Pain at the Pump

Economists believe the recovery slowed as gas prices jumped in the first quarter of the year, writes Timothy Horman for Bloomberg.com.

I'm no economist, but I could have told you that. I've seen it before. The most extreme example, I suppose, was about three years ago, which was the last time gas prices were this high.

Barack Obama, as focused as he is these days on his re–election campaign, is clearly influenced by what is happening at the pump. His predecessor's approval numbers in his final year in office were never impressive, but they were at their worst when gas prices were at their highest.

I have no doubt that Obama remembers those days — and perhaps with some personal fondness. I don't mean that Obama was glad that prices went so high and, in the process, hurt so many people, but they did help him present himself as the anti–Bush during his last campaign — and Obama obviously would love to recapture the messianic feeling of that time. It propelled him to the presidency.

But now rising gas prices threaten to undermine Obama's re–election campaign, and he needs to project the image of a forceful president who is being proactive. Consequently, even though he himself has acknowledged that there is little, if anything, that a president can do to influence gas prices, he promised to form a task force to examine the situation and investigate whether something illegal was being done to take advantage of consumers.

Sounds good — except, of course, that it's nothing more than a P.R. stunt.

Obama is right when he says that out–of–control speculation is to blame. But excessive speculation is based on anxiety, not necessarily criminal intent.

In my opinion, a task force simply fuels (pardon the expression) the belief that someone out there is behind this.

The anxiety might ease if, as more and more people are suggesting, the situation in Libya is resolved. Libya itself produces a relatively small portion of the world's oil supply, but there are no oil producers who can make up even a small disruption in supply so, as long as the conflict in Libya continues, it seems likely to me that gas prices will remain high.

Some contend that America could make up for that disruption by drilling domestically — in Alaska or offshore. Again, I'm not an expert in these things, but there are at least two problems I can think of with that — there isn't enough oil in those locations to radically alter prices, and it would be years before the oil could be retrieved.

I've also heard talk of eliminating tax breaks for oil companies or adding a gas tax, neither of which seems likely to have much positive short–term impact.

If oil companies lose tax breaks, the most likely outcome, I believe, is that domestic production, not prices at the pump, will be reduced to make up for the lost revenue. And a gas tax is going to raise prices, not lower them.

Either of those (or a combination of the two) could provide funds for the development of alternative energy sources or mass transit expansion, but those are long–term solutions.

There are no simple answers in the short term.