Political Animal


February 08, 2012 11:52 AM The Gasoline “Bubble”?

By Ed Kilgore

Since we are all trying to get to know Ricky Santorum a bit better, at least until such time as a barrage of attack ads reduce him to a whimpering wreck huddling under a stack of fetus posters, it’s worth noting he has some pretty exotic ideas outside the cultural arena. Check out these Santorum remarks from the campaign trail in Colorado the other day:

Stressing the importance for the country to provide cheap energy to its citizens, Santorum blamed the recession not on sub-prime mortgages or the derivatives market but on spiking fuel prices.
“We went into a recession in 2008. People forget why. They thought it was a housing bubble. The housing bubble was caused because of a dramatic spike in energy prices that caused the housing bubble to burst,” Santorum told the audience. “People had to pay so much money to air condition and heat their homes or pay for gasoline that they couldn’t pay their mortgage.”


Now we are all used to Republican pols treating gasoline prices as some sort of ultimate, can’t miss issue that trumps everything else. And it is refreshing to find a GOP presidential candidate who isn’t explicitly or implicitly claiming our economic problems were caused by hordes of shiftless poor and minority folk who conspired with ACORN and Freddie and Fannie to take out mortgages that had no intention of paying. But the idea that gasoline and home heating costs caused the whole mess is a new one to me, and probably to every economist in the country as well.

The only good thing about Ricky’s monomaniacal focus on gas prices is that in the very unlikely event he becomes our president, perhaps he would think twice about engaging in another Persian Gulf War virtually guaranteed to roil petroleum markets. There’s not a whole lot else in his world-view that would give him a moment’s hesitation.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.


  • Bob M on February 08, 2012 12:05 PM:

    Surely no one believes the spud.

  • Lucia on February 08, 2012 12:05 PM:

    He needs to keep gas prices low so people can pay for their prescriptions. Will no one think of the drug companies?

  • Vondo on February 08, 2012 12:08 PM:

    I'll reprise and extend my buried comment from yesterday:

    Can we refrain from insulting politicians by not using their preferred first names? Republicans call Obama "Barry" as an insult. Don't stoop to that level, it's juvenile. They like to be called Mitt, Rick, Ron, and Newt. Democrats like to be called "The Democratic Party". Just go with it, don't insult people like a 10 year old.

  • troglodyte on February 08, 2012 12:10 PM:

    There is some truth in the second half of Santorum's self-contradictory quote that you mention: "The housing bubble was caused because of a dramatic spike in energy prices that caused the housing bubble to burst,” The housing bubble existed long before fall 2008 -- CalculatedRisk was tracking it from at least January 2006 and there were plenty of other cyberbear blogs that documented the madness in exquisite detail. The bubble took a long time to burst, surviving some remarkable market shocks. A case can be made that the pin that finally burst the bubble was associated with the rise in gas prices during 2008. I would guess, however, that the big signal among major market players was the crash in the short term T-Bill rate, that went from around 5% to 0.1% in what seemed a nanosecond during summer 2008.

  • Bruce S on February 08, 2012 12:17 PM:

    This bit of nonsense on Santorum's part was buried in an article on his Climate Change Denialism. It's a welcome comment from Rick, because we're so used to hearing utterly ignorant remarks from these characters on a whole host of things - like climate - that it's easy to forget just how mendaciously dishonest and/or stupid they actually are. Santorum's remarks should be disqualifying - but they aren't because he's running as in a Republican primary. The GOP is a danger to the Republic - and I say that as someone who was raised in a Republican family. Republican, that is, until the Phyllis Schlaflies pushed Goldwater to the front of the line and my folks saw the handwriting - or scribbling as it were - on the wall. And even Barry became embarrassed by his fanatical old pals toward the end of his life. Santorum is a childish nutcase, telling himself comforting stories to feed his ideological delusions.

  • mellowjohn on February 08, 2012 12:19 PM:

    of course, president paul will get the price of a gallon of gas down to one bright, shiny SOLID SILVER dime..

  • Noah G on February 08, 2012 12:22 PM:

    I actually believe he's right on this. The primary issue in the summer of 2008 was gas prices. Remember McCain and Hillary hitting Obama for not supporting a gas tax cut? Oil was at over $100 a barrel for 8 months straight (Feb-Sept) There's no doubt that the castle of cards was a mile of derivatives balancing on top of faulty mortgages. But it was an oil shock that flicked those sun-belt suburban cards at the bottom.

  • Bruce S on February 08, 2012 12:25 PM:

    mellowjohn - sorry, but silver is Democrat fiat money as prescribed by that left-winger William Jennings Bryan. If it ain't gold, it ain't money.

