Hoarding is exactly what the government is doing right now by filling the SPR, and frankly it's the best thing that could happen. It drives prices up. High prices encourage demand destruction. They also finance new well development. The hoarded oil gives us a buffer to fall back on once shortages become more prevalent. High prices are what we need in order to adapt to what's coming, and the sooner they happen, the better.
Posted: Mon Aug 16, 2004 10:09 am Post subject: Consumer Depletion (Gas Affordability Index)
This value of $82 per “inflation-adjusted barrel” (whatever that means) being bandied about as the supposed all-time high for oil is fine, but does not tell the whole story about fuel-related financial pain suffered by energy consumers here in the old US of A.
We kinda did this the other day when we checked out the effects of high gas prices on minimum wage workers. In that case, we found that the current gas prices are currently pretty close to the all-time high when you consider the lack of growth of the minimum wage in the last few years.
To get an indication of the effects of this on your proverbial “average consumer”, I’ve invented the “Gas Affordability Index”. Here’s how it works: You take the average household income, and subtract the average tax bill, the average mortgage payment, and the average credit card interest per year, and that leaves you with a leftover amount. Divide it by the cost of gas per gallon, and you get the hypothetical number of gallons that the average consumer can buy with his leftover money, AKA an inflation-adjusted energy-related consumer index. I used the period between 1971 and current, and estimated some of the 2004 data based on current news reports as indicated.
For this index, the “good old days” were in 1998, when your average consumer could afford not quite 20,000 gallons of gas. This was due mainly to relatively cheap gas prices, plus relatively low mortgage rates.
Currently, the GAI is pretty low, on a historical basis. It is approximately as bad as it was in 1974 during the first oil shock.
But as in the minimum wage example, the “bad old days” were in 1981, due to the Volcker-driven interest rate increases, and simultaneous painfully high fuel price. We obviously have a way to go before we reach that level.
There are a couple more interesting things. First of all, the credit card data. The average household credit card debt in 1971 was only $65, compared to the current $6,417 per household (!). Also, you have to remember that your government is spending approximately $5700 per household over-and-above what they are now receiving in taxes (the deficit). Somebody is going to have to pay this back at some point.
There is one more interesting thing: This index is a 100% reliable predictor of Presidential elections. If the GAI increased during a presidential term, the party in power got re-elected 100% of the time. If the GAI decreased during the term, the incumbent party was thrown out on its ear 100% of the time. Interestingly, in the period between 1996 and 2000, the index decreased only 248 gallons, the smallest change, and it was the closest election. The 1976-1980 change of –6200 gallons also marked the largest stomping out of an incumbent during the period. We are currently down 1700 gallons since 2000.
I don’t even want to think about the fact that households have more workers than they used to, multiple vehicle households who drive more, car payments and lease rates, food, health care costs, day care expense, college tuition, and a lot of other things that might make it more painful to live today than in 1974, but a more thorough analyst may include these in the equation and come up with a slightly different conclusion.
I will include my raw data and references in a separate post in case somebody does want to think about it.
Hmmm. Like father, like son, one term, and he's gone?
Quote:
I don’t even want to think about the fact that households have more workers than they used to, multiple vehicle households who drive more, car payments and lease rates, food, health care costs, day care expense, college tuition, and a lot of other things that might make it more painful to live today than in 1974, but a more thorough analyst may include these in the equation and come up with a slightly different conclusion.
That's not an insignificant factor. I suspect it makes the current situation far worse. This book sheds some light on the reasons:
It's called The Two-Income Trap, and explains why having both parents working actually makes families more vulnerable to financial disaster.
Basically, the underlying problem is "the tragedy of the commons" again. Families are competing for scarce resources (houses in neighborhoods with good schools, say). That's resulted in the price of homes going through the roof. A family with only one parent working cannot compete. But having both parents working means that there's no backup. In the old days, if dad got sick, or there were unexpected expenses, mom could get a job to help make up the deficit. Now, with both parents working, if someone gets sick or loses a job, many families face bankruptcy.
Posted: Thu May 04, 2006 6:44 pm Post subject: Re: Consumer Depletion (Gas Affordability Index)
Hey Pup. I wonder if you'd consider providing an update? One get's the sneaky suspicion that this same methodology would provide even more interesting results these days. Also, since you use Imageshack now, the anticipated corresponding chart would be most interesting too.
Posted: Sat Apr 12, 2008 9:59 pm Post subject: Re: Consumer Depletion (Gas Affordability Index)
.
I would disagree on the index calculation , excluding credits and mortgages is not proper , they are part of the personal consumption
of an individual , also excluding taxes and social security isn't right
the consumer is getting some rewards from government activities
it is simpler to calculate the median wage in term of gallon of gas
or as a percentage of his personal consumption .
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