As you might have heard, yesterday the President asked FTC Commissioner Lina Khan to investigate anti-consumer pricing at the gas pumps.
The President’s letter is significant, in that he is attempting to get to the bottom of numbers that this time, do not add up.
"FTC has authority to consider whether illegal conduct is costing families at the pump...
...I believe you should do so immediately”
-President Biden
These words from the President signal an almost unprecedented intervention into energy markets, and the President has the math to back it up. While in the past when gas prices were skyrocketing crude prices were high enough to mathematically justify the pricing at the pump, that is not the case today.
The Math Doesn’t Add Up..
This is a very effective formula that tells us what gas pricing should be, in contrast to what it is.
Break down the per-gallon price of gasoline. According to the U.S. Energy Information Administration, the price of crude oil accounts for about 67 percent of the per-gallon gas price. Another 7 percent is based on the price to refine crude. Distribution and marketing account for 11 percent, and the remaining 15 percent comes from taxes. Keep in mind these percentages can change, particularly because each state has a different gas tax.
Divide the day's crude oil price by 42. One barrel of crude contains 42 gallons. This will tell you the dollar amount per gallon of refined gasoline attributed to crude. For example, if crude oil is $100 per barrel, then about $2.38 of the price of a gallon of gas comes from the crude price.
Divide the dollar amount per gallon of refined gas attributed to crude in half. This will give you a dollar amount that accounts for about one-third of the total price per gallon. By multiplying this amount by three, you can get an estimated price per gallon. For example: using $2.38, divide by two to get $1.19. Multiply $1.19 by three to get $3.57, an average cost per gallon of gasoline.
So the formula is price of crude divided by 42, divided by 2 times 3. Going by that gas pricing should be about $2.78 per gallon. Of course this is not a perfect assessment as there are from time to time other market factors to consider. But not apparently, this time. And I for one do not believe the President would make this move capriciously. This is the sort of thing that you do when you already know the answer and just want the suspect to implicate themselves.
Gas Prices And Approval Ratings
Gas prices as you probably know, is a huge driver of approval ratings. For reference, I like to offer this chart, though ten years old, from Professor Larry Sabato of the Crystal Ball.
There is a lot of great analysis at the link below but I think what it shows is that gas prices are a weight on a President when high, but not a boost when low. In other words, low gas prices allow the public to hold an objective opinion, rather than getting up in the morning, looking at the fuel gauge, forcing oneself to the pump on a chilly day, seeing the price, and dropping multiple F-Bombs, usually directed at the President.
The second factor limiting the correlation between gas prices and approval ratings are that when gas prices are low, they have almost no bearing on voters’ view of the president. This can be easily seen on the left side of the scatterplot above. While on the right side, the points seem to somewhat follow the trendline, on the left the presidential approval rating varies all the way from 90% down to 30%. This observation leads to a simple theory that makes some intuitive sense. While the president is punished in the court of public opinion whenever gas is expensive, he receives no reward for presiding over times of cheap gas. The scatterplot below shows the relationship between presidential approval rating and gas prices, but unlike the graph above only includes data points where a gallon of gas was selling for under $2.
But what about today?
Data for Progress shows President Biden’s approval juxtaposed against gas prices, here.
So we can see that even today the trend holds.
Independents really are independent. They are the largest drivers of swings in approval ratings, absent black swan types of events. What could we expect if gas prices were say, around $1.00 per gallon cheaper? Perhaps a ten percent swing to the positive in the President’s approval ratings. If you believe, as I do, that among all registered voters, this country divides in the range of 55-45 left to right, then one could expect an average Democratic Presidential performance to result in an approval rating in the low to mid 50’s.
That is to say, there is no media constantly telling us the end is near, people are generally “meh” about conditions, and partisan alliances remain unaltered, with independents exhibiting their usual level of rage at all politicians, and not a politically nuclear level of rage at one target.
I have some data to back up my theory on the national partisan split. Pew’s typology shows the country splitting 45-40 left to right with the remaining “stressed sideliners” being 15 percent, skewing what Pew calls economically populist, with a socially conservative tint. A lot of 1990’s Missouri Bill Clinton voters are in that group, for example. Here is the link.
If the President’s efforts work, the result could be far-reaching, as gas pricing drives nearly every cost in this country, including food. This could immediately ease inflation, which I think is his largest political concern.
And while there are those who argue upward pricing is on balance good for the environment if it reduces fossil fuel usage, which it does, I can assure you there will be no forward progress on that or any other progressive cause because we progessives won’t be in office if inflation does not abate.
Now we can do more than just be favored on climate change. If we can convince voters investment in green energy is good for their pocketbooks, which it is, we can drive the electorate on it. So, in some regions, our messaging efforts on that issue will have to be concentrated on the economic implications, especially in the rust belt.
Even though I wish they would, too many voters do not envision the planet 100, 20, or even 10 years from now.
They envision their bank account, 10 gallons from now.
-ROC