  • cmdicely on February 08, 2012 12:25 PM:

    The only good thing about Ricky’s monomaniacal focus on gas prices is that in the very unlikely event he becomes our president, perhaps he would think twice about engaging in another Persian Gulf War virtually guaranteed to roil petroleum markets.

    Why? Long-term stability in oil markets (with the presumption that having more oil in the hands of friendly-to-the-US powers would assure that, whereas the unfriendly regimes in Iran and Iraq and their capacity to use oil prices as a foreign policy tool against the US was seen as a threat to that) was a major motivation of the last Persian Gulf War. Remember Paul Wolfowitz's description of the reason that a more aggressive approach was taken with Iraq vs. North Korea, even though North Korea had a more real and threatening WMD program -- "The most important difference between North Korea and Iraq is that economically, we just had no choice in Iraq. The country swims on a sea of oil."

    So there is plenty of clear and fairly recent evidence against the contention that an Administration obsessed with the price of oil will avoid wars in the Persian Gulf.

  • Bru on February 08, 2012 12:33 PM:

    Noah G - read Santorum's incoherent statement again and explain how, even in his own terms, he could possibly be "right." One could make an argument that the burst in the housing bubble was exacerbated by a spike in energy prices, but Santorum - incoherently - states that energy prices both caused the housing bubble and caused it to burst. While, without the near-insane expansion of a housing bubble under auspices of an out-of-control financial sector, a spike in energy prices might have tipped the country into a recession, Santorum is playing a shell game here that is perverse coming from anyone who pretends to the highest office in the land. No, he's not "right." He's a goddamn fool. Blithering. Mendacious. Ill-informed at best. More than likely, nothing less than cynically dishonest. And in this context a wacko climate-change denialist. Literally has no concern for the stewardship of the earth - which makes his "Christian" zealotry fake down to the soles of his shoes.

  • T2 on February 08, 2012 12:45 PM:

    I thought nobody listened to Santorum. He hasn't said anything useful or coherent in the time I've been aware he was alive.
    Gas cost caused the bubble? More like greedy non-regulated banks giving loans to people making minimum wage in order to by a $375,000 house and a massive pickup truck....so yeah, it costs a ton to put gas in those massive pickups, I'll agree with that. But nobody forces you to drive one.

  • Ryan on February 08, 2012 12:49 PM:

    Um, Kevin Drum blogged about this a couple months back:

    "The chart on the right shows what he means. The green line shows expected economic growth. The dashed line shows the Great Recession. And the red line? That's his estimate of the effect of the huge spike in oil prices in 2007-08. If Hamilton is right, then the oil spike is responsible for about two-thirds of the Great Recession all by itself. The housing and credit bubbles are only responsible for a fairly small piece of it.

    But even if Hamilton is wrong about the precise trajectory of the 2008 meltdown, the evidence is now clear that oil spikes have a very significant effect on the economy. And as the production of oil starts to plateau, oil prices are going to spike a lot. In fact, they're likely to spike every time the global economy starts to grow."

  • Jimo on February 08, 2012 12:54 PM:

    Look, high gas prices were a factor in the timing of the downturn but not whether there was a bubble or even if there was a bubble.

    Absent high gas prices in 2008, the bubble might have continued longer before popping. But every critical factor -- a speculative, 'flipper' mentality, systemic mortgage and derivative fraud, bogus AAA credit ratings, over-extended borrowers, etc. -- all were still ticking time-bombs.

    Likewise, if some event had caused a spike in oil prices years earlier, we could have nipped the bubble in the bud (to mix metaphors) years earlier and avoided a lot of pain.

    But as to a larger point, the problem is not the expense of energy costs on consumers (esp. the poor) but rather the multi-decade stagnation in middle-class incomes. In short, people aren't over-expensed (or over-taxed) .... they're under-incomed. Yet, the candidate with the filthy name runs under a platform of undermining further middle class incomes (by feathering the nests of the wealthy and powerful).

  • Hedda Peraz on February 08, 2012 1:03 PM:

    Y'all are taking this WAY too serious!

    -I'm with Li'l Ricky on this one.
    The cost of Vaseline PETROLEUM Jelly has skyrocketed since he left the senate- to "spend more time with his family. . ."

  • Snip on February 08, 2012 1:05 PM:

    I'm sure when Rick is as well-known nationally as he is here in Pennsylvania, the political marketplace will take care of itself. If the Republican Party hopes to take this swing state, it better hope it doesn't have Rick as its candidate.

