A New Metric for Gasoline Affordability

by James A. Bacon

Todd Litman, who runs the Victoria Transport Policy Institute, provides a fascinating metric for tracking the affordability of gasoline. Rather than looking at price alone, in his paper, “Changing Vehicle Travel Price Sensitivities,” he refines  the cost per gallon (litre, actually, he lives in Canada) of gasoline by adjusting for median wages and the fuel efficiency of the average automobile. The result: the number of miles traveled one can purchase with one hour of work time.

The calculation works like this: In 1967 annual median income in the United States was $2,464, gasoline cost $0.33 per gallon, and vehicles averaged 12.4 miles per gallon. An hour of work could buy you enough gasoline to travel 46 miles. In 2000, median incomes were $22,346, gasoline cost $1.51 per gallon and vehicles averaged 17 miles per gallon, meaning that an hour of work could buy you enough gasoline to travel 126 miles.

After peaking in the late 1990s, travel affordability has declined precipitously. Wages have stagnated, fuel economy has improved only marginally but gasoline prices have risen. In 2010, an average work-hour could purchase enough fuel to take you 83 miles.

The chart at the top of this post shows the trend. The metric is important because it shows how gasoline became increasingly affordable in the decades of the 1980s and 1990s. Not surprisingly, the number of vehicle miles traveled increased dramatically over that time. Admittedly, the increase in travel would have been impossible without a significant increase in the number of road-miles, but the falling cost of travel was the driving force. As travel affordability has declined since 2000, vehicle miles traveled have dipped as well, as seen in the second chart.

Three broad policy conclusions stem from this insight.

(1) Mandating higher fuel economy for automobiles could be somewhat self defeating: By reducing the cost per mile of driving, mandates could encourage more driving.

(2) Stagnant incomes and rising prices for gasoline suggest that the number of vehicle miles traveled in the state has plateaued as well. It is foolish to spend millions of dollars on road-building projects predicated upon extrapolations of past trends into the indefinite future.

(3) Insofar as the state does commit to funding new transportation projects, we should be supporting the kind of infill and re-development that allows Virginians to drive less rather than perpetuating the sprawling development patterns of the 1980s, 1990s and 2000s.