Back when the banks and insurance companies were being bailed out in late 2008 and early 2009, and the nearly trillion dollar stimulus was passed, there was a lot of speculation that it wouldn’t take long for inflation to rear its ugly head. The unprecedented increase in the monetary base by the Fed foretold, in many people’s minds, the main ingredient for inflation as soon as the velocity of money picked up. So far those fears don’t seem to have been realized, although prominent individuals are still warning that massive inflation is just around the corner.
I’ve been kicking around the possibility of a blog discussion about inflation, how our fractional reserve banking system is predicated on around 2% annual inflation (non-technological goods double in price every 36 years) and just needed some impetus to kick it off. Then yesterday I heard something that was so incredulous I had to check it out. The guy who does our local AM drive-time talk show was discussing the recent spike in gas prices that has most local stations over $4/gal. for the first time since the summer of 2008. He made the statement that, back in the 60’s and early 70’s, a quarter would buy a gallon of gas in most parts of the country — and a quarter will still buy a gallon of gas in most parts of the country today. I checked it out, and it’s true.
So, in terms of hard assets, the price of gasoline really hasn’t gone up at all in over 50 years. That got me to thinking, just how much of our perceived prosperity and increase in standard of living over the course of that 50 years is due to technological innovation resulting in greater economies of scale and increased productivity, and how much is simply due to inflation? And finally, at what point does inflation become really worrisome for the average American?
You makea good point. It’s all relative. In 1968 as a summer student in Canada, I made $2/hr, the going union rate for a labourer at a mine. That rate is now about $21 at the same mine. Gas was about $0.60/Imperial gallon, now it is about $6/Imperial gallon($1.34/liter)
$2.00 per hr?
What? You weren’t around in 1968? Yup, it was enough for a frugal working man to raise a family in a modest house.
Another example, the tuition for the university engineering degree I took was $500/year. Now 45 years later, it’s around $5000/year.
BTW Neocon, I presume you noticed that we both apparently got chastised on the “The Hunger Games” thread with this comment directed at us:
“Do you have something to say about the thread? // Moderator ”
I think he was upset at the insults we were throwing at each other. What a wet blanket.
Don’t laugh. I worked a summer construction job in 1967 and made $2.75/hour. It was the first time in my life I had made more than $1.50/hour.
In 1968 I was a first year APPRENTICE making $3.36 per hr.
journeyman rates were close to $10.
canuck g*y…yeah bummer, some people have no humor….LOL
in 1968 I was out of the back from Viet Nam and discharged from the US Marines.
There is a reason that economists focus on real GDP and not nominal GDP. What can’t be denied is
Americans live in houses twice as large as a generation ago. Americans are living longer. More Americans are going to college than ever before. Automobiles don’t die after 5 years like they did when I was growing up. The assumption is pretty much 100,000 miles for almost every car. Free education is available e.g. at Itunes U.
that 5 yr car cost $2100.00
todays 10 yr car costs $28,000.00
gas was $.15
that 5 year car cost my dad a half year pay, spread out over 5 years
the 10 year car would cost my day a half year pay, spread out over 5 years
real GDP, real GDP, real GDP
You have to admit the internet is better than the CB radio you had 40 years ago. I’d guess neocon1 isn’t as catchy a handle as you probably had back then and there will never be an internet centric movie to match Smokey and the Bandit.
you wouldnt believe my CB handle………I had almost as much fun with that as I do here….. 🙂
a good read…you will like this.
You know, neo, GMB is not the only one who would find a lot to like in that link.
Neo, thanks for the link. I could not agree more with what Mr Head said. 🙂
One in return for you.
Be Good you two. After all WE are on the same side.
“As a senior manager at Micron Electronics, Mr. Head oversaw the development of the Trek and Trek2 lines of portable computers, SETTING UP MANUFACTURING and product development operations in the Republic of China. These products became the most successful line of portable computers in Micron Electronics’ history. In these and other consulting endeavors, Mr. Head has traveled extensively overseas to the Far East, India, and portions of Eastern Europe after the collapse of the Soviet Union on behalf of U.S. firms helping establish off-shore manufacturing and product development operations. Currently, he works for the FEDERAL government helping maintain and protect regional infrastructure.”
