One exhibit in the trial of democratic political mythology is the idea that the incumbent president, or chief ruler, is to blame for higher gasoline prices, and the observation that voters believe in their ruler’s benevolent omnipotence. The Financial Times reports (“Rising Petrol Prices Spark New Concern in Washington,” August 6, 2023):
Rising US fuel prices are triggering alarm in Washington just as President Joe Biden steps up his bid for re-election by touting lower inflation and the strength of the US economy. … “The White House is in full-blown panic mode,” said Bob McNally, head of Washington-based consultancy Rapidan Energy Group and a former adviser to president George W Bush. “Any sitting president is threatened when pump prices go up because of the impact on consumer confidence and the president’s approval rating.”
It should be pretty obvious that the president’s power to set world prices is (fortunately) nil. Any influence he can have on them involves the (risky) possibility that he engages in horse trading with other, worse rulers in the world:
The Biden administration has repeatedly called on Riyadh to pump more oil in the past two years, and last year accused the Opec+ cartel of “aligning with Russia” when it launched its current phase of supply cuts.
Politicians’ incentives don’t push them to discourage a belief in their benevolent omnipotence. They have little incentive to explain to their people that, even with OPEC (whose member states control about 36% of the world’s crude oil production), the price of oil is determined on the world market, and that they already have their hands full protecting the individual liberty of their citizens, assuming that this is what they do.
Liberal political economy suggests the following. Free individuals and their free enterprises in a free country would take the world price of oil as it is, and buy low or sell high according to their own interests.
PS: I previously wrote “38%” for OPEC’s share of oil production in the world. That was an old number. The latest estimate is 36.3%, which I have corrected above. Sorry.
READER COMMENTS
Thomas L Hutcheson
Aug 9 2023 at 11:13am
The misconception that Presidents and Congress affect month to month prices of gasoline is nothing compared to the misconception that they affect inflation and employment rates. OPEC may control 38% of oil supply; the Fed controls 100% of the money supply. 🙂 [Yes, I know, “money supply” is not a direct policy lever.]
I don’t even know why Presidents and Congress don’t push for better understanding. It almost never works to their advantage. They get blamed for the inflation or the recessions and don’t get credit for good growth on real income. Why didn’t Biden start subtly criticizing the Fed the fist time inflation peeked above 2%? Why not pass a “recession relief” package rather than claiming to “stimulate” the economy?
Pierre Lemieux
Aug 9 2023 at 11:37am
Thanks, Thomas, for raising the issue of inflation (which figured, a bit hidden, in the first FT quote in my post). Your second paragraph also raises essential questions. I would suggest that Anthony de Jasay has a big part of the answer:
Komori
Aug 9 2023 at 12:21pm
But the President does have an impact on gas prices, thanks the regulatory state. Since he controls the executive branch, he can (and Biden has) pushed agencies to hinder supply (block new production and pipelines, increase compliance costs on existing infra, etc), which naturally raises prices. He’s certainly not the only factor, but to say he has no blame is to let him off too easily.
Thomas L Hutcheson
Aug 9 2023 at 4:18pm
Those actions do not work on the month to month changes that people grouse about.
Craig
Aug 9 2023 at 12:25pm
I disagree and recent history suggests otherwise. Consider the post-pandemic response by the Trump Administration to the negative oil price.
https://www.reuters.com/article/us-global-oil-usa-saudi-arabia/u-s-to-send-envoy-to-saudi-arabia-texas-suggests-oil-output-cuts-idUSKBN2172YE
After which Saudi Arabia agreed to cut production particularly after Trump threatened weapons would be cut off.
https://www.reuters.com/article/us-global-oil-trump-saudi-specialreport/special-report-trump-told-saudi-cut-oil-supply-or-lose-u-s-military-support-sources-idUSKBN22C1V4
“Special Report: Trump told Saudi: Cut oil supply or lose U.S. military support – sources”
All things being equal what impact would that have on gas prices? I’d suggest they’d be somewhat higher than they would’ve been without that interference in the ‘market’ price in air quotes because obviously it was government interference in the decision making of another government economic participant so hardly a free market to begin with.
Of course let’s now take a peek at JoeyB. Did he not make releases from the SPR? I am pretty sure he did and when that happened, the price decreased. But here’s the thing:
https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/08/fact-sheet-president-biden-signs-executive-order-catalyzing-americas-clean-energy-economy-through-federal-sustainability/
“100 percent carbon pollution-free electricity (CFE) by 2030, at least half of which will be locally supplied clean energy to meet 24/7 demand;
100 percent zero-emission vehicle (ZEV) acquisitions by 2035, including 100 percent zero-emission light-duty vehicle acquisitions by 2027”
Seeing Mr. Hutcheson commenting I have seen his prior posts and I would suggest he would tend to support such initiative and indeed, if successful, there’s a point in the future where Americans won’t care about the price of gas because they will no longer be using gas.
