Is gas really cheaper than in 1960?

Weeks ago, I heard someone on the radio claim that by one measure, gasoline prices are as low as they were in 1960.  He didn't get the chance to elaborate, so I remained in ignorance — until this week.  Now that I've seen the claims, I can safely say they're flawed, if not completely irrelevant.

In a Los Angeles Timescolumn that sorely needed the intervention of a capable editor (memo to owner Sam Zell:  Your budget cuts have hit bone.  But don't say I didn't warn you about what you were taking on), author Indur Golkany and Cato Institute senior fellow Jerry Taylor flail about trying to explain.  After three or four warm-up paragraphs, the crux of the argument is buried at the end of this passage:

But it's difficult to square that worry with what we call the "affordability index" — the ratio of the average person's disposable income to the price of gasoline.

After studying the average yearly price of gasoline from 1949 to 2007, and assigning the number "1" to the ratio in 1960, we found today's prices comparable to what they were in 1960 (1.35 today to 1.00 in 1960, with a high of 3.32 in 1998). The higher the gasoline affordability index figure, the lower the price of gasoline relative to disposable income.

Disposable income is the income you have after you take out taxes but before you take out food, clothing, shelter, entertainment or any other expense, discretionary or otherwise. 

You want hard numbers?  Here's what the authors furnish:

…[P]erception is not reality where gas prices are concerned. By June of this year, disposable income had risen by an average of $1,627 per person over last year's figures, according to the Department of Commerce, while the average person's real expenditures on gasoline increased by about $490. Our incomes are still outpacing gasoline price increases. The problem is that our incomes aren't outpacing the increase in gas prices lumped together with increases in everything else — air conditioning, food, etc. Our homes, meanwhile, are losing value.

That's true as far as it goes.  But comparing the present day to 1960 in this regard seems like apples and oranges.  "Disposable income" then is a completely different animal from "disposable income" now: Thanks to the schemes of the Fed and the finance sector it enables, Americans' disposable income is being eaten up by debt service to a degree unheard of — indeed unimaginable — in 1960.  Americans have far less equity in their homes now.  They have student loan debt.  They have credit card debt.  Those weren't line items on most household budgets in 1960.

So no wonder it seems as if gasoline is taking a bigger bite.   And don't expect it to get any better.

The Daily Reckoning