President Biden and the Price of Gas

It has become popular among the “Let’s Go Brandon” crowd, and major news outlets, to blame President Biden for the high price of gas. While this might excite the right, it literally has no foundation in reality.

The basic story is that gas is expensive because the world price of oil is high. There are small differences in oil prices across countries due to transportation costs, but if the world price of oil goes up sharply, as it has, then we will pay more for gas in the United States.

The U.S. can at best have a very limited impact on the world price of oil. When the U.S. economy grows rapidly, as it did in 2021, it increases world demand for oil. However, the impact of U.S. growth, by itself, is very limited. If the U.S. economy grew 2.0 percent in 2021, instead of its actual 5.5 percent rate, then perhaps the price of a barrel of oil would be $1 to $2 a barrel lower. That would save U.S. consumers 2.5 to 5.0 cents a gallon.

That might be helpful to people, but would not qualitatively change the story of high gas prices. So, if the unemployment rate was 1-2 percentage points higher (meaning another 1.5-3.0 million unemployed), and GDP was 3.5 percent smaller, car owners might be saving 5 cents on a gallon of gas.

There is even less of a story on the supply side. Biden has been pushing for measures that would promote the development and use of clean energy. To date these have had at best a very limited effect in moving us away from dependence on fossil fuels. But, insofar as they have had any impact, these measures would lower gas prices, not raise them.

He has proposed limiting drilling on government land, but he has opened up huge tracts for leasing to oil and gas developers. Furthermore, the oil and gas industries already have access to far more land than they are currently using. In short, there is no case that Biden’s efforts to reduce greenhouse gas emissions have had any noticeable effect on U.S. production of oil and gas.

Some right-wingers have highlighted Biden’s decision to nix the Keystone pipeline, which would bring oil from Canada to the United States. This pipeline was nowhere close to completion in any case. Furthermore, this oil is already making it to the world markets, meaning that any redirection due to the Keystone pipeline would have a trivial impact on world prices.

There is an important way in which Biden’s actions have lowered world oil prices. He is drawing down the U.S. strategic oil reserves by 1 million barrels a day. This has the same impact on world oil prices as if we increased U.S. production by 1 million barrels a day. An increase of this size would get production roughly back to the pre-pandemic level. The actual impact on world prices is even somewhat larger, since Biden also arranged for several of our allies to release oil from their reserves.

If there is a president to blame for high oil prices it would be Donald Trump. He actually boasted about arranging for OPEC to reduce its production of oil during the pandemic. OPEC still has not returned to its pre-pandemic levels of oil production. Apart from concerns over the Ukraine war leading to a reduction in world oil supplies, the reduction in oil production arranged by Donald Trump is by far the most important reason that gas prices are above their pre-pandemic level.

That reality may not fit the “Let’s go Brandon” story, but as the Republicans always say, “Reality has no place in politics.”

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