BrownianHeatingTech said:
Go back and read what I actually wrote.
OK. Let’s go to some exact quotes.
“Oil averages 8-10% increase per year” and
“That figure is based upon the last three decades of oil price numbers. Feel free to verify it with the Feds, if you like”.
The earliest published price I can find is January 1978. That price was $13.38 per barrel – it increased to $13.41 in January 1979. Somewhere around $13.00 to $13.50 is probably a fair average for 1978 but let’s use $12.00 to help your case. If this doesn’t work for you, rather than a quip on the invalidity of any monthly price how about suggesting what you think is a valid oil price from 1978?
Start with $12.00. Using your average of 10% per year, in 1979 the price would be $13.20 (ten percent more than the prior year). In 1980, the price would be $14.52 (ten percent more than the 1979 price). Run this calculation out to 2008 and you end up with slightly over $190.00 per barrel. This number ignores inflation as it is calculated in 1978 dollars.
On inflation you say,
“The calculation is based upon percentage change per year, effectively eliminating inflation in the past, since year-to-year inflation is small”. You also ask,
“You’re claiming there was significant inflation from 1978 to 1979? From 1979 to 1980? From 1980 to 1981? and suggest my,
“reading up on the CPI. It is a completely-meaningless number, with no bearing on reality”.
In 1978, 1979 and 1980 the inflation rate was 7.6%, 11.2% and 13.5% respectively. Those were higher than normal but over the past 30 years inflation has averaged 4.2% per year. Many people would claim that published data on inflation is not accurate, but solely because it understates inflation (that is good for the government as they use CPI for military pensions, social security increases, etc.).
Using real numbers, in 1979 it would take $1.076 to buy what you got for $1.00 in 1978. In 1980 it goes up another 11.2% to $1.197. Run that calculation to 2008 and it takes $3.46 today to buy what you could get for $1.00 thirty years ago. Precise? Who knows? But I think anyone who buys a house, car, food, travels or whatever would accept that it takes $3.00 or $4.00 to buy what $1.00 bought in 1978. Over thirty years inflation is not “effectively eliminated”. (You would get the same result using the average of 4.2% annual inflation for the past thirty years).
You can not look at the past thirty years and ignore it’s impact, “since year-to-year inflation is small”.
But let’s again help your argument and back off on this number. Let’s use $3.00 instead of $3.46. That says it costs $3.00 today to buy what $1.00 bought in 1978. So the 1978 oil price ($12.00) would be $36.00 per barrel in 2008 dollars. Or put another way there would be no price increase in real terms if the oil price was now $36.00 (oil would have merely tracked the diminishing value of the dollar).
But you say it has gone up 10% a year (that is the calculation that brought the price to $190.00 in 1978 dollars). Using the adjustment to 2008 dollars ($3.00 to $1.00) your position would be valid if today’s oil price was about $570.00 per barrel. And that is after adjusting the calculation twice to help your case.
Your position on oil prices simply does not hold water. I’m sure this will get a few more quips to invalidate this position. But the math is real.