Why Gas Prices Are Out Of Any Presidents Control

Mikeyy · #1 (**permalink**) 04-01-2012, 02:16 PM

EVERYONE knows it’s dangerous to ingest gasoline or to inhale its fumes. But I am starting to believe that merely thinking about the price of gasoline can damage cognitive processing. Thus I may be risking some of my precious few remaining brain cells by writing about that topic.

Here is a one-item test to see whether you are guilty of cloudy thinking about gas prices: Do you believe that they are something a president can control? Many Americans believe that the answer is yes, but any respectable economist will tell you that the answer is no.

Consider a recent poll of a panel of economists conducted by the University of Chicago Booth School of Business, where I teach. (Disclosure: I am a member of the panel; the other respondents are well-respected economists from top universities with varying political views.) The 41 panel members were asked whether they agreed with the following statement: “Changes in U.S. gasoline prices over the past 10 years have predominantly been due to market factors rather than U.S. federal economic or energy policies.”

Not a single member of the panel disagreed with the statement.

Here is why: Oil is a global market in which America is a big consumer but a small supplier. We consume about 20 percent of the world’s oil but hold only 2 percent of the oil reserves. That means we are, in economics jargon, “price takers.” Domestic production has increased during the Obama administration, but it has had minimal effects on global prices because, as producers, we are just too small to matter much. And even if domestic oil companies further increased production, they would sell to the highest global bidder.

If you’re not convinced by economic theory or the opinions of economists, consider some recent history. Presumably, no one would call President George W. Bush unfriendly to the oil industry. Yet the price of gasoline rose steadily during most of his administration. In February 2001, just after Mr. Bush took office, the average price of regular gasoline was $1.45 a gallon. By June 2008, that price had risen to $4.05. Still think presidents and oil-friendly policies can determine oil prices?

It’s true that by the end of the Bush presidency, prices had fallen back to $1.69, as oil prices plummeted with the rest of the global economy. But I think we can all agree that a global financial crisis is too high a price to pay for cheap gasoline.

Still, Republican presidential candidates are blaming the policies of President Obama for the current high level of gasoline prices. Mitt Romney has said that the president should fire three of his cabinet members for failing to get oil prices down.

(On Friday, the president moved forward in imposing sanctions that are limiting the supply of Iranian oil in world markets.)

Newt Gingrich, meanwhile, has promised us $2.50-a-gallon gasoline. But if we can suspend the law of supply and demand, why stop with gasoline? Why not $2.50 for one-carat diamonds, steak dinners and 18-year-old Scotch whiskey?

Although the United States cannot unilaterally lower the price of oil, it can reduce its consumption, by using oil more efficiently and by developing alternative sources of fuel. For example, the Obama administration has raised the corporate average fuel economy standards imposed on automakers. If consumers buy more fuel-efficient cars and trucks, demand for gasoline falls, as does the burden imposed by high gas prices. But while such rules help, they are not the best way of achieving societal goals.

A better approach would be to gradually raise the gasoline tax to levels similar to those in Western Europe, where fuel-efficient cars are the norm. N. Gregory Mankiw — the Harvard economist who advises Mr. Romney and is a fellow contributor to the Economic View column — has long advocated such a policy. I agree with him, as do most other economists.

For evidence, note that the economists in that same University of Chicago poll were asked whether they agreed with this statement: “A tax on the carbon content of fuels would be a less expensive way to reduce carbon-dioxide emissions than would a collection of policies such as ‘corporate average fuel economy’ requirements for automobiles.”

On this question, there was just a single negative vote. Yet in our current political climate, making the sensible suggestion that we gradually raise the tax on gasoline — or impose a broader system of carbon taxes — is ridiculed, and no one running for president can safely make such a proposal. At least two of the candidates have shown that they understand the underlying economics. In the past, both President Obama and Mr. Romney have acknowledged that higher gas prices have an upside: they give car owners the right incentives, and if the high prices stem in part from higher fuel taxes, the deficit can be trimmed. But such obviously true statements are now considered almost unpatriotic, equivalent to cheering against the U.S.A. in the Olympics.

THE confused public debate on this topic is representative of a more general problem. The voting public is not very good at attributing credit and blame to presidents. They get too much credit when things go well and too much blame when things go badly. The same applies to coaches, C.E.O.’s, parents and anyone else in charge. Leaders are important but not omnipotent.

