CQ WEEKLY
Feb. 25, 2012 – 3:15 p.m.
Political Economy: Hot Gas
By John Cranford, CQ Columnist
Americans long ago and wisely gave up hope of a free lunch. But inexplicably, in the face of decades of evidence to the contrary, they cling to the idea that dirt-cheap gasoline is a constitutionally guaranteed right.
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Talk of how to put the brakes on the rising price of gasoline is more commonplace, if not more productive, than talk of fixing the weather. In this election year, some smart people warn that President Obama’s political fortunes may hang in the balance if gasoline passes $4 a gallon.
Although it may not come to that, with the nationwide average retail price at $3.59 a gallon last week, the concern is palpable. And that concern arises not only with those who commute 100 miles a day by car to a job that pays barely a living wage — those for whom the need to pinch pennies at the pump is understandable. Almost everyone, it seems, will drive out of their way to save 10 cents a gallon. Well-off workers downtown on the Washington Metro share strategies on how to get discounts when they fill up.
This is a puzzle. Not to put too fine a point on it, but when the price of gasoline is adjusted for inflation and when improvements in fuel economy are taken into account, driving a mile today costs less than it did in the middle of the last century.
In fact, the average price of a gallon of regular gasoline averaged $4.26 in June 2008 after inflation is factored in, according to the Energy Department. So, in real economic terms, a gallon of gasoline today is not more expensive than ever. And in relative terms, the recent run-up in prices doesn’t spell the end of the world as we know it, rhetoric to the contrary notwithstanding.
The average price has indeed risen steadily since the last week of December, and the average gallon costs 10 percent — or 36 cents — more than it did Dec. 19. The extra amount that it takes to fill a 12-gallon tank today is roughly equal to the price of a Big Mac or a couple of tall lattes at Starbucks.
And while that higher cost is not inconsequential, for most Americans it won’t break the bank, either. Moreover, we’ve seen this movie before. Last year at almost this time, gasoline prices began to surge. Over the space of four weeks in late February and early March 2011, the average per gallon price jumped to $3.57 from $3.14 — a larger and more pronounced spike than we have seen this year.
Garments were rent, speeches were made, life went on and the economy continued to recover. In early May, the price stopped rising at $3.91 and began a steady decline that lasted until December.
Market forces — not any policy change in Washington — led to the price decline. Yes, the Department of Energy announced in late June that it and its international counterpart would release a combined 60 million barrels of crude oil to relieve the price pressures that arose from the turmoil in Libya. But by the time of the announcement, the cost of gasoline had fallen to about $3.65 a gallon and was clearly on the way down.
Learn, Baby, Learn
Experience, though, hasn’t thwarted complaints — principally from Republicans — that the Obama administration is not only doing nothing to defend Americans from the scourge of sky-high gasoline but is making the situation worse. Newt Gingrich, speaking in Arizona in advance of that state’s presidential primary, said he has a plan “so every American can look forward to $2.50-a-gallon gasoline.”
The president’s response to his critics, in a Miami speech, was to dismiss such talk. “There is not a silver bullet. There never has been,” Obama said. Still, he bowed to the political reality in saying he wants to spend more to develop all forms of energy. The public, after all, wants an immediate response, even if none is available.
Political Economy: Hot Gas
In truth, Americans don’t remember the long history of gasoline prices or accept that global economic forces, Middle East political tensions and technological developments are the principal drivers of energy prices. Nor do they understand that the supply of oil — however plentiful it may appear in the short term — is constrained.
This fundamental disconnect also ignores the fact that the economy relies on far less energy than in the past. Moreover, the price per Btu of energy means less to all of us than it once did. It takes about 10 percent less energy to produce a dollar of economic output today than in 2005, Energy Department estimates show, and that steep downward trend will continue for many years. Similarly, per capita energy consumption is down and falling.
Those factors are far more closely linked to a swing in gasoline prices — which looks possibly to be temporary and, in any event, unavoidable — than a new pipeline to the Gulf of Mexico or the actions of speculators in the futures market. But that focus on reality is far less compelling than the heat of the politics.
So, some people apparently believe that, in effect, Obama is refusing to go down to the White House basement and open the spigot to allow $2 gasoline to flow again. After all, he finally flipped the switch on the job-creation machine a few months ago, right?
Seriously, for those who have no clue, there is no cheap-oil valve in the White House. There isn’t one in the basement of the Capitol, either, despite the protests of lawmakers that they can fix this.