The Dreadful Price Of Gasolene

NBC Nightly News last night displayed the price of gasoline at the pump in a small number of countries around the world. They were all priced in American dollars.

Whenever such comparisons are made in America, the assumption is always that everyone in the world pays for their gasoline in US dollars. It holds true for American tourists, but is useless when comparing the cost to that of a Brit purchasing his gallon in London, or a Dutchman in Amsterdam.

In order to arrive at a fair correlation between the price of a quantity of gasoline in, say, London, and that of a similar quantity in New York, it is necessary to forget foreign currency exchanges altogether. An Englishman buys his gasoline with British pounds, an American with US dollars. Each is a unit of currency. The value of that currency, both to the Englishman and the American, is entirely dependent on how much of it he earns.

Average individual earnings in Britain are around 24,000 pounds per annum.[1] The average figure for an American earner is approximately $26,000.[2] On a unit to unit basis, the American fares fractionally better, but for our purposes the difference is negligible. Average earnings work out at roughly similar figures in both countries.

Forget foreign exchange: put simply, one British pound equals one American dollar; each is equal to one unit of currency.

NBC Nightly has a habit of making wild assertions on its programs, that never make it to their website (I wonder why?) so you’ll have to take my word that Brian Williams made a valiant effort to console his viewers by pointing out that, while they were paying around $4.00 a gallon at the pump, the poor old Brits were having to fork out $8.28 a gallon; the Dutch – $9.52, while the Russians got away with a mere – $3.06.

WRONG! This is the price disconsolate American tourists would be paying in each of these countries. It most definitely is not what the natives are spending.

It’s way, way, too much trouble to calculate the conversions in roubles and Euros, so for the purpose of this presentation we’ll stick with our comparison of US dollars and British pounds. However, it does make for a further complication. In his enthusiasm to demonstrate how well off the American public truly is, Mister Williams may or may not have taken size into account, but it’s a sad fact that US citizens get seventeen percent less for their gallon than the British, who still use the Imperial measurement of 4.55 liters, against the US 3.78 liter gallon.

Consequently, while our Englishman is filling his tank at today’s British price of 113 pence per liter, or 5.14 British pounds per Imperial gallon, at US gallon volumes that price becomes seventeen percent less, or 4.27 British pounds for the equivalent US gallon.[3]

We’ve already determined that unit for unit the British pound and US dollar are equivalent values in their respective countries, so suddenly the British are not paying over twice the price for gasoline as their transatlantic cousins. In fact, the difference is only about six percent more, or 0.27 of our unit of currency.

Nevertheless, our American pumping his gas can still smile, knowing his gasoline is costing him less than the Englishman’s over the water.

Or, is it?

At 4.00 currency units a gallon our American is paying about 3.00 units, or 75%, for his product. The other is made up of federal and state taxes (15%) and distribution/marketing costs (10%).[4]

Our Englishmen digs in his billfold for 4.27 currency units to pay for his equivalent amount of gasoline, of which only about 1.28 units is the cost of the product (less than half the unit currency price in the US). Distribution/marketing account for 0.38 units, and the rest – a whopping 2.61 units – goes in taxes and excise duties.[5]

In fact, our American motorist is paying more than twice as much for his gas as the average British motorist. The Brits just pay a lot more of their taxes via the gas pump.

Whether this is a good, or bad, idea depends on one’s viewpoint. US gas tax, like its British counterpart, is supposedly used to maintain highways.

Britain has some of the best motorways in the world, in line with most of Europe. America’s highways are pot-holed, rutted, cracked, and falling to pieces. At times they can be downright dangerous. It isn’t only the roads that are in a poor state, many of the bridges and underpasses are on the verge of collapse.

I guess our Englishman can console himself with the thought that to some extent at least, he is getting what he pays for.

On this side of the pond, Americans are just pouring their hard-earned dollars into the vast, deep, pockets of their oil companies, and getting absolutely nothing back in return.

[1] “National Statistics Online (statistics.gov.uk) May 20th 2008

[2] “Household income in the United States”, Wikipedia

[3] “Fuel Price Reports”, Automobile Association UK

[4] “A Primer on Gasoline Prices”, US Energy Information Administration

[5] “The Price of Petrol”, Petrolprices.Com (UK)

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4 Replies to “The Dreadful Price Of Gasolene”

  1. I never cease to be amazed, RJA, at the absolute appalling laziness of the so-called journalists on MSM.
    I know they are only spewing government propaganda most of the time but I still get so irritated that they don`t even make a pretence of doing their homework.
    Excellent post.
    XO
    WWW

  2. I’d not considered the price comparison in the way you’ve explained it here, RJ – thank you for the enlightenment.

    There’s one other issue which ought to be added to the complicated copmparison though – and I know it’s a little bit “off-topic” for want of a better description. In the USA, especially outside of large urban/metropolitan areas, vehicles have to be used for every small journey. Going to work, school, college, supermarket….and each family member needs their own vehicle. There isn’t the alternative of public transport as in Britain, and even walking is a non-no in most cases. Several cars per family isn’t really a choice, it’s a necessity, and a way of life.

    This means that Americans are forced to use more gas in more vehicles than most Brits or Europeans, so price increases hit them much harder.

    Since I arrive here I’ve been saying that a public transport network would be the single best thing the government could do to help the environment, and now it would also help people to manage their finances as prices spiral.

    It’s too late, of course.

  3. Twilight – cars may be a necessary part of American life – but they don’t need to be so BIG. The average car in Europe has an engine less than two liters. Over here, the average is 3.5 – 4 liters.

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