“When I was speaker for four years, the average price was $1.13. When Obama was sworn in, the average price was $1.89. So trying to get to $2.00 to $2.50 is closer to the historic norm. Think of it as a pre-Obama norm.”
— Former House speaker Newt Gingrich, Feb. 23, 2012
“We went into a recession in 2008 because of gasoline prices. The bubble burst in housing because people couldn’t pay their mortgages because of $4-a-gallon gasoline.”
— Former senator Rick Santorum, Feb. 27, 2012
We asked readers for examples of gassy rhetoric on gasoline prices, and we certainly got some. This Gingrich example, made during an appearance in Kennewick, Wash., is priceless.
We will look at that, as well as Santorum’s interesting new theory on why the United States suffered an economic crisis in 2008.
Earlier this week, we noted House Speaker John Boehner’s (R) comment that gasoline prices had doubled during Obama’s term. This is technically correct but misleading because oil prices were artificially low because of the economic crisis.
It all relates to the old economic principle of supply and demand. Demand plunged because of the worldwide economic woes, and so prices fell. But, as the Energy Informational Administration’s historical table of monthly prices shows, the low was reached in December 2008 — $1.69 a gallon — before Obama even became president. Then the price of gasoline started slowly going up as the economy began to improve.
Far from being a “pre-Obama norm,” the price of gasoline was artificially low. Only six months earlier, in June 2008, the average price was $4.05 a gallon. In fact, the last time gasoline had been as low as $1.89 had been way back in 2004.
As for the price of gasoline during Gingrich’s term of speaker, his figure seems in the ballpark. But we will note that such a low price for gasoline did not stop Republicans from complaining at the time that it was too high.
Gingrich, who has pledged to get gasoline prices below $2.50, is also off base when he says that $2.00 to $2.50 is the “historic norm.” Adjusted for inflation, gasoline has generally retailed above $2.50 since 1919, except for the period between 1986 to 2005, when it hovered just below $2.00.
Meanwhile, Santorum on Monday seemed to go in an opposite direction, reminding listeners that gasoline prices were high before the recession — and then blaming the recession on that fact.
We generally don’t fact check economic theories, but one would think that Santorum’s theory would have been highlighted in the many examinations of the roots of the economic crisis. But it appears nowhere.
The Financial Crisis Inquiry Commission, the congressionally mandated panel that examined the financial crisis, in its 629-page report barely touches on the rise of oil prices. The report simply notes once or twice that higher oil prices were one of the factors (along with declining home prices and turmoil in the financial markets) that affected consumer spending.
The four commissioners who filed a dissenting statement also did not mention oil prices. They did note that big oil-producing nations built up large capital surpluses, loaned the savings to the United States and Europe, leading to a reduction in interest rates. That led to a “credit bubble,” they said, which in turn led to more investment in high-risk mortgages. But that is almost the opposite of what Santorum claims.
Meanwhile, the Congressional Research Service in 2010 compiled a handy guide, titled “Causes of the Financial Crisis,” in which it lists 26 possible causes, with both the argument for and against it. Santorum’s theory does not even make it on this exhaustive list.
Still, some experts, such as James D. Hamilton of the University of California at San Diego, have argued that the rise in oil prices in 2008 made the recession much more painful.
The Pinocchio Test
As we said, we don’t give Pinocchios for economic theories, even lame ones, but Gingrich’s claim is a real stretch. Calling the artificially low price for gasoline on the eve of Obama’s presidency the “norm” — when it had not been that low for half a decade — is ridiculous.
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