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February 15 2012

High Gas Prices Need Long-term Policy Solution

Carrie L. Lukas

The bright-red Drudge headline shouting about rising gas prices may be a bit over-the-top, but it pretty much captures the political punch of gas prices. The Dow Jones Industrial Average used to be among the key signals for how the economy is doing—and just importantly about how Americans feel the economy is doing—but today gas prices, along with the employment numbers, seem to have taken center-stage.

There's a good reason for this. Americans on a budget feel it when their gas bills climb. Even Americans who are financially secure notice when it takes $60, rather than $40, to fill up the tank. The fact that you stand there, watching the numbers tick up, playing a mental guessing game of just how high the tab will be, makes the process of buying gas impactful.

Americans also know that rising energy costs ripple through the economy. They aren't the only ones expending more on fuel—truckers have to pay more to get supplies and goods from one place to another, factories face higher costs, and ultimately those costs get built into the price of other goods (including basic goods like food), which ends up affecting just about everything.

The White House is undoubtedly alarmed by climbing gas prices, which are likely to get worse as we move toward the summer, which also happens to be prime-time for the election.

Justly or not, the guy in the White House tends to get blamed for the rising gas price. And this President, who has bet heavily on creating a “green” economy and made big stands against the development of some traditional energy sources (most recently, the Keystone Pipeline, but also halting all drilling after the BP oil spill and ruminating about bankrupting the coal industry), is particularly vulnerable.

The President is unsurprisingly trying to deflect blame for rising prices, and justify policies he supports (extended unemployment and the temporary payroll tax holiday) as a necessary response to higher fuel costs. He suggests that rising gas prices are really a good thing—a sign of an economy that's turning around. But as Business Week explains, rising demand isn't what's driving the present price spike. Many factors affect the price of gasoline, including existing capacity as well as expectations for supply and demand in the future. That's why international turmoil, particularly turmoil effecting oil-supplying regions, often leads to price spikes.

The Obama Administration also should recognize that their own policies surely contribute to the problem—particularly the long-term problem—of rising energy costs. Moves like killing the Keystone Pipeline suggest that this administration remains hostile to oil production and refining. Investors considering new ways to bring energy online have to be skittish when they see the hoops that the Keystone Pipeline sponsors jumped though, and the years they waste, which now looks like it was all for nothing.

The Administration isn't talking publicly about cap-and-trade and global warming much anymore, but those in the energy business know that the only reason those issues are getting the short-shrift is because it would be political poison to discuss a carbon tax given our continued economic struggles. The environmental bureaucracy continues to seek ways to punish fossil fuel production, and if the economy ever turns around, broader plans will undoubtedly be back front-and-center.

Short-term energy prices aren't (and shouldn't be) controlled by politicians. It's the long-term policies that will ultimately dictate how much energy supply we have, and its on those measures that this Administration has fallen short.

 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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