Rick Santorum Blames Recession On High Gas Prices

Rick Santorum has come up with a new theory for the economic crisis that sent the world into the worst economic downturn since the Great Depression:

LANSING, Michigan—Rick Santorum sharpened his attack on President Barack Obama over rising gas prices, saying high energy prices caused the 2008 recession.

“We went into a recession in 2008 because of gasoline prices,” Santorum told a packed hotel ballroom of supporters. “The bubble burst in housing because people couldn’t pay their mortgages because of $4 a gallon gasoline,” he added.

Santorum accused Obama of advocating for higher gas prices to protect the environment.

“He actually believes this is a good thing for America, I don’t,” he said. “We are not here to serve the earth, but to be stewards of the earth.”

Santorum’s comments appear to stretch the limits of credulity. The words “gas,” “gasoline,” and “energy” to not appear in the conclusions of the congressionally-appointed Financial Crisis Inquiry Commission, tasked with exploring the root causes of the 2008 recession and financial crisis.

The rising energy prices in 2007 and 2008 certainly didn’t help an already week economy, but Santorum’s argument that misses several important facts:

1) Just as a snarky matter: the NBER business cycle dating commission said the recession began in December of 2007 and he’s talking about prices in summer 2008.

2) On content, this seems like a pretty clear case of getting the direction wrong. Lehman fails in September 2008 and the economy collapses. That leads gasoline prices to plunge precipitously (check out the price series at http://gasbuddy.com/gb_retail_price_chart.aspx and click on the 5 year or 4 year graph) according to all analysts at the time because people understand output will be falling, not the other way around.

3) By Santorum’s reasoning, why didn’t the fall in gasoline prices from a record of 4.12 in summer 08 or from 3.75 in September 08 down to 1.61 in December 08 lead to a big recovery? Obviously the economy is driving the gasoline price not the other way around

4) High gas prices hit consumers, no question, but the average person drives about 10k miles and gets 20 mpg so uses about 500 gallons. If gas prices go up a full $1 per gallon, that’s an extra $500 bucks a person or around $1000 per household. That’s a tough hit but compared to a 14.5 trillion economy, it’s hard to see that causing the recession.

Like I said, it’s likely that increasing energy prices at the start of the recession made an already bad situation worse, but the cause-and-effect argument that Santorum is making here makes no sense whatsoever.

FILED UNDER: Campaign 2012, Economics and Business, Quick Takes, US Politics, ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. He’s spinning Hamilton slightly:

    Past oil price spikes associated with Middle East conflicts and OPEC embargos were each followed by a global economic recession. This column argues that the onset of the current economic downturn of is also partly attributable to a sharp increase in the price of oil. Moreover, the interaction of high oil prices and housing problems contributed to the severity of the downturn.

    But of course he leaves aside the zero down, interest only, loans. Those were the markers of a peak. They were an invention to find buyers, any buyers, when the sane were backing off, and/or the sane could not find an authentic 10-20 percent down.

  2. Tsar Nicholas II says:

    Indeed Santorum here is smoking crack. The recession already had commenced by the time gas prices in 2008 truly went into spike mode. The popping of the housing and mortgage loan bubbles were the primary culprits.

    From a pure ruthless politics perspective, however, this line of attack makes a bit of sense. Zombieland won’t be able to figure out the fine details and as retail gas prices move this spring towards $5.0 per gallon Obama won’t be too popular on Main Street. If I were the GOP nominee, i.e., Mitt Romney, I’d be slamming Obama each day on high gas prices. It’s effective. Hell, Kerry and the media (I know, redundant) did a great job with that line of attack back in ’04. Politics ain’t a game of bridge.

    Separate but related topic, although the economy steers gas prices, not vice versa, high gas prices certainly are not a good thing. We sure could use a lot more refining capacity in this country. Shit, there was a fire up in Washington State over the long President’s Day weekend and on Tuesday of the following week gas prices on the West Coast spiked 33 cents . . . in one day! Seriously. We need at least four brand-new, high-tech major refineries out here on the left coast. We need a lot more capacity on the Gulf Coast. We sure could use the Keystone Pipeline. It would be nice to produce more oil. We’re sitting on a treasure trove of shale. It also would be nice to produce more nuclear energy. France loves it. So should we. Granted, these measures won’t be very popular at cocktail parties in Beverly Hills, but they would help out a great deal in Realityland.

  3. DRS says:

    What is this obsession of the Right’s with cocktail parties? Do people still drink cocktails or didn’t that go out with Doris Day and Rock Hudson movies?

    If it hadn’t been for that silly bit of snark in your last sentence, I would have given you a thumb’s up, Tsar.

  4. @Tsar Nicholas II:

    James Hamilton is actually the go-to guy on oil prices and recessions. He’s convinced many (me included) that oil prices are often a recession trigger.

    What we are really down to now is a “this time is different” scenario (or claim). As prices rise, Santorum wants to remind people of their destructive power, and of course to position Obama as somehow “owning” $5 gas.

