Saturday, July 19, 2008

Gas Prices, Gas Crisis?


I live in the Phoenix/Mesa Metroplex. I was listening to an in depth news/talk radio station report on the gas crisis. You know, about fifteen seconds of commentary and two or three common citizens giving their viewpoint. One comment caught my attention. Obviously, one of our upstanding and hardworking citizens, said about the rising gas prices, “I can’t afford to drive to work anymore.” That thought intrigued me. What did he really mean by saying he couldn’t afford to drive to work. Did he mean that the cost of gas now exceeded his income? And that by driving to work, he was losing money? If so, I could only wonder how much he made and how far he had to drive.

At the time of this writing, gas has come down a little in price and hovers around $4.00 a U.S. gallon. I have been driving the same Chevrolet Silverado Pickup for about nine years. I keep meticulous gas and mileage records. The truck gets, on the average, year after year, 14 miles per gallon of gas. I also drive, on the average, 18,000 miles a year. Simple math. At $4.00 a gallon, I would spend, in an average year, $5142.86 for gas. At $2.00 a gallon, which we haven’t seen for quite a while, I spent half that amount, or $2571.43 a year for the same amount of gas. I would assume that the guy who said he couldn’t afford to drive to work, could afford to drive to work at some point in time, or he probably wouldn’t have taken the job. So, I now spend about $2600 more a year in gas than I did a couple of years ago. But, wait a minute, I also need to look at the inflation rate. For this I use a handy Inflation Calculator at http://www.westegg.com/inflation/infl.cgi I just chose an arbitrary date, say eight years ago in 2000. The Inflation Calculator is a year behind but it says that what cost $2500 in 2000 would cost $3084.37 in 2007. Historical gas prices come from the Energy Information Administration of the Department of Energy of the U.S. Government. See http://www.eia.doe.gov/ It turns out that the average cost of gas hit $2.00 a gallon or more in 2004. In 2000, the average gas price was about $1.60 a gallon. Back to the Inflation Calculator, $1.60 in 2000 would be about $1.97 in 2007. Probably more in 2008. So about 30 cents of the increased cost of gas from 2000 to 2007 is overall inflation. Put another way, our $4.00 today would be the equivalent of $3.33 in 2000. So the price of gas has grown faster than inflation, but part of the increase in the dollar cost is inflation.

OK, so what about our guy who can no longer afford to drive to work. Let’s assume some things, like he drives across Phoenix to work each day, five days a week. It is about 40 miles from Mesa, Arizona to Glendale, Arizona or vice versa. That would be 80 miles a day or 400 miles a week. By the way, if you live in Mesa and drive to Glendale everyday to work or the other way around, you should seriously consider moving. The gas cost is only a small part of the driving experience in Phoenix. Now, back to our average or not-so-average citizen. Four weeks worth of driving would be 1200 miles a month or about 20,000 miles per year (giving two weeks off for vacation). Hey, wait a minute, that is about my average driving per year! So this hypothetical citizen is spending about what I spend each year for gas. So let’s look at his now astronomical expense for gasoline. Adjusted for inflation, he is spending about $1,500 to $1,700 dollars more a YEAR than he was spending in 2000. Let’s say he stops at his local convenience market and buys a large soda every day, about $2.00. He is spending about $600 a year for soda alone. I could go on an on. Let’s say he does what I did and buys a Toyota Prius which gets about 46 miles per gallon in real life. My savings over the Chevy Truck at $4.00 a gallon add up to more than $3000 a year just in gas savings. It is like rolling gas prices back to 2000 or before.

The point? There are a lot of options to high gas prices, some may be feasible and some not, like moving closer to work, working more from home, riding a bike or walking, buying a higher mileage car, driving less on optional trips, consolidating trips, sharing a ride with a co-worker, riding the bus and on and on. I don’t think that news accounts that give a ten second comment that someone can no longer afford to drive to work are realistic and are quite annoying. Maybe the guy just needs to stop buying drinks at the convenience markets?

2 comments:

  1. I have to say that as painful as it is to fill up our car (I don't have to do it much since my lovely wife drives our car the most), I'm a huge proponent of higher gas prices. I certainly don't think they should be made artificially high by taxes but part of me is glad to read about people struggling financially and adjusting spending. I'm not happy about the stress people face but when people are on tighter finances many are smarter about managing money.

    The other thing I like about high gas prices is that it increases demand for alternative fuel vehicles and for more efficient vehicles. High gas prices will get us converted away from gas engines in cars faster than just about any other thing will. I'm looking forward to hydrogen fuel cell and electric vehicles.

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  2. This is interesting to read this article after your more recent post. (Sorry I hadn't read it earlier!) I really can see how rising fixed costs really hurt those on low incomes. Even if you are working full time making $12/ hour (much better than working at McD's) that is only around $25,000 (pre-tax, pre-deductions!) a year.

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