Gas Prices: The Politicians Are Already Doing The Only Thing They Can Do

March 14th, 2012 at 1:11 am

I’m not trying to be partisan here, but there really is nothing the President can do about gas prices in the near term.  There’s actually not all that much he or she could do in the long term.   If he or she was the president of Saudi Arabia, then yes, there might be more levers at his or her disposal.  But given that our president presides over a landmass that holds 2% of global reserves, there’s nothing he can do to alter the supply constraint.

What’s that?  He could release oil from the Strategic Reserve?

That’s actually supposed to be reserved for emergencies, of which a gas price spike in an election year doesn’t qualify.   But more to the point, the analysis I’ve seen suggests pennies on the gallon, not dollars (past releases tend to quickly lower the price of oil by a few bucks/barrel but not all of that reaches the pump).  With summer driving season coming (which will put further upward pressure on prices—a seasonal effect), it’s unlikely anyone would notice.  And even that doesn’t work if we don’t coordinate with other suppliers; OPEC could easily cancel the impact of our release if they wanted to.

What’s that?  Build more pipelines?

That’s actually a decent point because there do appear to be “logistical” issues in play in the current spike, meaning oil that’s having trouble getting from where it is in America to where it needs to be refined.  But there’s no way that solution will help with the current price spike and it’s also not clear why that’s a presidential issue.

That is, the Keystone pipeline came under presidential review because it crossed an international border (with Canada).  That’s not the case for pipelines within the lower 48.  Sure, there are safety and enviro regs, but nothing new there.  I find it…um…peculiar when some of my friends with whom I debate this stuff on CNBC call for a gov’t solution to an issue of the oil companies’ infrastructure.  And of course, those companies are doing quite well right now with the current set of logistics.

There’s only one thing a president and Congress can do to offset this price spike and they’ve already done it: raise people’s after-tax income.  The payroll tax holiday that the President pushed for and Congress recently extended should put about $120 billion extra in paychecks this year.  Every penny increase at the pump translates into about a $1 billion expense for consumers.  Since its most recent low, the national average is up about 55 cents, or about half the aggregate of the payroll cut (annualized) so far.

So, if these rules of thumb are about right, the government is actually in the process of doing about the only thing it can to help people cope with the current price spike.  Everything else is just noise.

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9 comments in reply to "Gas Prices: The Politicians Are Already Doing The Only Thing They Can Do"

  1. foosion says:

    Tone down the rhetoric about Iran? Could well help.

    Do something about speculators? I’m less convinced, but it’s a popular answer.

    People tend to regard increases in their income as due to personal merit and increases in their costs as the product of evil.

  2. Fred Donaldson says:

    Rode around in this hybrid some 40 years ago. GM was hot on concept, but management changed, and the technology sat on the shelf for decades. Used a regular electric socket in your garage or outside home. Very quiet.

    Oil conservation was not always high on the GM list, especially because of necessary relationship with big oil and their own heavy investment in gas-powered engine tools and factories.

  3. Jean says:

    “What’s that? Regulate the commodities market?”

    Wouldn’t that help?

    BTW its raining here in California [finally]. I hope you brought your umbrella.

    • Jared Bernstein says:

      I’m a bit dovish on that point. Not immediately obvious where you’d draw a line being that speculation is part of a legit process in futures markets. And I do have an umbrella!

      • Jean says:

        OK, then maybe high oil and gas prices and an unregulated commodities market are just what we need to get carbon-based energy consumption to moderate.

        Maybe the free-market system is unwittingly abetting the move toward curbing carbon emissions. I can’t think of a better way to get people and corporations [oh, wait, they’re people too] to attenuate energy consumption.

  4. Tom says:

    No, they could be raising the gas tax $.10 every year. Put the extra money into more ways to be less dependent on oil. That’s the way to make gas prices less important in the future. Less demand and less of the cost of gas that depends on oil.

  5. Bob Wyman says:

    One option would be for the president to support passage of the Open Fuel Standard Act (H.R.1687/S.1603) which would eliminate the effective “monopoly” of fossil fuels in the liquid transportation fuel market. By requiring that all new cars built in the US are “flex-fuel” and thus support any mix of gasoline, ethanol or methanol, we would be creating a market that allowed consumers to choose that fuel which offered the best “miles per dollar” at any time. Also, by creating a fleet of cars capable of using alternative fuels, we would motivate many engineers and inventors to invest in developing alternative fuels. (Today, even if you have an alternative liquid fuel, you know it has little value since no cars will support it. The OFS could fix that.)

    US car manufacturers already produce flex-fuel cars for sales overseas in Brazil, China, etc. We just need to require manufacturers to spend the extra $50 to $100 per car to make US cars truly flex-fuel. Competition can, in this case, drive down the price of fuel by providing substitute products.

  6. rjs says:

    just a footnote:

    building the pipeline would raise oil costs in the central US to the world price rather than relieve prices on the coasts; both bakken & tar sands crude are now selling $15 below WTI, which itself is selling $15 below the world price, because they’re landlocked…

  7. Bearpaw says:

    So … Republicans are blaming Obama for *not* interfering in the market to artificially lower prices?

    Or are they claiming that his current “interference” — signing off on continued government subsidies to one of the most profitable industries in the world, allowing them to risk destruction of even more of the environment, etc, etc — is somehow more of a factor than increased demand and decreased supply?