Will the price of
gasoline — a price that has very little to do with which party controls the
government — determine the outcome of the midterm elections, and quite possibly
the fate of American democracy?
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I wish that were a
silly question, but it is not. This year there has been a strong correlation
between the price of gasoline and political polls.
Earlier this year,
when gas reached an average of $5 a gallon, everything seemed to point to a
Republican blowout. By mid-September, with gas prices down almost $1.50, the
election looked much more competitive. And some apparent recent deterioration
in Democrats’ prospects coincided with an upward tick in prices in late
September and early October. (Prices are now falling again.)
Now, this
correlation might be spurious. Other things have been going on, notably a
partisan Supreme Court’s overthrow of Roe v. Wade. And political scientists who
have studied the issue find that normally the effect of gas prices on political
outcomes is fairly weak.
But we are
arguably in a special situation right now. Americans have been shocked by a
sudden surge in inflation, which had been quiescent for decades, and the price
of gasoline — displayed on huge signs every few blocks — is a potent reminder
of our economic difficulties.
What we know for
sure is that politicians are harping on gas prices. Republicans do not talk
about the core personal consumption expenditure deflator, they declare that
“gas was only $2 a gallon when Trump was in office!”
The Biden
administration talked a lot about the long slide in prices, and is trying to
get out the word that this slide has resumed.
So this seems like
a good time to make three important points about gasoline prices.
First, the most
important determinant of prices at the pump is the world price of crude oil,
over which the US has little influence. And I do mean “world price”: Prices in
Europe and the US normally move almost perfectly in tandem.
Crude prices, and
hence gas prices, were unusually low during Donald Trump’s last year in office,
not because of anything he did, but because COVID-19 had the world economy flat
on its back, greatly reducing oil demand. Crude temporarily shot up after
Russia invaded Ukraine, out of fears that Russian oil exports would be greatly
reduced; it fell again as it became clear that a lot of Russian oil would
continue to find its way to world markets.
… gas prices may sway a crucial election, a fact that is both ludicrous and terrifying.
Second, smaller
fluctuations are usually driven by technical issues at the refineries that turn
crude oil into gasoline and other products. The mini-surge in gas prices that
began in September (and now seems to be over) was caused by shutdowns of
several refineries for maintenance and a fire at one refinery in Ohio. Again,
this has nothing to do with policy.
What about
accusations that energy companies are deliberately holding production back to
raise prices and profits?
We should not
dismiss this possibility out of hand. Some readers may recall the California
electricity crisis of 2000-01. When some analysts, myself included, argued that
the facts suggested that market manipulation was playing a large role, we faced
considerable ridicule. But it turned out that markets were, in fact, being
manipulated; we have the receipts.
As far as I can
tell, however, the refining issues that led to recent price increases were
genuine. I do not think it is wrong to stay suspicious, and keep energy
companies on notice against pulling an Enron. But it is probably not a current
problem.
Finally, gas is
not expensive compared with the fairly recent past.
One way I like to
look at this is to look at the ratio of the price of gasoline to the average
worker’s hourly earnings. Right now this ratio is considerably lower than it
was in the early 2010s. Gasoline prices did plunge in 2014 — yes, under Barack
Obama, not Trump. But this reflected a surge in fracking, which actually did
increase US oil production enough to have a significant effect on world
markets. Unfortunately, the fracking boom turned out to be a bubble that
eventually burned up more than $300 billion in investors’ money.
So gas prices
probably will not go back to the levels of the late 2010s, not because the
Biden administration is hostile to oil production, but because those low prices
depended on investors’ delusions about fracking’s profitability. Taking a
longer view, as I said, gas is not actually expensive at this point.
Furthermore,
experts believe that with some troubled refineries coming back online, gas
prices will fall substantially over the next few weeks.
So what does this
tell us about the success or failure of Biden administration policy? Very
little. President Joe Biden’s jawboning of refiners over their margins might be
having some effect; so might his release of extra oil from the Strategic
Petroleum Reserve. Overall, however, it is hard to think of a worse metric for
judging a president and his party than a price determined mainly by events
abroad and technical production issues here at home, a price that is not even
high compared with, say, a decade ago.
Yet, gas prices may sway a
crucial election, a fact that is both ludicrous and terrifying.
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