Signs advertising gasoline prices in a scene from 1986.
Credit Marty Katz/The LIFE Images Collection/Getty Images

by David Leonhardt | New York Times

The decline in gasoline prices over the past four months has been sharp and surprising. But for Americans wondering why their family budgets still feel strained, part of the answer is almost as surprising:

Gas is not actually that cheap, at least not when compared with its level for much of the last 30 years.

At $2.03 a gallon — its current nationwide average — a gallon of gas is still more expensive than nearly anytime in the 1990s, after adjusting for general inflation. Over a 17-year stretch from the start of 1986 to the end of 2002, the real price of gas averaged just $1.87.

That era of cheap gas is easy to forget. Yet it offers a couple of important lessons about two of today’s biggest economic (and political) issues: climate change and the great wage slowdown.

An oil field worker in Sweetwater, Tex., last month. The decline in the price of crude oil will cause economic challenges for Texas and other oil-producing states.Q. and A.: Oil Prices: What’s Behind the Drop? Simple EconomicsJAN. 12, 2015
Political leaders — from President Obama and Hillary Clinton to Jeb Bush and Scott Walker — have been signaling in recent weeks that they consider the wage slowdown to be the country’s most pressing issue. And it’s clear that energy plays an important role in it. The beginning of the wage slowdown roughly coincides with the end of the era of cheap gas, which is no coincidence. Energy costs are a major expense for most middle-class and poor families, taking a chunk out of their real (that is, inflation-adjusted) wages.

Signs advertising gasoline prices in a scene from 1986. Credit Marty Katz/The LIFE Images Collection/Getty Images
One of the surest ways to end the great wage slowdown would be for the United States to make sure it’s entering a new era of cheap energy. “It’s the proverbial tax cut,” says Daniel Yergin, vice chairman of the research firm IHS and author of a Pulitzer Prize-winning history of oil. If energy costs remain at current levels, it would put $180 billion into Americans’ pockets this year, according to Moody’s Analytics, equal to 1.2 percent of income and a higher share for lower-income households.

That’s why taking virtually every step to push oil costs even lower — “drill, baby, drill,” as the phrase goes — would make a lot of sense, so long as oil use did not have harmful side effects.

The most obvious way to hold down the price of oil is to increase its supply. The earlier era of cheap gas was made possible by technological advances that allowed for a surge of supply in the 1980s from northern Alaska and Europe’s North Sea. Mexico also became a major producer. The recent drop in oil prices, similarly, stems in part from supply increases in Iraq and Libya. Even more important has been the shale-oil boom (also known as the fracking boom.)

The problem, of course, is that oil use does have side effects. It leads to carbon emissions, which are altering the world’s climate. Last year was probably the planet’s hottest since modern records began in 1880, and the 15 hottest have all occurred since 1998. Oceans are rising, species are at risk and some types of severe storms, including blizzards, seem to be more common.

More oil production, then, involves enormous trade-offs: a healthier economy, at least in the short term, but a less healthy planet, with all of the political, ecological, health and economic downsides that come with it.

Is it possible to get the benefits of more energy production without the drawbacks? Yes, at least in part. Fracking is less carbon intensive than conventional oil drilling (though fracking brings other dangers that need managing). Clean energy — like wind and solar — would be better yet, if it could become even cheaper.