Are We There Yet?

The April 19th issue of The Economist has a fascinating article about the latest high in oil prices, or rather, about conflicting ways of comparing past and present values of a barrel. In nominal value, the latest high was reached on April 16th with a price of $115.07, but the article points out: "By other measures, oil is not quite as expensive as it seems." These other measures are due to someone named Michael Lewis at Deutsche Bank. Here is a quick overview of the various prices he comes up with to translate the previous record, achieved in the early 1980s, into current-day terms:

• accounting for inflation using America's producer-price index: $94 (we're way past that),
• accounting for inflation using America's consumer-price index: $118 (exceeded a few days after April 16, I believe),
• accounting for "the growth in Western consumers' incomes over the years": $134,
• reaching the same "share of Americans' disposable income" as in 1980: $145,
• reaching the same "share of global output [GDP]": $150.

In other words, you can reach the conclusion you want (we've reached a new high / we aren't there yet) just by picking your measure well. I wish the article had mentioned the average or median monthly gas bill of an American household as a fraction of their net income - of course maybe no economist is keeping track of that, but as more people in the highly populated California and New York areas are moving away from the city where they work so that their children can afford a higher quality of life, I can't imagine that the average distance in their commute has gone down. Nowadays, people also might use their cars more on highways, with a different gas consumption pattern than in cities. I would also be curious to read about the changes in gas consumption for SUVs. Finally, since more women are working outside the home than in the 1980s, more families might have two cars now. Tracking the price of a barrel, adjusted for inflation or not, says little about the impact on people's life - but it's unlikely any one measure (reflecting the technologies of the day) will be able to tell us much either. We still need people to pore over indicators and extract some meaning out of them, even if different people - or sometimes the same person - may reach different conclusions from the same data. Economists have busy days ahead.