$2.50 Gas and a Unicorn in Every Playroom
Mar 12, 2012
By Dave Swenson
By Dave Swenson
I work in a college, so I am used to outlandish claims and goofy conclusions. Students make fundamental mistakes on their research papers, a math error changes initial excitement into profound disappointment, or a promising journal article submission is rejected because the analysts did not specify a variable correctly or misinterpreted antecedent research. It goes on. The beauty of a college and the peer review process is that our mistakes get found out, we make adjustments, we learn, and then we soldier on to the next thing.
In politics, though, outlandish claims and goofy conclusions are standard fare. There are projects that fact-check candidates’ claims, such as FactCheck.org or PolitiFact.com, but they tend to zero in on paid advertising and righting the record when distortions become, for lack of a better word, too distorting. Given the sum of what politicians say, there really are not enough fact checkers in the universe to keep them all in line. Politicians know that. That is why they can say what they say, true or false, without penalty.
Gas prices nationwide today averaged $3.79 a gallon. They have risen by a third since the middle of December last year. Newt Gingrich, however, says it shouldn’t be so. At the CNN debate in late February, he claimed he’d “developed a program for American energy so no future president will ever bow to a Saudi king again and so every American can have $2.50-a-gallon gasoline.” His “program” would involve eliminating the EPA, fast-tracking the Keystone XL pipeline, and accelerated on-shore and off-shore exploration.
But there’s a hitch. Actually, there are about a dozen hitches, but I’ll just note a few. Part of his plan hinges on using more conveniently-located Canadian-sourced crude. It may come as a surprise to Mr. Gingrich, but in terms of overall sovereignty, there really is no difference between a Saudi king and a Canadian prime minister. Both will act in their self-interests, and to both the biggest self interest involves making as much money as possible on a finite resource. We will get no discounts from Canada.
Another hitch is actual research. A Department of Energy study in 2009, another agency the Republican’s would do away with, found that increased U.S. drilling in all feasible off-shore areas could conceivably produce 500,000 million barrels a day, say in a decade or so. The world currently uses 89 million barrels a day. That would mean that the U.S. would boost world petroleum supplies by 6/10ths of one percent. This also might shock an occasional historian like Mr. Gingrich, but to an economist it does not: a 6/10ths of a percent increase in supply will not reduce world oil prices much, if at all. As oil is sold globally, and if there is too much on the market, the suppliers will reduce the flow of oil so as to stabilize prices. No discount there.
Then there’s this third thing. All of the easy oil has been tapped. All new oil is hard to get at and more expensive to get out. Accordingly, costs of production of future oil will be much higher than the average cost of production of existing oil. Add it all together, and you get future oil effort that will require higher pump prices for it to pencil out.
In the short-run, there are a few things a President Gingrich could do to lower the price of motor fuels. First, he could engineer a whooper of a recession, which given his demonstrated economics smarts might be possible. Cheap oil means times are tough. He could get part way there by eliminating federal taxes on gasoline, but that would be incredible dumb as that is how we fund our highway systems. That would merely shift those costs from one source, user charges, to another, general taxation. Finally, he could institute price controls like what was attempted during the Nixon administration, a decidedly un-market and un-conservative solution. This would distort the markets, and if prices were constrained sellers would seek other markets, and the risk of re-orienting our production systems to satisfy non-price-controlled markets would damage our economy.
Or a President Gingrich could do nothing as, in fact, the president has precious little power over the price of gasoline in the long run.
Mr. Gingrich says we need a visionary as president, not a manager. I’m pretty sure that he does not know the difference between vision and fantasy.
But little girls do. They eventually learn that unicorns are not real and never have been. And we all learn eventually that there is no alchemy that will turn a politician’s leaden promises into social gold.
Dave Swenson is a long-time analyst of Iowa political, social, and economic issues. He is a staff research economist at Iowa State University and a community and regional economics analyst and educator. He also teaches planners (those nefarious agents of totalitarian control) how to do economic things in their profession at both Iowa State University and The University of Iowa.
Well said. I've been saying basically the same thing for years. But the myth persists.
JP Dingman | email@example.com | Mar 22, 2012 6:34 AM