Michele Bachmann's $2 Gas Sideshow

Why Low Gas May Mean Economic Hardship

Presidential candidate Michele Bachmann's promise to drop gas under $2 a gallon may actually hurt the economy more than it could help.

"When the President became president, gas was $1.79 a gallon," she said earlier this week at a stop in South Carolina. "Under President Bachmann, you will see gasoline come down below $2 a gallon again."

She added: "That. Will. Happen."

Though initially low gas prices may sound good, it may actually be detrimental to the economy. The reason gas prices hit $1.79 in December 2008 when Obama was President-elect was because the economy was in the tank. Besides rampant foreclosures, bank failures and a tanking stock market, there was less demand for gas. Why? Unemployed people didn't need to use as much gas, since they weren't commuting to work anymore.

Low gas prices can often be a barometer of economic turmoil. Trucks used less gas during the early recession as well, because they didn't need to ship as many items to stores or idled manufacturing plants.

Cheap gas could hurt the nation's efforts to wean itself off foreign oil. Automakers recently promised to bring their average fuel efficiency to 54.5 mpg by 2025 -- a move the companies agreed to because they expect gas prices will keep going up, and consumer demand will help drive demand for more fuel-efficient vehicles. When gas is cheaper than a gallon of milk, people stop worrying about fuel efficiency and start driving things like Hummers -- which could derail plans to increase the average fuel efficiency.

You can't just bring down gas prices with promises. Even if Bachmann were to open up drilling in the Arctic National Wildlife Refuge, or ANWR, in Alaska, that probably won't produce enough oil to bring gas prices down. The cost of gas is determined by more than just supply:

"It's not about something as parochial as that," said Tom Kloza, Director of editorial content at Oil Price Information Service. "Oil, commodities prices in general, are part of the three ring circus. The second part of the three ring circus is currency markets and then global equities markets."

In other words, oil traders have a big impact on price, too. They often price up gas based on the strength of global economies and the relative strength of the dollar.

"This isn't your father's or your grandfather's equity market. They're determined by great macroeconomic winds," Kloza said. "The amount of money being moved based on speculation today is infinitely larger than it was 20 years ago. It's like comparing the New York Yankees to American Legion ball."

At the click of a button, billions of dollars are moved instantaneously in a volatile market that plays to the whims of how global growth is perceived. How and if Bachmann could control that is questionable.

At the time of publishing, AOL Autos did not receive a response to a request asking Bachmann's office how exactly she intended to implement her plan.

Her options would be limited. Gas prices, of course, could go down for two main reasons, according to Kloza: A weak economy akin to that of 2008 or an unlikely immediate technological breakthrough which would provide a viable alternative to gas.

Bottom line: Bachmann's promise of cheap gas appears to be a ploy to get voters on her side, even if it's an impossible promise to make.


Share This Photo X