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Gas in the Presidential Race
President Obama seems to be enjoying some good luck in that the economy appears to be picking up just in time for his re-election campaign. While the economy is still weak by almost any measure, growth is likely to be in the 2.5-3.0 percent range for 2012. This should lead to the creation of close to 2 million jobs and a modest drop in the unemployment rate.
That is not much to cheer about in an economy that is still down close to 10 million jobs from its trend level; however, compared to the recent past, this is good news. And research shows that voters tend to focus primarily on the direction of change. This means that if the unemployment rate is falling and the economy is creating jobs at a respectable pace throughout the year, President Obama stands a very good chance of being re-elected in November.
This explains the decision of the Republican Party to focus on the price of gas. The price of gas has long played a pivotal role in U.S. politics. High gas prices will be forever a symbol of the economic malaise of the Carter presidency in the late '70s. The drop in gas prices under President Reagan was associated with a resurgence of America's political and economic power.
The fact that both the rise in the price of oil in the '70s and the subsequent decline in the 80s had little to do with domestic policy decisions and much more with international politics (e.g. the Iranian revolution in 1979) mattered little. President Carter got the blame for events beyond his control and President Reagan got the credit.
The Republicans are hoping to benefit from this pattern again in the fall election. Gas prices had plummeted following the economic collapse in 2008, falling as low as $2.00 a gallon, half of their pre-recession peak. However, in the last two years they have been on the rise as the world economy recovers and instability in the Middle East and the possibility of a war with Iran threaten the oil supply from the region. Gas prices are almost certain to soar past $4.00 a gallon in the peak summer driving season.
The Republicans are hoping to blame this rise in the price of gas on President Obama's environmentally friendly policies. As a matter of logic, there are two basic problems in this story. First, President Obama's policies have not been especially friendly to the environment.
He has opened up large portions of previously protected coastal areas to drilling. Oil production has risen substantially in his three years in office and is now back near the peaks reach in 2002. While some areas do remain protected, even if every last piece of land and coastline had been opened to drilling on his first day in office it would not have increased production much beyond current levels.
The other problem with the Republican complaints is that production in the United States really does not matter much for the price of gas. Oil prices in the United States depend on the world market, not just supply and demand in the United States.
U.S. production is roughly 8 million barrels a day, it accounts for less than 9 percent of a world-wide market that is close to 90 million barrels a day. Even if U.S. production could be increased by a third (an almost impossible increase) it would only increase world supply by 3 percent. This would lower the price of oil by 7-8 percent. This is not trivial, but it is not the difference between $2 a gallon gas and $4 a gallon gas. In other words, there is nothing that the United States can do in terms of its domestic production that would bring gas prices down to the levels that would make many American car owners happy.
The other part of this story is that U.S. proven reserves are in the neighborhood of 20 billion barrels. At our current rate of production we would exhaust them in around 10 years. If we could somehow increase production by a third that would bring the date of exhaustion to just 7 years in the future. This would mean that we would be seeing sharply lower production levels before the end of President Drill Everywhere's second term.
That is the arithmetic of the situation, but the Republicans are betting that they can get away with their story nonetheless. The public is almost completely ignorant of the dynamics of world oil markets. It is widely believed that prices are determined domestically and that if upscale environmentalists did not get in the way, we could drill out enough oil so that gas prices would be cheap again.
Since the media consider it to be their job to report what candidates say and not assess its accuracy, it is likely that the public will go the polls believing that we can again get cheap gas if we just destroyed the environment. The reality is that we have the ability the do the latter.
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15 Comments so far
Show AllEvil Republicans shamelessly manipulating hot-button gasoline price for political advantage, spinning Obama as environmentally-friendly... Obama lucking out with bounce in economy... zzzz.
Wake me up when Erection Day is over.
But OS, we must endure the 18+ months of ridiculous spectacle that is the US "election" campaign - on track to become the most expensive political "election" campaign in history. We still have more than 8 months to go!
OS, I don't have much hope they'll be done screwing us once Erection Day is over.
