Gasoline Prices in Perspective

"Gasoline is a bargain," writes ABC News Correspondent John Stossel in his new book, "Myths, Lies and Downright Stupidity." Stossel contends that by failing to account for inflation and by disregarding federal and state taxes, the media and politicians exaggerate the real price of gas. He claims that this distorted perspective has frightened consumers into believing gas is more expensive than many of the products they purchase daily. To illustrate his point, Stossel showed that on a per-gallon basis, bottled water sold for three times the price of gas at a gas station.

A trip to the local Meijer confirms Stossel’s observations. At this grocery store, shoppers can purchase a 42-ounce bottle of Michigan’s famous ice cream topping, Sanders Hot Fudge, for $11.99. That translates to $36.54 for a gallon of fudge, which is 12 times the price of gasoline (Meijer was selling gas for $3.04 per gallon at that time). A gallon of Starbucks Frappuccino coffee beverage sells for about $17 per gallon. French’s mustard costs $10.88 per gallon. A gallon of A.1. Steak Sauce would cost $66.30!

Skeptics could argue that these products are not necessities. But many everyday items are also more expensive per gallon than gasoline. Colgate Cavity Protection toothpaste, at $2.24 a tube, costs $34.97 a gallon. Banana Boat sunscreen with a sun protection factor of 15, a summer essential, costs $103.52 per gallon. Visine eye drops cost about $1,000 per gallon, or 327 times the price of gasoline!

Those who still aren’t impressed might contend that brand name products tend to be more expensive than their generic counterparts. While generic items do produce a savings, Meijer brand mustard costs $7.92 a gallon, still three times the price of gasoline, and a gallon of Meijer brand eye drops would sell for $816.64.

Granted, most individuals do not consume as much toothpaste or steak sauce in one day as they do gasoline. But after accounting for inflation, gas today is no more expensive than it was in 1981 when President Reagan deregulated energy markets. The point is that politicians and the media are successfully convincing consumers that gasoline prices are exorbitantly high — creating a false sense of crisis — and that government can provide the remedy.

Lately, politicians have been enticing voters with price controls (typing the keyword "gasoline" into the Search Legislation section of www. MichiganVotes.org will yield the most recent batch of unsound proposals), but this market manipulation always causes more problems than it solves. Artificially low prices alter incentives, increasing the amount of gasoline that consumers are willing to buy and decreasing the amount of gasoline sellers are willing to supply. Anyone familiar with a rudimentary supply-and-demand graph will recognize this picture as a shortage. The best way to ensure that consumers get quality products at low prices is to encourage free-market competition.

Consumers should ask themselves if the government could do any better if it were in the oil business. When the government gets involved in the market, do things get cheaper? A classic example is the postage stamp. In 1958, a stamp cost 4 cents. Today’s rate is 39 cents per stamp, with a proposed increase of another 3 cents for next year. Even after accounting for inflation, the price of stamps has risen by about 39 percent. If the government discovers how to efficiently manage its postal service, consumers can think about trusting it with their gasoline.

Christina M. Kohn is a senior economics and history major at Hillsdale College and a summer 2006 intern at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.