February 6, 2022
By Stephen Stofka
How important are energy prices? British homeowners are paying almost 60% more than last January’s prices to heat their homes with natural gas (https://tradingeconomics.com/commodity/uk-natural-gas). They are upset at government officials and the party in power. In the U.S., the annual January increase to residential consumers was only 2.6% (https://www.eia.gov/dnav/ng/hist/n3010us3m.htm). The UK imports most of their natural gas while US consumers enjoy the benefits of US gas reserves. Americans drive far more than Brits so the weathervane of popular sentiment in the US is the movement of gasoline prices. In general people don’t like rising prices – period – but when gasoline prices rise faster than paychecks, the public has the sense that something is broken and they want government to fix it. A gas pump can be a voting booth.
During the eight years of slow recovery following the financial crisis in 2008, paychecks struggled to keep up with the rise in gasoline prices. Income growth finally rose above gasoline price growth in the middle of 2016. As incoming Presidents do, Mr. Trump took credit for some of the gains and policies of his predecessor. Until the pandemic struck, paycheck growth stayed above the growth in gasoline prices. These annual growth rates erase most of the seasonality of gasoline prices, which fall in the winter and rise in the spring when the refineries must switch to a more expensive blend for the heat of summer.
That trend took a “wheelie” in the spring of 2020 when the entire country responded to the swell of pandemic deaths in New York City. Headed by a soapbox President with little organizational skill, the Trump administration struggled to cope with the daily demands of the pandemic. Mr. Trump himself cared little for the research his staff brought him. He has admitted that he is not a reader, trusting his instincts more than information. Had he shown more consistency during this singular pandemic, he might have retained enough college educated male voters to tip the 2020 election in his favor. As with many of us, Mr. Trump cannot come to grips with his own failings so he blames others. He has turned that nasty habit of self-deception into an art form of grand deception.
As the chart shows, the annual growth in gasoline prices was far above the growth in paychecks when Mr. Biden took office in the beginning of 2021. Both growth rates reached 10% in the 3rd quarter of last year, but people pay more attention to the sticker price on the pump as they fill up their cars. In the fourth quarter, paycheck growth edged up while gasoline prices growth edged down, a heartening trend if it continues.
Presidents have little effect on gasoline prices, a global commodity dependent on supply and demand around the world and subject to geopolitical tensions. However, the public holds Presidents responsible. If gasoline prices are high, reporters at White House press briefings ask what the administration is going to do about it. Occasionally, they release some of the government’s strategic gasoline reserves to show some action. That release has only a small effect on global prices but it shows the administration’s attention and good intentions. Until the country went off the gold standard during the Depression, each President had to answer for movements in the price of gold. Gasoline powers our daily lives. It is our daily gold.
Mr. Biden is mindful of the electoral beating that Mr. Obama took in the 2010 elections when the Tea Party led a Republican movement to forcefully take the majority gavel from the House Democrats. Most Presidents suffer election losses in the midterms but it was a devastating turnaround in a census year. Mr. Obama was more skilled at rhetoric than taking the tiller of a national political party. As a politician with decades of experience, Mr. Biden is already in campaign mode, moving funds to battleground states to get out the vote in November. He will be mindful of the public’s sensitivity in the final months leading up to the midterms.
Gasoline prices are higher in the summer months and people drive more so they notice high prices. The press is quick to point out Mr. Biden’s low approval ratings, currently in the low 40s. Mr. Biden’s low was Mr. Trump’s high. In a country evenly split between Democrats, Republicans and Independents, a President will struggle to gain and hold a majority favorable public opinion above 50%. According to Gallup (https://news.gallup.com/poll/116500/presidential-approval-ratings-george-bush.aspx) George Bush did not enjoy a majority opinion after 2005, his first year of his second-term. His ratings fell near 30%, lower than Mr. Trump’s lowest ratings. When did those lows come? During the summer months of 2008 when gasoline prices rose above $4 per gallon. Voters carried their sticker shock at the pump into the voting booth a few months later and gave Democrats a resounding majority.
If gasoline prices are moderate this summer, that will give a boost to Democratic chances at the polls but Mr. Biden should be savvy enough not to count on that. He must assume that prices will not be friendly to him or his party this summer. The Republican strategy is to use pocketbook issues to regain a majority in both the House and Senate. Their divisive stance on moral issues only antagonizes Independent voters in the suburbs so Republicans must focus on practical issues. Midterm elections suffer from low turnout. Voters shrug. The party that can energize their voters can command the political field for the next two years. Gasoline prices energize voters.
Photo by Dawn McDonald on Unsplash