Gas Prices Drive Politics, Elections Once Again

Sept. 20 (Bloomberg) — Gas up, president down. Gas down, president up. You could almost plot it on a graph.

Some of my colleagues extrapolate from this that lower gas prices have caused voters to smile upon the man in the White House, or those in the Republican Party up for election.

Right now it costs $107 in gas to drive a 2002 Toyota Camry Solara convertible from San Diego to San Francisco and back, according to the AAA Fuel Cost Calculator. The argument suggests that if that gas bill gets down to $100 or $90 in the next seven weeks, then Richard Pombo, the beleaguered Republican in California's 11th District, will win.

Idiotic, say the sophisticated analysts. Just because the lines move in opposition doesn't mean one change leads to the other. The rule that correlation doesn't prove causality is something Americans should learn before they pump their first tank.

And even if there is causality, there shouldn't be. Why should voters blame government for higher oil prices when markets set the price? Jim Lucier of Prudential Equity Group, the analyst I phoned, was irritated with me for even raising the question. Writing a story linking the two, Lucier said, "is the journalistic equivalent of deciding to run the Top 10 Sex Tricks in Cosmo magazine. You do it because it is an easy story that you know people will read."

But the general correlation is strong over time — strong enough to take seriously, even if your favorite energy analyst suggests you are Cosmo woman for doing so.

New Spin

The gas theory puts an intriguing new spin on history. Under the gas rule, Americans weren't angry at President George W. Bush over the war in Iraq. They were angry because they had to spend more. Americans were furious at Bush after Katrina? Their dissatisfaction didn't have to do with subtle issues like economic disparities among racial groups or who was responsible for handling a natural disaster. It was about the post-hurricane pump price.

Applying the gas theory further back also yields some novel explanations for events. President Bill Clinton's approval rating soared not because of the strong economy of the 1990s, or Treasury Secretary Robert Rubin's decision to drop the capital-gains tax, or any of the other techie reasons financial writers tend to talk about. It was because crude cost $10 a barrel in December 1998.

If Ronald Reagan's fellow Republicans had a rough time in 1982 running for Congress, it was because of oil, not Paul Volcker and his monster interest-rate increases. Richard Nixon had to resign not because of a campaign hotel break-in, but because of the oil shock following the 1973 Arab oil boycott.

Nixon, Carter

I also learned about axioms and fallacies in high school, and understand that the gas theory seems facile. Some economists do blame Nixon for the high oil prices of the 1970s, but for a reason that most voters probably hadn't thought about: Nixon's decision to close the gold window. By dismantling the Bretton Woods system in the early 1970s, he set in motion worldwide inflation that drove up the price of gold, homes as well as gas.

More recently, Chinese demand has pushed oil prices higher. But wars in the Middle East have also played a role. The reasoning here is that presidents — from Jimmy Carter to both Bushes — have been inept in handling those regional disturbances. Citizen displeasure at that mishandling has been responsible for dragging down approval ratings, not rising oil prices.

It is also clear that voter preoccupation with politicians and gas distracts everyone from finding solutions to energy problems.

"You would think that if the power were cut off in Queens, New York, for 10 days because the transmission lines are 59 years old that would get the public's attention," Prudential's Lucier snaps. But it didn't, making it less likely that those lines will be updated before the next heat wave fries Forest Hills.

Less Important

Gas prices, Lucier points out, are less important in the household budget than they once were. "Oil goes up $10 a barrel, which translates to 25 cents a gallon or so," Lucier says. So filling your tank costs more, but only by about the price of a latte and a scone.

But there is, in turn, a reply to all this. It is that gas prices are a barometer of general trouble, reflecting not only those Middle East wars but interest rates, consumer sentiment and other issues in our economic lives. It is, therefore, a useful measure.

There also is national psychology. Americans don't have cars; they are cars. That morning impulse to get up and go, with the latte in the cup holder, is the same impulse that drives Americans to work hard and make the economy grow. It is only natural that citizens hold politicians accountable for anything that slows down forward movement — gas prices are no exception. It's the political equivalent of physics.

We should think twice about dismissing the link between cars and what makes them go, and presidential approval ratings. In this instance, as in many others, it makes more sense to listen to the voter.

(Amity Shlaes is a Bloomberg News columnist. The opinions expressed are her own.)

© Copyright 2006 Bloomberg

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