Archives: 08/2008

Gasoline Affordability Reconsidered

Last Monday, the Los Angeles Times published an op-ed written by Indur Goklany and me about gasoline prices.  Yesterday, it ran in the Minneapolis Star Tribune Today, that same piece has been posted at the Christian Science Monitor and it will appear in their print edition tomorrow.  Our argument: Once you adjust gasoline prices in 1960 for both inflation and changes in per capita disposable income, you find that gasoline prices today are actually more affordable than they were back then.  Faithful Cato@Liberty readers might well recognize this argument given that it was first offered in a blog post here a few days back by Indur Goklany.

While the predictable grousing on the newspaper comment boards followed (hell hath no fury like a motorist who thinks he was told to stop whining about pump prices), some commenters raised a legitimate issue: Would the picture change if we used median per capita income rather than mean per capita income in our analysis?  Well, yes.  But not by that much.  Let’s walk through the numbers.

First some background.  Income data come from two very different sources.  Disposable income data are produced by the Bureau of Economic Analysis (BEA), an arm of the U.S. Department of Commerce, as part of its effort to estimate the gross domestic product (GDP).  Data on family and household income come from surveys conducted by the Census Bureau.

Disposable income per capita or mean disposable income is simply total disposable income divided by the population of the United States.  Median disposable income data, however, are not available because the GDP data do not come from household surveys.  Only surveys allow us to rank order all the households (or families) and find the number that divides the bottom 50 percent from the top 50 — the definition of the median.

Median income estimates from Census data (the Current Population Survey or CPS) are available only for households and families.  Data regarding median household income are only available from 1967 to the present, so the only measure available to us for longer term analysis is median family income.  But BEA and CPS definitions of income differ.  In 2001 for example, BEA personal income totaled $8.678 trillion while CPS money income totaled $6.446 trillion.   The two income time series differ in important ways.  For example, BEA data include property income and adjustments for underreporting of proprietor’s income.  

With that out of the way, let’s get to the numbers.

(Leaded) Gasoline prices in 1960 averaged 31.1 cents per gallon.  Median family income in 1960 was $5,620.  In 2006 (the most recent year for which we have reliable data), median family income stood at $58,407.  If the price per gallon were the same percent of median family income in 2006 as in 1960, the 1960 price would translate into $3.23 in 2006.  Unfortunately, the (median family income) data aren’t yet available for calculations applying to 2007 or 2008.

A complete history of fuel prices for 1949-2006, adjusted for changes in median family income, can be seen in the figure below.

Offsetting the fact that the price of gasoline as a function of median family income is probably (somewhat) higher today than it was in 1960 is the important fact that vehicle fuel economy is better today than it was then.  The gasoline consumed by passenger cars in 1960 was 14.26 miles per gallon.   By 2006, it was 22.4 mpg.   Even the mileage for all other 2-axle 4-tire vehicles (lights trucks, etc.) in 2006 was 18.0 mpg — higher than the fuel efficiency of cars in 1960.  Hence, the cost of the fuel necessary to drive a mile might well be less today that it was in 1960 if we’re adjusting for changes in median family income.  Again, I say “might” because 2007 and 2008 data are not yet available to provide concrete numbers.

On the other hand, it is certainly true that people have responded to higher incomes and better fuel efficiency by driving more.  Vehicle miles per capita in 1960 were 3,249; in 2006, it had increased to 9,171 (the numbers are author calculations based on vehicle miles traveled data from National Transportation Statistics table 1-32 and population data from Statistical Abstract of the United States Table 1. The 2006 VMT figures includes passenger cars and other 2-axle 4 wheeled vehicles).   Vehicle miles traveled is a function of individual decisions about where to live, where to shop, and how to spend discretionary income.  Many people, of course, made decisions about those things when fuel prices were at their historic lows (the late 1990s) and now find that those decisions are now more costly.  Adjustments are and will continue to occur on this front.

A comprehensive measure of how these various factors — higher fuel prices, higher incomes, better mileage, more miles traveled — work to affect the cost of driving is the percent of disposable personal income spent on gasoline and on all user-owned transportation expenditures over time.  And what do you know?  The percent of income we spend on transportation has been remarkably constant over time even though the distance we travel per capita has nearly tripled (The data for this calculation come from the GDP data available from the National Income and Product Accounts Table 2.5.5 line 69 (total user-owned transportation expenditures) and line 75 [gasoline and oil expenditures] and table 2.1 line 26 [disposable personal income]).

