March 3, 2024

before Macro could mean happy holidays

IMMEDIATE RELEASE 19 November 2021
Today’s Events in Historical Perspective
America’s Longest-Running Column Founded 1932
Micro before macro could mean happy holidays
By Douglas Cohn and Eleanor Clift
          WASHINGTON — President Biden needs a win that directly affects everybody’s pocket, and bringing down the cost of oil could be the answer. It’s fine to talk about all those wonderful projects that are going to happen once the massive infrastructure bill is up and running, but Biden needs something now, something visible that will kick in before Christmas.
          Oil prices have been holding steady for a while above $80 a barrel, and if Biden can use the bully pulpit and traditional presidential jawboning to get that number into the sixties, the public will notice. This will impact prices on gasoline, heating oil, and jet fuel, and by more than a few pennies.
          Biden’s poll numbers have cratered mainly because voters don’t think he has a handle on inflation. He traveled to New Hampshire to sell voters on his infrastructure bill, walking across an ancient bridge that needs repair. But what is top of mind for voters in the Granite state as Biden spoke with snow falling is the high cost of heating oil.
          Biden did put pressure on OPEC to increase oil production, so far to no avail. The oil barons refused to cooperate, and environmentalists questioned why the president wanted more oil when he’s on record trying to phase out fossil fuels.
          So, the president is trying a different tack, calling on the Federal Trade Commission to look into allegations of price-fixing and price-rigging by oil and gas companies and whether they are acting illegally to prop up prices at the gas pump and keep them artificially high under the cover of supply chain interruptions.
          Whether there’s any enforceable truth to the allegations is one thing but raising the topic and doing it publicly lets the various players know they are under the watchful eye of the federal government. It’s hard to prove cause and effect, maybe correlation is the better word, but oil prices have suddenly dipped into the 70’s.
          There’s a difference between macroeconomics, like Biden’s massive infrastructure legislation that rivals Eisenhower’s building of the interstate highway system, and microeconomics, which impacts daily life in an immediate and intimate way. If Biden can get the price of oil to go down over the holidays, his numbers will go up, and he will have given himself and the voters a Christmas gift.
          No president has a magic solution to ease inflation, but there are some things Biden can do at the margins and influencing oil prices is one of them. The key is to upset the supply-demand equilibrium. One percent will do the trick.  If the supply of oil goes up by just one percent, prices will go down by a greater percentage. A five percent shift would have massive benefits.
          Biden can tap the Strategic Petroleum Reserve to boost supply, something he would rather not do, but by talking about it, he puts everyone on notice that he’s serious. His inquiry to the FTC probing for illegal price gouging serves notice that he is willing to go the legal route, potentially involving the Department of Justice.
          Further, he can go back to OPEC, or he can importune individual actors, like the Saudis, leveraging the U.S. relationship. He can even ease regulations on domestic pumping should he deem it necessary.
          If he can pull this off in time for the holidays, it will give him some breathing room for macroeconomics (his infrastructure projects) to go into high gear and set an entirely new and optimistic tone going into next year’s midterm elections.
          Douglas Cohn’s latest books are The President’s First Year: The Only School for Presidents Is the Presidency and World War 4: Nine Scenarios (endorsed by seven flag officers).
          Twitter:  @douglas_cohn
          © 2021 U.S. News Syndicate, Inc.
          Distributed by U.S. News Syndicate, Inc.

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