However, whether one supports the initiative or not, I respectfully submit that one cannot ignore the immediate consequences of targeting oil/coal/gas for extinction. Those industries, seeing these kinds of proclamations, will change their investment strategy, I would suggest they will even start upping their dividends. After all, if taken literally, there’s no future in it. Investment banks have looked at this and have dubbed this the ‘Revenge of the Carbon Economy’
https://www.goldmansachs.com/intelligence/topics/carbonomics.html
‘the revenge of the old carbon economy’ keeps driving a disjointed de-carbonization process that is both inflationary and inefficient’ Of course I would suggest the higher prices for gas, etc are relative price changes, but again all things being equal this government mandated ‘de-carbonization process’ will impact the price of gas.
Andrew_FL
Aug 9 2023 at 1:08pm
It’s true enough that other players in the world oil market mean that the President cannot simply set the world oil price as he wishes. There are however policies which the President has some control over which can reduce the oil supply by restricting domestic production, and the US government controls a large inventory store of oil that he can use to temporarily reduce prices by selling off from in large quantities. Biden has done both, the latter in a transparent bid to save his party in the mid terms from a potentially historic blow out.
Pierre Lemieux
Aug 9 2023 at 5:22pm
Andrew: Note that the chief ruler can manipulate the oil supply to the United States and the domestic price only by limiting if not forbidding imports or exports. I can’t see how releasing oil from the strategic petroleum reserve can have a significant impact on world prices and thus on domestic prices. One reason is that world production is about 94 million b/d (barrels per day), of which roughly 20% is produced and consumed in the US (data from the Statistical Review of World Energy). I understand the strategic reserve is about 600 million barrels, that is, barely more than a month’s consumption (30 days X 20 million barrels. Biden released 26 million barrels earlier this year, which is a bit more than one day of American consumption.
This may be useful to the commenters who seem to think that the president can “set” (the term I used) the price of gasoline–assuming that international trade in oil remains free here.
Roger McKinney
Aug 10 2023 at 3:06pm
Good points! The economy is tge best predictor of presidential elections and the looming recession means the incumbent party will lose next year regardless of the nominee.
diz
Aug 10 2023 at 4:21pm
As a long time energy industry professional I would not go so far as to say the President’s ability to affect gasoline (and other energy commodity) prices is “nil”. Politicians constantly make decisions that impact the supply curve for energy in both the long and medium term and occasionally in the short term. Certainly the domestic supply, which is not an immaterial part of the global supply. Though it’s worth noting that many of the more significant effects are enacted at the state and local level. There are some good graphics to illustrate this- like the oil production of Texas vs California since the shale boom or the development of the Marcellus Shale which miraculously stops at the NY state border (though the Marcellus shale formation does not.)
Pierre Lemieux
Aug 10 2023 at 10:37pm
Diz: Thanks for your comments and your nuances, but please note what I said: “to set world prices,” not to “affect … prices.” Also, your caveats would be immediately relevant if, as I mentioned in reply to another comment, the president or Congress blocked or significantly restricted imports or exports.
diz
Aug 11 2023 at 2:55pm
Fair enough. You can make an argument that the Saudis can have significant impact on world oil prices but for sure nobody sets world gasoline prices. Lots of local factors involved. Mexico during the pandemic did basically set Mexican street gasoline prices, but they did it by having their national oil company import gasoline and sell it at a loss. Biden has no such tools available as of today. But it’s highly disingenuous to say Biden (and more to the point state level Democrats) didn’t support policies that made prices higher than they otherwise would be. I’ve also seen recent articles talking about US oil production hitting record highs under Biden as if he had something to do with when his policies have almost universally aimed at suppressing supply. I don’t intend to sound overly partisan — Democrats are generally open about their support for policies that suppress oil and gas production until the high prices show up. Those of us involved in the analysis of the energy macro-environment find the political arguments from both parties pretty cartoonish.
diz
Aug 10 2023 at 4:35pm
I’d also add politicians can have a strong impact on the industry’s ability to access capital, though again this effect is not immediate and obvious. But we are certainly experiencing some of the effects of the ESG trend’s impact on capital markets in prices today. Not just in reduced oil and gas production, but in the repurposing of refineries, blocking of pipelines, etc. You don’t generally make prices lower by inhibiting the ability to supply a product.
Pierre Simard
Aug 10 2023 at 5:15pm
This is a myth, but Donald Trump, like most politicians, is successfully feeding this myth.
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