Who is to Blame?

I’ve been working for the past week on a fact-sheet for ASP on gas prices; what is causing this spike, and why they’re going so high. I will post a link to it when we publish it, but suffice it to say that we’re not going to come down and say that President Obama is responsible for high gas prices. Although I believe that there are some good reasons to be exploring for oil and gas here at home (e.g. balance of trade, new construction jobs), we should not delude ourselves into thinking that’s going to actually lower prices. More to come when we release the report next week, so keep an eye on this space.

I want to take a minute, though, to write about a few conclusions I’ve drawn after diving into the sometimes heated and nasty rhetoric around gas prices. One big conclusion that I’ve come to about gasoline in the U.S. is that we simply use too much of it; much more than is necessary. I think that’s mostly a factor of the low pump prices that we had grown accustomed to over generations. Though prices have been high and very unstable since 2005 when Katrina shut down refining in the Gulf, we have really only begun to change our economy to the new world of high prices. I wrote before about how the U.S. energy market is poised for a “Fundamental Shift” as we produce more oil and use less. However, I am somewhat surprised that it continues to take this long.

Why Gas Prices Differ From Other Goods

Along those lines, I think that we complain about gas prices more than about price increases in any other good or service. My hypothesis is that the unique way in which we buy gasoline has a lot to do with how we complain about it. Every time you fill the pump it’s relatively similar: you stand in front of the gas tank and watch the numbers click over on the meter. Other than digitization, this has not really changed since the 1950s. What has changed is the price; we remember how something that used to cost less than $20 only a few years ago now costs over $50. There’s a psychological process that goes through our minds saying: “this used to be so cheap – why has this gone up?” That quickly leads into a need to blame someone. Do we buy anything else in this manner – I don’t think so: groceries are a constantly varying basket of goods; electricity is a once-per month bill; housing is only paid for infrequently.

Adam Davidson had a great article “The Real Oil Shock” in the New York Times this weekend saying that even though we like to complain about how high gas prices are, we aren’t really changing behavior because of it. We aren’t driving less, we aren’t buying less of other things, like entertainment or groceries, and we even spend more on driving for social and recreational trips (about $13/week) vs. commuting to work ($8/week).

Lots of Finger-Pointing, But No Real Action

So — what are we doing about gas prices? Complaining. We are voicing our complaints loud and clear. And our political leaders are pandering to that. Newt has promised us $2.50 gas, while everyone in office seems to be scrambling to get out of the line of blame. But, I think that there’s an undercurrent here: we’re complaining because there’s a general feeling that things aren’t going in the right direction; gas prices are a part of that, but they’re not the only thing. People who don’t support the President will blame him for gas prices, while those that do support him will blame Bush’s policies and the Republicans in control of the House.

Of course, none of this is actually true; the price of gasoline is not the result of any of these people’s actions — it is the result of global market forces. The price depends on supply, demand, and threats of future changes in those.