    World conditions are shaping pump-prices, but as always that can be “packaged” for the less well informed voter.

    This is a forward looking strategy for Santorum, and probably the GOP.

  5. Hey Norm says:

    “…We sure could use the Keystone Pipeline…”

    probably true…it’s too bad the Republican Congressional Caucus derailed the regulatory process for political purposes.

    “…It would be nice to produce more oil…”

    If you say so. We’re producing record amounts now. Gas is still $4.

    “…We’re sitting on a treasure trove of shale….”

    Sure…but shale requires a lot of energy for the energy it returns and it doesn’t make sense to pull out of the ground unless oil is at $70 a barrel. So for shale to be profitable gas has to be expensive. Expensive gas is not a real good solution to high gas prices.

    “…It also would be nice to produce more nuclear energy. France loves it…”

    True. But the Nukular France uses is very different than our plants. But even beyond that the French system is essentially government supported. Are you suggesting we nationalize the electrical industry?

    Everything is so much easier when you are not constricted by…what do you call them…oh yeah…FACTS

  6. Hey Norm says:

    “…but as always that can be “packaged” for the less well informed voter…”

    Are you talking about The Stupid Vote again?

  7. @Hey Norm:

    Partly I’m being nice today, but partly I think there is nuance that can extend the argument to wider segments. Sufficiently higher gas prices will cause a recession

    .. but maybe it gets back to the stupid vote after all. These Republican candidates want to bomb Iran AND have low gas prices, right? How does that work?

  8. Hey Norm says:

    “…These Republican candidates want to bomb Iran AND have low gas prices, right? How does that work?”

    Pretty much the same way Austerity creates Growth. I don’t understand it myself…but I’m told it has something to do with Unicorn Tears.

  9. Hey Norm says:

    BTW…
    A portion of the Keystone Project is going ahead…in spite of Republican political hi-jinks.

  10. anjin-san says:

    These Republican candidates want to bomb Iran AND have low gas prices, right? How does that work?

    I’m thinking there is a decent chance full scale war with Iran could trigger a depression.

  11. de stijl says:

    @DRS:

    What is this obsession of the Right’s with cocktail parties? Do people still drink cocktails or didn’t that go out with Doris Day and Rock Hudson movies?

    Actually, cocktails and cocktail bars are booming. Both the old-timey Doris Day cocktails and modern reinterpretations. It’s the big trend in hospitality right now. Not my style – I’m a beer & bourbon man myself, but it is a real thing.

    The downside is now you owe Tsar Nick a thumbs-up.

  12. legion says:

    @de stijl: Lots of wealthy NE-corridor conservatives _really_ wish they lived in Mad Men (and with that redhead, it’s hard to blame them). I’m waiting for fedoras to start coming back, meself.

  13. JohnMcC says:

    The WaPo “wonkblog” has a pretty good examination of this. The writer (Brad Plumer instead of Ezra Klein) quotes Prof Hamilton at some length. I learned that in 10 of the most recent 11 recessions there was an element of ‘oil shock’ that contributed. There’s some informative links.

  14. grumpy realist says:

    The problem is that the global demand for oil is what generally drives the price of oil, so the more oil that places like India and China want, the higher gas prices will be, even if the US economy craters.

    (Even if the US economy were to totally crater, you can’t tell me that US gas companies would be selling in the US at $1.50/gallon if they could sell it for much more outside the US.) Most of the localities in the world that have cheap oil/gas are because a) they’re sitting right on top of it, AND b) their governments subsidize it like hell to the locals. Nigeria tried to cut off the subsidies a few weeks ago to its own population and set up an uproar.)

  15. Lomax says:

    One way to give relief would be to allow a tax deduction for yearly mileage.

  16. matt says:

    @Tsar Nicholas II: Why? So we can export even more oil? Fuel is already the number one export of this country and adding refineries is just going to increase the raping of domestic supplies.

    I do agree though that we need to seriously work on implementing LFTR technology in new reactors..

  17. james says:

    Gas is the whole reason the recession. When people can afford the gas then they stop spending money on vacation ,shopping, going out to eat so then thoses business as to go up on prices and then lay people off then they loses their houses. The Gas prices is a domino effect . WAKE UP FOLKS

  18. @Lomax:

    You understand that regular taxes now fill the gaps in highway funding, right?

    The original theory might have been that federal gasoline tax was a user fee, to support the system and pave the interstates, but taxes were kept too low to balance those books.

    If you were to give a federal credit for driving, you’d have to raise the income tax in order to break even.

  19. matt says:

    @james: Gas is a finite resource…

  20. matt says:

    Well oil.

  21. al-Ameda says:

    Rick is out-to-lunch as usual. Every time you think he can’t say anything more stupid than his previous remarks – he does.

    He believes that the near Depression-level collapse of the credit and housing markets that have afflicted America and much of Europe since 2008 was a result of increasing energy costs? Breathtakingly stupid.