Gas panic a load of hot air

Let's all take a deep breath and stop worrying about gas prices. Some perspective from JERRY TAYLOR and PETER VAN DOREN in WSJ.Excerpt:

In short, gasoline prices are relatively normal by historic terms. Sure, people are paying more for gasoline today than ever before. They're also paying more for houses, cars, lettuce, baseball cards and almost everything else than ever before. Historical comparisons of prices over the years mean absolutely nothing unless we adjust for inflation.

If we adjust gasoline prices for inflation and use 2003 dollars, we find that during the most celebrated days of cheap fuel and gas guzzling cars -- 1955 -- gasoline actually cost $1.66 a gallon on average across the nation. In 1972, the year before OPEC began to flex its muscles, prices were $1.28 a gallon. In 1981, the real record was set -- $2.36 cents a gallon. Heck, prices are only a nickel higher now than at this time last year.

We should not stop there, however. A better measure of the affordability of gasoline over time is not its inflation-adjusted price alone, but its inflation-adjusted price in comparison with our economic resources (in this case, inflation-adjusted GDP per capita). Even though the real price of gasoline was lower in 1972 ($1.28) than today ($1.73), per capita GDP is now $39,919 whereas it was only $20,667 (measured in 2003 dollars) in 1972. Real incomes have almost doubled since 1972, but real gasoline price have risen only 35%. Real gasoline prices were slightly lower in 1955 than today ($1.66 versus $1.73). But real per-capita GDP is almost $40,000 today and was only $14,094 in 1955. Real gasoline prices at the height of the oil shock in 1981 were higher than today ($2.36 versus $1.73), while real GDP per capita was lower ($24,369 versus almost $40,000) than today.

By those measures, then, gasoline prices today are only 37% of what they were in 1955, 70% of what they were in 1972, and 45% of what they were relative to income in 1981.