It’s not even summer yet, and gas prices are already soaring. The national average for a gallon of gasoline hit $3.57 this week. So what’s causing the spike? And could high gas prices end up demolishing President Obama’s slowly recovering poll numbers?
Republicans are hoping to use rising gas prices as an election-year issue against Obama, even though there’s likely very little U.S. policymakers can do to affect gas prices in the short term (domestic oil demand is lower than it was in 2007, while production is way up — yet gas prices are still high). “This debate is a debate we want to have,” John Boehner told his caucus, according to the New York Times. “Certainly, this summer will see the highest gas prices in years. Your constituents saw those reports, and they’ll be talking about it.”
But it’s far from clear whether the rising price of gasoline will actually sway November’s elections. Last year, Nate Silver looked into this question and found that “there’s not a lot of evidence that oil prices are all that important” a factor in presidential elections. True, Jimmy Carter lost the White House when gas averaged $3.37 per gallon (in today’s prices). But Ronald Reagan won reelection handily when gas averaged $2.51 — which was, at the time, the second-highest price ever in an election year.
And what about approval ratings? Do high gas prices cause voters to sour on the party that’s currently in the White House? There’s an old graph (seen below) showing an almost-preternatural link between George W. Bush’s poll numbers and gas prices during his two terms. Chris Bowers dubbed it “one of the most important statistical projections for American politics, ever.” But Brendan Nyhan dissected the chart and found that it didn’t hold up to scrutiny. After you control for the effects of September 11 and the Iraq invasion, Nyhan writes, “the relationship that we observe during Bush’s presidency seems likely to be a statistical artifact. It is very premature to call gas prices the ‘strongest factor’ affecting approval.”
Now, that doesn’t mean gas prices are inconsequential. Far from it. One thing Nate Silver did find was that a president’s reelection chances are very tightly correlated with election-year GDP growth. And there’s ample reason to worry that surging oil prices could whack the U.S. economy. Higher gas prices at the pump tend to mean that consumers are sending more of their dollars overseas, leaving them with less money to spend on goods and services here at home. The Energy Information Administration estimates that a $20 increase in the price of a barrel of oil causes U.S. GDP to decline 0.4 percentage points.
So the real question is whether gas prices will crimp the broader recovery. That’s not a simple question to answer, as there are a lot of variables to consider. An economic slowdown in China, for one, could ease the pressure on oil prices. The recent mild winter means that consumers in the Northeast have been spending somewhat less on heating oil. Low natural gas prices are holding down resource costs for many companies. And, as we’ve discussed before, Americans have been driving less and buying more fuel-efficient cars as higher gas prices become the new normal (each year since 2008 has seen a growing share of days with gas above $3 per gallon). It’s a slow process, but Americans seem to be adapting to the era of pricey gasoline.
There’s also the Federal Reserve to consider. As the Wall Street Journal recently reported, an oil shock could make the central bank jittery about rising prices, even if it’s only temporary inflation. That, in turn, could complicate the Fed’s willingness to stimulate the economy further. Another round of quantitative easing could well become less likely if oil prices keep nosing upward. “In the past,” the paper explains, “the Fed has been willing to look past temporary spikes in inflation, but it isn’t clear that it would be willing to do so again.”
So it’s far from certain that high oil prices will sink the current recovery — or swing the 2012 election. But it’s something to watch closely.