Day 167: Trump Lies Again: Gas Prices Aren’t at 10-Year Low

Econ 101: Trump’s desire to see gas prices continue to fall has virtually nothing to do with domestic policies and everything to do with global demand.

Donald Trump proclaimed that gas prices were at a 10-year low and wants to see that trend continue.

Two issues:

  1. Gas prices aren’t at a 10-year low. They were far lower in 2008. They were also quite a bit lower in 2015 and 2016.

2. Any drop in gas prices has very little to do with the president or domestic policies, whether Democrats or Republicans are currently in control.

Gas prices in the U.S. largely fluctuate with crude oil prices worldwide. The vacillations can happen rapidly and wildly.

We’ve known this for years.

As The Atlantic reported in January 2015 as prices at the pumps continued their downward trend:

Not that either side can take too much credit anyway — as U.S. lawmakers often remind people, oil is a world commodity.
The president ultimately has little influence over gas prices. The only power Obama really has is to raise or lower domestic production on public land, but even that is nary a blip in the complex global oil marketplace. It’s shale development on private land that has largely helped production boom at home.
The other side of the equation — global demand — also is out of the White House’s hands. When OPEC refuses to cut production even in light of flagging demand, there’s an oversupply that keeps prices down, but it has little to do with any U.S. action.

Richard H. Thaler, a professor of economics and behavioral science at the Booth School of Business at the University of Chicago wrote an op-ed in The New York Times looking at this issue back in March 2012:

Here is a one-item test to see whether you are guilty of cloudy thinking about gas prices: Do you believe that they are something a president can control? Many Americans believe that the answer is yes, but any respectable economist will tell you that the answer is no.

Thaler discussed a poll sent to 41 economists asking whether they agreed with the following statement: “Changes in U.S. gasoline prices over the past 10 years have predominately been due to market factors rather than U.S. federal economic or energy policies.”

Not a single member of the panel disagreed with the statement.
Here is why: Oil is a global market in which America 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. That means we are, in economics jargon, “price takers.” Domestic production has increased during the Obama administration, but it has had minimal effects 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.

Trump is trying to take de facto credit for something that has virtually zero control over. To be clear, if prices rise, it’s unlikely to be his fault either. The price of oil worldwide largely dictates the price of gasoline at home, regardless of domestic production or economic policies.

167 days in, 1295 to go


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