Santorum: Gas Prices Caused The 2008 Recession

Dubiously claims gas prices prevented people from paying their mortgages.

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.

UPDATE: Asked about his comment after his speech, Santorum said “they were spiking in 2008, that’s a fact,” then he shrugged.

One Democratic economist points out four problems with Santorum’s argument:

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.

UPDATE: Kevin Hassett, of the conservative American Enterprise Institute, says this may not be as crazy as it sounds:

This statement has a certain logic to it. Oil prices climbed, the economy weakened, the housing market started south, then everything unraveled. It is possible that a big reduction in oil prices would have been enough to stave off a recession. Jim Hamilton at UCSD is the world’s leading expert on this, and he investigated it closely and found that the empirical case for oil causing the whole mess was surprisingly strong.

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