It’s All There in the International Price Movements

Mar 20, 2012 at 6:39 am

If you were wondering why the President can’t do anything much to affect short-term gas prices, look at this figure, from an excellent piece on the subject in the NYT.

When wonks like me pushback against the political panderers who claim they can magically lower gas prices, we point out that oil is priced on a world market.  That means a country like the US, which adds little to the global supply—[your deity] just didn’t put it here—can’t affect the global price by deciding to turn a spigot.

The fact that gas prices here move much like those in similarly advanced economies shows what this means.  We actually produce a ton more domestic oil than these countries, yet the price movements are clearly all dancing to the same global tune.  Sure, their price levels are higher but that’s largely because of taxes.  Pretax gas prices are actually about the same in the US and Germany, though we produce about 9% of global oil and they produce about 0.2%.

I’m not saying this price spike is easy, good, or something I expect people to be blasé about.  There is no more visible price in the economy, and especially when real paychecks are down, this hurts. 

But magical thinking isn’t the cure.  Probably the best thing to do right now is what most folks appears to be doing anyway.  Listen to the price signals and try to figure out ways to buy less gas.

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