep writing those articles. Especially like the ones on electric cars. They reinforce what I’ve been telling friends and coworkers for years, in that they make no economic sense. But like buying a Corvette, if it makes you happy then go for it.
I wrote an article comparing the price of gas in 1960 (20-30 cents a gallon), and what I made packing groceries at Kroger, (50 cents an hour), to what my son made in 2002, packing groceries at the exact same Kroger ($8.75 an hour). The increase was 17.5. 17.5 times 20 cents is $3.50. 17.5 times 30 cents is $5.25. The car I drove back in 1960, a 1950 Ford, did not deliver 15 mpg. I can prove this, because I still have the car. I have rebuilt the engine so it doesn’t use 2 quarts of oil to a tank, and will sit in a sloped driveway in gear, and not roll into the street, unlike what happened ack in 1960, but I still can’t get 15 MPG out of it on I-72, a road that did not exist back in 1960. His car was a 94 Crown Victoria. I gave it to him with over 150,000 miles on the clock. A 94 Crown Victoria is a whole lot more car than a 50 Ford Custom Club Coupe was. It had a digital dash. One of the displays was average MPG. When I gave it to him, it said 25 MPG. When he went into the Navy, and I sold it to a pal of mine with over 230,000 miles on it, the digital dash said it averaged 23 MPG.
Back in 1960, you could go to school and see gas at 20 cents; on the way home that afternoon, it was not all that uncommon to see it had increased to 30 cents. We bitch about the way gas prices jump around now, but immagine what we would say if gas jumed from $3.50 to $5.25 at once?
I bought gas in Jersey in 1997 for 1.25 a gallon. I remember this becaiuse I was pissed that it had gone over a dollar – it still occasionally dropped to 99 cents. Using the you used, calculator, 1.25 in 1997 is the equivilent to 1.97 today. Not 3.47. WHAAA???
Gas is more expensive cause it costs more to buy oil. Price for barrell has skyrocketed in recent years for a number of reasons, not the least of which is speculation.
So, Eric, I caught you in what appears to be a fabrication. Not the first time. I really wish you would stick to car reviews, you are good at that. When u you drift into monitary policy or the laws of supply and demand, you seem to loose your way.
I suppose to the simple minded, it might be easy to wring your hands and tsk tsk that you are helpless in the face of the big bad gumment, but really, can we stick to facts for a change?
Hi Mike,
No intent to fabricate anything. I just used the government’s own inflation calculator! You’re right that prices were very low (relative to today and in real terms) in the 1990s. But am I wrong in making the argument I did based on the overall picture? That is, not focusing on the blips – the short-term lows and highs (as for example during the early-mid ’70s for the highs and the ’90s for the lows) but rather, the overall trend?
The point I was trying to make is that we’re paying about the same today, in real terms, as we were in the early ’80s – which indicates that scarcity (real scarcity, not contrived scarcity) is likely a bogy.
Is that factually incorrect?
Yes, you are factually incorrect. I used the same inflation calculator that you did. A i noted, gas in 1998 was around a dollar a gallon, adjusted for inflation thats about 1.90 or so, not 3.45 as it is today So you are wrong.
Picking a low point doesn’t really change anything. It just shows that whatever gains occurred in the marketplace between 1980 and 1998 was wiped out by inflation. That’s what inflation does, it steals the gains of the market place.
Keynesians have an ideal rate of inflation. It’s designed to rob the gains in productivity (and a little bit more) so people don’t notice the theft or at least don’t notice it so much.
Some industries for a time or regularly can beat the rate of inflation. Perhaps in the 1990s gasoline did for whatever reason.
That is if you want to use inflation figures. I prefer 90% silver US coin to measure gasoline price through time.
Silver was ~$5/oz in 1998. A 90%Ag quarter worth about 90 cents. So gasoline was around 25-30 cents a gallon. Today, it’s around 18 cents or so. Of course the spike in silver in 1980 hurts this method for that time but that was an unusual condition.
nevertheless, these are both mined commodities. You could pick anything. They are subjected to the vageries of supply-demand cycles. Infaltion is important, but it is only one of the factors. The price of curde oil, as a commodity has increased alot in the pas few years, as supply is strained and demand increases. Therefore the price goes up, inflation be damned.
Eric, i see what u mean. If u wanna pick 1980 as a base year. I chose 1998.. It seems not much happened between 1980 and 1998 using your example. Which is unlikely.
Yes, the key is in picking things that are generally considered useful or stable holders of value over time. It could be a wide variety of items.
Crude oil has only really increased in dollars. The question is what happened to the dollar?
I also doubt demand has changed much since 2008/9. If it has I would look at what the war machine is consuming. It isn’t private industry that’s growing, it’s government and war.
No it shows you and co. can’t tell the difference between nominal prices and real prices and are calling all prices “inflation”.
Gil, your babble is not even making sense. Inflation is an increase in the money supply. Price increases are the -result- of inflation. Price increases are not even across all goods because of other factors involved in prices.
The ‘ideal’ inflation is where the bankers rob the economy of it’s year over year productivity increase and just a bit more. Of course they have long gotten much more greedy and are stealing everything that isn’t nailed down.
Mike, silver and gold are much more than just mined commodities, subject to the vagaries of supply and demand. For thousands of years they have been used as money by societies that recognized its properties as suitable for use in exchange transactions. The two most important of these properties, neither of which is shared by the fiat dollar, are scarcity, and stable value over long periods of time.
And, it can’t be faked.
You either have gold/silver… in objectively defined quantities … or you have paper funny money that can be increased in quantity almost at will and devalued just as readily.
BrentP as you are aware, the 1980 silver spike was a gross market manipulation (or so the PTB say; the Hunts claimed they were hedging against monetary inflation with physical metal). So we can safely ignore that anomaly. I’m with you on gauging prices with 90% Ag for the simple fact that the Spanish Milled Dollar @ 24.057 grams of fine silver was THE monetary standard for this nation at its founding.
There’s nothing wrong with gold for moving a lot of wealth around in a relatively small space; but silver is (or at least was) the common man’s best bet for an every day exchange commodity. The fact that governments have always sought to divorce “money” from the commodities it was based on should tell anyone with a lick of sense that we’re getting screwed. First, by the theft of a real and useful commodity; then second with the monetary inflation that’s sure to follow.
