Archives: 07/2008

Gasoline Affordability Index: Sliding Back to the 1960s

For some time now, the real price of gasoline has exceeded the heights it reached during the 1980s. But what about its affordability?

The following figure, which assumes a current price of regular gasoline of $4.10 a gallon, plots trends in the U.S. gasoline price from 1949 through mid-2008, using three different measures: (a) nominal (or current) dollars, (b) real (i.e., inflation-adjusted) dollars, and (c) a “gasoline affordability index” (GAI) which is the ratio of the real disposable personal income per capita to the real gasoline price, indexed to 1960 (that is, 1960 affordability =1). [See Notes 1-3 for data sources.] The higher the Index, the more affordable the gasoline.

This figure shows that:

  1. Both the real and nominal price of regular gasoline are the highest they’ve been since at least 1949.
  2. Gasoline affordability peaked in 1998 at 3.32, relative to 1960 (=1).
  3. Today the gasoline affordability index is at 1.35, lowest since 1982 when it was 1.31.
  4. Today gasoline affordability is down to levels of the mid- to late-1960s.
  5. Relative to 1998, the price of regular gasoline increased by 287 percent in nominal terms and 208 percent in real terms. However the affordability index declined 59 percent.

The disposable personal income per capita between 2007 (average) and May 2008 increased by $1,627 (in real 2000 $) according to the BEA, while the average person’s real expenditures on gasoline increased by $493 (or less). See Note 4.

Unfortunately, gasoline prices aren’t the only ones to have gone up. Energy prices are all up, as is food. So it won’t be surprising if these increases more than eat up any advance in disposal personal income. I’ll check this out one of these days.

Notes

  1. The figure uses the price of regular leaded gasoline from 1949-1975, the arithmetical average of average of regular leaded and regular unleaded gasoline for 1976-1990, and regular unleaded for 1991-2008. For 2008, I have assumed a gasoline price of $4.10 per gallon. Gasoline price data are from the Department of Energy (DOE), Motor Gasoline Retail Prices, U.S. City Average, available at http://www.eia.doe.gov/emeu/mer/prices.html.
  2. For estimating the real price, I used the implicit price deflator for GDP from the Bureau of Economic Affairs (BEA), available at http://www.bea.gov/bea/dn/nipaweb/SelectTable.asp, Table 1.1.9 (for 1949-2007) and Table 2.6 (for May 2008).
  3. Data on real disposable income per capita are also from BEA, available at http://www.bea.gov/bea/dn/nipaweb/SelectTable.asp, Tables 2.1 (for 1949-2007) and Table 2.6 (for May 2008).
  4. Average annual motor gasoline consumption was 475 gallons per year in 2007, and the real gasoline price over this period increased $1.04 (in real 2000 $). Average consumption has probably declined somewhat from last year.

EPA: Your Life is Worthless

Splashed across the front pages today — well, at least one paper I saw — are headlines about the EPA slashing the value of life revising the value of a statistical life downward. This is highly newsworthy, but only because most people haven’t been paying attention to economics or regulatory policy. (One can’t really blame them …)

There are two things that make the news juicy: the fact that regulators are placing a value on life, and the fact that they’re revising the value down.

Most people don’t know that you can put a value on human life. Most people don’t know that they put a value on their own lives all day every day. The slogans that we grow up with - “life is precious” - dominate their thinking. Our parents value our lives very highly and teach us to at least talk about the value of life in exaggerated terms.

This kind of talk and thinking isn’t universal, of course — in our culture and others, sacrificing one’s life for a high ideal is well regarded, as is sacrificing one’s life for science, or for fun. That said, being cavalier or anti-life is generally not a good idea. No, there’s some balance between prizing life and prizing fun, the greater good, ideology, religion, or what-have-you.

We do strike those balances every day. When we go to cross the street, we make judgments about the threat to our life and health from oncoming cars and decide whether to cross in the middle of the block, at a cross-walk, at a controlled intersection, or at a pedestrian footbridge. Most of us have had occassion at least once to think about crossing a freeway — and we haven’t done it.

All this is because we are weighing the value of getting to the other side against the risk of costing ourselves our own lives. To articulate this balancing, what economists are doing is using a dollar value to measure the relative importance of life versus other things.

Think about the alternative: What if you had no way of balancing the value of life against the value of going to the movie theater? People might step into six lanes of onrushing traffic just to be first in the popcorn line. People might cower at the side of an empty two-lane road, passing up a small-town-theater showing of Fun in Acacpulco for fear of setting foot on macadam where a car tire has been. You’ve got to have some measure of the value of life, and you’ve got to use it.

Now, what about the second issue: revising the value of life downward? Under the “life is precious” presumption, that sounds horrible. It should always be revised upwards, right? Well, guess what. If you do, you’re gonna miss the movie.

