There is no button to lower gas prices
A few years ago, I was sitting around a campfire with friends and family, and the discussion went political. I decided to keep my mouth shut. I generally see political discussions as an act of sadomasochistic futility because most people are set in their ways, aren’t going to be convinced to think differently, and many issues are too nuanced for the average person to comprehend. I’m not saying everyone is dumb or that I’m smarter than everyone else, but I do know a lot of stuff and I’m still smart enough to know how dumb I am. I research issues extensively and when I’m forced into such conversations without a means of escape, I try to focus on facts rather than arguments as new information is a more powerful persuader than persuasion itself. There’s a big difference in the power of words when someone says “Guns make us safer” vs “Suicides make up more than half of all gun related deaths”. One is an opinion based on values, the other one is a verifiable fact.
One issue that frustrates me to no end is the talk of gas prices because it’s all talk of values, emotions, and opinions rather than verifiable facts. Gas prices are set by supply and demand. At the beginning of the pandemic during the first lockdown, gas prices in my area dropped to almost $1 a gallon because no one was driving. Right now, unemployment is at record lows, economic growth is high, wages are rising, and gas prices are as high as they were in 2008.
Another stupid aspect of the the gas prices conversation is how Presidential approval ratings drop substantially when prices are high. I can’t prove this, but my theory on why gas prices are such a salient political issue is that people care because they’re constantly reading signs saying how much gas costs. These advertisements drive people nuts when prices go up a little, but they don’t notice or act grateful when prices go down. Folks will drive an extra 10 miles to save a penny per gallon on gas which adds up to $0.15 in a 15 gallon tank. Driving the extra 10 miles, depending on the car, probably costed $2. That’s a net loss of $1.85 per visit to a gas station and I’m sorry, but that isn’t much to most people. A dollar is a lot to a poor person with no money, but we have government programs to alleviate poverty.
People will trade in their gas guzzling cars when gas prices rise, spending tens of thousands of extra dollars when keeping the old car was probably cheaper in the long run. Keeping the old car, assuming it worked, was cheaper in the long run because gas is not a big part of anyone’s budget. Compared to housing or child care, gas is inexpensive. Transportation costs mentioned in the graph below probably includes repairs and automobile insurance.
I probably fill my Subaru up twice a month. My car gets about 30mpg on average and I don’t drive much so I’m one of the lucky ones. Two 15 gallon fill ups cost $127.50 a month based on $4.25 per gallon of gas. If gas were to drop $1 a gallon, then I would save $30 a month. Over the course of a year, the difference between $3.25 per gallon and $4.25 per gallon will save me $360 if prices went down. Assuming that their prior car was worth something in the trade in, if someone spends an extra $10k on a vehicle, then it would take 27 years to break even considering the $360 a year in savings. Meanwhile during those 27 years, gas prices are likely to fluctuate.
Back to Presidential approval ratings, America is a capitalist country with a private energy industry. The fossil fuel industry employs a lot of people, is heavily regulated, receives subsidies from various governments, and the President does not control gas prices. This is determined by supply and demand and are generally set at the global level, not by Presidents. MAGAts gave former President Trump credit for low gas prices during the pandemic and they’re now blaming President Biden for high prices.
Certainly, public policy can have an effect on prices at the pump. Increasing supply by importing more and increasing domestic energy production could help. However, oil production is already higher under President Biden than other Presidents. See below the graph that I stole from Slow Boring.
The MAGA talking point that Biden has halted American oil production is not only false, the opposite is true. We’re producing more oil domestically than under any other President. Now, President Biden didn’t press the pump more oil button, Presidents don’t and should not have that type of power. He did temporarily deny the Keystone Pipeline’s approval which won’t be built until the next Republican President approves it again, but that was a pipeline project that wasn’t adding to the supply yet. Ending a pipeline concept that wasn’t producing anything would have no effect.
America could continue to import oil from Russia, but many people want to punish Russia for its recent invasion of Ukraine. America only gets 6% of its oil from Russia, but even that small of an amount has huge impacts on gas prices.
Michigan Republicans in the state legislature recently passed a bill to suspend the gas tax for six months. If signed into law (it’s going to be vetoed), the suspension would begin in September 2022. Due to a glitch in the law, it would go into effect six months after signing. This option to lower prices also makes no sense. Gas taxes are prepaid based on what companies think they’re going to pay and gas companies have no incentive or mandate to pass these savings along to consumers. If the gas tax were suspended, it could be that zero savings for consumers materialize while road conditions get worse. Alternatively, the sales tax on gasoline (different from the gas tax) could be suspended, which would lower prices at the pump, but gas companies and gas stations could simply raise prices so that no one notices any savings.
Another option to lower gas prices we could take would be waiving the Renewable Fuel Standard (RFS). The RFS requires that gasoline manufacturers blend some ethanol into gasoline. This not only increases prices for food by diverting corn to energy production, it also increases the cost of gasoline because ethanol is a terrible product. Compliance with the RFS costs about $30 billion a year, ethanol reduces fuel efficiency, and increases air pollution. It’s a loser of a policy, but farmers have really good lobbyists.
Our options to save customers $30 a month include:
- Hurt farmers
- Decrease road repairs
- Help Russia
It’s frustrating that gas prices receive so much attention compared to other parts of the economy that also raise the cost of living. Zoning regulations increase the cost of rent, our private sector health care system is terrible at controlling costs (look up number one reason for bankruptcies), and the US sugar program raises costs of all foods with sugar in them. While government should do more to help, it should also do less to hurt. Unfortunately, gas prices are not an area that governments can fix to materially improve the lives of Americans.