Why are gas prices so high?
One thing Americans share in common is the love for the open road. Whatever the mode of transportation, Americans love to go places. But, one look at the current gas prices shows getting there has just become much more expensive. Let's dive in.
Unless you have been living in a bubble, you have no doubt noticed the skyrocketing price of gas. It seems that almost daily the price at the pump has been rising. Nationwide, fuel prices are reaching records at a blistering pace. But, this isn't the first time we have experienced high energy prices. Let's start by taking a look at the chart of oil below. I know we were just talking about gas, but it all starts with a barrel of oil, so we'll start there.
The first takeaway from the chart above is that oil prices are extremely volatile. During the Bush and the Obama presidency, oil prices rallied their way into the headlines of newspapers, only to fade back to average and below average prices. We can see that oil prices have been both higher and lower than they are right now. It has been expensive and cheap under both Democrats and Republicans, so it would be hard to point to politics as the sole reason for high or low fuel prices. Yes, some politicians love oil more than others. They make the production of new wells easier, which increases supply and pushes down on the price, but these shifts in production happen over long periods of time, not at the immediate say so of a President.
We can see that on the chart oil reached a low point under the Trump presidency. Trump was known to be a friend of the oil industry, so he often gets credit for the relatively stable oil price under his term. We aren't here to give or take away credit for policies that contribute to higher or lower oil prices. Oil has become such a political issue, that each side of the political spectrum has carefully crafted their message to make it seem like the other point of view is crazy or foolish. I mean, is anyone really for dirty air and water? Does anyone WANT smog? Of course not. But at the same time, nobody wants to shrink the world by giving up their car and walking everywhere.
Most of the political rhetoric surrounding oil prices are just convenient sound bites. Many make no sense at all. I was recently told with great conviction that the price of oil is high because of "libtardism." "Libtardism works, if you try hard enough." I was told. While it is convenient for that person to blame liberals for the high price of oil right now, this same person wouldn't have uttered a sound when the price of oil was even higher during the Bush presidency. Why? Because of personal politics. And as this simple chart shows us, an American politician's point of view matters little in a global market such as oil.
The reality is, oil is a real commodity. You can touch it, see it, and use it. It has real utility and tangible value. But the same can no longer be said for the USD. Sure, you can touch and feel a dollar, but a dollar is no longer a dollar in the traditional sense. The dollar used to represent a quantity of gold. You cold actually redeem a dollar in exchange for your choice of gold or silver. Today, the dollar can't be redeemed for anything. We all remember our parents telling us that when THEY were young, gas was a quarter a gallon. Now? not so much. But did gas go from a quarter to $5 because of politics? Well, yes, actually, but not because of a specific party's stance on oil. Let us illustrate.
If we look at a long-term chart of oil priced in gold, we see a totally different picture than when it is priced in dollars. Suddenly, oil looks cheap. If you went to a gas station and paid in gold in 1978, then again, in 2022, you'd still be paying a little less gold for a gallon today. That is the problem with an elastic currency. It tends to make a lousy measuring stick. When measured in dollars, oil has been skyrocketing, but when measured in something else that can't be printed ad infinitum, oil remains cheap. Now, let's take a look at why the dollar might be cratering against tangible assets like oil.
See the explosion in the money supply? Accompanying that rise is price inflation. It's easy to comprehend once it is pointed out. Things might not be rising so much in price as the dollar is declining in purchasing power.
So the next time you hear about the greedy oil companies, lack of permits, or whatever the latest reason might be, just smile, nod, and remember that the person talking to you is using an elastic measuring tool when they tell you the price is high. Now that you understand how the currency is being debased, you know better. In fact, let's see how expensive gas is today compared to what it was when your parents only paid a quarter.
Way back when your parents were teens and fuel was $.25 a gallon, one quarter represented 0.007 ounces of gold by law. (While it was illegal for Americans to own gold, foreign governments could redeem dollars for gold at an exchange rate of $35/oz.) So, 0.007 of an oz of gold today is worth......$14.29. Let that sink in for a moment. What you used to be able to buy for a quarter, now requires 57 quarters and change! Think how easy it is to think that fuel prices have risen a lot lately. We all think that, but the reality is that the purchasing power of the currency is plunging due to excessive money printing.
When measured with the same measuring stick, we can see that gas is actually less than half as expensive today as it was when it was a quarter back in the 60's. And well it should! As technology progresses, oil companies are able to extract oil from the ground much more efficiently today than they could 60 years ago. When measured with a consistent money, the prices of commodities SHOULD decrease over time. It's only when we mess with the money supply do they seem to get ever more expensive.
To wrap this up, gas prices haven't gone up, what we pay for our gas with has gone down.
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Living and traveling on a boat means for a few months each year we have to wait out hurricane season. This year we did that in Guatemala, and have had a great time. But it still feels great to untie the docklines. We were due to set off a couple of days ago, but in typical fashion, after months without any boat problems, our water lines began to burst the morning of departure. Turned out to be a problem with the accumulator tank—not a huge issue—that took two days to work out. Finally, Saturday afternoon we were on our way. We said our goodbyes and pulled out of the marina with an exciting season of cruising ahead of us. This year will take us—assuming our plans actually work out—from Guatemala to Honduras, the Grand Caymans, Jamaica, the Dominican Republic, and finally Puerto Rico. As I write this I'm anchored in front of a 1600s Spanish colonial fort built to defend against pirates. It's still astounding to me that I can sit on my boat at anchor in foreign lands, trading the stocks of companies located around the world, and communicate with all of you at the same time. The uniqueness of this life is not lost on me.
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