  • In 1960, gasoline expenditures were 3.3% of disposable personal income.  In 2007, gasoline expenditures constituted 3.4% of disposable personal income.
  • In 1960, total user-owned transportation expenditures were 10.8% of personal income.  In 2007, those costs constituted 10.5% of personal income.

So no matter how you slice the (available) data, it tells more or less the same story.  All things considered, the cost of driving is reasonably affordable today relative to what it has been in the past.

Update: Data links added.

The Answer to High Oil Prices and Global Warming? More Global Poverty, Less Immigration

Opponents of immigration are now trying to hitch their wagon to worries about high oil prices and global warming.

An ad on page A12 of today’s Washington Post asks, “If foreign oil has us over a barrel now, what happens when our population increases by another 100 million?” The text of the ad tries to provide the answer: “With America’s population at a record 300 million today, [oil] supplies are again tight in spite of record high prices. And the U.S. Census Bureau projects that another 110 million people will be added to our population between 2000 and 2040.” So, if we want lower oil prices, we need to reduce America’s population growth and that means reducing immigration. Get it?

The ad is sponsored by five anti-immigration, anti-population-growth groups, including the Federation for American Immigration Reform (FAIR) and Californians for Population Stabilization.

The ad provides no evidence that rising global demand for oil has been driven primarily or even significantly by population growth in the United States. In fact, our total oil consumption has actually declined compared to last year, while demand continues to rise in developing countries. The two previous big spikes in global oil prices, in 1973 and 1979, occurred when the U.S. population was 80 to 90 million LOWER than it is today.

The future direction of oil prices will be determined by such factors as energy efficiency, economic growth in emerging economies, oil production, and development of alternative energy sources. Immigration rates to the United States won’t matter.

As though on cue, the Center for Immigration Studies released a report this morning with the headline, “Immigration to U.S. Increases Global Greenhouse-Gas Emissions.” The report argues that immigration “significantly increases world-wide CO2 emissions because it transfers population from lower-polluting parts of the world to the United States, which is a higher-polluting country.”

What the CIS study is really arguing is that rich people pollute more than poor people, so the world would be better off if more people remained poor. The same argument could be used to oppose economic development in places such as China and India that has lifted hundreds of millions of people out of poverty in the past two decades.

Through the dark lens of CIS, the world is a better place when poor people remain stuck in poor countries, and poor countries remain poor.

More on Georgia

1. Obama praises George Kennan and realism here. George Kenann calls NATO expansion a “strategic blunder of potentially epic proportions” here, a position most realists share. Obama calls for NATO expansion to Georgia here, despite the fact that an alliance with Georgia offers little benefit to Americans but is likely to the drag the US into conflict with a nuclear armed state. Obama, if it wasn’t clear already, is no realist. That is a perhaps a result of running for President of a country that wants idealist presidents, but the fact remains.

2. John McCain, various neocons, and George Will argue that had NATO membership been offered to Georgia last spring, Russia would have been deterred from attacking it. Will writes:

Georgia, whose desire for NATO membership had U.S. support, is not in NATO because some prospective members of McCain’s league of democracies, e.g., Germany, thought that starting membership talks with Georgia would complicate the project of propitiating Russia…If Georgia were in NATO, would NATO now be at war with Russia? More likely, Russia would not be in Georgia. Only once in NATO’s 59 years has the territory of a member been invaded – the British Falklands, by Argentina, in 1982.

Will is confused. Even if George Bush had his way at the NATO conference last spring, Georgia would be on a path to membership in NATO, not in it. What Germany blocked was a Membership Action Plan for Georgia, which takes years, not months. McCain argues that the mere prospect of NATO membership would have deterred Russia from invading Georgian territory. But it is more likely that a Membership Action Plan would have proved an accelerant for this war, both by heightening the moral hazard that seemed to encourage Georgian President Saakasvili’s move into South Ossetia, and by inducing Russia to fight before Georgia had an official defense commitment from NATO.

