Are high petrol prices killing the American dream? | FT Energy Source
To many Americans cars aren’t just a mode of transport, they’re a symbol of freedom. But who do US consumers hold responsible when soaring petrol prices mean there’s pain at the pump? The FT delves into the psychology behind filling up and explores petrol’s ability to fuel social unrest and even bring down presidents
Produced by Alpha Grid. Presented by Myles McCormick
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We've actually got the highest vehicle miles per capita in the world.
Cars are a critical part of the American psyche.
Very few Americans live within walking distance of the places they want to go in their normal everyday lives.
They bestow upon people an element of freedom, a way of getting from A to B as you want, when you want, how you want.
We drive. We have open roads. And we expect to have the freedom that provides. If you look at the average American household, buys about 1,000, 1,100 gallons a year of gasoline.
Americans drive more. Therefore, they spend more money on gasoline. Therefore, they're going to be hit harder when the price goes up.
They don't particularly like to buy gasoline. They don't window shop for gasoline. They buy gasoline as a means to an end.
Well, there aren't that many things that Americans can see firsthand as signifiers of economic well-being. But gasoline is one of them.
We end up focusing more on gas prices and their inflation rather than the price of many other goods. That does come to impact a lot of their life and lifestyle pretty immediately.
It affects consumer attitudes and consumer views about their financial well-being. And it's its visibility and the fact that it's connected with personal transportation, which is so important in American culture.
Because we are so dependent on our vehicles to get around, we're going to pay whatever it takes. It's going to hurt. And we hear that hurt proclaimed really loudly.
There are two modes in energy policy in the United States. 97 per cent of the time, ignorance, blissful ignorance. No one thinks about gasoline. No one understands the oil market. No one really cares about the energy sector. And then there's 3 per cent of the time, if you go back over the many decades, when gasoline prices are rising of sheer terror.
That's the reason why the American consumer reacts to gas prices, that if the gas prices were what they were before, I could have done more. I would have travelled more. I would have visited more places. I would have gone to a restaurant that is a special place for me and my wife, for example, that I'm not doing now because the gas prices are high.
It has killed that little dream that I had of doing things. I don't want to make it sound as grandiose as killing the American dream. It is certainly muting the American dream.
The price was already going up significantly coming into 2022. People were flying again. They were taking to the roads again. Big industry, that sucks up a huge amount of oil, was cranking back into gear. So as crude prices ratcheted up coming into 2022, the price of gasoline was also ratcheting up quite rapidly. Then Vladimir Putin sent tanks across the border into Ukraine and sent the world into a period of geopolitical turmoil.
We tend to have lower taxes, which Americans, of course, enjoy. But that means when there's a change in the price of crude oil, which is, by far, the most important determinant of pump prices, it shows up in a change that consumers see more so than around the world.
How do Americans measure economic well-being? Well, they see the pump very frequently. And who do they blame when they're unhappy? Well, they see the president pretty frequently too. So it becomes a big problem for someone in the White House. When America's most visible economic signifier of well-being is going up, their approval goes down.
There is an easy, there is a lazy heuristic that consumers and voters employ, which is it's that guy's fault. Because he's supposed to make sure that everything is peachy.
All oil price spikes, and I mean every single one, they cause recessions. So they ended President Carter's career. And they ended President Bush Sr.'s career. Few things terrify an elected official of either party more than spiking retail pump prices.
A president doesn't have really good options. I worked for President George W. Bush. 2001 to 2003, we had our energy price and our oil price scares as well. We used to joke, Bob, go get the magic wand to make oil prices go down. There is no magic wand.
Is it fair to blame the president when global petroleum prices move or when global refinery capacity is impaired? Of course not. But politics isn't fair. Politics is not the science of fairness. It's the science of the possible. And it's extremely possible for voters to vent their outrage at a president just because of a high price.
I'm asking you, for your good and for your nation's security, to take no unnecessary trips, to use car pools or public transportation whenever you can, to park your car one extra day per week.
There's very little the president can do. And yet, there's almost 100 per cent certainty that the American people will blame him for not doing enough.
That hasn't stopped the president from trying, from releasing record amounts of oil from the Strategic Petroleum Reserve, cutting some environmental regulations at the pum,p to pleading with foreign oil producers and domestic oil producers to pump more. He's been pursuing a policy of increasing oil production rather than restricting it, which is what is often alleged by many of his political opponents.
In Europe, they've said, turn down the thermostats and you'll find your way to freedom. In the United States we have a historical example. President Jimmy Carter put on a cardigan and said the same thing. And he lost his re-election.
There's no way that I or anyone else in the government can solve our energy problems if you are not willing to help.
There is often an argument made due to reasons of political expediency that a diehard environmental agenda at the expense of the American consumer is what is driving high prices at the pump. In fact, you could argue that this president has done significantly more to bring prices down at the pump for American motorists than many, if not most, of his predecessors.
The president's biggest move, to date, has been to draw down the Strategic Petroleum Reserve for oil. And that is an extraordinary move. He is, in fact, burning more strategic barrels than all presidents before him.
When you find yourself in one of these gasoline price spikes you're out of good options from the start. And so really, we have to start thinking about medium-term options.
There's a challenge here. And this is a good preview of what that challenge might look like. In the end, restricting access to the resources we're using without adequate supply of alternative sources means a higher price. Now, are we willing to live that way? Well, that's a question society is going to have to judge when it comes. But the early judgments we're seeing right now is that, no, we're not.
We could end up in a position where people just sort of get used to this price environment. The longer that consumers see a high oil price environment, the more they are willing to say, hey, maybe next time I should buy a more fuel-efficient vehicle or maybe I should buy an electric vehicle. I think the strategy of making electric vehicles an attractive car, something that people want to drive really does kind of work in the direction of the American psyche.
In my view, this will end up with governments easing decarbonisation policies and going back to the Obama-Biden approach here in the United States, which said, look, we have to get to a clean fuel future. But the bridge is a multi-decade bridge. You just don't do it overnight. It just simply can't happen unless we resort to draconian policies that you normally see in North Korea or Belarus or the Khmer Rouge type of thing.
If we emptied cities and imposed draconian restrictions on personal freedoms in transportation, we could do it. But I don't think democracies are going to do it. And look what's going on. What happened when France tried to put a teeny little carbon tax on diesel? You had the yellow vest protests and they withdrew the policy. Kazakhstan was the latest country to try and remove fuel subsidies. LPG, they almost had a colour revolution.
Actual unrest isn't likely to come from prices but from shortage itself. And we could get to a world of shortage. Right now, the sanctions that we have designed in the west are pushing supply off the market. Without adequate replacement the result of that could very well be shortage.
I was asked fairly recently in a media interview whether there is any bright side to high gas prices. And I went out on a limb and said, yes. Maybe people will rethink the way they take fossil fuels for granted.