President Obama has already taken the first rhetorical shot at what is sure to be a central theme in this year's US Presidential election. The conversation rarely breaks new ground: its bases are invariably what to do - and who to blame.
The problem, however, is that US Presidents have about as much power to affect gas prices as they do the weather.
The issue, of course, is that pesky global economy. We love it when other countries buy our stuff, but we resent it when their growth causes demand to grow and prices to rise. China, India, Brazil and a host of other economies are getting wealthier and then doing what comes unnaturally: buying cars. For convenience, for increasing business opportunities and for prestige. All of which drives up the need for gasoline. And despite oil shale, fracking, natural gas finds and other latter day sources of energy, supply is not keeping up with demand.
It would be useful if policy planners, business strategists and even Presidential candidates could agree that global problems require global solutions. And that the most sensible answer to such problems is to redefine the parameters in order to consider alternatives, like wind, solar and so forth. But this debate is emotional and political, not rational. So consumer behavior will have to serve as the leading indicator. Car purchases as a percent of population among potential new drivers in the US are already down - and heading lower - as young people realize they cannot afford the upkeep and running costs. It may take a while for the political class to catch up with these trends. But then it is not clear these days that Americans really count on them to lead. JL
Bryan Walsh reports in Time:
Of course in modern American politics, every day is really Presidents’ Day — so central is the occupant of the White House to the perceived state of the nation. Good news or bad news, foreign or domestic, the President gets the credit — and he gets the blame, whether he actually deserves either.
That goes for one of the most importantly economic indicators — psychologically at least — that’s out there: gas prices. A gallon of gas now costs an average of $3.53, already up 25¢ from the beginning of the year, and the highest price it’s even been at this time of the year. (Gas prices are usually lower in the winter, when the cold weather and lack of holidays curtails some driving.) With the U.S. economy strengthening — driving up demand for gasoline, and price as well — and the situation in Iran and the rest of the oil-producing Middle East looking uncertain, analysts believes gas could be well over $4 a gallon by the prime driving months of the summer.
You can bet that gas prices will be a major campaign issue during the 2012 presidential election, just as they were in 2008 — better known as the summer of “drill, baby, drill.” Republican candidate Newt Gingrich — who wants to “drill here, drill now” — has been promising that he could bring gasoline to $2.50 a gallon or less if he takes office, while the other candidates are concentrating their fire at President Obama, blaming his policies for the pain at the pump. But does a President really have that much control over how much it costs for you to fill your car?
The short answer is: not really. One way to understand that is to look at how gas prices have fared under President Obama. When he entered office in January 2009, gas cost $1.81 a gallon. Now it’s nearly $2 a gallon higher, an increase of 95%. That sounds bad, but the main reason gas had become so cheap at the start of the Obama Administration was that he was took office during the heart of the worst global recession since the Great Depression. Recession depress economic demand, and when demand is depressed, fewer people drive — which in turns leads the price of gas to fall like any other commodity would when demand falls. As the economy recovered and economic activity picked up — both in the U.S. and elsewhere — the price of gas rose as well. If future President Gingrich were to somehow be able to deliver $2.50-a-gallon gas, it would probably mean the economy had tanked again.
But what about encouraging more production of oil, both in the U.S. and in friendly nations like Canada, with its vast oil-sands reserve? For one thing, domestic oil production has increased under President Obama, thanks largely to the new unconventional reserves in states like North Dakota. Does Obama deserve much credit for that increase in domestic oil? Probably not. Though Obama has put some additional regulations on the oil industry in the wake of the Deepwater Horizon disaster, it’s hard to imagine that oil companies wouldn’t have been just as eager and able to tap those new resources under a Republican as they have been under a Democrat. And more to the point, that additional domestic oil has done little to alleviate gas prices, in part because oil functions on a global market, and extra American crude is just a drop in that much larger bucket.
Republicans will counter by charging that Obama blocked the Keystone XL pipeline, which would have transported over 800,000 barrels a day of oil-sands crude into the U.S. They’re on firmer ground here — the oil sands are a potentially massive resource, and if that crude can flow unimpeded to the U.S., there’s every reason to expect it would help reduce gas prices somewhat. (That’s ignoring the very real environmental and climate risks presented by the oil sands.) But even so, Keystone would have little immediate effect, especially since there’s already sufficient pipeline infrastructure in place for the next few years. The extra oil brought in by the pipeline might — might — reduce gas prices a few cents a gallon.
In truth, gas prices have increased largely because the U.S. economy is doing better, raising demand for gas along with everything else. Europe’s economy has remained sluggish and risks falling apart completely, which has acted as a drag on oil, but China has kept chugging along — chances are it will use 5% more oil this year. And then there’s Iran, which exports 2.2 million barrels of oil a day. That’s just a tiny part of the 89 million barrels of oil that are consumed globally, but if something goes seriously wrong in Iran — imagine an Israeli attack on the country’s nuclear facilities or even a total ban on exports — the impact on oil markets and gas prices would be ugly.
Can the President of the United States control exactly what happens inside Iran or the rate of Chinese economic growth? Obviously not — and one would hope that, as important as gas prices may be to his re-election campaign, President Obama has other priorities in mind when he’s dealing with the Middle East. Gas prices should be largely a byproduct of presidential policy—not its aim.
In fact, it’s not the price of gas the President should focus on — it’s the effect high gas prices can have on the economy. A more energy-efficient economy — from gas mileage on up — is naturally more resilient to high energy prices. That’s one area the President can help shape — and it’s an area President Obama has found quiet success. The White House has pushed through measures that will mandate significant increases in the Corporate Average Fuel Economy rules, which means in the future, American drivers will be better protected against the next big hike in gas prices. And that’s not something one hears often from the Republican presidential field.
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