Got gas?…

A couple of folks have written me to ask why I’m not ranting about gas prices. Why? Because it’s a tempest in a teapot for two reasons:

1. – Gasoline prices in the United States are low compared to the rest of the industrialized world. They’re low because our government subsidizes the oil industry significantly. I don’t think that’s a good idea. It encourages wastefulness. Even at $3 a gallon (the price posted for premium at my local filling station) we’re still getting a bargain.

2. – Gas prices haven’t actually gone up. The value of money has decreased as a result of inflation. You can see a nifty illustration of this on this here chart.

The second bit is really important. Too many people are just utterly ignorant of the mechanism of inflation. It’s happening all around them every month, every year and yet they seem utterly unaware of it. How my friends and family could be unaware of it though baffles me to no end because it’s a subject I bring up constantly. When I was in high school, 20 years ago, I bought LPs (you know, them weird flat vinyl things what music came off of when you put them on a record player – you know, record players… oh nevermind) for $6.99. The same album on CD will cost you nearly $20, a medium that requires less labor to manufacture and produces less waste (a CD master can be reused millions, if not billions of times, while the metal plate masters for a vinyl LP wear out after pressing about 10,000 records or so, just one example) so they’re a lot less expensive to produce. That’s right, they cost less to produce but we pay nearly three times as much money for them. That’s inflation (it’s arguable that this particular example is lousy because the price of CDs is actually motivated by the greed of the recording industry and not institutional inflation, but I get my licks in where I can).

Another example: Comic books. When I was in high school comic books cost $.50 (and that was an increase from when I was in grade school and they cost $.25). Today the same Spiderman comic will set you back $2.50. That’s a five-fold increase in price. Significant inflation.

Every once in awhile I’ll do what I call the “comic book adjustment” on the price of something. I love doing it with houses. One of the houses in our neighborhood sold for $850,000 earlier this year. If you assume that the five-fold increase in the cost of a comic book is your benchmark for inflation in the past 20 years then adjusted for 20 years of inflation this house is actually only worth $170,000. Neat, huh?

Here’s the un-neat part. Do the same calculation to your annual salary. Ouch. Someone currently earning $50,000 per year is really only making $10,000 a year in 1985 dollars. So much for upward mobility.

Now obviously inflation isn’t so extreme or dramatic. This is just a quick shorthand, easy to comprehend way of looking at it. Still, sort of pisses you off a bit, doesn’t it.

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