NEOLIBERAL ECONOMIST GETS IT

Presidents Don’t Move Prices. So Why All the Tweets?

Sunday, 31 July, 2022 -
Jared Dillian

President Joe Biden, or his designated representative, is having a good time tweeting about gasoline prices lately. Just about every time that the national average goes down by a penny, the White House is tweeting about it. We reached peak panic about gas prices about a month ago, Biden pledged to bring them down, and they fell. For sure, the White House wants to take credit. That’s just politics.

Now, the drop is due to a confluence of factors, including weakening demand, falling crude prices and the continued release of oil from the Strategic Petroleum Reserve. At some point the SPR will run out and have to be refilled — potentially at higher prices. Biden also tried some moral suasion over gas station owners, but most in the business community laughed at that — the profit margins on gasoline are tiny, and gas stations practically sell it at cost already. This represents a policy victory of sorts, though it may be short-lived.

Other presidents have sought credit for favorable moves in economic variables. Throughout most of President Donald Trump’s first term, he tweeted obsessively about the stock market, almost daily for some stretches of time. He thought that his pro-growth policies lifted stocks, and they probably did, at least initially. But as Trump took credit for the stock market again and again, it was inevitable it was going to end badly, and in 2020, it did. Biden’s attempt to take credit for the decline in gas prices could well suffer the same fate. Trump could blame the stock market crash on Covid, and Biden will probably point to Vladimir Putin or oil companies when gas prices reverse course.

I’m not sure why presidents do this. By taking credit for the drop in gas prices, which won’t fall in perpetuity — Biden leads the public to believe that the president has control over an economic variable that he truly has no real control over. There’s no planning or forethought about the messaging when that policy measure ceases to be effective. Gas prices will inevitably go up, blame will be shifted, and Biden will appear weak and ineffective — the exact opposite of what he intended. President Trump didn’t need a lot of help looking foolish at times, but his adversaries were quick to pounce when the stock market crashed.

The question is: Do presidents have the power to move markets at all? The answer is yes — on a very long lag. A president can create the conditions that are necessary for higher stock or lower oil prices, but they cannot actually push prices in one direction or the other for any length of time. For example, I am a big believer that President Ronald Reagan’s supply-side reforms led to stock market gains over the next 20 years. He created the conditions that were necessary for individuals and businesses to flourish. But crucially, the government did not buy stocks, and the rise in stocks wasn’t the ultimate goal of the reforms — just a nice byproduct. If he chose, Biden could create the conditions that are necessary for oil prices to go down, by allowing drilling on federal land, for example. This might not make prices drop immediately, but they could over a period of years. Unfortunately, few people think past the next election cycle.

President Barack Obama was guilty of this, too, though not as much as Trump and Biden. Obama was a bit obsessed with the unemployment rate and thought that there was some immediate nexus between his policies and unemployment, though he was inaugurated at the bottom of the financial crisis, and unemployment would have improved over time anyway as the economy healed. One could make the argument that a decline in the unemployment rate was actually delayed by offering 99 weeks of unemployment benefits, slowing the recovery.

I am fond of saying that for someone who has spent his entire career in politics, Biden is sometimes tremendously bad at politics. In this case, his tweets about gas prices are shortsighted. When the prices go up, this will create disillusionment and possibly even lower his already-sinking approval ratings. The temptation is great for presidents to take credit for positive economic moves out of their control. They seem to forget that they open themselves up for the blame when things go awry.

Bloomberg