If you value life too highly, you will take steps to protect life and health that undermine the value of living. Why is life “precious”? Some say for it’s own sake. But most people believe it’s because of the wonderful range of experiences, adventures, tastes, emotions, and relationships we get to enjoy in life. The freedom. If we give up too much of that, focusing strictly on keeping our hearts pumping and air flowing in and out of the lungs, we’ve lost track of the reason for living. Simply maintaining bodies in a state of sentience is not what it’s all about. So regulatory policy must do what we must do as individuals: strike a balance between life and living. Fall too far out of balance in either direction and you’re either prematurely dead or living a life without meaning.

I know nothing about the methodology that the EPA is using to calculate the value of a human life. They came up with $6.9 million. Frankly, that sounds fair to me. (So would $10.2 million, though, or $5.5 million.) There is one problem with it, though. It’s not the value I place on my life. It’s their estimate of the average value that the average American places on his life. Coming up with a single number is a gross collective judgment about how much risk and how much safety each of us should have. It’s incredibly dehumanizing to be lumped together with everyone else this way.

If you disagree with placing a dollar value on human life, well, you disagree with the idea of describing human action in a standardized way. You might as well disagree with giving names to colors.

But if you disagree with the value the EPA is placing on human life, there might be something to that. The regulatory process makes a huge collective judgments about the value of life, lumping us all together into one big average.

We should be as free as possible to make our own judgments about risk and the value of life. It’s difficult with things like air pollution, but even those kinds of risks can often be controlled through individual judgments.

Whatever the case, get over your concerns about placing a dollar value on human life. And revising the value down? — that’s a good thing. It means that we get to have more freedom and more fun!

Teaching to the Test

A lot of people dislike No Child Left Behind–style test-driven reforms because they fear that schools will “teach to the tests.” That is, the schools will focus on content that will likely appear on tests, as well as teach strategies to game specific assessment tools, rather than effectively teach the broad content and understanding that tests, ideally, should merely sample in order to gauge student mastery. If this were the case, it would both severely constrict how much of educational value kids actually learn and call into serious question whether improved test scores really signify improved learning.

Whether or not this “teaching to the test” regularly happens is a highly debatable — and debated — matter. Reading today’s Washington Post article about considerable one-year improvements in D.C. test scores, however, certainly gives you pause to think that when test results are almost all that schools are judged on, mastery of the tests — not the subjects — could truly end up being all that really matters.

Free Trade Promotes Peace in Colombia

Democratic leaders in the House refuse to allow a vote on the U.S.-Colombia free trade agreement, claiming the government there has not done enough to stem violence against union members. But a story in this morning’s Washington Post helps to expose the hollowness of their objections.

As Juan Carlos Hidalgo and I documented in our study earlier this year, under President Alvaro Uribe, violence in Colombia has dropped dramatically. The general homicide rate has dropped by 40 percent since president Uribe took office in 2002, and killings of trade unionists have dropped by more than 80 percent.

No place symbolizes the transformation of Colombia more than Medellin. A decade ago, the city was a symbol of the violence and chaos spawned by illegal drug trafficking and a 40-year-old civil war with the Marxist guerrilla group known as the FARC.

Today Medellin is a thriving city. Thanks to President Uribe’s crackdown on crime and the FARC, the murder rate in the Medellin metro area has dropped from 174 per 100,000 in 2001 to 26 last year. Progress has also been aided by economic growth fueled by globalization. Colombians are exporting records amounts of textiles, apparel, flowers and other goods to the United States, which creates some of the better paying jobs in that country. As the Post story, summarizes:

Exports surged in the 1990s as the United States granted temporary trade preferences to Colombia, allowing many of its products to enter the world’s largest market duty-free. They really took off after 2002, when Washington expanded that agreement to include Colombia’s all-important textile sector. Humming assembly lines making Ralph Lauren socks and Levi’s jeans sprang up across this picturesque Andean valley, creating tens of thousands of jobs and turning Medellin into a model of the curative power of liberalized trade.

Democratic leaders who oppose the U.S.-Colombia FTA are not only ignoring the real progress that has been made against violence in that country. They are also blocking the very trade expansion that has so visibly helped to make that progress possible.

… and a Pony

The new WashingtonWatch.com blog (a project of yours truly, which, along with C@L, recently ignited a firestorm of controversy over federal bed bug legislation) has inaugurated a new category of post, called “… and a Pony”.

It’s for bills in Congress promising what you’d ask Santa Claus for after you finished with the stuff you thought you might actually get.

The inaugural recipient of this categorization is H.R. 6444, To provide affordable, guaranteed private health coverage that will make Americans healthier and can never be taken away.

Uh-huh. Yeah.

