Economists Shoot Down Fox News' "Ridiculous" Gas Price Fable
Blog ››› ››› SHAUNA THEEL & MAX GREENBERG
FoxNews.com is trying to dispute President Barack Obama's accurate assertion during the second debate that gasoline prices plummeted right before he was inaugurated due to the broader economic downturn, citing experts that "question" his claim. But one expert's argument has been called "ridiculous," and the other two did not dispute Obama's main point - that market factors, not U.S. energy policy, have propelled oil and gasoline prices upward since a temporary lull in early 2009.
In last week's presidential debate, Mitt Romney misleadingly claimed that gas prices have doubled during Obama's tenure. Obama correctly responded that gas prices plummeted just before he took office as the global economy experienced a massive recession. But Fox News, which had advised Romney to use this claim, remained in denial.
Bill O'Reilly tried to dispute Obama's claim by saying that if gas prices were low due to the recession, they couldn't be rising now because "the economy's still bad." Or as FoxNews.com recently claimed, Obama "impl[ied] that they are higher now because things are better." The U.S. economy was in free fall in 2008 and in many ways it is better off today than four years ago, but Fox is missing the more fundamental point that oil is a global commodity. Gas prices are almost back to the levels that they were prior to the recession because global oil demand is rising -- not U.S. oil demand, as Fox suggested. As Severin Borenstein of U.C. Berkeley's Haas School of Business explained in an email to Media Matters:
Oil prices increased due to changes in the WORLD supply/demand balance. Growing demand in the developing world, declining supply from Mexico, Venezuela, Iran, etc. Note that the highest oil prices ever were in June 2008, under Bush. Those weren't Bush's fault and current oil prices aren't Obama's. Talking about U.S. demand as the major driver of oil prices is missing the point that it is a world oil market.
Indeed, this chart from the Federal Reserve Bank of St. Louis illustrates that oil and gasoline prices were on a long-term upward trend -- peaking in 2008 before falling sharply just prior to Obama's inauguration:
Two of the experts that FoxNews.com spoke to did not try to pin higher gas prices on Obama, and one stated "President Obama was right" about the recession lowering gas demand. But FoxNews.com also quoted a Weekly Standard article claiming "It took only a few months of Obama energy policy to drive up gas prices." The article, by agricultural commodity analyst Dave Juday, claimed that the spike in gas prices came partly as a result of "the threat of U.S. taxes and the cap and trade scheme." MIT's Christopher Knittel told Media Matters that "unless that quote is taken completely out of context, it is ridiculous!"
Even Kenneth P. Green of the conservative American Enterprise Institute said he was "not particularly impressed" by the argument that proposing cap and trade and the Keystone XL pipeline drove gas prices higher:
I'm not particularly impressed by this argument. As I've written before (several times, such as here) about 3/4 of the price of gas is driven by global supply and demand factors for oil, with the rest being taxes, refiner profits, oil company profits, etc. The declining value of the dollar against other currencies is also a factor. It seems that Mr. Juday is bringing up the "speculator," argument, by implying that psychological factors stemming from the anti-fossil fuel mentality of the Obama administration is the cause of higher gas prices, but as I wrote in that article I link to, speculators can, at worst, cause short term price spikes, but nothing enduring. And of course, the Keystone decision was quite recent, several years, not several months into the Obama administration's term of office.
Borenstein also told Media Matters that Juday's argument is "wrong" and pointed out that "Oil analysts and researchers from all ends of the political spectrum agree that the primary driver of gas prices is the world price of oil." He continued:
Even the most aggressive claims that Obama's policies have lowered oil production by a million barrels a day compared to a much looser environmental policy (which are unlikely to be accurate) would translate to less than 10 cents per gallon at the pump. The fact is that U.S. energy policy can't do much to impact the world price of oil and therefore can't do much about the price at the pump.
The serious economists who work with the Republican leaders -- Greg Mankiw, Glenn Hubbard, Doug Holtz-Eakin -- would all agree with my view. They would surely criticize Obama for many things, including possibly not allowing more drilling, but they wouldn't claim that would significantly lower gas prices.
One of the major trends in the oil market is rising demand from developing economies, which is exerting upward pressure on the global price of oil. Changes in the U.S. supply of oil cannot change that equation, so drilling more domestically or building the Keystone XL pipeline will not have any noticeable effect on the price of gas. But policymakers can help American consumers by increasing fuel efficiency, investing in alternative cars and fuels, and building a strong public transportation network.