Gas Prices and Politics: Fact vs. Fiction
Posted by mattusmaximus on April 12, 2012
I don’t usually post on economic issues, but I wanted to say a few things regarding the recent brouhaha regarding higher-than-usual gasoline prices in the United States. The issue has become heavy political fodder due to this being a presidential election year, and there have been a number of dubious claims made on the matter. So, to help sort fact from fiction on this issue, I would like to reference the following well-written article from Paul Brandus at The Week.
While there are a number of excellent points made throughout the article, I wanted to focus on the big #1 myth: the notion that the president of the United States has some kind of magical ability to control the price of gasoline…
Why you’re wrong about gas prices and politics
I recently wrote about the many myths and misunderstandings Americans have about gas prices, oil companies, and the presidency. A few folks got upset because the facts and figures I mentioned weren’t what they wanted to hear. But as John Adams said: “Facts are stubborn things.” With that in mind, here are a few more myths and misunderstandings — about gasoline, renewable energy, politicians — and the facts:
Myth #1: Presidents have major power over gas prices
Gasoline prices have more than doubled on Obama’s watch, from $1.89 on Inauguration Day in 2009 to last week’s $3.93 (AAA data). That’s an increase of 107 percent. But guess what? Gas prices skyrocketed 387 percent between 2002 and 2008, when the average price of regular went from $1.06 to $4.11, before dropping again before Obama took office.
When gas prices exploded from 2002 to 2008, Democrats — including then-Sen. Obama — were wrong to blame George W. Bush, just as Republicans are wrong to blame Obama for the 107 percent jump since 2009. So who can we blame? The “blame,” if that’s the word, lies largely with the ever-changing market cycles of supply and demand — not just in the U.S., but around the world. I know, I know. It would be so much simpler if you could just blame one person for the rise in global commodity prices. But that’s not how it works. Sorry.
I find this kind of thinking, the willingness to blame those in power for whatever calamity that happens to befall you at any given time, to be fascinating. I remember when gas prices were high back in 2007 and people were blaming then President Bush; and now some people are blaming President Obama. It’s almost as if these folks, in their own minds, grant some kind of god-like powers to the president once they are elected; and of course our leaders do not have such powers. I suppose it is a way of coping with the uncertainty in the world: rather than admit the reality that even our most powerful leaders are often quite powerless (and the implication that we, as individuals, have even less power than we thought) against the random nature of the universe, many people would make up a fiction that “they” (insert spooky music) are behind it all and to blame; so if we can only get “them” out of power, then things will automatically get better. Such thinking is strikingly similar to that employed by many conspiracy theorists.
If you find yourself in this mode of thinking, I’ve got a news flash for you: reality doesn’t give a damn what you think; it doesn’t give a damn what the president thinks. And casting blame hither and yon will do nothing to change that. Sorry to burst your bubble.
The Skeptical Teacher 
Craig said
Under pressure from the big “drill here, drill now” push in the summer of 2008, Bush lifted the ban on offshore drilling. Then, in Sept 2008, the congressional moratorium on drilling expired. These two events were the primary reason for the huge drop in gas prices at the end of the year. In February 2009, however, President Obama reinstated the drilling ban. He also reversed several other policies that had allowed for new drilling on federal lands. Granted, the new policies of the Bush administration in 2008 didn’t have time to produce new oil, but the market clearly responded to them and the anticipation of increase domestic supplies. The reversal in Feb 2009 squelched this optimism and began the sharp, steady rise in prices once again.
See this Washington post article from Feb 2009:
http://www.washingtontimes.com/news/2009/feb/11/drilling-ban-revisited/
And another article by CEPR urging the president to reverse the “mistake” of allowing offshore drilling:
http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/obama-has-opportunity-to-reverse-mistake-on-offshore-drilling
And here is an article from Feb 2009 about oil and natural gas leases being cancelled by the Obama administration:
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/04/AR2009020401785.html
I realize this is not the only factor in oil and gas prices, but given how the timeline in the graph you posted follows these events so closely, there is certainly a strong case for this as the primary issue.
mattusmaximus said
Craig said:
“I realize this is not the only factor in oil and gas prices, but given how the timeline in the graph you posted follows these events so closely, there is certainly a strong case for this as the primary issue.”
