It can be really bothersome to hear politicians lying. But sometimes it’s more alarming to realize they may be telling the truth.
On Wednesday, President Joe Biden sent a letter to the Federal Trade Commission complaining that “gasoline prices at the pump remain high, even though oil and gas companies’ costs are declining.” He wants the agency to investigate whether this discrepancy is the result of “anti-competitive or otherwise potentially illegal conduct.”
The letter is part of a concerted effort by the administration and its allies to escape blame for painful fuel costs. Heather Boushey, a member of Biden’s Council of Economic Advisers, said, “It’s wrong to price gouge — especially during a pandemic where hundreds of thousands have lost their lives.”
The idea that rapacious oil executives dictate the price of gasoline is one of those delusions that arises only when prices rise. If the myth were true, prices at the pump would be high and stay high month after month and year after year.
In reality, a graph of gas prices over any extended period is not a straight line. It looks like a map of a squirrel scurrying about the yard, with frequent zigs and zags and no discernible logic. Sometimes gas prices go up, and sometimes they go down. These shifts can be sudden and sharp.
Saying that gas prices have gone up because oil companies are colluding is like saying that home prices have gone up because real estate agents decided they wanted to make more money.
If oil companies are so powerful, why is the price of gas today far below what it was in 2008, when the national average hit a record of $4.11 a gallon — the equivalent of $5.28 in today’s dollars? Why didn’t the CEOs just keep it there?
The pandemic has been hugely disruptive to a broad range of goods and services. But no one was holding a charity fundraiser for ExxonMobil in 2020, when it recorded a loss of $22 billion courtesy of low oil and gas prices.
Bharat Ramamurti, deputy director of Biden’s National Economic Council, says, “How severe is the current gap between the price of refined fuel and the price at the pump? If it were at its historical pre-pandemic average, Americans would be paying nearly 25 cents less per gallon.”
But here’s the thing: An average is just that. Sometimes the gap is higher than the average, and sometimes it’s lower. Note that Ramamurti refers to the “pre-pandemic average.” But why should we expect the pre-pandemic norm to prevail when the pandemic and all its abnormal effects are still with us? In other news, November temperatures are running lower than the July average — possibly because it is no longer July.
A lot of things matter in the fluctuation of oil and gasoline prices, from output in Saudi Arabia to driving behavior at home. In 2020, Americans drove much less than usual. This year, they’re driving more. More driving means more demand for gas, and more demand for gas tends to push up the price.
One thing that doesn’t matter is the power of oil companies, which doesn’t change much if any from week to week or year to year. They, like the rest of us, are at the mercy of a variety of events that are beyond their control.
It’s not surprising to see a president making a show of his determination to rescue American motorists from unwelcome fuel costs. If Biden is engaging in a bit of political theater that leads nowhere, he won’t do any good, but he won’t do any real harm, either.
The trouble arises only if he believes his own rhetoric and acts to punish oil companies.
That approach would probably backfire by causing producers to cut output, putting upward pressure on prices. Biden’s best option is to be patient and claim credit when they decline — as high prices tend to do, under the relentless pressure of market forces.
Maybe Biden remembers a scene from the 1970 film “Patton,” about the World War II general. After he unleashes a bloodcurdling outburst at his staff officers, an aide confides: “You know something, General? Sometimes the men can’t tell when you’re acting and when you’re serious.” Replies Patton: “It’s not important for them to know. It’s only important for me to know.”