So, to evaluate a leader, we must determine the factors over which that leader has a modicum of control. If you hate the Obama health care program and the Consumer Financial Protection Bureau, by all means give the president a big share of the blame. And if you love them, give him some credit. What makes no sense is to blame the president for rising gas prices, where he has virtually no control, but not to give him some credit for rising stock prices and an improved labor market, domains where his policies — along with those of the Federal Reserve and Congress — are more likely to have had an effect.

When we make our choice on Election Day, we should consider that the winner will have an important impact on policies in many areas: health care, distribution of the tax burden, Supreme Court nominations, and abortion rights. The candidates’ differences on those issues should be driving our decision, not the wishful thinking that a president can simply lower the price of gasoline. Or Scotch, alas.

cottonbroker · #2 (**permalink**) 04-01-2012, 02:27 PM

They are out of the presidents control?....Are you trying to say that when you over regulate drilling as Obama has that it has no effect on the price of energy??....lmao...liberals crack me the hell up...

cnredd · #3 (**permalink**) 04-01-2012, 02:32 PM

In 2006 the very same panel went on vacation all at the same time...

In 2012, they see their master in trouble and phone calls for panel discussions are spread like wildfire...

cnredd · #4 (**permalink**) 04-01-2012, 02:40 PM

Quote:

The 41 panel members were asked whether they agreed with the following statement: “Changes in U.S. gasoline prices over the past 10 years have predominantly been due to market factors rather than U.S. federal economic or energy policies.”

Not a single member of the panel disagreed with the statement.

Here is why: Oil is a global market in which America is a big consumer but a small supplier. We consume about 20 percent of the world’s oil but hold only 2 percent of the oil reserves.

This lie has been said by Obama on multiple occasions the last couple of weeks, and this panel is guzzling it down quicker than a diesel Mack...

Obama: US Uses 20% of Oil, Only Has 2% of Reserves

Quote:

President Obama recently asked a group of young students to make a calculation. About the global oil reserves and America’s oil consumption he said that a simple calculation would make clear that America has to decrease its oil consumption.

He said that America uses 20% of total oil production and that it has only 2% of the world reserves. He said: Make the calculation!

Well, let’s do that.

Assume that America’s world reserves are only 2% of the global reserves. In reality, the American reserves are much, much bigger, but we will not dispute that number.

Imagine that those 2% are 2% of global reserves of 100,000. That would be a volume of 2000.

Imagine that the yearly global production is 100. America’s consumption is 20%, so a volume of 20.

In this example, America could go on consuming a volume of 20 since it owns itself a volume of 2000. It could go on consuming 20% of the world oil reserves for another hundred years.

In other words: it doesn’t mean a thing to create a link between 20% of consumption and 2% of the global reserves. It all depends upon the size of the world reserves.

Only ten years ago, The Independent (UK) warned that the world would run out of oil ‘between 2010 and 2020’ since the world reserves were only 80% of what had been previously thought. The newspaper was very wrong.

Recently, estimates calculated the US fossil fuel reserves to be, at minimum, sufficient to cover American consumption for another 90 years.

The President, I am sorry to say, is talking BS about oil and fossil fuels. There is plenty under our feet.

Does he know he is talking BS? Absolutely. Why is he not ashamed of talking BS? Because he dreams of a green economy.

A green economy will serve environmental values and the idea of social justice. In order to save the world from capitalistic exploitation and pollution, a leftist global leadership aims to reshape the production of goods and services in order ‘to spread the wealth around’ and limit the individual ‘pursuit of happiness’. Only what is green, will be socially acceptable. This new leadership will define what happiness can reasonably entail within the parameters of a clean environment and collective social justice.

These are the defining ideas in the world in which President Obama spent his learning and academic years. The people who developed and expressed those ideas were his intimate friends and colleagues.

Why does he lie about oil and does he is obstruct oil production and oil exploration? There are higher goals to serve.

larryr · #5 (**permalink**) 04-01-2012, 03:34 PM

I remember those high gas prices in 2008. Funny thing. Remember the Iraq war was going to give us cheap gas? This is what happens when you let ex-president hw bush's son play with our military instead of giving him a set of toy soldiers to have fun with.