Translation: I’m going to ignore all the real factors – the biggest one being global supply and demand of oil – which go into affecting the price of gasoline and blame Obama anyway.
It was a stupid argument when people used it to blame Bush a few years back, and it’s still a stupid argument now.
Craig said
Not ignoring anything – “global supply and demand of oil” is greatly impacted by expected production compacity, which changed dramatically with both the removal and reinstatment of the bans. What other explanation do you offer for the dramatic shifts in prices in the middle of 2008 and the beginning of 2009?
mattusmaximus said
The key word here in “global supply and demand” is “global”; there are plenty of other countries who are now consuming more oil than ever – specifically China and India. We cannot control that.
Your criticisms are regarding political decisions within the United States. The United States does not export enough oil to drive up or down the price in the manner in which you are implying (though we are exporting more now than we have in many years).
Since you seem to be confusing “global” with “domestic”, may I suggest that you consult a map to notice the difference?
Like I said before: it was a stupid argument when leveled against Bush a few years back, and it’s still a stupid argument now.
Craig said
No need to keep calling me stupid – I’m not confused at all. If our domestic supply of oil increases, so does the global supply – domestic is a subset of global, not a independent set. And whether or not we export is irrelevant – if our supply increases, our demand for oil from other markets will decrease – so on the global scale, total demand does not change, and total supply increases; thus, according to supply and demand, prices decrease. This is a math question, not a geography question – no map needed, thank you.
mattusmaximus said
There is a fatal flaw in what you just wrote. You stated that “on the global scale, total demand does not change”, which is blatantly wrong. The global demand for oil has gone up dramatically in recent years because of massive economic development of nations like China and India (take a look at this graph for confirmation of that fact); in fact, Asia is consuming twice as much oil as 20 years ago while U.S. consumption has remained relatively flat.
This has led to the overall demand worldwide increasing by roughly 10% in the last decade alone. Thus your argument is completely off-base due to an erroneous assumption.
Combine that fact with the uncertainty created by Iran’s saber-rattling, and it is no wonder that oil prices have increased, leading to the eventual and inevitable rise in gasoline at the pump.
Near as I can tell, the most direct thing President Obama could do to help sooth prices at the pump is to calm the world’s nerves on Iran. That would help a little bit, but the overall trend of higher prices will continue as long as world demand for oil keeps going up.
And that is the reality, regardless of who is in the White House.
craig said
My argument is not off base, and it has nothing to do with whether or not global demand is increasing. You’re trying to distract from my point with irrelevant arguments. I didn’t say that demand never changes. I meant that changing the available supply of domestic oil does not change global demand. If supply increases without a corresponding increase in demand, prices will decrease – thus, increased supply can only help lower prices. Increasing demand is a separate issue altogether – although it is another good reason for increasing production.
mattusmaximus said
Craig said, two comments above this one:
“… so on the global scale, total demand does not change, and total supply increases; thus, according to supply and demand, prices decrease.”
And then Craig just said in his last comment:
“I didn’t say that demand never changes.”
Wow… what’s next? Black is white, up is down, day is night? I shall allow the readers of this blog to make up their own minds about Craig’s comments at this point. As for me, I’m done with him, because he seems to be willing to ignore the fact that the oil market is a global market. Only by ignoring this inconvenient fact can he even begin to make his conspiracy theory plausible.
Craig said
Matt, sometimes you crack me up. I have no conspiracy theories. I already answered your claim that I was confusing global and domestic markets – I didn’t ignore it. I am talking about BOTH domestic and global markets – one is a subset of the other! Here it is again, if I wasn’t clear before:
– If we increase domestic oil production, global supply increases. Domestic oil and global oil are not independent sets.
