Gas Prices Are Hurting American Families, Obama to Blame

Stephen Chu, Secretary of the U.S. Department of Energy, remarked prior to taking office that “somehow we have to figure out how to boost the price of gasoline to the levels in Europe.”  With analysts predicting $5.00 per gallon prices by the end of the summer, Dr. Chu seems to have achieved his goal.

Three years ago, as President Obama took office, the national average price for a gallon of gasoline was just under two dollars.  Yesterday the President made three claims about that were nicely summarized by the Wall Street Journal.  Obama said that “a) gasoline prices are beyond his control, but b) to the extent oil and gas production is rising in America, his energy policies deserve all the credit, and c) higher prices are one more reason to raise taxes on oil and gas drillers while handing even more subsidies to his friends in green energy.”  We would be foolish to expect anything but such incoherent economic logic from our President.

The fact is that Obama is flat wrong.  Sure, there are lots of factors that are beyond government control in determining the price of gas.  Basic market pressures of supply and demand dictate fluctuations.  But, “Senator Government,” as John McCain called then-candidate Obama, surely knows that policy can slap the “invisible hand” of Adam Smith.  If not for policy, gas in New York would not consistently remain about 40 cents per gallon higher than in neighboring New Jersey.

Drilling and oil transportation policy (think Keystone pipeline) affect gas prices.  Fuel efficiency standards affect prices, as does other “climate change” policies.   The dropping U.S. dollar value spurred by the loose money measures of the administration, all affect prices.  The June 2008 defeat of then-Senate Majority Leader Harry Reid’s efforts to ban shale oil production began a six month price decline of a full $2.00 per gallon at the pump.  Policy plays a massive role.  Whether or not he chooses to be honest, Obama policies have brought America to European price levels.

In one year (2008) policy changes lead to a 300 percent increase in gas tax income for New York State (according to the Brookings Institution).  In 2010, the federal government brought in over $38 billion in fuel tax revenue.  Those staggering numbers are in direct revenue, and do not account for the added costs on production, sales, and regulatory compliance.  All told, taxes, regulations, and fees account for slightly more than half the cost of a gallon of gasoline, according to Americans for Tax Reform.

As Jimmy McMillan might say, the gas prices “are too damn high.”

High fuel costs hurt families.  Fuel costs eat into family budgets and have a disproportionate impact on those families with the fewest discretionary choices – the low income.  In addition to taking money directly away from people, fuel costs drive up the costs of consumer goods including basic foodstuffs.

Agriculture runs on gas.  All that farm machinery runs on fuel.  After it has been planted, grown, and harvested, trucking the food is more expensive too.  During the Obama Administration farmers are earning 19 percent less for a bushel of corn and at the grocery store food prices have risen a steady 5 percent per year (from Bloomberg Businessweek).

While some green ideologies are happy with higher fuel prices, hoping it will change consumption habits, one thing is clear: the U.S. economy will stagnate and suffer under a regime of expensive gas.  Relief and economic growth will not arrive, and middle and lower-income Americans will not prosper, until a change is made.

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3 thoughts on “Gas Prices Are Hurting American Families, Obama to Blame

    1. I breezed over the result of the government printing money, and mentioned it only in passing. I absolutely agree that the value of the dollar is hurting us, but again, I see that as an affect of government policy, not market forces. So, to the extent that I argued policy is to blame for the high price, I stand by my point.

    2. , I think it is generally true that plepoe look at oil and old technology and wind power as new technology, under the presumption that learning rates are exponential and so cost decreases are going to be larger in the newer technologies. Unfortunately, all the arguments you make about oil also apply to alternative energy sources, be they biofuels or wind/solar power. There are physical limits, significant unknowns, likely unintended environmental consequences, etc. and some of them will see radical cost decreases while others will not.I agree with you 100% on the effect of extreme events in the US in shifting the policy space. If you would have seen another major hurricane or two hit the US coast the year after Katrina, I don’t think there is any question that you would see much more stringent climate policy in the US and you would see a much more active role from the US on the international scene. You could ask the question of whether aggressive climate policy is more likely to happen with high oil prices, but I think the better question is to ask whether we have reasonable substitutes for carbon-based fuels if you believe in triple-digit and increasing oil prices, you are implicitly saying that the substitutes are much more expensive (true) and this also makes climate policy more challenging. On your second point, I don’t think that at all. I think most plepoe (myself included) have their favorite technologies that suit their lifestyles and preferences and would like to see those take over. It isn’t a big surprise to me that you are anti-electric-car, but you are certainly in favour of a different urban infrastructure model which is in many ways a bigger challenge than throwing some 30amp feeds out to plepoe’s detached garages in the burbs. I am all in favour of more integrated planning (we must talk about Edmonton’s Green Plan soon) and building environmental valuation into these decisions directly. We don’t disagree on as much as you think.

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