Let’s say we wanted to make an exchange for 10 gallons of gas that one of our pet trolls here needed to sell. First we offer to give Gil or Clover a piece of nice linen paper with “One Ounce of Silver” printed on it in green ink. Then we offer an actual 1922 U.S. Peace Dollar. We all know which item either of them would readily accept. So all of their ilk’s arguments about specie being unimportant, inflation having no relevance and that government control is essential for “stable prices”, “sound money” and a “healthy economy”, are pure unadulterated bullshit.
If “monetization” of paper (or of ones and zeroes in a database) would actually improve the economy, then Zimbabwe would be the wealthiest nation in the world. Instead they had to borrow money to rebuild their mint’s printing presses and their inflation rate hit 231,000,000 % (that’s not a typo: 231 MILLION percent). It was actually cheaper to wipe your ass with 1000 dollar Zimbabwe notes than to buy toilet paper with them! Just don’t try to use them for that at the Beitbridge border crossing into South Africa: (http://www.freakonomics.com/2008/12/18/freak-shots-when-money-goes-down-the-toilet/)
In contrast to Zimbabwe, we have only “allowed” the Fed to inflate the U.S. currency by 2290.49% since 1913 (according to the Fed’s own calculator). Inflation is like heavy metal poisoning; a little at first is barely noticeable. Over time the effects become cumulative. Just like arsenic in the human body, by the time we really start feeling severe symptoms from monetary inflation we have reached a debilitating if not outright lethal dose.
I started reading a rather long summary of an extremely long book on constitutional money. It was linked from LRC, but I no longer remember the titles. Essentially, the dollar (a real one) is defined as a weight of silver. That weight was incorporated into the 90% Ag coin.
The most convincing argument for real money is to hold 20 or so morgan/peace dollars in your hand. Today’s central bank money feels like a child’s play money by comparison.
Nobody in their right mind would accept a $20 FRN bill for a stack of morgans just by feel alone, even being totally ignorant of what a silver dollar is other than it’s a “dollar” coin.
i’d be hesitant to use government inflation numbers. they claim inflation right now is about 3%. i call bs. it’s much closer to 10-12%.
I bought gas for 99 cents a gallon in September of 2002!!!
Another great article. Given that we are currently in a recession, shouldn’t there be excess gasoline due to lower demand and hence lower prices (adjusted for inflation)?
I live on St Croix, USVI. We have one of the largest refineries in the western hemisphere, HOVENSA; a joint venture of Hess Oil and Venezuela. It is one of the few refineries capable of refining really heavy crude. Typical daily refining was about 500,000 barrels of crude; a significant per cent of US gasoline production. Within the last year, this has dropped to 350,000 barrels/day due to low demand. I don’t know about stateside refineries, but, I bet the data is available. So it looks like the price of gas may be a bit high based on demand.
Your gas price analysis begins with the assumption that oil prices and supply are linear. The scientists discussing oil depletion state that the “peak oil” era started in about 2005. From 1980 to 2000 oil from conventional production kept pace with and often exceeded demand. Starting in the 80s, the North Slope, Brent and easily accessible offshore discoveries kept oil prices under control. Nearly ALL major conventional oil fields are now experiencing decreased production flow rates (barrels per day). Since 2005, world oil production has been on an undulating plateau while prices have gone up. We now get oil from unconventional production such as oil shale, deep offshore drilling, oil sands and short-lived smaller discoveries. This is expensive to extract oil and it is why oil prices have risen from $25 in January 2000 to $111 today. It’s no different than the mining of copper or rare earths. The easiest and cheapest materials have been extracted and now require digging for lower grade ores. The result is much higher prices for copper and they won’t fall back to the old prices. Since 2000, inflation has risen 31%. Oil has risen 440%. Let’s say oil falls again to the $70 dollar range. That would be ONLY a 280% increase since 2000. In conclusion, it’s probably not wise for your readers to rush out and buy a gas guzzling dually truck and assume gas prices won’t continue to rise above the inflation rate.
Tom, I issue you the same challenge I issue all those who argue “peak oil”. Big oil puts their reserves in their annual reports. These reserves are higher now in terms of years at present consumption and in volume than ever before. If peak oil is a reality these executives can be put in prison easily for lying on the annual reports. That simple. When I at least see the peak oil crowd going for the heads of big oil executives in this manner, where they can prove their case in court, then I will give this theory further consideration.
At present, what I am seeing is a business model to increase profits because oil is essentially a government protected cartel. Oil prices do not rise because someone decides to try a difficult to extract source or process. The market doesn’t care what someone’s cost is. It is the increase in price that brings more expensive processes into the market. You’ve got it backwards. Price increases -THEN- more expensive methods come online. Usually expense is labor and labor is the last thing to increase in an inflationary environment. Another factor is advancing technology that make what wasn’t viable on cost now cost effective.
We have to ask why did prices increase? The dollar fell and big oil has strengthened its cartel while the wars have taken oil out of the market. And that’s the point of the business model, to take oil out of the game. To sell less for more. People need a narrative. “peak oil” and others serve that purpose.
Oil prices are manipulated through production. There is no way to look at production and say ‘peak oil’. What we are seeing is constant adjustment to achieve maximum PROFIT. to balance supply and demand to achieve the greatest profit. The greatest profit comes where production * price – cost is maximized. Production too high drives cost down hurting profits. cost too high drives demand (and thus production) down hurting profits. The idea is to stay in the happy zone of maximum profit.
should read “price too high drives demand”
Hi Brent,
You are attributing high oil prices to a conspiracy by big oil. The major oil companies control less than 25% of the world’s oil supply. There is no cartel. National oil companies of governments produce more oil than the ‘majors’ by far. Also, we wouldn’t be at war with oil rich nations that pose no threat to us if oil was as abundant as you claim. Iran, Iraq, Libya are oil suppliers. In addition, oil has risen far more than the dollar has fallen. China, India, Japan are all trying to control oil leases in the Caspian basin. It’s not about making money; it’s about ensuring the flow of oil to their economies. Don’t pin it on some conspiracy when there are clear facts to support a more rational explanation.
Ahh the “conspiracy” card dismissal. All I stated what is plainly obvious to anyone who bothers to look. We live in a corporatist system where government and corporations work together for the mutual benefit of those with power in each. Have you ever worked in government or a corporation? It’s the same politics you would see working there, just on a larger scale. Why people fail to see this I’ll never know. They experience it in their daily lives yet dismiss its possibility on the larger scale and think everyone is then working for the people’s best interests or something equally naive and childish.
