Gas is Still Cheap

For those of you upset about the news of retail gas hitting the highest real (meaning adjusted for inflation) price in history, be comforted by the fact that it is still historically cheap. Daily prices have large fluctuations, so it is best to just look at annual averages, in which case 2007 gas was still cheaper than it was when the government started collecting this data...in 1919! Consider the graph on the left here based on data from the EIA. The blue line adjusts the prices to the price if you were buying it with 2007 money, while the red line is what you would see posted on the signs at that time.

Of course, this is just the price and it does not account for the improved quality of gas, greater access to stations, improvements in fuel efficiency, etc all of which make gas functionally cheaper to us. More importantly though, it does not show us how much of our budget gasoline takes up. Let us frame the question this way: For an average person living in the U.S., what percentage of their budget would purchasing 1,000 gallons of gas take? Check it out:

The measure of income is per capita personal income available from the BEA. Is it any wonder why most people are not changing their behavior in any significant way to accommodate higher gas prices? Bitching is free, so of course they are doing lots of that.

ECON 201: Exam 2/HW 3

Homework 3 is due Tuesday night at 11:45 p.m. on Aplia. Exam 2 is on Thursday, bring the big blue scantron (#30423) and #2 pencil. A review sheet and the lecture notes are available on the course webpage. Exam 2 covers Price Controls, starting in Lecture 5, and includes all Lectures through 9 (competitive price takers).

Questions on the Homework and Exam, with my response, can be seen by clicking on the comments for this blog post.

Organ Market Ethics

It is hard to find an economist who agrees with U.S. law on organ markets. Currently it is illegal to sell your organs to another. This law means we watch tens of thousands of people needlessly die every year in the U.S. and we deny yet another avenue for the poor to find an escape. The current system blatantly favors the rich who have the networking ability to get their name to the top of the list, generating an enormous amount of inequality. Curiously, those who raise "ethical" objections to organ markets seem to get this backwards. Regardless, biochemist Stephanie Murphy at U Mass-Amherst has written a nice short essay titled "Eight Ethical Objections to an Organ Market...And Why They're Wrong."
Hat Tip to the Perfect Substitute.

Proud to Serve the Dismal Science

Courtesy Robert Dixon:

Carlyle puts the view that 'work' is morally good and that if a "Black man" will not voluntarily work for the wages then prevailing he should be compelled to work. He writes of those who argued that the forces of supply and demand rather than physical coercion should regulate the labour market that: "the Social Science ... which finds the secret of this Universe in supply and demand and reduces the duty of human governors to that of letting men alone ... is a dreary, desolate, and indeed quite abject and distressing one; what we might call ... the dismal science"

In short, economics became the dismal science because everyone is treated as equally important and defends the right to pursue happiness regardless of the manner in which society views them. Slaves, CEO's, and Mexican immigrants all receive equal treatment for their role in society from the economist.

NAFTA + Ohio = Good Economy

Though you wouldn't know it if you listened to the politicians stumping in Ohio for the primaries, Ohio has benefited enormously from free trade, especially from the NAFTA agreement. If we stopped all international trade, it would not bring back those manufacturing jobs (jobs which were created by trade in the first place). Consider the unemployment rate in Ohio and Cleveland since January 1993 (Month 0), the start of NAFTA (other Ohio cities do not go back that far):
Since the start of NAFTA, Ohio and Cleveland have never experienced more unemployment than the month it began, which was not a historically high level anyway. Even during the recession, unemployment only got as high as 6.5 percent, which is still low by historical standards. Unemployment rate is by no means the only important statistic on labor force activity, but it is reflective and probably a surprise to those who listen to wanna-be presidents.