Monday, March 14, 2011

Imagine if gas cost $1 per gallon

There is a "Mad Men" video making the rounds about how to sell high speed trains in 1965. The joke is that no one will ever have to sell trains because they make so much sense. One of the key laugh lines is when one of the guys says "I read a piece that in 40 years gas is going to cost almost a dollar a gallon." Ha! The laughs.

Obviously gas didn't cost a dollar a gallon in 2005 (40 years later). And it still doesn't in 2011, even with the recent spike in prices. In 1965 gas cost $.31. Adjusting for inflation, gas at around $3.70 per gallon today is about $.57 in 1965 dollars. We'll get to a dollar per gallon in 1965 dollars yet if we keep trying.

Of course, a better way of thinking about gas prices through what effects high gas prices have on household budgets. Obviously, high gas prices are problematic, but the US consumer preferences for SUVs and large cars and trucks reflect that gas prices have always been low except for occasional spikes. Market movement towards smaller and more efficient cars suggests that the low fuel price era is winding down, though who knows how quickly.

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