Sunday, September 7, 2014

Is the cost of a gallon of gas too high? An impoverished nation finds itself finding a commodity that hasn't changed in price, now to be too expensive.

A couple of years ago I had a conversation with another engineer. And with engineers, it's all in the numbers. I like to say we must let the numbers "speak" and that is what leads us in our decisions.

I had just bought some junk silver; several roles of mercury dimes. I don't like buying [Roosevelt] dimes since the dead prez is still on the 10 cent piece and people may not initially accept the silver [Roosevelt] ones.

I took three of the dimes to work and got into a conversation with a friend of mine. He was my age, but is not from the USA, so he has no reference point like I have.

I told him, "back in the early 70s, gas was incredibly cheap."

Using my middle three fingers hiding the coins, I slid the three dimes toward him on his desk and explained to him what happened. "This was the price of a gallon of gas before we went off the gold standard". I uncovered the dimes.  In actuality, gas could be had for even cheaper, but I had to pick a point for discussion.

At the time of my conversation with my friend, silver prices were higher than they are now and gasoline prices were much higher. "Here we are, 40 years later. These dimes are special in that they contain silver." He nodded. 

Looking him in the eyes, I said, "Do you know what the price of gasoline is now?" I let this sink in as I could hear the gears in his brain whirring away.

I took one of the dimes away. "THIS is what gas costs now." In relation to the price of silver at the time, gasoline would be only 20 cents.

He was absolutely stunned. He couldn't believe it. How was this possible? Right now, gasoline prices in Houston are just about on par with what they cost in 1970 in terms of the price silver! Today I would just leave the three silver dimes on the desk!

This is a very significant story to tell. And the implications are absolutely enormous.Even in the 1960s and 70s, the price of gasoline was considered CHEAP. It was not expensive. THE POOR WOULD BUY GAS and not complain. Everyone had a "gas guzzler" because gas was CHEAP CHEAP CHEAP.  Miles per gallon?  Are you joking?  What the hell is that?

And what about now? Do we consider the price of gas to be expensive? Or do we consider the price of gas to be cheap?

The answer is obvious. We consider gas to be EXPENSIVE when in never changed. We keep saying that the poor can't afford the cost of operating a car because the price to fill the tank is too high. But in actuality, if we had stayed on the gold standard the price of gas WOULD HAVE REMAINED THE SAME. Absolutely no one would be talking about the price of gasoline being too high. No. One.

And that is the problem. Our frame of reference in a post gold standard world has completely changed and not for the better. It is abundantly clear we are nowhere near the standard of living we enjoyed back in the 60s and 70s.

Thanks Nixon!

Someone noticed I referred to the dimes as "Eisenhower dimes" Hah!  No such thing!  I meant Roosevelt dimes.  

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