When Obama wins on November 6 he will tell us how he is looking forward to even more bipartisnaship...gutting Social Security, medicare, etc. in Obamaspeak.
While Baker proved himself by being one of the handful of academic economists to predict the crisis, I have very little respect for his political analysis.
He, like Reich, demonstrate a very shallow and superficial analysis of politics which I find supremely disappointing.
Dr. Michael Hudson, on the other hand, (IMHO) has displayed not only economic accuracy in prediction, but also laser-like analysis of international political economy as well as US and EU domestic politics.
http://michael-hudson.com/
Sorry Dr. Baker, you get an F in politics on this article.
You may as well point and call someone names. You seem willing to grade Baker but are unwilling (or unable) to say precisely where he comes up short. Why then say anything? What could you possibly think you were adding to the dialogue?
"When this president wins!' Yeah, I know just like Herbert Hoover did. How about when Adlai Stevenson won in the 1950s? Remember that one. Yeah, I know that's so in the past.
History! Sometimes it's best to "forgive." But it's also tough on some of us who know how insane things are getting.
What exactly about my criticism do you not approve of? Please elaborate and provide a counter argument, or don't say anything.
The US has had artificially low gas prices for a long time. $4 / gallon is more in line with what it costs in other industrialized nations. In fact, $4 is still on the low side of the spectrum. Gas today where I live is about $1.13 / litre... which works out to about $4.52 / gallon.
Many commodities are artificially cheap in the US due to the markets are priced in US dollars (since 1945) and the dollar, for the most part, remains the reserve currency. Another reason for being cheap is relatively low tax on fuel (compared withe other developed counries)
Don't forget the "hidden" costs to citizens...government subsidies to the oil and gas industry.
If the US elite were serious about dealing with Peak Oil which is what we are dealing with ( see Chris Martenson http://www.chrismartenson.com/blog/dangerous-ideas/71666 ) and Greenhouse Emissions causing Climate Change (see Commondreams : http://www.commondreams.org/view/2011/06/10-3 "The Green Revolution Backfires: Sweden's Lesson for Real Sustainability" )
then House Republicans would NOT be proposing to eliminate all Federal Aid to Green Transit in HR-7. Obama would have proposed in his first 100 Days in Office an update on the proposal from over 40 years ago from John Anderson to increase the gas tax however this time with the money to go towards Green Transit. Instead we have Republican Yahoos proposing "drill drill drill" which cannot work while Dean Baker joins most Progressives and Obama in failing to confront the US Auto Addiction. US Auto Addiction instead of Green Transit leads to the US using 3 times the oil per capita of Europe or Japan, and paying a major part of household budgets just for transportation via Auto Addiction.
Yet the US has 233,000 miles of Rail surviving from what was once the greatest Rail system on Earth all over this country. Look up Rail in your own State wherever you live and you will be amazed what you find. The small State of Connecticut has 24 Rail lines of which only 2 are used for Passenger Rail except for "Leaf Peeper" tourist trains. New Jersey has 1,000 miles of Rail in the US most densely populated State, more densely populated than China.
The US wastes $140 Billion a year on endless road expansion while in the age of Peak Oil and steadily rising gasoline prices, miles driven declined 5% from 2010 to 2011. Cars were the major reason Europe failed to come close to its Kyoto greenhouse emission reductions - non-Transportation emissions declined by 3% in the EU15 but INCREASED by over 20% for Transportation due to cars and trucks.
JUST RUN THE TRAINS BUSES SHUTTLES and we could save 20% of oil usage in a year!
Once again, the financiers have a lot to do with the price of oil as well, but this is not mentioned in the MSM or by politicians.
The last Oil Bubble (the capitalist financiers LUV BUBBLES - so they Blow them), when a barrel of oil was topping around $160, was caused COMPLETELY by speculators. This speculation has not stopped, as people see they can profit in oil (black gold). It is prime rule of simple Capitalist supply and demand; supply shrinking - oil - price goes up, supplly expanding - people - price goes DOWN!