Rockefeller once said that it’s about control not ownership. Government’s may own the oil but they contract its extraction. These are just as much insider deals driven by politics, payoffs, etc and so forth as anything else in government. Big oil doesn’t need to own these nationalized supplies. It just needs the government granted monopoly over their exploitation. And that’s what they get. Well except for in the “rogue nations”. Which hmm are the ones that have been attacked and are planned to be attacked. Iran, Iraq, and Libya. Hmm… and then their oil production seems to always go down the tubes. It’s off the market. Gee, ya think if there wasn’t enough oil these raiders would pump the wells dry ASAP. If that’s why they were raided… Perhaps the raid was for profit instead.
Oh but that’s dismissed as “conspiracy” theory. But here’s the problem. The big example of how this goes down. Operation Ajax. Oh but I know we are supposed to believe the CIA overthrowing a government for the benefit of a big oil company is something of the past. Doesn’t happen any more, right? It’s just a conspiracy theory, irrational nonsense of kooks, just like people in big corporations getting all buddy buddy with their counter parts in government for mutual benefit… never happens… please.
It’s about who’s in the club and who isn’t. Those who aren’t are COMPETITION. The point of having a cartel or cartel like system, of having this corporatist/fascist system is so there isn’t competition. You got Saddam Hussein dumping massive amounts of oil on the market to pay for war so something has to be done about him so the set up of the early 90s. Then the wrong people were cashing in on oil for food. Then ya got Qaddafi mouthing off about gold currency and making deals with china and building infrastructure to get people out of poverty… that’s just asking for it. Iran, well we are back at Operation Ajax that started Iran to its present state.
Running out of oil. Bah humbug. It’s been humbug since the 19th century. It’s about power and money. Making a profit. But people have a problem going to war so some small group can be wealthy. Need some other excuse. We get a variety of them. From they’re ‘bad people’ to ‘we need the resources’ But in the end it’s just a racket. A racket so a few can profit at the expense of the many.
These wars haven.t increased supply or decreased prices, just the opposite, just as they were supposed to do.
Right on Brent! Well said.
For all of those clovers who simply cannot comprehend that our government is NOT the all-benevolent and wonderful caring entity that they think it is — I would remind them that conspiracy “theories” are simply as-of-yet unconfirmed “conspiracy facts.
There have been NUMEROUS US government and military related conspiracy theories in the last 100 years that are now proven conspiracy facts — and any clover that knows how to type and Google can find them easily enough — and there are scores of them!
Clovers have simply been brainwashed by government and media to instantly discount, ridicule, and disregard anything labeled as a conspiracy “theory”, without first doing some investigation into it.
As has been explained elsewhere, cognitive dissonance serves clovers well as an excellent form of denial.
“There is no cartel. ”
Uh.. you mean like Pemex? Or the Venezuelan state oil company? BP in the UK? Exxon-Mobil here?
As George Carlin so nicely put it, “It’s a club – and you’re not a in it.”
Me, either!
Well, on the other hand, we’ve been hearing about “peak oil” since the ’70s – and told that the tipping point is imminent for decades.
I’m not saying oil is infinite – or that we won’t eventually reach a point of economically diminishing returns. I’m just skeptical that we’re there – or even near there. There’s too much confidence in affordable/accessible oil expressed by the decisions taken by people (businesses) that have every incentive to change those decisions if in fact we are near “peak oil.” These people are not stupid.
Boothe and others have noted that artificial scarcity has been created by government compliance costs making it not worth pursuing resources that exist in places such as California and who knows where else. As for “unconventional production,” well, another way to look at that is “better technology production.” We can now access oil in places that were once inaccessible, or economically not worth pursuing. It’s more complicated yes, but not necessarily more (or much more) expensive.
The bottom line is that a gallon of gas today, adjusted for inflation, costs the same in terms of the actual value of the money, as it did 30 years ago.
And that tells me it’s a flim-flam. That we’re being robbed by inflation – not running out of oil.
I’m sorry Eric but unconventional oil is indeed far more expensive than ground pumped oil. The Bakken oil shale in North Dakota has an extraction cost of $50-60 per barrel and that’s per Continental Resources – the major lease holder. And, that’s for the primo oil in the shale. The lease extraction costs outside the prime area will be even more pricey. The Deep Water rigs in the Gulf are pulling up thick oil and not light sweet crude. Again, expensive to extract from 1-2 miles below the ocean floor. The Canadian Tar Sands are only profitable at well over $100 per barrel – maybe $200. These are oil majors doing this work. If there was less expensive oil somewhere, they’d go get it and undercut their competitors. The marginal cost of oil extraction is rising relentlessly due to higher costs and lower quality product. This is science and a consensus fact supported by ALL the major oil companies and by science. To even debate it is a waste of ink. For heaven’s sake, go to the US Geological Survey web site or the http://www.iea.org and read the research papers. Unconventional oil and gas to liquid conversion is far more expensive than conventional oil and that’s why prices are rising – not some global conspiracy by Exxon, Shell and BP.
“If there was less expensive oil somewhere”
There is, as others here have said, in California, Alaska, etc. The point you are missing is government regulation is what makes this oil unaffordable.
“There is no cartel,” but “the US Geological Survey,” “ALL the major oil companies,” and of course the indispensable-for-the-appearance-of-authority “science,” all agree on the peak oil theory which enriches them. There’s a name around these parts for people who can’t smell the stinking rat here and who just accept that this collusion to restrict freedom by limiting access to the energy we use is all in good faith.
Funny thing about people…as Eric has pointed out, they as a whole tend not to stand around with their thumbs in their rear ends when obvious doom is looming. Peak oil is tailor-made for the government, it’s a horrible unimaginable calamity from which only wise, benevolent actors in power can save us. It appeals strongly to that strange essence that is at the root of Cloverism.
What exactly is a “clover”? Bad driver, old person? Never heard that term before until seeing it on this site.
Hi Tom,
“Clover”is my term for the Little Authoritarians, the people out there who say “there ought to be a law,” who have fetish about controlling (usually, pre-emptively) other people’s lives and forcing them to live (and do) as they see fit, according to their arbitrary standards. I’ve discussed the phenomenon in several articles, which can be viewed in the Politics section on the top menu bar.