Not exactly your go to guy for the government is too big and China is a threat to our way of life. I don’t know why I even follow Neoconeheads’ links after he has tricked me so many times.
You have to admit the internet is better than the CB radio you had 40 years ago.
But not as good as the 8-track.
I think I have an 8 track tape of Convoy by C.W. McCall as part of my inheritance. My dad loved the CB, mom humored him and his 5 sons found it as corny as the country music station he listened to in the car. It was AM of course.
Did you know Earl Scruggs died today? Saw him in at the Opry a long time ago. Greatest banjo player ever.
Over at huffpost the concern is that Ryan will actually follow through with a plan to cut back on overpriced daycare. The usual litany of experts have lined up to vouch for headstart including a “Nobel” prize winning economist. Employing the ever popular multiplier effect every dollar spent on the boondoggle magically becomes 8 dollars.
I’ll stop bashing the house GOP for a month if this one item goes through.
It’s a mistake to assume the price of silver as a base for inflation. Silver and gold are two of the mosts speculation driven commodities out there. For example, the summer of 2008 the price of silver was $13 ounce and the price of gas was $3.90. Surely, the equivalency of today with $30+ ounce for silver and gas at the same price doesn’t make sense.
Contrary to Paulbots and gold standard folks, the best ‘standard’ to use to tie money to isn’t the price of gold (unless the price is heavily controlled by the government like it used to be) but rather the value of a 9portion of the basket of goods and services necessary to live.
I got BURNED in gold in the 70’s bought at $900.00, sold at $300.00
Im buying more tomorrow….SELL!!!!!!!!!!!!!!!
OK, Doug; how about this. In 1972 I bought gas in Pensacola, Florida for .189/gal. That year I made around $6,000. Today gas is 20 times higher, and I’ll make around $120,000. As Canuckguy said, it’s all relative. The melt value of a silver quarter was just easier to link to than my form 1040.
Ahhhh, now we’re getting to the heart of the matter.
To further your calculations: What was the demand necessary on average back in ’72 for your annual gas needs compared to what the demand is now? My assumption is that for a normal person we have doubled, even tripled our use. (you can calculate that for most energy needs as well, but you see, we could come up with a book to figure out all this)
So if, the average individual demand for gas, let’s say doubled, then one can assume that for reasons, the price for that gas should have went up 40 times higher in your example (2X20). That would be $7.60 a gallon or so. However it hasn’t went up because the supply has also gone up (daily oil production has doubled since then).
Using the gas in this instance is only interesting because supply has kept up with demand and the price increase in relation to your income. However, if you use inflation instead of your income, then the $1 in 1972 has the same buying power of about $5.50 now when you compare it across the full basket of goods, so what does that show you?
If the price of gas was 19 cents a gallon, then if gas prices increased along with average inflation, a gallon would be $1.10 today. Silver would be about $12 an ounce —-of course it was in 1972 that govt. stopped regulating the price of the metals (which makes me question why you would use the 1960s price of silver as an example) so the price of silver probably still wasn’t free as far as being true until a year or so later when it hit $3 an ounce.
But as to your initial finding. The value of silver in a quarter in 1972 based on the government regulated price would have been equivalent to 2 gallons of your gas at 19 cents a gallon. You cannot find $2.90 a gallon gas right now. If you used 1974 as a benchmark, for after the free market worked on the metals and prior to the suez crisis, then you would see this the silver in a quarter would be worth almost 2.5 gallons of gas which would mean that if it were the same today we would have $2.33 gas.
The price of gas right now is nearly doubled the precious metal increase, and the sad part of that is the precious metal increase since 2008 is nearly all speculation.
I think you’re engaged in what I’d call “over-analysis”. What level of inflation would we have to have before it would change your behavior?
the sad part of that is the precious metal increase since 2008 is nearly all speculation.
