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.

Income Taxes Mortgage Ccard left over fuel price GAI
2004 $44,531 $9,799 $7,980 $963 $25,789 $1.95 13,225
1998 $38,967 $9,073 $7,088 $748 $22,059 $1.12 19,695
1981 $19,141 $4,822 $6,550 $97 $7,672 $1.35 5,683
1974 $11,206 $2,164 $2,028 $22 $6,992 $0.53 13,193
1971 $8,965 $1,428 $1,456 $10 $6,071 $0.36 16,864

http://www.census.gov/hhes/income/histi ... toc.html#3
http://www.huduser.org/periodicals/ushm ... tdat2.html
http://tinyurl.com/17a
http://www.federalreserve.gov/releases/ ... st_sa.html
http://www.hanovermc.com/rates/historical.htm

Note: 3% growth in real estate prices estimated in 2003 and 2004
Note: 1% growth in household income estimated in 2003 and 2004.

Income Tax Mortgage Ccard left over fuel price GAI
2004 $44,531 $9,799 $7,980 $963 $25,789 1.95 13,225
2003 $43,658 $9,607 $7,624 $956 $25,471 1.51 16,868
2002 $42,802 $9,419 $7,562 $932 $24,888 1.48 16,816
2001 $42,629 $9,381 $7,795 $865 $24,587 1.53 16,070
2000 $42,233 $9,850 $8,172 $810 $23,401 1.56 15,000
1999 $40,750 $9,447 $7,477 $781 $23,045 1.22 18,889
1998 $38,967 $9,073 $7,088 $748 $22,059 1.12 19,695
1997 $37,177 $9,153 $6,903 $696 $20,425 1.29 15,834
1996 $35,486 $8,740 $6,470 $606 $19,669 1.29 15,248
1995 $34,106 $8,383 $6,099 $509 $19,115 1.21 15,797
1994 $32,385 $7,925 $5,654 $445 $18,362 1.17 15,694
1993 $31,272 $7,655 $5,349 $418 $17,850 1.17 15,256
1992 $30,631 $7,498 $5,711 $394 $17,028 1.19 14,309
1991 $30,147 $7,416 $5,743 $356 $16,632 1.2 13,860
1990 $29,781 $7,335 $6,062 $315 $16,069 1.22 13,171
1989 $28,925 $7,052 $5,876 $279 $15,718 1.06 14,828
1988 $27,291 $6,637 $5,709 $244 $14,701 0.96 15,314
1987 $26,055 $6,045 $5,116 $222 $14,672 0.96 15,284
1986 $24,979 $6,190 $5,046 $191 $13,552 0.93 14,573
1985 $23,735 $5,801 $5,470 $152 $12,312 1.2 10,260
1984 $22,547 $5,332 $6,141 $123 $10,950 1.2 9,125
1983 $21,105 $5,019 $5,854 $111 $10,121 1.23 8,229
1982 $20,195 $4,940 $6,109 $105 $9,042 1.28 7,064
1981 $19,141 $4,822 $6,550 $97 $7,672 1.35 5,683
1980 $17,807 $4,217 $5,465 $91 $8,035 1.22 6,586
1979 $16,495 $3,810 $4,160 $76 $8,449 0.88 9,601
1978 $15,010 $3,235 $3,263 $65 $8,447 0.65 12,996
1977 $13,671 $2,834 $2,752 $33 $8,052 0.64 12,582
1976 $12,762 $2,582 $2,480 $28 $7,672 0.6 12,787
1975 $11,787 $2,361 $2,288 $26 $7,113 0.57 12,479
1974 $11,206 $2,164 $2,028 $22 $6,992 0.53 13,193
1973 $10,402 $1,942 $1,688 $19 $6,753 0.39 17,315
1972 $9,625 $1,579 $1,571 $17 $6,458 0.36 17,939
1971 $8,965 $1,428 $1,456 $10 $6,071 0.36 16,864

Hmmm. Like father, like son, one term, and he's gone?



That's not an insignificant factor. I suspect it makes the current situation far worse. This book sheds some light on the reasons:

Click

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.

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.

.

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 .

.