Oil is not just extraction cost and most difficult to extract oil is profitable at $US40 a barrel. Or at least was before further inflation.
transportation is a big factor on where drilling is done as well as government and who can get what contracts who can do what political manipulations.
Difficult to extract oil is extracted because there is a profit to be made at the higher prices. The question needs to be why are there higher prices? From there we go into politics and monetary policy.
Well, if so, then why hasn’t the real price of oil reflected that? Even with historic quantities of Fed funny money being printed and pumped into system, gas prices are (currently) just over $3 per gallon, which is not much more than gas cost – in real terms – 30 years ago.
As I mentioned in the article, the one fact (and there are others) that makes me very skeptical about “Peak Oil” is that the huge business interests whose profits are dependent upon and assume affordable oil have not radically altered their business models – or decisions. That makes no sense, if indeed the oil supply is in short supply – or anticipated to be in short supply in the near-term future. Do you have an explanation for this that makes sense? The only one I can come up with is that they are stupid – and stupid, these business interests aren’t. Greedy, corrupt – even evil. Sure. But stupid?
Also: As others here have noted, the subtext of our “fight fer freedom” in places like Libya (and soon, Iran) had/has to do with control of cheap oil – and oil bought/sold in other than US dollars.
Look into this. It’s interesting….
I hate to break this to you, but saying price inflation since 2000 is only 31% is naive, putting you in the category of those who’ve been duped by the government’s bull**** figures. Remember that oil is a very large part of most people’s budget, and that number is conveniently left out of the CPI. Inflation really isn’t rising prices anyway, it’s the falling value of a fiat dollar, backed by nothing and being “printed” in record quantities.
And global warming? Here’s what the Club of Rome, a premier environmental thiunk tank consultants to the UN said about global warming: “The common enemy of humanity is man. In searching for a new enemy to unite us, we came up with the idea that pollution, the threat of global warming, water shortages, famine and the like would fit the bill. All these dangers are caused by human intervention, and it is only through changed attitudes and behavior that they can be overcome. The real enemy then, is humanity itself.”
What are you sayin ?
We has met the enemy and he is us ?
Sounds like somethin Pogo would say.
I’m not saying anything Bill. I am however stating exactly what the Club of Rome is on record as saying. I didn;lt pick their goofy name for themselves – they did. Beyond that, simply read what THEY said. One of the important phrases in their statement is “In searching for a new enemy to unite us, we came up with the idea…” Unless you are a clover, their methodology and objective should be obvious.
This guy makes a good case for the gallon of gas for the silver value of an old quarter. The numbers fluctuate but are easy to confirm.
http://www.youtube.com/watch?v=QPwZ-wQFFu8
All these points mentioned are good, but I’d like to add something else. I think too much is being made of “if oil was running out…” comments. The price mechanism is good at giving indications of prices and expected future prices, but, those future prices do not include “running out”–it assumes things will likely be like they currently are in the future.
We really don’t know how much oil is out there–we only know the amount of proven reserves and can speculate on more, the market cannot really price future prices on something we don’t know. It certainly makes a difference in the expected price if we know that the total amount of oil left is 1b barrels or 100b barrels.
This is a minor point compared to the whole USD devaluation but I still think it’s worth noting.
“We really don’t know how much oil is out there–we only know the amount of proven reserves and can speculate on more, the market cannot really price future prices on something we don’t know.”
What we do know is that oil production declines in producing fields on a gradual curve that can be plotted. Currently, political considerations dictated by know-nothing environazis preclude the exploration for and development of carbon based energy sources. This is a huge and synthetic factor in determining market prices. Couple that with the other environazi inspired seasonal blending of refined products and it is not surprising that volatility exists in the market.
In 1960 there were scores of competing refiners in California. Due to impossible to comply with regulations the number of refineries can be counted on the fingers of one’s hands. This is also true of the crude oil production in that hapless state. No major oil company any longer finds it economically feasible to drill for or produce crude oil south of an east west line running roughly through the city of Bakersfield.
If you’re unhappy with the energy availability situation, thank an environazi.
Just run a similar calculation to see what has happened in the UK. In 1980 gas was £1.28 a gallon. Using the (UK)CPI calculator the current rate should be £3.65 a gallon – the actuaql current cost is £6.17 a gallon. Welcome to rip-off Britain where the tax on a gallon of gas is £2.63 or nearly 43% of the cost of a gallon of unleaded gas.
It doesn’t end there though, to get the £6.17, to pay for the gas, in my pocket I have already paid £1.54 in income tax. The true cost of tax on that gallon of petrol, therefore £2.63 + £1.54 giving a total of £4.17 and the total cost of the gallon of gas is £6.17 + £1.54 or £7.71.
Don’t you just LURVE Inland Revenue tax collectors.
Ken.
Oops!, my bad, I forgot to add the 22.15p per litre, roughly £1.00 per gallon VAT to add to the tax I have already mentioned. This makes £3.63 in tax on a single gallon of go juice, just about 59% of the total, exorbitant, cost.
Ken.
Hold on here. Here is a chart of inflation adjusted gas prices since the mid 70s.
http://zfacts.com/p/35.html
Since 2000, the prices have ouptaced the general rate of inflation. As you can see, 1980 was a bad year to take a baseline. Better to take 1975 or 1985.
The initial reason for gas price swings since 2000 was and is the oxygenation requirement for fuels. Initially, it was a few cities that required it. Now, the ethanol mandate is nationwide.
Between 2004 and 2008, worldwide oil prices jumped from $40.00 per barrel to $140.00. Each years since 2009, oil prices have jumped by about $20.00 per barrel per year on the average. Something else is afoot. Increased demand from China and India, whose economies continue to grow, peaks in worlwide oil production (oil is a global economy), speculation, and dollar devaluation has contributed to a new floor on oil prices. It is becoming increasingly apparent that we will never see a return to $2.00 per gallon gas ever again, which is sad. High fuel prices have killed off the long road trip as a travel option for Americans.
Even if we were to return to a gold standard and somehow reduce the nominal price of gasoline, the fact is that the real cost will continue to eat up incomes at a faster rate.
Without viable alternatives because of government regulation of the car industry, we are unlikely to get relief in our lifetimes.
There are a number of other factors, but the currency devaluation is the largest of them IMO.
