The sting of rising gasoline prices is a handy political cudgel, whatever its severity.
"For the nearly 7 years of the Bush administration," House Speaker Nancy Pelosi (D-Calif.) said recently, "the rising cost of gas and home heating oil has been a major economic stress on millions of American families" (OGJ, Nov. 12, 2007, p. 36).
Yet a report by the Federal Reserve Bank of Dallas notes that US expenditures on gasoline as a share of American budgets remain well below levels of the early 1980s.
"At today's higher incomes, gasoline expenditures claim less than 4% of US after-tax personal income," write Stephen P.A. Brown, director of energy economics and microeconomic policy, and Raghav Virmani, economic analyst, in the Dallas Fed's October Economic Letter. "The comparable figure for 1981 was more than 6%."
Early in the Bush presidency, the gasoline claim on after-tax income was 3% or below. It has risen steadily since 2002, partly because of increases in driving but mostly because of rising gasoline prices, Brown and Virmani say.
To blame Bush for gasoline price increases is to overlook market events such as hurricanes, strains on crude supplies, and relentlessly growing demand—about which presidents can't do much.
Brown and Virmani have developed a model showing how the US spot gasoline price tracks the spot price of West Texas Intermediate crude. Using just those factors, the model shows spot gasoline prices eventually rise by 2.8¢/gal for every $1/bbl increase in spot WTI.
Refined to account for seasonality and other factors, the model explains more than 99% of past US gasoline prices.
Its forecast? At crude prices indicated by October futures contracts, spot gasoline prices will rise by 20¢/gal in the next few months then decline by 35¢/gal over the next 3 years, with seasonal variations each year of about 27¢/gal.
Stress? Yes. But it won't be historic, as politicians are sure to portray it.
"At today's incomes," Brown and Vermani say, "retail gasoline prices would have to reach about $5.50/gal before they took the same share of US household budgets as they did in 1981."
(Online Nov. 23, 2007; author's e-mail: email@example.com)