Presidents do not move prices. So why all the tweets?



President Joe Biden, or his designate, has been having a good time tweeting about gas prices lately. Pretty much every time the national average drops a dime, the White House tweets about it. We hit a peak of panic over gas prices about a month ago, Biden pledged to bring them down, and they fell. Of course, the White House wants to take credit for it. It’s just politics.

Now, the decline 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 need to be refilled – potentially at higher prices. Biden also attempted moral suasion on gas station owners, but most of the business community scoffed at that — profit margins on gasoline are tiny and gas stations are already selling it virtually at cost. . It represents a sort of political victory, although it may be short-lived.

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

I don’t know why presidents do that. By taking credit for falling gas prices, which won’t fall in perpetuity, Biden is leading the public to believe that the president controls an economic variable over which he really has no real control. There is no planning or forethought regarding the message when this political measure ceases to be effective. Gas prices will inevitably rise, blame will be misplaced, and Biden will appear weak and ineffective — the exact opposite of what he intended. President Trump didn’t need much help looking stupid at times, but his opponents were quick to pounce when the stock market crashed.

The question is: do presidents have the power to move the markets? The answer is yes – with a very long lag. A president can create the conditions for higher inventories or lower oil prices, but he can’t actually push prices one way or the other for a while. For example, I strongly believe that President Ronald Reagan’s supply-side reforms led to stock market gains over the next 20 years. It has created the conditions necessary for individuals and businesses to flourish. Importantly, the government didn’t buy stocks, and rising stocks weren’t the end goal of the reforms – just a nice by-product. If he wanted to, Biden could create the conditions necessary for lower oil prices, by allowing drilling on federal lands, for example. This might not bring prices down immediately, but they might over a period of years. Unfortunately, few people think beyond the next election cycle.

President Barack Obama was also guilty, but not as much as Trump and Biden. Obama was a little obsessed with the unemployment rate and thought there was an immediate link between his policies and unemployment, although it was ushered in at the low point of the financial crisis, and unemployment would have gone all the way. improved over time as the economy recovered. It could be argued that a drop in the unemployment rate was actually delayed by offering 99 weeks of unemployment benefits, which slowed the recovery.

I like to say that for someone who has spent his entire career in politics, Biden is extremely bad at politics at times. In this case, his tweets about gas prices are shortsighted. When prices rise, it will create disillusionment and possibly even a drop in his already dwindling approval ratings. The temptation is great for presidents to take credit for positive economic developments beyond their control. They seem to forget that they face blame when things go wrong.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Jared Dillian is the editor and publisher of Daily Dirtnap. Investment strategist at Mauldin Economics, he is the author of “All the Evil of This World”. He may have an interest in the areas he writes about.

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