Microkhan by Brendan I. Koerner

Oil Non-Shock

August 13th, 2009 · 4 Comments

During out all-too-brief sojourn in St. Cloud, Minnesota, we caught wind of James Leroy Iverson’s release from North Dakota’s Missouri River Correctional Facility, after serving 40 years for a pair of 1969 murders. Iverson was, in fact, North Dakota’s longest-serving inmate, and thus a man unaccustomed to 21st-century living. What has shocked him the most about our strange world so far?:

“He made the comment that when he went into prison gas was 15 cents a gallon.”

Oh, how times change! But wait a second—what happened between 1969 and 1979? Because as the chart above shows (taken from raw data here), the inflation-adjusted price of gasoline has remained surprisingly static over the past three decades. Sure, there have been occasional spikes and dips related to market turmoil. But on April 26, 1979, the average price of a gallon of gasoline in today’s dollars was $2.42; right now, the national average is only 22 cents more than that.

When Iverson went away, by contrast, the inflation-adjusted price for a gallon of gas was just 80 cents. As this helpful graph makes clear, everything changed in 1973, with the first of the Me Decade’s two oil shocks. What’s amazing is how the effects of that crisis became permanent—namely, the creation of a new plateau for gasoline prices from which it looks like we’ll never climb down. Which leaves us with the question—were prices prior to that crisis artificially low, since traders didn’t possess an adequate fear of shortages? You never correctly value a commodity, after all, until you realize that it can be taken away so easily—which probably means we should take a look at prices for liquor both before and after Prohibition, too.


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4 Comments so far ↓

  • shothotbot

    Crude oil prices were controlled by the Texas Railroad commission (long story). You can see the same thing with the deregulation of Natural Gas prices in the early 90s.

  • Brendan I. Koerner

    @shothotbot: Interesting. But did those price controls end in sync with the ’73 crisis? If you look at the graph I linked to in the final paragraph, the leap is pretty clear right as the OPEC embargo began.

    If you have any concise backgrounders to pass along, please do. I love this kind of stuff.

  • shothotbot

    I will try to get back later. Most people start by reading Yergin’s “The Prize.”

    But it turns out we are neighbors and after Labor day I will trade you my book on commodities for your book on a cool manhunt.

  • Brendan I. Koerner

    @shothotbot: Deal. And thanks for “The Prize” rec.