  • Danny on February 08, 2012 1:33 PM:

    Whodunnit: blacks or hippies? Real Americans deserve answers.

  • Dredd on February 08, 2012 1:35 PM:

    Some folks who study this stuff Ricky, say that it is because of the inequality that transformed the democratic economy into a plutocratic plutonomy.

    It wasn't the gas Ricky.

  • schtick on February 08, 2012 1:36 PM:

    When it comes to gas prices and everyone in government trying to blame the other party, or in the tealibans case, the poor, how about they give the price that the poor poor oil companies "actually" paid for a barrel and not the gamble being tossed out on Wall Street.
    The good ol oil barons use "supply and demand" to raise prices, but you better believe that isn't the way they buy the oil.

  • Robertrollo on February 08, 2012 1:41 PM:

    That raging energy prices should cause a housing bubble is absurd. Everyone knows that it was sunspots.

  • thebewilderness on February 08, 2012 2:29 PM:

    Shorter: Drill, Baby, Drill!!!

  • POed Lib on February 08, 2012 2:40 PM:

    The gas prices WERE important. In a lot of places, people were simply priced out of houses and went 2-3 hours away to buy a house, like near Scranton if you worked in Philly or NY. Then the gas prices went from 1.88-4.10, and suddenly you were spending 150/week on gas. This is a huge difference. Inland Empire in CA, S WI for Chicago, certain parts of MD for Washington DC, and on and on. Cheap houses were being built far away. When the gas prices spiked, they were unsalable, the market collapsed, foreclosures began.

    Like all simple answers, this is not the sole cause. But it was important.

  • mellowjohn on February 08, 2012 2:58 PM:

    bruce s. - at the september 7 republican debate ron paul responded to michelle bachman's claims that she could get gas down to $2 a gallon as president. said gas today actually costs the equivalent of one silver dime per gallon and that inflation is the problem.

  • T2 on February 08, 2012 3:04 PM:

    POed, I'd say if someone is stupid enough to buy a house 3 hours from where they work..tough on them. Besides there are, and were then, plenty of cars getting 35 mpg...maybe not the hippest rides in town, but good mpg. If you are dumb enough to drive 3 hours each way to and from work, you're probably not smart enough to get one of those cars, either. Like all answers, this may not be true in every case.

  • Joe Friday on February 08, 2012 3:13 PM:

    Santorum: "We went into a recession in 2008"

    No, we officially went into recession in 2007, and it ain't like flippin' a light switch, the national economy does a dramatic slow-down first.

    "People forget why."

    No, Ricky forgets why.

    It was as a result of the FAILED RightWing economic policies enacted from 2001 forward.

  • David in Nashville on February 08, 2012 3:26 PM:

    Actually, if you look at the Case-Shiller 20-City Index, the housing bubble peaked early in 2006. The decline became steep and continuous from the beginning of 2007 to early 2009, when it stabilized. What this has to do with a gas spike that ran from early to mid-2008 escapes me. I'm sure it heightened the pain for quite a few people, but this ain't even a post hoc ergo propeter hoc fallacy; it's an ante hoc ergo propter hoc fallacy.

  • mudwall jackson on February 08, 2012 3:32 PM:

    housing prices here in florida started to decline in 2006, not in 2008. unemployment was already moving higher. certainly spiking oil prices in 2008 contributed to the decline sort of like uh, throwing gasoline on a fire. but the fire had already started.

  • oldswede on February 08, 2012 4:40 PM:

    Just a little historical aside, the petroleum industry began in Rick's home state. The Oil Creek Valley well was the first commercial well, drilled in 1859.

  • apetra on February 08, 2012 5:25 PM:

    with republicans calling the shots, ANWAR would have come online in the mid-2000's, together with significant new nuclear power generation. and we'd have had a much larger more concentrated offshore drilling effort (together with more disaster prep equipment that could have ameliorated the BP spill quickly).

    going back even further, had republican priorities on nuclear become policy in the 1970s, we'd have achieved the dream of "too cheap to meter" power.

    with these achievements, it's foolhardy to suggest that Democrat inspired "housing for everyone regardless of credit!" mandates would have had anywhere near the effect on our economy. and, of course, it's doubtful Democrats would have been anywhere near elected office.

    alas, they short circuited sober and sensible energy policy (drill baby drill) for the very reason it held the key to an effective U.S. economy, and a tide that would raise all boats.

    sadly, we're stuck with the legacy of the clinton administration's huge tax increases, and the launch of an insane monetary policy that brought us both the dot com disaster, faux 'low unemployment' in phoney tech jobs and service industries, and then the housing bubble and collapse.

    indeed, republican policies on energy could have