Legislating in the Dark

Andrew Sullivan says he can “live with” the FISA legislation:

But it seems to me the focus of blame should be on the president and should be exercised primarily through political rather than legal means. And the trouble with prosecution is that it does become difficult to determine when exactly we stop forgiving illegal actions designed for the public safety in the immediate wake of a catastrophe like 9/11. I do forgive it in the wake, and see some lee-way for executive energy in moments of crisis or unknowing probably for a while thereafter (even though it horrifies me that the Bush administration would have merrily assigned all these powers to itself indefinitely if it could, and not even told anyone, let alone come promptly to the Congress asking for a reformed FISA law). But how do you prosecute a company on the basis of that kind of blurry line - granting immunity before but not after a point we deem appropriate or defensible?

My concerns are appeased now that the Congress has signed on in the light of day, that a court is there as a safeguard, retroactively if necessary, and that FISA is re-established as the exclusive mechanism for government wiretapping.

What puzzles me about this is that I don’t know what he means by “in the light of day.” We still don’t know who was spied on. We don’t know if it started before the September 11 attacks — one former telecom exec claims it began 7 months before the attacks — or if it was initiated months after the emergency had passed. And we don’t know the extent of the program: if it targeted just a handful of suspected terrorists or if, as the Klein declaration suggests, the phone companies gave the NSA unfettered access to all international traffic it carried. Given that Congress didn’t know these things, it makes no sense to say that it legislated “in the light of day.” Congress chose to debate in the dark, with no real knowledge of what they were granting immunity for, nor what they were approving going forward.

Even worse, the legislation appears to be specifically designed to foreclose avenues that could be used to uncover what has been done. The telecom immunity provisions have gotten a lot of attention, and they’re obviously one vehicle that could have shed some light on things. Another, less noticed, provision prohibits state utility commissions from investigating telco participation in these programs, a provision specifically designed to shut down several pending investigations by state utility commissions. And of course, the reduced judicial oversight, along with the provisions allowing the government to bypass the courts and issue “directives” directly to telecom companies, ensures that judges won’t know all that much about these programs either.

It would be one thing if Congress had conducted a thorough investigation, determined exactly what the telcos had done, and then reached the conclusion that the program, while technically illegal, was a reasonable and forgivable response to an emergency situation. It’s quite another thing to grant immunity without knowing what the immunity is for, and then give the administration and the telecom companies the green light to continue doing it without meaningful judicial oversight. That’s not signing on “in the light of day.” It’s signing a blank check.

I should mention the one provision that may yet bring some details to light: the legislation does mandate that the inspectors general of the various government agencies involved in intelligence-gathering prepare a report on the “Terrorist Surveillance Program” and submit it to Congress. That’s a worthwhile exercise, and similar reports have produced important information about lawbreaking in the past. However, it’s not clear how much detail these reports will contain, nor is it clear what Congress will do if the administration stonewalls. More to the point, Congress should have waited for the results before deciding whether to grant immunity. That’s what the Bingaman Amendment would have done: put the lawsuits on hold but delayed granting immunity until after the inspectors general had delivered their report. If the Senate had been serious about legislating “in the light,” they would have approved that amendment, but it was voted down along with the others.

Pre-K Pushers Possess Paltry Proof of Preschool Payoff

My first pre-k post showed that Oklahoma’s 4th grade reading NAEP scores have dropped and stagnated compared to the national average, and that changes in poverty levels and per-capita income can’t explain why we don’t see improvement from the state’s model investment in preschool.

Regardless of the evidence that there is little or no long-term effect from preschool, the critics will always point to the remaining shadowy corners of uncertainty. With so many possible confounding variables, it is impossible to control for them all. There might be some hidden, overlooked factor that canceled out the real, substantial long-term effects.

That’s correct. Highly unlikely in the case of the spectacular absence of a return on Oklahoma’s preschool investment and no obvious alternative explanation. But possible nonetheless.

And that is why non-experimental analysis can only provide suggestive evidence, with a heavy dose of uncertainty. Among the available research methods, the only way to be fairly certain an educational treatment has had an effect on students is to conduct a controlled experiment akin to those used in medicine or drug testing. Researchers randomly assign each person to either get the treatment or to not get the treatment.

Unfortunately, the preschool pushers have no experimental evidence that the pre-k programs they promote have a significant, long-term, positive effect.

That’s why they rely so heavily on the few pieces of experimental evidence from programs that look nothing like those in Oklahoma, Georgia, or any other state that has adopted or is considering a pre-k program.

Preschool activists kneel before a holy trinity of early-intervention programs that supposedly prove preschool is our educational, nay … our societal savior: the Perry Preschool Project, Carolina Abecedarian Project, and Chicago Child-Parent Centers Program (Sara inexplicably forgot to mention the Abecedarian Project).

Unfortunately, they don’t come even close to proving what preschool activists pretend they do.

To find out why, stay tuned … .  (and yes, I’m sticking with the excessive title alliteration.)