About a year ago, I posted a graph showing the affordability of gasoline as a percentage of household income, broken out by income quintile. The main point was that, although the price of gasoline has certainly risen dramatically in recent years, it still does not consume as much of our income as it did at its height in the early 1980s. The reason is that household income has grown since then, even for the poorest Americans.
To construct that graph, I arbitrarily assumed each household would consume 1000 gallons each year. I based that assumption on nothing in particular, because my only purpose was to show the pattern of change. I could have chosen 500 or 2000 gallons and the picture would have looked the same, just with a different vertical scale.
But as someone pointed out in the comments, people don’t really want gasoline per se; what they want is travel. And this matters, because fuel economy has risen substantially over the time period in question, meaning that people can travel the same distance with fewer gallons. So I have now reconstructed the graph, using more recent data, on the assumption of 25,000 miles of travel rather than 1000 gallons of gas.
(Income figures are from here, gas prices from here, and fuel economy figures from here. I estimated mean-income-by-quintile for 2006 and 2007 by assuming the growth rate of the prior five years would continue, I estimated the 2007 gas price using the first quarter data, and I assumed fuel economy remained constant after 2005.)
The assumption of 25,000 miles is still somewhat arbitrary; I based it loosely on the number of miles driven per household in 2001, which was 23,100. Again, the arbitrariness isn’t terribly important if our purpose is to show the pattern. And the pattern is clear: even for the poorest Americans, it’s much cheaper to travel now than it was in the early 1980s.
One factor this analysis doesn’t account for is the number of miles traveled per year. As it turns out, this number has risen steadily (see the fuel economy link). However, it’s difficult to tell how much of the increase is due to a greater need to travel (because of longer commutes, for instance), and how much is driven by a greater desire to travel (maybe because of the lower cost of gasoline relative to income!). So I decided it was sensible to focus on the cost-relative-to-income of a fixed travel distance.
Another factor not included is how travel distances and fuel economy could differ by income quintile. The lower quintiles might have fewer cars and not travel as much (or use public transport more). On the other hand, they are likely to have older cars with worse fuel economy.
Nevertheless, I think the picture is useful for perspective. We’ve recently heard about gasoline prices hitting a new record. That is, of course, a record for nominal prices, not inflation-adjusted prices. But that correction is not enough, because even if the inflation-adjusted price hit a record high, it would still overstate the effect of gas prices on our pocketbooks relative to historical highs.