One is the increased productivity. We saw this in the 1990s as prices fell not only in constant dollars but nominal ones. Then big oil started buying up the independent refineries and using the regulatory climate to have an effective cartel on gasoline production. Prices then began to rise. This is when we started getting news reports of ‘gas prices to spike because XXYYZZ refinery is shut down for repairs/maintenance/seasonal change over. This never happened prior to the consolidation. Once those smaller refineries were shutdown government regulation prevents their replacement so now big oil does as it pleases to increase its profits.
Only in a cartel or other monopoly like environment does throttling production result in more profits. A typical manufacturer would suffer severe losses for behaving the way big oil does with gasoline production.
Since then big oil is getting more and more of a hold on oil exploration, drilling, leases, etc. Again the goal is to create artificial scarcity and drive up the price. Gasoline is very very cheap with current production technologies in a free market. Thus the way to make more profit is to constrict supply.
Iraq, Libya, Iran… about (in part) controlling oil supply. Remove all competition that can act to reduce prices.
Gasoline prices should be, in honest money crashing under the weight of increased productivity and known oil reserves/supply. In terms of silver they have, but that also factors in people fleeing paper money. Hard to say what portion is what. A pull out my ass number would be one mercury dime per gallon to present value in 90% silver if we had a free market, honest trade, etc.
Quite right Brent; monetary inflation combined with cartelization of petroleum is the real problem. I still remember gas wars, gas as low 0.15 a gallon and I’m only 52. My folks would go to the Kayo station because they gave S&H Green Stamps when you bought gas there. There is no competition between gas stations or oil companies anymore. Right here in the small mid-western town where I live, gas prices at every station are always within one cent of each other except one (there is one independent dissenter who stays 3 cents lower than the “club”). There is a known cartel here in town and the convenience store owners protect each others’ profits. I have to laugh when someone tells me the “free market” in this country is the problem. I doubt we’ve had a free market since 1860.
Swamprat, If crude oil was $140.00/bbl in the beginning of 2009 and as you allege has increased by $20.00/bbl per year the price should be $200.00/bbl now. In which public skool did you “learn” arithmetic?
signed: An oil patch graduate who sold 9 gravity crude oil to the Standard oil refinery in El Segundo, CA for $1.00/bbl in 1961.
Er, AEONIDAS- Oil peaked at $140.00 per barrel in the Summer of 2008. By the beginning of 2009, it was at about $40.00 per barrel. If you would check the link to the chart, you would see that the inflation adjusted price has increased drastically since 2003 or so.
Brent – I agree that there was quite a bit of consolidation in the oil industry during the 1990’s. I don’t remember that small refineries were bought, but I do remember that Chevron/Texaco merged and BP/Ammoco/Arco merged and also Exon/Mobil. There was a lot less competition moving forward. What would be the “free market solution” to that? Should we break the oil companies up? Or should we eliminate the regulations such as fuel oxygenation and some of the pollution rules that really don’t cut pollution?
The problem isn’t that big oil could buy the smaller refineries. It isn’t even so much the regulation on the refineries’ operation or even the formulation requirements of the fuel. The big problem is that it takes millions of dollars and about a decade of political effort to get to the ground breaking of a new refinery.
Essentially one has predict what the market will be like ten years down the road and commit a huge sum of money that will be consumed by the political process and the result could still be denial.
The end result is that nobody is going to take the business risk of opening a refinery. Predicting the market 10 years out is very difficult. Just getting to ground breaking is expensive. So nobody does it. This leaves no competitive check on big oil. They have a protected cartel on gasoline production.
It’s interesting that the chart you chose starts in 1972, right after Nixon took us off the gold standard for the dollar. It was shortly thereafter that the government started lying to us about the rate of inflation, by massaging the numbers to suit their political purpose – theft on an unimaginable scale. Your chart also verifies the point Eric made in his article: namely that gasoline prices have not outpaced inflation. Of course, you can choose to look at only the section of the chart from 2000 until now and say it gas price changes have exceeded inflation, but remember that is also the period when the inflation lies were the biggest, and the government money printing was at its most rampant. Try measuring your gasoline in real money- the price of gold, and you’ll see its gotten cheaper, not more expensive.
P.S. Don’t forget to take the increased gasoline tax out of you calculation. As a percentage of the cost of a gallon, the tax has increased significantly.
Back in 1974 the price of gas in the little town I’m from jumped from 47.9 to 74.9 almost instantly. I remember it so well because I mowed grass for spending money and had a mini-bike to put gas in. That 50% jump really impacted my disposable income as a 15 y.o. A family friend from Texas called her dad, who lived down on the gulf to see what had happened. He was an executive at a refinery. He told her he didn’t know what was going on; their storage tanks were full, the tankers were sitting there full and they were being told not to move any product. That tid-bit of “insider information” started me down the path of suspicion of all things “official” at an early age.
Oh, we were told that it was the U.S. support for Israel in the Yom Kippur war, OPEC was pissed about U.S. policy in the middle east (sound familiar?), etc. But no one brought up much about the U.S. ditching the Bretton Woods agreement and letting the U.S. dollar “float” (i.e. become totally worthless fiat paper). The gas shortage of ’73 was a symptom of and partial cover for the monetization of federal debt for the perpetual welfare / warfare state.
If oil is in such short supply and such a dangerous pollutant, then why do we have hundreds of thousands of troops and “contractors” burning gargantuan quantities of oil in tanks, APCs, trucks, air craft and surface vessels worldwide 24-7? One would think that if AGW and greenhouse gases really concerned the elite, these wars and all their energy consumption would stop overnight. Why is it that the only potential candidate for president who has been telling the truth for the last thirty years is also the only one that wants to bring the troops home?
The whole peak oil / AGW scam includes (but is not limited to) restricting our freedom of movement, garnering high non-competitive profits for a few key players, collecting taxes, limiting inexpensive energy in the interests of eugenics and controlling alot of real estate worldwide. I really wish someone actaully could bring one of these so-called “suppressed” alternative energy sources to market and blow the whole rotten mess out of the water. I’d love to see the look on Rockefeller’s, Brezinski’s and Kissinger’s faces.
Hear, hear sir! Well said Boothe and amen to every point.
I’d love to see that smarmy little schmuck Nathan Rothschild (purveyor of AGW myth…AGW BTW is almost entirely a Rothschild promotion) when he hears about cheap practical fusion!