3. Commentators of all stripes seem to assume that Russia’s move into Georgia was driven by its increasingly autocratic nature. (This is reminiscent of Kennan’s argument back in the X article that Communism made the Soviet Union prone to aggression, which he later regretted.) It is worth considering whether this is a misperception. A powerful body of political science argues that states’ foreign policy actions are driven mostly by their circumstance and interests, not their regime type or the personality of the leaders. Regime type and personality affect how states interpret their circumstances, but maybe not as much as we tend to think. The United States is not particularly tolerant of seemingly hostile states in its near abroad either, whether they are democracies or not.

Federal Worker Pay Blasts Off

Newly released data show that federal employee wages and benefits continue a rapid ascent above and beyond private sector pay levels. The data was released last week by the Bureau of Economic Analysis. (See tables 6.2, 6.3, 6.5, and 6.6).

The new data show that the 1.8 million federal civilian workers earned an average wage of $77,143 in 2007, which is 61 percent higher than the $48,035 average in the U.S. private sector. That 61 percent pay advantage has increased from a 34 percent advantage in 2000.

Looking at total compensation (wages plus benefits), federal workers earned an average $116,450 in 2007, which is more than double the $57,615 private sector average. The federal compensation advantage increased from 68 percent in 2000 to 102 percent today. Federal workers not only earn much more than private sector workers, their earnings advantage is getting more pronounced every year.

Federal compensation rose quickly during the 1990s, but even faster during the 2000s. I call this the “Bush Bounce” because it appears that the Bush administration has caved into federal union demands for expanded pay year after year. Between 2000 and 2007, average federal compensation increased at an annual average rate of 6.3 percent, which compares to the private sector increase of 3.5 percent. During the 1990s, average federal worker compensation increased at an average rate of 5.1 percent. The charts below illustate the “blast off” in federal wages and compensation. 

The upshot is that with a federal budget deficit of $500 billion, federal pay restraint should be a priority of the next administration. I’ve proposed freezing federal pay for a period of years, while privatizing costly activities such as air traffic control. The BEA data show that compensation for federal civilian workers cost taxpayers $213 billion in 2007, so there are substantial savings possible here. (Those costs do not include the $166 billion in military compensation costs in 2007).

The Wall Street Journal has called the overly generous federal pay environment “Club Fed.” How long will average American wage earners be willing to foot the tax bill for this elite Washington club?


For further information, see

http://www.cato.org/pubs/tbb/tbb-0605-35.pdf

TSA Tracking ID-less Fliers

USA Today reports this morning that the TSA has been making a list of people who fly without ID.

Asked about the program, TSA chief Kip Hawley told USA TODAY in an interview Tuesday that the information helps track potential terrorists who may be “probing the system” by trying to get though checkpoints at various airports.

The report says that TSA changed its policy yesterday and will stop collecting these records, expunging the 16,000+ records collected to date.

The folks at TSA evidently believe fervently that watch-listing is an effective measure against terrorism. When someone behaves inconsistently with their watch-listing program, they take this to be potential terrorism. It’s a mistake.

Let’s say I fervently believed that terrorists were mounting a dengue fever attack on the Capitol Hill area of Washington, D.C., and I placed a perimeter of netting around my house to prevent mosquitoes from getting in. When the mailman or my neighbors opened the netting to come to the front door, I would logically infer (based on my erroneous belief) that they were in league with the terrorists because they were breaching my perimeter. This is the “logic” of the TSA and its suspicion of ID-less travel.

The TSA has set up a system that it wrongly believes to be a security against terrorism, and thinks that evasions or avoidance of its system indicate terrorism. In fact, it’s just people living their lives.

How Can They Deny Freedom?

Maybe those people who constantly spew the mantra against school choice that it would “destroy public education” have never considered what putting some faceless, bureaucratic system above actual human beings really does. Well, there’s a great piece in the Atlanta Journal Constitution today by Lydia Glaize, a parent who’s struggled mightily to keep her children out of atrocious public schools, that directly attacks this sorry, but all-too convenient, excuse for denying parents freedom. There’s only one critique I’ve got for Ms. Glaize: She doesn’t make the distinction between public schooling, which is the real problem, and public education, into which a school choice system would fit very nicely. But that’s a distinction we’re just starting to get people to recognize.

So how will the public-schooling-at-all-costs crowd respond to Ms. Glaize? I suspect, sadly, with more of the same.