Gas Tax Increases vs. The Mathematically Challenged
Over on Facebook, someone was complaining about the proposed 45 cent per gallon tax increase that has been the source of all the rage directed toward Lansing lately.
OK, I get it, 45 cents per gallon sounds like a lot of money.
Or maybe not, if you really analyze the truth and the facts of the matter.
The complaining party accused me thusly: “I see you want that 45 cent gas tax increase.”
In general, if you don’t want to pay to maintain Michigan’s road system, you’re going to have to perform a few minor tasks:
1. End inflation.
2. Get all vehicles weighing more than 20,000 pounds off the road.
3. Make it stop freezing in Michigan in the wintertime.
Since none of the above are going to happen, it’s time for a few facts:
Gas is cheap right now
The highest price a gallon of regular unleaded ever hit in unadjusted dollars was $4.25 on May 4, 2011.
Adjusted for inflation, that same 2011 gallon of gasoline in 2019 dollars would cost $4.84 There has been a cumulative rate of inflation of 13.8% since 2011.
Had this new gas tax increase been in effect in 2011, when it might have done some good, we would have paid $4.65 in 2011 dollars. Today if we were still paying the highest price for gas ever, it would have been $5.29.
Today, the average price for a gallon of gas in Michigan is $2.65/gallon. Adding the proposed 45 cents to that, we come up with $3.10/gallon in 2019 dollars.
Pfft. Some increase. I paid that last week.
Inflation is killing us
We all hear about what grandpa used to pay for gas back in the old days, right? Prices well below a dollar, right? Prices that seem like, well, a dream from yesteryear.
Have you ever heard of this thing called inflation?
It’s where the U.S. Treasury borrows hundreds of billions of dollars every year via T-bills, prints the money up, and then cuts Congress loose with the checkbook. Congress then spends it into the economy by the truckload.
Every single borrowed dollar they spend into the economy devalues every dollar you have in your pocket. That’s what inflation is: your money becoming worth less every year until at some point in the future it becomes worthless.
Our friends and neighbors in the federal government think this is a good thing. They try really hard to make sure that your dollar is worth at least 2.1% less every year. They call this “low inflation.”
It’s great if you’re a banker, a stock broker or a government purchasing official. For the rest of us? It’s not so great.
Gasoline Inflation Is…Strange
The economy is complex to the point where you can study economics as a professional for your entire life and still only have a partial understanding.
Gasoline is, itself, somewhat resistant to inflation despite inflation’s effects on the rest of the economy.
One of the reasons could be that the pricing isn’t set by pure supply-and-demand. Gas prices are based on futures markets, and the futures are traded on markets by people who are mostly hoping the prices always go up. A sharp increase today in the price for an option to buy a certain quantity of gasoline six months in the future will likely result in a sharp increase at the pump today. But today’s supply hasn’t changed much, if at all: the price increase in the futures market and at the pump is a reflection of an emotional reaction to what it MIGHT be at some point in the future. That drives the price up at the pump, and in turn, causes the value of the futures options to go up. Sometimes.
It’s a whole different topic, but this is what’s at the root of why we’ve got the Navy sitting near the Straits of Hormuz in the Middle East, why Iran is supposedly public enemy number one, and why we have people who want to blow up buildings in the United States. These things are complex, inter-related, and on balance, poorly understood by everyone (myself included.)
Inflation = An Unstable Currency
One effect of inflation is that your memory of prices from years ago can’t be directly compared to prices today.
In other words, things a long time ago only seemed less expensive.
Here’s what a sampling of the average gas prices were in “the old days”, and what they would be today adjusted for inflation:
1939: 15 cents ($2.76 in 2019 dollars)
1949: 23 cents ($2.47 in 2019 dollars)
1959: 28 cents ($2.46 in 2019 dollars)
1969: 33 cents ($2.30 in 2019 dollars)
1979: 88 cents ($3.10 in 2019 dollars)
1989: $1.06 ($2.19 in 2019 dollars)
1999: $1.22 ($1.88 in 2019 dollars)
2009: $2.40 ($2.86 in 2019 dollars)
What does this do? Well, for one thing, it destroys your confidence that a dollar you have today will be worth a dollar tomorrow. This is the very essence of an unstable currency.
The Effects on the Economy
Another effect of inflation, of course, is that your savings are devalued over time. So if you’re a retiree on a fixed income, your nest egg’s real buying power decreases each and every year.
Our personal income growth tends to lag behind the rate of inflation. Sometimes by quite a bit. In my case, this year in terms of purchasing power, I am (not) enjoying a substantial decrease, despite the fact that I received a monetary raise. The raise was lower than the rate of inflation. This year I am poorer than I was last year, even though my paychecks are bigger.
In response, Americans have done the sensible thing: they’ve stopped saving money. Instead they spend it, because today’s bird-in-the-hand is better than tomorrow’s “no bird at all, you can’t afford it.”
If you think that the $37,000 average price of a new car today is too expensive, you better suck it up and buy it now. In a few short years, it will be well over $40,000. By then, you and I will be even further behind the curve. So go ahead, finance it for 84 months. The bankers, along with their willing accomplices in the U.S. Congress, Wall Street, and the Federal Reserve, have engineered things to ensure it is the smartest financial decision you can possibly make…for them!
The same thing is true for local governments.
If you’re a local government, your tax revenue’s buying power decreases every year as well. Local governments, you see, can’t print money like the Federal Government does. They’re at the same disadvantage as the rest of us.
“Saving money” is a bad idea. If you need new police cars, you had better buy them right now. Starting to get the picture here?
45 Cents Ain’t Gonna Do It…Six Bucks A Gallon Might
I know inflation isn’t easy to understand, so let me sum it up for you:
- Right now you’re paying about the same amount per gallon of gas in constant dollars we have paid since the late 1930s. My dad turns 81 in a month. He’s paid pretty much the same amount per gallon, in constant dollars, on average, for a gallon of gas for his entire life, with a few very short-term exceptions.
- The 45 cent increase? It’s nothing. In fact, it’s worse than nothing: 45 cents per gallon will simply kick the can down the road and make the roads worse in the medium-to-long term.
County Chief Executive Mark Hackel just told us a few weeks ago that the entire state’s worth of increased revenue might just about pay for the road improvements needed in Macomb County alone. We’d have to probably double the price of gas to fix the roads under the current funding scheme.
Gariepy’s Gone Crazy Again!
I know what you’re thinking: “Gariepy’s lost it again, he wants to pay SIX BUCKS PER GALLON to fix the roads!”
Nothing could be further from the truth. What I really want is a little honesty coming from the politicians in Lansing about how screwed we really are, and for them to have the courage to completely revamp the way we pay for our roads.
Of course, expecting honesty in the current partisan environment in Lansing is foolish. Lansing is where the talking points are all that count and the facts don’t matter.
And courage? Courage is anathema to the partisan political class. It will take a truckload of courage to actually tackle the road problem and fix it.
Because having courage would mean we stop subsidizing the special interests to which the Lansing and DC politicians are beholden by continuing to prop up the current, failed funding-via-fuel-consumption-taxes scheme.
That model is horribly broken–beyond repair.
I don’t see this situation changing, however. The politicians are not going to sacrifice each of their respective party’s special interests or talking points for the public good. It never happens.
See ya in the line at the tire store.