As is the price of gasoline, so I’m not sure exactly what your point is, Doug.
over-analysis? Your original post compares the face value of a quarter to the price of gas in one year, and the melt value of the quarter in a different year, then claims gas prices are in line with increases in hard asset prices.
If instead you compared apples to apples, that is the melt value of the quarter in that time to the melt value today, you would see that the price of gas has increased nearly double in relation to hard assets.
If you compared it to 2008, prior to the boom in hard asset speculation, you would see that the price of gas had went up 10-fold in relation to hard assets.
The demand curve on gas has shifted, mainly because disposable income has increased in relation to cost of living. More is available to buy gas because less is needed for food and clothing.
The result is very simple, the price of gas increasing is more and more causing it to be a product of the upper middle class, vs. all classes. Those whose income has not increased as fast as others do not have the excess inflation captured disposable income and so they are the ones that must drastically reduce the consumption, or what is more likely occuring, using credit to continue with the required consumption amount and not purchasing elsewhere.
The upper middle class still has the excess inflation captured disposable income to continue the consumption of the gas – the demand curve has thus shifted and will stay shifted unless production can jump by 25-30% all at once.
dougie: “the sad part of that is the precious metal increase since 2008 is nearly all speculation.”
Do you realize that SPECULATION relies on the CONFIDENCE of any future supply meeting future demand?
Speculators believe that in the FUTURE, the price of oil/gas or any commodity will be higher than it is now. If the CONFIDENCE of supply is low while demand will increase, then speculators will pay a slightly higher price now than what they believe it will be in the future…..hence, the price increases.
If obAMATEUR’s policies would provide the CONFIDENCE that the future oil/gas supply will meet the future demand, then speculators would not be influencing the price of oil/gas. Sadly, his policies are curbing the present supply and not instilling any confidence in the future supply meeting the future demands expected.
But why quibble about details, the White House is cranking up his rhetoric (LIE!) machine and laying blame on everyone but himself. Just yesterday, he said that the oil companies are experiencing record profits and that “profit” increases every time someone pulls up to the pump. His statements are not accurate but the dumb masses won’t know that. Oil companies produce more than just gasoline and diesel, which contributes to their “record profits”. It has been shown in the past that oil companies make between 8-10 CENTS per gallon in “profit” but calculating their PROFIT MARGIN, it becomes 2-3 cents per gallon.
It also has been shown that the FEDERAL GOVERNMENT as well as STATE GOVERNMENTS make more on a gallon of gas in TAXES than the oil companies do! Those taxes contribute 30-65 CENTS per gallon EACH! The grubby politicians will not cut their “profit” on gasoline, but they want to penalize “big oil”!
The pResident will continue his lies for dumbed down masses and they will dutifully vote for him since they are not smart enough to see through his lies and realize that he (and his party) is part of the problem and not the solution.
Of course I agree with nearly everything you say, except for:
“Do you realize that SPECULATION relies on the CONFIDENCE of any future supply meeting future demand?”
If “speculation” was a pie chart, nearly all of the chart would be “available disposable capital”, maybe a quarter of it, maybe a tenth of it would be “confidence of any future supply meeting future demand.”
“arbritrage” or something like that would be a pie chart where the whole thing could be “confidence of my selling price would be greater than current purchase price”
Speculation, in business terms is best defined by, ” Engagement in risky business transactions on the chance of quick or considerable profit.” – farlex
Doug, you can play games with commodity prices until the cows come home. The main purpose of my post was to reitterate what I heard on the radio, that back in the 60s a quarter would buy a gallon of gas, and that same (silver) quarter will still buy a gallon of gas. You’ve pointed out that, at select times since the 60’s, that hasn’t always been the case. So what; I never said it was. Commodities fluctuate in relation to each other. Since Obama’s inauguration, the price of gold has actually tracked gasoline closer than silver. Gold since 1/20/09 has not quite doubled (up about 97%) while gasoline has a little more than doubled (up about 111%) It still doesn’t have any deep meaning. It just is what it is.