July 1, 2022

The Economic Theory That Explains Biden’s Promise to Lower Gas Prices—Despite the ‘Existential Threat’ of Climate Change

Economist Paul A. Samuelson long ago pointed out that behavior is the best indicator of true preferences.

The AAA nationwide average for regular unleaded gas stands at $3.51 per gallon, $1 more than this time last year and $1.50 more than election day 2020. With inflation now at 7.5 percent, its fastest pace since 1982, President Biden feels the political heat.

Hence the president’s recent pledge to “work like the devil” to bring gas prices down for American families. This follows rhetoric from a few months ago in which Biden blamed oil companies and OPEC for rising prices and released oil from the national strategic reserve. Famously, the sitting US President begged the Saudi royal family to produce the oil his party didn’t want extracted in North America.

Yet, the environmentalist wing of progressivism constantly warns, as the President does, that climate change is an immediate and existential threat to our national and economic security. Ensuring low gas prices is incompatible with these assertions. As any student of even elementary economics knows, the lower gasoline’s price, the higher the quantity consumed, and the more CO2 is emitted. Reconciling a desire for low gasoline prices and more oil production abroad and a desire for net zero carbon emissions in the foreseeable future and curtailed drilling at home is impossible.

Logically, progressives must be relatively unserious about one of these two concerns. Between the two, the climate change concern is the likelier façade. This isn’t to say climate change doesn’t exist or that humans don’t cause some portion of it. But it is to say that most serious people know that sea level rise of approximately one inch per decade is a manageable long-term challenge, not Armageddon.

But apocalyptic predictions are the best way to persuade citizens out of their liberties (see: Australia and COVID) and concentrate greater power in the federal leviathan, arguably the Democratic Party’s core mission since Woodrow Wilson. Thus, American progressives are perfectly sanguine in strangling oil producers in the Bakken or Eagle Ford shale formations with red tape and canceled pipelines in the name of climate exigency while simultaneously begging foreign nations to increase production.

As the cost of the Biden administration’s climate idealism materializes, even true believers blanche. The left’s professed desire to price carbon fuels out of existence does not translate well to reality. Forced to choose between the cheap fossil fuels that enable Americans’ high standards of living and climate idealism, the Democratic Party chooses the former for political reasons. If the American people are unwilling to accept $3.50 gasoline, will they tolerate the current French average of $7.45 per gallon, the sort of price necessary for the environmental radicals to make good on their “net-zero” fever dreams?

No. Not even among Democrats.

Economists call this concept “revealed preference.” In 1938, American economist Paul A. Samuelson proposed that rather than examining consumer behavior based on “utility,” economists might instead observe purchasing decisions.

According to the theory, a consumer prefers the bundle of goods he purchases to the alternative ones, holding the prices of goods and income constant and presuming he is rational. Applying the theory in this case, the President has “revealed” that he prefers slightly cheaper gasoline and more CO2 emissions to the alternative of elevated gasoline prices and reduced CO2 emissions.

That is but another way of admitting that, in his view, the damage of the extra CO2 emitted does not exceed the benefits of, say, $1 less per gallon. That’s impossible to square with the “the world will end in twelve years because of carbon dioxide” school of thought. The cost of the world ending is infinite. If the world were truly ending, we would pay any preventive cost necessary. Thinking economically, what Biden’s recent speeches on gasoline reveal is that much of the talk about a “climate emergency” is bluster.

So, when future progressives seek to foist new taxes, regulations, and surveillance on Americans in the name of stopping climate change, friends of economic liberty should have a ready response: why should we treat this like the end of the world when you don’t?

This article, The Economic Theory That Explains Biden’s Promise to Lower Gas Prices—Despite the 'Existential Threat' of Climate Change, was originally published by the Foundation for Economic Education and appears here with permission.  Please support their mission.