Eric, you could have added what I’ve posted free of charge… 🙂
Gasoline in 90% silver US coin is under $0.25/gal and according to big oil’s reports there is more oil now than there has been since it started running out in the 19th century. (measured in years at current consumption and in unit volume) Some people claim the reserve reports are lies. Well, they are repeated in the annual reports of these giant corporations. Lies there are considered fraud and can send executives to prison. I won’t believe anyone who says reserve numbers are lies until they have the oil company executives facing charges and then convicted.
All the narratives are to drive up oil prices, control society, and mask the theft that is money creation (inflation). A criminal enterprise people should be imprisoned if not hanged for.
Yup – you got me started on this one!
Gasoline in 90% silver US coin is under $0.25/gal
Amen, BrentP!
Fiat debt-money is the absolute HEART of the problem.
Fiat is bad enough–money based on nothing, issued at will, the issuance of which erodes the value of money already extant.
But fiat debt money is theft on a colossal scale; because when the fake money is issued–at almost no cost to the issuer–it is issued as debt. In other words, we’ve been victims of the greatest scam ever perpetrated. We pay interest on a fictional debt. The “money” in your pocket is actually debt; it is not “money” in the legal definition.
Fiat debt-money enables the greatest evils in the world. It pays for wars which taxes could not pay for; if we were actually paying for the five or six illegal wars we’re in, taxes would be unsupportable, and the wars would stop. Government cannot grow as large as it has without fiat money; again, taxes would be unsupportable.
More evil still is the erosion of VALUE. When money’s definition changes, when its worth declines over time, it erodes the culture itself. How? Because it alters time preference; in other words, we get what we have today–“Buy it now, pay later”.
That simple change creates impulsiveness and destroys frugality–and with it a host of virtues necessary to a polite society.
At the same time, it’s enabled the greatest transfer of wealth in human history. The country is literally being stolen from us.
The roughly $500 billion in interest the USGov paid last year is a transfer of wealth from the productive to the parasitic. As the Fed–the privately owned banking cartel that issues our fiat debt-money–buys more and more T-bills with newly created money, the theft of America will accelerate to light speed.
Destroy the Fed; use gold and silver; and watch prosperity return in a few MONTHS.
Methylamine,
Absolutely spot-on assessment of the transfer of wealth going on in the US.
It’s not from rich to poor or poor to rich it’s from US taxpayers to the Federal Reserve, who own us. The IRS is the only company that can put you in jail for not paying what you owe to a private company : the Fed reserve is exactly that: a private company. A cabal of bankers.
The US is OWNED and has been for decades.
Next stop: global currency and One-Government over all.
Bush the 1st’s dream new order. Obama’s Marxist ideal. Romney’s Mormon utopia.
There’s a lot more going on here than meets the eye.
Your right about the debt based money and everything you have said about the private cabal that has sunk the entire world into a fictitious debt because they print the money which isn’t backed by anything hense the phrase “made out of thin air” is attached with interest…they should not receive a dime of interest as it is not their money they are lending it is a made up debt and worthless fiat money…but the problem being if you made them back their money system with gold now it would be too late….as the elites have stole more of the worlds gold already ….the answer is to kick them out like Jackson did and run the issuance of money ourselves interest free and put people back to work rebuilding all the infrastructure that is breaking down all over the country….cancel their bullshit debt and charge them with “crimes against humanity” and put them all to death …use the international courts they set up against them and rid the planet of these parasites and watch the planet “thrive” having got rid of them…but unfortunately too many in government have sold out to them …so we need to change the system entirely…both parties are corrupt….and always have been…we need change NOW…as time is running out.
I couldn’t have said it better myself. Let me add that there is still something we can do about it before the cabal of bankers has stolen it all leaving us and our progeny completely in their power. 1) Vote for Ron Paul for President. 2) Question every candidate for Congress on their position re: sound money & the Federal Reserve. If they don’t support first the audit, and then the abolishment of the Federal Reserve, vote them out too. 3) Start saving your wealth in real money – gold & silver.
Limited supply would be a shortage. Scarcity is what ALL economic goods always are. So given any supply, an increase in demand would in fact increase the price. If the population has increased since 1980 then that increase in demand would in fact have a significant affect on the price of oil.
Of course economic phenomena cannot be quantified, only qaulified, so we cannot really make any valid inferences about what has affected the price of oil: supply, demand, politics, money supply?
Agreed if there really were a global oil crisis the oil companies would be investing huge amounts of money in shale or natural gas. Oil futures would be going up in price significantly.
:):):):):):):):):):):):):)
Eric you always make me feel like there’s still hope
Thanks, Brandon!
There is – hope.
Never give up. Never give in.
I can not figure out why you deleted the factual post that I posted about there now being a billion cars in the world and are estimated to double in 40 years. 35 million cars were added around the world in just 6 months. With those numbers do we need to keep our average mpg down in the low 20s forever? I think not. If you want to pay 20 bucks a gallon in your lifetime then keep on believing oil will last forever. If oil is stopped from passing through certain areas of the world then watch gas price go up to 6 or 7 bucks in a hurry.
I just have one question. If it would happen that supply was disrupted and there are shortages would you all keep driving 80 mph because you say you can afford it knowing it reduces gas mileage a bunch?
Clover, the premise of counting cars as you do is well, cloverite. The authoritarian idea that everyone has to be the same and everyone has one car and always or almost always uses it for transportation. It’s silly.
Let’s say there is someone who takes mass transit for 98% of his ground transportation. Does it really matter if he buys some giant boat of a car that gets 12mpg? Not really.
How about another guy that bike commutes 6 months out of the year. Is it a big deal that he buys a sports car with 18mpg city and 26 hwy? Not particularly.
Then maybe there’s another person who has multiple cars. He has one that gets really good fuel economy he uses most of the time and others that aren’t so good he uses the rest of the time. So what does it matter what a car he drives less than 50 miles a week gets?
Then there are infinitely more choices and then combinations of those choices.
Your comment is linear projection combined with authoritarian control freakish one size fits all nonsense.
The goal of CAFE has never been to decrease fuel use. If that were the desire then a simple tax on fuel would have done the trick. CAFE is about controlling choice. What we can and cannot have. When I see comments like yours, that is what I see. The desire to manage, to control other people. To tell them what resources they can and cannot have. Not just by price, but by their social class. To make it so that guy who rides the train everyday can’t save his pennies and buy a huge two door convertible for sunny days in the middle of summer.
