[[ Check out my Wordpress blog Context/Earth for environmental and energy topics tied together in a semantic web framework ]]

Tuesday, September 06, 2005

Adjusted Peak

Whatever "inflation-adjusted" gas prices actually signifies1, it looks like we may achieve an all-time high rather shortly.

(via Barry Ritholz's TheBigPicture)

And from Big Gav, the common sense view of how the supposedly low American cost-of-living quickly dissipates when you adjust for the cheap fossil fuel.
In my own fuzzy-logic way, I’d presumed that the cheapness of every day goods in the US was mostly because of the flexibility of the economy, i.e. the ability of employers to pay low wages, fire at will, offer few benefits, and generally pass on costs like environmental protection or maternity benefits. A few weeks in California cured me. Sure, labour ‘flexibility’ helps. But the cheap price of petrol is more important than I’d ever imagined. As newspapers and coffee breaks filled with doomsday scenarios of paying $6 dollars a gallon for gas, I sat down one day and did the sums.

That’s what we pay in Ireland. Today. Most of the extra cost goes in taxes, and the cost of that affects every imagineable part of life. Paying more for oil makes everything more expensive – getting food to the shops, from there home, cooking it, and cleaning up afterwards. It means more people rely on public transport, creating a policy feedback loop of greater government spending and making more citizens using shared resources every day of their lives. It means we don’t run central heating or (if we had ever needed it) air conditioning all or most the time, and probably just put on another jumper when it’s cold. It means we advertise cars based on their fuel consumption and we don’t have ‘all you can eat’ restaurant buffets. Teenagers don’t have their own jobs and cars, and rely on their parents, the bus or shanks mare to get around. They get it off in parks instead of cars. Not that many people drive to the gym. Until recently, not many people needed to go to the gym either.

That about sums it up. I don't think I need the following footnote. We all know in our heart what the "inflation adjusted" cost of gas has always meant -- just another distractive technique designed to pull the wool over our eyes.

1Since oil itself acts as a common currency (i.e. "black gold"), the modulating effect of inflation may actually obscure an effectively long-term monotonic decrease in supply (or increase in demand).

Impacts from the hurricane.

Update: Stirling calls it an all-time high (almost) as well.
While hackonomics writers routinely genuflect to Mt. 1982 and say "oil is well below its inflation adjusted peak" they are incorrect. They adjust oil for CPI. This is a number which tells us interesting things, but not what the real cost of oil is. Oil is an input, the two numbers which make sense are oil in producer dollars - that is adjusted for PPI (from the BLS, same place you get CPI numbers) and for the GDP deflator - which contrary to its name is the measure of total economy inflation. The Fed uses it rather than CPI for this reason. Oil adjusted for GDP deflator peaked at about $82.70 per barrel - there is some error because the last GDP deflator number is from June, and there has certainly been some inflation since then. If one splines in the quarter numbers both sides it comes out to $82.67. Oil closed at a peak of just short of $70, which means that we are short of the peaks of 1980 and 1919, but not much short.


Professor Blogger jon said...

Looking for central air conditioning info I found your post. I agree!

9:51 AM  

Post a Comment

<< Home

"Like strange bulldogs sniffing each other's butts, you could sense wariness from both sides"