2011 April 07 Thursday
Gasoline Prices Biggest Threat To Obama Reelection

An article in the LA Times reports that the White House has figured out their biggest economic threat comes from energy prices. Gotta agree with them on that. Obama wants us to believe he has a solution to higher gasoline prices. If he really believes this he's seriously dreaming.

Reporting from Fairless Hills, Pa.— For much of President Obama's term, White House aides were convinced the main barrier to his reelection was the worrisome unemployment rate. But even as the economy bounces back, a new political obstacle has emerged: rising gas prices.

Trying to defuse the issue, the White House has arranged a slew of speeches and public events to reassure Americans that Obama has a plan for cutting gas prices.

He might have a plan. But he does not have a solution to high oil prices. Between now and the election in November 2012 the only thing that'll pull down gasoline prices is another economic recession. Peak Oil is near. Economic growth can not be sustained.

Obama's problem is that not only do high gasoline prices lower living standards but they also help cause recessions. If oil prices go up far enough before the presidential election then the resulting recession will cause the party in power of the White House to lose. Obama's biggest reelection enemy is therefore an oil price spike.

The key practical question: how high do oil prices have to go to cause the next recession? A faltering economy is going to be the enemy of every US president running for reelection from now until about 2030. With total US federal debt nearing the 90% of GDP level at which Kenneth Rogoff and Carmen Reinhart think economic growth the accumulating national debt is another weight on economic growth that undermines the party in power. So second terms are going to become the exception.

Update: Jeff Rubin says Only recessions can deliver Obama's energy targets. This gets to the heart of the matter. Only high prices will provide incentives to get people to change their lifestyles to use less energy. If we are very lucky the prices will go up slowly enough and gradually enough that we do not have to go thru repeated recessions to cut our oil consumption fast enough.

But people only very reluctantly change their ways. In spite of the oil price rise that peaked in July 2008 people went back to buying bigger cars after oil prices plummeted in the recession. People will adjust to Peak Oil too slowly until they realize the high prices are permanent. I suspect we are still a few years away from mainstream realism on oil supplies.

Share |      By Randall Parker at 2011 April 07 06:57 PM  Economics Political

Demolition Man said at April 8, 2011 12:11 AM:

New drilling technologies are increasing the share of Domestic Oil Production:

But in any case, what the government needs to do is to unleash a Manhattan Project style energy R & D program, in the order of $250 billion per year. Putting charging pods for cars in every street would cost about one year of imported oil, but it is worth it. Battery swapping stations in every neighborhood would solve the problem of battery charging also. With such a program by 2020 the US can become independent of oil imports, provided that there is leadership.

Black Death said at April 8, 2011 5:55 AM:

Here's what the Obama administration has done to promote lower gas prices:

Immediately after taking office in 2009, Interior Secretary Ken Salazar, canceled 77 leases for oil and gas drilling in Utah.
The EPA announced new rules mandating the use of 36 billion gallons worth of renewable fuels (like ethanol) by 2020.
Last summer President Obama needlessly instituted, not one, but two outright drilling bans in the Gulf of Mexico.
After rescinding his outright offshore drilling ban, President Obama has refused to issue any new drilling permits in the Gulf, a policy that the Energy Information Administration estimates will cut domestic offshore oil production by 13% this year
Interior Secretary Salazar announced that the eastern Gulf of Mexico, the Atlantic coast, and the Pacific coast will not be developed, effectively banning drilling in those areas for the next seven years;
The Environmental Protection Agency has announced new global warming regulations for oil refineries;
Interior Secretary Salazar announced new rules making it more difficult to develop energy resources on federal land.
The EPA is slowing a pipeline that would expand U.S. access to Canadian oil sands.


Here's what Nancy Pelosi thought about $2.91/gallon gas prices in 2006 (about a dollar less than we pay today, by the way):

With skyrocketing gas prices, it is clear that the American people can no longer afford the Republican Rubber Stamp Congress and its failure to stand up to Republican big oil and gas company cronies. Americans this week are paying $2.91 a gallon on average for regular gasoline – 33 cents higher than last month, and double the price than when President Bush first came to office.

“With record gas prices, record CEO pay packages, and record oil company profits, Speaker Hastert and the Majority Congress continue to give the American people empty rhetoric rather than join Democrats who are working to lower gas prices now.
“Democrats have a commonsense plan to help bring down skyrocketing gas prices by cracking down on price gouging, rolling back the billions of dollars in taxpayer subsidies, tax breaks and royalty relief given to big oil and gas companies, and increasing production of alternative fuels.”

And here's something from The Man himself:

In an interview with CNBC, Barack Obama said he would have preferred a "gradual" increase in gasoline prices.

BARACK OBAMA: "Well, I think that we have been slow to move in a better direction when it comes to energy usage. And the president, frankly, hasn't had an energy policy. And as a consequence, we've been consuming energy as if it's infinite. We now know that our demand is badly outstripping supply with China and India growing as rapidly as they are. So..."

HARWOOD: "So could these high prices help us?"

BARACK OBAMA: "I think that I would have preferred a gradual adjustment. The fact that this is such a shock to American pocketbooks is not a good thing. But if we take some steps right now to help people make the adjustment, first of all by putting more money into their pockets, but also by encouraging the market to adapt to these new circumstances more quickly, particularly US automakers, then I think ultimately, we can come out o f this stronger and have a more efficient energy policy than we do right now."



So this is indeed a dangerous situation for Obama. It is a virtual certainty that persistent high oil prices will cause a recession. And the actions of the Obama administration have not exactly encouraged increased domestic production. Plus there are those pesky old quotes from him that seem to welcome higher prices, as long as they come on gradually. A lot of people think he still believes this and privately approves of more expensive oil. And, of course, there's his famous "let them eat cake" statement when he told the guy who complained about higher gas prices to buy a more fuel efficient vehicle. Obama appears to be a prototypical liberal elitist who cares about what "the little people" have to pay at the pump only in so far as it influences his poll numbers. Otherwise, "let them ride bikes."

But the Republicans have to be careful about this too. Gas prices are set by the world market, not by the president of the United States. True, the government has a lot of control over domestic production, and the Obama administration has done a rotten job with this. But Republicans should not allow themselves to be led into the trap that they can promise lower prices - they can't. They can only promote policies to encourage more domestic production, which will have a moderating effect on prices. Significant increases in domestic production may take years to achieve, and whether that will be enough to actually bring prices down is unknown. Central government planning to set the price of commodities is what the USSR tried, and you know what happened to them.

Randall Parker said at April 9, 2011 6:33 PM:

Black Death,

Nancy Pelosi sure is an idiot. High oil prices are not the result of lower production than demand? They are only the result of price gouging?

Ken Salazar and oil lease cancellations: They are saving that oil for the future. That might not be their intent. But once oil hits $140, $150, $160 and stays up there the pressure to open up more areas for drilling will become immense. All the off-limits areas will get opened up eventually.

Randall Parker said at April 9, 2011 6:42 PM:

Demolition Man,

New drilling technologies: As oil prices go up we pay more per imported barrel of oil. To keep the outflow of money from rising we need to increase domestic production by a huge amount, more than I think we'll see. So I expect we will still see declining domestic consumption of oil as the biggest response to higher oil prices.

no i don't said at April 11, 2011 11:34 AM:

Why do people continue to embrace Capitalism?? Are we mad or something?

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