And that’s what you’re counting cars amounts to. It amounts telling people what they can and cannot have. The allocation of resources by central control. screw that.
I’d like to see other people around the world afford something decent to drive around in. More than decent. Those of us who farm,mine,and make on this planet will figure it out the problems as they come if your kind would just stand aside.
But anyway… there isn’t a fuel problem if you control freaks get out of the way. There are so many ways to power transportation and I wouldn’t even bother with gasoline in many developing countries. I’d find a local fuel that works. Like sugar cane ethanol in brazil. Or something that one could trade for easily. But in this control freak world well… shortages are often the result of one-size-fits-all solutions.
Boy, Brent – you save me a lot of work!
Thanks for another great post –
Brent, you made some good points. Regarding CAFE legislation, it was designed to force car companies to meet more stringent mpg requirements – of course, with exceptions. That exception being trucks. So, what do the car companies do to skirt the law? They build a car on a truck chassis (SUV) and they get the exception. The more free-market way of changing behavior would be to tax gasoline (e.g. Europe) to the point where automakers would have to start making more fuel efficient or even smaller cars to meet the demand due to the higher cost of gasoline. Again, this prevents loopholes and is more free-market.
“I just have one question. If it would happen that supply was disrupted and there are shortages would you all keep driving 80 mph because you say you can afford it knowing it reduces gas mileage a bunch?”
Sure! I have a motorcycle that still gets better mileage at 70 or 80 than any car you’re driving at 55!
This is in response to the gentleman who claims oil is a shortage commodity and that we should rethink driving 80 MPH. The bottom line is that the Obama Administration said point blank that they want to change the way our country fundamentally does business!!! We can all remmeber him saying that as part of his hope and change mantra. Well, this is all part of it. First you place a moritorium on drilling, then regulate coal till they are pushed to the brink, and finally you deny any attempts to run projects like the pipeline from Canada. This is the country Obama is trying to achieve when he said he was going to fundamentally change America. Additionally, I have heard it from other sources that there was enough oil found in Alaska decades ago that would last the US for two hundred years. Now you need to ask yourself why would we pay our enemies billions of dollars annually for oil that we have here??? Why are we so deep in debt and what could the possible endgame be to break the US?? If you can answer those questions you may have a whole new awakening.
JimmyJ
Explain what we are going to do when the number of cars are supposed to double in the next 40 years?
How does one argue against a “supposed”? A “might” A “could be”? Your “argument” makes grand assumptions along just one path, without considering the numerous related factors that might change along the way – including factors we may not even be aware of right now.
Clover, what are you going to do when the Yellowstone caldera erupts? How about; how will you deal with it when a giant asteroid lands in the middle of the Pacific ocean? Or, what are your plans when you come down with a rare tropical fish disease? Those are all logical extensions of your line of “reasoning”. As Eric pointed out there are innumerable possibilities and even probabilities that none of us can fully account for. You can be sure of two things: Whatever happens human ingenuity based on profit will prevail, and we’re all goining to die someday no matter what we do. I intend to enjoy my life before I check out and I don’t need assholes like you restricting my choices.
Human ingenuity to “turn a buck” is the very reason you have the car you own right now Clover. And if it weren’t for people like you and your beloved regulations, we’d all have a lot more choices for for basic transportation….and the fuels we could use too. If you’ll look just a tad beyond the MSM you’d see there are very powerful and wealthy people that wish to heard and control the rest of us for their own nefarious purposes. The lines are being drawn: you either stand honestly against the elitists or you are their implicit enabler. You’ve made it pretty clear which side you’re already on.
You’re a collectivist, Clover, and hence see all conflict through the lens of central planning.
Here’s an idea: let’s SEE what happens. It is impossible to predict what 8 billion people will do, given free choice, in 40 years…or what technologies will be invented. It’s those 8 billion choice-makers, deciding for themselves what’s best for them given their means, over 40 years, that will develop the future.
Not government. That’s the entity famous for epic fuck-ups like the postal service or ten-year-long wars over nothing.
If the oil magically dries up in that time–who knows what they’ll run the cars on? Not you. Not government. And not I.
But if the desire for the car is there, and the money to pay for it and its fuel, then there will be cars.
Will they be powered by hydrogen electrolytically extracted from water by the nifty new fusion plants? Or CO2 fixed straight from the atmosphere by a newly-invented solar chemical process? Or by super-abundant natural gas extracted from methane hydrates on the ocean floor?
Let 8 billion people, making choices and working for their own betterment, decide.
Me? I’ll buy what I can reasonably afford to purchase and fuel…and offers me the best in performance and utility. And THAT, sir, is what propels the human race forward…not your Stalinist collectivism, you Ukrainian-starving chicken-necked little tyrant.
And never believe that the pump price of oil reflects its true cost, which was $10 a gallon as far back as 2005:
http://www.evworld.com/news.cfm?newsid=11520
We’re going through oil as it if were water — or air — all due to externalizing its cost via the REAL thing that is fueling our economy:
http://globaleconomicanalysis.blogspot.com/2009/03/geithners-galling-and-dangerous-plan.html
Hi David,
One can also look at the true cost of fuel through an inflationary prism. If a dollar bought today what it bought in 1900 – before the introduction of Federal Funny Money (fiat currency) gas would probably sell for less than a dollar again, even with today’s onerous and regressive taxes folded into the price.
The EV argument about “externalities” is little more than anti-oil (and pro-EV) propaganda. Because it exaggerates (and ignores) contrary facts about oil, while touting electric cars as the low or no-cost alternative. You want expensive transport? That’s the electric car. You want “externalities”? How about the hundreds of pounds of highly toxic/reactive chemicals contained in each EV’s battery pack? The cost to mine/refine/produce these materials? To dispose of them, down the line? How about the cost of electricity? Not just in kilowatt hours, but in terms of the cost to generate it?
Etc.
Good article, Eric, but consider these facts When I first started in the job market the minimum wage was$0.25 (yes that is not a typo, and yes, I’m an old fart!) Gas cost $0.25/gallon Therefor one had to work 1 hr at minimum wage to get a gallon of gas. However that gallon only took you about 10-15 miles, unless you were one of the few who were driving VW bug.