See the book GRIFTOPIA wherein Matt Taibbi explains this perfectly: When actual users buy cocoa or oil, you get a users price, but if you add, say, 10 billion dollars in speculator money, it queers the price. Because speculators "really don't give a shit what the price is", they just want 10 billion dollars-worth of contracts and jack the price up. He goes on to relate a parable of the car dealer customer (speculator) who just wants $500k worth of 'cars', but does not care how may cars he gets for that, just so he has $500k of 'cars'...so eventually someone is going to sell that guy just ONE 'car' for $500k... and price everyone else out of the market. And this is what is happening. Add in the facts that Peak Oil is here ('easy' oil GONE and now expensive oil - fracking, polar oil, deepsea oil) and that a shadow-war with oil-rich Iran has begun.
Whee, isn't market manipulation FUN?
Also, there is that darkly-obscured follow-on Fact that OIL VEGA means that the same financiers that fucked the World in housing and debt, have now moved on to their next meal, OIL, as they see another desperate need they can exploit for profit, in the way of the good-old Marxist definition of speculators,
And THEY ALREADY HAVE, as the speculators now hold "market contracts" for the equivalent of THOUSANDS OF TIMES MORE OIL THAN THE WORLD EVEN HAS IN RESERVE!
HAHAHAHAHA! Virtual, Paper Oil... put that in your car and smoke it!
Let's see how they Unwind this one! I'm sure it will involve blaming "those all-powerful and pesky environmentalists" again! WIthout those tree-huggers everyone would have jobs and gas would be 50 cents a gallon! So of course the government will have to protect the financiers from those evil enviros, and bail the financiers out just one more time!.
No, there is no "fixing" of the Derivatives 'Market' (futures, options, margins, leverage. debt). Human greed will always find a way around 'rules'. The Derivatives 'Market' Must Die and Die Worldwide. All contracts immediately canceled. And those that hold them must eat them.
And, oh by the way, if politicians were really worried about oil supply, where are the 55 MPH SPEED LIMITS again? Where are the SIMPLE cost-free things that can be done NOW?
Good point about 55 MPH speed limits!
The other obvious tactic would be to INCREASE Green public transit and make it more frequent, accessible and affordable instead of the relentless cuts since 2008.
Here in NYC metro area neo-liberal Gov Cuomo is proposing to fast track a HIGHWAY ONLY new $5 Billion ++ Tappan Zee bridge which of course will do absolutely nothing to resolve the 5 hours of traffic jams every day for 150,000 polluting cars and trucks to cross the bridge. This is despite years of study and 200 hearings which recommended Commuter Rail and Bus Rapid Transit (which is stupid and should just be electrified Light Rail and be done with it!).
So why is it more highways rather than Green transit which would actually save oil, pollution, commuters time, and be powered by electric green power?
Wall Street as usual!
See Why Wall Street Pushed Mass Transit Off the Tappan Zee Bridge:
http://www.nyacknewsandviews.com/2011/11/tzb_cuomo_masstransit/
"....
What does this have to do with mass transit? Investors, willing to put a cool $1-2 billion into an infrastructure project, want a guaranteed return on investment. You can be pretty sure that the new bridge will generate revenue from tolls — all you have to do is count the 150,000 cars that cross it every day and then multiply it by the current toll…and remembering that a new toll might run as high as $15. For investors, a bridge with mass transit baked in must have been a non-starter: “You want me to invest $9 billion in a project that is guaranteed to lose more than it takes in?”....
..."
Why not just tax these people and build what we need to maintain our Civilization past Peak Oil and Climate Change instead of begging them for our money back so they can make ever more profits???
Consider this:
In the late 30's to the 40's, the auto & oil companies (particularly GM) bought up rapid transit systems in many cities and proceeded to kill them. They also bought off city planners to design car-centric communities. This was done to solidify the car's place in American society.
http://www.verdant.net/natlcity.htm
http://moderntransit.org/ctc/ctc06.html
http://en.wikipedia.org/wiki/General_Motors_streetcar_conspiracy
Knowing that little bit of history, is it surprising that the plan is for a "auto only" bridge while neglecting environmentally sound rapid transit?