In his remarks today about the cost of gasoline, President Biden said, “The price at the pump should reflect what the price of a barrel of oil costs, and it’s not going down consistently.”
This is part of a continued effort by the White House to blame corporate greed — rather than government policies — for inflation. That’s little more than a conspiracy theory. If the White House has some evidence that corporations are working together to keep gasoline prices high, it should reveal it. It’d be a global scandal, and deservedly so.
Really, there are widely accepted reasons why prices in markets such as gasoline don’t go down as quickly as they go up. It’s called asymmetric price transmission, or “rockets and feathers.” I wrote about it in July when Biden was blaming gas-station owners for high prices. Economists debate the causes of asymmetric price transmission, but empirical research finds that it occurs in competitive markets where firms do not have much pricing power. That means it’s not a consequence of a few powerful corporations holding prices up. The gasoline industry is extremely competitive. Most stations are independently owned and operated, and prices are based on a wide variety of factors that vary by region, even town-to-town.
Biden’s statement that gasoline prices should reflect the price of a barrel of oil is not complete. The price of a barrel of oil is one factor in the price of gasoline, but there are others. Transportation costs, refining costs, and taxation all matter, too.
That’s why different regions routinely experience different gasoline prices at the same time. Gasoline near the Gulf Coast is usually the cheapest because it’s closer to major refineries and sold in low-tax states, for example. One way to address the transportation-cost portion of gasoline prices would be to repeal the Jones Act, but, of course, Biden refuses to call for that for fear of crossing organized labor.
In truth, there’s no such thing as a national price of gasoline. Various sources compile data from around the country and compute a national average, but the price is ultimately set at the gas-station level, usually by small-business owners. (Read this piece by Ryan Mills from earlier this year on how those businesses work.) For many of them, gasoline is a loss leader to get people spending in the convenience store. They don’t want high gasoline prices any more than drivers do.
Biden might not know all this, but people who work for him certainly do. Yet the White House has decided to stick with this nonsense talking point about greedy oil companies and hope that the American people are too dumb to figure it out. If you claim credit when gasoline prices go down, you should expect blame when they go back up. In reality, the president doesn’t have much to do with either, but the White House has chosen to tie its political fortune to the price of gasoline — let them enjoy the ride.