Now if you had one of those old silver quarters you could trade it for $ 6.50 in funny money….er federal reserve notes.
Or if you take the current minimum wage of around $7/hr you could buy two gallons of gas for either the same quarter or an hour at minimum wage today. But those two gallons of gas would get you at least 50 miles down the road!
Since the only reason to purchase gas is to travel, its actual cost today, when figured in miles travelled/hr worked is only about 1/4 of what it was in the 60’s.
Good stuff, Smith!
And: I wish I had some of those old silver quarters…
One of the best ways to protect yourself from our Dollar loosing value is to own gold or silver.
The easiest way to avoid the loss in value is to acquire real money, specifically old silver coins
minted b4 1965. They are available in bags of various amounts of nickels, dimes,quarters and half dollars, they have 90% silver in them. Go to
http://lynncoins.com/jsilv.htm and take a look.
If our dollar becomes worthless, as some have forecast, then each ounce of silver is worth $29.79 as I write this. They are US coins that will be accepted easily and can be sold at coin exchanges. One exchange near me buys them at face value times $2 under spot price of silver.
They are practical as a storehouse of value and will be more readily accepted by the guy that changes you oil than our paper dollars when they are know to be worthless.
Agreed. “Junk silver”–pre-’65 90% silver American coins–are silver.
They’re the cheapest way to buy silver with the lowest premium over spot. They’re highly recognizable. And they’re small enough in value to use in regular transactions–try paying for some chickens with a Krugerrand!
Well Methyl if you can find the right seller, you could buy a BUNCH of chickens with a Krugerrand. Trouble is if you’re hungry, the seller only has one chicken, and he can’t make change that’s going to be one very expensive chicken!
This is why we have chickens (22 of them) rather than gold!
If you don’t mind me asking when did you earn 25 cents an hour? The minimum wage in 1955 was 0.75 per hour. http://www.infoplease.com/ipa/A0774473.html.
The real minimum wage today is a joke. Has been since the Raaaaaaayyyyyygun 1980’s.
A person younger than I might remember a minimum wage of 75 cents per hour as a benchmark.
But my first minimum wage job was at 40 cents per hour, and 40 cents prevailed for a number of years after that. I don’t remember what it was before my first job in 1944 — possibly around 25 cents per hour while price and wage controls were still active. But remembering what seemed affordable back then, a minimum wage around 30 to 35 cents seems more likely to me, but I’m not certain. Wages stayed frozen for almost all the years of the war, but the lid totally came off after that. And the government of that era was more sympathetic to raising wages than raising prices — so it takes a more detailed memory than mine to extrapolate back before 1944.
In the 1950s, the price of gas was roughly 25 cents. With a minimum wage of 75 cents an hour, you worked for 15 min. to afford a gallon of gas. Today, that figure is close to 30 minutes. It’s an outright disgrace.
You can argue that cars go farther on gas, but the overall operating costs are much higher today even after adjusting for infaltion.
Back then, you could run a car for $0.10 per mile. Today that figure is over $1.00 including taxes and depreciation.
Times have changed and NOT for the better.
So you agree swamprat that oil is more expensive in real term? Then again why do you feel you have a right to cheap oil? Our great-great-great-grandparents didn’t even want oil – they wanted horse feed.
“Then again why do you feel you have a right to cheap oil?”
Very revealing, Clover!
Swamprat can go to various oil producers and try to haggle for a cheap price or try to drill for his own oil. Then again Ferrari has a duty to provide cheap cars – oh wait no they don’t.
I know that in 1941 I got my first job after graduating from high school and the minimum wage was 40 cents per hour. I made $16.00 a week.
Hi Mary – welcome!
IIRC, minimum wage when I got my first “real” job in the ’80s was $3.35 – so 30 years later, it’s only about double what it was then.
Well, what should it be? $10, $20, hell why not $1,000 if we can just point to a line on a graph and say “this is what the minimum wage should be”?
All this talk about the minimum wage over the past couple days and nobody’s pointed out that the minimum wage represents a fixed price floor in the labor market, and encourages a black market in labor (illegal immigration) just like price floors do in any market for any good or service.
I doubt I have to explain this to folks here, but just want to point out that an increasing minimum wage brings increases in the prices of goods and services.
This is one reason why gas station attendants are extinct except in Oregon and New Jersey where it’s against the law to pump your own gas. The price of gas in Oregon is three cents higher than in Washington in spite of the fact that their gas tax is 4 cents lower. Sure there are other factors at play but you can’t ignore the cost of $8.80/hr gas station attendants who would be out of a job without the law.
You forget that libertarians are against any government policy. They would say any minimum wage laws no matter what the wage are things to make you very angry. They would also be against laws that require gas station attendents. Good and bad libertarians are against everything.
What we’re against, Clover, is thugs such as you who can’t stand the idea of leaving their neighbors alone.
You’re right on the money, ThatOneGuy.
The minimum wage is an unemployment guarantee; you couldn’t design a better system to disenfranchise low-skilled workers, teenagers, or the temporarily unemployed.
Nobody wants to keep working at a super-low wage; but it’s nice to get your foot in the door, then move up.
If I were a manufacturer, for instance, I’d love to hire some teenagers on the welding floor for, say, five bucks an hour; they’ll learn welding. Once they have, they’ll actually be WORTH more than five bucks.
Put a floor on that hiring price, and I can’t afford to educate them at a loss; they remain unemployed, and my products remain expensive.
Minimum wage hurts everyone.
Actually the gas is cheaper now than 30 years ago if you take into account of the inflation AND the taxes in that one gallon of gas. We paid more in taxes now than before. The net the producer is getting is less now than in 1980.
Pumped and bought gas at 25 cents a gallon in the mid ’60’s…. Talk about raping the consumer… Oil was only 75 cents a BARREL !!!
As measured against silver, gas is cheaper now than it was in the mid-60s. When we bought it for 25 cents a gallon back then, we paid with a shiny silver quarter. Today’s melt value for the silver in that quarter is about $5.64. So that quarter that bought a gallon back then would buy about a gallon and a half now. If you factor in all of the additional taxes nowadays, I think the oil companies are doing an excellent job of keeping prices down.
No, I do not have any affiliation with that industry. I just have a fair understanding of the answer to Rothbard’s question: What has government done to our money?
Was thinking the same thing.