That didn't stop Newt Gingrich (in his High Dishonest mode) from promising that he would lower them to $2.50 if only voters would give him the chance. Did he have a plan? No, not one that had any practical validity.
Newt was more blatantly dishonest, but Romney and Santorum are loudly blaming Obama for the price at the pump.
Here's the truth about how the price of gasoline is set, from an Associated Press article by Jonathan Fahey. It matches what all responsible economists who study oil prices say. The pump price is determined by:
1. The price of crude oil. This is the primary fluctuating factor, and this is set by the price of crude oil on the international trade exchanges. Factors which are making this high right now include:
a. The rising demand from developing nations of Asia, Latin American, and the Middle East.
b. Global traders and the prices they are willing to pay, which in turn respond to things such as fear of nuclear tensions with Iran.
2. Retailers buy from oil refineries through exchanges such as the New York Mercantile Exchange. It is then sold to distributors who set wholesale prices and then eventually to the retailers (gas stations) who set their own prices, often influenced by the competition down the street.
3. Are prices manipulated by Wall Street investors? To some extent. Investors in futures can either bet on prices rising or falling. So that somewhat limited effect can go either way. And this, of course, also makes the prices vulnerable to manipulative, political motives.
4. Politics? There is little any single politician, including the president, can do to directly effect prices. Increasing drilling -- the Republicans' loud mantra -- has no immediate effect, and even any long-range effect is dampened by the fact that the increased production simply goes on the international trade markets and would be but a drop in the bucket. It is not a one-to-one relation (drill here, keep the gas here) that Republicans are implying.
The Republican claim that opening a new oil well now will lower your pump price next month is an outright lie.
a. Releasing oil from emergency supplies, another Republican demand, may cause a slight dip in prices temporarily; but it would be quickly absorbed in the global price of crude -- and could even have the opposite effect by other nations taking it as a sign of scarcity and cutting back their own production to save their supply.
b. Cutting gasoline taxes. This will lower the pump price -- but it also reduces the incentive to cut unnecessary use and to produce more fuel efficient cars. In truth, raising taxes would be a more effective curb on excessive use of gasoline.
5. Long range effective help:
a Setting higher fuel efficiency standards for cars and trucks and partially subsidizing development and purchase of more fuel efficient vehicles. Obama has done this, and it is beginning to have an effect.
b. Encouraging expanded domestic production through granting drilling rights while still protecting the environment. Obama has done this too, and gets much flak for his caution about the environment. In truth, more new wells for drilling have been approved during his term than in the past, and for the first time in decades we now supply more than half the oil we consume.
c. Encouraging the development of alternate energy for heating to reduce the need for use of oil for heating. Solar and wind power. And again Obama has done this.
A New York Times story last Sunday by Richard Thaler, a University of Chicago professor of economics and behavioral science, reported a poll taken of a panel of 40 well-respected economists from top universities. They were asked to consider this statement:
So let's demand that Republicans tell the truth about gasoline pump prices. Make them back up their claims. They won't be able to do it."Changes in U.S. gasoline prices over the past 10 years have predominantly been due to market factors rather than economic or energy policies."
Not a single one of the 40 disagreed with that statement.
This is not an issue that should be a political football -- but as long as the Republicans can fool the people into thinking they could actually do something about it -- they will use it as a weapon.
Ralph
An explanatory point made by Professor Thaler:
ReplyDelete"Oil is a global market in which American is a big consumer but a small supplier. We consume about 20 percent of the world's oil but hold only 2 percent of the oil reserves. . . . Domestic production has increased during the Obama administration, but it has had minimal effect on global prices because, as producers, we are just too small to matter much. And even if domestic oil companies further increased production, they would sell to the highest global bidder."
George Bush knew how to control oil prices, you think? Ha !! When he took office, the pump price was $1.45. By June 2008, during the campaign for his successor, the price was $4.05.
So, Newt. How is it that you would control this complex pricing business? Please explain it.