– Increasing domestic oil production does not change global demand. This is what I was referring to when I said “total demand does not change.” It makes perfect sense in context (all anyone has to do is scroll up to see what I mean).
– The market responds to expected changes in supply and demand. Therefore prices are affected by changes in policy regarding drilling permits.
– The point of my original comment was to demonstrate that major changes in policy (as reported in the linked articles) correspond to major shifts in prices on the chart that you posted.
I stand by all of my statements – I see no contradictions in them.
You are welcome to be done with the discussion if you like, I will exit as well – but you didn’t answer my one question that I asked of you:
“What other explanation do you offer for the dramatic shifts in prices in the middle of 2008 and the beginning of 2009?”
If the events I pointed out only coincidentally correspond to these shifts, what other factors can you cite the created the complete reversal of the trend at these two specific moments in history?
The jist of your argument so far could be summarized as “I don’t have a better answer, but I know whatever you say has to be wrong, so I’ll just call it stupid and try to manufacture some contradictions to discredit you.”
mattusmaximus said
The one over-arching fact that Craig continues to ignore is that global demand for oil has gone up by a great deal in the last decade, and this is THE major contributing factor to higher oil prices. And when he challenges me to provide a mechanism for increased gas prices, I mention “global demand has gone up” and he ignores my response. And why did gas prices drop so dramatically in 2008? Same thing but in the opposite direction: decreased demand due to the worst global recession since the 1920s.
Notice in all of what he wrote above, he conveniently leaves out the issue of increased global demand. This is despite his earlier claim that global demand remains constant (it hasn’t remained constant – it has increased by 10% in the last decade). He also seems to think that while increased U.S. domestic oil production will increase global supply (which it would to a degree) and lead to decreased prices, but somehow, magically, increased demand globally won’t affect domestic prices. It works both ways, and right now the equation is greatly unbalanced on the side of higher global demand; yet in Craig’s fantasy land, the issue of global demand is irrelevant and only supply matters.
This fact alone invalidates his entire argument, yet he insists on repeating himself and whining about how I’m “calling him stupid” (note that I called his argument stupid, not him). He is putting cognitive dissonance on full display here for all to see, and it’s quite a thing to see.
Phil said
Craig,
I am so happy that I saw your comment. I refer both of you to eia.gov. Here are the facts….
The us produces about 6% of the worlds oil. Around 20% from off shore. If the us doubled off shore production by tomorrow the us would then provide 7.2% of world supply. A change of 1.2%. Even this extreem case would not materially change world supply or prices. The drop in prices was mostly from global recession combined with a collapse of market speculation. The president and our congress have VERY little effect on the price of oil.
craig said
Matt, I wish you had the ability to discuss one issue at a time. This has always been the difficulty in debating with you. I have already conceded that global demand changes (I never stated otherwise to begin with). If you are teaching your students F=MA, you begin by understand this relationship in a very isolated manner. For example, you typically would assume that there is no force due to friction or that acceleration due to gravity is a constant – these are not true assumptions, but necessary to isolate and understand the relationships between force, mass, and acceleration. This is the same method I am employing to isolate the effects of increased production. Global demand is an entirely different issue – it also has an effect, but it doesn’t alter the impact of increased or decreased production – it just counters it or enhances it.
Gotta get away from the computer for a few days, so I’ll have to stop there….
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mvpcandidate said
What is woo? How do you know how much Presidents can influence OPEC and domestic and foreign oil producers and refiners? That’s like me saying “It’s a myth if you think Presidents can influence our enemy’s or terrorists”. How do we know what goes on behind closed doors? We don’t ! There could be all types of reasons we haven’t been hit with another major attack or why gas prices go up and down around elections or why gas prices are lower in the U.S. by 100% than other countries etc etc.
mattusmaximus said
So you are basically down to making the following argument from ignorance: “We don’t know what goes on behind closed doors, so we know the president has something to do with it.”
Which is, obviously, a self-contradictory argument.